<PAGE> 1
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SCHEDULE 14A
(RULE 14A)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
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XXXXXXXXXXXXXXXX
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Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
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<PAGE> 2
HEALTH CARE REIT, INC.
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
and
PROXY STATEMENT
Meeting Date
November 28, 1995
YOUR VOTE IS IMPORTANT!
YOU ARE URGED TO SIGN, DATE, AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
mep\h64200\36065.5b
<PAGE> 3
HEALTH CARE REIT, INC.
ONE SEAGATE
SUITE 1950
TOLEDO, OHIO 43604
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 28, 1995
To The Stockholders of Health Care REIT, Inc.:
The Annual Meeting of Stockholders of Health Care REIT, Inc. is currently
scheduled to be held on November 28, 1995 at 10:00 a.m. in the Auditorium
of One SeaGate, Toledo, Ohio, for the purpose of considering and acting upon:
1. A proposal to approve the merger of First Toledo Advisory Company (the
"Management Company") with and into the Company (the "Merger") pursuant to
an Agreement and Plan of Merger dated as of May 10, 1995 (the "ORIGINAL
MERGER AGREEMENT"), amended and restated effective as of September 5, 1995
(the "REVISED MERGER AGREEMENT") between the Company and the
Management Company. Pursuant to the Revised Merger Agreement, the
outstanding shares of common stock of the Management Company will be
converted into 282,407 shares of common stock, par value $1.00 per share,
of the Company (the "Company Shares"). THE MERGER IS MORE COMPLETELY
DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT, AND A COPY OF THE MERGER
AGREEMENT IS ATTACHED AS APPENDIX I THERETO;
2. A proposal to approve the 1995 Health Care REIT, Inc. Stock Incentive
Plan. THE 1995 HEALTH CARE REIT, INC. STOCK INCENTIVE PLAN IS MORE
COMPLETELY DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT, AND A COPY OF
THE PLAN IS ATTACHED AS APPENDIX II THERETO;
3. The election of three Directors for a term of three years;
4. The ratification of the appointment of Ernst & Young LLP as independent
auditors for the year 1995; and
5. The transaction of such other business as may properly come before the
meeting or any adjournment thereof.
<PAGE> 4
Stockholders of record at the close of business on October 6, 1995 will be
entitled to notice of and to vote at such Annual Meeting or any adjournment
thereof. Information relating to the matters to be considered and voted on at
the Annual Meeting is set forth in the Proxy Statement accompanying this
Notice.
BY ORDER OF THE BOARD OF DIRECTORS
Erin C. Ibele
Vice President and Corporate Secretary
Toledo, Ohio
October 6, 1995
***************************************************************************
* *
* PLEASE COMPLETE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN *
* THE ENVELOPE PROVIDED WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL *
* MEETING. THE PROXY MAY BE REVOKED BY YOU AT ANY TIME, AND GIVING *
* YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND *
* THE MEETING. *
* *
***************************************************************************
<PAGE> 5
TABLE OF CONTENTS
Page
----
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
VOTING SECURITIES OUTSTANDING . . . . . . . . . . . . . . . . . . . . . 2
PROPOSAL 1 - THE MERGER PROPOSAL. . . . . . . . . . . . . . . . . . . . 2
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Management Company . . . . . . . . . . . . . . . . . . . . . . 3
Reasons for Self-Administration;
Background of the Merger Proposal . . . . . . . . . . . . . . . . 4
Recommendation of the Special Committee
and the Board . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . 15
Reasons for Selection of Alex. Brown . . . . . . . . . . . . . . . 16
Alex. Brown Compensation . . . . . . . . . . . . . . . . . . . . . 17
Analysis and Conclusions . . . . . . . . . . . . . . . . . . . . . 17
Description of Other Agreements to be
Entered into with Messrs. Thompson and
Wolfe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . 23
Unaudited Pro Forma Combined Financial
Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Description of the Revised Merger Agreement. . . . . . . . . . . . 31
PROPOSAL 2 - APPROVAL OF THE 1995 STOCK
INCENTIVE PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Summary of the Stock Incentive Plan . . . . . . . . . . . . . . . 37
Federal Income Tax Consequences. . . . . . . . . . . . . . . . . . 40
PROPOSAL 3 - ELECTION OF THREE DIRECTORS. . . . . . . . . . . . . . . . 43
BOARD AND COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS . . . . . . . . . . . . 48
Executive Officers of the Company. . . . . . . . . . . . . . . . . 51
REMUNERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Compensation of Executive Officers . . . . . . . . . . . . . . . . 53
Compensation of Directors. . . . . . . . . . . . . . . . . . . . . 54
Compensation Committee Interlocks
and Insider Participation . . . . . . . . . . . . . . . . . . . . 55
Report of the Incentive Stock Option
Committee on Executive Compensation . . . . . . . . . . . . . . . 55
Stockholder Return Performance
Presentation. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 16(a) Compliance . . . . . . . . . . . . . . . . . . . . . 57
-i-
<PAGE> 6
TABLE OF CONTENTS (Cont'd)
Page
----
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Partnership Financings . . . . . . . . . . . . . . . . . . . . . . 57
The Management Company . . . . . . . . . . . . . . . . . . . . . . 58
Other Relationships . . . . . . . . . . . . . . . . . . . . . . . . 58
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
PROPOSAL 4 - RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . 58
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
STOCKHOLDERS' PROPOSALS FOR NEXT ANNUAL
MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
APPENDIX I - Agreement and Plan of Merger
dated as of May 10, 199S and
amended and restated effective
as of September 5, 1995 by
and among Health Care REIT,
Inc., First Toledo Advisory
Company and each of Bruce G.
Thompson and Frederic D. Wolfe
APPENDIX II - Health Care REIT, Inc.
1995 Stock Incentive Plan
APPENDIX III - Opinion of Alex. Brown & Sons
Incorporated
-ii-
<PAGE> 7
HEALTH CARE REIT, INC.
ONE SEAGATE
SUITE 1950
TOLEDO, OHIO 43604
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
November 28, 1995
GENERAL
This Proxy Statement is furnished to the stockholders of Health Care REIT,
Inc. (the "Company") by its Management and the Board of Directors in connection
with the solicitation of proxies in the enclosed form to be used in voting at
the Annual Meeting of Stockholders (the "Annual Meeting"), which is currently
scheduled to be held on Tuesday, November 28, 1995 at 10:00 a.m. as set forth in
the foregoing notice. At the Annual Meeting, the stockholders will be asked to
consider and vote upon proposals (1) to approve the merger of the manager of
the Company, First Toledo Advisory Company, an Ohio corporation (the
"Management Company"), with and into the Company, (2) to approve the Health
Care REIT, Inc. 1995 Stock Incentive Plan (the "Stock Incentive Plan"), (3) to
elect three Directors, (4) to ratify the appointment of Ernst & Young LLP as
independent auditors, and (5) to transact such other business as may properly
come before the Annual Meeting or any adjournment thereof.
A share cannot be voted at the Annual Meeting unless the holder thereof is
present or represented by proxy. When proxies in the accompanying form are
returned properly executed and dated, the shares represented thereby will be
voted at the Annual Meeting. If a choice is specified in the proxy, the shares
represented thereby will be voted in accordance with such specification. If no
specification is made, the proxy will be voted FOR the action proposed. Any
stockholder giving a proxy has the right to revoke it any time before it is
voted by filing with the Vice President/Corporate Secretary of the Company a
written revocation, or by filing a duly executed proxy bearing a later date, or
by attending the Annual Meeting and voting in person. The revocation of a
proxy will not be effective until notice thereof has been received by the Vice
President/Corporate Secretary of the Company. Broker non-votes and abstentions
will be counted toward the establishment of a quorum.
The cost of solicitation of proxies will be borne by the Company. In
addition to solicitation by mail, Directors and officers of the Company may
solicit proxies by telephone, telegraph or personal interview. The Company
will reimburse Directors and officers for their reasonable out-of-pocket
expenses in connection with such solicitation. The Company will request
brokers and nominees who hold shares in their names to furnish this proxy
material to the persons for whom they hold shares
-1-
<PAGE> 8
and will reimburse such brokers and nominees for their reasonable out-of-pocket
expenses in connection therewith. The Company has hired Chemical Bank to
solicit proxies for a fee not to exceed $7,000, plus expenses and other
customary charges.
The presence at the Annual Meeting, in person or by proxy, of the holders of
a majority of the total number of shares of common stock outstanding on the
record date shall constitute a quorum for the transaction of business by such
holders at the Annual Meeting. The three nominees for election as Directors
who receive the highest number of votes therefor at the Annual Meeting shall be
elected as Directors. Approval of all other matters shall require the
affirmative vote of a majority of the shares of common stock present in person
or represented by proxy. Abstentions from voting and broker non-votes will
have the practical effect of voting against the Merger, since they are not
votes in favor. Abstentions from voting and broker non-votes will have no
effect on the approval of the other proposals.
The executive offices of the Company are located at One SeaGate, Suite 1950,
Toledo, Ohio 43604, and its mailing address is One SeaGate, Suite 1950, P. O.
1475, Toledo, Ohio 43603-1475. The telephone number is (419) 247-2800. The
approximate date on which this material was first sent to stockholders was
October 6, 1995. A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1994, INCLUDING THE FINANCIAL STATEMENTS AND THE
SCHEDULES AND EXHIBITS THERETO, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, MAY BE OBTAINED WITHOUT CHARGE BY WRITING TO THE VICE
PRESIDENT/CORPORATE SECRETARY, HEALTH CARE REIT, INC. AT THE ABOVE ADDRESS.
VOTING SECURITIES OUTSTANDING
The Company had outstanding 11,695,832 shares of Common Stock, $1.00 par
value per share (the "shares of common stock") on June 30, 1995. The shares
constitute the only class of outstanding voting securities of the Company.
Stockholders of record at the close of business on October 6, 1995 are entitled
to notice of and to vote at the Annual Meeting and any adjournments thereof.
Each share of common stock is entitled to one vote on all matters to come
before the Annual Meeting.
PROPOSAL 1 - THE MERGER PROPOSAL
THE COMPANY
Health Care REIT, Inc., a Delaware corporation (the "Company"), founded in
1970, is a real estate investment trust that invests in health care facilities,
primarily nursing homes. The Company also invests in assisted living and
retirement facilities, behavioral care facilities, specialty care hospitals and
primary care facilities. The Company's investment portfolio is diversified by
type of facility, number of facilities, operators, location and state.
-2-
<PAGE> 9
THE MANAGEMENT COMPANY
From April 1970 until May 31, 1994, First Toledo Corporation, an Ohio
corporation ("FTC"), administered and managed the daily affairs of the Company
and advised the Company with respect to investments. Pursuant to a tax-free
spin off of certain FTC assets, including the Management Agreement (as defined
below), to First Toledo Advisory Company, an Ohio corporation, effective June
1, 1994, First Toledo Advisory Company became the manager of the Company (the
"Management Company"). The Company has seven employees, all of whom are also
employees of the Management Company. Frederic D. Wolfe and Bruce G. Thompson,
Directors and executive officers of the Company, are also Directors and
executive officers of the Management Company and FTC and each owns 50% of the
outstanding common stock of both the Management Company and FTC (the
"Management Company Shareholders"). In addition, Robert J. Pruger, Chief
Financial Officer of the Company, is also a Director and Treasurer of the
Management Company and FTC. Erin C. Ibele, Vice President and Corporate
Secretary of the Company, is also a Director, Vice President and Corporate
Secretary of the Management Company and FTC. George L. Chapman, Executive Vice
President and General Counsel of the Company, is also Executive Vice President
and General Counsel of the Management Company and FTC.
Pursuant to the Management Agreement between the Company and the Management
Company (the "Management Agreement"), the Management Company assists the
Company in establishing investment policies and in selecting and negotiating
the terms of the Company's investments. The Management Company also
administers the day-to-day affairs of the Company. The Management Agreement is
renewed annually upon the approval of a majority of the Directors and is
ratified annually by the holders of a majority of the outstanding shares of
common stock of the Company. The Management Agreement, or any extension
thereof, may be terminated at any time without penalty upon sixty days written
notice by the Company by action of a majority of the Directors of the Company
or by the Management Company. Both the By-Laws of the Company and the terms of
the Management Agreement require the Company to change its name to one which
does not include the words "Health Care REIT" or "Health Care Fund" in the
event the Management Company ceases to act as manager.
The Management Agreement provides that the Management Company is to be
compensated for its services at the monthly rate of one-tenth of one percent of
the average invested assets of the Company less long- and short-term debt
obligations (excluding accrued expense and other liabilities). Average
invested assets are defined as the average of the aggregate book value of the
assets of the Company invested in equity interests in and loans secured by
real estate before allowances for doubtful amounts or allowances to reduce
certain leases to option prices or other similar non-cash allowances, computed
by taking the average of such value at the end of each month. The Management
Company is also entitled to receive an incentive fee equal to 10% of the amount
of net profits which exceed 10% of the average net worth of the Company as
defined in the Management Agreement.
-3-
<PAGE> 10
For the years ended December 31, 1994, 1993 and 1992, Management Company fees
amounted to $3,087,000, $2,427,000, and $1,969,000, respectively. Of such
amounts, $807,000, $771,000, and $550,000, respectively, related to the profit
based incentive fee. The fees for each year do not include $22,500, $22,500
and $19,500 for 1994, 1993 and 1992, respectively, that were paid directly by
the Company to certain employees for certain services.
The Management Company pays all charges, including salaries, wages, payroll
taxes, costs of employee benefit plans and charges for incidental help,
attributable to its own operations in connection with providing services under
the Agreement. The Management Company also pays its own accounting fees and
related expenses, legal fees, insurance, rent, telephone, utilities and travel
expenses of its officers and employees.
Under the Management Agreement, the Company is required to indemnify the
Management Company and its officers, directors and employees from any
liabilities arising out of the performance of the Management Company's duties
under the Management Agreement unless such liabilities resulted from the bad
faith, willful malfeasance, gross negligence or reckless disregard of its
duties.
REASONS FOR SELF-ADMINISTRATION; BACKGROUND OF THE MERGER PROPOSAL
Investment analysts specializing in real estate securities have historically
emphasized their strong preference for self-administered real estate investment
trusts ("REITs"). These analysts believe that the nature of the relationship
between non-self-administered REITs and their outside advisors is susceptible
to conflicts of interest, most of which can be avoided through
self-administration. The Company believes that many of these analysts'
concerns are shared by institutional and other investors.
The past several years have been characterized generally by tremendous growth
in the REIT industry . Stock market capitalization of the REIT industry has
increased primarily because of new public equity financings and, to a lesser
extent, price appreciation. Investor and analyst concerns regarding externally
managed REITs are supported by the fact that nearly all of the REITs which have
become public companies since 1992 have adopted a self-administered structure
and the fact that a number of existing publicly traded REITs have converted to
a self-administered structure over the past several years. The Company
believes that self-administered REITs, as compared to externally managed REITs,
have commanded a premium in the marketplace based on traditional financial
measures such as yield and stock price to funds from operations relationships
that may provide such REITs with a competitive advantage in financing their
investment portfolios.
-4-
<PAGE> 11
Since the Board of Directors of the Company (the "Board") believes that
self-administration would potentially benefit the Company and its stockholders,
on July 19, 1994, the Board appointed a special committee of independent
directors consisting of Messrs. Borra, Glowacki and Unverferth (the "Special
Committee") to inquire into, consider and evaluate a possible merger with the
Management Company. Mr. Thompson and Mr. Wolfe attended the July 19 meeting
and participated in the decision to appoint the Special Committee. The Special
Committee was authorized to retain legal and financial advisors to assist it in
its assignment. The Board agreed to compensate each member of the Special
Committee at the rate of $1,000 for each meeting attended.
The Special Committee held its first meeting on October 12, 1994, at which
time it determined that Mr. Borra would retain special counsel on behalf of the
Committee. On October 18, 1994, the Special Committee held a meeting at which
a representative of Kirkland & Ellis was present at Mr. Borra's request and
determined to retain that firm as special counsel to the Committee. Kirkland &
Ellis had advised the Board earlier in 1994 in its consideration and adoption
of certain amendments to the Company's certificate of incorporation and the
adoption of a preferred share purchase rights plan. At the October 18 meeting,
the Special Committee further determined to interview several financial
advisors to determine which should be engaged as financial advisor to the
Special Committee and considered the scope and nature of the assignment of such
financial advisor. The Special Committee also considered the need to have an
opinion of a financial advisor regarding the fairness of any acquisition
proposal and the need to have any acquisition proposal approved by the Board
and the stockholders of the Company. The Special Committee also discussed
possible alternatives available in regard to the Management Company.
Over the next several weeks, Mr. Borra, along with special counsel, contacted
several nationally recognized financial advisors, including Alex. Brown & Sons
Incorporated ("Alex. Brown"), to obtain information and interview certain of
such firms in order to determine which of such firms might be appropriate to
assist the Special Committee in evaluating alternatives available in regard to
the Management Company and in negotiating and/or implementing any transaction
or other alternative. After obtaining information from these financial
advisors regarding fees and expenses, familiarity with the Company, the
expected commitment of the financial advisor, qualification and expertise of
the financial advisor, alternatives available in regard to the Management
Company, the scope of the financial advisor's due diligence inquiry, financial
analysis and related matters and the anticipated procedures and timetable of
such activities and after further deliberation of these matters by the Special
Committee, the Special Committee determined to retain Alex. Brown on November
11, 1994. See "Opinion of Financial Advisor--Reasons for Selection of Alex.
Brown" below.
On December 1, 1994, the Special Committee held a meeting, along with special
counsel, to conduct interviews of the senior corporate officers of the
Management Company and the Company -- Messrs. Chapman, Thompson and Wolfe -- to
determine what role and expectations such officers would have in the Company
-5-
<PAGE> 12
if an acquisition proposal to make the Company self-administered was approved
by the directors and stockholders of the Company. As a result of these
interviews and subsequent deliberations by the Special Committee, the Special
Committee determined that, assuming a self-advised structure, the following
senior management arrangements would be in the Company's best interests, so
long as the individuals' services could be retained on favorable terms: (i)
Mr. Thompson, currently Chairman and Chief Executive Officer of the Company and
President of the Management Company, would be retained as the Chief Executive
Officer of the Company for approximately two years, after which Mr. Thompson
would be available to act as consultant to the Company; (ii) Mr. Wolfe,
currently President of the Company and Chairman of the Management Company,
would be available to act as a consultant to the Company upon implementation of
a self-advised structure; and (iii) Mr. Chapman, currently Executive Vice
President and General Counsel of the Company, would become President and when
Mr. Thompson retires as Chief Executive Officer of the Company, Mr. Chapman
would be considered to replace Mr. Thompson as Chief Executive Officer.
Representatives of Alex. Brown met separately with such officers for the same
purpose on December 16, 1994.
On December 20, 1994, Alex. Brown made a presentation to the Special
Committee. At such meeting, the Special Committee, together with its special
counsel and representitives of Alex. Brown, reviewed the alternatives and
related advantages and disadvantages with respect to the current advisory
relationship with the Management Company. The Special Committee reviewed the
following alternatives: termination or renegotiation of the existing advisory
relationship with the Management Company, attempting to hire the current
management of the Management Company, hiring new management, hiring a new
advisor, acquiring the Management Company, selling the Company and maintaining
the existing advisory relationship with the Management Company under the
existing Management Agreement. After reviewing the alternatives with Alex.
Brown and its special counsel, the Special Committee determined that none of
the alternatives considered was as favorable to the Company and its
stockholders as the alternative of acquiring the Management Company. While
renegotation of the existing advisory relationship with the Management Company,
if successful, could provide an opportunity for the Company to reduce
management expenses, this alternative would not accomplish the Company's goal
of becoming a self-advised REIT and achieving the elimination of perceived
conflicts and other advantages associated therewith. In addition, the Special
Committee believes that termination of the existing relationship would cause a
significant disruption in the Company's affairs and, even if the Company were
able to retain personnel from the Management Company, would likely prevent the
Company from reaping the benefits of the experience and expertise of all of
current management and could require the Company to identify and retain new
management professionals. Hiring new management was determined to be an
undesirable alternative because of the difficulty of identifying and employing
management professionals with appropriate expertise as well as concern that
such individuals would not have the familiarity and experience with the
Company's business that the current management personnel possess. While hiring
a new advisor might permit the Company the opportunity to reduce its advisory
fees, the Company would lose the benefits provided through the continuing
expertise of the personnel of the current advisor and the benefits associated
with becoming self-advised and would be subject to significant disruption
during a transition. Exploring a possible sale of the Company was deemed to be
an undesirable alternative due to uncertainty that would likely be generated
among the Company's constituencies and also because there could be no assurance
that embarking on such a process would provide full and fair value to the
Company's stockholders. Renewal of the existing Management Agreement was
inadvisable because, assuming the Company's anticipated growth in assets, the
existing compensation formula would be expected to result in compensation to
the Management Company in excess of comparable industry costs. After
deliberation on the various alternatives, the Special Committee concluded that
the preferred alternative would be for the Company to acquire the Management
Company on favorable terms and retain the services of existing management of
the Management Company.
The Special Committee, together with its special counsel and Alex. Brown,
reviewed the possible terms of a proposal to acquire the Management Company and
the retention of existing senior management, including financial analysis of
the form and amount of consideration that might be offered to the Management
Company Shareholders and possible future compensation levels for management,
including analysis of comparable transactions and compensation structures and
discounted cash flow and dilution analyses. See "Opinion of Financial Advisor
- - Analyses and Conclusions." Alex. Brown stated that, in its view, the
consideration to be paid for the acquisition of the Management Company would be
fair up to $4,600,000. Alex. Brown also noted to the Special Committee that in
addition to the $4,600,000 stock consideration, it may be necessary or
appropriate to increase management compensation to levels comparable to those
paid to management of certain REITS with comparable market capitalization and
certain other health REITs. The Special Committee and its advisors then
considered and discussed the views and expectations of the Management Company
Shareholders and senior management and the benefits of retaining existing
management. The Special Committee determined that, prior to its formulation of
any specific proposal, Alex. Brown should review the aforementioned analysis
with the Management Company Shareholders and senior management and report back
to the Special Committee. Special counsel was also asked to review the tax
consequences of alternative forms of equity-based compensation that might be
available to retain and create appropriate incentives for existing management
after any acquisition of the Management Company.
-6-
<PAGE> 13
On December 28, 1994, representatives of Alex. Brown met with the Management
Company Shareholders in order to review its financial analyses concerning the
form and amount of consideration that might be payable to the Management
Company Shareholders in the event of an acquisition and the existing
compensation formula under the Management Agreement and to discuss with them
possible arrangements under which the Company would be able to retain their
services. The Management Company Shareholders expressed the view that
$4,600,000 was not adequate consideration for the acquisition of the Management
Company and stated that they were considering the retention of an independent
financial advisor.
On January 5, 1995, the Special Committee met by conference telephone with
representatives of its special counsel and Alex. Brown to receive a report from
Alex. Brown concerning its December 28, 1994 meeting with the Management
Company Shareholders. Alex. Brown also discussed with the Special Committee
the possible terms of a proposal to retain the services of Messrs. Thompson and
Wolfe. After discussion, the Special Committee determined that a management
retention package consisting of an increased salary under three year
employment/consulting agreements and stock options subject to a vesting
schedule should be offered as part of any acquisition proposal and reached
consensus on the form and the specific amounts that would be proposed to the
Management Company Shareholders as both acquisition consideration and a
retention package. The Special Committee determined that it would propose
acquisition consideration in the form of Company common stock with a nominal
value of $4,600,000 (based on an average market price of the common stock prior
to public announcement of the acquisition proposal). The Special Committee
then instructed special counsel to prepare a brief written summary of the terms
of its proposal for review by the Special Committee and presentation to the
Management Company Shareholders.
On January 6, 1995, the Management Company Shareholders contacted each of Mr.
Borra and a representative of Alex. Brown to advise them that the Management
Company Shareholders had retained another investing banking firm (the "Other
Firm") as their financial advisor and that, pending its analysis, no formal
proposal be made on behalf of the Special Committee. Subsequently on that same
day, the Special Committee met by conference telephone with representatives of
its special counsel and Alex. Brown to discuss the status of discussions with
respect to the Management Company. The entire Special Committee was informed
of the retention of the Other Firm and decided to defer delivery of the Special
Committee's proposal until after the Other Firm had completed its analysis.
The Special Committee also reviewed at that meeting the written proposal that
had been prepared by its special counsel.
On January 11 and 12, 1995, representatives of Alex. Brown communicated with
representatives of the Other Firm. The Other Firm stated its view that the
fair value of the Management Company was significantly in excess of $4,600,000.
The
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<PAGE> 14
Other Firm further stated that the Management Company Shareholders would
nevertheless be prepared to accept $4,600,000 in the event that an acceptable
retention package could be mutually agreed. Mr. Borra subsequently had several
phone conversations with Mr. Thompson which culminated in Mr. Thompson's
indication that he would be prepared (and that he believed Mr. Wolfe would be
prepared) to accept the $4,600,000 acquisition consideration and a retention
package that provided for (i) five year employment/consulting agreements at
current compensation levels (with Mr. Thompson continuing as Chief Executive
Officer for two years) and (ii) a stock purchase and loan program covering a
total of $3,600,000 of common stock which would include annual loan forgiveness
based on continued performance of services.
On January 12, 1995, the Special Committee and representatives of its special
counsel and financial advisor met by conference telephone and reviewed the
status of negotiations with the Management Company Shareholders. Mr. Borra
reported to the Special Committee his several conversations with Mr. Thompson
and described the terms of an acquisition and retention package that Mr.
Thompson had stated that he, and he believed Mr. Wolfe, would accept. With the
assistance of Alex. Brown and special counsel, the Special Committee then
compared these terms with the terms of the Special Committee's draft proposal.
After further deliberation, the Special Committee determined that the package
proposed by Mr. Thompson would be acceptable to the Special Committee if it
were revised to include a stock price performance condition. The stock price
performance condition made the loan forgiveness element of the stock purchase
and loan program dependent on the Company's common stock price achieving
increases of at least $1.00 per year from the current level. For example, the
entire original principal amounts of the Management Company Shareholders' loans
would be forgiven only if the Company's stock price was, for 90 consecutive
trading days during the 5-year period following the closing of the Merger, at
least $5.00 higher than the stock price was on the date of such closing.
The Special Committee further determined to defer a recommendation to the Board
at its regularly scheduled January 16 meeting to permit additional time to
negotiate final terms and to allow further consideration by the Special
Committee of the terms of any transaction. Special counsel was asked to
prepare a revised proposal, and Mr. Borra was asked to communicate the
additional condition to Mr. Thompson.
The regularly scheduled meeting of the Board was held on January 16,
1995, at which time Mr. Borra, on behalf of the Special Committee, reviewed
with the Board the status of negotiations with the Management Company
Shareholders and the various alternatives to the acquisition of the
Management Company. Mr. Thompson and Mr. Wolfe attended the meeting of the
Board and were present for Mr. Borra's report regarding the negotiations
between them and the Special Committee. No action was taken at this meeting,
although a special meeting of the Board was scheduled for February 6, 1995.
On February 2, 1995, the Special Committee met by conference telephone with
its financial advisor and special counsel to review the terms of a retention
package involving a new class of stock that Mr. Thompson and his advisors had
developed as an alternative to the proposal reviewed at the Special Committee's
January 12, 1995 meeting. Following discussion with its advisors, the Special
Committee determined that it would not accept or attempt to modify Mr.
Thompson's alternative proposal, but presented an alternative retention
proposal that would substitute restricted stock in a reduced amount for the
stock purchase and loan package. Special counsel was asked to prepare an
alternative proposal to reflect the restricted stock alternative
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<PAGE> 15
and to modify the stock price performance condition in the previous
proposal to base it upon an average market price prior to public announcement
of an acquisition proposal. The amount of the restricted stock was determined
with the assistance of Alex. Brown based on the Special Committee's belief that
the aggregate expected present value to the Management Company Shareholders of
the $3,600,000 stock purchase and loan program, taking into account the
possibility of the loan forgiveness, was between $2,000,000 and $2,400,000. The
valuation is based on the $3.6 million aggregate purchase price of the stock to
be sold to the Management Company Shareholders, the full cost of which would be
loaned to the Management Company Shareholders upon the closing of the Merger;
the anticipated timing and probability of forgiveness of the principal amount
of the loans; the fact that the loans were to bear interest at the prime rate;
and the fact that the loans were payable in full, if not previously forgiven,
on the fifth anniversary of the closing of the Merger. There was additional
discussion of the development of a new stock-based compensation program for
other members of the Company's management and of granting such other members
incentive stock options at the scheduled February 6 Board meeting (such grants
having been tabled at the January 16 Board meeting).
On the evening of February 2, 1995, Mr. Thompson contacted Mr. Borra with
several additional requests to modify the Special Committee's proposal,
including adjustment of the annual cash compensation to reflect the value of
current taxable fringe benefits, revision of the stock price performance
condition to permit early satisfaction of the condition based on satisfactory
stock price performance and reimbursement of the expenses of the Management
Company Shareholders for financial and legal advisors. On February 3, 1995,
the Special Committee met by conference telephone and determined that it would
modify the annual cash compensation and the stock price performance condition,
but would not reimburse any expenses. Mr. Borra thereafter requested special
counsel to modify the alternative proposals accordingly and to be prepared to
deliver the proposals to the Board and the Management Company Shareholders at
the special Board meeting on February 6. Mr. Thompson later contacted Mr.
Borra prior to the Board meeting to advise him that he and Mr. Wolfe had
accepted the current proposal which included the stock purchase and employee
retention package.
On February 6, 1995, the Board and the Special Committee's financial advisor
and special counsel attended the special meeting of the Board to review the
acquisition proposal and related matters, including accounting for the proposed
acquisition as a purchase. At this meeting, the Board was provided with the
acquisition and retention proposal, which included the $3,600,000 stock
purchase and loan program (the "Terms Outline"). Mr. Borra reviewed the
detailed provisions of the Terms Outline, which included, in addition to the
terms of the stock purchase and loan proposal, the acquisition consideration in
the form of Company common stock with a nominal value of $4,600,000 (based on
an average market price of the common stock prior to public announcement of the
acquisition proposal), the terms of an employment and consulting agreement for
Mr. Thompson pursuant to which Mr. Thompson would continue to serve as Chief
Executive Officer of the Company for two years following the closing of the
acquisition and as a consultant to the Company for three years thereafter for
an annual salary of $135,000 and the terms of a consulting agreement with Mr.
Wolfe pursuant to which Mr. Wolfe would serve as a consultant to the Company
for five years following the closing of the acquisition for an annual
consulting fee of $95,00O. Alex. Brown presented its financial analysis to
the Board and stated that it believed it would be able to provide an opinion on
the fairness, from a financial point of view, of the stock consideration to be
paid by the Company for the acquisition of the Management Company. Mr.
Thompson and Mr. Wolfe attended the special meeting of the Board and were
present for the discussion of the Terms Outline and for the Alex. Brown
presentation. The Special Committee unanimously recommended to the Board that
the Company proceed with the transactions contemplated by the Terms Outline,
subject to approval by the stockholders of the Company and the other conditions
contemplated by the Terms Outline. After discussion and further review, the
directors present (excluding Messrs. Thompson and Wolfe, who abstained)
unanimously determined to approve the Terms Outline and proceed with the
acquisition and related transactions. The Company issued a public announcement
describing the transactions contemplated by the Terms Outline later that
afternoon.
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<PAGE> 16
Subsequent to the February 6, 1995 Board meeting, special counsel to the
Special Committee prepared and circulated a preliminary draft of a merger
agreement, and counsel to the Company prepared preliminary drafts of the other
documents contemplated by the Terms Outline. These documents were
substantially finalized over the next several weeks.
On March 2, 1995, the Board and its counsel and representatives of the Special
Committee's special counsel and financial advisor attended a special meeting to
discuss the proposed merger transaction. The Board then reviewed and discussed
the Health Care REIT, Inc. 1995 Stock Incentive Plan. Mr. Thompson and Mr.
Wolfe attended the special meeting of the Board and were present for the
discussion of the proposed merger transaction and the Stock Incentive
Plan. It was determined that the number of shares of common stock to be
allocated to the Stock Incentive Plan would be discussed and reviewed with a
compensation consultant. It was noted that the Company was working with a
compensation consultant to recommend compensation levels for the remaining
members of management and that it would be appropriate to resolve the
compensation matters prior to entering into a merger agreement. In addition,
Alex. Brown was asked to prepare for the Special Committee's and the Board's
review an analysis of the impact on the transaction of certain specified
increases in the amount of compensation expense. No formal action was
taken at this meeting.
On March 7, 1995, with Mr. Borra participating by conference telephone, the
Special Committee met with its financial advisor and special counsel. Mr.
Chopivsky attended the meeting telephonically by invitation of the Special
Committee. The purpose of the meeting was to review certain information and
analyses which had been compiled by the financial advisor regarding executive
compensation assumptions and projections and to discuss the steps to be taken
next. Alex. Brown reviewed the existing assumptions regarding management
compensation and the impact on management's projections of various possible
increases in compensation to members of the Company's management (other than
Messrs. Thompson and Wolfe). The Special Committee discussed issues that
needed to be resolved in the draft merger agreement, including a retention
package for remaining management, the treatment of certain unvested stock
options of Messrs. Thompson and Wolfe and plans for office space. Mr. Thompson
described his efforts to develop a compensation arrangement for the remaining
management, including the retention of a compensation consultant.
In March 1995, subsequent to the public announcement of the transactions
contemplated by the Terms Outline, a task force of the National Association of
Real Estate Investment Trusts ("NAREIT") published new guidelines for the
calculation of "funds from operations" (an important measure of a real estate
investment trust's operating performance). Under the NAREIT guidelines,
non-real estate depreciation and amortization of debt costs and goodwill are
eliminated from the calculation of funds from operations. The elimination of the
Company's amortization of debt costs reduces the Company's reported funds
from operations in a range from $219,000 to $640,000 in the years 1990 through
1994 and $75,000 and $186,000 for the quarters ended March 31, 1994 and 1995,
respectively. Also, based on the revised NAREIT guidelines, the Company
eliminated accrual to cash items and certain non-cash charges which further
reduced funds from operations in a range from $926,000 to $4,719,000 in the
years 1990 through 1994 and $931,000 and $254,000 for the quarters ended March
31, 1994 and 1995, respectively. Under the new NAREIT guidelines and as a result
of the treatment of the transactions contemplated by the Terms Outline under the
purchase method of accounting, the Company's funds from operations would be
significantly
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<PAGE> 17
and negatively impacted by the consummation of the transactions as structured
under the Terms Outline.
On April 18, 1995, the Special Committee met by conference telephone with
representatives of its financial advisor, special counsel, management of the
Company (including Mr. Thompson) and Ernst & Young LLP ("Ernst & Young"), the
Company's independent auditors to discuss the impact of the NAREIT guidelines
on the accounting treatment of the proposed merger transaction. Based on the
NAREIT guidelines and after discussions with its financial advisor, special
counsel and Ernst & Young, the Special Committee determined that it was in the
best interests of the Company and its stockholders to seek to restructure the
transaction with the Management Company Shareholders.
On April 18, 1995, following the Special Committee's meeting, the Board held a
regularly scheduled meeting. Mr. Borra, on behalf of the Special Committee,
reviewed with the Board the status of the proposed merger transaction,
including the impact of the recently published NAREIT guidelines. Mr. Borra
reported that the Special Committee was, after reviewing various options,
considering a revised merger transaction which (i) would be accounted for under
the pooling of interests method of accounting, (ii) would eliminate any
additional consideration in the form of the stock purchase and loan package
contained in the Terms Outline and (iii) might include stock awards for Messrs.
Thompson and Wolfe that would be included as part of the overall grants for the
Company's entire management group. Mr. Thompson and Mr. Wolfe attended the
meeting of the Board and were present for the discussion regarding the status
of the proposed merger transaction. No formal action was taken at this meeting.
On April 24, 1995, Mr. Borra and the Special Committee's financial advisor
participated in a telephone conference with Messrs. Thompson and Chapman. In
light of certain accounting developments, including the publication in March
1995 of the NAREIT guidelines, the Special Committee proposed that the Merger
be restructured so that it would be accounted for under the pooling of
interests method of accounting rather than the purchase method of accounting.
Under the new structure, the Management Company Shareholders would not receive
any additional consideration in the form of the stock purchase and loan package
contained in the Terms Outline; however, the Management Company Shareholders
would enter into employment and/or consulting agreements, as contemplated by
the original Terms Outline. In light of the proposed change in the structure
of the transaction, Mr. Borra agreed to recommend to the Special Committee and
the Board an increase in the merger consideration to be paid to the Management
Company Stockholders. The new consideration was proposed to be the number of
shares of Common Stock equal to $6.1 million divided by the average price of
the Common Stock over the 30 trading days immediately preceding the date of the
public announcement of the revised terms of the Merger. At the time of such
public announcement, such average price was calculated to be $21.60, and such
consideration was calculated to be 282,407 shares of Common Stock. Alex.
Brown was asked, and agreed, to conduct a financial analysis of the proposed
transaction and to render its opinion as to the fairness to the Company, from a
financial point of view, of the $6.1 million consideration to be paid to the
Management Company Shareholders. There was also
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<PAGE> 18
discussion of granting Messrs. Thompson and Wolfe, under a newly adopted plan
and as part of the overall grant of options to employees of the Company,
options exercisable into Common Stock in amounts to be determined.
On May 8, 1995, the Special Committee (except for Mr. Unverferth) met with
representatives of its financial advisor, special counsel and Ernst & Young to
review the terms of the proposed transaction and to receive a report from Alex.
Brown regarding the fairness of such terms, from a financial point of view, to
the Company. Alex. Brown reported that, as a result of the elimination of the
$3,600,000 stock purchase and loan program from the Management Company
Shareholders' retention package, the effect of the March 1995 NAREIT guidelines
and other developments since the December 20 presentation of its financial
analysis, including the Company's actual financial performance for fiscal 1994,
and based upon the restructuring of the acquisition transactions as
contemplated by the Original Merger Agreement, including the positive effect on
the Company's Financial Statements as a result of accounting for the
transaction as a pooling of interests, it had developed a revised financial
analysis of the financial terms of the Original Merger Agreement. Alex. Brown
presented its financial analysis of the proposed transaction and its opinion,
based upon such revised financial analysis, as to the fairness, from a
financial point of view, to the Company of the stock consideration to be paid
to the Management Company Shareholders. Ernst & Young presented its analysis of
the accounting treatment for the proposed transaction and advised the Special
Committee that although the matter is complicated by an unusual fact pattern,
accounting for the transaction as a pooling of interest is appropriate.
Messrs. Thompson and Wolfe then joined the meeting. Mr. Thompson reported on
the resolution of the outstanding issues with remaining management on grants of
stock options under the 1995 Stock Incentive Plan and related compensation
issues. See "- Summary of the Stock Incentive Plan." Mr. Wolfe requested, and
the Special Committee determined to approve, a slight increase in his
consulting fee to provide partial compensation for the loss of certain unvested
stock options as a result of his planned resignation as an officer of the
Company. As more fully discussed below, the Special Committee then concluded
that the transaction was fair to and in the best interests of the Company and
its stockholders and unanimously recommended the transaction for approval by
the Board.
Later on May 8, 1995, the Board met (with Mr. Chopivsky absent) and received
the report and recommendation of the Special Committee. Following the
recommendation of the Special Committee, the Board concluded that the
transaction was fair to and in the best interests of the Company and its
stockholders and approved the Original Merger Agreement and related matters.
Mr. Thompson and Mr. Wolfe attended the meeting of the Board but abstained from
voting on the Original Merger Agreement.
On May 15, 1995, the Company filed a preliminary proxy statement, including a
detailed description of the proposed merger contemplated by the Original Merger
Agreement, with the Securities and Exchange Commission (the "Commission"). On
June 28, 1995, the Company filed a revised preliminary proxy statement
with the Commission and on July 27, 1995, the Company advised the Commission
that it would account for the proposed merger as a settlement of a contract
and expense the value of the shares to be issued in the merger to the
Management Company Shareholders in the period in which such shares are issued.
<PAGE> 19
Subsequent to the Company's determination that the proposed merger would not
be accounted for as a pooling of interests, Mr. Borra participated in a
telephone conference with the Special Committee's financial advisor to discuss
the accounting treatment of the proposed merger transaction and the effect of
certain subsequent Company developments and market events. Mr. Borra requested
that the financial advisor conduct a revised analysis of the proposed
transaction in light of the proposed accounting treatment and other subsequent
Company developments and market events.
On August 2, 1995, representatives of Alex. Brown and Mr. Borra participated in
a telephone conference to discuss Alex. Brown's revised analysis of the merger
transaction. Alex. Brown noted to Mr. Borra its understanding that the Company
believed that the proposed merger could be accounted for as the settlement of a
contract with the effect that the value of the shares issued to the Management
Company Shareholders would be expensed upon the closing of the transaction, and
that the related costs and expenses would be expensed as incurred, thereby
eliminating any subsequent impact on the Company's operating statements. Alex.
Brown also noted that its revised analysis would include consideration of the
Company's 1995 operating performance and two additional advisory company
acquisitions by REITs which had occurred since May 8, 1995, and reflect current
market conditions, including the lower market price of the Company's common
stock. After discussing the foregoing factors, Mr. Borra requested that Alex.
Brown review the aforementioned factors with the Management Company
Shareholders to determine if acceptable revised terms to the proposed merger
transaction could be negotiated.
On August 18, 1995, representatives of Alex. Brown met with Mr. Thompson to
review its financial analysis concerning the amount of consideration that might
be payable to the Management Company Shareholders. Mr. Wolfe participated in
the meeting by conference telephone. Based upon its revised analysis, Alex.
Brown suggested a transaction in which the Management Company Shareholders
would receive 282,407 shares of Company common stock, the same number of shares
which they would have received under the Original Merger Agreement. Alex. Brown
also suggested to Messrs. Thompson and Wolfe that the fixed terms of their
employment and consulting agreements contemplated by the Original Merger
Agreement be shortened.
On August 28, 1995, the Special Committee met with representatives of its
financial advisor, special counsel and Ernst & Young to review the proposed
revisions to the Original Merger Agreement and to receive a report from Alex.
Brown regarding the fairness of such revised terms, from a financial point of
view, to the Company. Alex. Brown reported on developments since the approval
by the Special Committee and the Board of the Original Merger Agreement on May
8, 1995, including the proposals to eliminate the requirement that the
acquisition be accounted for as a pooling of interests and to shorten the terms
of the employment and consulting agreements with Messrs. Thompson and Wolfe and
related non-compete provisions, as well as the Company's 1995 operating
performance, the additional advisory company acquisitions by REITs since May 8,
1995, and the current market price of the Company's common stock. Mr. Thompson
was then invited to join the meeting to review his understanding of the
proposed revisions to the Original Merger Agreement and to report on the status
of his discussions with Mr. Wolfe and other members of management. Mr. Thompson
stated his understanding that, under the revised proposal, his employment and
consulting agreement would provide for his continued service as Chief Executive
Officer through December 31, 1996 (as compared to June 30, 1997 under the terms
of the Original Merger Agreement) and as a consultant through December 31, 1997
(as compared to June 30, 2000) subject to three optional one-year extensions of
Mr. Thompson's consulting services, and Mr. Wolfe's consulting agreement would
provide for his continued service as a consultant through December 31, 1996 (as
compared to December 31, 2000) subject to four optional one-year extensions of
Mr. Wolfe's consulting services. See "Descripton of Other Agreements
to be Entered into with Messrs. Thompson and Wolfe." In addition, Mr. Wolfe
would be replaced as President by Mr. Chapman upon execution of the Revised
Merger Agreement. Mr. Thompson also stated that there were unresolved
discussions regarding continued provision of management services (including
office space) by the Company to FTC as contemplated under the terms of the
Original Merger Agreement. Mr. Thompson further requested that the Original
Merger Agreement be clarified as necessary to ensure that any accounting
charges associated with the proposed Merger be excluded from the calculation of
the amount of the incentive fee payable under the Management Agreement through
the closing of the proposed Merger. Mr. Thompson then left the meeting.
Following additional discussion by the Special Committee of the transaction
issues addressed by Mr. Thompson, Ernst & Young then reviewed the accounting
treatment that would be applicable to the proposed transaction. See "Unaudited
Pro Forma Combined Financial Statements" and "Description of the Revised Merger
Agreement -- Accounting Treatment." The Special Committee discussed the
determination of the amount of the charge to the Company's earnings that would
result from such accounting treatment and reviewed and determined to approve
Mr. Thompson's request that such charge would not be taken into account in the
calculation of the management fee payable to the Management Company through the
closing of the proposed Merger.
<PAGE> 20
The Special Committee then revisited, with its special counsel and
representatives of Alex. Brown, the same alternatives as were originally
considered at the December 20, 1994 meeting as described above and determined
that the conclusions reached at its December 20 meeting remained applicable to
the transactions contemplated by the Revised Merger Agreement. In addition,
with respect to exploring a possible sale of the Company, it was noted that the
Company's current stock price was around its 52-week low, that any premium
which was likely to be received on the stock would be modest, and that
exploring a possible sale would not necessarily eliminate the need to address
the existing advisory relationship with the Management Company.
Alex. Brown then presented its financial analysis of the proposed financial
terms of the Revised Merger Agreement and its oral opinion (later confirmed in
writing), based upon such financial analysis, as to the fairness, from a
financial point of view, to the Company of the stock consideration to be paid to
the Management Company Shareholders. See "Opinion of Financial Advisor."
The Special Committee then determined to approve the revisions to the Original
Merger Agreement discussed above and also determined that the Original Merger
Agreement should be further revised to provide that the agreement would be
subject to termination if the Merger does not close prior to December 31, 1995
and that the Company would have no obligation to negotiate to provide
management services (including office space) to FTC subsequent to May 14, 1996
(as compared to the five-year term under the Original Merger Agreement).
Subject to such revisions and as more fully discussed below, the Special
Committee then concluded that the proposed transaction was fair to and in the
best interests of the Company and its stockholders and unanimously recommended
the transaction for approval by the Board.
Later on August 28, 1995, the Board met (with Messrs. Chopivsky and Douglas
absent) and received the report and recommendation of the Special Committee.
Following the recommendation of the Special Committee, the Board concluded that
the proposed transaction was fair to and in the best interest of the Company
and its stockholders and approved the proposed revisions to the Original Merger
Agreement. Messrs. Thompson and Wolfe attended the meeting of the Board but
abstained from voting on the proposed revisions.
Subsequent to approval of the proposed revisions by the Special Committee and
the Board, the Revised Merger Agreement was prepared by special counsel to the
Special Committee and approved and executed by the parties thereto on September
5, 1995.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD
Special Committee. THE SPECIAL COMMITTEE HAS UNANIMOUSLY DETERMINED THE
MERGER TO BE FAIR TO AND IN THE BEST INTEREST OF THE COMPANY AND ITS
STOCKHOLDERS. ACCORDINGLY, THE SPECIAL COMMITTEE HAS UNANIMOUSLY APPROVED THE
MERGER AND RECOMMENDS THAT THE COMPANY STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
MERGER.
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<PAGE> 21
In reaching its conclusion that the Merger is in the best interest of the
Company and its stockholders, the Special Committee considered, without
assigning relative weights to, the following factors:
(i) the proven expertise and substantial experience of the employees
of the Management Company, who will become employees of the Company
through the Merger, in the investment of the Company's assets in health
care facilities, including the anticipated retention of the services of
both Messrs. Thompson and Wolfe through the current management transition
period;
(ii) through the Merger, the Company will internalize the successful
investment and capital markets experience of the Management Company;
(iii) the opportunity to eliminate certain ongoing conflicts of interest
between the Company and the Management Company;
(iv) the belief that the Merger will enable the Company to realize
certain efficiencies arising from a self-managed structure in that it will
pay for management and advisory services directly rather than paying a
third-party fee for such services based on an asset and income based
formula, thereby enabling the Company to both eliminate the profits that
were previously being realized by the Management Company for providing
such services and potentially allowing the Company in the future to expand
its shareholders' equity without a proportionate increase in the cost of
managing the Company which would likely result had the Company continued
to be managed by the Management Company;
(v) the belief that the Company will be able to develop its own
management retention and succession policies independent of an outside
advisor;
(vi) through the Merger, the Company will acquire the "Health Care
REIT" and "Health Care Fund" names and goodwill associated with those
names;
(vii) the belief of the Special Committee that the merger with the
Management Company, which will enable the Company to become a self-
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<PAGE> 22
managed and self-administered REIT, will make the Company more attractive to
investors and will enable it to enjoy enhanced market perception;
(viii) the terms and conditions of the Employment and Consulting Agreement
with Mr. Thompson, the Consulting Agreement with Mr. Wolfe, and the
Non-Compete Agreements with both Messrs. Thompson and Wolfe, including the
commitment of the Management Company Shareholders to continue their
participation in the management of the Company and to assist in the ongoing
transition and development of existing management;
(ix) the belief of the Special Committee that the principal alternatives
available to the Company would not be as beneficial to the Company and its
stockholders as the transactions contemplated by the Merger; in particular,
the Special Committee believes that termination of the existing Management
Agreement would cause a significant disruption in the Company's affairs and
that renegotiation of the compensation formula contained in the existing
Management Agreement, even if successful, would not eliminate the existing
conflicts; and
(x) the belief of the Special Committee, based on the factors set
forth below, that the consideration to be paid for the acquisition of the
Management Company is fair, from a financial point of view, to the Company.
In reaching its conclusion that the consideration to be paid for the
acquistion of the Management Company is fair, from a financial point of view,
to the Company, the Special Committee considered, without assigning relative
weights, to the following factors:
(i) the existing conflicts of interest between the Company and the
Management Company Stockholders, as well as the steps taken (such as the
creation of the Special Committee, the retention of special counsel and
the securing of a fairness opinion) to ensure that the Merger would not
be affected by such conflicts;
(ii) the terms and conditions of the Merger Agreement, including the
type and amount of consideration being paid to the Management Company,
and the condition that the consummation of the Merger and related
transactions is subject to stockholder approval and including the belief
of the Special Committee that the value of the stock consideration to
be paid by the Company for the acquisition of the Management Company was
at the high end but still within the range of fair value that could be
offered to the Management Company Shareholders;
(iii) the Merger's structure, which will not result in recognition of
income or gain for federal income tax purposes by the Company or the
Management Company; and
(iv) the oral presentation of Alex. Brown to the Special Committee and
the Board and the written opinion of Alex. Brown to the Special Committee
dated August 28, 1995 stating that on such date and based on various
assumptions and considerations, the stock consideration to be paid by the
Company for the acquisition of the Management Company is fair, from a
financial point of view, to the Company.
Board of Directors. The Board based its determination that the Merger is
fair to, and in the best interests of, the Company stockholders primarily on
the analyses and conclusions of the Special Committee (which were adopted by
the Board as its own), on the arm's-length negotiations of the Special
Committee with representatives of the Management Company, and on the Alex.
Brown opinion delivered to the Special Committee. The Board did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its
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<PAGE> 23
determination. THE BOARD OF DIRECTORS (EXCLUDING MESSRS. THOMPSON AND WOLFE,
WHO ABSTAINED, AND MR. CHOPIVSKY, WHO WAS ABSENT) HAS UNANIMOUSLY APPROVED THE
MERGER AND RECOMMENDS THAT THE COMPANY STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
MERGER.
OPINION OF FINANCIAL ADVISOR
Alex. Brown Fairness Opinion. In connection with the acquisition of the
Management Company, the Special Committee retained Alex. Brown & Sons
Incorporated ("Alex. Brown") to act as financial advisor to the Special
Committee and the Company's Board of Directors (the "Board") and to render its
opinion as to the fairness to the Company, from a financial point of view, of
the stock consideration to be paid in the Merger by the Company for the
acquisition of the Management Company (the "Fairness Opinion"). Alex. Brown
assisted in the Special Committee's discussions and negotiations with the
Management Company Stockholders leading up to the approval and execution of the
Merger Agreement and in the consideration by the Special Committee of the
Merger. Alex. Brown delivered a written opinion dated August 28, 1995 to the
Special Committee and the Board to the effect that, as of the date of the
opinion, the stock consideration payable by the Company for the acquisition of
the Management Company under the Merger Agreement is fair, from a financial
point of view, to the Company.
In arriving at its opinion, Alex. Brown reviewed the Merger Agreement and
certain publicly available financial information, internal financial analyses
and other information concerning the Company and internal financial analyses
and other information concerning the Management Company and held discussions
with members of management of the Company and the Management Company regarding
the business and prospects of their respective companies. In addition, Alex.
Brown also reviewed certain financial information regarding certain public
companies engaged in the real estate management industry, reviewed the financial
terms of certain business combinations, reviewed certain pro forma analyses and
held discussions with the managements of the Company and the Management Company
regarding the business and prospects of the Company after the completion of the
Merger, reviewed the terms of the existing management agreement between the
Company and the Management Company and compared them with the terms of certain
management agreements to which certain other companies engaged in the real
estate management industry are parties, reviewed the compensation of certain
members of the senior management of certain health and non-health care REITS,
considered the terms of a previously negotiated transaction between the Company
and the Management Company, consulted with the Company's auditors regarding the
appropriate accounting for the Merger, and performed such other studies and
analyses and considered such other factors as Alex. Brown deemed appropriate.
Alex. Brown assumed the accuracy, completeness and fairness of the financial
and other information on which it relied in rendering its opinion and did not
independently verify such information. Alex. Brown also assumed that the
information relating to
-15-
<PAGE> 24
the financial projections and prospects of the Company after the Merger which
were supplied to it was reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of the Company
and the Management Company as to the likely future financial performance of the
Company. In addition, Alex. Brown did not make an independent evaluation or
appraisal of the assets of the Company or the Management Company, nor did it
review environmental or other potential contingent issues relating to the
Company, the Management Company or the Merger, in connection with its analyses.
The opinion of Alex. Brown is based on market, economic and other conditions as
they exist and could be evaluated as of the date of its Fairness Opinion. No
limitations were imposed by the Special Committee on Alex. Brown with respect
to the information reviewed by or the procedures followed by Alex. Brown in
rendering its opinion.
Alex. Brown also advised the Special Committee and the Board regarding
various issues pertaining to the organization and operation of the Company,
including the consideration of alternatives to acquiring the Management
Company, reasons for self-administration, the hiring of Management Company
management personnel and various compensation matters. However, the Fairness
Opinion is limited solely to the stock consideration to be paid for the
acquisition of the Management Company and does not extend to such other
matters.
A COPY OF THE WRITTEN OPINION OF ALEX. BROWN DATED AUGUST 28, 1995,
WHICH INCLUDES THE MATTERS CONSIDERED, THE ASSUMPTIONS MADE, AND THE LIMITS OF
ITS REVIEW, IS ATTACHED HERETO AS APPENDIX III, AND IS INCORPORATED HEREIN BY
REFERENCE. STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY.
REASONS FOR SELECTION OF ALEX. BROWN
The Special Committee selected Alex. Brown as its financial advisor on the
basis of Alex. Brown's experience and expertise in transactions similar to the
Merger and its familiarity with the real estate, REIT and health care
industries and with the Company. Since 1985, Alex. Brown has underwritten
nearly $6.7 billion in equity on 93 REIT securities offerings, making it one of
the largest underwriters of equity REITs, and has advised on a number of real
estate and REIT merger and acquisition transactions. Alex. Brown is a
nationally recognized investment banking firm that is involved regularly in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings and private placements, and valuations
for corporate and other purposes. Alex. Brown regularly publishes research
reports regarding the Company and the REIT industry, and from time to time
actively trades in the common stock of the Company for its own account and the
accounts of its customers. Prior to its current engagement by the Special
Committee and since May 1, 1993, Alex. Brown has served as lead managing
underwriter for a public offering of common stock of the Company and has
advised the Board
-16-
<PAGE> 25
regarding certain amendments to the Company's certificate of incorporation and
its preferred stock purchase rights plan. The Company paid Alex. Brown
customary compensation in connection with advising the Company on the
adoption of its Preferred Share Purchase Rights Plan and in connection with
the underwriting of its 1993 common stock offering.
ALEX. BROWN COMPENSATION
Pursuant to a letter agreement dated November 11, 1994 (the "Engagement
Letter"), the Company engaged Alex. Brown to provide investment banking advice
and services in connection with the Special Committee's review and analysis of
various financial alternatives available to the Company relating to the
management of the Company's business and properties, including a potential
business combination with the Management Company. The Company agreed to pay
Alex. Brown (i) a non-contingent retainer fee of $100,000 upon execution of the
Engagement Letter, (ii) a fee of $200,000 at the time of delivery of the
initial fairness opinion, and (iii) a fee of $100,000 at the time of delivery
of any additional fairness opinions. The Company also has agreed to reimburse
Alex. Brown for reasonable out-of-pocket expenses, including fees and
disbursements of counsel, incurred by Alex. Brown in carrying out its duties
under the Engagement Letter, and to indemnify Alex. Brown for certain
liabilities to which it may be subjected in connection with its engagement,
including liabilities under federal securities laws.
ANALYSIS AND CONCLUSIONS
In valuing the Management Company, Alex. Brown considered a variety of
valuation methodologies, including (i) an analysis of certain transactions
pursuant to which REITs have converted to self-administered structures, (ii) a
discounted cash flow analysis, (iii) an analysis of certain acquisitions by
selected public companies engaged primarily in the real estate management,
development and acquisition business, and (iv) an analysis of selected publicly
traded real estate companies. Alex. Brown also considered the effect of the
Merger on the Company's funds from operations per share. For purposes of its
financial analysis, Alex. Brown used a dollar value of approximately $5.0
million (obtained by multiplying the 282,407 shares of common stock proposed to
be issued to the Management Company Shareholders by the closing price per share
($17.875) of the Company's common stock on August 25, 1995) for the stock
consideration to be paid to the Management Company Shareholders. Alex. Brown
also noted that since the shares of common stock to be issued to the Management
Company Shareholders will not be registered under the Securities Act of 1933,
as amended, an illiquidity discount would be appropriate in determining the
value of such common stock.
The following is a summary of the material factors considered and principal
financial analyses performed by Alex. Brown in connection with the preparation
of the Fairness Opinion:
Analysis of REITs Converting to Self-Administered Structures. Alex. Brown
reviewed certain acquisitions of real estate advisory and management companies
by publicly traded REITs which resulted in those REITs becoming
self-administered. This review included calculating the multiples obtained by
comparing the prices paid to acquire such companies with the advisory fees
earned by the acquired companies during the last full fiscal year prior to the
REITs becoming self-advised and with the funds from operations and total assets
of the acquiring REITs. While Alex. Brown considered all of the foregoing
multiples, Alex. Brown believed that the ratio of compensation to advisory fees
paid to service companies was the most significant because service companies,
like the Management Company, are generally valued in terms of their revenues,
profitability and cash flow. In conducting its analysis, Alex. Brown reviewed
transactions by Realty Income Corporation, Criimi Mae, Inc., Shurgard Storage
Centers, Inc.,
-17-
<PAGE> 26
Bradley Real Estate Trust, Boddie-Noell Properties, Inc., Burnham Pacific
Properties, Inc., Meditrust, Real Estate Investment Trust of California, Health
Equity Properties, Incorporated, American Health Properties, Inc., Nationwide
Health Properties, Inc., Health Care Property Investors, Inc. and BRE
Properties, Inc. Alex. Brown calculated the multiples for all of these
companies as a group as well as for two subsets of these companies. One of
these subsets, consisting of nine transactions, excluded companies for which
the advised REIT paid no consideration and the contingent purchase price
feature of the Meditrust transaction, and the other subset, consisting of five
transactions, excluded all but those companies which were involved in advising
or managing health care REITs. Alex. Brown also noted the pending transaction
by Storage Equities, Inc., but did not include this transaction in the
calculations of the aforementioned multiples. Alex. Brown also considered the
terms of the management agreements to which these companies were parties, and
other financial and operating characteristics of these companies. Among the
provisions of such management agreements which Alex. Brown considered were the
length of the terms of such agreements and the REIT's ability to terminate such
agreements, including required notice periods for termination. Among the
financial and operating characteristics which Alex. Brown considered were the
proportionate amount of such management companies' revenues received from third
parties and the proportionate amount and character of such management
companies' other assets and liabilities being acquired.
Alex. Brown's calculations resulted in the following ranges of multiples for
all of these companies and the Management Company (calculated using a $5.0
million sales price, the Management Company's advisory fees for 1994, and the
Company's funds from operations for 1994 and total assets for the year then
ended): a range of sales price to compensation paid to the advisor during the
last full fiscal year prior to becoming self-advised of 0.00x to 4.43x, with
the Management Company at 1.64x; a range of sales price to the advised REIT's
funds from operations prior to becoming self-advised of 0.00x to 0.74x, with
the Management Company at 0.19x; and, a ratio of sales price to the advised
REIT's total assets of 0.00x to 0.053x, with the Management Company at 0.016x.
Alex. Brown's calculations resulted in the following ranges of multiples for
the subset of companies which excluded all but those companies which were
involved in advising or managing health care REITs (calculated using a $5.0
million sales price, the Management Company's advisory fees for 1994, and the
Company's funds from operations for 1994 and total assets for the year then
ended); a range of sales price to compensation paid to the advisor during the
last full fiscal year prior to becoming self-advised of 0.0x to 3.40x, with the
Management Company at 1.64x; a range of sales price to the advised REIT's funds
from operations during the last full fiscal year prior to becoming self-advised
of 0.0x to 0.37x, with the Management Company at 0.19x; and, a range of sales
price to the advised REIT's total assets of 0.0x to 0.016x, with the Management
Company at 0.016x.
Alex. Brown's calculations resulted in the following ranges of multiples for
the subset of companies (excluding those which paid no consideration for the
acquisition of their advisors and excluding the impact of a contingent purchase
price feature of the Meditrust transaction) and the Management Company
(calculated using a $5.0 million sales price, the Management Company's advisory
fees for 1994, and the Company's funds from operations for 1994 and total
assets for the year then ended): a range of sales price to compensation paid
to the advisor during the last full fiscal year prior to becoming
-18-
<PAGE> 27
self-advised of 0.27x to 4.43x, with the Management Company at 1.64x; a range of
sales price to the advised REIT's funds from operations during the last full
fiscal year prior to becoming self-advised of 0.12x to 0.74x, with the
Management Company at 0.19x; and, a ratio of sales price to the advised REIT's
total assets of 0.003x to 0.053x, with the Management Company at 0.016x.
Discounted Cash Flow Analysis. Alex. Brown also analyzed the financial
terms of the Merger using a discounted cash flow approach. The discounted cash
flow approach assumes, as a basic premise, that the intrinsic value of any
business is the current value of the future cash flow that the business will
generate for its owners. To establish a current value under this approach,
future cash flow must be estimated and an appropriate discount rate must be
determined. Alex. Brown used projections and other information provided by the
Management Company to estimate future net income (computed as if the Management
Company were taxable as a C corporation), earnings before interest, taxes,
depreciation and amortization ("EBIDTA"), and funds from operations (net
income, excluding extraordinary gains or losses, plus depreciation from real
estate assets) for the Management Company for each year of a 10-year period
beginning with 1995, using discount rates ranging from 20% to 40% and terminal
value capitalization rates applied to tenth-year projected net income, EBITDA
and funds from operations ranging from 15% to 45%. Alex. Brown's calculations
resulted in the following ranges of values for the Management Company: based
upon a discounted cash flow analysis of the Management Company's projected net
income, a range of $8.2 million to $3.2 million; based upon a discounted cash
flow analysis of the Management Company's projected EBITDA, a range of $13.6
million to $5.2 million; and, based upon a discounted cash flow analysis of the
Management Company's projected funds from operations, a range of $13.5 million
to $5.2 million. Because of a concern that the existing management agreement
between the Management Company and the Company might result in compensation to
the Management Company in excess of comparable industry costs, Alex. Brown also
conducted its discounted cash flow analysis on the Management Company's
projected net income, EBITDA and funds from operations, each reduced to an
amount equal to 70% of the Management Company's projections. Alex. Brown's
analysis resulted in the following ranges of values for the Management Company:
based upon a discounted cash flow analysis of the Management Company's net
income, a range of $5.7 million to $2.2 million; based upon a discounted cash
flow analysis of the Management Company's projected EBITDA, a range of $9.5
million to $3.7 million; and, based upon a discounted cash flow analysis of the
Management Company's projected funds from operations, a range of $9.5 million
to $3.6 million.
Analysis of Acquisitions by Public Real Estate Companies. Alex. Brown also
compared the proposed acquisition of the Management Company by the Company with
acquisitions by selected public companies engaged primarily in the real estate
management, development and acquisition business. Under this approach, Alex.
Brown considered the acquisition of Allegiance Realty Group, Inc., Security
Management Corporation and Angeles Corporation by Insignia Financial Group,
Inc., the acquisition of Koll Management Services, Inc. by an investor group
that included
-19-
<PAGE> 28
certain members of its management, the acquisition of BT Venture Corporation by
Boddie-Noell Properties, Inc. and the consolidation of Franchise Finance
Corporation of America with existing related real estate limited partnerships.
Alex. Brown determined the multiples of sales price to revenue, net income,
EBITDA and shareholders' equity for each of these companies. Alex. Brown then
applied these multiples to the revenue, net income (computed as if the
Management Company were taxable as a C corporation), EBITDA and
shareholders' equity of the Management Company. Alex. Brown's calculations
resulted in the following ranges of values for the Management Company; based
upon the ratio of sales price to latest twelve month revenues, a range of $19.0
million to $2.5 million based on 1994 revenues, $17.6 million to $2.3
million based on projected 1995 revenues, and $21.3 million to $2.8 million
based on projected 1996 revenues; based upon the ratio of sales price
to latest twelve month net income, a range of $22.5 million to $7.4 million
based on 1994 net income, $18.2 million to $6.0 million based on 1995
projected net income, and $25.5 million to $8.4 million based on projected 1996
net income; based upon the ratio of sales price to latest twelve
month EBITDA, a range of $22.7 million to $10.2 million based on 1994 EBITDA,
$18.2 million to $8.2 million based on 1995 projected EBITDA, and $25.5
million to $11.5 million based on projected 1996 EBITDA; and, based
upon the ratio of sales price to shareholders' equity, a range of $5.8 million
to $0.5 million, based on the Management Company's shareholders' equity at
December 31, 1994.
Alex. Brown also reviewed certain market and financial statistics of selected
publicly traded real estate management companies. Alex. Brown considered the
following companies: Grubb & Ellis Company, Christiana Companies, Inc.,
Insignia Financial Group, Inc. and NHP Incorporated. Alex. Brown's review
included, among other things, the ratios of market value to revenues and
EBITDA, each for the latest twelve month period and as derived from publicly
available information. Alex. Brown noted that the range of ratios of market
value to revenues on a trailing twelve month basis was 0.1x to 3.1x, and the
range of ratios of market value to EBITDA on a trailing twelve month basis
was 2.9x to 11.1x. However, Alex. Brown believes the foregoing companies are
not comparable to the Management Company because such companies have
significantly greater revenues derived from multiples sources and because of
the broader range of operations of these companies, and therefore Alex. Brown
did not derive ratios for the Management Company based upon revenues and EBITDA
for the latest twelve month period. Accordingly, Alex. Brown did not rely upon
the ratios or multiples derived from its review of these companies. In
addition, although such information was submitted to the Special Committee at
its meeting on August 28, 1995, the Special Committee did not have any
deliberations regarding such data, and such data did not influence the Special
Committee's view of the proposed transaction.
Alex. Brown deemed it inappropriate to employ the asset value approach in
rendering the Fairness Opinion because service companies, like the Management
Company, are generally valued in terms of the revenues, profitability and cash
flow of their operations not in terms of asset value.
Based on the foregoing, Alex. Brown concluded that, as of the date of the
Fairness Opinion and based on various assumptions and considerations, the stock
consideration to be paid by the Company for the acquisition of the Management
Company pursuant to the Merger Agreement is fair, from a financial point of
view, to the Company.
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<PAGE> 29
The summary set forth above does not purport to be a complete description of
the analyses performed by Alex. Brown in arriving at the Fairness Opinion. The
preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of these methods to the particular circumstances and, therefore, such an
opinion is not readily susceptible to summary description. Accordingly,
notwithstanding the separate factors summarized above, Alex. Brown believes
that its analysis must be considered as a whole and that selecting portions of
its analysis and the factors considered by it, without considering all analyses
and factors, could create an incomplete view of the evaluation process
underlying the Fairness Opinion.
DESCRIPTION OF OTHER AGREEMENTS TO BE ENTERED INTO WITH MESSRS. THOMPSON AND
WOLFE
In connection with the Merger, Mr. Thompson will enter into an Employment
and Consulting Agreement with the Company whereby he will serve as the
Company's Chief Executive Officer until December 31, 1996 and will thereafter
serve as a consultant to the Company, performing the services requested of
him by the Board of Directors or management, until December 31, 1997, subject
to three optional one-year extensions. Mr. Wolfe will enter into a Consulting
Agreement with the Company whereby he will perform such services as may be
requested of him by the Board of Directors or management until December 31,
1996, subject to four optional one-year extensions. During the term of the
agreements, Mr. Thompson and Mr. Wolfe will receive salaries of $135,000 and
$100,000 per annum, respectively, which will be adjusted each year by any
increase or decrease in the Consumer Price Index-All Urban Consumers.
Messrs. Thompson and Wolfe have also agreed to enter into Non-Compete
Agreements whereby they agree not to engage in a Competitive Business
until one year after the later of the expiration of the original term or any
extensions thereof. A "Competitive Business" is defined as any business or
activity of the type operated by the Company at the date of these Agreements,
including but not limited to, directly or indirectly financing and making
investments in nursing homes, assisted living and retirement facilities,
behavioral care facilities, primary care facilities, specialty care hospitals
and any other health facilities; however, the term does not include certain
activities in which they are currently engaged.
THE DESCRIPTIONS OF THE FOREGOING AGREEMENTS DO NOT PURPORT TO BE COMPLETE
AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE ACTUAL AGREEMENTS,
COPIES OF WHICH ARE ATTACHED AS EXHIBITS TO THE MERGER AGREEMENT WHICH IS
ATTACHED AS APPENDIX I TO THIS PROXY STATEMENT AND INCORPORATED HEREIN BY
REFERENCE.
-21-
<PAGE> 30
<TABLE>
SELECTED FINANCIAL DATA OF THE COMPANY
The financial data of the Company for the five years ended December
31, 1994 is derived from historical financial statements. The financial data of
the Company for the six months ended June 30, 1994 and 1995 is derived from
unaudited financial statements. Operating results for the six months ended June
30, 1995 are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 1995. The pro forma information has been
prepared on the assumption that the Company issued 282,407 shares of its common
stock at estimated fair value in exchange for 100% of the Management Company's
common stock, giving effect to the merger as a settlement of the management
contract and purchase of related assets (see unaudited pro forma condensed
financial statements). The data should be read in conjunction with the
financial statements, related notes and other financial information
incorporated by reference.
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
----------------------------- ---------------------------------------------------------------
Historical Historical
Pro Forma ------------------ Pro Forma ---------------------------------------------------
1995 1995 1994 1994 1994 1993 1992 1991 1990
--------- ------- ------- --------- ------- ------- ------- ------- -------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING AND OTHER DATA
Gross Income $19,302 $19,302 $21,172 $42,732 $42,732 $36,018 $28,908 $29,248 $26,874
Net Income 9,783 9,502 12,784 26,288 24,953 20,055 16,515 13,126 11,544
Per Common Share data:
Net Income .82 .82 1.11 2.23 2.17 2.15 1.91 1.92 1.88
Distributions 1.035 1.035 .995 2.01 2.01 1.93 1.85 1.77 1.72
Book Value (at period end) 15.68 16.13 16.25 15.86 16.32 16.09 13.59 13.37 12.36
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
----------------------------- --------------------------------------------------------
Historical Historical
Pro Forma ------------------- --------------------------------------------------------
1995 1995 1994 1994 1993 1992 1991 1990
--------- -------- -------- --------- -------- -------- -------- --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets $371,627 $372,168 $306,843 $324,102 $285,024 $226,207 $207,204 $189,720
Borrowings Under Line of
Credit Arragnements 119,100 119,100 55,300 70,900 35,000 78,900 62,200 74,100
Senior Notes and Other
Long-Term Obligations 57,051 57,051 58,555 57,373 61,311 24,819 28,144 35,563
Shareholders' Equity 187,859 188,688 187,158 189,180 184,132 118,948 113,956 76,621
</TABLE>
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<PAGE> 31
SELECTED FINANCIAL DATA AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF THE MANAGEMENT COMPANY
SELECTED FINANCIAL DATA
The financial data of the Management Company represents the amounts from the
financial statements of First Toledo Advisory Company and First Toledo
Corporation as combined for the appropriate periods and adjusted for items
which do not pertain to the Management Company. The financial data of the
Management Company for the four years ended December 31, 1993 and for the six
months ended June 30, 1995 and 1994 is derived from unaudited financial
statements. Operating results for the six months ended June 30, 1995 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1995. The data should be read in conjunction with the
financial statements, related notes and other financial information included
elsewhere herein.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
---------------- ---------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
MANAGEMENT COMPANY
HISTORICAL
Gross Income 1,265 1,613 3,134 2,463 1,994 1,602 1,349
Net Income 353 906 1,517 942 797 734 470
Total Assets 350 678 571 277 303 185 54
Shareholders' Equity 57 67 60 46 48 31 23
Per Common Share Data:
Net income 705.12 1,812.35 3,033.88 1,883.32 1,594.43 1,468.79 939.44
Distributions 1,355.20 520.00 1,500.00 1,920.00 1,240.00 1,000.00 780.00
Book Value (at period end) 113.00 134.93 120.84 92.05 95.97 62.10 45.66
</TABLE>
MANAGEMENT'S
DISCUSSION
AND
ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
The Management Company's primary source of liquidity is the management fee it
earns from the Company. This fee is earned based on a monthly rate of 1/10 of
1% of the Company's net assets, as defined in the Management Agreement. Also,
the Management Company earns an annual incentive fee equal to 10% of the amount
by which net profits of the Company exceed 10% of the monthly average worth of
the Company, as defined in the Management Agreement.
During all periods from 1992 through June 30, 1995, the Management Company
received monthly payments on its management fee, but always had an outstanding
management fee receivable. The Management Company drew annual management fee
payments totaling $3,081,123, $2,450,000 and $1,875,000 for 1994, 1993 and
1992, respectively. The Management Company drew management fee payments
totaling $1,250,000 and $1,200,000 for the six months ended June 30, 1994 and
1995, respectively.
<PAGE> 32
RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 1994
AND 1995 AND FOR THE YEARS ENDED 1994, 1993 AND 1992
The Management Company's sole business activity is to provide external
management services for the Company. As such, the Management Company pays all
charges, including salaries, wages, payroll taxes, costs of employee benefit
plans and charges for incidental help attributable to its own activities in
connection with providing services under the Management Agreement. The
Management Company also pays its own accounting fees, legal fees, insurance,
rent, telephone, utilities and travel expenses. The Management Company does
not own any real property and leases its office from an unrelated third party.
The office is furnished to the Company pursuant to the Management Agreement.
<TABLE>
The following table shows comparative information as to the Management
Company's operations:
<CAPTION>
Six Months Ended
June 30 Year Ended December 31
----------------------------- ------------------------------------------------
1995 1994 1994 1993 1992
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $1,260,734 $1,591,627 $3,086,988 $2,426,639 $1,968,666
Total expenses 912,689 706,926 1,616,615 1,521,356 1,196,443
---------- ---------- ---------- ---------- ----------
348,045 884,701 1,470,373 905,283 772,223
Interest & other income 4,517 21,474 46,568 36,376 24,994
---------- ---------- ---------- ---------- ----------
Net income $ 352,562 $ 906,175 $1,516,941 $ 941,659 $ 797,217
========== ========== ========== ========== ==========
</TABLE>
The increase in revenues in 1994 versus 1993 was primarily the result of the
1993 equity offering of the Company which increased the base fee (see
discussion above under "Liquidity and Capital Resources"). The increase in
1994 revenues was also secondarily affected by an increase in incentive fee.
The increase in revenues in 1993 versus 1992 was primarily the result of
increased profitability of the Company which increased the incentive fee and
was secondarily affected by an increase in the base fee. For the years ended
December 31, 1994, 1993 and 1992, $807,000, $771,000 and $550,000,
respectively, related to the profit-based incentive fee. For the same periods,
$2,280,000, $1,656,000 and $1,419,000, respectively, related to the base fee.
Total expenses in 1994 and 1993 increased over their respective prior years.
This increase is primarily attributable to increased payroll and
payroll-related expenses. The increased payroll costs are the result of
increased marketing staff and a general increase in salaries and wages.
The revenues for the first six months of 1995 decreased approximately $331,000
from the first six months of 1994. This decrease is primarily the result of
decreased net income of the Company which resulted in a decrease in the
incentive fee. Total expenses for the first six months of 1995 increased over
the first six months of 1994. This increase is primarily attributable to
payroll and payroll expenses.
IMPACT OF INFLATION
Because of the nature of the activities of the Management Company, inflation
does not appear to have any direct effect on the Management Company. However,
wage increases are affected by inflation.
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements and
explanatory notes are presented to show the impact on the Company's financial
position and results of operations of the Merger. This information is based on
the historical financial statements for the six months ended June 30, 1995
and the year ended December 31, 1994 of the Company, giving effect to the
Merger as a settlement of the management contract and purchase of related
assets. The following unaudited pro forma condensed financial information is
not necessarily indicative of actual or future operating results that would
have occurred or will occur upon consummation of the Merger.
<PAGE> 33
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
HEALTH CARE REIT, INC.
JUNE 30, 1995
<TABLE>
<CAPTION>
COMPANY PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Assets:
Net real estate related investments $365,719 $ $365,719
Cash and cash equivalents 659 63 (1) 722
Other assets 5,790 56 (1) 5,186
(660)(3)
-------- --------- --------
Total Assets $372,168 $ (541) $371,627
======== ========= ========
Liabilities and Shareholders' Equity:
Debt obligations $176,151 $ $176,151
Accrued expenses and other obligations 7,329 63 (1) 7,617
225 (3)
-------- --------- --------
Total Liabilities 183,480 288 183,768
Shareholders' Equity:
Common stock 11,696 282 (1) 11,978
Capital in excess of par value 163,029 4,800 (1) 167,829
Undistributed net income 13,963 (5,911)(3) 8,052
-------- --------- --------
Total Shareholders' Equity 188,688 (829) 187,859
-------- --------- --------
Total Liabilities and Shareholders'
Equity $372,168 $ (541) $371,627
-------- --------- --------
Book value per share $ 16.13 $ 15.68
-------- --------
<FN>
See notes to unaudited pro forma condensed financial statements.
</TABLE>
-23-
<PAGE> 34
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
HEALTH CARE REIT, INC.
SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
COMPANY PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Revenues related to investments $19,280 $ $19,280
Interest and other income 22 22
------- ------ -------
Total Revenues 19,302 19,302
Expenses:
Interest expense 6,282 6,282
Loan expense 372 372
Management fees 1,261 (1,261) (2) -0-
Provision for depreciation 780 12 (2) 792
Other operating expenses 1,105 968 (2) 2,073
------- ------ -------
Total expenses 9,800 (281) 9,519
------- ------ -------
Net income $ 9,502 $ 281 $ 9,783
======= ====== =======
Average number of shares
outstanding 11,647 11,929
======= =======
Net income per share $ .82 $ .82
======= =======
<FN>
See notes to unaudited pro forma condensed financial information
</TABLE>
-24-
<PAGE> 35
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
HEALTH CARE REIT, INC.
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMPANY PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Revenues:
Revenues related to investments $42,545 $ $42,545
Interest and other income 187 187
------- ------ -------
Total Revenues 42,732 42,732
Expenses:
Interest Expense 9,684 9,684
Loan expense 638 638
Management fees 3,087 (3,087) (2) -0-
Provision for depreciation 1,385 21 (2) 1,406
Provision for losses 1,000 1,000
Other operating expenses 1,985 1,731 (2) 3,716
------- ------ -------
Total Expenses 17,779 (1,335) 16,444
------- ------ -------
Net Income $24,953 $1,335 $26,288
======= ====== =======
Average number of shares
outstanding 11,519 11,802
======= =======
Net income per share $ 2.17 $ 2.23
======= =======
<FN>
See notes to unaudited pro forma condensed financial information
</TABLE>
-25-
<PAGE> 36
NOTES TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL INFORMATION
(1) Issuance of 282,407 shares of the Company's common stock at estimated fair
value in exchange for 100% of the Management Company's common stock issued
and outstanding at June 30, 1995. This transaction will be accounted for as
a settlement of the management contract with the Management Company. The
estimated fair value of the Company's common stock issued, less the value
of net tangible assets received from the Management Company, will be
recorded as net settlement expense upon consummation. Out-of-pocket
expenses will be recorded as net settlement expense as incurred.
(2) Elimination of the management fees paid by the Company to the Management
Company and recording of expenses incurred by the Management Company and
expected to be incurred by the Company as if the conversion to
self-administration was effective January 1, 1994.
(3) The estimated net settlement expenses of $5,911,000 have not been
reflected in the unaudited pro forma condensed statement of income, but
have been relected as a reduction of shareholders' equity in the unaudited
pro forma condensed balance sheet.
-26-
<PAGE> 37
DESCRIPTION OF THE REVISED MERGER AGREEMENT
Subsequent to the negotiation of the Terms Outline and the revised terms of
the transaction and after consultations with their respective legal and
financial advisors, the Company, the Management Company and the Management
Company Shareholders entered into the Original Merger Agreement on May 10, 1995
and the Revised Merger Agreement effective as of September 5, 1995. The
closing of the Revised Merger Agreement and the transactions contemplated in
connection therewith is subject to approval by the Company's stockholders at
the Annual Meeting. THE DESCRIPTION OF THE MERGER AGREEMENT SET FORTH BELOW
DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE REVISED MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX I TO
THIS PROXY STATEMENT AND INCORPORATED HEREIN BY REFERENCE.
Effect of the Merger. Subject to the terms and conditions of the Revised
Merger Agreement, the Management Company will merge with and into the Company
(the "Merger") upon the closing (the "Closing") of the transactions
contemplated in the Revised Merger Agreement (currently scheduled for November
30, 1995), and the Company will become a self-administered real estate
investment trust. At the Closing, promptly following the satisfaction or
waiver of the conditions to the Merger, the parties will file certificates of
merger with the Secretaries of State of the States of Delaware and, if
required, Ohio, at which time the Merger shall be effective (the "Effective
Time"). The separate corporate existence of the Management Company will then
cease, and the internal corporate affairs of the Company (the "Surviving
Corporation") will continue to be governed by the laws of the State of
Delaware. The certificate of incorporation and, except as discussed in
"Amendment to the By-Laws" below the By-Laws of the Company will continue to be
the certificate of incorporation and By-Laws of the Surviving Corporation. The
directors of the Company in office as of the Effective Time will remain the
directors of the Surviving Corporation. The officers of the Company in office
as of the Effective time will remain the officers of the Surviving Corporation.
Conversion of Management Company Shares. At the Effective Time, all of
the issued and outstanding shares of common stock of the Management Company
(the "Management Company Shares") will be converted into 282,407 shares (the
"Company Shares") of the common stock of the Company, $1.00 par value per share
(the "Common Stock"). At the Closing, the Company will deliver to each of the
Management Company Shareholders a certificate representing that number of
Company Shares into which such Management Company Shareholder's Management
Company Shares were converted.
-27-
<PAGE> 38
Fractional Shares. No fractional shares of Common Stock will be issued in
the Merger. In lieu thereof, the Company will pay cash based on the nominal
per share sales price of the Company Shares to any Management Company
Shareholder otherwise entitled to a fractional share.
Restricted Shares. The Company Shares issued to the Management Company
Shareholders in connection with the Merger will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"). As such, these
shares will be "restricted securities" as that term is defined by Rule 144
under the Securities Act. There is no agreement between the Company and the
Management Company Shareholders with respect to future registration of such
shares for sale to the public.
Representations and Warranties. The Revised Merger Agreement includes various
customary representations and warranties (which representations and warranties
shall survive for the longer of five years or the period of any applicable
statute of limitations) of the Management Company and the Management Company
Shareholders as to, among other things: (i) the corporate organization,
standing and power of the Management Company to enter into the Merger and the
transactions in connection therewith; (ii) the Management Company's
capitalization; (iii) authorization of the Merger by the Management Company and
the Management Company Shareholders; (iv) the Revised Merger Agreement's
noncontravention of any law or governmental order, any charter or bylaw
provision, or any contract or other agreement; (v) compliance with laws; (vi)
ownership and title or license to tangible and intangible property and assets
owned or used by the Management Company; (vii) the Management Company's
financial statements; (viii) pending or threatened litigation; (ix) lack of
undisclosed liabilities of the Management Company; (x) payment of taxes; (xi)
certain contracts and leases of the Management Company; (xii) existence of
insurance; (xiii) certain matters with respect to employees and employee
benefits; and (xiv) disclosure of affiliated business relationships. In
addition, the Revised Merger Agreement includes various customary
representations and warranties by each of the Management Company Shareholders
as to, among other things: (i) authority of such Management Company Shareholder
to enter into the transactions contemplated by the Revised Merger Agreement;
(ii) noncontravention of any agreement to which such Management Company
Shareholder is a party; (iii) title to shares of common stock of the Management
Company held by such Management Company Shareholder; (iv) certain matters with
respect to federal and state securities laws; and (v) lack of intention to
dispose of Company Shares received in the Merger above a certain amount.
The Revised Merger Agreement also includes various customary representations
and warranties (which representations and warranties shall survive for the
longer of five years or the period of any applicable statute of limitations) of
the Company as to, among other things: (i) the corporate organization, standing
and power of the Management Company to enter into the Merger and the
transactions in connection therewith; (ii) the Company's capitalization; (iii)
authorization of the Merger by the
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<PAGE> 39
Company; (iv) the Revised Merger Agreement's noncontravention of any law or
governmental order, any charter or bylaw provision, or any contract or other
agreement; (v) compliance with laws; and (vi) intention to continue the
historic business of the Management Company.
Pre-Closing Covenants. The Revised Merger Agreement contains covenants of the
Management Company, applicable with respect to the period of time from and
after the execution of the Revised Merger Agreement, which provide that the
Management Company will not engage in any practice, take any action, or enter
into any transaction outside the ordinary course of business, including but not
limited to certain specified practices, actions and transactions. The Revised
Merger Agreement also contains additional pre-Closing covenants which provide,
among other things, that: (i) the parties will use reasonable best efforts to
take such actions as are necessary and proper to consummate the Merger and the
transactions in connection therewith; (ii) the Management Company will give
necessary notices and seek those third party consents requested by the Company
to be given or obtained; (iii) the parties will take certain actions necessary
in order to comply with the federal and state securities laws; (iv) the Company
will use its reasonable best efforts to cause its shareholders to consider and
vote upon adoption of the Merger (provided that no officer or director of the
Company will be required to violate any fiduciary duty or other requirement
imposed by law in connection with the foregoing); (v) the parties will provide
each other with full access to certain information about each other and keep
such information confidential; and (vi) the parties will notify each other of
certain material adverse developments.
Further Agreements and Covenants. The Revised Merger Agreement contains
further agreements and covenants, applicable with respect to the period of time
from and after the Effective Time, which provide, among other things, that: (i)
the Company will continue the historic business line of the Management Company;
(ii) the share certificates received by the Management Company Shareholders in
the Merger will bear a restrictive legend; (iii) the Company will use
reasonable best efforts to cause the Company Shares issued to the Management
Company Shareholders in the Merger to be listed for trading on the New York
Stock Exchange; (iv) the Company will pay Management Company Shareholders as
soon as practicable after the Closing the management fee payable under the
Agreement prior to Closing, less expenses payable for such month by the
Management Company (it being understood that for purposes of calculating such
management fee payable through the Closing, any charge against earnings
recorded by the Company in connection with the termination of the Management
Agreement shall have no effect); (v) the Company and the Management Company
Shareholders will negotiate in good faith reasonable terms under which the
Company will provide FTC with certain management, office and support services
at a cost comparable to the cost of such services if provided by an
unaffiliated third party (provided that the Company will not be obligated to
provide any such service after May 14, 1996); and (vi) the parties will waive
any requirement in the Management Agreement that an independent appraisal of
any asset being transferred in the Merger be obtained.
Conditions to Closing. The obligation of the Company to consummate the
Merger is subject to the satisfaction or waiver of certain conditions,
including the following: (i) the Management Company having procured certain
third party
-29-
<PAGE> 40
consents; (ii) the material accuracy of the Management Company's and each
Management Company Shareholder's representations and warranties; (iii)
compliance by the Management Company and each Management Company Shareholder
with the applicable pre-closing covenants; (iv) delivery by the Management
Company and the Management Company Shareholders of a customary closing
certificate; (v) approval of the Revised Merger Agreement and the Merger by the
Company's stockholders; (vi) the delivery by Alex. Brown of the Fairness
Opinion (discussed above); and (vii) lack of any circumstance which would
jeopardize the Company's REIT status under the Internal Revenue Code.
The obligation of the Management Company and the Management Company
Shareholders to consummate the Merger is also subject to the satisfaction or
waiver of certain conditions, including the following: (i) the material
accuracy of the Company's representations and warranties; (ii) compliance by
the Company with its pre-closing covenants; (iii) delivery by the Company of a
customary closing certificate; and (iv) the receipt of an opinion of corporate
counsel to the Company. In addition to the foregoing, the respective
obligations of all parties to consummate the Merger are subject to the
satisfaction or mutual waiver of the following conditions: (i) the execution
and effectiveness of the employment and/or consulting and non-compete
agreements between the Company and Messrs. Wolfe and Thompson (discussed
above); (ii) no proceeding shall be pending or threatened which would prevent
consummation of the Merger, result in rescission of the transactions
contemplated by the Revised Merger Agreement, cause a party to become liable for
material damages, or affect the ability of the Surviving Corporation to
continue the business of the Management Company; (iii) necessary governmental
approvals, if any, shall have been obtained; and (iv) certain other customary
conditions shall have been satisfied.
Termination. The Revised Merger Agreement may be terminated as follows:
(i) by mutual written consent of the parties prior to the Effective
Time; (ii) by either the Company or the Management Company (or either
Management Company Shareholder) by giving written notice at any time prior to
the Effective Time if (A) any other party shall have breached any material
representation, warranty, or covenant contained in the Revised Merger Agreement
in any material respect and such breach has continued without cure, following
notice thereof, for a period of 30 days (or such longer period as is reasonably
required to cure such breach) or (B) the Closing shall not have occurred on or
before December 31, 1995, by reason of the failure to occur of any condition
precedent to a party's obligation to consummate the Merger (unless such failure
is caused by such party's having breached any of its own representations,
warranties or covenants); and (iii) by any party in the event the Merger fails
to receive the approval of the Company's stockholders.
-30-
<PAGE> 41
Amendments and Waivers. The parties to the Revised Merger Agreement
may mutually amend any provision of the Revised Merger Agreement at any time
prior to the Effective Time. However, any amendment effected subsequent to
approval of the Merger by the Company's stockholders is subject to the
restrictions contained in the General Corporation Law of the State of Delaware.
Any amendment to the Revised Merger Agreement must be in writing and signed by
all parties thereto.
Indemnification. The Revised Merger Agreement provides that the Management
Company Shareholders shall indemnify the Company from and against any and all
losses incurred by the Company arising out of the following: (i) the untruth of
any representation or breach of any warranty of the Management Company or the
Management Company Shareholders contained in the Revised Merger Agreement
(provided that a loss resulting from such an untruth or breach relating only to
one individual Management Company Shareholder shall be the responsibility only
of such Management Company Shareholder); (ii) the breach of any covenant,
agreement or other provision contained in or pursuant to the Revised Merger
Agreement which is to be performed by the Management Company or the Management
Company Shareholders; and (iii) liabilities of the Management Company other
than liabilities (x) reflected on the Management Company's financial statements
delivered to the Company pursuant to the Revised Merger Agreement, (y) arising
between the date of such financial statements and the Closing in the ordinary
course of business, and (z) otherwise specifically disclosed to the Company by
the Management Company and the Management Company Shareholders in the
disclosure schedules to the Revised Merger Agreement; PROVIDED, HOWEVER, that
any indemnification of losses incurred pursuant to clause (i) shall be payable
only after such losses aggregate $50,000, and then for all such losses.
The Revised Merger Agreement also provides that the Company shall indemnify
the Management Company Shareholders from and against any and all losses
incurred by either of the Management Company Shareholders arising out of the
following: (i) the untruth of any representation or breach of any warranty of
the Company contained in the Revised Merger Agreement; (ii) the breach of any
covenant, agreement or other provision contained in or pursuant to the Revised
Merger Agreement which is to be performed by the Company; and (iii) liabilities
of the Management Company (x) reflected on the Management Company's financial
statements delivered to the Company pursuant to the Revised Merger Agreement,
(y) arising between the date of such financial statements and the Closing in
the ordinary course of business, and (z) otherwise specifically disclosed to
the Company by the Management Company and the Management Company Shareholders
in the disclosure schedules to the Revised Merger Agreement.
Expenses. All parties to the Revised Merger Agreement will bear their own
costs and expenses (including legal fees and expenses) incurred in connection
with the Revised Merger Agreement and the transactions contemplated thereby,
provided that all expenses of the Management Company will be paid by the
Management Company Shareholders and not the Management Company.
-31-
<PAGE> 42
Accounting Treatment. The Merger will be accounted for as a settlement of a
contract, and the value of the Company Shares will be expensed in the
period in which issued by the Company.
Certain Federal Tax Matters. The Merger has been structured to qualify as a
tax-free reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended, primarily for the benefit of the Management Company
Shareholders. If the Merger is subsequently determined by the Internal Revenue
Service to be a taxable transaction, there would be no adverse tax impact on
the Company.
To qualify as a REIT, the Company may not have earnings and profits
accumulated in any non-REIT year. Under applicable Treasury Regulations, this
requirement applies to any earnings and profits succeeded to by the Company in
a reorganization. The predecessor to the Management Company was a C
corporation for a period of two years. The predecessor to the Management
Company had an accumulated deficit in earnings and profits during that period.
Consequently, the Merger will not have any impact on the ability of the Company
to retain its REIT status or require the Company to make a distribution of C
corporation earnings and profits.
Amendment to the By-Laws. Numerous Articles and Sections of the Company's
By-Laws include references to the Management Company. If Proposal 1 is adopted
by the Stockholders and the Company becomes self-administered, the provisions
in the By-Laws that govern the relationship between the Company and the
Management Company will no longer be necessary and all such references shall be
deleted.
Approval of Merger. The affirmative vote of a majority of the shares of
Common Stock of the Company present, or represented, and entitled to vote at
the Annual Meeting is necessary for approval of the Merger, provided that the
total vote cast on the Merger represents a majority of all of the shares of
Common Stock entitled to vote on the Merger. THE BOARD OF DIRECTORS (EXCLUDING
MESSRS. THOMPSON AND WOLFE, WHO ABSTAINED AND MR. CHOPIVSKY WHO WAS ABSENT) HAS
UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS THAT THE COMPANY STOCKHOLDERS
VOTE "FOR" APPROVAL OF THE MERGER.
PROPOSAL 2 - APPROVAL OF THE 1995 STOCK
INCENTIVE PLAN
The Board adopted the Health Care REIT, Inc. 1995 Stock Incentive Plan (the
"Stock Incentive Plan") on May 8, 1995, subject to approval by the stockholders
of the Company at the Annual Meeting.
The purpose of the Stock Incentive Plan is to enable the Company to attract
and retain officers and key employees and provide them with appropriate
incentives
-32-
<PAGE> 43
and rewards for superior performance. The Stock Incentive Plan affords the
Incentive Stock Option Committee of the Board, the equivalent of a compensation
committee (the "ISO Committee"), which has been authorized by the Board to
administer the Stock Incentive Plan, the flexibility to respond to changes in
the competitive and legal environments, thereby protecting and enhancing the
Company's current and future ability to attract and retain officers and key
employees.
The Stock Incentive Plan authorizes the granting of options to purchase
shares of Common Stock ("Options"), stock appreciation rights ("SARs"),
dividend equivalent rights ("Dividend Equivalent Rights"), restricted shares
("Restricted Shares") and performance shares ("Performance Shares"). The terms
applicable to these various types of awards, including those terms that may be
established by the ISO Committee when making or administering particular
awards, are set forth in detail in the Stock Incentive Plan.
SUMMARY OF THE STOCK INCENTIVE PLAN
THE FOLLOWING GENERAL DESCRIPTION OF CERTAIN FEATURES OF THE STOCK INCENTIVE
PLAN IS QUALIFIED IN ITS ENTIRETY TO REFERENCE TO THE STOCK INCENTIVE PLAN,
WHICH IS ATTACHED HERETO AS APPENDIX II.
Shares Available Under the Stock Incentive Plan. The number of shares of
Common Stock that may be issued or transferred and covered by outstanding
awards granted under the Stock Incentive Plan shall not in the aggregate exceed
600,000 shares, which may be original issue shares, treasury shares, or a
combination thereof. As described below under the heading "Adjustments," this
maximum number of shares is subject to adjustment to reflect stock splits,
stock dividends or similar transactions affecting the Common Stock.
Eligibility. Officers, including officers who are members of the Board of
Directors, and other key salaried employees of the Company may be selected by
the Committee to receive benefits under the Stock Incentive Plan. Currently,
five officers of the Company are eligible to participate in the Stock Incentive
Plan.
Options. The Committee may grant a participating employee Incentive Stock
Options (defined below) that entitle the employee to purchase a specified
number of shares of Common Stock at a price equal to or greater than market
value on the date of grant. The option price payable for shares covered by
other Options shall be determined by the Committee. No participant shall be
granted Options for more than 600,000 shares during any one calendar year.
The market value of a share of Common Stock was $17.875 on August 25, 1995,
which was the closing price of the Common Stock on the New York Stock Exchange
on that date. The option price is payable at the time of exercise (i) in cash,
(ii) by the transfer to the Company of nonforfeitable, nonrestricted shares of
Common Stock that are already owned by the employee, (iii) with a promissory
note for part of the option price, or (iv) by any combination of the foregoing
methods of payment. Any grant may provide for payment of the option price from
the proceeds of sale through a broker on the date of exercise of some or all of
the shares of Common Stock to which the exercise relates. Any grant
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<PAGE> 44
may provide for automatic grant of reload option rights upon the exercise of
Options by delivery of shares of Common Stock; provided, however, that the term
of any reload option right shall not extend beyond the term of the Options
originally exercised.
Options granted under the Stock Incentive Plan may be Options that are
intended to qualify as "Incentive Stock Options" within the meaning of Section
422 of the Code or Options that are not intended to so qualify ("Nonstatutory
Options"). Any grant may provide for the payment of dividend equivalent
rights.
No Options may be exercised more than ten years from the date of grant. Each
employee's stock option agreement must specify the period of continuous
employment with the Company that is necessary before the Option will become
exercisable. Stock option agreements may provide for the earlier exercise of
the Option in the event of a change in control of the Company or other similar
event. Successive grants may be made to the same employee regardless of
whether Options previously granted to him or her remain unexercised.
Dividend Equivalent Rights. An employee with Options may, in the discretion
of the Committee, be granted the right to deferred payments based on those
dividends that would have been paid on the shares of Common Stock for which the
employee holds unexercised Options. The employee's unfunded bookkeeping
account will be credited with hypothetical dividend shares for each cash
dividend on Common Stock that is paid during the time between when the Option
was granted and when it is exercised. The amount credited will be calculated
by (i) multiplying the dividend declared on each share of Common Stock by the
number of shares of Common Stock for which the employee held outstanding and
unexercised Options on the record date of such dividends, plus the number of
hypothetical shares credited on prior dividend record dates, and then (ii)
dividing that figure by the fair market value of a share of Common Stock on the
record date. The Plan provides for similar credits for stock dividends. At
the time the related Option is exercised, the employee will be entitled to
receive a benefit based on the value of the hypothetical shares he has
accumulated, payable either in cash or as shares of Company Stock, at the
Committee's discretion. Upon expiration of Options, all rights and claims to
dividend equivalent rights allocable thereto will be terminated.
SARs. Stock appreciation rights granted under the Stock Incentive Plan may
be in tandem with Options. An SAR represents the right to receive from the
Company the difference (the "Spread"), or a percentage thereof not in excess of
100 percent, between the option price of the related Option and the market
value of the Common Stock on the date of exercise of the SAR. SARs may only be
exercised at a time when the related Option is exercisable and the Spread is
positive, and the exercise requires the surrender of the related Option for
cancellation. Any grant of
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<PAGE> 45
an SAR may specify that the amount payable by the Company upon exercise may be
paid in cash, Common Stock or a combination thereof, and may either grant to
the employee or retain in the Committee the right to elect among those
alternatives.
Restricted Stock. An award of shares of Restricted Stock involves the
immediate transfer by the Company to a participating employee of ownership of a
specific number of shares of Common Stock in consideration of the performance
of services. The employee is entitled immediately to voting, dividend and
other ownership rights in the shares. The transfer may be made without
additional consideration, or for payment of an amount that is less than the
market value of the shares on the date of grant, as the Committee may
determine.
Shares of Restricted Stock must be subject to a "substantial risk of
forfeiture" for a period to be determined by the Committee. An example
would be a provision that the employee's Restricted Stock would be forfeited if
he or she ceased to serve the Company as an officer at any time before the end
of a specified period of years. In order to enforce these forfeiture
provisions, the transferability of Restricted Stock will be prohibited or
restricted in a manner and to the extent prescribed by the Committee for
the period during which the forfeiture provisions are to continue. The
Committee may also condition the vesting of the Restricted Stock on the
achievement of specified performance objectives ("Management Objectives"). The
ISO Committee may provide for the forfeiture provisions to lapse in the event
of a change in control of the Company or other similar event.
Performance Shares. A Performance Share is the equivalent of one share of
Common Stock. A participating employee may be granted any number of
Performance Shares. The employee will be given one or more Management
Objectives to meet within a specified period (the "Performance Period").
Maximum or minimum level of acceptable achievement for each Management
Objective will be established by the Committee. If, by the end of the
Performance Period the specified Management Objectives have been satisfied, the
employee will be deemed to have fully earned the Performance Shares. If the
Management Objectives have not been satisfied in full but predetermined minimum
level of acceptable achievement has been attained or exceeded, the employee
will be deemed to have partly earned the Performance Shares in accordance with
a predetermined formula. To the extent earned, the Performance Shares will be
paid to the employee at the time and in the manner determined by the
Committee in cash or in shares of Common Stock or any combination thereof. The
specified Performance Period may be subject to earlier termination in the event
of a change in control of the Company or other similar event.
Management Objectives may be described in terms of either Company-wide
objectives or objectives that are related to the performance of a department or
function within the Company or with respect to which the employee provides
services. The Committee may adjust any Management Objectives and the
related minimum level of acceptable achievement if, in its judgment,
transactions or events
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<PAGE> 46
have occurred after the date of grant that are unrelated to the employee's
performance and result in distortion of the Management Objectives or the
related minimum level of acceptable achievement.
Transferability. No Option, SAR or other award under the Plan is
transferable by a participant except by will or the laws of descent and
distribution. Options may not be exercised during a participant's lifetime
except by the participant or, in the event of the participant's incapacity, by
the participant's guardian or legal representative acting in a fiduciary
capacity on behalf of the participant under state law and court supervision.
Adjustments. The maximum number of shares that may be issued or transferred
under the Stock Incentive Plan, the number of shares covered by outstanding
Options or SARs and the option prices or base prices per share applicable
thereto, and the number of shares covered by outstanding grants of Dividend
Equivalent Rights or Performance Shares, are subject to adjustment in the event
of changes in the outstanding Common Stock resulting from stock dividends,
stock splits, combinations of shares, recapitalizations, mergers,
consolidations, spin-offs, reorganizations, liquidations, the issuance of
additional shares (including private placements), issuances of rights or
warrants, and similar transactions or events.
Administration and Amendments. The Stock Incentive Plan will be administered
by the Committee. The Committee consists of at least two nonemployee
directors who are "disinterested persons" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
connection with its administration of the Stock Incentive Plan, the
Committee is authorized to interpret the Stock Incentive Plan and related
agreements and other documents. The Committee may make grants to
participants under any or a combination of all of the various categories of
awards that are authorized under the Stock Incentive Plan.
The Stock Incentive Plan may be amended from time to time by the Board of
Directors. Further approval by the stockholders of the Company will be
required for any amendment that would (i) increase the aggregate number of
shares of Common Stock that may be issued or transferred and covered by
outstanding awards, (ii) materially increase the benefits that may accrue to
any participant, except adjusted as discussed above, or (iii) otherwise cause
Rule 16b-3 under the Exchange Act to cease to be applicable to the Stock
Incentive Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the federal income tax consequences
of certain transactions under the Incentive Plan based on federal income tax
laws currently in effect. This summary is not intended to be exhaustive and
does not describe state or local tax consequences.
-36-
<PAGE> 47
Nonstatutory Options. In general: (i) an employee will not recognize
taxable income at the time he or she is granted Nonstatutory Options; (ii) at
the time of exercise of a Nonstatutory Option, ordinary income will be
recognized by the employee in an amount equal to the difference between the
option price paid for the shares and the fair market value of the shares; and
(iii) at the time of sale of shares acquired pursuant to the exercise of a
Nonstatutory Option, any appreciation (or depreciation) in the value of the
shares after the date of exercise will be treated as either short-term or
long-term capital gain (or loss) depending on how long the shares have been
held.
Incentive Stock Options. No income generally will be recognized by an
employee upon either the grant or the exercise of an Incentive Stock Option.
If the shares of Common Stock issued to an employee pursuant to the exercise of
an Incentive Stock Option and the shares are not sold or otherwise transferred
by the employee within two years after the date of grant or within one year
after the transfer of the shares to the employee, then upon the sale of the
shares any amount realized in excess of the option price will be taxed to the
employee as long-term capital gain and any loss sustained will be a long-term
capital loss.
If shares of Common Stock acquired upon the exercise of an Incentive Stock
Option are disposed of before the expiration of one-year or two- year holding
periods described above, including where the employee pays the option price
through a so-called cashless exercise, the employee generally will recognize
ordinary income in the year of disposition in an amount equal to any excess of
the fair market value of the shares at the time of exercise (or, if less, the
amount realized on the disposition of the shares in a sale or exchange) over
the option price paid for the shares. Any further gain (or loss) realized by
the employee generally will be taxed as short-term or long-term capital gain
(or loss) depending on the holding period.
SARs. No income will be recognized by a participating employee in connection
with the grant of an SAR. When the SARs are exercised, the employee normally
will be required to include as taxable ordinary income in the year of exercise
an amount equal to the amount of any cash, and the fair market value of any
nonrestricted shares of Common Stock, received pursuant to the exercise.
Restricted Shares. A participating employee granted shares of Restricted
Stock generally will be subject to tax at ordinary income rates on the fair
market value of the Restricted Stock, reduced by any amount paid for the shares
by the employee, at such time as the shares are no longer subject to a risk of
forfeiture or restrictions on transfer. However, an employee may elect under
Section 83(b) of the Code, within 30 days of the date of transfer of the
shares, to instead recognize taxable ordinary income at the time the shares are
transferred to him equal to the excess of the fair market value of the shares
(determined without regard to the risk of forfeiture or restrictions on
transfer) over any purchase price paid for the shares. If a Section 83(b)
election is not made, any dividends paid to the employee with respect to
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<PAGE> 48
Restricted Shares that are still subject to a risk of forfeiture or transfer
restrictions generally will be treated as a compensation that is taxable as
ordinary income to the employee.
Performance Shares. An employee generally will not recognize taxable income
upon the grant of Performance Shares. Upon payment in respect of Performance
Shares once the Management Objectives have been satisfied, the employee
generally will be required to include as taxable ordinary income in the year of
receipt an amount equal to the amount of cash received or the fair market value
of the shares of Common Stock received.
Change in Control. In the event of a pending or threatened change of control,
as defined in the Plan, the Committee may take any one of a number of
actions, including but not limited to, accelerating exercise dates, determining
that certain conditions have been met, granting cash bonus awards, paying cash
in exchange for cancelling awards, options, or rights, and making other
adjustments as they deem necessary.
Tax Consequences to the Company. To the extent that a participating employee
recognizes ordinary income in the circumstances described above, the Company
will generally be entitled to a corresponding federal income tax deduction
provided that, among other things, (i) the income meets the test of
reasonableness, and is an ordinary and necessary business expense; (ii) the
benefits do not constitute an "excess parachute payment" within the meaning of
Section 280G of the Code; and (iii) the deduction is not disallowed because
the compensation paid to the employee during the period exceeds the $1 million
limitation on executive compensation of named executive officers.
-38-
<PAGE> 49
NEW PLAN BENEFITS
Subsequent to the Board of Directors' approval of the Stock Incentive Plan,
the Committee, acting by written consent, granted nonstatutory options to
purchase shares of Common Stock of the Company to certain officers and
key employees of the Company listed below, subject to stockholder approval of
the Merger. Such nonstatutory options were granted at the price of $17.875 per
share and, except for acceleration due to death, disability or change of
control, are subject to a five-year vesting schedule, vesting 20% each year
beginning on August 28, 1995.
<TABLE>
<CAPTION>
Shares of Common Stock
Name and Subject to Nonstatutory
Position Option Grants
-------- -----------------------
<S> <C>
Bruce G. Thompson
Chairman and Chief Executive
Officer 0
Frederic D. Wolfe
President 0
George L. Chapman
Executive Vice President 100,000
and General Counsel
Raymond W. Braun
Vice President 50,000
and Assistant General Counsel
Erin C. Ibele
Vice President 22,000
and Corporate Secretary
Robert J. Pruger
Chief Financial Officer 15,000
Executive Officers
As a Group 187,000
Non-Executive Officers
As a Group 0
Other Employees
As a Group 25,000
</TABLE>
APPROVAL
The affirmative vote of a majority of the shares of Common Stock of the
Company present, or represented, and entitled to vote at the Annual Meeting is
necessary for approval of the Stock Incentive Plan. The Board believes that
the approval of the Stock Incentive Plan is in the best interests of the
Company and the stockholders because the Stock Incentive Plan will enable the
Company to provide competitive equity incentives to officers and key salaried
employees to enhance the profitability of the Company and increase stockholder
value. THE BOARD OF DIRECTORS (EXCLUDING MR. CHOPIVSKY WHO WAS ABSENT) HAS
UNANIMOUSLY APPROVED THE STOCK INCENTIVE PLAN AND RECOMMENDS THAT THE COMPANY
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE STOCK INCENTIVE PLAN.
PROPOSAL 3 - ELECTION OF THREE DIRECTORS
The By-Laws provide for nine Directors and divide them into three classes:
Class I, Class II, and Class III. The Directors are elected for a three-year
term or until the election and qualification of their respective successors.
It is intended by Management that proxies received will be voted to elect the
three Directors named below to serve for a three-year term until their
respective successors are elected and have qualified or until their earlier
resignation or removal.
Should any nominee decline or be unable to accept such nomination to serve as
a Director, events which Management does not now expect, the proxies reserve
the
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<PAGE> 50
right to substitute another person as a Management nominee, or to reduce the
number of Management nominees, as they shall deem advisable. The Proxy
solicited hereby will not be voted to elect more than three Directors.
-40-
<PAGE> 51
<TABLE>
CLASS I: DIRECTORS TO BE ELECTED (1)
<CAPTION>
<S> <C> <C> <C> <C>
Director Board Committee
Name Age Principal Occupation (2) Since Membership
---- --- ------------------------ ------- --------------
Richard C. Glowacki 62 President of The Danberry 1981 Audit, Executive,
Management Company (real Incentive Stock
estate brokerage and Option, Nominating,
investment activities) Planning and Special
Committees
Bruce G. Thompson 66 Chairman and Chief 1971 Executive, Investment
Executive Officer of the and Planning
Company; 1994-Present Committees
President and Director of
First Toledo Advisory
Company (Manager of the
Company); President and
Director of First Toledo
Corporation (affiliate of
the Company); Director of
WT Management Company
(affiliate of the Company);
Director of Kingston
HealthCare Company,
formerly WTR Corp
(affiliate of the Company);
Director of Society
National Bank, Toledo
(commercial bank); Director
of The Douglas Company
(general contractor); and
Director of Arbor Health
Care Company (developer and
operator of nursing homes;
public company)
Richard A. Unverferth 72 Chairman of Unverferth 1971 Audit, Executive,
Manufacturing Company, Inc. Incentive Stock
(agricultural equipment Option, Investment,
manufacturer); and Chairman Nominating, Planning
of the Board of H.C.F., and Special Committees
Inc. (operator of a nursing
home chain)
</TABLE>
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<PAGE> 52
<TABLE>
CLASS II: DIRECTORS WHOSE TERMS CONTINUE (1)
<CAPTION>
Director Board Committee
Name Age Principal Occupation (2) Since Membership
---- --- ------------------------ -------- ---------------
<S> <C> <C> <C> <C>
George Chopivsky, Jr. 48 Chairman of United 1984 Investment, Nominating
Psychiatric Corporation and Planning
(psychiatric hospitals); Committees
and Director of Franklin
National Bank (commercial
bank)
Bruce Douglas 62 Chairman of the Board of 1975 Investment and
The Douglas Company Planning Committees
(general contractor)
Frederic D. Wolfe 65 President of the Company 1971 Executive, Investment
until September 1995; and Planning
1994-Present Chairman of Committees
the Board and Director of
First Toledo Advisory
Company (Manager of the
Company); Chairman of the
Board and Director of First
Toledo Corporation
(affiliate of the Company);
Director of WT Management
Company (affiliate of the
Company); Director of
Kingston HealthCare
Company, formerly WTR Corp
(affiliate of the Company);
and Director of National
City Bank, Northwest
(commercial bank)
</TABLE>
<TABLE>
CLASS III: DIRECTORS WHOSE TERMS CONTINUE (1)
<CAPTION>
Director Board Committee
Name Age Principal Occupation (2) Since Membership
---- --- ------------------------ ------- ---------------
<S> <C> <C> <C> <C>
Pier C. Borra 55 Chairman, President and 1991 Incentive Stock
Chief Executive Officer of Option, Investment,
Arbor Health Care Company Planning and Special
(developer and operator of Committees
nursing homes; public company)
</TABLE>
-42-
<PAGE> 53
<TABLE>
<CAPTION>
Director Board Committee
Name Age Principal Occupation (2) Since Membership
---- --- ------------------------ ------- ---------------
<S> <C> <C> <C> <C>
George L. Chapman 48 September 1995-Present 1994 Investment and
President of the Company; Planning Committees
January 1992-September 1995
Executive Vice President
and General Counsel of the
Company; 1994-Present
Executive Vice President
and General Counsel of
First Toledo Advisory
Company (Manager of the
Company); Executive Vice
President and General
Counsel of First Toledo
Corporation (affiliate of
the Company); and prior to
January 1992, Attorney-at-
Law, Shumaker, Loop &
Kendrick (law firm)
Sharon M. Oster 47 Professor of Management, 1994 Planning Committee
Yale School of Management,
Yale University; and
Director of Aristotle
Corporation (public company)
<FN>
_______________
(1) The terms of Messrs. Glowacki, Thompson and Unverferth expire in 1995.
The terms of Messrs. Chopivsky, Douglas and Wolfe expire in 1996. The
terms of Messrs. Borra and Chapman and Ms. Oster expire in 1997.
(2) Unless otherwise noted, each person has had the same principal occupation
and employment during the last five years.
</TABLE>
THE BOARD OF DIRECTORS (EXCEPT MR. CHOPIVSKY WHO WAS ABSENT) UNANIMOUSLY
RECOMMENDS THAT THE COMPANY STOCKHOLDERS VOTE "FOR" THE ELECTION OF THE ABOVE
NOMINEES. The nominees who receive the highest number of votes at the Annual
Meeting shall be elected as Directors.
BOARD AND COMMITTEES
The Board met five times during the year ended December 31, 1994. The Board
has appointed standing Audit, Executive, Incentive Stock Option, Investment,
Nominating and Planning Committees to assist it in the discharge of
responsibilities. In July 1994, the Board appointed the Special Committee
discussed below. In 1994, each incumbent Director attended at least 75% of
the aggregate of the meetings of the Board and the committees on which he
or she served.
The Audit Committee met once during the year ended December 31, 1994. The
purpose of the Audit Committee is to review the external audit function and the
operations of the principal accounting officer of the Company to make
-43-
<PAGE> 54
recommendations to the Board with respect thereto and with respect to the
formulation and development of the auditing policies of the Company. The Audit
Committee may also make recommendations to the Board with respect to the
selection of the independent auditing firm to audit the Company's records.
The function of the Executive Committee is to exercise all the powers of the
Board (except any powers specifically reserved to the Board) during intervals
between meetings of the Board.
The Company does not have a standing compensation committee since the
officers of the Company are principally employed and compensated by the
Management Company. To the extent the officers of the Company are compensated
by the Company, the Board considers the Incentive Stock Option Committee to be
the functional equivalent of a Compensation Committee. The Incentive Stock
Option Committee, which met once during 1994, has the authority to determine
which officers and key employees of the Company will receive option awards
under the Company's 1985 Incentive Stock Option Plan and the terms of such
awards. In connection with the proposal to become self-administered, it is
anticipated that the name of the Incentive Stock Option Committee will be
changed to the "Compensation Committee."
The Investment Committee met eight times during the year ended December 31,
1994.
The function of the Nominating Committee, which did not meet during the year
ended December 31, 1994, is to select and recommend to the full Board nominees
for election as Directors. The Committee may, in its discretion, consider
nominees proposed by stockholders of the Company for the 1996 Annual Meeting of
Stockholders, provided such recommendations are in writing, contain a
description of the nominee's qualifications and his consent to serve, and are
received by the Company by December 28, 1995.
On July 19, 1994, the Board of the Company appointed a special committee
consisting of Messrs. Borra, Glowacki and Unverferth (the "Special Committee")
to inquire into, consider and evaluate a possible merger with the Management
Company. The Special Committee met four times during the year ended December
31, 1994.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of June 30, 1995, unless otherwise
specified, certain information with respect to the beneficial ownership of the
Company's shares by each person who is a Director of the Company, a nominee for
the Board and by the Directors and officers of the Company as a group. The
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<PAGE> 55
Company's Management is not aware of any person who, as of December 31, 1994,
was the beneficial owner of more than 5% of the outstanding shares of the
Company.
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
Amount and Nature of Beneficial
Ownership of Common Stock Percent
Name of Beneficial Owner as of January 31, 1995 of Class
------------------------ ---------------------- --------
<S> <C> <C> <C>
Pier C. Borra Sole voting power 0 N/A
Shared voting power 0 N/A
Sole investment power 0 N/A
Shared investment power 5,140 .04
-----------------------------------------------------
Total 5,140 .04
George L. Chapman Sole voting power 22,459(1) .19
Shared voting power 0 N/A
Sole investment power 22,459(1) .19
Shared investment power 0 N/A
-----------------------------------------------------
Total 22,459 .19
George Chopivsky, Jr. Sole voting power 3,076 .03
Shared voting power 0 N/A
Sole investment power 3,076 .03
Shared investment power 0 N/A
-----------------------------------------------------
Total 3,076 .03
Bruce Douglas Sole voting power 36,976 .31
Shared voting power 0 N/A
Sole investment power 36,976 .31
Shared investment power 0 N/A
-----------------------------------------------------
Total 36,976 .31
Richard C. Glowacki Sole voting power 16,202 .14
Shared voting power 0 N/A
Sole investment power 16,202 .14
Shared investment power 0 N/A
-----------------------------------------------------
Total 16,202 .14
Sharon M. Oster Sole voting power 100 .00
Shared voting power 0 N/A
Sole investment power 100 .00
Shared investment power 0 N/A
-----------------------------------------------------
Total 100 .00
Bruce G. Thompson Sole voting power 61,809(1) .52
Shared voting power 0 N/A
Sole investment power 61,809(1) .52
Shared investment power 636 .01
-----------------------------------------------------
Total 62,445 .53
Richard A. Unverferth Sole voting power 0 N/A
Shared voting power 0 N/A
Sole investment power 0 N/A
Shared investment power 3,816 .03
-----------------------------------------------------
Total 3,816 .03
Frederic D. Wolfe Sole voting power 111,623(1) .95
Shared voting power 35,075 .30
Sole investment power 111,623(1) .95
Shared investment power 35,075 .30
-----------------------------------------------------
Total 146,698 1.25
All Directors and Officers Sole voting power 321,852(2) 2.72
as a group (12 persons) Shared voting power 35,075 .30
Sole investment power 321,852(2) 2.72
Shared investment power 44,667 .38
-----------------------------------------------------
Total 366,519 3.10
</TABLE>
-45-
<PAGE> 56
- -------------
(1) Includes shares not actually owned by such individuals as of June 30,
1995, but of which beneficial ownership could be acquired currently by
such individuals upon the exercise of outstanding options.
(2) Includes an aggregate of 115,669 shares not actually owned by such
Directors and officers as of June 30, 1995, but of which beneficial
ownership could be acquired currently by such Directors and officers upon
the exercise of outstanding options.
-46-
<PAGE> 57
EXECUTIVE OFFICERS OF THE COMPANY
The following information is furnished as to the Executive Officers of the
Company, each of whom has a term of office of one year or until their
successors are chosen and qualified or until their earlier resignation or
removal:
<TABLE>
<CAPTION>
Year Appointed
Name Age Office and Business Experience Executive Officer
---- --- ------------------------------ -----------------
<S> <C> <C> <C>
Bruce G. Thompson 66 Chairman and Chief Executive Officer of the 1971
Company; JUNE 1994-PRESENT President and
Director of First Toledo Advisory Company
(Manager of the Company); President and
Director of First Toledo Corporation
(affiliate of the Company); Director of WT
Management Company (affiliate of the
Company); Director of Kingston HealthCare
Company, formerly WTR Corp (affiliate of the
Company); Director of Society National Bank,
Toledo (commercial bank); Director of The
Douglas Company (general contractor); and
Director of Arbor Health Care Company
(developer and operator of nursing homes)
Frederic D. Wolfe 65 President of the Company until SEPTEMBER 1995; 1971
JUNE 1994-PRESENT Chairman of the Board and
Director of First Toledo Advisory Company
(Manager of the Company); Chairman of the
Board and Director of First Toledo Corporation
(affiliate of the Company; Director of WT
Management Company (affiliate of the Company);
Director of Kingston HealthCare Company,
formerly WTR Corp (affiliate of the Company);
and Director of National City Bank, Northwest
(commercial bank)
George L. Chapman 48 SEPTEMBER 1995-Present President of the Company; 1992
JANUARY 1992-PRESENT Executive Vice President
and General Counsel of the Company; Executive
Vice President and General Counsel of First
Toledo Corporation (affiliate of the
Company); JUNE 1994-PRESENT Executive Vice
President and General Counsel of First Toledo
Advisory Company (Manager of the Company);
and 1979-1991 Attorney-at-Law, Shumaker, Loop
& Kendrick (law firm)
Raymond W. Braun 37 JULY 1994-PRESENT Vice President and 1995
Assistant General Counsel of the Company;
JANUARY 1993-JULY 1994 Assistant Vice
President of the Company; JANUARY
1993-PRESENT of Counsel, Shumaker, Loop &
Kendrick (law-firm); and 1983-1993
Attorney-at-Law, Shumaker, Loop & Kendrick
(law firm)
</TABLE>
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<PAGE> 58
<TABLE>
<CAPTION>
Year Appointed
Name Age Office and Business Experience Executive Officer
---- --- ------------------------------ -----------------
<S> <C> <C> <C>
Erin C. Ibele 33 JANUARY 1993-PRESENT Vice President and 1987
Corporate Secretary of the Company; 1987-
JANUARY 1993 Corporate Secretary of the
Company; and Vice President, Corporate
Secretary and Director of First Toledo
Corporation (affiliate of the Company); and
JUNE 1994-PRESENT Vice President, Corporate
Secretary and Director of First Toledo
Advisory Company (Manager of the Company)
Robert J. Pruger 46 Chief Financial Officer and Treasurer of the 1986
Company; 1986-JANUARY 1993 Controller of the
Company; Treasurer and Director of First
Toledo Corporation (affiliate of the
Company); JUNE 1994-PRESENT Treasurer and
Director of First Toledo Advisory Company
(Manager of the Company)
</TABLE>
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<PAGE> 59
REMUNERATION
COMPENSATION OF EXECUTIVE OFFICERS
Each Executive Officer of the Company is employed and compensated by the
Management Company. See "Certain Relationships and Related Transactions -- The
Management Company." No officer of the Company was paid cash compensation by
the Company in excess of $100,000 in 1994. Cash compensation paid to all
Executive Officers of the Company as a group during the year ended December 31,
1994 five persons equalled $16,500.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Name and Annual Compensation Compensation
Principal ---------------------- ------------
Position Year Salary($) Bonus($) Options
-------- ---- ------ ------- -------
<S> <C> <C> <C> <C>
Bruce G. Thompson, 1994 $4,000 -0- 12,000
Chairman and 1993 4,000 -0- 10,000
Chief Executive 1992 4,000 -0- 10,000
Officer
</TABLE>
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Number of % of Total
Shares Options Potential Realizable
Underlying Granted to Value at Assumed Annual
Options Employees Exercise Rate of Stock Price
Granted (#) in Fiscal price Expiration Appreciation for Option
Name (1), (2) Year ($/SH) Date Term(3)
---- ----------- --------- ------ ---------- ------------------------
5%($) 10%($)
----- ------
<S> <C> <C> <C> <C> <C> <C>
Bruce G. Thompson 12,000 23.53% $23.9375 1-16-2004 $180,652 $457,790
<FN>
(1) Of the options granted, no shares are currently exercisable and options
for 3,060 shares, 4,177 shares, 4,177 shares and 586 shares vest in 1997,
1998, 1999 and 2000, respectively.
(2) The terms of the options granted permit cashless exercises and payment of
the option exercise price by delivery of previously owned shares.
</TABLE>
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<PAGE> 60
(3) Gains are reported net of the exercise price, but before taxes associated
with the exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the shares, as well as the
optionee's continued employment through the vesting period. The amount
reflected in this Table may not necessarily be achieved.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Shares
Acquired Value Number of Shares Underlying
On Realized Unexercised Options Value of Unexercised In-
Name Exercise ($) at Fiscal Year End The-Money Options at
---- -------- --- ------------------ Fiscal Year End ($)
-------------------
<S> <C> <C> <C> <C> <C> <C>
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Bruce G. Thompson 14,500 $137,094 19,469 22,531 $63,750 $0
</TABLE>
COMPENSATION OF DIRECTORS
In 1994, each Director received a fee of $10,000 for his service as such,
which fee was increased to $12,000 effective January 1, 1995. In addition,
each Director received a fee of $1,200 for each Board meeting attended. The
schedule set forth below indicates the fees paid to each Director for each
committee meeting attended in 1994 and fees to be paid effective January 1,
1995:
<TABLE>
<CAPTION>
Committee Fees
--------- ----
1994 1995
---- ----
<S> <C> <C>
Audit $ 750 $1,000
Executive -0- -0-
Incentive Stock Option 400 400
Investment, no quarterly board 1,000 1,200
meetings
Investment, quarterly board 500 600
meetings
Nominating -0- -0-
Planning 1,200 1,500
Special 1,000 1,000
<FN>
Messrs. Chapman, Thompson and Wolfe are not paid fees for Board or committee
meetings. The fees paid to the other Directors totalled $133,947 in 1994.
</TABLE>
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<PAGE> 61
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ending December 31, 1994, the Incentive Stock Option
Committee of the Board consisted of Pier C. Borra, Richard C. Glowacki and
Gregory G. Alexander until his retirement as a director of the Company in May
1994. On February 6, 1995, Mr. Unverferth was appointed to the Incentive Stock
Option Committee. The Incentive Stock Option Committee of the Board has the
authority to determine which officers and key employees of the Company will
receive option awards under the Company's 1985 Incentive Stock Option Plan (the
"1985 Plan") and the terms of any options granted under the Plan.
Mr. Alexander is a partner in the law firm of Shumaker, Loop & Kendrick,
which the Company has retained with respect to various legal matters. Mr.
Borra is the Chairman, President and Chief Executive Officer of Arbor Health
Care Company ("Arbor"). During the fiscal year ending December 31, 1994, Bruce
G. Thompson, the Chairman and Chief Executive Officer of the Company and a
participant in the Plan, served as a member of the Board of Directors of Arbor.
REPORT OF THE INCENTIVE STOCK OPTION COMMITTEE ON EXECUTIVE COMPENSATION
With the exception of incentive stock options awarded under the Company's
Plan, the officers of the Company receive only nominal compensation from the
Company. The aggregate amount of salary payments made by the Company to
officers in 1994 was limited to $16,500. Although the officers of the Company
are principally employed and compensated by the Management Company, the Board
and the stockholders of the Company adopted the 1985 Plan in order to reward
individual performance and to provide long-term incentives. Under the terms of
the 1985 Plan, the ISO Committee has authority to approve stock option awards
to officers of the Company and to determine the terms and conditions of such
awards. The ISO Committee meets in January or February of each year.
The ISO Committee met on January 17, 1994 and granted officers of the
Company options to purchase an aggregate of 51,000 shares, including options
granted to Mr. Bruce Thompson, the Chief Executive Officer of the Company, to
acquire 12,000 shares. In deciding to grant these stock options, the ISO
Committee considered several different criteria, including the Company's
financial performance during the prior year, the contributions individual
officers had made to the Company's success during that period, and the need to
provide greater equity-based incentives to retain and adequately motivate
members of the management team. The Committee reviewed indicators of the
Company's financial performance such as the steady growth in the Company's cash
flow from operating activities available for distribution during the year, and
the increase in the Company's portfolio of properties. The awards were not
based upon specific, objective targets established by the Committee, but were
instead based on the Committee's subjective evaluation of each individual
officer's contribution to the Company's performance during the prior year,
after reviewing these criteria, and upon a subjective evaluation of the
respective officers' potential future contributions. The non-quantitative goals
considered by the Committee included successful expansion of the Company's
capitalization through an equity offering, senior management's continued
progress in developing and strengthening the Company's marketing team and
strategies, and the Company's continued success in locating and completing
transactions with high-quality health care facility operators.
The ISO Committee considered Mr. Thompson's leadership crucial to the
Company's achievement of these goals, and therefore decided he should receive
an option award that was a significant indicator of his value to the Company.
In determining that 12,000 shares was the appropriate amount, the ISO Committee
considered the size of the option grants awarded to Mr. Thompson in prior
years, and the extent of his total holdings of shares of the Company stock
(including previously granted but unexercised options to acquire additional
shares). The ISO Committee determined that an option for 12,000 shares would
be sufficiently large to provide Mr. Thompson with additional motivation to
continue his efforts.
The ISO Committee believes that stock options provide a desirable set of
incentives to retain and encourage future efforts by the Company's officers.
Since the
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<PAGE> 62
options are granted at prevailing market value, the options will only have
value if the stock price increases.
Although the Company does not anticipate that the $1,000,000 compensation
limit on federal tax deductions for executive compensation added to the Code by
the 1993 tax legislation will apply to Mr. Thompson or other executive officers
at this time, the Company is studying the issue and whether any changes to the
Company's compensation policies will be necessary or desirable as a result.
The 1995 Stock Option Incentive Plan submitted for approval includes provisions
designed to permit stock options and other awards granted under this Plan to
qualify as performance-based compensation exempt from this limit.
Incentive Stock Option Committee
Board of Directors
Health Care REIT, Inc.
Pier C. Borra (Chair)
Richard C. Glowacki
Richard A. Unverferth
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly percentage change and
the cumulative total stockholder return on the Company's shares against the
cumulative total return of the S & P Composite-500 Stock Index and the NAREIT
Hybrid Index prepared by NAREIT. Twenty-two companies comprise the NAREIT
Hybrid Index. The Index consists of REITs identified by NAREIT as hybrid (those
REITs which have both mortgage and equity investments). Upon written request to
Eric C. Ibele, Health Care REIT, Inc., One Seagate, Suite 1950, Toledo, Ohio
43604, the Company shall provide stockholders with the names of the component
issuers. The data are based on the last closing prices as of December 31 for
each of the five years. 1989 equals $100 and dividends are assumed to be
reinvested.
-52-
<PAGE> 63
<TABLE>
<CAPTION>
===================================================================================================================
12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
<S> <C> <C> <C> <C> <C> <C>
S & P 500 100.00 96.83 126.41 136.10 149.70 151.66
- -------------------------------------------------------------------------------------------------------------------
Company 100.00 104.18 181.22 203.04 235.51 224.41
- -------------------------------------------------------------------------------------------------------------------
Hybrid 100.00 71.79 99.90 116.47 141.14 146.79
===================================================================================================================
</TABLE>
Except to the extent the Company specifically incorporates this information
by reference, the foregoing Report of the ISO Committee and Stock Price
Performance Graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act of 1933 or under the Securities Exchange Act of 1934. This
information shall not otherwise be deemed filed under such Acts.
SECTION 16(a) COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own beneficially
more than ten percent (10%) of the Common Stock of the Company, to file reports
of ownership and changes of ownership with the Securities and Exchange
Commission and the New York Stock Exchange. Copies of all filed reports are
required to be furnished to the Company pursuant to Section 16(a). Based
solely on the reports received by the Company and on written representations
from reporting persons, the Company believes that the directors and executive
officers complied with all applicable filing requirements during the fiscal
year ended December 31, 1994, except for Frederic D. Wolfe, the President and a
director of the Company, who filed late Form 4s for the months of November
1993 and June 1994.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PARTNERSHIP FINANCINGS
The Company has provided direct loans and credit enhancements to five
partnerships in connection with four assisted living and retirement facilities
and two nursing homes. FTC, which is wholly owned by Messrs. Thompson and
Wolfe, serves as a general partner in each partnership. The partnership
structures facilitated industrial development bond financing in four of the
projects. Credit enhancements were provided in the form of the Company's
agreement to purchase the facilities or the bonds in the event of default by
the partnerships. As of December 31, 1994, the Company had $5,418,000
outstanding in loans to three of these partnerships and was obligated to make
additional loans aggregating $369,000. The Company has contingent obligations
under the agreements to purchase which currently total $20,175,000. For the
years ended 1994, 1993 and 1992, the Company received $339,000, $422,000 and
$350,000, respectively in connection with its contingent obligations pursuant
to the agreements to purchase. Messrs. Thompson and Wolfe
-53-
<PAGE> 64
are limited partners in three of the partnerships, an affiliate of Mr. Douglas,
a director of the Company, serves as a general partner of one of the
partnerships, and an affiliate of Messrs. Thompson and Wolfe, Kingston
HealthCare Company ("Kingston"), operates four of the facilities.
THE MANAGEMENT COMPANY
Messrs. Thompson and Wolfe, Chairman, Chief Executive Officer and Director
and President and Director of the Company, respectively, each own 50% of First
Toledo Advisory Company, the Management Company. In 1994, 1993 and 1992, the
Management Company was paid $3,087,000, $2,427,000 and $1,969,000,
respectively, in management fees by the Company.
OTHER RELATIONSHIPS
George Chopivsky, Jr., a Director of the Company, and his affiliates have
interests in two behavioral care facilities for which the Company is providing
financing in the total amount of $12,641,000.
Bruce G. Thompson, Chairman, Chief Executive Officer and Director of the
Company, is a Director of Society National Bank, Toledo, which is a participant
in the Company's revolving line of credit.
Frederic D. Wolfe, President and a Director of the Company, is a Director of
National City Bank, Northwest (NCB), which is a participant in the Company's
revolving line of credit. NCB is an affiliate of National City Bank of
Cleveland, which is agent for, and a participant in, the Company's revolving
line of credit.
For the years ended 1994, 1993 and 1992, the Company recorded lease income
from Kingston in the amounts of $113,000, $272,000 and $439,000, respectively.
GENERAL
All of the related party matters were approved by a majority of Directors
unaffiliated with the transactions. For the years ended December 31, 1994,
1993 and 1992, gross income from related parties totalled $3,810,000
$3,612,000, and $4,783,000 or 8.92%, 10.03% and 16.55%, respectively, of the
gross income of the Company.
PROPOSAL 4 - RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP served as independent auditors of the Company
for the year ended December 31, 1994 and has been selected by the Company to
serve as its independent auditors for the year ending December 31, 1995.
-54-
<PAGE> 65
Ernst & Young LLP has served as independent auditors of the Company since the
Company's inception in 1970. Although the submission for this matter for
approval by stockholders is not legally required, the Board believes that such
submission follows sound business practice and is in the best interests of the
stockholders. If this appointment is not ratified by the holders of a majority
of the shares present in person or by proxy at the Annual Meeting, the
Directors will consider the selection of another accounting firm. If such a
selection were made, it might not become effective until the 1996 year because
of the difficulty and expense of making a substitution. Management does not
expect that a representative of Ernst & Young LLP will attend the Annual
Meeting.
Audit services of Ernst & Young LLP for the year ended December 31, 1994
included the audit of the financial statements of the Company included in the
Annual Report to Stockholders for 1994, services related to filings with the
Securities and Exchange Commission, and consultation and assistance on
accounting and related matters.
The services furnished by Ernst & Young LLP have been at customary rates and
terms. There are no existing direct or indirect understandings or agreements
that place a limit on future years' audit fees.
THE BOARD OF DIRECTORS (EXCEPT MR. CHOPIVSKY WHO WAS ABSENT) UNANIMOUSLY
RECOMMENDS THAT COMPANY STOCKHOLDERS VOTE "FOR" THE RATIFICATION OF ERNST &
YOUNG LLP. The affirmative vote of the holders of a majority of shares of
common stock present in person or by proxy at the Annual Meeting will be
required for such ratification.
OTHER MATTERS
Management is not aware of any matters to be presented for action at the
Annual Meeting other than the matters set forth above. If any other matters do
properly come before the meeting or any adjournment thereof, it is intended
that the persons named in the proxy will vote in accordance with their judgment
on such matters.
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December
31, 1994, Amendment No. 1 to the Annual Report on Form 10-K/A for the year
ended December 31, 1994 filed with the Commission on April 26, 1995, Amendment
No. 2 to the Annual Report on Form 10-K/A for the year ended December 31, 1994
filed with the Commission on June 28, 1995, Amendment No. 3 to the Annual
Report on Form 10-K/A for the year ended December 31, 1994 filed with the
Commission on September 13, 1995, the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1995, filed with the Commission on May
8, 1995, Amendment No. 1 to the Quarterly Report on Form 10-Q/A for the
quarterly period ended March 31, 1995, filed with the Commission on September
13, 1995, the Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1995, filed with the Commission on July 27, 1995, Amendment No.
1 to the Quarterly Report on Form 10-Q/A filed with the Commission on September
29, 1995, and the Company's Current Reports on Form 8-K filed with the
Commission on February 13, 1995, March 24, 1995 and May 12, 1995. The Company's
Exchange Act Commission file number is 1-8923.
-55-
<PAGE> 66
1995 are incorporated in and made a part of this Proxy Statement. All
documents filed by the Company with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement and prior to the date of the Annual Meeting shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of
filing such documents. A 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 Proxy Statement to the extent
that a statement contained herein or in any subsequently filed document which
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 Proxy Statement.
The Company will provide without charge to each person to whom the Proxy
Statement is delivered, on the request of any such person, a copy of any or all
of the documents incorporated herein by reference (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
the documents that this Proxy Statement incorporates). Requests for such
copies should be directed to Erin C. Ibele, Vice President and Corporate
Secretary, Health Care REIT, Inc., One SeaGate, Suite 1950, Toledo, Ohio
43604, telephone number (419) 247-2800.
-56-
<PAGE> 67
STOCKHOLDERS' PROPOSALS FOR NEXT ANNUAL MEETING
Stockholders' proposals intended to be presented at the 1996 Annual Meeting
of Stockholders must be received by the Company no later than December 28,
1995 for inclusion in the Company's proxy statement and form of proxy relating
to that meeting.
BY THE ORDER OF THE BOARD OF DIRECTORS
Erin C. Ibele
Vice President and Corporate Secretary
-57-
<PAGE> 68
INDEX TO FINANCIAL STATEMENTS
FIRST TOLEDO ADVISORY COMPANY
Report of Independent Auditors . . . . . . . . . . . . . . . . F-2
Balance Sheets at June 30, 1995 and
December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . F-3
Statements of Income and Retained Earnings
for the six months ended June 30, 1995
and 1994 and the years ended December 31,
1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . F-4
Statements of Cash Flows for the six months
ended June 30, 1995 and 1994 and for the
years ended December 31, 1994, 1993 and 1992 . . . . . . . . F-5
Notes to Financial Statements. . . . . . . . . . . . . . . . . F-6
F-1
<PAGE> 69
Report of Independent Auditors
Board of Directors and Shareholders
First Toledo Advisory Company
We have audited the accompanying balance sheets of First Toledo Advisory
Company as of December 31, 1994 and the related statements of income and
retained earnings and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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 First Toledo Advisory Company
at December 31, 1994 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Toledo, Ohio
June 22, 1995
F-2
<PAGE> 70
<TABLE>
First Toledo Advisory Company
Balance Sheets
<CAPTION>
Six Months Year Ended December 31
Ended -------------------------
June 30, 1995 1994 1993
-------------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 62,740 $290,359 $ 16,415
Management fees receivable--affiliate 231,160 220,427 214,562
Other 352 5,405
-------- -------- --------
Total current assets 294,252 510,786 236,382
Equipment at cost 300,042 292,431 253,526
Less accumulated depreciation (243,894) (231,977) (212,906)
-------- -------- --------
Net property and equipment 56,148 60,454 40,620
-------- -------- --------
$350,400 $571,240 $277,002
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued employee compensation $116,700 $ $
Accrued taxes other than income 10,683 23,186 16,415
Distributions payable 166,517 487,634 214,562
-------- -------- --------
Total current liabilities 293,900 510,820 230,977
Shareholders' equity:
Common stock - $1.00 par value;
1,000 shares authorized, 500
shares issued and outstanding 500 500 500
Retained earnings 56,000 59,920 45,525
-------- -------- --------
Total shareholders' equity 56,500 60,420 46,025
-------- -------- --------
$350,400 $571,240 $277,002
======== ======== ========
<FN>
See accompanying notes.
</TABLE>
F-3
<PAGE> 71
<TABLE>
FIRST TOLEDO ADVISORY COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
<CAPTION>
Six Months Ended
June 30 Years Ended December 31
1995 1994 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Management fees $1,260,734 $1,591,627 $3,086,988 $2,426,639 $1,968,666
Interest and other 4,517 21,474 46,568 36,376 24,994
----------- ---------- ---------- ---------- ----------
Total revenues 1,265,251 1,613,101 3,133,556 2,463,015 1,993,660
Expenses:
Personnel 714,390 530,999 1,256,905 1,200,273 937,205
General and adminis-
trative 186,381 166,777 338,547 304,239 244,238
Provision for depre-
ciation 11,918 9,150 21,163 16,844 15,000
---------- ---------- ---------- ---------- ----------
Total expenses 912,689 706,926 1,616,615 1,521,356 1,196,443
---------- ---------- ---------- ---------- ----------
Net Income 352,562 906,175 1,516,941 941,659 797,217
Retained earnings at
beginning of period 59,920 45,525 45,525 47,485 30,549
Distributions to
shareholders (677,599) (260,000) (750,000) (960,000) (620,000)
Net distributions from
(to) affiliate 321,117 (624,737) (752,546) 16,381 (160,281)
---------- ---------- ---------- ---------- ----------
(356,482) (884,737) (1,502,546) (943,619) (780,281)
---------- ---------- ---------- ---------- ----------
Retained earnings at
end of period $ 56,000 $ 66,963 $ 59,920 $ 45,525 $ 47,485
========== ========== ========== ========== ==========
<FN>
See accompanying notes.
</TABLE>
F-4
<PAGE> 72
<TABLE>
First Toledo Advisory Company
Statements of Cash Flows
<CAPTION>
Six Months Ended
June 30 Years Ended December 31
1995 1994 1994 1993 1992
--------- --------- --------- --------- ---------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 352,562 $ 906,175 $1,516,941 $ 941,659 $ 797,217
Adjustments to reconcile net
income to net cash provided
from operating activities
Provision for depreciation 11,918 9,150 21,163 16,844 15,000
Increase (decrease) in current
liabilities (216,885) 379,485 279,843 (23,724) 101,048
(Increase) decrease in manage-
ment fee receivables and
other assets (11,120) (386,822) (460) 19,368 (87,144)
--------- --------- ---------- --------- ---------
Net cash provided from
operating activities 136,475 907,988 1,817,487 954,147 826,121
INVESTING ACTIVITY--purchase
of equipment (7,612) (35,393) (40,997) (10,891) (38,457)
FINANCING ACTIVITIES
Distributions to shareholders (677,599) (260,000) (750,000) (960,000) (620,000)
Net distributions from
(to) affiliate 321,117 (624,737) (752,546) 16,381 (100,281)
--------- --------- ---------- --------- ---------
Net cash used in financing
activities (356,482) (884,737) (1,502,546) (943,619) (780,281)
--------- --------- ---------- --------- ---------
Increase (decrease) in cash (227,619) (12,142) 273,944 (363) 7,383
Cash at beginning of period 290,359 16,415 16,415 16,778 9,395
--------- --------- ---------- --------- ---------
Cash at end of period $ 62,740 $ 4,273 $ 290,359 $ 16,415 $ 16,778
========= ========= ========== ========= =========
Supplemental disclosure of
cash flow information:
Cash paid during the
period for income taxes $ 28,000 $ 11,775 $ 20,925 $ 19,484 $ 7,481
========= ========= ========== ========= =========
<FN>
See accompanying notes.
</TABLE>
F-5
<PAGE> 73
FIRST TOLEDO ADVISORY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
First Toledo Advisory Company (the Management Company), an Ohio corporation,
administers and manages the daily affairs of Health Care REIT, Inc. (the
Company), a publicly traded real estate investment trust which provides
financing for health care facilities, primarily nursing homes. On June 1,
1994, First Toledo Corporation (FTC) spun off, on a tax-free basis, the
management agreement with the Company and certain related assets to the
Management Company. Bruce G. Thompson and Frederic D. Wolfe are equal
co-owners of the Management Company and FTC.
The accompanying financial statements have been prepared in connection with the
Agreement and Plan of Merger between the Company and the Management Company
under which the Management Company will convert its 500 shares of common stock
into approximately 282,407 of shares of common stock of the Company. These
financial statements represent the amounts from the financial statements of the
Management Company and FTC as combined for the appropriate periods and adjusted
for items which do not pertain to the Management Company.
The balance sheets as of December 31, 1993 and June 30, 1995, and the
statements of income and retained earnings and cash flows for the years ended
December 31, 1993 and 1992 and the six months ended June 30, 1995 and 1994,
which are included in this report, are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such financial
statements have been included; such adjustments consisted only of normal
recurring items. Interim results are not necessary indicative of results for a
full year.
2. ACCOUNTING POLICIES
Depreciation
Depreciation is provided over the estimated useful life of the equipment using
an accelerated method.
Income Taxes
The Management Company and FTC are treated as Subchapter S corporations for
federal and state income tax purposes. As a result, the shareholders include
their pro-rata share of taxable income in their respective personal income tax
returns. Therefore, current federal and state income tax provisions have not
been recorded in the financial statements.
F-6
<PAGE> 74
3. MANAGEMENT AGREEMENT
The Management Company has a management agreement with the Company. Messrs.
Thompson and Wolfe are officers and directors of the Company. The Management
Company accrues a fee from the Manager at a monthly rate of 1/10 of 1% of the
Company's net assets, as defined in the management agreement. Further, the
Management Company is entitled to an annual incentive fee equal to 10% of the
amount by which net profits exceed 10% of the monthly average net worth of the
Company, as defined in the management agreement.
4. PROFIT SHARING PLAN
The Management Company sponsors a trusteed profit sharing plan which provides
retirement benefits for all eligible employees. The plan provides for
voluntary employee contributions and Management Company contributions at the
discretion of the Board of Directors. Profit sharing expense was $60,409,
$56,895 and $32,683 for the years ended December 31, 1994, 1993 and 1992,
respectively and $30,250 for the six months ended June 30, 1995.
5. COMMITMENT
Future payments under the Management Company's noncancellable operating lease
for its office space total $115,057 in 1995 and $47,941 in 1996. Net rental
expense was $104,434, $104,911 and $104,775 for the years ended December 31,
1994, 1993 and 1992, respectively and $60,838 and $60,651 for the six months
ended June 30, 1995 and 1994, respectively.
F-7
<PAGE> 75
CONFORMED COPY
APPENDIX I
AGREEMENT AND PLAN OF MERGER
by and among
HEALTH CARE REIT, INC.,
FIRST TOLEDO ADVISORY COMPANY
and each of
BRUCE G. THOMPSON
and
FREDERIC D. WOLFE
DATED AS OF MAY 10, 1995
AND
AMENDED AND RESTATED EFFECTIVE AS OF
SEPTEMBER 5, 1995
<PAGE> 76
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Basic Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Actions at the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Effect of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(e) Procedure for Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3. Representations and Warranties of the Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Organization; Predecessor Corporation; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Authorization of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(d) Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(e) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(f) Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(g) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(h) Events Subsequent to Most Recent Fiscal Year End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(i) Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(j) Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(k) Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(l) Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(m) Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(n) Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(o) Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(p) Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(q) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(r) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(s) Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(t) Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(u) Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(v) Certain Business Relationships With the Target. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(w) Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4. Representations and Warranties of the Target Shareholders . . . . . . . . . . . . . . . . . . . . . . 16
(a) Authority and Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(b) Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Title to Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(d) Securities Law Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(e) Continuity of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(f) Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5. Representations and Warranties of the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(a) Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(c) Authorization of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
<PAGE> 77
<TABLE>
<S> <C>
(d) Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(e) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(f) Continuity of Business Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(g) Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(b) Notices and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(c) Regulatory Matters and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(d) Operation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(e) Full Access; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(f) Notice of Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 7. Conditions to Obligation to Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Conditions to Obligation of the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(b) Conditions to Obligation of the Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 8. Further Agreements and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Continuity of Business Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) Preservation of Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(c) Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(d) Listing of Buyer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(e) Management Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(f) Post-Closing Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(g) Waiver of Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(h) Indemnification by Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(i) Certain Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(a) Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(b) Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) Press Releases and Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(c) No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(d) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(e) Succession and Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(f) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(g) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(h) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(i) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(j) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(k) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(l) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(m) Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(n) Incorporation of Exhibits and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<PAGE> 78
Exhibit A - Delaware Certificate of Merger
Exhibit B - Ohio Certificate of Merger
Exhibit C - Financial Statements
Exhibit D - Form of Non-Compete Agreement with Bruce G. Thompson
Exhibit E Form of Non-Compete Agreement with Frederic D. Wolfe
Exhibit F- Form of Employment and Consulting Agreement with Bruce G.
Thompson
Exhibit G - Form of Consulting Agreement with Frederic D. Wolfe
Disclosure Schedule
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<PAGE> 79
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of May 10, 1995 (the "Original Agreement") and
amended and restated effective as of September 5, 1995 (as so amended and
restated, the "Agreement"), by and among Health Care REIT,
Inc., a Delaware corporation (the "BUYER"), First Toledo Advisory Company, an
Ohio corporation (the "TARGET"), and each of Bruce G. Thompson and Frederic D.
Wolfe, (together, the "TARGET SHAREHOLDERS"). The Buyer, the Target and the
Target Shareholders are referred to collectively herein as the "PARTIES."
WHEREAS, the Parties entered into the Original Agreement in order to effect
a tax-free merger of the Target with and into the Buyer in a reorganization
pursuant to Code Sec. 368(a)(1)(A);
WHEREAS, the Target Shareholders will receive capital stock in the Buyer in
exchange for their capital stock in the Target;
WHEREAS, the Parties expect that the Merger will further certain of their
business objectives (including, without limitation, allowing the Buyer to
become a self-managed real estate investment trust);
WHEREAS, the Parties have agreed to amend and restate certain terms and
conditions of the Original Agreement as set forth herein; and
WHEREAS, the Parties have agreed that the amended and restated terms
contained herein shall supersede the previous terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree to amend and restate the Original
Agreement in its entirety as follows:
Section 1. Definitions.
-----------
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"AGGREGATE SHARES" has the meaning set forth in Section 2(d)(v) below.
"AGREEMENT" has the meaning set forth in the preface above.
"BUYER" has the meaning set forth in the preface above.
"BUYER ANNUAL MEETING" has the meaning set forth in Section 6(c)(ii) below.
"BUYER SHARE" means any share of the Common Stock, $1.00 par value per
share, of the Buyer.
"CHANGE OF CONTROL" means the acquisition by any Person of 20% or more of
the Buyer Shares outstanding.
"CLOSING" has the meaning set forth in Section 2(b) below.
"CLOSING DATE" has the meaning set forth in Section 2(b) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
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"CONFIDENTIAL INFORMATION" means any information concerning the businesses
and affairs of the Target that is not already generally available to the
public.
"DEFINITIVE BUYER PROXY MATERIALS" means the definitive proxy materials
relating to the Buyer Annual Meeting.
"DELAWARE CERTIFICATE OF MERGER" has the meaning set forth in Section
2(c)(iii) below.
"DELAWARE GENERAL CORPORATION LAW" means the General Corporation Law of the
State of Delaware, as amended.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 3 below.
"EFFECTIVE TIME" has the meaning set forth in Section 2(d)(i) below.
"EMPLOYEE BENEFIT PLAN" has the meaning set forth in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in Section 3(2) of
ERISA.
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in Section 3(1) of
ERISA.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 3(g) below.
"INTELLECTUAL PROPERTY" means (a) all trademarks, service marks, trade
dress, logos, trade names, and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith and (b) all copyrights, trade secrets and confidential
business information (including ideas, research, know-how, software, formulas,
compositions, technical data, specifications, customer and supplier lists,
pricing and cost information, and business plans and proposals).
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means, with reference to the Target, actual knowledge of the
Target Shareholders and the officers of the Target after reasonable inquiry
and, with reference to the Buyer, the actual knowledge of the officers of the
Buyer after reasonable inquiry.
"LEASE AGREEMENT" means that certain Sublease between Owens-Illinois, Inc.
and First Toledo Corporation dated February 11, 1986, as amended by First
Amendment to One SeaGate Sublease, dated June 1, 1987, Amendment No. 2 to
Sublease, dated as of March 1, 1991, and Amendment No. 3 to Sublease, dated
November 1, 1993.
HCR01-12.CON
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<PAGE> 81
"LIABILITY" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due),
including any liability for Taxes.
"LOSSES" has the meaning set forth in Section 8(h)(i) below.
"MANAGEMENT AGREEMENT" has the meaning set forth in Section 3(a) below.
"MERGER" has the meaning set forth in Section 2(a) below.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in Section 3(g)
below.
"OHIO CERTIFICATE OF MERGER" has the meaning set forth in Section 2(c)(iv)
below.
"OHIO GENERAL CORPORATION LAW" means the General Corporation Law of the
State of Ohio, as amended.
"ORIGINAL AGREEMENT" has the meaning set forth in the preface above.
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"PREDECESSOR CORPORATION" means First Toledo Corporation, an Ohio
corporation, an Affiliate of the Target Shareholders and the predecessor-
in-interest of the Target.
"REQUISITE BUYER STOCKHOLDER APPROVAL" means the affirmative vote of the
holders of a majority of the Buyer Shares in favor of this Agreement and the
Merger.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, OTHER THAN (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not
HCR01-12.CON
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<PAGE> 82
yet due and payable or for taxes that the taxpayer is contesting in good faith
through appropriate proceedings, and (c) other liens arising in the ordinary
course of business and not incurred in connection with the borrowing of money.
"SUBSIDIARY" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of
the directors.
"SURVIVING CORPORATION" has the meaning set forth in Section 2(a) below.
"TARGET" has the meaning set forth in the preface above.
"TARGET SHARE" means any share of the Common Stock, no par value, of the
Target.
"TARGET SHAREHOLDER" means Bruce G. Thompson or Frederic D. Wolfe, as the
context requires, together referred to herein as the "TARGET SHAREHOLDERS".
"TAX" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
Section 2. BASIC TRANSACTION.
(a) THE MERGER. On and subject to the terms and conditions of this
Agreement, the Target will merge with and into the Buyer (the "MERGER") at the
Effective Time. The Buyer shall be the corporation surviving the Merger (the
"SURVIVING CORPORATION").
(b) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Shumaker, Loop &
Kendrick, 1000 Jackson Street, Toledo, Ohio, commencing at 9:00 a.m. local time
on November 30, 1995 (or, if the condition set forth in Section 7(a)(vi) is not
HCR01-12.CON
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<PAGE> 83
satisfied by such date, then the last business day of the month in which such
condition is satisfied), subject to the satisfaction or waiver of all other
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (other than conditions with respect to actions the
respective Parties will take at the Closing itself) or such other date as the
Parties may mutually determine (the "CLOSING DATE").
(c) ACTIONS AT THE CLOSING. At the Closing, the following will occur:
(i) the Target and the Target Shareholders will deliver to the Buyer the
various certificates, opinions, instruments, and documents referred to
in Section 7(a) below;
(ii) the Buyer will deliver to the Target and the Target Shareholders the
various certificates, opinions, instruments, and documents referred to
in Section 7(b) below;
(iii) the Buyer and the Target will file with the Secretary of State of
the State of Delaware a Certificate of Merger in the form attached
hereto as Exhibit A (the "DELAWARE CERTIFICATE OF MERGER");
(iv) the Buyer and the Target will file with the Secretary of State
of the State of Ohio a Certificate of Merger in the form attached
hereto as Exhibit B (the "OHIO CERTIFICATE OF MERGER"); and
(v) the Buyer will deliver to each of the Target Shareholder a
certificate evidencing the Buyer Shares to be issued and delivered to
such Target Shareholder pursuant to Section 2(e) below.
(d) EFFECT OF MERGER.
(i) GENERAL. The Merger shall become effective at such time (the
"EFFECTIVE TIME") as the Buyer and the Target file the Delaware
Certificate of Merger with the Secretary of State of the State of
Delaware and comply with any similar requirements under the Ohio General
Corporation Law. The Merger shall have the effect set forth in the
Delaware General Corporation Law. The Surviving Corporation may, at any
time after the Effective Time, take any action (including executing and
delivering any document) in the name and on behalf of either the Buyer
or the Target in order to carry out and effectuate the transactions
contemplated by this Agreement.
(ii) CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
the Buyer in effect at and as of the Effective Time will remain the
Certificate of Incorporation of the Surviving Corporation without any
modification or amendment as a result of the Merger.
(iii) BYLAWS. The Bylaws of the Buyer in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation
without any modification or amendment as a result of the Merger.
(iv) DIRECTORS AND OFFICERS. The directors and officers of the Buyer in
office at and as of the Effective Time will remain the directors and
officers of the Surviving Corporation (retaining their respective
positions and terms of office).
(v) CONVERSION OF TARGET SHARES. At and as of the Effective Time, each
Target Share shall be cancelled and extinguished and shall be
automatically converted into 564.814 Buyer Shares.
(vi) BUYER SHARES. Each Buyer Share issued and outstanding at and as of
the Effective Time will remain issued and outstanding.
(e) PROCEDURE FOR PAYMENT. Immediately upon the Effective Time, the Buyer
will issue and furnish to each of the Target Shareholders a stock certificate
representing the aggregate number of Buyer Shares (less any fractional share)
into which the Target Shares owned by such Target Shareholder were converted as
of the Effective Time. The Buyer will also deliver to each Target Shareholder
an amount of cash in lieu of any fraction of a Buyer Share which would
otherwise have been deliverable to such Target Shareholder, determined by
multiplying such fraction of a Buyer Share by 564.814.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE TARGET. The Target and each
of the Target Shareholders represents and warrants to the Buyer that the
statements contained in this Section 3 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this Section 3), except as set forth in the
disclosure schedule accompanying this Agreement (the "DISCLOSURE SCHEDULE").
The Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 3.
(a) ORGANIZATION; PREDECESSOR CORPORATION; SUBSIDIARIES. The Target is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Ohio. The Target
HCR01-12.CON
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<PAGE> 84
is a successor to certain assets and liabilities of the Predecessor
Corporation, including that certain Management Agreement, dated January 17,
1994, by and between the Buyer and the Predecessor Corporation (the
"MANAGEMENT AGREEMENT"), such Management Agreement having been assigned to
the Target by the Predecessor Corporation pursuant to an Assignment of
Management Agreement dated June 1, 1994. The Target has no Subsidiaries.
(b) CAPITALIZATION. The entire authorized capital stock of the Target
consists of 850 Target Shares, 500 of which are issued and outstanding, and no
Target Shares are held in treasury. All of the issued and outstanding Target
Shares have been duly authorized and are validly issued, fully paid, and
nonassessable. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require the Target to issue, sell, or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Target.
(c) AUTHORIZATION OF TRANSACTION. The Target has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and each of the other documents and agreements to be executed and
delivered by the Target in connection with the transactions contemplated by
this Agreement and to perform its obligations hereunder and thereunder.
Without limiting the generality of the foregoing, the board of directors of the
Target and its shareholders have duly authorized the execution, delivery, and
performance of this Agreement by the Target. This Agreement and each of the
other documents and agreements to be executed and delivered by the Target in
connection with the transactions contemplated by this Agreement constitute (or
when executed will constitute) the valid and legally binding obligation of the
Target, enforceable in accordance with its terms and conditions, subject to
applicable bankruptcy, reorganization, insolvency, moratorium and other laws
affecting creditors' rights generally and to general equitable principles.
(d) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Target is subject or any provision
of the charter or bylaws of the Target or (ii) with or without the passage of
time or the giving of notice, conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify, or cancel, or require any notice under any
HCR01-12.CON
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<PAGE> 85
material agreement, contract, lease, license, instrument, or other arrangement
to which the Target is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Security Interest upon
any of its assets). Other than as may be required in accordance with the
provisions of the Ohio General Corporation Law, the Securities Exchange Act,
the Securities Act and state securities laws, the Target need not give any
notice to, make any filing or registration with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement.
(e) BROKERS' FEES. The Target does not have any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer or the
Surviving Corporation could become liable or obligated.
(f) TITLE TO ASSETS. The Target has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Financial Statements or acquired
after the date thereof, free and clear of all Security Interests, except for
properties and assets disposed of in the ordinary course of business since the
date of the Most Recent Financial Statements.
(g) FINANCIAL STATEMENTS. Attached hereto as Exhibit C are the following
financial statements (collectively the "FINANCIAL STATEMENTS"): (i) balance
sheets, statements of income and changes in stockholders' equity as of and for
the fiscal years ended December 31, 1992 and 1993 for the Predecessor
Corporation, (ii) balance sheet and statement of income as of and for the fiscal
year ended December 31, 1994 for the Target; and (iii) balance sheet and
statement of income (the "MOST RECENT FINANCIAL STATEMENTS") as of and for the
six months ended June 30, 1995 for the Target. The Financial Statements
have been prepared on a consistent basis throughout the periods covered
thereby, present fairly the financial condition of the Target and the
Predecessor Corporation, as applicable, as of such dates and the results of
operations of the Target and the Predecessor Corporation, as applicable, for
such periods; PROVIDED, HOWEVER, that the Most Recent Financial Statements are
subject to normal year-end adjustments (which will not be material individually
or in the aggregate).
(h) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since December 31,
1994, there has not been any material adverse change in the business, financial
condition, operations or results
HCR01-12.CON
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<PAGE> 86
of operations of the Target. Without limiting the generality of the foregoing,
since that date:
(i) the Target has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, other than for a fair
consideration in the ordinary course of business;
(ii) the Target has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases,
and licenses) either involving more than $5,000 or outside the
ordinary course of business;
(iii) no party (including the Target) has accelerated,
terminated, modified, or cancelled any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and
licenses) involving more than $5,000 to which the Target is a party or
by which it is bound;
(iv) the Target has not imposed any Security Interest upon any
of its assets, tangible or intangible;
(v) the Target has not made any capital expenditure (or series
of related capital expenditures) either involving more than $5,000 or
outside the ordinary course of business;
(vi) the Target has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other
Person (or series of related capital investments, loans, and
acquisitions) either involving more than $5,000 or outside the
ordinary course of business;
(vii) the Target has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or capitalized lease obligation either involving
more than $5,000 singly or $10,000 in the aggregate;
(viii) the Target has not delayed or postponed the payment of
accounts payable and other Liabilities outside the ordinary course of
business;
(ix) the Target has not cancelled, compromised, waived, or
released any right or claim (or series of related rights and claims)
either involving more than $5,000 or outside the ordinary course of
business;
(x) the Target has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
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<PAGE> 87
(xi) there has been no change made or authorized in the charter
of the Target;
(xii) the Target has not issued, sold, or otherwise disposed of
any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock;
(xiii) except as permitted in Section 6(d)(iii) below, the
Target has not declared, set aside, or paid any dividend or made any
distribution with respect to its capital stock (whether in cash or in
kind) or redeemed, purchased, or otherwise acquired any of its capital
stock;
(xiv) the Target has not experienced any damage, destruction,
or loss (whether or not covered by insurance) to its property;
(xv) the Target has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees
outside the ordinary course of business;
(xvi) the Target has not entered into any employment contract
or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;
(xvii) the Target has not granted any increase in the base
compensation of any of its directors, officers, and employees outside
the ordinary course of business;
(xviii) the Target has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan);
(xix) the Target has not made any other change in employment
terms for any of its directors, officers, and employees outside the
ordinary course of business;
(xx) the Target has not made or pledged to make any charitable
or other capital contribution outside the ordinary course of business;
(xxi) there has not been any other occurrence, event, incident,
action, failure to act, or transaction outside the ordinary course of
business involving the Target; and
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(xxii) the Target has not committed to any of the foregoing.
(i) UNDISCLOSED LIABILITIES. The Target has no Liability (including
any Liability resulting from Target's historical or current relationship to the
Predecessor Corporation) that is reasonably likely to result in Losses to the
Buyer, individually or in the aggregate, in excess of $5,000, except for
Liabilities set forth on the face of the Most Recent Financial Statements.
(j) LEGAL COMPLIANCE. The Target, the Predecessor Corporation and
their Affiliates have not received any notice of any violation of any
applicable law (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof), or of any action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice that has been filed or commenced against any of them alleging any
failure to comply with any such law (excluding any claim which is fully insured
against).
(k) TAX MATTERS.
(i) Each of the Target and the Predecessor Corporation has
filed all Tax Returns that they were required to file. All such Tax
Returns were correct and complete in all material respects. All Taxes
owed by the Target or the Predecessor Corporation (whether or not
shown on any Tax Return) have been paid. Neither the Target nor the
Predecessor Corporation is currently the beneficiary of any extension
of time within which to file any Tax Return. No claim has ever been
made by an authority in a jurisdiction where the Target or the
Predecessor Corporation does not file Tax Returns that either is or
may be subject to taxation by that jurisdiction. There are no
Security Interests on any of the assets of the Target or the
Predecessor Corporation that arose in connection with any failure (or
alleged failure) to pay any Tax.
(ii) The Target has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder, or
other third party.
(iii) No Target Shareholder (or employee responsible for Tax
matters) of the Target has received any notice from any authority to
assess any additional Taxes for any period for which Tax Returns have
been filed. There is no dispute or claim concerning any Tax Liability
of the Target either
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(A) claimed or raised by any authority in writing or (B) as to
which any of the Target Shareholders (and employees responsible for
Tax matters of the Target) has Knowledge based upon personal contact
with any agent of such authority.
(iv) The Target has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
(v) At all times since January 1, 1987, the Target and the
Predecessor Corporation have been "S" corporations as that term is
used in the Code. The Target has no earnings and profits resulting
from its or the Predecessor Corporation having been a "C" corporation
as that term is used in the Code, or having acquired assets of a "C"
corporation in a transaction described in Code Sec. 381. The Target
has not filed a consent under Code Sec. 341(f) concerning collapsible
corporations. The Target is not a party to any Tax allocation or
sharing agreement. The Target (A) has not been a member of an
Affiliated Group filing a consolidated federal income Tax Return and
(B) has no Liability for the Taxes of any other Person under Treasury
Reg. Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise.
(l) REAL PROPERTY. The Target owns no real property. The
Disclosure Schedule lists and describes briefly all real property leased or
subleased to the Target. The Target has delivered to the Buyer correct and
complete copies of the leases and subleases listed in the Disclosure Schedule
(as amended to date). With respect to each lease and sublease listed in the
Disclosure Schedule (i) the lease or sublease is legal, valid, binding,
enforceable and in full force and effect as to the Target, subject to
applicable bankruptcy, reorganization, insolvency, moratorium and other laws
affecting creditors' rights generally and to general equitable principles; (ii)
the lease or sublease will continue to be legal, valid, binding, enforceable
and in full force and effect as to the Target, subject to applicable
bankruptcy, reorganization, insolvency, moratorium and other laws affecting
creditors' rights generally and to general equitable principles, on identical
terms following the consummation of the transactions contemplated hereby; and
(iii) no party to the lease or sublease is in breach or default, and no event
has occurred which, with notice or lapse of time, would constitute a breach or
default by the Target or permit termination, modification, or acceleration
thereunder.
(m) INTELLECTUAL PROPERTY.
(i) The Target owns or has the right to use pursuant to
license, sublicense, agreement, or permission all
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Intellectual Property necessary for the operation of the businesses of
the Target as presently conducted. Each item of Intellectual Property
owned or used by the Target immediately prior to the Closing hereunder
will be owned or available for use by the Buyer on identical terms and
conditions immediately subsequent to the Closing hereunder. The
Target has taken all necessary action to maintain and protect each
item of Intellectual Property that it owns or uses.
(ii) The Target has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Target Shareholders
(and employees of the Target with responsibility for Intellectual
Property matters) has ever received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Target
must license or refrain from using any Intellectual Property rights of
any third party). To the Knowledge of any of the Target Shareholders
(and employees of the Target with responsibility for Intellectual
Property matters), no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of the Target.
(n) TANGIBLE ASSETS. The Target owns or leases all office space,
machinery, equipment, and other tangible assets necessary for the conduct of
its business as presently conducted. Each such tangible asset is free from
material patent defects, has been maintained in accordance with normal industry
practice and is in good operating condition and repair (subject to normal wear
and tear).
(o) CONTRACTS. The Disclosure Schedule lists all contracts and
agreements to which the Target is a party and which involve obligations in
excess of $10,000, including without limitation contracts and agreements
between the Target and the Predecessor Corporation and the Target and any
Affiliate of the Target. Each such contract or agreement is legal, valid,
binding, enforceable and in full force and effect as to the Target, subject to
applicable bankruptcy, reorganization, insolvency, moratorium and other laws
affecting creditors' rights generally and to general equitable principles, and
will continue as such on identical terms following the consummation of the
transactions contemplated hereby. Neither the Target, nor to the Knowledge of
the Target or any Target Shareholder, any other party is in breach or default,
and no event has occurred which with notice or lapse of time would constitute a
breach or default, or permit termination, modification, or acceleration, under
any such contract or agreement and no
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party has repudiated any provision of any such contract or agreement.
(p) POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Target.
(q) INSURANCE. The Disclosure Schedule sets forth summary information with
respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which the Target is a party, a named insured, or otherwise the
beneficiary of coverage, and a copy of each such policy has been provided to
the Buyer. Neither the Target nor any Target Shareholder has received any
notice that any such insurance policy is not legal, valid, binding,
enforceable, and in full force and effect. Each such insurance policy will
continue to be legal, valid, binding, enforceable and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby. Neither the Target nor, to the Knowledge of the Target or any Target
Shareholder, any other party to such policy is in breach or default (including
with respect to the payment of premiums or the giving of notices), and no event
has occurred which, with notice or the lapse of time, would constitute such a
breach or default, or permit termination, modification, or acceleration under
the policy, and neither the Target nor, to the Knowledge of the Target or any
Target Shareholder, any other party to the policy has repudiated any provision
thereof.
(r) LITIGATION. The Disclosure Schedule sets forth each instance in which
the Target (i) is subject to any outstanding injunction, judgment, order,
decree, ruling, or charge or (ii) is a party or, to the Knowledge of the Target
or any Target Shareholder, is threatened to be made a party to any action,
suit, proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator.
(s) EMPLOYEES. To the Knowledge of the Target, no executive, key employee,
or group of employees has any plans to terminate employment with the Target
prior to the Closing Date. The Target is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. The Target has not committed any unfair labor practice. The Target
has no Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to any employees of
the Target.
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<PAGE> 92
(t) EMPLOYEE BENEFITS.
(i) The Disclosure Schedule lists each Employee Benefit Plan that the
Target maintains or to which the Target contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
material respects with the applicable requirements of ERISA, the
Code, and other applicable laws.
(B) All required reports and descriptions (including Form 5500 Annual
Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part
6 of Subtitle B of Title I of ERISA and of Code Sec. 4980B have been
met with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with the past
custom and practice of the Target. All premiums or other payments
for all periods ending on or before the Closing Date have been paid
with respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code
Sec. 401(a) and has received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
(E) Neither the Target nor any member of the businesses under Common
Control with the Target (as defined in Section 414(b) and (C) of the
Code) maintain or contribute to, and never have maintained or
contributed to, or been required to contribute to, any Employee
Pension Benefit Plan which is a Multiemployer Plan (as defined in
Section 3(37)(A) of ERISA) or defined benefit plan (as defined in
Section 3(35) or ERISA), or any Employee Welfare Benefit Plan
providing medical,
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<PAGE> 93
health, or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Sec. 4980B).
(F) The Target has delivered to the Buyer correct and complete copies
of the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, the
most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
(u) GUARANTIES. The Target is not a guarantor or otherwise liable for any
Liabilities or obligations of more than $10,000 in the aggregate of any other
Person.
(v) CERTAIN BUSINESS RELATIONSHIPS WITH THE TARGET. None of the Target
Shareholders and their Affiliates (other than the Buyer) has been involved in
any business arrangement or relationship (other than the Management Agreement)
with the Target within the past 12 months, and none of the Target Shareholders
and their Affiliates (other than the Buyer) owns any asset, tangible or
intangible, which is used in the business of the Target.
(w) DISCLOSURE. The representations and warranties contained in this
Section 3, and the information supplied by the Target specifically for use in
the Definitive Buyer Proxy Materials, do not, to the Knowledge of the Target or
any Target Shareholder, contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 3 or the information so supplied not
misleading.
Section 4. REPRESENTATIONS AND WARRANTIES OF THE TARGET
SHAREHOLDERS. Each of the Target Shareholders as to himself severally
represents and warrants to the Buyer that the statements contained in this
Section 4 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout
this Section 4), except as set forth in the Disclosure Schedule. The
Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 4.
(a) AUTHORITY AND CAPACITY. Such Target Shareholder has full legal right,
power, authority and capacity to execute and deliver this Agreement and each
of the other documents and agreements to be executed and delivered by such
Target Shareholder
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in connection with the transactions contemplated by this Agreement and to
perform his obligations hereunder and thereunder. This Agreement and each of
the other documents and agreements to be executed and delivered by such
Target Shareholder in connection with the transactions contemplated by this
Agreement constitute (or when executed will constitute) the valid and legally
binding obligation of such Target Shareholder, enforceable in accordance with
its terms and conditions, subject to applicable bankruptcy, reorganization,
insolvency, moratorium and other laws affecting creditors' rights generally
and to general equitable principles.
(b) NONCONTRAVENTION. Neither execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which such Target Shareholder is subject, or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which such Target Shareholder is a
party or by which he is bound or to which any of his assets is subject.
(c) TITLE TO SHARES. Such Target Shareholder has good and marketable title
to and is the lawful owner, of record and beneficially, of the Target Shares
set forth opposite his name on the Disclosure Schedule, all of which shares are
to be converted into Buyer Shares pursuant to Section 2(d)(v) hereof. Such
Target Shares constitute all the Target Shares owned by such Target
Shareholder, either directly or indirectly. Such Target Shares owned by such
Target Shareholder are not subject to any Security Interest of any type, kind
or nature in favor of any third party or any third party interests.
(d) SECURITIES LAW MATTERS. Such Target Shareholder (i) is acquiring the
Buyer Shares hereunder for his own account with the present intention of
holding such security for investment purposes and has no intention of selling
such security in a public distribution in violation of federal or state
securities laws, (ii) is an "accredited investor" (as such term is defined
under Regulation D promulgated under the Securities Act), (iii) is
sophisticated in financial matters and is able to evaluate the risks and
benefits of his investment in the Buyer Shares and has had an opportunity to
ask questions and receive answers concerning the terms and conditions of the
Buyer Shares, has had full access to such other information concerning the
Buyer as he has requested and possesses substantial information about, and
familiarity with the Buyer, and (iv) is able to bear the economic risk of the
investment in the Buyer Shares for an indefinite period of time
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<PAGE> 95
because the Buyer Shares are being issued and sold under exemptions from
registration provided in the Securities Act and under applicable state
securities laws and, therefore, cannot be sold unless subsequently registered
under the Securities Act or applicable state securities laws or an exemption
from such registrations is available.
(e) CONTINUITY OF INTEREST. Such Target Shareholder has no present plan,
intention, or arrangement to dispose of any of the Buyer Shares received in the
merger if such disposition would reduce the fair value of the Buyer Shares
(with such fair value measured as of the Effective Date) retained by such
Target Shareholder to an amount less than 50 percent of the fair value of the
Target Shares held by such Target Shareholder immediately before the Effective
Time.
(f) DISCLOSURE. The representations and warranties contained in this
Section 4, and the information supplied by such Target Shareholder specifically
for use in the Definitive Buyer Proxy Materials, do not, to the Knowledge of
any Target Shareholder, contain any untrue statement of a material fact or omit
to state any fact material necessary in order to make the statements and
information contained in this Section 4 or the information so supplied not
misleading.
Section 5. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to the Target and the Target Shareholders that the
statements contained in this Section 5 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this Section 5), except as set forth in the
Disclosure Schedule. The Disclosure Schedule will be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Section
5.
(a) ORGANIZATION. The Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
(b) CAPITALIZATION. The entire authorized capital stock of the Buyer as of
June 30, 1995 consisted of (i) 40,000,000 Buyer Shares, of which 11,695,832
Buyer Shares are issued and outstanding and no Buyer Shares are held in
treasury and (ii) 10,000,000 shares of preferred stock, none of which has been
issued. All of the Buyer Shares to be issued in the Merger have been duly
authorized and, upon consummation of the Merger, will be validly issued, fully
paid, and nonassessable.
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<PAGE> 96
(c) AUTHORIZATION OF TRANSACTION. The Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and each of the other documents and agreements to be executed and
delivered by the Buyer in connection with the transactions contemplated by this
Agreement and to perform its obligations hereunder and thereunder; provided,
however, that the Buyer cannot consummate the Merger unless and until it
receives the Requisite Buyer Stockholder Approval. This Agreement and each of
the other documents and agreements to be executed and delivered by the Buyer in
connection with the transactions contemplated by this Agreement constitute (or
when executed will constitute) the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions.
(d) NONCONTRAVENTION. To the Knowledge of the Buyer, neither the execution
and the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Buyer is subject
or any provision of the charter or bylaws of the Buyer or (ii) with or without
the passage of time or the giving of notice (except for compliance with the
provisions of Section 5.04(a)(C)(V) of the Amended and Restated Credit
Agreement dated as of September 8, 1994 among the Buyer and National City Bank,
as Agent for the several banks listed on Schedule 1 thereto, and Section
5.8(a)(vi) of the Note Purchase Agreement dated as of April 8, 1993 among the
Buyer and each of the Purchasers party thereto ($52,000,000 Senior Notes))
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Buyer is a party or by
which it is bound or to which any of its assets is subject, except where the
violation, conflict, breach, default, acceleration, termination, modification,
cancellation, or failure to give notice would not have a material adverse
effect on the ability of the Parties to consummate the transactions
contemplated by this Agreement. To its Knowledge, and other than as may be
required in connection with the provisions of the Delaware General Corporation
Law, the Ohio General Corporation Law, the Securities Exchange Act, the
Securities Act, and the state securities laws, the Buyer does not need to give
any notice to, make any filing or registration with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.
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<PAGE> 97
(e) BROKERS' FEES. The Buyer does not have any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Target or the Target
Shareholders could become liable or obligated.
(f) CONTINUITY OF BUSINESS ENTERPRISE. It is the present intention of the
Buyer to continue the historic business of the Target within the meaning of
Treasury Reg. Section 1.368-1(d).
(g) DISCLOSURE. The representations and warranties contained in this
Section 5 do not, to the Knowledge of the Buyer, contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements and information contained in this Section 5 not misleading.
The Definitive Buyer Proxy Materials will, to the Knowledge of the Buyer,
comply with the Securities Exchange Act in all material respects. The
Definitive Buyer Proxy Materials will, to the Knowledge of the Buyer, not
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made therein, in the light of
the circumstances under which they will be made, not misleading; PROVIDED,
HOWEVER, that the Buyer makes no representation or warranty with respect to any
information that the Target or the Target Shareholders will supply specifically
for use in the Definitive Buyer Proxy Materials.
Section 6. COVENANTS. The Parties agree as follows with respect to the
period from and after the execution of this Agreement.
(a) GENERAL. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable in order
to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section 7 below).
(b) NOTICES AND CONSENTS. The Target will give any notices to third
parties, and will use its reasonable best efforts to obtain any third party
consents, that the Buyer may reasonably request in connection with the matters
referred to in Section 3(d) above.
(c) REGULATORY MATTERS AND APPROVALS. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to
obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters referred to in Section
3(d) and Section 5(d) above. Without limiting the generality of the foregoing:
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(i) SECURITIES ACT, SECURITIES EXCHANGE ACT, AND STATE SECURITIES LAWS.
The Buyer will prepare and file with the SEC preliminary proxy materials
under the Securities Exchange Act relating to the Buyer Annual Meeting.
The Buyer will take all actions, if any, that are necessary under state
securities laws in connection with the offering and issuance of the
Buyer Shares in the Merger. The Target will provide the Buyer with
whatever information and assistance in connection with the foregoing
filings that the Buyer may request.
(ii) BUYER APPROVAL. The Buyer will, at the next annual meeting of its
stockholders (the "Buyer Annual Meeting"), use its reasonable best efforts
to cause its stockholders to consider and vote upon the adoption of this
Agreement and the approval of the Merger in accordance with the Delaware
General Corporation Law. The Definitive Buyer Proxy Materials will contain
the affirmative recommendation of the board of directors of The Buyer in
favor of the adoption of this Agreement and the approval of the Merger.
Notwithstanding the foregoing or any other provision contained in this
Agreement, no director or officer of the Buyer shall be required to violate
any fiduciary duty or other requirement imposed by law in connection with the
matters referred to in this Section 6(c)(ii).
(d) OPERATION OF BUSINESS. Except as otherwise specifically set forth in
this Section 6(d), the Target will not engage in any practice, take any action,
or enter into any transaction outside the ordinary course of business without
the Buyer's prior written approval, which shall not be unreasonably withheld or
delayed. Without limiting the generality of the foregoing:
(i) the Target will not authorize or effect any change in its
charter or bylaws;
(ii) the Target will not grant any options, warrants, or other
rights to purchase or obtain any of its capital stock or issue, sell,
or otherwise dispose of any of its capital stock;
(iii) the Target will not declare, set aside, or pay any
dividend or distribution with respect to its capital stock (whether in
cash or in kind), or redeem, repurchase, or otherwise acquire any of
its capital stock; PROVIDED that the Target may at any time and from
time to time prior to the Closing distribute to the Target
Shareholders all cash flow from ordinary course operations, net of an
amount of cash sufficient to reimburse the Surviving Corporation for
the Target's pro rata share of employee bonuses and profit sharing
amounts payable for 1995 (which shall be a percentage of the total of
such amounts payable for 1995 equal to the number of days elapsed
between January 1, 1995 and the Closing Date divided by 365);
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(iv) the Target will not issue any note, bond, or other debt
security or create, incur, assume, or guarantee any indebtedness for
borrowed money or capitalized lease obligation;
(v) the Target will not impose any Security Interest upon any
of its assets;
(vi) the Target will not make any capital investment in, make
any loan to, or acquire the securities or assets of any other Person;
(vii) the Target will not make any change in employment or
compensation terms for any of its directors, officers, and employees;
(viii) the Target will not engage in any practice, take any
action, or enter into any transaction outside the ordinary course of
business, the purpose or effect of which will be to generate or preserve
cash or cash equivalents (including marketable securities and short term
investments), to alter the Target's historical method of paying or
accounting for accounts payable or accrued Liabilities or to cause any
material change in the cash flow from operations;
(ix) the Target will not forgive or cancel any indebtedness
owing to it or waive any claims or rights of material value;
(x) the Target will not amend, modify or exercise any option
to extend the term of the Lease Agreement; and
(xi) the Target will not commit to any of the foregoing.
(e) FULL ACCESS; CONFIDENTIALITY. The Target will permit
representatives of the Buyer to have full access to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to the Target and, as appropriate, the Predecessor Corporation.
In addition, the Target Shareholder will have access to information concerning
the businesses and affairs of the Target and the Buyer that is not already
generally available to the public. The Target Shareholders will treat and hold
as confidential such information and will not use any such confidential
information except in connection with this Agreement.
(f) NOTICE OF DEVELOPMENTS. Each Party will give prompt written
notice to the other of any material adverse development causing a breach of any
of its own representations and warranties in Section 3, Section 4 or Section 5
above. No disclosure by any Party pursuant to this Section 6(f), however,
shall be deemed to amend or supplement the Disclosure Schedule or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
SECTION 7. CONDITIONS TO OBLIGATION TO CLOSE.
----------------------------------
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the Target shall have procured all of the third party
consents specified in Section 6(b) above;
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(ii) the representations and warranties set forth in Section 3 and
Section 4 above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) the Target and the Target Shareholders shall have performed and
complied with all of their covenants hereunder in all material respects through
the Closing;
(iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, (C) cause any of the Buyer or its officers or
directors to become liable for any material damages, or (D) affect adversely
the right of the Surviving Corporation to own the former assets or to operate
the former businesses of the Target (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(v) the Target and the Target Shareholders shall have delivered to the
Buyer a certificate to the effect that, to the Knowledge of each of them, each
of the conditions specified above in Section 7(a)(i)-(iv) is satisfied in all
respects;
(vi) this Agreement and the Merger shall have received the Requisite
Buyer Stockholder Approval;
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<PAGE> 101
(vii) The Buyer shall have received an opinion of Alex. Brown & Sons,
reasonably satisfactory to the Buyer in form and substance, as to the fairness
of the Merger to the Buyer from a financial point of view;
(viii) The appropriate Parties shall have entered into the Non-Compete
Agreements between the Buyer and each Target Shareholder, attached hereto as
Exhibits D and E; the Employment and Consulting Agreement between the Buyer and
Bruce G. Thompson, attached hereto as Exhibit F; and the Consulting Agreement
between the Buyer and Frederic D. Wolfe, attached hereto as Exhibit G;
(ix) the Parties shall have received all authorizations, consents, and
approvals of governments and governmental agencies, if any, referred to in
Section 3(d), Section 4(b) and Section 5(d) above;
(x) the Buyer shall have received from Fuller & Henry as counsel to
the Target and the Target Shareholders an opinion, dated as of the Closing Date
and addressed to the Buyer, in form and substance reasonably acceptable to the
Buyer and the Buyer's counsel;
(xi) all actions to be taken by the Target and the Target Shareholders
in connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and substance to
the Buyer;
(xii) no fact or situation shall have come to the attention of the
Buyer which, if true, would result in the consummation of the Merger
jeopardizing the Buyer's continued qualification under the Code as a real
estate investment trust in any year; and
(xiii) no Change of Control shall have occurred prior to the Closing
and no circumstances shall exist that make it reasonably likely that such a
Change of Control will occur soon after the Closing.
The Buyer may waive any condition specified in this Section 7(a) if it executes
a writing so stating at or prior to the Closing.
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<PAGE> 102
(b) CONDITIONS TO OBLIGATION OF THE TARGET. The obligation of the
Target and the Target Shareholders to consummate the transactions to be
performed by it in connection with the Closing is subject to satisfaction of
the following conditions:
(i) the representations and warranties set forth in Section 5 above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, or (C) cause any of the Target, its
officers or directors, or either of the Target Shareholders to become
liable for any material damages, or (D) affect adversely the right of the
Surviving Corporation to own the former assets or to operate the former
businesses of the Target (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Target and the Target
Shareholders a certificate to the effect that each of the conditions
specified above in Section 7(b)(i)-(iii) is satisfied in all respects;
(v) the Parties shall have received all other authorizations, consents,
and approvals of governments and governmental agencies, if any, referred to
in Section 3(d), Section 4(b) and Section 5(d) above;
(vi) The appropriate Parties shall have entered into the Non-Compete
Agreements between the Buyer and each Target Shareholder, attached hereto
as Exhibits D and E; the Employment and Consulting Agreement between the
Buyer and Bruce G. Thompson, attached hereto as Exhibit F; and the
Consulting Agreement between the Buyer and Frederic D. Wolfe, attached
hereto as Exhibit G;
(vii) the Parties shall have received all authorizations, consents, and
approvals of governments and governmental agencies, if any, referred to in
Section 3(d), Section 4(b) and Section 5(d) above;
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<PAGE> 103
(viii) the Target and the Target Shareholders shall have received from
counsel to the Buyer an opinion, dated as of the Closing Date and addressed
to the Target and the Target Shareholders, in form and substance reasonably
acceptable to the Target Shareholders and their counsel;
(ix) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Target; and
(x) no Change of Control shall have occurred prior to the Closing and no
circumstances shall exist indicating that such a Change of Control is
reasonably likely to occur soon after the Closing.
The Target and the Target Shareholders may waive any condition specified in
this Section 7(b) if each of them executes a writing so stating at or prior to
the Closing.
Section 8. FURTHER AGREEMENTS AND COVENANTS. The Parties agree as
follows with respect to the period from and after the Effective Time:
(a) CONTINUITY OF BUSINESS ENTERPRISE. The Buyer will continue the
historic business line of the Target within the meaning of Treasury Reg.
Section 1.368-1(d).
(b) PRESERVATION OF REORGANIZATION. Each of Target and the Target
Shareholders agree to use best efforts to ensure that all events within its
control occur, and all conditions exist, to the extent required for the Merger
to qualify as a tax-free reorganization. Each Target Shareholder agrees that,
if he wishes to dispose of any Buyer Shares received in the Merger before the
second anniversary of the Closing Date, he will provide written notice to the
Buyer, not less than 30 days prior to the intended date of disposition,
specifying the number of Buyer Shares of which the Target Shareholder proposes
to dispose.
(c) LEGEND. The certificates representing the Buyer Shares to be
issued to the Target Shareholders pursuant to Section 2(e) hereof will be
imprinted with a legend in substantially the following form:
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<PAGE> 104
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO
SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT AND UNDER ANY
APPLICABLE STATE SECURITIES LAWS UNLESS, IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER HEREOF, AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND STATE SECURITIES LAWS IS
AVAILABLE. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS SPECIFIED IN THAT CERTAIN
AGREEMENT AND PLAN OF MERGER, DATED AS OF MAY 10, 1995 AND AMENDED AND
RESTATED EFFECTIVE AS OF SEPTEMBER 5, 1995, BY AND AMONG THE ORIGINAL
HOLDER HEREOF, THE ISSUER HEREOF AND CERTAIN OTHER PERSONS, AND THE
ISSUER HEREOF RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH
SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO
SUCH TRANSFER. A COPY OF SUCH CONDITIONS WILL BE FURNISHED BY THE
ISSUER HEREOF TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT
CHARGE."
(d) LISTING OF BUYER SHARES. The Buyer will use its reasonable best
efforts to cause the Buyer Shares that will be issued in the Merger to be
approved for listing on the New York Stock Exchange, subject to official notice
of issuance, as soon as reasonably practicable after the Effective Date.
(e) MANAGEMENT FEE. As soon as practicable after the Closing Date, the
Buyer shall pay to each Target Shareholder an amount equal to one- half of the
unpaid management fee payable (as described in Section 13.A of the Management
Agreement) through the Closing Date, after deducting those operating expenses
incurred but not yet paid prior to the Closing Date that are required to be
accrued (excluding bonus and profit sharing expense as described in Section
6(d)(iii) above) in accordance with accrual accounting under generally accepted
accounting principles (it being understood that for purposes of calculating
such management fee payable through the Closing Date, any charge against
earnings recorded by the Buyer in connection with the termination of the
Management Agreement shall have no effect).
(f) POST-CLOSING SERVICES. The parties hereto agree to negotiate in
good faith reasonable terms under which the Buyer shall provide to First Toledo
Corporation after the Closing Date certain management, office and support
services at a cost comparable to what First Toledo Corporation would pay for
such services were such services provided by an unaffiliated third party;
PROVIDED, that First Toledo Corporation may terminate such agreement with
respect to any such services at any time upon 30 days' prior written notice to
the Buyer; and PROVIDED FURTHER, that the Buyer shall not be obligated to
provide any such service beyond May 14, 1996.
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<PAGE> 105
(g) WAIVER OF APPRAISAL. The parties hereto, for purposes of this
Agreement and the consummation of the transactions contemplated hereby, hereby
waive the provision in Section 8 of the Management Agreement requiring that the
acquisition by the Buyer of any asset from any Target Shareholder be based upon
an independent appraisal, and all parties hereby recognize, understand and
agree that no such appraisal shall be obtained or need be obtained in
connection with the transactions contemplated hereby.
(h) INDEMNIFICATION BY PARTIES.
(i) INDEMNIFICATION BY THE TARGET SHAREHOLDERS. Upon the terms and
subject to the conditions hereinafter provided, the Target Shareholders
shall indemnify and hold harmless the Buyer, to the extent permitted by
applicable law, from and against any and all actions, suits, proceedings,
claims, demands, assessments, judgments, liabilities, losses, damages,
costs or expenses, including, without limitation, the reasonable and
documented fees and disbursements of its counsel and accountants
(collectively "LOSSES") incurred by the Buyer to the extent arising out of
(i) the untruth of any representation or the breach of any warranty of the
Target or the Target Shareholders contained in this Agreement (PROVIDED
THAT, if such untruth or breach relates solely to facts concerning a
particular Target Shareholder, as opposed to the Target itself or the
Target Shareholders taken together, then only the relevant Target
Shareholder shall have responsibility hereunder); (ii) the breach of any
covenant, agreement or other provisions to be performed by the Target or
the Target Shareholders under, pursuant to or contained in this Agreement;
(iii) Liabilities of the Target other than any such Liabilities (x)
reflected on the Most Recent Financial Statements, (y) arising between the
date of the Most Recent Financial Statements and the Closing Date in the
ordinary course of business which are of the type set forth on the Most
Recent Financial Statements and in amounts consistent with past experience
of the Target, and (z) otherwise specifically disclosed to the Buyer on the
Disclosure Schedule; and (iv) the failure of the Merger to constitute a
tax-free reorganization pursuant to Code Section 368(a)(1)(A). Except as
expressly provided in the preceding sentence, the indemnification
obligations of the Target Shareholders pursuant to this Agreement shall be
joint and several.
(ii) INDEMNIFICATION BY THE BUYER. Upon the terms and subject to the
conditions hereinafter provided, the Buyer shall indemnify and hold
harmless each of the Target Shareholders, to the extent permitted by
applicable law, from and against any and all Losses incurred by either of
the Target Shareholders to the extent arising out of (i) the
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<PAGE> 106
untruth of any representation or the breach of any warranty of the Buyer
contained in this Agreement; (ii) the breach of any covenant, agreement or
other provisions to be performed by the Buyer under, pursuant to or
contained in this Agreement; and (iii) Liabilities of the Target (x)
reflected on the Most Recent Financial Statements, (y) arising between the
date of the Most Recent Financial Statements and the Closing Date in the
ordinary course of business which are of the type set forth on the Most
Recent Financial Statements and in amounts consistent with past experience
of the Target and (z) otherwise specifically disclosed to the Buyer on the
Disclosure Schedule.
(iii) NOTICE OF CLAIMS; ASSUMPTION OF DEFENSE. An indemnified party
shall give prompt written notice to the indemnifying party within
applicable survival period of the assertion of any claim, or the
commencement of any suit, action or proceeding by any third party in
respect of which indemnity may be sought hereunder, specifying with
reasonable particularity the basis therefor and any applicable provisions
of this Agreement in respect of which such right of indemnification is
claimed or arises and, further, the indemnified party shall give the
indemnifying party such information with respect thereto as the
indemnifying party may reasonable request. The failure of an indemnified
party to give prompt notice of any claim shall not excuse the indemnifying
party's obligation to indemnify hereunder, except to the extent the
indemnifying party has suffered damage or has been prejudiced thereby, and
except to the extent notice is first given with respect to such claim after
the expiration of the applicable survival periods set forth herein. The
indemnifying party, at its own expense, (i) may appear and participate in
the defense thereof, or (ii) may, upon the indemnifying party's written
agreement that the indemnified party is entitled to indemnification
pursuant to this Agreement for Losses arising out of such claim, suit,
action or proceeding, at any reasonable time during the course of any such
claim, suit, action or proceeding, assume the defense thereof with counsel
reasonable satisfactory to the other party whereupon the indemnifying party
shall not be liable for attorneys' fees and expenses of the indemnified
party with respect to Losses thereafter accruing so long as it continues to
assume and control such defense. The indemnifying party shall thereafter
consult with the indemnified party upon the indemnified party's reasonable
request for such consultation from time to time with respect to such claim,
suit, action or proceeding.
(iv) SETTLEMENT OR COMPROMISE. No third party claim, except the
settlement thereof which involves the payment of
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<PAGE> 107
money only and for which the indemnified party is totally indemnified by the
indemnifying party, may be settled by the indemnifying party without the
written consent of the indemnified party, which consent shall not be
unreasonably withheld or delayed. Similarly, no third party claim which is
being defended in good faith by the indemnifying party shall be settled by the
indemnified party without the written consent of the indemnifying party,
which consent shall not be unreasonably withheld or delayed. Any third party
claim that is not being defended in good faith by the indemnifying party, or
for which the indemnifying party has not accepted responsibility, may be
settled by the indemnified party provided the indemnified party has given the
indemnifying party thirty days' notice of any proposed settlement or compromise
of any such claim during which time the indemnifying party may assume the
defense of such claim and if it does so the proposed settlement or compromise
may not be made. Notwithstanding the foregoing, at any time after notice of
any third party claim, the indemnifying party may request the indemnified party
to consent in writing to the payment or compromise of the third party claim
which payment or compromise does not require any action, payment or compromise
by the indemnified party, whereupon such action shall be taken unless the
indemnified party determines that the contest should be continued and so
notifies the indemnifying party in writing within fifteen days of such request
from the indemnifying party. In the event that the indemnified party
determines that the contest should be continued, the indemnifying party shall
be liable pursuant to this Agreement with respect to such claim only to the
extent of the lesser of (i) the amount which the other party to the contested
third party claim has agreed to accept in complete payment or compromise as of
the time the indemnified party made its request therefor to the indemnified
party plus other Losses incurred to such date with respect to such claim, or
(ii) such amount for which the indemnifying party may be liable with respect to
third party claim by reason of the provisions of this Agreement. Any
settlement or compromise made or caused to be made pursuant to this Agreement
shall be binding on the other party in the same manner as if a final judgment
or decree had been entered by, a court of competent jurisdiction in the amount
of such settlement or compromise.
(v) THE FAILURE OF AN INDEMNIFYING PARTY TO ACT. In the event that the
indemnifying party does not elect to assume the defense of any claim, suit,
action or proceeding, then any failure of the indemnified party to defend or to
participate in the defense of any such claim, suit, action or proceeding or to
cause the same to be done, shall not relieve the indemnifying party of its
obligations hereunder, provided,
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<PAGE> 108
that the indemnified party gives the indemnifying party at least thirty
days' notice of its proposed failure to defend or participate and affords
the indemnifying party the opportunity to assume the defense thereof.
(i) CERTAIN LIMITATIONS. The liability of the Target Shareholders shall
be limited by the following:
(i) In no event shall any claim include any special, indirect,
incidental or consequential damages of the Buyer whatsoever.
(ii) The Target Shareholders shall have no further obligations under
this Section 8 or this Agreement or otherwise with respect to the
representations and warranties made by the Target Shareholders in this
Agreement after the designated survival period, except for specifically
identified claims with respect to which the Buyer, the Target or their
successors or assigns has given written notice prior to such date.
(iii) The Target Shareholders shall have no liability under clause (i)
of Section 8(h)(i) hereunder until such time as the amount of all damages
incurred by the Buyer, the Target and their successors and assigns in
connection with claims under such Section 8(h)(i) equals at least $50,000
in the aggregate, after which time the Target Shareholders shall be liable
for the full amount of all such damages (including such $50,000).
Section 9. TERMINATION.
(a) TERMINATION OF AGREEMENT. Any of the Parties may terminate this
Agreement (with the prior authorization of its board of directors, if
applicable, whether before or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written consent
at any time prior to the Effective Time;
(ii) the Buyer may terminate this Agreement by giving written notice to
the Target and the Target Shareholders at any time prior to the Effective
Time (A) in the event the Target or either of the Target Shareholders has
breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, the Buyer has notified the Target
or the appropriate Target Shareholder of the breach, and the breach has
continued without cure for a period of 30 days after the notice of breach
or such longer period of time as is reasonably required to cure such breach
(provided
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<PAGE> 109
that any action to so cure has been commenced by such thirtieth day and is
being diligently pursued) or (B) if the Closing shall not have occurred on
or before December 31, 1995, by reason of the failure of any condition
precedent under Section 7(a) hereof (unless the failure results primarily
from the Buyer breaching any representation, warranty, or covenant
contained in this Agreement);
(iii) the Target or either Target Shareholder may terminate this
Agreement by giving written notice to the Buyer at any time prior to the
Effective Time (A) in the event the Buyer has breached any material
representation, warranty, or covenant contained in this Agreement in any
material respect, the Target or either Target Shareholder has notified the
Buyer of the breach, and the breach has continued without cure for a period
of 30 days after the notice of breach or such longer period of time as is
reasonably required to cure such breach (provided that any action to so
cure has been commenced by such thirtieth day and is being diligently
pursued) or (B) if the Closing shall not have occurred on or before
December 31, 1995, by reason of the failure of any condition precedent
under Section 7(b) hereof (unless the failure results primarily from the
Target or either Target Shareholder breaching any representation, warranty,
or covenant contained in this Agreement); and
(iv) any Party may terminate this Agreement by giving written notice to
the other Parties at any time after the Buyer Annual Meeting in the event
this Agreement and the Merger fail to receive the Requisite Buyer
Stockholder Approval.
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section 9(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach); provided, however, that
the confidentiality provisions contained in Section 6(e) above shall survive
any such termination.
Section 10. MISCELLANEOUS.
(a) SURVIVAL. The representations and warranties made in this
Agreement or in any agreement, certificate or other document executed at or
prior to the Closing in connection herewith shall survive the Closing and
remain in full force and effect for a period of (i) except as provided below, 2
years after the Closing Date, (ii) in the case of Section 3(k), the expiration
of the applicable statute of limitations (including any extensions or waivers
thereof) and (iii) in the case of Section Section 3(a), 3(b), 3(c) and 3(d),
forever.
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<PAGE> 110
(b) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Parties;
provided, however, that the Buyer may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the Buyer will use its
reasonable best efforts to advise the Target prior to making the disclosure).
(c) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements (including the Original Agreement), or
representations by or between the Parties, written or oral, to the extent
they related in any way to the subject matter hereof.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior
written approval of the other Party.
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
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<PAGE> 111
If to the Target or
the Target Shareholders: Copy to:
----------------------- -------
Frederic D. Wolfe James M. Morton, Jr.
30465 East River Road Fuller & Henry
Perrysburg, Ohio 43551 One SeaGate, 17th Floor
Toledo, Ohio 43603
Bruce G. Thompson
3859 River Road
Toledo, Ohio 43614
If to the Buyer: Copy to:
--------------- -------
Health Care REIT, Inc. Mary Ellen Pisanelli
One SeaGate, Suite 1950 Shumaker, Loop & Kendrick
Toledo, Ohio 43603 1000 Jackson Street
Attn: George L. Chapman Toledo, Ohio 43624
President
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Party notice in the manner herein set forth.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF DELAWARE WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE
OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
(j) AMENDMENTS AND WAIVERS. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time (with the
prior authorization of their respective boards of directors, if applicable);
PROVIDED, HOWEVER, that any amendment effected subsequent to stockholder
approval will be subject to the restrictions contained in the Delaware General
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<PAGE> 112
Corporation Law. No amendment of any provision of this Agreement shall be
valid unless the same shall be in writing and signed by all Parties. No
waiver by any Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to
any prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) EXPENSES. All Parties will bear their own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby; provided that all expenses of the
Target shall be paid by the Target Shareholders (and not the Target).
(m) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the authorship of
any of the provisions of this Agreement. Any reference to any federal, state,
local, or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(n) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Disclosure Schedule identified in this Agreement are incorporated herein by
reference and made a part hereof.
* * * * *
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<PAGE> 113
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
as of the date first above written.
HEALTH CARE REIT, INC.
By: George L. Chapman
---------------------------
Title: Executive Vice President
FIRST TOLEDO ADVISORY COMPANY
By: Bruce G. Thompson
---------------------------
Title: President
BRUCE G. THOMPSON, Individually
-------------------------------
FREDERIC D. WOLFE, Individually
-------------------------------
<PAGE> 114
EXHIBIT A
---------
CERTIFICATE OF MERGER
OF
FIRST TOLEDO ADVISORY COMPANY
(an Ohio corporation)
WITH AND INTO
HEALTH CARE REIT, INC.
(a Delaware corporation)
It is hereby certified that:
FIRST: The name and state of incorporation of Health Care REIT, Inc.
is Delaware and the state of incorportion of First Toledo Advisory Company is
Ohio.
SECOND: An Agreement and Plan of Merger has been approved, adopted,
certified, executed and acknowledged by each of the aforesaid constituent
corporations in accordance with the provisions of subsection (c) of Section 252
of the General Corporation Law of the State of Delaware, to wit, by First
Toledo Advisory Company in accordance with the laws of the state of Ohio and by
Health Care REIT, Inc. in the same manner as is provided in Section 251 of the
General Corporation Law of the State of Delaware.
THIRD: The name of the surviving corporation in the merger herein
certified is Health Care REIT, Inc., which will continue its existence as said
surviving corporation under its present name upon the effective date of said
merger pursuant to the provisions of the General Corporation Law of the State
of Delaware.
FOURTH: The Certificate of Incorporation of Health Care REIT, Inc. as
now in force and effect, shall continue to be the Certificate of Incorporation
of said surviving corporation until amended and changed in accordance with the
provisions of the General Corporation Law of the State of Delaware.
FIFTH: The executed Agreement and Plan of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is One SeaGate, Suite
1950, Toledo, Ohio 43603.
<PAGE> 115
SIXTH: The aforesaid Agreement and Plan of Merger will be furnished by
the aforesaid surviving corporation, upon request and without cost, to any
stockholder of either of the aforesaid constituent corporations.
SEVENTH: The authorized capital stock of First Toledo Advisory Company
consists of 850 shares of common stock, no par value.
EIGHTH: The merger herein certified shall be effective upon filing of
this Certificate of Merger with the Secretary of State of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned, for the purpose of effectuating the
merger of the aforesaid constituent corporations, pursuant to the General
Corporation Law of the State of Delaware, under penalties of perjury do hereby
declare and certify that this is the act and deed of the corporation and the
facts stated herein are true and accordingly have hereunto signed this
Certificate of Merger as of the _____ day of ___________ 1995.
HEALTH CARE REIT, INC., a Delaware corporation
By: ____________________________
Its: ___________________________
HCR-05-1.DWY
<PAGE> 116
Exhibit B
Prescribed by Approved ______
Bob Taft, Secretary of State Date _____________
30 East Broad Street, 14th Floor Fee_______________
Columbus, Ohio 43266-0418
Form MER (July 1994)
CERTIFICATE OF MERGER
In accordance with the requirements of Ohio law, the undersigned
corporations, limited liability companies and/or limited partnerships, desiring
to effect a merger, set forth the following facts:
I. SURVIVING ENTITY
A. The name of the entity surviving the merger is: _______
HEALTH CARE REIT, INC.
_____________________________________________________________
(if the surviving entity is an Ohio limited partnership or qualified foreign
limited partnership, its registration number must be provided)
B. Name change: As a result of this merger, the name of
the surviving entity has been changed to the following: _____________
(NOT APPLICABLE)
_______________________________________________________________________
(complete only if the name of surviving entity is changing through
the merger)
C. The surviving entity is a: (Please check the appropriate box and fill in
the appropriate blanks)
[ ] Domestic (Ohio) corporation.
[XX] Foreign (Non-Ohio) corporation incorporated under the laws of the
state/country of DELAWARE and licensed to transact business in the state
of Ohio.
[ ] Foreign (Non-Ohio) corporation incorporated under the laws of the
state/country of __________________, and NOT licensed to transact
business in the state of Ohio.
[ ] Domestic (Ohio) limited liability company.
[ ] Foreign (Non-Ohio) limited liability company organized under the laws of
the state/country of _______________, and registered to do business in
the state of Ohio.
<PAGE> 117
[ ] Foreign (Non-Ohio) limited liability company organized under the laws of
the state/country of _______________, and NOT registered to do business
in the state of Ohio.
[ ] Domestic (Ohio) limited partnership, registration number
____________________.
[ ] Foreign (Non-Ohio) limited partnership organized under the laws of the
state/country of _________________, and registered to do business in the
state of Ohio, under registration number ___________________.
[ ] Foreign (Non-Ohio) limited partnership organized under the laws of the
state/country of _______________, and NOT registered to do business in
the state of Ohio.
II. MERGING ENTITIES
The name, type of entity, and state/country of incorporation or
organization, respectively, of each entity, other than the survivor, which is a
party to the merger are as follows:
<TABLE>
<CAPTION>
Name State/Country of Organization Type of Entity
<S> <C> <C>
FIRST TOLEDO ADVISORY OHIO CORPORATION
COMPANY
</TABLE>
III. MERGER AGREEMENT ON FILE
The name and mailing address of the person or entity from whom/which
eligible persons may obtain a copy of the agreement of merger upon written
request:
<TABLE>
<CAPTION>
Name Address
<S> <C>
ERIN C. IBELE ONE SEAGATE, SUITE 1950
P.O. BOX 1475
TOLEDO, OHIO 43603-1475
</TABLE>
IV. EFFECTIVE DATE OF MERGER
This merger is to be effective:
On __________________________ (if a date is specified, the date must be a
date on or after the date of filing; the effective date of the merger cannot be
earlier than the date of filing; if no date is specified, the date of filing
will be the effective date of the merger).
V. MERGER AUTHORIZED
-2-
<PAGE> 118
The laws of the state or country under which each constituent entity exists,
permits this merger.
This merger was adopted, approved and authorized by each of the constituent
entities in compliance with the laws of the state under which it is organized,
and the persons signing this certificate on behalf of the constituent entities
are duly authorized to do so.
VI. STATUTORY AGENT
The name and address of the surviving entity's statutory agent upon whom any
process, notice or demand may be served is:
(NOT APPLICABLE)
_______________________________________________________________________________
(This item MUST be completed if the surviving entity is a foreign entity which
is not licensed, registered or otherwise authorized to conduct or transact
business in the state of Ohio).
ACCEPTANCE OF AGENT
The undersigned, named herein as the statutory agent for the above
referenced surviving entity, hereby acknowledges and accepts the appointment of
statutory agent for said entity.
(NOT APPLICABLE)
_________________________________
Signature of Agent
(The acceptance of agent must be completed by domestic surviving entities if
through this merger the statutory agent for the surviving entity has changed,
or the named agent differs in any way from the name reflected on the Secretary
of State's records).
VII. STATEMENT OF MERGER
Upon filing, or upon such later date as specified herein, the merging
entity/entities listed herein shall merger into the listed surviving entity.
VIII. AMENDMENTS
The articles of incorporation, articles of organization or certificate of
limited partnership (strike the inapplicable terms) of the surviving domestic
entity herein, are amended as set forth in the attached "Exhibit A").
(NOT APPLICABLE)
_____________________________________________________________________________
-3-
<PAGE> 119
(Please note that any amendments to articles of incorporation, articles of
organization or to a certificate of limited partnership MUST be attached if the
surviving entity is a DOMESTIC corporation, limited liability company, or
limited partnership).
IX. QUALIFICATION OF LICENSURE OF FOREIGN SURVIVING ENTITY
A. The listed surviving foreign corporation, limited liability company, or
limited partnership desires to transact business in Ohio as a foreign
corporation, foreign limited liability company, or foreign limited partnership,
and hereby appoints the following as its statutory agent upon whom process,
notice or demand against the entity may be served in the state of Ohio. The
name and complete address of the statutory agent is:
(NOT APPLICABLE)
____________________ ___________________________
(name) (street and number)
__________________________________________, Ohio ____________________
(city, village or township) (zip code)
The subject surviving foreign corporation, limited liability company or
limited partnership irrevocably consents to service of process on the statutory
agent listed above as long as the authority of the agent continues, and to
service of process upon the Secretary of State if the agent cannot be found, if
the corporation, limited liability company, or limited partnership fails to
designate another agent when required to do so, or if the corporation's,
limited liability company's, or limited partnership's license or registration
to do business in Ohio expires or is cancelled.
B. The qualifying entity also states as follows: (complete only if
applicable).
1. Foreign Qualifying Limited Liability Company
(If the qualifying entity is a foreign limited liability company, the
following information must be completed)
a. The name of the limited liability company in its state of
organization/registration is
(NOT APPLICABLE)
_____________________________________________________________________
b. The name under which the limited liability company desires to transact
business in Ohio is
(NOT APPLICABLE)
_____________________________________________________________________
c. The limited liability company was organized or registered on
(NOT APPLICABLE)
______________________________________________________________________
under the laws of the state/country of _______________________________
(NOT APPLICABLE)
______________________________________________________________________
-4-
<PAGE> 120
d. The address of which interested persons may direct request for copies
of the articles of organization, operating agreement, bylaws, or other
charter documents of the company is:
(NOT APPLICABLE)
_____________________________________________________
_____________________________________________________
2. Foreign Qualifying Limited Partnership
(If the qualifying entity is a foreign limited partnership, the following
information must be completed)
a. The name of limited partnership is___________________
(NOT APPLICABLE)
_____________________________________________________
b. The limited partnership was formed on _______________
(NOT APPLICABLE)
_____________________________________________________
under the laws of the state/country of ______________
_______________________.
c. The address of the office of the limited partnership in its
state/country of organization is ____________________
(NOT APPLICABLE)
_____________________________________________________
d. The limited partnership's principal office
address is __________________________________________
(NOT APPLICABLE)
_____________________________________________________
e. The names and business or residence addresses of the GENERAL partners
of the partnership are as follows: _________________
(NOT APPLICABLE)
_____________________________________________________
f. The address of the office where a list of the names and business or
residence addresses of the limited partners and their respective
capital contributions is to be maintained is:
(NOT APPLICABLE)
_____________________________________________________
The limited partnership hereby certifies that it shall maintain said
records until the registration of the limited partnership in Ohio is
cancelled or withdrawn.
jir\h64200\36065.1 -5-
<PAGE> 121
The undersigned constituent entities have caused this certificate of merger
to be signed by its duly authorized officers, partners and representatives on
the date(s) stated below.
FIRST TOLEDO ADVISORY COMPANY
By:____________________________
Its: Vice President and
Corporate Secretary
Date:_____________________
HEALTH CARE REIT, INC.
By:____________________________
Its: Vice President and
Corporate Secretary
Date:_____________________
-6-
<PAGE> 122
<TABLE>
EXHIBIT C
FIRST TOLEDO CORPORATION
BALANCE SHEET
FINAL AS OF DECEMBER 31, 1992
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
BALANCE DEC 30
-----------------------------------
1992 1991
------------- -----------
<S> <C> <C>
ASSETS
Cash $ 729,842.96 $488,487.05
A/R - Payroll 1,263.70 529.18
Advance - other 147.99 7,229.65
Investment in Santa Fe 31,182.00
Note receivable - West Park Place 106,750.00 106,750.00
Section 189 costs - West Park Place 174.00
Equipment 242,635.48 222,763.20
Boat 91,645.00 91,645.00
Depreciation reserve (196,061.89) (199,646.55)
------------- -----------
TOTAL ASSETS $ 976,223.24 $749,113.53
============= ===========
LIABILITIES & OWNERS' EQUITY
FICA & F.I.T. withheld $ 990.48 $ 414.76
State tax withheld 10,908.68 4,706.29
City tax withheld 4,726.20 4,273.54
Group insurance 152.29
Tax loss on investments in
partnership in excess of
cash invested:
Investment - West Park Place 32,686.00 30,532.00
Investment - Landver 305,703.47 180,357.47
Investment - Naperville 325,358.00 282,790.00
Investment - Rockford 285,550.00 281,031.00
Investment - Santa Fe 34,252.00
------------- -----------
Total Liabilities 1,000,327.12 784,105.06
Shareholders' Equity:
Common Stock 500.00 500.00
Retained earnings (24,603.88) (35,491.53
------------- -----------
(24,103.88) (34,991.53
------------- -----------
TOTAL LIABILITIES & EQUITY $ 976,223.24 $749,113.53
============= ===========
</TABLE>
<PAGE> 123
<TABLE>
FIRST TOLEDO CORPORATION
INCOME STATEMENT
FINAL AS OF DECEMBER 31, 1992
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MONTH OF TWELVE MONTHS ENDED
DECEMBER DECEMBER 31
1992 1992 1991
----------- -----------------------------------
<S> <C> <C> <C>
INCOME
Management fees $400,000.00 $1,875,000.00 $1,460,000.00
Administration fees 2,711.12 33,465.92 46,751.99
Miscellaneous income 244.02 244.02
Interest income 2,486.43 47,494.16 24,268.18
----------- ------------- -------------
GROSS INCOME 405,441.57 1,956,204.10 1,531,020.17
EXPENSES
Salary expense 115,790.44 789,048.53 556,104.21
Bonus pool 89,295.50 101,790.40 32,500.00
Depreciation expense 1,636.00 15,000.04 14,757.17
Office expense (48.41) 15,370.27 15,845.52
Directors fees 400.00
Travel & entertainment 535.09 5,367.39 7,052.85
Rentals 635.00 104,775.02 97,411.10
Professional services 810.00 10,563.25 10,604.44
Consulting services 1,110.00 22,997.95 18,714.42
State & local taxes 9,063.47 22,371.17
Dues & subscriptions 2,763.05 22,405.65 16,116.34
Group insurance 1,982.00 22,050.02 14,706.43
Profit sharing plan 32,682.98 32,682.98 25,951.46
Donations 1,350.00 10,290.00 9,175.00
Insurance 2,717.00 1,562.00
Repairs 2,186.30 1,175.46
SUI-FUTA tax expense 156.00 3,547.22 2,212.31
Workers Comp. expense 3,220.06 2,451.35
FICA expense 5,163.02 46,365.72 37,100.97
Bad debt expense 179,100.00
Nondeductible expenses 83.91 277.89 575.09
Nondeductible boat expense
Loss (gain) on disposal of
assets 402.29 402.29 (2,063.42
----------- ------------- -------------
TOTAL EXPENSES 254,346.87 1,220,121.45 1,063,823.87
----------- ------------- -------------
Net income before partner-
ship income (losses) 151,094.70 736,082.65 467,196.30
Income (loss) on partnerships:
West Park Place (2,154.00) (2,154.00) (3,342.00
Landver Properties 9,654.00 9,654.00 4,749.00
Naperville (42,568.00) (42,568.00) (34,660.00
Rockford (8,650.00) (8,650.00) (25,550.00
Ponce de Leon (65,434.00) (65,434.00) (93,675.00
Psychiatric Healthcare (34,571.61)
2
<PAGE> 124
FIRST TOLEDO CORPORATION
INCOME STATEMENT
AS OF DECEMBER 31, 1992
FINAL CONTINUED
- -------------------------------------------------------------------------------------------------------------------------
MONTH OF TWELVE MONTHS ENDED
DECEMBER DECEMBER 31
1992 1992 1991
----------- -----------------------------------
<S> <C> <C> <C>
Rockford - prior years'
tax adjustments 4,131.00 4,131.00
Amortization of Section
189 expenses:
West Park Place (174.00) (174.00) (176.00)
----------- ------------- -------------
NET INCOME (LOSS) $ 45,899.70 $ 630,887.65 $ 279,970.69
=========== ============= =============
Retained earnings-beginning $249,496.42 $ (35,491.53) $ 184,537.78
Net income 45,899.70 630,887.65 279,970.69
Less dividends (320,000.00) (620,000.00) (500,000.00)
----------- ------------- -------------
RETAINED EARNINGS--END $(24,603.88) $ (24,603.88) $ (35,491.53)
=========== ============= =============
</TABLE>
3
<PAGE> 125
<TABLE>
FIRST TOLEDO CORPORATION
BALANCE SHEET
FINAL AS OF DECEMBER 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
BALANCE DECEMBER 31
-----------------------------------
1993 1992
------------- ------------
<S> <C> <C>
ASSETS
Cash $ 973,013.67 $ 729,842.96
A/R - Payroll 1,263.70
Advance - other 500.12 147.99
Note receivable - West Park Place 106,750.00 106,750.00
Project development 101.97
Equipment 253,526.50 242,635.48
Accum. depreciation boat (7,637.00)
Boat 91,645.00 91,645.00
Depreciation reserve (212,906.31) (196,061.89)
------------- -------------
TOTAL ASSETS $1,204,993.95 $ 976,223.24
============= =============
LIABILITIES & OWNERS' EQUITY
FICA & F.I.T. withheld $ (4,802.75) $ 990.48
State tax withheld 10,432.20 10,908.68
City tax withheld 5,863.44 4,726.20
Group insurance 119.52 152.29
Tax loss on investments in
partnership in excess of
cash invested:
Investment - West Park Place 34,765.00 32,686.00
Investment - Landver 445,455.47 305,703.47
Investment - Naperville 352,409.00 325,358.00
Investment - Rockford 276,179.00 285,550.00
Investment - Santa Fe 65,810.00 34,252.00
------------- -------------
Total Liabilities 1,186,230.88 1,000,327.12
Shareholders' Equity:
Common Stock 500.00 500.00
Retained earnings 18,263.07 (24,603.88)
------------- -------------
18,763.07 (24,103.88)
------------- -------------
TOTAL LIABILITIES & EQUITY $1,204,993.95 $ 976,223.24
============= =============
</TABLE>
4
<PAGE> 126
<TABLE>
FIRST TOLEDO CORPORATION
INCOME STATEMENT
FINAL AS OF DECEMBER 31, 1993
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MONTH OF TWELVE MONTHS ENDED
DECEMBER DECEMBER 31
1993 1993 1992
----------- -----------------------------------
<S> <C> <C> <C>
INCOME
Management fees $425,000.00 $2,450,000.00 $1,875,000.00
Administration fees 8,022.74 63,579.18 33,465.92
Special service income 2,500.00 64,563.98
Interest income 14,230.09 65,856.18 47,494.16
Miscellaneous income 244.02
Capital gain (loss) 2,590.71
----------- ------------- -------------
GROSS INCOME 449,752.83 2,646,590.05 1,956,204.10
EXPENSES
Salary expense 259,008.27 1,145,610.33 789,048.53
Bonus pool 101,790.40
Deprec. expense boat 7,637.00 7,637.00
Depreciation expense 1,876.84 16,844.42 15,000.04
Office expense 2,369.13 16,329.95 15,370.27
Directors' fees 400.00 800.00
Travel & entertainment 2,407.50 10,188.11 5,367.39
Rentals 257.50 104,910.80 104,775.02
Professional services (555.00) 8,997.91 10,563.25
Consulting services 5,263.33 33,269.05 22,997.95
State & local taxes 21,722.55 9,063.47
Dues & subscriptions 14,761.65 38,542.71 22,405.65
Group insurance (144.79) 26,239.19 22,050.02
Profit sharing plan 56,894.69 56,894.69 32,682.98
Donations 6,375.00 10,290.00
Insurance 1,729.50 2,717.00
Repairs 107.00 503.63 2,186.30
SUI-FUTA tax expense 3,236.98 3,547.22
Workers Comp. expense 4,077.62 3,220.06
FICA expense 5,570.81 54,662.20 46,365.72
Employee moving expense 4,785.84
Nondeductible expenses 270.81 3,690.75 277.89
Nondeductible boat expense 35,605.87 35,605.87
Loss (gain) on disposal of
assets 402.29
----------- ------------- -------------
TOTAL EXPENSES 391,730.61 1,602,654.10 1,220,121.45
----------- ------------- -------------
Net income before partner-
ship income (losses) 58,022.22 1,043,935.95 736,082.65
Income (loss) on partnerships:
West Park Place (2,079.00) (2,079.00) (2,154.00)
Landver Properties 10,248.00 10,248.00 9,654.00
Naperville (27,051.00) (27,051.00) (42,568.00)
Rockford 9,371.00 9,371.00 (8,650.00)
5
<PAGE> 127
FIRST TOLEDO CORPORATION
INCOME STATEMENT
AS OF DECEMBER 31, 1993
FINAL CONTINUED
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MONTH OF TWELVE MONTHS ENDED
DECEMBER DECEMBER 31
1993 1993 1992
----------- -----------------------------------
<S> <C> <C> <C>
Ponce de Leon (31,558.00) (31,558.00) (65,434.00)
Rockford - prior years'
tax adjustments $ $ $ 4,131.00
Amortization of Section
189 expenses:
West Park Place (174.00)
----------- ------------- -------------
NET INCOME (LOSS) $ 16,953.22 $1,002,866.95 $ 630,887.65
=========== ============= =============
Retained earnings-beginning $231,309.85 $ (24,603.88) $ (35,491.53)
Net income 16,953.22 1,002,866.95 630,887.65
Less dividends (230,000.00) (960,000.00) (620,000.00)
----------- ------------- -------------
RETAINED EARNINGS--END $ 18,263.07 $ 18,263.07 $ (24,603.88)
=========== ============= =============
</TABLE>
6
<PAGE> 128
<TABLE>
FIRST TOLEDO ADVISORY COMPANY AND
FIRST TOLEDO CORPORATION
COMBINED BALANCE SHEET
FINAL FOR THE MONTH ENDED DECEMBER 31, 1994
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1994
----------------------------------------------
First Toledo
Advisory First Toledo Balance
Company Corporation Combined Dec. 31, 1993
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Cash $290,358.93 $1,425,483.37 $1,715,842.30 $ 973,013.67
Advance - other (33.96) (33.96) 500.12
Note receivable - West Park Place 106,750.00 106,750.00 106,750.00
Note receivable - Landver 124,999.98 124,999.98
Project development 101.97
Equipment 292,430.59 292,430.59 253,526.50
Boat 91,645.00 91,645.00 91,645.00
Accumulative depreciation-boat (15,274.00) (15,274.00) (7,637.00)
Depreciation reserve (231,976.67) (231,976.67) (212,906.31)
----------- ------------- ------------- -------------
TOTAL ASSETS $350,778.89 $1,733,604.35 $2,084,383.24 $1,204,993.95
=========== ============= ============= =============
LIABILITIES AND OWNERS' EQUITY
FICA & F.I.I. withheld $ $ $ $ (4,802.75)
State tax withheld 16,838.82 16,838.82 10,432.20
City tax withheld 6,313.27 6,313.27 5,863.44
Group insurance 119.52
</TABLE>
7
<PAGE> 129
<TABLE>
FIRST TOLEDO ADVISORY COMPANY AND
FIRST TOLEDO CORPORATION
COMBINED BALANCE SHEET
FINAL FOR THE MONTH ENDED DECEMBER 31, 1994 - CONTINUED
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1994
----------------------------------------------
First Toledo
Advisory First Toledo Balance
Company Corporation Combined Dec. 31, 1993
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Tax loss on investments in partner-
ships in excess of cash invested:
Investment - West Park Place $ $ 36,441.00 $ 36,441.00 $ 34,36,565
Investment - Landver Properties 492,900.47 492,900.47 445,455.47
Investment - Naperville 376,503.00 376,503.00 352,409.00
Investment - Rockford 264,565.00 264,565.00 276,179.00
Investment - Santa Fe 109,961.00 109,961.00 65,810.00
----------- ------------- ------------- -------------
TOTAL LIABILITIES 23,152.09 1,280,370.47 1,303,522.56 1,186,230.88
Shareholders' Equity:
Common stock 500.00 500.00 1,000.00 500.00
Retained earnings 327,126.80 452,733.88 779,860.68 18,263.07
----------- ------------- ------------- -------------
327,626.80 453,233.88 780,860.68 18,763.07
----------- ------------- ------------- -------------
TOTAL LIABILITIES & EQUITY $350,778.89 $1,733,604.35 $2,084,383.24 $1,204,993.95
=========== ============= ============= =============
</TABLE>
8
<PAGE> 130
<TABLE>
FIRST TOLEDO ADVISORY COMPANY AND
FIRST TOLEDO CORPORATION
COMBINED INCOME STATEMENT
FINAL DECEMBER, 1994
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Month of December 1994
------------------------------------
Twelve Months Ended December 31
First Toledo First Toledo -------------------------------
Advisory Co. Corporation 1994 1993
----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
INCOME:
Management fees $475,000.00 $ $3,081,123.03 $2,450,000.00
Administration fees 465.88 8,333.32 70,619.30 63,579.18
Special Services income 8,500.00 64,563.98
Interest income 343.68 38,389.08 77,691.89 65,856.18
Capital gain/(loss) 200.00 2,590.71
----------- ----------- ------------- -------------
GROSS INCOME 475,809.56 46,722.40 3,238,134.22 2,646,590.05
EXPENSES:
Salary expense 125,344.08 1,022,800.20 923,470.33
Bonus pool & commissions 149,650.00 171,836.25 221,140.00
Depreciation expense 2,137.41 7,637.00 28,799.80 24,481.42
Office expense 4,124.01 860.09 37,135.08 16,329.95
Directors' fees 400.00 400.00 800.00 800.00
Travel & entertainment 15.25 4,565.77 10,188.11
Rentals 296.00 104,433.52 104,910.80
Professional services 700.60 33,573.10 8,997.91
Consulting services 23,276.90 33,269.05
State and local taxes 22,438.51 21,722.55
Dues & subscriptions 1,391.00 8,594.42 38,542.71
</TABLE>
9
<PAGE> 131
<TABLE>
FIRST TOLEDO ADVISORY COMPANY AND
FIRST TOLEDO CORPORATION
COMBINED INCOME STATEMENT
FINAL DECEMBER, 1994 - CONTINUED
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Month of December 1994
------------------------------------
Twelve Months Ended December 31
First Toledo First Toledo -------------------------------
Advisory Co. Corporation 1994 1993
----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
INCOME:
Group insurance $ 2,602.85 $ $ 28,727.00 $ 26,239.19
Profit sharing plan 60,409.00 60,409.00 56,894.69
Donations 4,275.00 19,900.00 6,375.00
Insurance 1,319.80 2,237.37 1,729.50
Repairs 120.19 318.94 503.63
SUI-FUTA tax expense 3,102.13 3,236.98
Workers' comp expense 1,351.00 9,614.60 4,077.62
FICA expense 8,707.34 62,268.49 54,662.20
Employee moving expense 4,785.84
Nondeductible boat expense 25,255.77 25,255.77 35,605.87
Nondeductible expenses 47.13 2,697.76 3,690.75
----------- ----------- ------------- -------------
TOTAL EXPENSE 362,890.66 34,152.86 1,672,784.61 1,602,654.10
----------- ----------- ------------- -------------
Net income (loss) before
partnerships: 112,918.90 12,569.54 1,565,349.61 1,043,935.95
Income (loss) on Partnerships
West Park Place (1,676.00) (1,676.00) (2,079.00)
Landver Properties 5,055.00 5,055.00 10,248.00
Naperville (24,094.00) (24,094.00) (27,051.00)
Rockford 11,614.00 11,614.00 9,371.00
</TABLE>
10
<PAGE> 132
<TABLE>
FIRST TOLEDO ADVISORY COMPANY AND
FIRST TOLEDO CORPORATION
COMBINED INCOME STATEMENT
FINAL DECEMBER, 1994 - CONTINUED
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Month of December 1994
------------------------------------
Twelve Months Ended December 31
First Toledo First Toledo -------------------------------
Advisory Co. Corporation 1994 1993
----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Ponce de Leon (44,151.00) (44,151.00) (31,558.00)
----------- ----------- ------------- -------------
NET INCOME (LOSS) $112,918.90 $(40,682.46) $1,512,097.61 $1,002,866.95
=========== =========== ============= =============
Retained earnings--beginning $274,207.90 $493,416.34 $ 17,763.07 $ (24,603.88)
Net income (loss) 112,918.90 (40,682.46) 1,512,097.61 1,002,866.95
Less dividends (60,000.00) (750,000.00) (960,000.00)
----------- ----------- ------------- -------------
Retained earnings--end $327,126.80 $452,733.88 $ 779,860.68 $ 18,263.07
=========== =========== ============= =============
</TABLE>
11
<PAGE> 133
<TABLE>
FIRST TOLEDO ADVISORY COMPANY
BALANCE SHEET
FOR THE MONTH ENDED JUNE 30, 1995
- -----------------------------------------------------------------------------
<CAPTION>
June 30, 1995 June 30, 1994
------------- -------------
<S> <C> <C>
ASSETS
Cash $ 62,740.32 $ 72,298.76
Advance - other 153.25 (78.42)
Equipment 300,041.82 286,826.94
Depreciation reserve (243,894.27) (219,964.24)
----------- -----------
TOTAL ASSETS $119,041.12 $139,083.04
=========== ===========
LIABILITIES AND OWNERS' EQUITY
State tax withheld $ 8,098.95 $ 2,697.34
City tax withheld 2,584.44 1,497.71
Group insurance (199.03) (599.90)
----------- -----------
TOTAL LIABILITIES 10,484.36 3,595.15
Shareholders' Equity:
Common stock 500.00 500.00
Retained earnings 108,056.76 134,987.89
----------- -----------
108,556.76 135,487.89
----------- -----------
TOTAL LIABILITIES & EQUITY $119,041.12 $139,083.04
=========== ===========
</TABLE>
12
<PAGE> 134
<TABLE>
FIRST TOLEDO ADVISORY COMPANY
INCOME STATEMENT
JUNE 30, 1995
- -------------------------------------------------------------------------------------------------
<CAPTION>
MONTH OF SIX MONTHS ENDED JUNE 30
JUNE 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
INCOME
Management fees $250,000.00 $1,250,000.00 $1,200,000.00
Administration fees 877.51 3,205.80 47,562.48
Special service income 8,500.00
Interest income 22.92 1,311.69 21,274.10
Captial gain (loss) 200.00
----------- ------------- -------------
GROSS INCOME 250,900.43 1,254,517.49 1,277,536.58
EXPENSES:
Salary expense 125,120.62 556,779.53 474,112.70
Bonus pool/commission 9,115.00 31,055.50 22,186.25
Depreciation expense 2,019.56 11,917.60 9,150.37
Office expense 3,590.07 9,862.18 21,317.39
Travel & entertainment 50.95 2,784.30 3,373.30
Rentals 8,757.21 60,838.47 60,651.47
Professional services 7,752.96 25,983.17
Consulting services 12,761.40
State and local taxes 6,000.00 29,818.97 13,248.32
Dues and subscriptions 1,497.00 4,522.59 4,202.91
Group insurance 2,522.69 14,854.72 14,078.68
Donations 11,900.00 14,000.00
Insurance 917.57
Repairs 30.00 198.75
SUI-FUTA tax expense 4,929.45 2,645.88
Workers' comp. expense 2,242.07 4,766.66
FICA expense 7,665.02 40,104.67 34,699.85
Non-deductible expenses 1,676.58 6,595.70 1,393.15
----------- ------------- -------------
TOTAL EXPENSE 168,014.70 795,988.71 719,687.82
----------- ------------- -------------
NET INCOME $ 82,885.73 $ 458,528.78 $ 557,848.76
=========== ============= =============
Retained earnings--
beginning $ 73,269.85 $ 327,126.80 $ 17,763.07
Net income 82,885.73 458,528.78 557,848.76
Less dividends (48,098.82) (677,598.82) (260,000.00)
----------- ------------- -------------
Retained earnings--end $108,056.76 $ 108,056.76 $ 315,611.83
=========== ============= =============
</TABLE>
13
<PAGE> 135
EXHIBIT D
NON-COMPETE AGREEMENT
---------------------
THIS AGREEMENT, dated as of the __ day of _____________, 1995
(the "Agreement"), between HEALTH CARE REIT, INC., a Delaware corporation, (the
"Company"), and BRUCE G. THOMPSON, an individual residing in Toledo, Ohio and
an officer of the Company ("Mr. Thompson").
WHEREAS, Mr. Thompson has provided valuable services to the
Company both as an officer, a director and an employee of the Company's
investment manager, First Toledo Advisory Corporation ("FTAC"), and its
predecessor, and as an executive officer of the Company;
WHEREAS, the Company is acquiring FTAC from Mr. Thompson and
Frederic D. Wolfe;
WHEREAS, the Company wishes to assure itself that it will have
the exclusive benefit of Mr. Thompson's services and abilities for the
Employment Period as defined in the Employment and Consulting Agreement dated
as of the ____ day of ____________, 1995 between the Company and Mr. Thompson;
and
WHEREAS, in order to induce the Company to acquire FTAC, Mr.
Thompson is willing to agree to the restrictive covenants set forth below.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties, intending to be legally bound, hereby agree as follows:
1. COVENANT NOT TO COMPETE
-----------------------
Mr. Thompson acknowledges and recognizes that he is in
possession of valuable proprietary information of the Company, and also
recognizes the highly competitive nature of the business of the Company.
Accordingly, Mr. Thompson hereby agrees that in consideration of the promises
contained herein, that until the later of December 31, 1998, or one year after
the expiration of any renewal of the Employment and Consulting Agreement, he
will not, for any reason whatsoever, (i) directly or indirectly, engage in any
Competitive Business (as hereinafter defined) in the United States, whether
such engagement shall be as an employer, officer, director, owner, employee,
consultant, stockholder, partner or other participant in any Competitive
Business, (ii) assist others in engaging in any Competitive Business in the
manner described in the foregoing clause (i), or (iii) induce employees of the
Company to
<PAGE> 136
terminate their employment with the Company or engage in any Competitive
Business; PROVIDED, HOWEVER, that (i) the ownership of shares of capital stock
of the corporations and partnership interests in the partnerships currently
owned by Mr. Thompson and listed on a schedule executed by Mr. Thompson and
delivered to Company on the date hereof ("Schedule 1") (provided that the
activities of such corporations and partnerships are consistent with the
current activities of such entities and under no circumstances would such
entities sponsor or manage a real estate investment trust or engage in the
business of providing or arranging senior financing to health care facilities),
(ii) the ownership of no more than 2 percent of the outstanding capital stock
of a corporation engaged in a Competitive Business whose shares are traded on
a national securities exchange or on the over-the-counter market, or (iii)
being an officer, partner, and/or a director of those entities listed on
Schedule 1, shall not be deemed engaging in a Competitive Business. For this
purpose, the term "Competitive Business" means any business or activity of the
type operated by the Company at the date of this Agreement, including but not
limited to, financing and making investments in nursing homes, assisted living
and retirement facilities, behavioral care facilities, primary care facilities,
specialty care hospitals, and any other health care facilities.
2. REMEDIES
--------
Mr. Thompson acknowledges and agrees that it would be
difficult to fully compensate the Company for damages resulting from the breach
or threatened breach of this Agreement and accordingly agrees that the Company
shall be entitled to (i) institute and prosecute proceedings at law or in
equity to obtain damages with respect to such breach, and (ii) temporary and
injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, to enforce such provisions in any action
or proceeding instituted in any federal, state or local court having subject
matter jurisdiction. Further, it is expressly understood and agreed that
although Mr. Thompson and Company consider the restrictions contained in this
Agreement to be reasonable for the purpose of preserving the good will,
proprietary rights, and going concern value of Company, its business and its
customers, if a final judicial determination is made by a court having
jurisdiction that the time or territory or any other restriction contained in
this Agreement is an unenforceable restriction on the activities of Mr.
Thompson, no such provision of this Agreement shall be rendered void but shall
be deemed amended to apply as to such maximum time and territory and to such
extent as such court may judicially determine or indicate to be reasonable.
-2-
<PAGE> 137
3. SEPARABILITY If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity
or unenforceability shall not affect the remaining provisions hereof which
shall remain in full force and effect.
4. ASSIGNMENT This Agreement shall be binding upon and
inure to the benefit of the assigns and successors of the Company, but neither
this Agreement nor any rights hereunder shall be assignable or otherwise
subject to hypothecation by Mr. Thompson.
5. ENTIRE AGREEMENT This Agreement represents the entire
agreement of the parties and shall supersede any and all previous contracts,
arrangements or understandings between the Company and Mr. Thompson with
respect to the subject matter hereof. The Agreement may be amended at any time
by mutual written agreement of the parties hereto.
6. GOVERNING LAW This Agreement shall be construed,
interpreted, and governed in accordance with the laws of the State of Ohio
other than the conflict of laws provisions of such laws.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed, and Mr. Thompson has hereunto set his hand, as of the day and
year first above written.
<TABLE>
<S> <C>
Attest: HEALTH CARE REIT, INC.
______________________________ By ________________________________
Vice President and Corporate
Secretary
Witness:
______________________________ ___________________________________
Bruce G. Thompson
</TABLE>
- 3 -
<PAGE> 138
EXHIBIT E
---------
NON-COMPETE AGREEMENT
---------------------
THIS AGREEMENT, dated as of the __ day of _____________, 1995
(the "Agreement"), between HEALTH CARE REIT, INC., a Delaware corporation, (the
"Company"), and FREDERIC D. WOLFE, an individual residing in Perrysburg, Ohio
and an officer of the Company ("Mr. Wolfe").
WHEREAS, Mr. Wolfe has provided valuable services to the
Company both as an officer, a director and an employee of the Company's
investment manager, First Toledo Advisory Corporation ("FTAC"), and its
predecessor, and as an executive officer of the Company;
WHEREAS, the Company is acquiring FTAC from Mr. Wolfe and
Bruce G. Thompson; and
WHEREAS, in order to induce the Company to acquire FTAC, Mr.
Wolfe is willing to agree to the restrictive covenants set forth below.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties, intending to be legally bound, hereby agree as follows:
1. COVENANT NOT TO COMPETE
-----------------------
Mr. Wolfe acknowledges and recognizes that he is in
possession of valuable proprietary information of the Company, and also
recognizes the highly competitive nature of the business of the Company.
Accordingly, Mr. Wolfe hereby agrees that in consideration of the promises
contained herein, that until the later of December 31, 1997, or one year after
the expiration of any renewal of the Consulting Agreement, he will not, for any
reason whatsoever, (i) directly or indirectly, engage in any Competitive
Business (as hereinafter defined) in the United States, whether such engagement
shall be as an employer, officer, director, owner, employee, consultant,
stockholder, partner or other participant in any Competitive Business, (ii)
assist others in engaging in any Competitive Business in the manner described
in the foregoing clause (i), or (iii) induce employees of the Company to
terminate their employment with the Company or engage in any Competitive
Business; PROVIDED, HOWEVER, that (i) the ownership of shares of capital stock
of the corporations and partnership interests in the partnerships currently
owned by Mr. Wolfe and listed on a schedule executed by Mr. Wolfe and delivered
to Company
<PAGE> 139
on the date hereof ("Schedule 1") (provided that the activities of such
corporations and partnerships are consistent with the current activities of
such entities and under no circumstances would such entities sponsor or
manage a real estate investment trust or engage in the business of providing
or arranging senior financing to health care facilities), (ii) the ownership
of no more than 2 percent of the outstanding capital stock of a corporation
engaged in a Competitive Business whose shares are traded on a national
securities exchange or on the over-the-counter market, or (iii) being an
officer, partner, and/or a director of those entities listed on Schedule 1,
shall not be deemed engaging in a Competitive Business. For this purpose, the
term "Competitive Business" means any business or activity of the type operated
by the Company at the date of this Agreement, including but not limited to,
financing and making investments in nursing homes, assisted living and
retirement facilities, behavioral care facilities, primary care facilities,
specialty care hospitals, and any other health care facilities.
2. REMEDIES
Mr. Wolfe acknowledges and agrees that it would be difficult
to fully compensate the Company for damages resulting from the breach or
threatened breach of this Agreement and accordingly agrees that the Company
shall be entitled to (i) institute and prosecute proceedings at law or in
equity to obtain damages with respect to such breach, and (ii) temporary and
injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, to enforce such provisions in any action
or proceeding instituted in any federal, state or local court having subject
matter jurisdiction. Further, it is expressly understood and agreed that
although Mr. Wolfe and Company consider the restrictions contained in this
Agreement to be reasonable for the purpose of preserving the good will,
proprietary rights, and going concern value of Company, its business and its
customers, if a final judicial determination is made by a court having
jurisdiction that the time or territory or any other restriction contained in
this Agreement is an unenforceable restriction on the activities of Mr. Wolfe,
no such provision of this Agreement shall be rendered void but shall be deemed
amended to apply as to such maximum time and territory and to such extent as
such court may judicially determine or indicate to be reasonable.
3. SEPARABILITY If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity
or unenforceability shall not affect the remaining provisions hereof which
shall remain in full force and effect.
-2-
<PAGE> 140
4. ASSIGNMENT This Agreement shall be binding upon and
inure to the benefit of the assigns and successors of the Company, but neither
this Agreement nor any rights hereunder shall be assignable or otherwise
subject to hypothecation by Mr. Wolfe.
5. ENTIRE AGREEMENT This Agreement represents the entire
agreement of the parties and shall supersede any and all previous contracts,
arrangements or understandings between the Company and Mr. Wolfe with respect
to the subject matter hereof. The Agreement may be amended at any time by
mutual written agreement of the parties hereto.
6. GOVERNING LAW This Agreement shall be construed,
interpreted, and governed in accordance with the laws of the State of Ohio
other than the conflict of laws provisions of such laws.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed, and Mr. Wolfe has hereunto set his hand, as of the day and
year first above written.
<TABLE>
<S> <C>
Attest: HEALTH CARE REIT, INC.
______________________________ By ____________________________
Vice President and Corporate
Secretary
Witness:
______________________________ ______________________________
Frederic D. Wolfe
</TABLE>
- 3 -
<PAGE> 141
EXHIBIT F
---------
EMPLOYMENT AND CONSULTING AGREEMENT
-----------------------------------
THIS AGREEMENT, dated as of the 1st day of _____________, 1995
(the "Agreement"), between HEALTH CARE REIT, INC., a Delaware corporation, (the
"Company"), and BRUCE G. THOMPSON, an individual residing in Toledo, Ohio and
an officer of the Company ("Mr. Thompson").
WHEREAS, Mr. Thompson has provided valuable services to the
Company both as an officer, a director and an employee of the Company's
investment manager, First Toledo Advisory Company ("FTAC"), and its
predecessor, and as an executive officer of the Company;
WHEREAS, the Company is acquiring FTAC from Mr. Thompson and
Frederic D. Wolfe, and wishes to assure itself of the continued services of Mr.
Thompson for the period provided in this Agreement; and
WHEREAS, Mr. Thompson is willing to serve as an employee of,
or as a consultant to, the Company, as the case may be, for such period upon
the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties, intending to be legally bound, hereby agree as follows:
1. RETENTION. The Company hereby agrees to retain Mr.
Thompson, and Mr. Thompson hereby agrees to accept such engagement with the
Company and agrees to serve, upon the terms and conditions set forth herein.
2. DUTIES. (a) From January 1, 1996 to December 31,
1996, (the "Employment Period"), Mr. Thompson agrees to serve as the Company's
Chief Executive Officer, and to perform the duties and functions of a chief
executive officer of a publicly traded corporation, which duties shall be
determined by the Board of Directors of the Company (the "Board").
(b) From January 1, 1997 to December 31, 1997 (the
"Consulting Period"), Mr. Thompson shall make himself available to serve as a
consultant to the Company, and shall perform such consulting services with
respect to the Company as may
<PAGE> 142
be reasonably requested of him by the Board, or the Company's management.
(c) Throughout the Employment Period (as defined above), Mr.
Thompson shall devote his best efforts and substantially all of his business
time and services to the business and affairs of the Company.
(d) Throughout the Consulting Period (as defined above),
Mr. Thompson shall make himself available for at least 120 days of each year.
3. TERM OF AGREEMENT. The term of this Agreement shall
commence as of January 1, 1996 (the "Effective Date") and, subject to
earlier termination as hereinafter provided in Section 5, or to any renewals as
provided below, shall terminate two (2) years from the Effective Date. Such
term of employment is referred to hereinafter as the "Term." With the consent
of Mr. Thompson, the Board may renew the Agreement for three (3) one-year
periods.
4. COMPENSATION.
(a) Mr. Thompson shall receive compensation during the
Term at a rate of $135,000 per annum . Mr. Thompson's per annum compensation
shall be adjusted each year, effective as of the anniversary of the Effective
Date, by an amount equal to the percentage increase or decrease, as the case
may be, in the Consumer Price Index-All Urban Consumers from the Effective Date
through the applicable anniversary of the Effective Date.
(b) During the Employment Period only, the Company shall
provide Mr. Thompson with disability and health insurance comparable to the
coverage provided to other executive officers of the Company. Also during the
Employment Period only, the Company shall provide Mr. Thompson with an office
comparable to the one he previously occupied as Chief Executive Officer of the
Company. During the Consulting Period, the Company will make an office
available to Mr. Thompson in order for him to adequately perform his duties.
5. TERMINATION.
(a) If Mr. Thompson's engagement with the Company as either
an employee or consultant shall be terminated by the Company for Cause or
voluntarily terminated by Mr. Thompson or in the event of the death of Mr.
Thompson, the Company shall pay Mr. Thompson his annual compensation through
the date of termination at the rate in effect at such time.
-2-
<PAGE> 143
(b) If Mr. Thompson's engagement with the Company as an
employee shall be terminated by reason of Disability, the Company shall
continue to pay Mr. Thompson his compensation for a period of six (6) months
(provided, that such compensation shall be reduced to reflect any compensation
continuation benefits being paid to Mr. Thompson under any disability insurance
policy or plans maintained by the Company).
(c) If Mr. Thompson's engagement with the Company shall be
terminated by the Company other than for Cause, Mr. Thompson shall be entitled
to enforce his contractual rights to receive the compensation provided under
the terms of this Agreement.
(d) For purposes of this Agreement,
(1) "Disability" shall mean a physical or mental illness
which, in the reasonable judgment of the Company after consultation
with a licensed physician chosen by the Company, impairs Mr.
Thompson's ability to substantially perform his duties under this
Agreement as an employee for six consecutive months, or as a
consultant for three consecutive months.
(2) A termination for "Cause" is a termination of
relationship by reason of a good faith determination by the Board of
Company that Mr. Thompson (i) has failed to substantially perform his
duties with the Company (other than a failure resulting from his
incapacity due to physical or mental illness) after a written demand
for substantial performance has been delivered to him by the Board,
which demand specifically identifies the manner in which the Board
believes he has not substantially performed his duties, (ii) Mr.
Thompson has been convicted of a felony or of any lesser crime or
offense committed in connection with the performance of his duties
hereunder or involving moral turpitude, (iii) has engaged in conduct,
the consequences of which are materially adverse to the Company,
monetarily or otherwise, or (iv) has materially breached any
provisions of this Agreement or his Non-Compete Agreement with the
Company.
6. WITHHOLDING; INDEPENDENT CONTRACTOR The Company shall,
to the extent permitted by law, have the right to withhold and deduct from any
payment hereunder any federal, state or local taxes of any kind required by law
to be withheld with respect to any such payment during the Employment Period.
During the Consulting Period, Mr. Thompson shall be an independent contractor
and shall not be considered an employee of the Company for any purpose. During
the Consulting Period, Mr. Thompson shall be
-3-
<PAGE> 144
responsible for all of his federal, state and local employment taxes and agrees
to indemnify the Company for any taxes, interest and penalties the Company may
incur in connection with Mr. Thompson's status.
7. NOTICES All notices or communications hereunder shall
be in writing and sent by certified or registered mail, return receipt
requested, postage prepaid, or by a nationally recognized private courier
addressed as set forth below (or to such other address as such party may
designate in writing from time to time):
If to the Company: Health Care REIT, Inc.
One SeaGate, Suite 1950
Toledo, Ohio 43603-1475
Attn: George L. Chapman,
President
If to Mr. Thompson: Bruce G. Thompson
3859 River Road
Toledo, Ohio 43614
The actual date of receipt, as shown by the receipt therefor, shall determine
the time at which notice was given.
8. SEPARABILITY If any provision of this Agreement shall
be declared to be invalid or unenforceable, in whole or in part, such
invalidity or unenforceability shall not affect the remaining provisions hereof
which shall remain in full force and effect.
9. ASSIGNMENT This Agreement shall be binding upon and
inure to the benefit of the heirs and representatives of Mr. Thompson and the
assigns and successors of the Company, but neither this Agreement nor any
rights hereunder shall be assignable or otherwise subject to hypothecation by
Mr. Thompson.
10. ENTIRE AGREEMENT This Agreement represents the entire
agreement of the parties and shall supersede any and all previous contracts,
arrangements or understandings between the Company and Mr. Thompson with
respect to the subject matter hereof. The Agreement may be amended at any time
by mutual written agreement of the parties hereto.
-4-
<PAGE> 145
11. GOVERNING LAW This Agreement shall be construed,
interpreted, and governed in accordance with the laws of the State of Ohio
other than the conflict of laws provisions of such laws.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed, and Mr. Thompson has hereunto set his hand, as of the day and
year first above written.
Attest: HEALTH CARE REIT, INC.
______________________________ By ____________________________
Secretary
Witness:
______________________________
______________________________ _______________________________
Bruce G. Thompson
-5-
<PAGE> 146
EXHIBIT G
---------
CONSULTING AGREEMENT
--------------------
THIS AGREEMENT, dated as of the 1st day of July, 1995 (the
"Agreement"), between HEALTH CARE REIT, INC., a Delaware corporation, (the
"Company"), and FREDERIC D. WOLFE, an individual residing in Perrysburg, Ohio
and an officer of the Company ("Mr. Wolfe").
WHEREAS, Mr. Wolfe has provided valuable services to the
Company both as an officer, a director and an employee of the Company's
investment manager, First Toledo Advisory Company ("FTAC"), and its
predecessor, and as an executive officer of the Company;
WHEREAS, the Company is acquiring FTAC from Mr. Wolfe and
Bruce G. Thompson, and wishes to assure itself of the continued services of Mr.
Wolfe for the period provided in this Agreement; and
WHEREAS, Mr. Wolfe is willing to serve as a consultant to the
Company for such period upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties, intending to be legally bound, hereby agree as follows:
1. RETENTION. The Company hereby agrees to retain Mr.
Wolfe, and Mr. Wolfe hereby agrees to accept such engagement with the Company
and agrees to serve, upon the terms and conditions set forth herein.
2. DUTIES. (a) From January 1, 1996 to December 31,
1996, Mr. Wolfe shall serve as a consultant to the Company, and perform such
services as may be requested of him by the Board of Directors of the Company
(the "Board"), or the Company's management.
(b) Throughout the Term (as defined below), Mr. Wolfe shall
make himself available for at least 120 days during each year of the Term.
During the term, the Company will make available an office to Mr. Wolfe in
order for him to adequately perform his duties.
<PAGE> 147
3. TERM OF AGREEMENT. The term of this Agreement shall
commence as of January 1, 1996 (the "Effective Date") and, subject to
earlier termination as hereinafter provided in Section 5, or subject to any
renewal as provided below, shall terminate one (1) year from the Effective
Date (the "Term"). With the consent of Mr. Wolfe, the Board may renew the
Agreement for four (4) one-year periods.
4. COMPENSATION Mr. Wolfe shall receive compensation during
the Term at a rate of $100,000 per annum. Mr. Wolfe's per annum compensation
shall be adjusted each year, effective as of the anniversary of the Effective
Date, by an amount equal to the percentage increase or decrease, as the case
may be, in the Consumer Price Index - All Urban Consumers from the Effective
Date through the applicable anniversary of the Effective Date.
5. TERMINATION.
(a) If Mr. Wolfe's engagement with the Company shall be
terminated by the Company for Cause or voluntarily terminated by Mr. Wolfe or
in the event of the death of Mr. Wolfe, the Company shall pay Mr. Wolfe his
compensation through the date of termination at the rate in effect at such
time.
(b) If Mr. Wolfe's engagement with the Company shall be
terminated by reason of Disability, the Company shall continue to pay to Mr.
Wolfe his compensation for a period of six (6) months.
(c) If Mr. Wolfe's engagement with the Company shall be
terminated by the Company other than for Cause, Mr. Wolfe shall be entitled to
enforce his contractual rights to receive the compensation and benefits
provided under the terms of this Agreement.
(d) For purposes of this Agreement,
(1) "Disability" shall mean a physical or mental illness
which, in the reasonable judgment of the Company after consultation
with a licensed physician chosen by the Company, impairs Mr. Wolfe's
ability to substantially perform his duties under this Agreement as a
consultant for three consecutive months.
-2-
<PAGE> 148
(2) A termination for "Cause" is a termination of
relationship by reason of a good faith determination by the Board of
Company that Mr. Wolfe (i) has failed to substantially perform his
duties with the Company (other than a failure resulting from his
incapacity due to physical or mental illness) after a written demand
for substantial performance has been delivered to him by the Board,
which demand specifically identifies the manner in which the Board
believes he has not substantially performed his duties, (ii) Mr. Wolfe
has been convicted of a felony or of any lesser crime or offense
committed in connection with the performance of his duties hereunder
or involving moral turpitude, (iii) has engaged in conduct, the
consequences of which are materially adverse to the Company,
monetarily or otherwise, or (iv) has materially breached any
provisions of this Agreement or his Non-Compete Agreement with the
Company.
6. INDEPENDENT CONTRACTOR. Mr. Wolfe shall be an
independent contractor and shall not be considered an employee of the Company
for any purpose. Mr. Wolfe shall be responsible for all of his federal, state
and local employment taxes and agrees to indemnify the Company for any taxes,
interest and penalties the Company may incur in connection with Mr. Wolfe's
status.
7. NOTICES All notices or communications hereunder shall be
in writing and sent by certified or registered mail, return receipt requested,
postage prepaid, or by a nationally recognized private courier addressed as set
forth on the signature page below (or to such other address as such party may
designate in writing from time to time)
If to the Company: Health Care REIT, Inc.
One SeaGate, Suite 1950
Toledo, Ohio 43603-1475
Attn: George L. Chapman,
President
If to the Mr. Wolfe: Frederic D. Wolfe
30465 East River Road
Perrysburg, Ohio 43551
The actual date of receipt, as shown by the receipt therefor, shall determine
the time at which notice was given.
8. SEPARABILITY If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity
or unenforceability shall not affect the remaining provisions hereof which
shall remain in full force and effect.
-3-
<PAGE> 149
9. ASSIGNMENT This Agreement shall be binding upon and
inure to the benefit of the heirs and representatives of Mr. Wolfe and the
assigns and successors of the Company, but neither this Agreement nor any
rights hereunder shall be assignable or otherwise subject to hypothecation by
Mr. Wolfe.
10. ENTIRE AGREEMENT This Agreement represents the entire
agreement of the parties and shall supersede any and all previous contracts,
arrangements or understandings between the Company and Mr. Wolfe with respect
to the subject matter hereof. The Agreement may be amended at any time by
mutual written agreement of the parties hereto.
11. GOVERNING LAW This Agreement shall be construed,
interpreted, and governed in accordance with the laws of the State of Ohio
other than the conflict of laws provisions of such laws.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed, and Mr. Wolfe has hereunto set his hand, as of the day and
year first above written.
Attest: HEALTH CARE REIT, INC.
______________________________ By ____________________________
Secretary
Witness:
______________________________ _______________________________
Frederic D. Wolfe
-4-
<PAGE> 150
DISCLOSURE SCHEDULE
to
AGREEMENT AND PLAN OF MERGER
by and among
HEALTH CARE REIT, INC.
FIRST TOLEDO ADVISORY COMPANY
and each of
BRUCE G. THOMPSON
and
FREDERIC D. WOLFE
September 5, 1995
_____________________________
SECTION 3:
(k) On March 13, 1995, Target and Predecessor Corporation each took an
extension until September 15, 1995 to file their respective Form 1120S
with the Internal Revenue Service.
(l) "One SeaGate Sublease" from Owens-Illinois, Inc. as Landlord to First
Toledo Corporation as Tenant was executed February 11, 1986 for term
beginning May 15, 1986 and ending May 14, 1991, renewable for 2
five-year terms thereafter to May 15, 2001. After third amendment,
space now encompasses 7,784 rentable square feet on 19th floor at
$130,459.84 per year. Sublease section 4.4 requires Landlord's
approval of any assignment.
(o) None, except "One SeaGate Sublease" from Owens-Illinois, Inc. as
Landlord to First Toledo Corporation as Tenant dated February 11, 1986
and the Management Agreement by and between Health Care REIT, Inc. and
First Toledo Corporation dated January 17, 1994 and assigned by First
Toledo Corporation to First Toledo Advisory Company on June 1, 1994.
<TABLE>
<CAPTION>
(q) Type of
Coverage Policy No. Beneficiary Insured
-------- ---------- ----------- -------
<S> <C> C> <C>
AMERICAN ECONOMY
INSURANCE COMPANY
Fire/Legal #02-CC-527271-2 N/A HCRI, FTC and FTAC
Medical Expenses #02-CC-527271-2 N/A HCRI, FTC and FTAC
Personal Injury/
Advertising #02-CC-527271-2 N/A HCRI, FTC and FTAC
General Aggregate #02-CC-527271-2 N/A HCRI, FTC and FTAC
Stop Gap Liability #02-CC-527271-2 N/A HCRI, FTC and FTAC
Non-owned Auto #02-CC-527271-2 N/A HCRI, FTC and FTAC
Employee Dishonesty #02-CC-527271-2 N/A HCRI, FTC and FTAC
Personal Property #02-CC-527271-2 N/A HCRI, FTC and FTAC
Scheduled Items #02-CC-527271-2 N/A HCRI, FTC and FTAC
AMERICAN STATES
INSURANCE COMPANY
Umbrella #01-SU-162637-20 N/A HCRI, FTC and FTAC
<PAGE> 151
Worker's Compensation
AMERICAN STATES
INSURANCE COMPANY
(Colorado) #01-WC-719875-20 N/A HCRI and FTAC
LIBERTY MUTUAL
(North Carolina) #WC1-351-241244-014 N/A HCRI and FTC
STATE INSURANCE FUNDS
(Ohio) #0917961-7 N/A FTAC
</TABLE>
(t) First Toledo Corporation Profit Sharing and Retirement Plan (401K
Retirement Plan).
(v) Target is using certain personal items of art and furniture which are
owned by the Target Shareholders to decorate the office of First
Toledo Advisory Company.
SECTION 4:
(c) Frederic D. Wolfe 250 shares
Bruce G. Thompson 250 shares
2
<PAGE> 152
APPENDIX II
HEALTH CARE REIT, INC.
1995 STOCK INCENTIVE PLAN
-------------------------
I. PURPOSE.
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The purpose of this Health Care REIT, Inc. 1995 Stock
Incentive Plan is to promote the growth and profitability of Health Care REIT,
Inc. (the "Corporation") by providing officers and key employees of the
Corporation with additional incentives to achieve long-term corporate
objectives, to assist the Corporation in attracting and retaining officers and
key employees of outstanding competence, and to provide such officers and key
employees with an opportunity to acquire an equity interest in the Corporation.
The 1995 Stock Incentive Plan has been approved by the Board
of Directors effective as of May 8, 1995, subject to approval by the
Corporation's stockholders at the annual meeting of stockholders currently
scheduled to be held in November 1995.
II. DEFINITIONS.
-----------
The following terms shall have the meanings shown:
2.1 "Board of Directors" shall mean the Board of Directors of the
Corporation.
2.2 "Change of Control" shall mean any event described in Section 8.1.
2.3 "Code" shall mean the Internal Revenue Code of 1986, as the same shall be
amended from time to time.
2.4 "Committee" shall mean the Committee of the Board of Directors provided
for in Section 3.1 of the Plan.
2.5 "Common Stock" shall mean the common stock, par value $1.00 per share, of
the Corporation, except as provided in Section 10.2 of the Plan.
2.6 "Date of Grant" shall mean the date specified by the Committee on which a
grant of Options, Dividend Equivalent Rights, SARs or Performance Shares or
Performance
<PAGE> 153
Units or a grant or sale of Restricted Shares shall become effective, which
shall not be earlier than the date on which the Committee takes action with
respect thereto.
2.7 "Dividend Equivalent Rights" shall mean the Dividend Equivalent Rights
which may be granted pursuant to Article V of the Plan.
2.8 "Fair Market Value" shall mean the fair market value of a share of Common
Stock as determined by the Committee by reference to the closing price
quotation, or, if none, the average of the bid and asked prices, reported as of
the most recent available date with respect to the sale of Common Stock on the
New York Stock Exchange.
2.9 "ISOs" shall mean stock options granted by the Corporation which have been
designated and are intended to qualify as incentive stock options under Section
422 of the Code.
2.10 "Management Objectives" shall mean the achievement of performance
objectives established by the Committee pursuant to this Plan for Participants
who have received grants of Performance Shares or, when so determined by the
Committee, shares of Restricted Stock.
2.11 "Named Executive Officer" shall mean the Company's Chief Executive
Officer and the four highest compensated officers (other than the Chief
Executive Officer), as determined pursuant to the executive compensation
disclosure rules under the Securities Exchange Act of 1934.
2.12 "Nonstatutory Options" shall mean stock options which are not intended to
qualify as ISOs.
2.13 "Option Agreement" shall mean a written agreement between the Corporation
and an officer, director or key employee who has been granted Options under
this Plan.
2.14 "Option Price" shall mean, with respect to any Option (or related SAR),
the amount designated in a Participant's Option Agreement as the price per
share he or she will be required to pay to exercise the Option and acquire the
shares subject to such Option.
2.15 "Options" shall mean any rights to purchase shares of Common Stock
granted pursuant to Article IV of this Plan, including both ISOs and
Nonstatutory Options.
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2.16 "Parent" shall mean any corporation which, on the date of determination,
qualifies as a parent corporation of the Corporation under Section 425(e) of
the Code.
2.17 "Performance Period" shall mean, in respect of a Performance Share, a
period of time established pursuant to Article IX of this Plan within which the
Management Objectives relating thereto are to be achieved.
2.18 "Performance Share" shall mean a bookkeeping entry that records the
equivalent of one share of Common Stock awarded pursuant to Article IX of this
Plan.
2.19 "Plan" shall mean this Health Care REIT, Inc. 1995 Stock Incentive Plan,
as the same may be amended from time to time.
2.20 "Reload Option Rights" shall mean the right to have additional Options
automatically granted to the Participant upon the exercise of his or her
Options, as granted pursuant to Section 4.5 of this Plan.
2.21 "Restricted Stock" shall mean shares of Common Stock that are issued to
eligible officers and key employees and made subject to restrictions in
accordance with Article VII of the Plan.
2.22 "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under Section 16 of the Securities Exchange Act of 1934, as
amended from time to time.
2.23 "SARs" shall mean stock appreciation rights granted pursuant to Article
VI of the Plan.
2.24 "Subsidiary" shall mean any corporation which, on the date of
determination, qualifies as a subsidiary corporation of the Corporation under
Section 425(f) of the Code.
2.25 "Ten Percent Shareholder" shall mean any Participant who at the time an
ISO is granted owns (within the meaning of Section 425(d) of the Code) more
than ten percent of the voting power of all classes of stock of the
Corporation.
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<PAGE> 155
III. GENERAL.
-------
3.1 Administrative Committee.
------------------------
(a) The Plan shall be administered by a Committee consisting
of not less than three members of the Board of Directors. Such members shall
be appointed by the Board of Directors from time to time and shall serve at the
pleasure of the Board of Directors. All persons appointed to be members of the
Committee shall be directors who qualify as "disinterested" within the meaning
of Rule 16b-3.
(b) The Committee shall have the authority, in its sole
discretion, from time to time: (i) to grant Options, SARs, Dividend Equivalent
Rights, shares of Restricted Stock or Performance Shares to officers and key
employees, as provided for in this Plan; (ii) to prescribe such limitations,
restrictions and conditions upon any such awards as the Committee shall deem
appropriate; (iii) to determine the periods during which Options may be
exercised and to accelerate the exercisability of outstanding Options or SARs,
or the vesting of Restricted Stock, as it may deem appropriate; (iv) to modify,
cancel, or replace any prior Options or other awards and to amend the relevant
Option Agreements or Restricted Stock Agreements with the consent of the
affected Participants, including amending such agreements to amend vesting
schedules, extend exercise periods or increase or decrease the Option Price for
Options, as it may deem to be necessary; and (v) to interpret the Plan, to
adopt, amend and rescind rules and regulations relating to the Plan, and to
make all other determinations and to take all other action necessary or
advisable for the implementation and administration of the Plan. A majority of
the Committee shall constitute a quorum, and the action of a majority of
members of the Committee present at any meeting at which a quorum is present,
or acts unanimously adopted in writing without the holding of a meeting, shall
be the acts of the Committee.
(c) All actions taken by the Committee shall be final,
conclusive and binding upon any eligible employee. No member of the Committee
shall be liable for any action taken or decision made in good faith relating to
the Plan or any award thereunder.
3.2 PARTICIPATION.
-------------
The Committee may grant Options, Dividend Equivalent Rights,
SARs and/or awards of Restricted Stock or Performance Shares under this Plan to
any officer or key employee of the Corporation. In granting such awards and
determining their form and amount, the Committee shall give consideration to
the functions and responsibilities of the employee, his or her potential
contributions to profitability and
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<PAGE> 156
sound growth of the Corporation and such other factors as the Committee may, in
its discretion, deem relevant.
IV. OPTIONS.
-------
4.1 TERMS AND CONDITIONS. The Committee may, in its sole discretion, from
time to time grant Options to any officer or key employee of the Corporation
selected by the Committee pursuant to Section 3.2. The grant of an Option to
an eligible officer or employee shall be evidenced by a written Option
Agreement in substantially the form approved by the Committee. Such Option
shall be subject to the following express terms and conditions and to such
other terms and conditions, not inconsistent with the terms of this Plan, as
the Committee may deem appropriate.
(a) SHARES COVERED. The Committee shall, in its
discretion, determine the number of shares of Common Stock to be covered by the
Options granted to any Participant. The maximum number of shares of Common
Stock with respect to which Options may be granted to any Participant during
any one calendar year is 600,000 shares.
(b) EXERCISE PERIOD. The term of each Option shall be
for such period as the Committee shall determine, but for not more than ten
years from the Date of Grant thereof. The Committee shall also have the
discretion to determine when each Option granted hereunder shall become
exercisable, and to prescribe any vesting schedule limiting the exercisability
of such Options as it may deem appropriate.
(c) OPTION PRICE. The Option Price payable for the
shares of Common Stock covered by any Option shall be determined by the
Committee, but shall in no event be less than the par value of Common Stock.
The Option Price for ISOs shall not be less than the Fair Market Value of one
share of Common Stock on the Date of Grant. The Option Price for Nonstatutory
Options may be less than the Fair Market Value of Common Stock on the Date of
Grant only if the Committee determines that special circumstances warrant a
lower exercise price.
(d) EXERCISE OF OPTIONS. A Participant may exercise his
or her Options from time to time by written notice to the Corporation of his or
her intent to exercise the Options with respect to a specified number of
shares. The specified number of shares will be issued and transferred to the
Participant upon receipt by the Corporation of (i) such notice and (ii) payment
in full for such shares, and (iii) receipt of any payments required to satisfy
the Corporation's tax withholding obligations pursuant to Section 10.3.
-5-
<PAGE> 157
(e) PAYMENT OF OPTION PRICE UPON EXERCISE. Each Option
Agreement shall provide that the Option Price for the shares with respect to
which an Option is exercised may be paid to the Corporation at the time of
exercise, in the form of (i) cash, (ii) delivery to the Corporation of whole
shares of Common Stock already owned by the Participant, valued at their Fair
Market Value on the day immediately preceding the date of exercise, (iii) at
the discretion of the Committee, a promissory note secured by a pledge of the
shares of Common Stock, or (iv) a combination of any of the above equal to the
Option Price for the shares.
(f) CASHLESS EXERCISES. Alternatively, the Committee may
permit the Participant to exercise an Option by delivery of a signed,
irrevocable notice of exercise, accompanied by payment in full of the Option
Price by the Participant's stockbroker and an irrevocable instruction to the
Corporation to deliver the shares of Common Stock issuable upon exercise of the
Option promptly to the Participant's stockbroker for the Participant's account,
provided that at the time of such exercise, such exercise would not subject the
Participant to liability under Section 16(b) of the Securities Exchange Act of
1934, or would be exempt pursuant to Rule 16b-3 or an other exemption from such
liability.
(g) DIVIDEND EQUIVALENT RIGHTS. Any grant of Options
may, at the Committee's discretion, also provide that the Participant shall
have Dividend Equivalent Rights with respect to the Options as permitted under
Article V of this Plan.
4.2 EFFECT OF TERMINATION OF EMPLOYMENT, RETIREMENT, DISABILITY OR DEATH.
(a) If a Participant ceases to be employed by the Corporation
for any reason other than retirement, disability or death, his or her Options
shall terminate upon the date of the termination of employment.
(b) Any Option Agreement may, in the Committee's sole
discretion, include such provisions as the Committee deems advisable with
respect to the Participant's right to exercise the Option subsequent to
retirement or other voluntary termination of employment with the consent of the
Corporation, or subsequent to termination of the Participant's employment by
reason of total and permanent disability (within the meaning of Section
22(e)(3) of the Code); PROVIDED, that, in no event shall any Option be
exercisable after the fixed termination date set forth in the Participant's
Option Agreement pursuant to Section 4.1(b); and FURTHER PROVIDED that no ISO
shall be exercisable at any time subsequent to the expiration of the period of
three (3) months from the date of retirement, or the period of twelve (12)
months from the date of termination of the Participant's employment by reason
of total and permanent disability, as the case may be.
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<PAGE> 158
(c) Any Option Agreement may, in the Committee's sole
discretion, provide that, in the event the Participant dies while in the employ
of the Corporation, or while he or she has the right to exercise his or her
Options under the preceding paragraph (2), the Options may be exercised (to the
extent it had become exercisable prior to the time of the Participant's death),
during such period of up to one year after date of the Participant's death as
the Committee deems to be appropriate, by the personal representative of the
Participant's estate, or by the person or persons to whom the Options shall
have been transferred by will or by the laws of descent and distribution.
4.3 DESIGNATION OF OPTIONS AS INCENTIVE STOCK OPTIONS. The Committee may, in
its discretion, specify that any Options granted to a Participant who is an
employee of the Corporation shall be ISOs qualifying under Code Section 422.
Each Option Agreement which provides for the grant of ISOs shall designate that
such Options are intended to qualify as ISOs. Each provision of the Plan and
of each Option Agreement relating to an Option designated as an ISO shall be
construed so that such Option qualifies as an ISO, and any provision that
cannot be so construed shall be disregarded.
Any Options granted under this Plan which are designated as
ISOs shall comply with the following terms:
(a) The aggregate Fair Market Value (determined at the time
an ISO is granted) of the shares of Common Stock (together with all other stock
of the Corporation and all stock of any Parent or Subsidiary) with respect to
which the ISOs may first become exercisable by an individual Participant during
any calendar year, under all stock option plans of the Corporation (or any
Parent or Subsidiaries) shall not exceed $100,000. To the extent this
limitation would otherwise be exceeded, the Option shall be deemed to consist
of an ISO for the maximum number of shares which may be covered by ISOs
pursuant to the preceding sentence, and a Nonstatutory Option for the remaining
shares subject to the Option.
(b) The Option Price payable upon the exercise of an ISO
shall not be less than the Fair Market Value of a share of Common Stock on the
date of the grant.
(c) In the case of an ISO granted to a Participant who is
a Ten Percent Shareholder, the period of the Option shall not exceed five years
from the Date of Grant, and the Option Price shall not be less than 110 percent
of the Fair Market Value of Common Stock on the Date of Grant.
4.4 AUTHORITY TO WAIVE RESTRICTIONS ON EXERCISABILITY. The Committee may, in
its sole discretion, determine at any time that all or any portion of the
Options granted to a Participant under the Plan shall, notwithstanding any
restrictions on exercisability
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<PAGE> 159
imposed pursuant to Section 4.1(b), become immediately exercisable in full.
The Committee may make such further adjustments to the terms of such Options as
it may deem necessary or appropriate in connection therewith, including
amending the Option Agreement to recognize that all or a portion of the Options
no longer qualify as ISOs under Section 4.3.
4.5 RELOAD OPTIONS. The Committee may, in its discretion, also
grant a Participant Reload Option Rights with respect to his or her Options.
If a Participant who has been granted Reload Option Rights with respect to
Options, exercises his or her Options by paying the Option Price by delivering
previously owned shares of Common Stock, as authorized under Section 4(e)
above, the Participant shall automatically be granted additional Options on the
same terms for the number of shares delivered to pay such Option Price;
provided, however, that the term of any Reload Option shall not extend beyond
the term of the Option originally exercised.
V. DIVIDEND EQUIVALENT RIGHTS.
--------------------------
5.1 DIVIDEND EQUIVALENT RIGHTS. The Committee may, in its discretion, grant
Dividend Equivalent Rights to any Participant with respect to his or her
Options. The Committee shall create an unfunded bookkeeping account for each
Participant granted Dividend Equivalent Rights, which shall be credited with
bookkeeping entries equivalent to one share of Common stock ("Dividend
Equivalent Shares") each time the Company pays a dividend, in the manner
described in Section 5.2.
When a Participant exercises the Options with respect to which he or she has
been granted Dividend Equivalent Rights, the Participant shall be entitled to
receive a payment based on a proportionate part of the Dividend Equivalent
Shares accumulated in his or her account, as described in Section 5.3 below.
5.2 CREDITING OF DIVIDEND EQUIVALENT SHARES. On each dividend record date
occurring after the date of grant of the Options and on or before the date of
the exercise of the Options, the Participant's account shall be credited with
Dividend Equivalent Shares. The number of Dividend Shares credited to the
Participant's account upon each such dividend record date shall be determined
as follows:
(i) In the case of a cash dividend declared on
the Common Stock, the number of Dividend Shares credited shall be
equal to (a) the dividend declared per share of Common Stock,
multiplied by (b) the number of shares of Common Stock subject to the
unexercised portion of Options plus the number of Dividend Equivalent
Shares credited to the Participant's account on prior dividend record
dates,
-8-
<PAGE> 160
divided by (c) the Fair Market Value of a share of Common Stock on
such dividend record date;
(ii) In the case of a stock dividend declared on
the Common Stock, the number of Dividend Equivalent Shares credited
shall equal (a) the dividend declared per share of Common Stock,
multiplied by (b) the number of shares of Common Stock subject to the
unexercised portion of the Options plus the number of Dividend
Equivalent Shares credited on prior dividend record dates.
Each time a Participant receives benefits pursuant to Section 5.3 below, his or
her account will be debited for the appropriate number of Dividend Equivalent
Shares.
5.3 SETTLEMENT OF DIVIDEND EQUIVALENT RIGHTS. When a Participant exercises
Options with respect to which he or she has been granted Dividend Equivalent
Rights, the Participant shall be entitled to receive a payment based on (i) if
the Options are exercised in full, the current value of the Dividend Equivalent
Shares accumulated in his or her account, as described below, or (ii) if the
Options are exercised with respect to only a part of the shares subject to the
Options, the current value of the proportionate fraction of the Dividend
Equivalent Shares accumulated in his or her account. At the Committee's
discretion, this benefit may be paid in the form of either (a) a number of
shares of Common Stock equal to the number of "Dividend Equivalent Shares" the
Participant has accumulated with respect to those Options pursuant to Section
5.2, (b) a cash payment equal to the current Fair Market Value of such shares,
or (c) as a reduction in the Option Price otherwise payable by the Participant.
In its discretion, the Committee may require a Participant granted Dividend
Equivalent Rights to hold all of the shares of Common Stock purchased pursuant
to the exercise of the related Options for a specified minimum period of time
after the date of exercise, in order to qualify for the issuance of shares of
Common Stock equal to the number of Dividend Shares credited to his or her
account.
No payment shall be made with respect to a Participant's
Dividend Equivalent Rights until the related Options are exercised, in part or
in full. Upon expiration of the Options, all rights and claims to the Dividend
Equivalent Rights will be terminated.
5.4 MODIFICATIONS. The Committee, in its discretion, amy substitute alternate
formulas, times and impose other limitations and conditions as it deems
appropriate on the crediting of Dividend Shares, or the payments of cash or
shares of Common Stock to be made pursuant to Dividend Equivalent Rights.
VI. STOCK APPRECIATION RIGHTS.
-------------------------
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<PAGE> 161
6.1 GRANT OF SARS. The Committee may, in its discretion, from time to time
grant stock appreciation rights to a Participant in connection with Options
granted under this Plan. Participants granted SARs shall be entitled to
receive upon exercise thereof, in cash or Common Stock as provided in Paragraph
6.3(c), the difference between the Fair Market Value of the Common Stock on the
day preceding the exercise date and the Option Price of the underlying Option.
SARs may be granted with respect to all or part of the Common Stock under a
particular Option, except as otherwise expressly provided herein.
6.2 TANDEM OPTIONS. SARs shall entitle the Participant holding the related
Option, upon exercise, in whole or in part, of the SARs, to receive payment in
the amount and form determined pursuant to Paragraph 6.3(c). SARs may be
exercised only to the extent that the related Option has not been exercised.
The exercise of SARs shall result in a pro rata surrender of the related Option
to the extent that the SARs have been exercised.
6.3 TERMS AND CONDITIONS. The grant of SARs shall be evidenced by including
provisions with respect to such SARs in the Participant's Option Agreement in a
form approved by the Committee. Such SARs shall be subject to the following
express terms and conditions and to such other terms and conditions, not
inconsistent with the terms of the Plan, which the Committee may deem
appropriate.
(a) SARs shall be exercisable at such time or times and to
the extent, but only to the extent, that the Option to which they relate shall
be exercisable.
(b) SARs (and any Option related thereto) shall in no event
be exercisable during the first six months after the date of grant and such
rights shall not be transferable other than by will or by the laws of descent
and distribution and shall be exercisable during the Participant's lifetime
only by the Participant.
(c) Upon exercise of SARs, the Participant shall be entitled
to receive an amount equal in value to the difference between the Option Price
and the Fair Market Value per share of Common Stock on the day preceding the
exercise date, multiplied by the number of shares in respect of which the SARs
shall have been exercised. Such amount shall be paid in the form of (i) cash,
(ii) shares of Common Stock with a Fair Market Value on the day preceding the
exercise date equal to such amount or (iii) a combination of cash and shares of
Common Stock, all as determined by the Committee.
(d) In no event shall an SAR be exercisable at a time when
the Option Price of the underlying Option is greater than the Fair Market Value
of the shares subject to the related Option.
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<PAGE> 162
VII. RESTRICTED STOCK.
----------------
7.1 RIGHTS AS A SHAREHOLDER. The Committee may, in its discretion, grant a
Participant an award consisting of shares of Restricted Stock. At the time of
the award, the Committee shall cause the Company to deliver to the Participant,
or to a custodian or an escrow agent designated by the Committee, a certificate
or certificates for such shares of Restricted Stock, registered in the name of
the Participant. The Participant shall have all the rights of a stockholder
with respect to such Restricted Stock, subject to the terms and conditions,
including forfeiture or resale to such Corporation, if any, as the Committee
may determine to be desirable pursuant to Section 7.3 of the Plan. The
Committee may designate the Corporation or one or more of its executive
officers to act as custodian or escrow agent for the certificates.
7.2 AWARDS AND CERTIFICATES.
(a) A Participant granted an award of Restricted Stock shall
not be deemed to have become a stockholder of the Corporation, or to have any
rights with respect to such shares of Restricted Stock, until and unless such
Participant shall have executed a restricted stock agreement or other
instrument evidencing the award and delivered a fully executed copy thereof to
the Corporation and otherwise complied with the then applicable terms and
conditions of such award.
(b) When a Participant is granted shares of Restricted Stock,
the Company shall issue a stock certificate or certificates in respect of
shares of Restricted Stock. Such certificates shall be registered in the name
of the Participant, and shall bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such award substantially in
the following form:
"The transferability of the shares of stock
represented by this Certificate are subject to the terms and
conditions (including forfeiture) of a Restricted Stock
Agreement entered into between the registered owner and Health
Care REIT, Inc. A copy of such Agreement is on file in the
offices of the Secretary of the Company, One SeaGate, Toledo
Ohio 43604."
(c) Except as may be otherwise determined by the Committee
(or as required in order to satisfy the tax withholding obligations imposed
under Section 11.3 of this Plan), Participants granted awards of Restricted
Stock under this Plan will not be required to make any payment or provide
consideration to the Corporation other than the rendering of services.
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<PAGE> 163
7.3 RESTRICTIONS AND FORFEITURES. Restricted Stock awarded to a Participant
pursuant to this Article VII shall be subject to the following restrictions and
conditions:
(a) During a period set by the Committee of not less than one
(1) year, but not more than eight (8) years, commencing with the date of an
award (the "Restriction Period"), the Participant will not be permitted to
sell, transfer, pledge or assign shares of Restricted Stock awarded to him or
her. Within these limits, the Committee may provide for the lapse of such
restrictions in installments where deemed appropriate.
(b) Except as provided in Section 7.3(a), the Participant
shall have with respect to the Restricted Stock all of the rights of a
stockholder of the Corporation, including the right to vote the shares and
receive dividends and other distributions.
(c) Subject to the provisions of Section 7.3(d), upon
termination of the Participant's employment during the Restriction Period for
any reason, all shares of Restricted Stock with respect to which the
restrictions have not yet expired shall be forfeited to or repurchased by the
Corporation.
(d) In the event of a Participant's retirement, permanent
total disability, or death, or in cases of special circumstances, the Committee
may, in its sole discretion, when it finds that a waiver would be in the best
interests of the Corporation, waive in whole or in part any or all remaining
restrictions with respect to such Participant's Restricted Stock.
(e) Notwithstanding the other provisions of this Section 7.3,
the Committee may adopt rules which would permit a gift by a Participant of
shares of Restricted Stock to a spouse, child, stepchild, grandchild or to a
trust the beneficiary or beneficiaries of which shall be either such a person
or persons or the Participant, provided that the Restricted Stock so
transferred shall be similarly restricted.
(f) Any attempt to dispose of shares of Restricted Stock in a
manner contrary to the restrictions set forth herein shall be ineffective.
(g) Nothing in this Section 7.3 shall preclude a Participant
from exchanging any Restricted Stock for any other shares of the Common Stock
that are similarly restricted.
VII. CHANGE IN CONTROL TRANSACTIONS.
------------------------------
8.1 CHANGE IN CONTROL. For purposes of this Plan, a "Change in Control" shall
include any of the events described below:
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<PAGE> 164
(a) The acquisition in one or more transactions of more
than twenty percent of the Corporation's outstanding Common Stock, or the
equivalent in voting power of any classes or classes of securities of the
Corporation entitled to vote in elections of directors by any corporation, or
other person or group (within the meaning of Section 14(d)(3) of the Securities
Exchange Act of 1934, as amended);
(b) Any transfer or sale of substantially all of the
assets of the Corporation, or any merger or consolidation of the Corporation
into or with another corporation in which the Corporation is not the surviving
entity, or any merger or consolidation of the Corporation into or with another
corporation in which the Corporation is the surviving entity and, in connection
with such merger or consolidation, all or part of the outstanding shares of
Common Stock shall be changed into or exchanged for other stock or securities
of the Corporation or any other person, or cash, or any other property.
(c) Any election of persons to the Board of Directors
which causes a majority of the Board of Directors to consist of persons other
than (i) persons who were members of the Board of Directors on May 1, 1995, and
(ii) persons who were nominated for election as members of the Board by the
Board of Directors (or a Committee of the Board) at a time when the majority of
the Board (or of such Committee) consisted of persons who were members of the
Board of Directors on May 1, 1995; PROVIDED, that any person nominated for
election by the Board of Directors composed entirely of persons described in
(i) or (ii), or of persons who were themselves nominated by such Board, shall
for this purpose be deemed to have been nominated by a Board composed of
persons described in (i).
(d) Any person, or group of persons, announces a tender
offer for at least twenty percent (20%) of the Corporation's Common Stock.
8.2 EFFECT OF CHANGE IN CONTROL. In the event of a pending or threatened
Change in Control, the Committee may, in its sole discretion, take any one or
more of the following actions with respect to all Participants:
(i) Accelerate the exercise dates of any
outstanding Options, make all outstanding Options fully vested
and exercisable;
(ii) Determine that all or any portion of
conditions associated with a Restricted Stock or Performance
Share Award have been met;
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(iii) Grant a cash bonus award to any of the
holders of outstanding Options;
(iv) Pay cash to any or all Option holders in
exchange for the cancellation of their outstanding
Nonstatutory Options, SARs, Dividend Equivalent Rights or
Performance Shares;
(v) Make any other adjustments or amendments to
the Plan and outstanding Options, Restricted Stock or
Performance Share awards and/or substitute new Options or
other awards.
IX. PERFORMANCE SHARES.
------------------
The Committee may also, in its discretion, grant Performance
Shares to a Participant, which shall become payable to the Participant upon the
achievement of specified Management Objectives, upon such terms and conditions
as the Committee may determine in accordance with the following provisions:
(a) Each such award shall specify the number of
Performance Shares to which it pertains, which may be subject to adjustment to
reflect changes in compensation or other factors.
(b) The Performance Period with respect to each
Performance Share shall be determined by the Committee on the Date of Grant.
(c) For each Participant's award, the Committee shall
specify the Management Objectives that are to be achieved by the Participant,
which may be described in terms of Corporation-wide objectives or in terms of
objectives that are related to the performance of the individual Participant or
the department or function within the Corporation in which the Participant is
employed. These Management Objectives shall be selected by the Committee
within the first ninety (90) days of the Performance Period.
(d) Each Participant's award of Performance Shares shall
specify that the amount payable with respect thereto may not exceed a maximum
specified by the Committee on the Date of Grant, or the number of shares of
Common Stock issued with respect thereto may not exceed maximums specified by
the Committee on the Date of Grant.
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(e) Each Participant's award shall specify in respect of
each of the specified Management Objectives the minimum acceptable level of
achievement below which no payment will be made, and shall set forth a formula
for determining the amount of any payment to be made if performance is at or
above the minimum acceptable level but falls short of full achievement of the
specified Management Objectives.
(f) Each Participant's award shall specify the time and
manner of payment of Performance Shares that have been earned. No payment
shall be made, with respect to a Participant's Performance Shares unless the
Committee has certified in writing that the Management Objectives with respect
to such Performance Shares have been met. Any award may specify that any such
amount may be paid by the Corporation in cash, shares of Common Stock or any
combination thereof and may either grant to the Participant or reserve to the
Committee the right to elect among those alternatives; provided, however, that
no form of consideration or manner of payment that would cause Rule 16b-3 to
cease to apply to this Plan shall be permitted.
(g) On or after the Date of Grant of Performance Shares,
the Committee may provide for the payment to the Participant of Dividend
Equivalents Rights, as described in Article V above.
(h) The Committee may adjust Management Objectives and
the related minimum acceptable level of achievement if, in the sole judgment of
the Committee, events or transactions have occurred after the Date of Grant
that are unrelated to the performance of the Participant and result in
distortion of the Management Objectives or the related minimum acceptable level
of achievement.
(i) Each Participant's award under this Article IX shall
be evidenced by an agreement, which shall be executed on behalf of the
Corporation by any officer thereof and delivered to and accepted by the
Participant and shall contain such terms and provisions as the Committee may
determine consistent with this Plan.
X. AGGREGATE LIMITATION ON SHARES OF COMMON STOCK.
----------------------------------------------
10.1 NUMBER OF SHARES OF COMMON STOCK.
(a) Shares of Common Stock which may be issued pursuant to
Options, SARs, Restricted Stock awards or Performance Share awards granted
under the Plan may be either authorized and unissued shares of Common Stock or
of Common Stock held by the Corporation as treasury stock. The number of
shares of Common Stock reserved for issuance under this Plan on the date of any
grant shall not exceed 600,000
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<PAGE> 167
shares of Common Stock, subject to such adjustments as may be made pursuant to
Section 10.2.
(b) For purposes of Section 10.1(a), upon the exercise of an
Option or SAR, the number of shares of Common Stock available for future
issuance under the Plan shall be reduced by the number of shares actually
issued to the Optionee, exclusive of any shares surrendered to the Company as
payment of the Option price.
(c) Any shares of Common Stock subject to an Option which for
any reason is cancelled, terminates unexercised or expires, except by reason of
the exercise of a related SAR, shall again be available for issuance under the
Plan.
(d) In the event that any award of Restricted Stock is
forfeited, cancelled or surrendered for any reason, the shares of Common Stock
constituting such Restricted Stock award shall again be available for issuance
under the Plan.
10.2 ADJUSTMENTS OF STOCK. In the event of any change or changes in the
outstanding Common Stock of the Corporation by reason of any stock dividend,
recapitalization, reorganization, merger, consolidation, split-up, combination
or any similar transaction, the Committee shall adjust the number of shares of
Common Stock which may be issued under this Plan, the number of shares of
Common Stock subject to Options theretofore granted under this Plan, the Option
Price of such Options, the number of Dividend Shares accumulated pursuant to
Dividend Equivalent Rights, the number of SARs theretofore granted in
conjunction with an Option, the number of shares of Restricted Stock and make
any and all other adjustments deemed appropriate by the Committee in such
manner as the Committee deems appropriate to prevent substantial dilution or
enlargement of the rights granted to a participating employee. In addition,
if the total number of outstanding shares of Common Stock has increased by more
than 5 percent during any year by reason of equity offerings (including either
public offerings and private placements) completed during such year, the
Committee shall adjust the total number of shares available for future issuance
under the Plan to equal 5.0 percent of the total number of shares outstanding
on the last day of such year; provided that, the total number of shares which
may be reserved for issuance pursuant to ISOs granted under the Plan shall not
exceed 600,000 shares.
New option rights may be substituted for the Options granted
under the Plan, or the Corporation's duties as to Options, SARs and Dividend
Equivalent Rights outstanding under the Plan may be assumed by a Parent or
Subsidiary, by another corporation or by a parent or subsidiary (within the
meaning of Section 425 of the Code) of such other corporation, in connection
with any merger, consolidation, acquisition, separation, reorganization,
liquidation or like occurrence in which the Corporation is involved. In the
event of such substitution or assumption, the term
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<PAGE> 168
Common Stock shall thereafter include the stock of the corporation granting
such new option rights or assuming the Corporation's duties as to such Options
or SARs.
XI. MISCELLANEOUS.
-------------
11.1 GENERAL RESTRICTION. Any Option, SAR, or Restricted Stock award granted
under this Plan shall be subject to the requirement that, if at any time the
Committee shall determine that any registration of the shares of Common Stock,
or any consent or approval of any governmental body, or any other agreement or
consent, is necessary as a condition of the granting of an Option or other
award, or the issuance of Common Stock in satisfaction thereof, such Common
Stock will not be issued or delivered until such requirement is satisfied in a
manner acceptable to the Committee.
11.2 NON-ASSIGNABILITY. No Option or SAR granted under this Plan shall be
assignable or transferable by the Participant, except by will or by the laws of
descent and distribution. During the life of the Participant, any Option or
SAR shall be exercisable only by the Participant. Any shares of Restricted
Stock shall be assignable or transferable, if at all, only in accordance with
the restrictions imposed by the Participant's Restricted Stock Agreement.
11.3 WITHHOLDING TAXES.
(a) The Committee shall have the right to require
participating employees to remit to the Corporation an amount sufficient to
satisfy any federal, state and local withholding tax requirements prior to the
delivery of any shares of Common Stock under the Plan. If a Participant sells,
transfers, assigns or otherwise disposes of shares of Common Stock acquired
upon the exercise of an ISO within two (2) years after the date on which the
ISO was granted or within one (1) year after the receipt of the shares of
Common Stock by the Participant, the Participant shall promptly notify the
Corporation of such disposition and the Corporation shall have the right to
require the Participant to remit to the Corporation the amount necessary to
satisfy any federal, state and local tax withholding requirements imposed on
the Corporation by reason of such disposition.
(b) The Corporation shall have the right to withhold from
payments made in cash to a Participant under the terms of the Plan, an amount
sufficient to satisfy any federal, state and local withholding tax requirements
imposed with respect to such cash payments.
(c) Amounts to which the Corporation is entitled pursuant to
Section 11.3(a) or (b), may be paid, at the election of the Participant and
with the approval of the Committee, either (i) paid in cash, (ii) withheld from
the Participant's salary or
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<PAGE> 169
other compensation payable by the Corporation, including cash payments made
under this Plan, or (iii) in shares of Common Stock otherwise issuable to the
Participant upon exercise of an Option or SAR, that have a Fair Market Value on
the date on which the amount of tax to be withheld is determined (the "Tax
Date") not less than the minimum amount of tax the Corporation is required to
withhold. A Participant's election to have shares of Common Stock withheld
that are otherwise issuable shall be in writing, shall be irrevocable upon
approval by the Committee, and shall be delivered to the Corporation prior to
the Tax Date with respect to the exercise of an Option or SAR, and, if the
Participant is subject to the short-swing profit rules of Section 16(b) of the
Securities Exchange Act of 1934, as amended, shall be delivered to the
Corporation only during a window period of ten (10) days beginning on the third
business day following the date of the public release of annual or quarterly
financial information with respect to the Corporation.
11.4 TAX LOANS. In the discretion of the Committee, the Company may make a
loan to a Participant (i) in connection with the exercise of an Option in an
amount not to exceed the grossed up amount of any Federal and state taxes
payable in connection with such exercise, for the purpose of assisting such
Participant to exercise such Option, or (ii) in connection with the vesting of
Restricted Stock in an amount equal to the grossed up amount of any Federal and
state taxes payable as a result of such vesting. Any such loan may be secured
by the related shares of Common Stock or other collateral deemed adequate by
the Committee and will comply in all respects with all applicable laws and
regulations. The Committee may adopt policies regarding eligibility for such
loans, the maximum amounts thereof and any terms and conditions not specified
in the Plan upon which such loans will be made. In no event will the interest
rate be lower than the minimum rate at which the Internal Revenue Service would
not impute additional taxable income to the Participant.
11.5 INVESTMENT REPRESENTATION. If the Committee determines that a written
representation is necessary in order to secure an exemption from registration
under the Securities Act of 1933, the Committee may demand that the Participant
deliver to the Corporation at the time of any exercise of any Option or SAR, or
at time of the transfer of shares of Restricted Stock, any written
representation that Committee determines to be necessary or appropriate for
such purpose, including but not limited to a representation that the shares to
be issued are to be acquired for investment and not for resale or with a view
to the distribution thereof. If the Committee makes such a demand, delivery of
a written representation satisfactory to the Committee shall be a condition
precedent to the right of the Participant to acquire such shares of Common
Stock.
11.6 NO RIGHT TO EMPLOYMENT. Nothing in this Plan or in any agreement entered
into pursuant to it shall confer upon any participating employee the right to
continue in the
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<PAGE> 170
employment of the Corporation or affect any right which the Corporation may
have to terminate the employment of such participating employee.
11.7 NON-UNIFORM DETERMINATIONS. The Committee's determinations under this
Plan (including without limitation its determinations of the persons to receive
Options, SARs, Dividend Equivalent Rights or awards of Restricted Stock or
Performance Shares, the form, amount and timing of such awards and the terms
and provisions of such awards) need not be uniform and may be made by it
selectively among Participants who receive, or are eligible to receive, awards
under this Plan, whether or not such Participants are similarly situated.
11.8 NO RIGHTS AS SHAREHOLDERS. Participants granted Options, SARs, Dividend
Equivalent Rights or Performance Shares under this Plan shall have no rights as
shareholders of the Corporation as applicable with respect thereto unless and
until certificates for shares of Common Stock are issued to them.
11.9 TRANSFER RESTRICTIONS. The Committee may determine that any Common Stock
to be issued by the Corporation upon the exercise of Options or SARs, or in
settlement of Dividend Equivalent Rights or Performance Shares, shall be
subject to such further restrictions upon transfer as the Committee determines
to be appropriate.
11.10 FRACTIONAL SHARES. The Corporation shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Committee may provide for
the elimination of fractions or for the settlement thereof in cash.
XII. AMENDMENT AND TERMINATION.
12.1 AMENDMENT OR TERMINATION OF THE PLAN. The Board of Directors may at any
time terminate this Plan or any part thereof and may from time to time amend
this Plan as it may deem advisable; provided, however the Board of Directors
shall obtain stockholder approval of any amendment for which stockholder
approval is required under Section 422 of the Code, Rule 16b-3, or the
stockholder approval requirements imposed on the Corporation by the Listing
Rules of the New York Stock Exchange, including an amendment which would (i)
increase the aggregate number of shares of Common Stock which may be issued
under this Plan (other than increases permitted under Section 10.2), (ii)
extend the term of this Plan, or (iii) extend the period during which an Option
may be exercised. The termination or amendment of this Plan shall not, without
the consent of the employee, affect such employee's rights under an award
previously granted.
12.2 TERM OF PLAN. Unless previously terminated pursuant to Section 12.1, the
Plan shall terminate on May 8, 2005, the tenth anniversary of the date on which
the Plan
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became effective, and no Options, SARs, or awards of Restricted Stock may be
granted on or after such date.
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APPENDIX III
August 28, 1995
Special Committee of the Board of Directors
and the Board of Directors of Health Care REIT, Inc.
One Seagate, Suite 1950
Toledo, Ohio 42603-1475
Dear Sirs and Madam:
Health Care REIT, Inc. (the "Company") and First Toledo Advisory Corporation
("FTAC") have proposed to enter into an amended and restated Agreement and Plan
of Merger (the "Agreement") pursuant to which FTAC will be merged with and into
the Company (the "Merger"), the consideration for which will be the issuance of
shares of common stock of the Company. You have requested our opinion as to
whether the consideration to be paid for the acquisition of FTAC is fair, from
a financial point of view, to the Company.
Alex. Brown & Sons Incorporated, as a customary part of its investment
banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for corporate and other
purposes. We have acted as the managing underwriter of past public offerings
of the common stock of the Company and have advised the Company regarding
certain amendments to its certificate of incorporation and its preferred stock
purchase rights plan. We have acted as financial advisor to the Special
Committee of the Board of Directors of the Company and to the Board of
Directors of the Company in connection with the Merger and have received a fee
for our services. Alex. Brown & Sons Incorporated regularly publishes research
reports regarding the real estate investment trust and health care industries
and the businesses and securities of publicly owned companies in those
industries.
In connection with our opinion, we have: (i) reviewed certain publicly
available information concerning the Company, (ii) reviewed certain internal
financial analyses and other information furnished to us by the Company, (iii)
discussed the business of and prospects for the Company with management of the
Company, (iv) reviewed the price and trading volume of the common stock of the
Company, (v) reviewed certain internal financial analyses and other information
furnished to us by FTAC, (vi) discussed the business of and prospects for FTAC
with management of FTAC, (vii) reviewed certain financial information regarding
certain public companies engaged in the real estate management industry, (viii)
reviewed the financial terms of certain business combinations, (ix) reviewed
certain pro forma analyses and held discussions with the managements of the
Company and FTAC regarding the business and prospects of the Company after the
completion of the Merger, (x) reviewed the terms of the existing management
agreement between the
MEP\h64200\36065.21
<PAGE> 173
Special Committee of the Board of Directors
and the Board Board of Directors of
Health Care REIT, Inc.
August 28, 1995
Page 2
Company and FTAC, compared them with the terms of certain management
agreements to which certain other companies engaged in the real estate
management industry are parties, (xi) reviewed the compensation of certain
members of the senior management of certain health and non-health care REITs,
(xii) considered the terms of a previously negotiated transaction between the
Company and FTAC, (xiii) consulted with the Company's auditors regarding the
appropriate accounting for the Merger, and (xiv) performed such other studies
and analyses and considered such other factors as we deemed appropriate.
We also have advised the Special Committee of the Board of Directors and
the Board of Directors regarding various issues pertaining to the organization
and operation of the Company, including alternatives to acquiring FTAC, reasons
for self-administration, the hiring of FTAC management personnel and various
compensation matters. Although we have advised the Special Committee of the
Board of Directors and the Board of Directors generally concerning such
matters, the opinion set forth herein is limited solely to the consideration to
be paid in the Merger and does not extend to such matters.
We have not independently verified the information described above and
for purposes of this opinion have assumed the accuracy, completeness and
fairness thereof. With respect to information relating to the prospects of the
Company after the Merger, we have assumed that such information reflects the
best currently available estimates and judgments of the managements of the
Company and FTAC as to the likely future financial performance of the Company.
In addition, we have not made an independent evaluation or appraisal of the
assets of the Company, the assets of FTAC or reviewed environmental or other
potential contingent issues relating to the Company, FTAC or the Merger. Our
opinion is based on market, economic and other conditions as they exist and can
be evaluated as of the date of this letter.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the consideration to be paid for the acquisition of FTAC
is fair, from a financial point of view, to the Company.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
By: _______________________________
MEP\h64200\36065.21
<PAGE> 174
PROXY
-----
HEALTH CARE REIT, INC.
Proxy Solicited by the Board of Directors
The undersigned hereby appoints R. C. Glowacki, B. G. Thompson and F.
D. Wolfe (to act by majority decision if more than one shall act), and each of
them, with full power of substitution, to vote all shares of Common Stock,
$1.00 par value, of Health Care REIT, Inc. (the "Company"), that the undersigned
is entitled to vote at the Annual Meeting of the Stockholders of the Company
currently scheduled to be held on Tuesday, November 28, 1995, or any
adjournments thereof.
YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE
TAKING OF A VOTE ON THE MATTERS HEREIN.
Returned proxy cards will be voted: (1) as specified on the matters
listed below; (2) in accordance with the Directors' recommendations where a
choice is not specified; and (3) in accordance with the judgement of the
proxies on any other matters that may properly come before the meeting. Broker
non-votes and absentions will be counted toward the establishment of a quorum.
MANAGEMENT AND THE BOARD OF DIRECTORS OF THE COMPANY RECOMMEND VOTES
"FOR" ALL OF THE FOLLOWING:
1. Approval of the merger of First Toledo Advisory Company (the
"Management Company") with and into the Company pursuant to an Agreement and
Plan of Merger dated as of May 10, 1995, amended and restated effective as of
September 5, 1995 (the "Revised Merger Agreement"), between the Company and the
Management Company. Pursuant to the Revised Merger Agreement, the outstanding
shares of common stock of the Management Company will be converted into 282,407
shares of common stock, par value $1.00 per share, of the Company.
FOR AGAINST ABSTAIN
- --------- --------- ---------
2. Approval of the 1995 Health Care REIT, Inc. Stock Incentive Plan.
FOR AGAINST ABSTAIN
- --------- --------- ---------
3. Election of three Directors for a term of three years: Richard C.
Glowacki, Bruce G. Thompson and Richard A. Unverferth.
FOR ALL NOMINEES LISTED (except as marked to the contrary)
- --------
WITHHOLD AUTHORITY to vote for all nominees
- --------
To withhold authority to vote for any individual nominee, please write the
person's name in the following space:
------------------------------------
4. Ratification of the appointment of Ernst & Young, LLP as independent
auditors for the fiscal year 1995.
FOR AGAINST ABSTAIN
- --------- --------- ---------
5. With discretionary authority on any business that may properly come
before the meeting or any adjournment thereof.
Dated: , 1995
----------------------
--------------------------------------
Signature
--------------------------------------
Signature if Held Jointly
PLEASE MARK, SIGN, Please sign exactly as your name
DATE AND RETURN THE appears hereon. Joint owners should
PROXY CARD PROMPTLY each sign. When signing as attorney,
USING THE ENCLOSED executor, administrator, trustee or
ENVELOPE. PLEASE guardian, please give full title as
MARK YOUR CHOICE LIKE such. Corporate or partnership proxies
THIS X IN BLUE OR should be signed by an authorized
---- person with the person's title
BLACK INK. indicated.
