<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1999
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
FOUNTAIN VIEW, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4644784
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
AND SUBSIDIARY GUARANTORS
SUMMIT CARE CORPORATION
(Exact name of registrant as specified in its charter)
California 95-3656297
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
SUMMIT CARE-CALIFORNIA, INC.
(Exact name of registrant as specified in its charter)
California 95-2269142
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
SUMMIT CARE PHARMACY, INC.
(Exact name of registrant as specified in its charter)
California 95-3747839
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
SUMMIT CARE TEXAS EQUITY, INC.
(Exact name of registrant as specified in its charter)
California 95-4604050
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
SUMMIT CARE TEXAS, NO. 2, INC.
(Exact name of registrant as specified in its charter)
Texas 95-4060847
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
SUMMIT CARE TEXAS, NO. 3, INC.
(Exact name of registrant as specified in its charter)
Texas 74-2582813
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
SUMMIT CARE MANAGEMENT TEXAS, INC.
(Exact name of registrant as specified in its charter)
Texas 74-2850517
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
SUMMIT CARE TEXAS, L.P.
(Exact name of registrant as specified in its charter)
Texas 95-4642711
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
FOUNTAIN VIEW HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4644785
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
AIB CORP.
(Exact name of registrant as specified in its charter)
California 95-3918421
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ALEXANDRIA CONVALESCENT HOSPITAL, INC.
(Exact name of registrant as specified in its charter)
California 95-4395382
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
BIA HOTEL CORP.
(Exact name of registrant as specified in its charter)
California 95-3918420
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
BRIER OAK CONVALESCENT, INC.
(Exact name of registrant as specified in its charter)
California 95-4212165
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ELMCREST CONVALESCENT HOSPITAL
(Exact name of registrant as specified in its charter)
California 95-4274740
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
FOUNTAINVIEW CONVALESCENT HOSPITAL
(Exact name of registrant as specified in its charter)
California 95-2506832
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
FOUNTAIN VIEW MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
California 95-4199013
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
RIO HONDO NURSING CENTER
(Exact name of registrant as specified in its charter)
California 95-4272737
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
LOCOMOTION HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4644786
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
LOCOMOTION THERAPY, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4644790
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ON-TRACK THERAPY CENTER, INC.
(Exact name of registrant as specified in its charter)
California 77-0447168
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
I.'N O, INC.
(Exact name of registrant as specified in its charter)
California 95-4560821
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
SYCAMORE PARK CONVALESCENT HOSPITAL
(Exact name of registrant as specified in its charter)
California 95-2260970
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
(Continued on next page)
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<PAGE>
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(Continued from previous page)
8051
(Primary Standard Industrial Classification Code Number)
____________________
11900 W. OLYMPIC BOULEVARD
SUITE 680
LOS ANGELES, CALIFORNIA 90064
(310) 571-0351
(Address, including zip code and telephone number,
including area code, of Registrant's Principal Executive Offices)
____________________
ROBERT M. SNUKAL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FOUNTAIN VIEW, INC.
11900 W. OLYMPIC BOULEVARD
SUITE 680
LOS ANGELES, CALIFORNIA 90064
(310) 571-0351
(Name, Address, including zip code and telephone number,
including area code, of agent for aervice)
____________________
Copies to:
STEPHEN M. L. COHEN, ESQ.
CHOATE, HALL & STEWART
EXCHANGE PLACE
53 STATE STREET
BOSTON, MASSACHUSETTS 02109-2891
(617) 248-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and they are in compliance
with General Instruction G, check the following box. [_]
____________________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=====================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED (1) REGISTERED PER UNIT (2) OFFERING PRICE (2) FEE (3)
=====================================================================================================================
<S> <C> <C> <C> <C>
11 1/4%Senior Subordinated Notes
due 2008, Series B $7,520,000 100% $7,520,000 $2,091
- ---------------------------------------------------------------------------------------------------------------------
Guarantees of 11 1/4% SENIOR
SUBORDINATED NOTES DUE 2008,
SERIES B (3) (3) (3) (3)
=====================================================================================================================
</TABLE>
(1) The issuer of the Notes registered hereby is Fountain View, Inc. The
guarantees registered hereby are made by Summit Care Corporation, Summit
Care-California, Inc., Summit Care Pharmacy, Inc., Summit Care Texas
Equity, Inc., Summit Care Texas, No. 2, Inc., Summit Care Texas, No. 3,
Inc., Summit Care Management Texas, Inc., Summit Care Texas, L.P., Fountain
View Holdings, Inc., AIB Corp., Alexandria Convalescent Hospital, Inc., BIA
Hotel Corp., Brier Oak Convalescent, Inc., Elmcrest Convalescent Hospital,
Fountainview Convalescent Hospital, Fountain View Management, Inc., Rio
Hondo Nursing Center, Locomotion Holdings, Inc., Locomotion Therapy, Inc.,
On-Track Therapy Center, Inc., I.'N O, Inc. and Sycamore Park Convalescent
Hospital.
(2) In accordance with Rule 457(f)(2), the registration fee is calculated based
on the book value of the securities as of the most recent practicable date.
(3) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee
is payable for the guarantees.
____________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED FEBRUARY 11, 1999
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
OFFER TO EXCHANGE UP TO $7,520,000 OF 11 1/4%
SENIOR SUBORDINATED NOTES DUE 2008, SERIES B OF
FOUNTAIN VIEW, INC., WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR $7,520,000
OF ITS OUTSTANDING 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008
FOUNTAIN VIEW, INC.
TERMS OF EXCHANGE OFFER
o Expires 5:00 p.m., New York City time, , 1999, unless extended
o Not subject to any condition other than that the Exchange Offer not
violate applicable law or any applicable interpretation of the Staff of
the Securities and Exchange Commission
o All outstanding notes that are validly tendered and not validly
withdrawn will be exchanged
o Tenders of outstanding notes may be withdrawn any time period to 5:00
p.m. on the business day prior to expiration of the Exchange Offer
o The exchange of notes will not be a taxable exchange for the U.S.
federal income tax purposes
o We will not receive any proceeds from the Exchange Offer
o The terms of the notes to be issued are substantially identical to the
outstanding notes, except for certain transfer restrictions to the
outstanding notes
See "Risk Factors" beginning on page 24 for a discussion of certain matters
that should be considered by prospective investors.
__________________________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes to be distributed in the
Exchange Offer, nor have any of these organizations determined that this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
__________________________
The date of this Prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Forward-Looking Statements.................................................................... 3
Where You Can Find More Information........................................................... 4
Incorporation of Certain Documents By Reference............................................... 4
Prospectus Summary............................................................................ 6
Risk Factors.................................................................................. 24
Use of Proceeds............................................................................... 37
Capitalization................................................................................ 37
Unaudited Pro Forma Financial Data............................................................ 38
Selected Historical Financial and Other Data--Fountain View................................... 44
Selected Historical Financial and Other Data--Summit.......................................... 46
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................................ 48
Business...................................................................................... 60
Management.................................................................................... 82
Principal Stockholders........................................................................ 88
Certain Relationships and Related Transactions................................................ 89
Description of Other Indebtedness............................................................. 92
The Exchange Offer............................................................................ 95
Plan of Distribution.......................................................................... 102
Description of Notes.......................................................................... 104
Material Federal Income Tax Consequences...................................................... 139
Validity of the Notes......................................................................... 142
Experts....................................................................................... 142
</TABLE>
2
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about us, including, among other things:
o Our anticipated growth strategies,
o Our expected internal growth and expected synergies resulting from
recent transactions,
o Our ability to develop and expand our business in our regional markets,
o Our ability to increase the level of sub-acute and specialty medical
care we provide,
o The effects of government regulation and healthcare reform,
o Anticipated trends and conditions in our industry, including regulatory
reform,
o Our ability to integrate acquired businesses,
o Our ability to implement a Year 2000 readiness program,
o Our future capital needs and
o Our ability to compete.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties, and assumptions, the forward-looking
events discussed in this Prospectus might not occur.
_____________________
3
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). As a result, we file periodic
reports, statements and other information with the Securities and Exchange
Commission (the "Commission"). You may read and copy reports and other
information we file at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and Suite 1400, Northwestern
Atrium Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661.
Please call the Commission at 1-800-SEC-0330 for further information on the
public reference facilities. Copies of documents we file can also be obtained at
prescribed rates by writing to the Commission, Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549. You may also access this information
electronically through the Commission's web page on the Internet at
http://www.sec.gov. This web cite contains reports, proxy statements and other
information regarding registrants such as ourselves that have filed
electronically with the Commission.
This Prospectus constitutes a part of a registration statement (the
"Registration Statement") filed by us with the Commission under the Securities
Act of 1933, as amended (the "Securities Act"). As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information contained in the Registration Statement and the exhibits and
schedules thereto. Therefore, we make in this Prospectus reference to the
Registration Statement and to the exhibits and schedules thereto. For further
information about us and about the securities we hereby offer, you should
consult the Registration Statement and the exhibits and schedules thereto. You
should be aware that statements contained in this Prospectus concerning the
provisions of any documents filed as an exhibit to the Registration Statement or
otherwise filed with the Commission are not necessarily complete, and in each
instance reference is made to the copy of such document so filed. Each such
statement is qualified in its entirety by such reference.
The indenture governing the outstanding notes provides that we will furnish
to the holders of the notes copies of the periodic reports required to be filed
with the Commission under the Exchange Act. Even if we are not subject to the
periodic reporting and informational requirements of the Exchange Act, we will
make such filings to the extent that such filings are accepted by the
Commission. We will make these filings regardless of whether we have a class of
securities registered under the Exchange Act. Furthermore, we will provide the
Trustee for the notes and the holders of the notes within 15 days after such
filings with annual reports containing the information required to be contained
in Form 10-K, and quarterly reports containing the information required to be
contained in Form 10-Q promulgated by the Exchange Act. From time to time, we
will also provide such other information as is required to be contained in Form
8-K promulgated by the Exchange Act. If the filing of such information is not
accepted by the Commission or is prohibited by the Exchange Act, we will then
provide promptly upon written request, and at our cost, copies of such reports
to prospective purchasers of the notes.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to incorporate by reference the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus, and information that we file later
with the Commission will automatically update and
4
<PAGE>
supersede this information. We incorporate by reference into this Prospectus the
following documents or information filed with the Commission (File No. 333-
57279):
(a) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1998, filed with the Commission on November 16, 1998.
(b) all documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of the Registration
Statement of which this Prospectus is part and prior to the effectiveness
thereof or subsequent to the date of this Prospectus and prior to the
termination of the offering made hereby.
As noted above, any statement contained in this Prospectus, or in any
documents incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for the purpose of this
Prospectus to the extent that a subsequent statement contained in this
Prospectus or in any subsequently filed document which also is or is deemed to
be incorporated by reference in this Prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available without charge upon
written or oral request from Paul Rathbun, Chief Financial Officer of the
Company at the Company's principal executive offices located at 11900 W. Olympic
Boulevard, Suite 680, Los Angeles, California 90064, telephone number (310) 571-
0351.
________________________
This Exchange Offer is not being made to, nor will we accept surrenders for
exchange from, holders of outstanding notes in any jurisdiction in which this
Exchange Offer or the acceptance thereof would not be in compliance with the
Securities or Blue Sky laws of such jurisdiction.
5
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PROSPECTUS SUMMARY
This Prospectus Summary may not contain all the information that may be
important to you. You should read the entire Prospectus, including the financial
data and related notes, before making an investment decision. Unless otherwise
stated in this Prospectus, references to (a) "Fountain View" shall mean Fountain
View, Inc. and its subsidiaries, other than Summit and its subsidiaries; (b)
"Summit" shall mean Summit Care Corporation and its subsidiaries; and (c) "we",
"us" or the "Company" shall mean Fountain View and its subsidiaries, including
Summit and its subsidiaries and, in certain cases, refers to the historical
performance or operations of Fountain View and Summit, taken as a whole. All
references to a fiscal year refer to the twelve months ended June 30, in the
case of Summit, and December 31, in the case of Fountain View and the Company,
of the year referenced. Investors should carefully consider the information set
forth under the heading "Risk Factors". In addition, certain statements include
forward-looking statements which involve risks and uncertainties. See "Forward-
Looking Statements".
THE EXCHANGE OFFER
We completed on April 16, 1998 the private offering of $120 million of 11
1/4% Senior Subordinated Notes due 2008. We entered into a registration rights
agreement with the initial purchasers in the private offering in which we
agreed, among other things, to deliver a prospectus and to complete an exchange
offer within 150 days of the issuance of the 11 1/4% Senior Subordinated Notes
due 2008. One initial purchaser failed to exchange the outstanding notes held by
it prior to the expiration of the exchange offer. At the request of this holder,
the Company is now offering to exchange the notes held by it for registered
notes with substantially identical terms to the exchange notes previously
offered. You should read the discussion under the heading "Summary Description
of the Exchange Notes" and "Description of the Notes" for further information
regarding the registered notes.
We believe that the notes issued in this Exchange Offer may be resold by
you without compliance with the registration and prospectus delivery provisions
of the Securities Act, subject to certain conditions. You should read the
discussion under the headings "Summary of the Terms of Exchange Offer" and "The
Exchange Offer" for further information regarding the Exchange Offer and resale
of the notes.
THE COMPANY
We are a leading operator of long-term care facilities and a leading
provider of a full continuum of post-acute care services, with a strategic
emphasis on sub-acute specialty medical care. Sub-acute care is generally short-
term, goal-oriented rehabilitation care intended for individuals who have a
specific illness, injury or disease, but who do not require many of the services
provided in an acute care hospital. Sub-acute care is typically rendered
immediately after, or in lieu of, acute hospitalization in order to treat such
specific medical conditions. Post-acute care is the provision of a continuum of
care to patients following discharge from an acute care hospital. We operate a
network of facilities in California, Texas and Arizona, including 44 skilled
nursing facilities ("SNFs") that offer sub-acute, rehabilitative and specialty
medical skilled nursing care, as well as six assisted living facilities ("ALFs")
that provide room and board and social services in a secure environment. In
addition to long-term care, we provide a variety of high-quality ancillary
services such as physical, occupational and speech therapy in company-operated
facilities, unaffiliated facilities and acute care hospitals. We also operate
three institutional pharmacies (one of which is a joint venture), which service
acute care hospitals as well as SNFs and ALFs both affiliated and unaffiliated
with us, an outpatient
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6
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therapy clinic and a durable medical equipment ("DME") company. Our operations
consist of the combined operations of Fountain View and Summit and we operate 50
facilities with approximately 6,600 beds serving Medicare, Medicaid, managed
care, private pay and other patients.
THE TRANSACTIONS
On February 6, 1998, Fountain View, Summit, Heritage Fund II, L.P. and FV-
SCC Acquisition Corp., a wholly-owned subsidiary of Fountain View, entered into
an Agreement and Plan of Merger providing for the acquisition of Summit by
Fountain View. Pursuant to the Merger Agreement, Fountain View offered to
purchase all of the outstanding shares of common stock of Summit at a price of
$21.00 per share. The tender offer for the Summit shares expired on March 25,
1998 and Fountain View purchased approximately 99% of the Summit shares on March
27, 1998.
Acquisition then merged with Summit on April 16, 1998. Summit was the
surviving corporation in the merger and became a wholly-owned subsidiary of
Fountain View.
In order to purchase the Summit shares, to refinance all then existing
Fountain View funded indebtedness, to redeem all outstanding options for Summit
shares, and to pay certain fees, expenses and other costs arising in connection
with such transactions, Fountain View sold, in a transaction exempt from
registration $120.0 million of 11 1/4% Senior Subordinated Notes due 2008. We
also entered into a new revolving credit facility and term loan facilities
providing for revolving credit borrowings of up to $30.0 million and term loan
borrowings of up to $85.0 million. In addition, Fountain View raised
approximately $97.0 million of new equity investments in the amounts of $90.6
million from Heritage Fund II, L.P. and certain other co-investors, $5.0 million
from Mr. Snukal, Fountain View's Chief Executive Officer, and Sheila Snukal,
Fountain View's Executive Vice President and Mr. Snukal's wife, and $1.4 million
from Mr. Scott, Summit's Chairman and Chief Executive Officer. We used the
proceeds from the sale of the Notes to repay certain indebtedness of Summit and
to pay certain transaction fees and expenses. See "Use of Proceeds".
The tender offer, the merger, the establishment of the new credit facility,
the equity investments, the note offering described above are collectively
referred to as the "Transactions".
Since the Transactions, our senior management has owned approximately 26.3%
of our outstanding common stock, on a fully-diluted basis, and Heritage
Partners, Inc. and its affiliates ("Heritage"), along with certain co-investors,
have owned approximately 72.7% of our outstanding common stock, on a fully-
diluted basis. Heritage is a Boston-based private equity firm with $530 million
in capital under management, specializing in the acquisition and equity-based
recapitalization of private, family-owned businesses. See "Management".
In August 1997, Heritage invested $14.0 million in cash in Fountain View in
a series of transactions which resulted in Heritage obtaining a 49.9% ownership
position in the common equity of Fountain View and completing a $7.0 million
preferred stock investment in Fountain View at that time. See Note 3 to the
audited financial statements of Fountain View included elsewhere in this
Prospectus.
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7
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Set forth below is a diagram showing our organizational structure (all
subsidiaries are 100% owned, unless otherwise indicated):
CHART APPEARS HERE
The diagram depicts:
(A) Fountain View as the owner of all of the outstanding stock of: Summit
Care Corporation, Inc., Locomotion Holdings, Inc., On-Track Therapy
Center, Inc., Fountain View Holdings, Inc. and Sycamore Park
Convalescent Hospital;
(B) Summit Care Corporation as the owner of: (i) all of the outstanding
stock of Summit Care California, Inc., Summit Care Pharmacy Inc.,
Summit Care Texas No. 2, Summit Care Texas Management, Inc., and
Summit Care Texas No. 3, and (ii) 82.8% of the outstanding stock of
Summit Care Texas Equity, Inc.
(C) Locomotion Holdings, Inc. as the owner of all the outstanding stock
Locomotion Therapy, Inc.
(D) Fountain View Holdings, Inc. as the owner of all the outstanding stock
of: AIB Corp., Alexandria Convalescent Hospital, Inc., BIA Hotel
Corp., Brier Oak Convalescent, Inc., Elmcrest Convalescent Hospital,
Fountainview Convalescent Hospital, Fountainview Management, Inc., Rio
Hondo Nursing Center
(E) Summit Care Texas No. 2, Inc. owning 17.2% of the outstanding stock of
Summit Care Texas Equity, Inc.
(F) Summit Care Texas Management, Inc. owning a 1% general partnership
interest in Summit Care Texas L.P.
(G) Summit Care Texas Equity, Inc. owning a 99% limited partnership
interest in Summit Care Texas L.P.
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8
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THE FINANCINGS
The following table illustrates the sources and uses of funds for the
Transactions. See "Unaudited Pro Forma Financial Data".
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
SOURCES OF FUNDS
New Credit Facility(1)............................................ $ 100.0
11 1/4% Senior Subordinated Notes................................. 120.0
-----
Total debt................................................... 220.0
Equity Investments:
Heritage and co-investors equity investments(2)................... 90.6
Fountain View management equity investment(3)..................... 5.0
Summit management equity investment(4)............................ 1.4
Total equity................................................. 97.0
-----
Total sources of funds............................................ $ 317.0
=====
USES OF FUNDS
Purchase of Summit Shares in the Tender Offer and
and the Merger (5)............................................ $ 145.6
Refinancing of Fountain View indebtedness(6)...................... 32.0
Refinancing of Summit indebtedness(7)............................. 108.9
Fees and expenses................................................. 30.5
-----
Total uses of funds............................................... $ 317.0
=====
</TABLE>
___________________
(1) The New Credit Facility provides for up to $30.0 million of revolving
credit borrowings (with a $4.0 million sublimit for letters of credit) and
up to $85.0 million of term loans and matures in 2004. As of September 30,
1998, term loans in the aggregate amount of approximately $85.0 million and
revolving loans in the aggregate amount of approximately $20.1 million were
outstanding under the New Credit Facility, and $9.9 million of revolving
credit borrowings were then available to the Company.
(2) Represents only the new cash invested in Fountain View by Heritage and
certain co-investors in connection with the Transactions and excludes the
Fountain View shares held by Heritage prior to the Transactions.
(3) Represents only the new cash invested in Fountain View by Mr. Snukal and
Mrs. Snukal in connection with the Transactions and excludes the Fountain
View shares held by management prior to the Transactions.
(4) Represents the full amount of the after-tax proceeds that Mr. Scott
received from the cash-out in the Merger of all options to purchase Summit
shares held by him (and a payment from the Company to cover a portion of
related taxes) and the full after-tax proceeds from payments under the
Summit Executive Incentive Plan received by him from the Company, but does
not include the issuance by Mr. Scott of a limited recourse promissory note
in consideration for certain of the Fountain View shares issued to him in
connection with the Transactions. See "Certain Relationships and Related
Transactions--Investment Agreement" and "--Payments to Certain
Stockholders".
(5) Represents the purchase of all Summit Shares in the Tender Offer and the
Merger, and the cash-out of options to purchase 909,500 Summit Shares which
Summit effected upon the effectiveness of the Merger.
(6) Reflects the total funded indebtedness of Fountain View outstanding
immediately prior to the Merger.
(7) Reflects total funded indebtedness of Summit (excluding mortgages, capital
leases and certain other indebtedness) outstanding immediately prior to the
Merger.
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9
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OTHER DEVELOPMENTS
On May 4, 1998, Baylor Health Care System, a vertically integrated
healthcare system operating in Texas, and Buckner Foundation, a subsidiary of
Buckner Baptist Benevolences, a Texas social services organization, purchased
from Heritage shares of Series A Preferred Stock and warrants to purchase shares
of our Series C Common Stock for approximately $12.4 million. The shares of
Series A Preferred Stock are entitled to receive a cumulative dividend
calculated to achieve a 12% annual rate of return, and are subject to automatic
redemption upon the completion of an initial public offering of our common
stock. The shares represented by the warrants issued currently represent
approximately 5% of our diluted capital stock. Baylor is also entitled to have
one of its nominees serve on our board of directors.
We and Baylor also entered into an agreement on May 4, 1998 primarily to
develop and operate skilled nursing facilities within a mile of the Baylor
hospital campuses for which Baylor has the right to receive a market-rate
development and license fee in the form of cash or warrants.
Baylor, one of the nation's largest not-for-profit integrated health care
providers, operates a network of 50 hospitals, clinics and primary care
facilities in 19 cities throughout Northern Texas and Southern Oklahoma. Baylor
is based in Dallas-Fort Worth, Texas, where its hospitals represent 16% of all
hospital admissions in the Dallas-Forth Worth area.
For the nine months ended September 30, 1998, net revenues totaled $155.5
million. During the same period, occupancy was 86.5% (excluding three Summit
facilities which commenced operations or were renovated in 1996 or later) and
our quality mix (which is total net revenues less Medicaid net revenues) was
64.3%.
We were incorporated in Delaware in 1997. Our principal executive offices
are located at 11900 Olympic Boulevard, Suite 680, Los Angeles, California
90064, and our telephone number is (310) 571-0351.
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10
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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $7,520,000 aggregate
principal amount of outstanding notes for an equal aggregate principal amount of
exchange notes. The exchange notes will be our obligations entitled to the
benefits of the indenture governing the outstanding notes. The form and terms of
the exchange notes are identical in all material respects to the form and terms
of the outstanding notes except that the exchange notes have been registered
under the Securities Act.
Outstanding Notes.............. We sold $120.0 million of the outstanding
notes on April 16, 1998 to Goldman, Sachs &
Co., Nesbitt Burns Securities Inc., Paribas
Corporation and Sutro & Co., Incorporated.
These Initial Purchasers subsequently resold
the Outstanding Notes in transactions not
registered under the Securities Act in
reliance upon exemptions from registration
pursuant to Rule 144A and Regulation S under
the Securities Act. All the outstanding notes
sold on April 16, 1998 were previously
exchanged for registered notes, except for
the notes held by Nesbitt Burn Securities,
Inc.
Securities Offered............. $7,520,000 aggregate principal amount of 11
1/4% Senior Subordinated Notes due 2008,
Series B.
The Exchange Offer............. We are offering to exchange $1,000 principal
amount of 11 1/4% Senior Subordinated Notes
due 2008, Series B, which have been
registered under the Securities Act of 1933
for each $1,000 principal amount of our
outstanding 11 1/4% Senior Subordinated Notes
due 2008 which were issued in April 1998 in a
private offering. In order to be exchanged,
an outstanding note must be properly tendered
and accepted. All outstanding notes that are
validly tendered and not validly withdrawn
will be exchanged.
As of this date there are $7,520,000
principal amount of notes outstanding.
We will issue registered notes on or promptly
after the expiration of the Exchange Offer.
Resale of the Exchange Notes... Based on an interpretation by the staff of
the Commission set forth in no-action letters
issued to third parties, including "Exxon
Capital Holdings Corporation" (available May
13, 1988), "Morgan Stanley & Co.
Incorporated" (available June 5, 1991) and
"Mary Kay Cosmetics, Inc." (available June 5,
1991), we believe that the notes issued in
the exchange offer may be offered for resale,
resold and otherwise transferred by you
without compliance with the registration and
prospectus delivery provisions of the
Securities Act of 1933 provided that:
11
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<PAGE>
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- the notes issued in the Exchange Offer are
being acquired in the ordinary course of
business;
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the notes issued to
you in the Exchange Offer;
- you are not a broker-dealer who purchased
such outstanding notes directly from us for
resale pursuant to Rule 144A or any other
available exemption under the Securities Act
of 1933; and
- you are not an "affiliate" of ours.
If our belief is inaccurate and you transfer
any note issued to you in the Exchange Offer
without delivering a prospectus meeting the
requirement of the Securities Act of 1933 or
without an exemption from registration of
your notes from such requirements, you may
incur liability under the Securities Act of
1933. We do not assume or indemnify you
against such liability.
Each broker-dealer that is issued notes in
the Exchange Offer for its own account in
exchange for notes which were acquired by
such broker-dealer as a result of market-
making or other trading activities, must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities
Act of 1933, in connection with any resale of
the notes issued in the Exchange Offer. The
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus,
such broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. A
broker-dealer may use this Prospectus for an
offer to resell, resale or other retransfer
of the notes issued to it in the Exchange
Offer. We have agreed that, for a period of
180 days after the date of this Prospectus,
we will make this Prospectus and any
amendment or supplement to this Prospectus
available to any such broker-dealer for use
in connection with any such resales. We
believe that no registered holder of the
outstanding notes is an affiliate (as such
term is defined in Rule 405 of the Securities
Act) of the Company.
The Exchange Offer is not being made to, nor
will we accept surrenders for exchange from,
holders of outstanding notes in any
jurisdiction in which this Exchange Offer or
the acceptance thereof would not be in
compliance with the securities or blue sky
laws of such jurisdiction.
12
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Expiration Date................ The Exchange Offer will expire at 5:00
p.m., New York City time, ,
1999, unless we decide to extend the
expiration date.
Accrued Interest on the
Exchange Notes................. The exchange notes will bear interest
from the most recent date to which
interest has been paid on the
outstanding notes.
Exchange Date.................. Subject to certain conditions (as
summarized below in "Termination of the
Exchange Offer" and described more fully
under "The Exchange Offer--Expiration
Date; Extensions; Termination;
Amendments"), we will accept for
exchange any and all outstanding notes
which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date.
The notes issued pursuant to the
Exchange Offer will be delivered
promptly following the Expiration Date.
Termination of the Exchange Offer.. We may terminate the Exchange Offer if
we determine that our ability to proceed
with the Exchange Offer could be
materially impaired due to any legal or
governmental action, new law, statute,
rule or regulation or any interpretation
of the staff of the Commission of any
existing law, statute, rule or
regulation. We do not expect any of the
foregoing conditions to occur, although
there can be no assurance that such
conditions will not occur.
Consequences of Failure
to Exchange.................... Any outstanding notes not tendered
pursuant to the Exchange Offer will
remain outstanding and continue to
accrue interest. Such outstanding notes
will remain "restricted securities"
under the Securities Act and subject to
the transfer restrictions. As a result,
the liquidity of the market for such
outstanding notes could be adversely
affected upon completion of the Exchange
Offer. See "Risk Factors--Consequences
of Failure to Exchange the Outstanding
Notes".
Material Federal Income
Tax Consequences............... The exchange of the notes will generally
not be a taxable exchange for United
States federal income tax purposes. We
believe you will not recognize any
taxable gain or loss or any interest
income as a result of such exchange.
Use of Proceeds................ We will not receive any proceeds from
the issuance of notes pursuant to the
Exchange Offer.
13
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<PAGE>
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Procedures for Tendering
Outstanding Notes.............. If you are a holder of a note and you
wish to tender your note for exchange
pursuant to the Exchange Offer, you must
transmit to State Street Bank and Trust
Company, as exchange agent, on or prior
to the Expiration Date:
either - a properly completed and duly
executed Letter of Transmittal, which
accompanies this Prospectus, or a
facsimile of the Letter of Transmittal,
including all other documents required
by the Letter of Transmittal, to the
Exchange Agent at the address set forth
on the cover page of the Letter of
Transmittal;
or - a computer-generated message
transmitted by means of DTC's Automated
Tender Offer Program system and received
by the Exchange Agent and forming a part
of a confirmation of book entry transfer
in which you acknowledge and agree to be
bound by the terms of the Letter of
Transmittal; and,
either - a timely confirmation of book-
entry transfer of your outstanding notes
into the Exchange Agent's account at The
Depository Trust Company ("DTC")
pursuant to the procedure for book-entry
transfers described in this Prospectus
under the heading "The Exchange
Offer--Procedure for Tendering
Outstanding Notes", must be received by
the Exchange Agent on or prior to the
Expiration Date;
or - the documents necessary for
compliance with the guaranteed delivery
procedures described below. By executing
the Letter of Transmittal, each holder
will represent to us that, among other
things, (i) the notes to be issued in
the Exchange Offer are being obtained in
the ordinary course of business of the
person receiving such new notes whether
or not such person is the holder, (ii)
neither the holder nor any such other
person has an arrangement or
understanding with any person to
participate in the distribution of such
new notes and (iii) neither the holder
nor any such other person is an
"affiliate," as defined in Rule 405
under the Securities Act of the Company.
Special Procedures for
Beneficial Owners.............. If you are the beneficial owner of notes
and your name does not appear on a
security position listing of DTC as the
holder of such notes or if you are a
beneficial owner of registered notes
that are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee and you wish to
tender such notes or registered notes in
the Exchange Offer, you should contact
such person whose name your notes or
14
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<PAGE>
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registered notes are registered promptly
and instruct such person to tender on
your behalf. If such beneficial holder
wishes to tender on his own behalf such
beneficial holder must, prior to
completing and executing the Letter of
Transmittal and delivering its
outstanding notes, either make
appropriate arrangements to register
ownership of the outstanding notes in
such holder's name or obtain a properly
completed bond power from the registered
holder. The transfer of record ownership
may take considerable time.
Guaranteed Delivery Procedures.... If you wish to tender your notes and
time will not permit your required
documents to reach the Exchange Agent by
the Expiration Date, or the procedure
for book-entry transfer cannot be
completed on time or certificates for
registered notes cannot be delivered on
time, you may tender your notes pursuant
to the procedures described in this
Prospectus under the heading "The
Exchange Offer--Guaranteed Delivery
Procedure."
Withdrawal Rights................. You may withdraw the tender of your
notes at any time prior to 5:00 p.m.,
New York City time, on , 1999, the
business day prior to the Expiration
Date, unless your notes were previously
accepted for exchange.
Exchange Agent.................... State Street Bank and Trust Company of
California, N.A. is serving as exchange
agent in connection with the Exchange
Offer. The Exchange Agent can be reached
at c/o State Street Bank and Trust
Company, Two International Place,
Boston, Massachusetts 02110. For more
information with respect to the Exchange
Offer, the telephone number for the
Exchange Agent is (617) 664-5587 and the
facsimile number for the Exchange Agent
is (617) 664-5290.
TERMS OF THE NOTES
The following description relates both to the outstanding notes and to the
exchange notes to be issued in exchange for outstanding notes in connection with
the Exchange Offer. The exchange notes will be our obligations, evidencing the
same indebtedness as the outstanding notes, and will be entitled to the benefits
of the same Indenture. The form and terms of the exchange notes are the same as
the form and terms of the outstanding notes, except that the exchange notes have
been registered under the Securities Act and therefore will not bear legends
restricting the transfer thereof. For a more complete description of the Notes
see "Description of Notes". Throughout this Prospectus, references to the
"Notes" refer to the exchange notes and the outstanding notes collectively.
Summary Description of the
Notes Offered..................... $7,520,000 aggregate principal amount of
11 1/4% Senior Subordinated Notes due
2008, Series B.
15
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<PAGE>
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Maturity Date..................... April 15, 2008.
Guarantees........................ Our payment obligations under the notes
are fully and unconditionally, jointly
and severally guaranteed on a senior
subordinated basis by each of our
current and future restricted
subsidiaries. All of our current
subsidiaries are restricted
subsidiaries. The guarantees are
subordinated to all senior debt of our
subsidiaries. See "Description of
Notes--Subsidiary Guarantees".
Interest.......................... The outstanding notes accrue interest at
a rate of 11 1/4% per annum. The
exchange notes will accrue interest at a
rate of 11 1/4% per annum from the most
recent date to which interest had been
paid on the outstanding notes.
Interest Payment Dates............ April 15 and October 15 of each year,
commencing April 15, 1999.
Optional Redemption............... We may redeem the notes, in whole or in
part, at any time on or after April 15,
2003, at the redemption prices set forth
in this Prospectus. Public Equity
Offering
Optional Redemption............... Before April 15, 2001, we may redeem up
to 35% of the aggregate principal amount
of the notes with the net proceeds of a
public equity offering at 111 1/4% of
the principal amount thereof, plus
accrued interest, if at least $78
million of the aggregate principal
amount of the notes originally issued
remains outstanding after such
redemption. See "Description of
Notes--Optional Redemption".
Change of Control................. Upon certain change of control events,
each holder of notes may require us to
repurchase all or a portion of its notes
at a purchase price equal to 101% of the
principal amount thereof, plus accrued
interest. See "Description of
Notes--Certain Definitions" for the
definition of a Change of Control.
Ranking........................... The notes will be unsecured senior
subordinated obligations and will be
subordinated to all our existing and
future senior indebtedness. The notes
will rank equally with all our other
existing and future senior subordinated
indebtedness, including our currently
outstanding 11 1/4% Senior Subordinated
Notes due 2008, Series B, and will rank
senior to all our subordinated
indebtedness. The notes effectively will
rank junior to all liabilities of our
subsidiaries. Because the notes are
subordinated, in the event of
bankruptcy, liquidation or dissolution,
holders of the notes will not receive
any payment until holders of senior
indebtedness have been paid in full. The
terms "senior indebtedness" and
"subordinated indebtedness" are
16
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<PAGE>
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defined in the "Description of
Notes--Subordination" and "Description
of Notes--Certain Definitions" sections
of this Prospectus. As of September 30,
1998, we had outstanding $125.6 million
of senior indebtedness and $120.0
million of senior subordinated
indebtedness outstanding and our
subsidiaries had no indebtedness
outstanding.
Certain Covenants................. The indenture governing the notes
contains covenants that, among other
things, will limit our ability and the
ability of our subsidiaries to:
o incur additional indebtedness,
o incur additional senior
subordinated indebtedness,
o pay dividends on, redeem or
repurchase our capital stock,
o make investments,
o issue or sell capital stock of
restricted subsidiaries,
o engage in transactions with
affiliates,
o create certain liens,
o sell assets,
o guarantee indebtedness,
o restrict dividend or other payments
to us, and
o consolidate, merge or transfer all
or substantially all our assets and
the assets of our subsidiaries on a
consolidated basis.
These covenants are subject to important
exceptions and qualifications, which are
described under the heading "Description
of Notes" in this Prospectus.
Risk Factors...................... See "Risk Factors" for a discussion of
factors you should carefully consider
before deciding to invest in the notes.
17
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<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
Set forth below is the pro forma financial information as of September 30,
1998 and December 31, 1997 and for the nine months ended September 30, 1998 and
for the year ended December 31, 1997. Such pro forma data does not purport to
represent what our actual results would have been if the Transactions had
occurred on the date indicated, nor does such information purport to project our
results for future periods. You should read the summary unaudited pro forma
financial information below together with the "Unaudited Pro Forma Financial
Data", "Selected Historical Financial and Other Data--Fountain View", "Selected
Historical Financial and Other Data--Summit" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenue...................................................... $ 209,405 $ 287,144
Salaries and related benefits.................................... 104,647 135,248
Other operating costs............................................ 71,823 115,022
Depreciation and amortization.................................... 10,736 14,072
Rent expense..................................................... 5,112 6,754
Interest, net.................................................... 17,069 23,324
---------- ----------
209,387 294,420
---------- ----------
Income (loss) before provision for income taxes and
extraordinary item............................................ 18 (7,276)
Income tax provision (benefit) (1)............................... (82) 2,854
Extraordinary item, net of tax................................... (517) -
---------- ----------
Net loss......................................................... $ (581) $ (4,422)
========== ==========
OTHER FINANCIAL DATA
EBITDA(2)........................................................ $ 27,823 $ 30,120
Adjusted EBITDA(3)............................................... 27,823 37,795
Adjusted EBITDA margin........................................... 13.3% 13.2%
Adjusted EBITDAR(3).............................................. $ 32,935 $ 44,549
Adjusted EBITDAR margin.......................................... 15.7% 15.5%
Ratio of earnings to fixed charges(4)............................ 1.0x -
Ratio of Adjusted EBITDA to net interest expense................. 1.6 1.6
Ratio of net debt to Adjusted EBITDA(5).......................... 6.5 6.3
Net cash provided by operating activities........................ $ 4,137 $ 34,984
OTHER DATA
Number of facilities (end of period)............................. 50 50
Total beds (end of period)....................................... 6,578 6,574
Patient days (in thousands)(6)................................... 1,552 1,963
Average occupancy rate(7)........................................ 87% 89%
Percentage of revenues from:
Managed care, private pay and Medicare........................... 64% 70%
Medicaid......................................................... 36 30
BALANCE SHEET DATA (AT SEPTEMBER 30, 1998 AND
DECEMBER 31, 1997, RESPECTIVELY)
Cash and cash equivalents........................................ $ 3,765 $ 4,253
Working capital.................................................. 31,662 23,146
Total assets..................................................... 407,277 410,800
Total debt and capital leases, including current maturities
and excluding mandatory redeemable preferred stock........... 245,626 241,990
Stockholders' equity............................................. 70,470 69,764
</TABLE>
18
<PAGE>
___________________________
(1) In July 1997, Fountain View's predecessor, which was comprised of all
of Fountain View's operating units owned individually by certain
controlling stockholders, was merged with and into several companies
formed by Fountain View in connection with the Fountain View Equity
Transactions. Prior to the Fountain View Equity Transactions, most of
such individually owned corporations had elected to be taxed as cash-
basis S-corporations. The pro forma income tax benefit for the year
ended December 31, 1997 includes a charge in lieu of income taxes to
indicate what the tax provision would have been had Fountain View been
taxed as a C-corporation for all of 1997 with a combined federal and
state tax rate of 41%. See Note 3 to the audited financial statements
of Fountain View included elsewhere in this Prospectus.
(2) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is a widely recognized financial indicator of a
company's ability to service or incur debt. EBITDA is not a measurement
of operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of
profitability or liquidity. In addition, EBITDA may not be comparable
to similarly titled measures of other companies. EBITDA may not be
indicative of the historical operating results of the Company, nor is
it meant to be predictive of future results of operations or cash
flows.
(3) For the year ended December 31, 1997, adjusted EBITDA represents EBITDA
adjusted for certain non-recurring charges shown below. Adjusted
EBITDAR represents Adjusted EBITDA plus rent expense. EBITDAR is not a
measurement of operating performance computed in accordance with
generally accepted accounting principles and should not be considered
as a substitute for operating income, net income, cash flows from
operations, or other statement of operations or cash flow data prepared
in conformity with generally accepted accounting principles, or as a
measure of profitability or liquidity. Similar to EBITDA, management
views EBITDAR as a financial indicator of a company's ability to
service or incur debt. A majority of Fountain View's nursing homes are
leased, under operating leases, and not owned. Accordingly, EBITDAR is
used since the rent expense approximates the interest and depreciation
expense Fountain View may have incurred as if the nursing homes were
owned as opposed to leased:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
EBITDA...................................................... $30,120
Non-recurring charges(a).................................... 7,675
-------
Adjusted EBITDA............................................. 37,795
Rent expense................................................ 6,754
-------
Adjusted EBITDAR............................................ $44,549
=======
</TABLE>
(a) EBITDA is adjusted for the following non-recurring entries in
order to present comparable EBITDA with the preceding years since
these entries are only reflected in the results of operations for
the year ended December 31, 1997 for Fountain View and for the
six months ended December 31, 1997 for Summit. In addition, the
Company does not expect to incur similar costs in the future.
Non-recurring charges consist of: (1) $2,100 of Medicare reserves
taken by Summit due to adjustments proposed by the Medicare
intermediary during their audit of prior year cost reports. The
adjustments relate to issues not proposed by the Medicare
intermediary during previous audits and therefore the one time
impact relating to these adjustments for prior year cost reports
is all reflected in the results of operations for the year ended
December 31, 1997 when the cost reports were audited and
finalized with the Medicare intermediary; (2) $1,074 of
retroactive workers' compensation, group and general liability
costs due to the recording of tail coverage insurance expense at
the time Summit converted from an occurrence based insurance
policy to a claims made insurance policy; (3) $983 of incremental
bad debt expense relating to 1996 and prior periods recorded in
1997 resulting from a change in management's methodology for
determining the allowance for bad debt; the change in methodology
was made to convert Summit's allowance methodology accounting
practices to Fountain View's accounting as a result of the
acquisition; (4) termination of non-compete agreements and
consulting arrangements totaling $965 relating to the Fountain
View Equity Transactions; (5) certain transaction expenses
including discretionary employee bonuses totaling $872 paid upon
completion of the Fountain View Equity Transactions; (6)
severance for an executive and other costs totaling $871, the
severance package was paid in connection with the acquisition of
Summit by Fountain View; and (7) $810 related to an employee
19
<PAGE>
lawsuit settled in 1997 involving a specific type of liability
for which the Company currently maintains insurance coverage (net
of ongoing insurance costs).
(b) Management believes that as a consequence of the Transactions,
the Company will realize significant ongoing cost savings and
revenue enhancements. However there can be no assurance that
these cost savings or revenue enhancements will be realized.
Management's estimate of the ongoing cost reductions relating to
the Transactions includes: (i) certain reductions in facility-
level operating expense items totaling $1,451; (ii) $1,355
relating to the elimination of specifically identified
duplicative staff; (iii) $512 relating to reductions in corporate
expenses, including the elimination of certain public company
expenses; and (iv) a reduction in costs of supplies. Such amounts
have not been included in adjusted EBITDA or adjusted EBITDAR.
(4) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed
charges consists of interest expense and one-third of operating rent
expense, which management believes is representative of the interest
component of rent expense. For the year ended December 31, 1997,
earnings were not sufficient to cover fixed charges. The amount of the
shortfall approximated $7.3 million for the proforma year ended
December 31, 1997.
(5) Ratio of net debt to Adjusted EBITDA represents the ratio of total debt
less cash and cash equivalents to Adjusted EBITDA.
(6) "Patient days" refers to the total number of days of patient care
provided by the Company's facilities.
(7) Average occupancy rate has been adjusted to exclude three Summit
facilities which were not operational prior to 1996 or were
significantly renovated during 1997 such that beds were not available
during the entire year. Such facilities were deemed to be in a fill-up
stage and, therefore, their occupancies are not considered to be
indicative of a mature facility. Actual occupancy for the year ended
December 31, 1997 including these facilities was 87%. Also excludes
Fountain View's ALF, which represented less than 2% of Fountain View's
total revenue during fiscal 1997.
20
<PAGE>
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA--FOUNTAIN VIEW
The summary financial data of Fountain View as of December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 1997 are
derived from the audited financial statements included elsewhere herein. The
summary financial and other data as of December 31, 1993, 1994 and 1995, for the
two years in the period ended December 31, 1994 and for the nine months ended
September 30, 1997 and 1998 have been derived from Fountain View's unaudited
financial statements included elsewhere herein and, in the opinion of
management, include all necessary adjustments for a fair presentation of such
information in conformity with generally accepted accounting principles. The
information set forth below should be read in conjunction with "Capitalization",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30
---------------------------------------------------------------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenue.................................. $ 41,061 $ 51,824 $ 55,836 $ 59,432 $ 67,905 $ 50,393 $ 155,487
Salaries and related benefits................ 23,248 27,823 35,048 36,166 38,215 28,549 81,015
Other operating costs........................ 10,884 14,886 13,454 14,614 17,990 13,733 48,440
Depreciation and amortization................ 110 149 416 600 1,198 655 7,518
Rent expense................................. 4,002 4,017 3,946 3,896 3,775 2,832 4,389
Interest net................................. 307 355 332 278 1,164 497 12,089
--------- -------- ------- -------- ------ ------ ---------
38,551 47,230 53,196 55,554 62,342 46,266 153,451
--------- -------- ------- -------- ------ ------ ---------
Income before provision for income
taxes and extraordinary item.............. 2,510 4,594 2,640 3,878 5,563 4,127 2,036
Income tax benefit (provision)............... (81) 43 (54) (78) (361) (423) (813)
Extraordinary item, net of tax............... -- -- -- -- -- -- (517)
-------- -------- ------- -------- ------ ------ ---------
Net income................................... 2,429 4,637 2,586 3,800 5,202 3,704 706
Preferred stock dividends.................... -- -- -- -- -- -- (805)
-------- -------- ------- -------- ------- ------ ---------
Net income (loss) available to common
shareholders.............................. $ 2,429 $ 4,637 $ 2,586 $ 3,800 $ 5,202 $ 3,704 $ (99)
======== ======== ========= ======== ======= ======== =========
Basic and diluted earnings per share
available to common shareholders
before extraordinary item(5).............. $ 12.15 $ 23.19 $ 12.93 $ 19.00 $ 26.01 $ 18.52 $ 0.50
Basic and diluted loss per share available
to common shareholders extraordinary item.... -- -- -- -- -- -- (.62)
-------- --------- --------- -------- ------- -------- ---------
Basic and diluted earnings per share
available to common shareholders - net
income (loss)............................... $ 12.15 $ 23.19 $ 12.93 $ 19.00 $ 26.01 $ 18.52 $ (0.12)
======== ========= ========= ========= ========= ======== =========
OTHER FINANCIAL DATA
EBITDA(1).................................... $ 2,927 $ 5,098 $ 3,388 $ 4,756 $ 7,925 $ 5,279 $ 21,643
EBITDA margin................................ 7.1% 9.8% 6.1% 8.0% 11.7% 10.5% 13.9%
EBITDAR(1)................................... $ 6,929 $ 9,115 $ 7,334 $ 8,652 $11,700 $ 8,111 $ 26,032
EBITDAR margin............................... 16.9% 17.6% 13.1% 14.6% 17.2% 16.1% 16.7%
Capital expenditures......................... $ 8 $ 537 $ 665 $ 1,816 $ 2,570 $ 1,983 $ 5,695
Ratio of earnings to fixed charges(2)........ 2.5x 3.7x 2.6x 3.5x 3.3x 3.9x 1.2x
Net cash provided by (used in) operating
activities................................ $ (1,804) $ 908 $ 5,832 $ 1,059 $12,739 $ 10,554 $ 4,137
OTHER DATA
Number of facilities (end of period)......... 9 9 9 9 9 9 50
Average licensed beds(3)..................... 1,061 1,061 1,061 1,061 1,061 1,061 5,937
Total beds (end of period)................... 1,227 1,227 1,227 1,227 1,227 1,227 6,578
Patient days (in thousands).................. 337 345 341 344 346 264 1,099
Average occupancy rate(4).................... 87.0% 89.1% 88.1% 88.8% 89.3% 84.3% 86.5%
Percentage of revenues from:
Managed care, private pay and............. 58.4% 65.1% 67.2% 69.7% 72.9% 71.8% 64.3%
medicare
Medicaid.................................. 41.6 34.9 32.8 30.3 27.1 28.2 35.7
BALANCE SHEET DATA (END OF PERIOD)
Cash and cash equivalents.................... $ 465 $ 629 $ 2,355 $ 1,161 $ 2,551 -- $ 3,765
Working capital.............................. 8,266 11,140 10,334 13,566 10,021 -- 31,662
Total assets................................. 14,408 18,433 24,693 24,122 25,941 -- 407,277
Total debt, including current maturities
and excluding redeemable, preferred stock.... 6,758 7,359 6,764 666 30,076 -- 245,626
Stockholders' equity (deficit)............... 5,570 9,399 9,957 16,601 (12,236) -- 70,470
</TABLE>
21
<PAGE>
_____________________
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is a widely recognized financial indicator of a
company's ability to service or incur debt. EBITDA is not a measurement
of operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of
profitability or liquidity. In addition, EBITDA may not be comparable
to similarly titled measures of other companies. EBITDA may not be
indicative of our historical operating results, nor is it meant to
predictive of future results of operations or cash flows. EBITDAR
represents EBITDA plus rent expense. EBITDAR is not a measurement of
operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of
profitability or liquidity. Similar to EBITDA, management views EBITDA
as a financial indicator of a company's ability to service or incur
debt. A majority of Fountain View's nursing homes are leased, under
operating leases, and not owned. Accordingly, EBITDAR is used since the
rent expense approximates the interest and depreciation expense
Fountain View may have incurred as if the nursing homes were owned as
opposed to leased.
(2) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed
charges consist of interest expense and one-third of operating rental
expense, which management believes is representative of the interest
component of rent expense.
(3) Excludes ALF beds.
(4) Excludes Fountain View's ALF through March 26, 1998, which represents
less than 2% of total revenue.
(5) Weighted average shares outstanding for the five years ended December
31, 1997 and for the nine months ended September 30, 1997 and 1998 has
been computed based on the 200,000 shares of Common Stock issued and
outstanding in connection with the Fountain View Equity Transaction.
See note 2 to the consolidated financial statements of Fountain View
included elsewhere herein.
22
<PAGE>
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA--SUMMIT
The summary financial data of Summit as of and for each of the five
years in the period ended June 30, 1997 are derived from Summit's audited
financial statements. The financial and other data for the six months ended
December 31, 1996 and 1997 have been derived from Summit's unaudited financial
statements included elsewhere herein and, in the opinion of management, include
all necessary adjustments for a fair presentation of such information in
conformity with generally accepted accounting principles. The information set
forth below should be read in conjunction with "Capitalization", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenue.................................. $ 83,992 $ 97,599 $137,026 $176,062 $197,927 $ 95,088 $108,507
Salaries and related benefits................ 40,044 45,962 63,171 78,233 89,577 43,386 47,742
Other operating costs........................ 29,998 34,655 49,206 70,696 89,932 41,750 45,736
Depreciation and amortization................ 2,308 2,949 5,249 6,142 7,393 3,632 4,235
Rent expense................................. 2,315 1,613 2,141 2,656 2,864 1,410 1,525
Interest, net................................ 1,080 2,243 4,761 6,574 7,973 4,057 4,588
-------- -------- -------- -------- -------- -------- --------
75,745 87,422 124,528 164,301 197,739 94,235 103,826
======== ======== ======== ======== ======== ======== ========
Income before provision for income taxes..... 8,247 10,177 12,498 11,761 188 853 4,681
Income tax provision......................... (3,224) (4,010) (4,987) (4,452) (119) (337) (1,849)
-------- -------- -------- -------- -------- -------- --------
Net income................................... $ 5,023 $ 6,167 $ 7,511 $ 7,309 $ 69 $ 516 $ 2,832
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA
EBITDA(1).................................... $ 11,635 $ 15,369 $ 22,508 $ 24,477 $ 15,554 $ 8,542 $ 13,504
EBITDA margin................................ 13.9% 15.7% 16.4% 13.9% 7.9% 9.0% 12.4%
EBITDAR(1)................................... $ 13,950 $ 16,982 $ 24,649 $ 27,133 $ 18,418 $ 9,952 $ 15,029
EBITDAR margin............................... 16.6% 17.4% 18.0% 15.4% 9.3% 10.5% 13.9%
Capital expenditures......................... $ 29,901 $ 15,505 $ 9,004 $ 26,558 $ 24,075 $ 12,049 $ 6,706
Ratio of earnings to fixed charges(2)........ 5.5x 4.7x 3.3x 2.6x 1.0x 1.2x 1.9x
Net cash provided by operating activities.... $ 4,186 $ 7,512 $ 7,014 $ 6,866 $ 18,015 $ 3,563 $ 7,793
OTHER DATA
Number of facilities (end of period)......... 21 23 37 38 39 39 41
Average licensed beds........................ 2,696 2,876 4,197 4,816 5,078 5,065 5,154
Total beds (end of period)................... 2,696 3,002 4,762 4,940 5,040 ---- 5,347
Patient days (in thousands).................. 858 908 1,316 1,514 1,573 783 827
Average occupancy rate....................... 87.2% 86.5% 85.9% 85.9% 84.8% 84.0% 87.2%
Percentage of revenues from:
Managed care and private pay.............. 36.5% 34.0% 33.8% 31.9% 29.9% 30.5% 31.6%
Medicare.................................. 28.3 30.3 29.5 34.7 39.7 39.1 36.7
Medicaid.................................. 35.2 35.7 36.7 33.4 30.4 30.4 31.7
BALANCE SHEET DATA (END OF PERIOD)
Cash and cash equivalents.................... $ 6,301 $ 21,613 $ 3,101 $ 2,658 $ 3,994 ---- $ 1,702
Working capital.............................. 7,151 24,880 10,161 13,906 12,648 ---- 11,384
Total assets................................. 73,369 114,915 184,480 223,052 250,516 ---- 267,420
Total debt and capital leases, including
current maturities........................ 30,331 32,025 89,788 110,374 121,452 ---- 129,754
Shareholders' equity......................... 31,337 66,361 73,813 81,286 81,412 ---- 84, 721
</TABLE>
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is a widely recognized financial indicator of a
company's ability to service or incur debt. EBITDA is not a measurement
of operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of
profitability or liquidity. In addition, EBITDA may not be comparable to
similarly titled measures of other companies. EBITDA may not be
indicative of our historical operating results, nor is it meant to be
predictive of future results of operations or cash flows. EBITDAR
represents EBITDA plus rent expense. EBITDAR is not a measurement of
operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of
profitability or liquidity. Similar to EBITDA, management views EBITDA
as a financial indicator of a company's ability to service or incur
debt. A majority of Summit's nursing homes are leased, under operating
leases, and not owned. Accordingly, EBITDAR is used since the rent
expense approximates the interest and depreciation expense Summit may
have incurred as if the nursing homes were owned as opposed to leased.
(2) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed
charges consist of interest expense and one-third of operating rental
expense, which management believes is representative of the interest
component of rent expense.
23
<PAGE>
RISK FACTORS
SUBSTANTIAL LEVERAGE
We have incurred substantial indebtedness in connection with the
Transactions. At September 30, 1998, we had $245.6 million of total funded
indebtedness, excluding mandatory redeemable preferred stock. See
"Capitalization" and "Selected Consolidated Historical Financial Information."
Accordingly, we have significant debt service obligations. Our ratio of earnings
to fixed charges was 1.2x for the nine months ended September 30, 1998. In
addition, we are likely to incur additional indebtedness in the future, subject
to certain limitations contained in the instruments and documents governing our
indebtedness. See "Description of Certain Indebtedness" and "Description of
Notes".
The degree to which we are leveraged has important consequences. For
example:
- our ability to obtain additional financing for working capital,
capital expenditures, acquisitions, debt service requirements or
other purposes may be impaired;
- a substantial portion of our cash flow from operations will be
required to pay interest expense and principal repayment
obligations and will not be available for general corporate needs;
- our flexibility to adjust to changing market conditions may be
limited, and our ability to compete against our less highly
leveraged competitors may be reduced;
- we may be more vulnerable in the event of a downturn in our
business or in the economy generally; and
- to the extent that we incur borrowings under the New Credit
Facility, which borrowings will be at variable rates, we will be
vulnerable to increases in interest rates.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
SUBORDINATION OF THE NOTES TO SENIOR INDEBTEDNESS; GUARANTEES
The notes and the guarantees will be subordinate to all our senior
indebtedness. In addition, the notes effectively will rank junior to all
liabilities of our subsidiaries. As of September 30, 1998, approximately $125.6
million of senior debt was outstanding and our subsidiaries had approximately
$44.2 million of trade payables and other liabilities and $15.0 million of
mandatory redeemable preferred stock. We also may incur additional senior
indebtedness consistent with the terms of our debt agreements. For example, as
of September 30, 1998, we had an additional $9.9 million available under our
bank credit facilities which, if borrowed, would be senior indebtedness.
In the event of our bankruptcy, liquidation or dissolution, our assets
would be available to pay obligations on the notes only after all payments had
been made on our senior indebtedness. We cannot assure you that sufficient
assets will remain to make any payments on the notes. In addition, certain
events of default under our senior indebtedness would prohibit us from making
any payments on the notes. The term "senior indebtedness" is defined in the
"Description of Notes--Subordination" section of this Prospectus.
24
<PAGE>
NOTES ARE UNSECURED
In addition to being subordinate to all of our senior indebtedness, the
notes will not be secured by any of our assets. Our obligations under our bank
credit facilities are secured by substantially all of our assets. If we became
insolvent or are liquidated, or if payment under our bank credit facilities is
accelerated, the lenders under our bank credit facilities would be entitled to
exercise the remedies available to a secured lender under applicable law.
Therefore, our bank lenders will have a claim on such assets before the holders
of these notes. See "Description of Certain Indebtedness".
ABILITY TO SERVICE DEBT
The successful implementation of our business strategy is necessary for
us to meet our anticipated debt service requirements. In addition, our ability
to meet our debt service requirements (including our obligations with respect to
the notes and the New Credit Facility) will depend on our future performance,
which is subject to a number of factors, most of which are outside our control.
We can give no assurance that we will generate sufficient cash flow from
operating activities to meet our debt service and working capital requirements.
The New Credit Facility currently requires cash interest payments. See
"Description of Certain Indebtedness--New Credit Facility". All or a portion of
such indebtedness may need to be refinanced at or prior to maturity. There can
be no assurance that any refinancing will be possible at that time or that any
possible refinancing will be on terms that are acceptable to us. In the absence
of such refinancing, we could be forced to dispose of assets in order to make up
for any shortfall in the payments due on our indebtedness under circumstances
that might not be favorable to realizing the highest price for such assets, and
there can be no assurance that our assets could be sold quickly enough, or for
sufficient amounts, to enable us to meet our obligations, including our
obligations with respect to the notes.
RESTRICTIVE COVENANTS
The instruments and documents governing our indebtedness contain, and
any additional financing agreements are likely to contain, certain restrictive
covenants. These covenants affect, and in some cases will significantly limit or
prohibit, among other things, our ability to:
- incur indebtedness;
- make prepayments of certain indebtedness;
- pay dividends;
- make acquisitions and other investments;
- engage in transactions with stockholders and affiliates;
- issue capital stock;
- create liens;
- sell assets; and
- engage in mergers and consolidations.
25
<PAGE>
In addition to the restrictive covenants described above, the New
Credit Facility requires us to maintain a number of financial ratios. Our
failure to maintain such ratios would constitute events of default under the New
Credit Facility, even though we may still be able to meet our debt service
obligations (including our obligations with respect to the notes). In the event
we fail to comply with the various covenants contained in the instruments and
documents governing our indebtedness, we would be in default thereunder and the
maturity of substantially all of our long-term indebtedness could be
accelerated. A default under the indenture under which the notes have been
issued would also constitute an event of default under the New Credit Facility.
The New Credit Facility prohibits the repayment, purchase, redemption,
defeasance or other payment of any of the principal of the notes at any time
prior to their stated maturity. See "Description of Certain Indebtedness--New
Credit Facility".
ENCUMBRANCES ON ASSETS SECURING NEW CREDIT FACILITY
Our obligations under the New Credit Facility are secured by a first
priority pledge of, or a first priority security interest in, as the case may
be, substantially all the assets of our subsidiaries, and by 100% of the common
stock of our subsidiaries. If we become insolvent or are liquidated, or if
payment under the New Credit Facility or in respect of any other secured senior
indebtedness is accelerated, the senior lenders or holders of such other secured
senior indebtedness will be entitled to exercise the remedies available to a
secured lender under applicable law (in addition to any remedies that may be
available under documents pertaining to the New Credit Facility or such other
senior indebtedness) and will have a prior claim with respect to the assets
securing such indebtedness. See "Description of Certain Indebtedness--New Credit
Facility".
ABILITY TO OBTAIN FUNDS FROM SUBSIDIARIES
Fountain View is a holding company whose only material asset is the
capital stock of its subsidiaries. The notes are obligations of Fountain View,
and the holders of the notes have no direct recourse to our subsidiaries or
their assets. We conduct no business (other than in connection with our
ownership of the capital stock of our subsidiaries, the performance of our
obligations with respect to the notes and certain other administrative
obligations), and depend on distributions from our subsidiaries to meet our
obligations, including obligations with respect to the notes. Because of our
substantial leverage and our dependence on the operating performance of our
subsidiaries to generate distributions to us, we cannot assure you that any such
distributions will be adequate to fund our obligations when due. In addition,
the New Credit Facility, the indenture under which the notes have been issued
and applicable Federal and state law impose restrictions on the payment of
dividends and the making of loans by our subsidiaries to us. As a result of the
foregoing restrictions, we may be unable to gain access to the cash flow or
assets of our subsidiaries in amounts sufficient to pay cash interest on the
notes and principal of the notes when due or upon a change of control or the
occurrence of any other event requiring the repayment of principal. In such
event, we may be required to:
- refinance the notes;
- seek additional debt or equity financing;
- cause our subsidiaries to refinance all or a portion of their
indebtedness with indebtedness containing covenants to gain access
to their cash flow or assets;
- cause our subsidiaries to obtain modifications of the covenants
restricting our access to their cash flow or assets contained in
their financing documents
26
<PAGE>
(including, without limitation, the New Credit Facility and the
indenture under which the notes have been issued);
- merge our subsidiaries into us, which merger would be subject to
compliance with applicable debt covenants and the consents of
certain lenders; or
- pursue a combination of the foregoing actions.
The measures which we may undertake to gain access to sufficient cash
flow to meet our future debt service requirements will depend on general
economic and financial market conditions, as well as our financial condition and
the financial conditions of our subsidiaries and other relevant factors existing
at the time. We can give no assurance that any of the foregoing measures can be
accomplished.
FAILURE TO INTEGRATE BUSINESSES
We have been operating as a combined entity for only a short period of
time and our operations have not previously been managed on a combined basis.
Prior to the Transactions, Fountain View and Summit had been operated as
separate entities. Our future operations and earnings will be largely dependent
upon management's ability to successfully execute our strategy. This will
require substantial attention from our management team which, to date, has
operated on a combined basis for only a short period. In addition, management
will be required to apply its business strategy to an entity which is
significantly larger than the entities it previously managed. Additionally, the
need to focus management's attention on integration of the businesses and
implementation of our post-combination strategy may limit our ability to
successfully pursue other opportunities related to our business for the
foreseeable future. The historical financial statements and pro forma financial
statements presented in this Prospectus may not necessarily be indicative of the
results that would have been attained had we operated on a combined basis.
FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS
REGULATIONS GOVERNING HEALTHCARE FACILITIES
The federal government and the states in which we operate regulate
various aspects of the SNF, ALF, sub-acute and specialty medical care, therapy,
pharmacy and DME businesses. In particular, the operation of long-term care
facilities and the provision of specialty medical services are subject to
federal, state and local laws relating to the adequacy of medical care, resident
rights, equipment, personnel, operating policies, fire prevention, rate-setting
and compliance with building codes and environmental and other laws. Facilities
which are not in substantial compliance with such laws and do not correct
deficiencies within a certain time frame may be assessed civil money penalties
and/or be terminated from the Medicare and/or Medicaid programs. While we
endeavor to comply with all applicable regulatory requirements, from time to
time certain of our SNFs have been subject to various sanctions and penalties as
a result of deficiencies alleged by the Health Care Financing Administration or
state survey agencies. While in certain instances denial of certification or
licensure revocation actions have been threatened, no such denials or
revocations have been implemented. There can be no assurance, however, that we
will not be subject to sanctions and penalties in the future as a result of such
actions.
27
<PAGE>
REGULATIONS GOVERNING FINANCIAL ARRANGEMENTS BETWEEN HEALTHCARE PROVIDERS
We are also subject to federal and state laws that govern financial and
other arrangements between healthcare providers. These laws prohibit certain
direct and indirect payments or fee-splitting arrangements between healthcare
providers that are designed to induce or encourage the referral of patients to,
or the recommendation of, a particular provider for medical products and
services. Such laws include the anti-kickback provisions of the federal Medicare
and Medicaid Patient and Program Protection Act of 1987, commonly referred to as
the "Anti-Kickback Statute", and the physician self-referral ban contained in
the Omnibus Budget Reconciliation Act as expanded in 1993, commonly referred to
as "Stark II". The Anti-Kickback Statute provisions prohibit, among other
things, the offer, payment, solicitation or receipt of any form of remuneration
in return for the referral of Medicare and Medicaid patients. Stark II
prohibits, in part, physicians from making any Medicare or Medicaid referrals
for certain "designated health services" to any entity with which the physician
has a "financial relationship".
In addition to these anti-kickback and self-referral prohibitions,
there are various federal and state laws prohibiting other types of fraud by
healthcare providers, including criminal provisions which prohibit filing false
claims or making false statements to receive payment or certification under
Medicare and Medicaid, or failing to refund overpayments or improper payments.
Violation of the Anti-Kickback Statute or the criminal false claims statute is a
felony punishable by up to five years imprisonment and/or $25,000 fines, while
violation of Stark II may result in the imposition of civil monetary penalties
of up to $15,000 for each prohibited service provided as well as restitution of
payments for such services. Civil provisions prohibit the knowing filing of a
false claim or the knowing use of false statements to obtain payment. The
penalties for such a violation are fines of not less than $5,000 nor more than
$10,000, plus treble damages, for each claim filed.
In addition, some states restrict certain business relationships
between physicians and other providers of healthcare services. Many states,
including California, Texas and Arizona, states in which we operate, prohibit
business corporations from providing, or holding themselves out as providers of,
medical care. Possible sanctions for violation of any of these restrictions or
prohibitions include loss of licensure or eligibility to participate in
reimbursement programs (including Medicare and Medicaid), asset forfeitures and
civil and criminal penalties. These laws vary from state to state, are often
vague and have seldom been interpreted by the courts or regulatory agencies. We
believe that we are in substantial compliance with the these statutes and
regulations. However, there can be no assurance that government officials
responsible for enforcing these statutes will not assert that we or certain
transactions in which we are involved are in violation of these statutes,
possibly resulting in the imposition of fines or penalties that may adversely
affect our business, financial condition and results of operations.
ANTI-FRAUD INITIATIVES GOVERNING HEALTHCARE PROVIDERS
State and federal governments are devoting increasing attention and
resources to anti-fraud initiatives against healthcare providers. The Health
Insurance Portability and Accountability Act of 1996 and the Balanced Budget Act
of 1997 expand the penalties for healthcare fraud, including broader provisions
for the exclusion of providers from the Medicare and Medicaid programs. Further,
under Operation Restore Trust, a major anti-fraud demonstration project, the
Office of the Inspector General of the U.S. Department of Health and Human
Services, in cooperation with other federal and state agencies, has focused on
the activities of SNFs, home health agencies, hospices, and DME suppliers in
certain states, including California and Texas, in which we currently operate.
Due to the success of Operation Restore Trust, the project has been expanded to
numerous other states and to additional
28
<PAGE>
healthcare providers including providers of ancillary nursing home services.
While we believe that our billing practices are consistent with Medicare and
Medicaid criteria, those criteria are often vague and subject to interpretation.
There can be no assurance that aggressive anti-fraud enforcement actions will
not adversely affect our business.
The federal government has indicated that the implementation of an
effective compliance program is recommended for healthcare providers in order to
maximize a provider's ability to detect and prevent potential infractions of
applicable law and to address any infractions that may occur. Further, the
existence of an effective compliance program may be taken into account by the
government to reduce any fines or penalties which we may incur for infractions
or violations of applicable law. Although we do not currently have a compliance
program in place, we are in the process of developing and implementing a
compliance program. See "Business--Compliance Program".
DEPENDENCE ON REIMBURSEMENT BY THIRD PARTY PAYORS
COST CONTAINMENT MEASURES IMPOSED BY THIRD PARTY PAYORS
On a pro forma basis, after giving effect to the Transactions we
derived approximately 36% and 31% for the twelve months ended December 31, 1997
of our net patient revenues from Medicare and Medicaid, respectively. We expect
to continue to derive a significant portion of our revenue from such federal and
state reimbursement programs. We cannot be certain that we will achieve or
improve this payor mix in the future. Both governmental and private payor
sources have instituted cost containment measures designed to limit payments
made to healthcare providers. Most recently, the Balanced Budget Act requires
the establishment of a prospective payment system, or "PPS", for Medicare SNFs
under which facilities will be paid a federal per diem rate for virtually all
covered SNF services in place of the current cost-based reimbursement rate. The
cost-based system reimburses providers for reasonable direct and indirect
allowable costs incurred in providing "routine costs" (as defined by the
Medicare program) as well as capital costs and ancillary costs. We believe that
the transition to PPS will reward efficient providers and penalize those that
are inefficient. The law contains numerous other changes that will adversely
affect payments to Medicare and Medicaid providers. We cannot assure you that
the implementation of PPS for SNFs or other changes in the administration or
interpretation of government healthcare programs will not have any adverse
effect on us or that payments under government programs will remain at levels
comparable to present levels or will be sufficient to cover the costs allocable
to patients eligible for reimbursement under such programs.
POSSIBLE CURTAILING OF MEDICAID PAYMENTS AND OTHER REIMBURSEMENT PROGRAMS DUE TO
BUDGET CONSTRAINTS
In addition, prior to the enactment of the Balanced Budget Act, federal
law required state Medicaid programs to reimburse SNFs for the costs that are
incurred by efficiently and economically operated providers in order to meet
quality and safety standards. The Balanced Budget Act repealed this payment
standard, effective for services provided on or after October 1, 1997, thereby
granting states greater flexibility in establishing payment rates. We cannot
assure you that budget constraints or other factors will not cause states to
reduce Medicaid reimbursement to SNFs or that payments to SNFs will be made on a
timely basis. Any such efforts to reduce Medicaid payment rates or failure of
states to meet their Medicaid obligations on a timely basis would have a
material adverse effect on us.
29
<PAGE>
Further, government reimbursement programs are subject to additional
statutory and regulatory changes, retroactive rate adjustments, administrative
ceilings and government funding restrictions, all of which could materially
decrease the rates paid to us for future services or the services for which we
will be able to seek reimbursement. We cannot predict whether any of these
additional proposals will be adopted or, if adopted and implemented, what effect
such proposals would have on us. We cannot assure you that payments under state
or federal governmental programs will remain at levels comparable to present
levels or will be sufficient to cover the costs allocable to patients eligible
for reimbursement pursuant to such programs, particularly with respect to
individual state-administered Medicaid programs. These programs generally
provide lower reimbursement rates than the Medicare program. In addition, we
cannot assure you that the facilities we operate and the services and supplies
we provide will meet or continue to meet the requirements for participation in
such programs.
DELAYS IN RECEIVING REIMBURSEMENT
The revenue reimbursement process may also affect our financial
condition and results of operations. The revenue reimbursement process in the
industry is complex and can involve lengthy delays between the time that revenue
is recognized and the time that reimbursement amounts are settled. Our results
of operations would be materially and adversely affected if the amount actually
received from third-party payors in any reporting period differed materially
from the amounts accrued in prior periods. The timing of reimbursement payments
and rate adjustments from third-party payors may also affect our financial
condition and results of operations. See "Business--Government Regulations".
MEDICARE AND MEDICAID AUDITS AND REFORM
We are subject to periodic audits by the Medicare and Medicaid
programs. The payment agencies for these programs would have various rights and
remedies against us if they assert that we have failed to comply with program
requirements. In 1997, one of Summit's facilities was the subject of a Medicare
billing audit by such a payment agency, resulting in a finding that
approximately $1,500,000 of charges (after cost report settlement and subject to
downward adjustment) for SNF services lacked a timely certification of medical
necessity by a physician. Summit has repaid such charges against reimbursement
of current claims. Government agencies could seek to require us to repay any
other overcharges or amounts billed in violation of program requirements, or
could make deductions from future amounts due to us. Such agencies could also
impose fines, criminal penalties or program exclusions. See "Business--
Government Regulations".
In addition, several states are considering various healthcare reforms,
including Medicaid managed care demonstration projects. Several states in which
we operate have applied for, or received, approval from the U.S. Department of
Health and Human Services for waivers from certain Medicaid requirements that
managed care projects have generally required. Although these demonstration
projects generally exempt institutional care, including long-term care
facilities, we cannot assure you that these waiver projects ultimately will not
change the reimbursement system for long-term care from fee for service to
managed care negotiated or capitated rates. Furthermore, the Balanced Budget Act
now allows states to mandate enrollment in managed care systems without going
through the federal waiver process provided certain standards are met. Although
we believe we will be well-positioned to operate in a managed care environment,
we cannot predict which reforms of state healthcare systems will be adopted and
the effect, if any, that the reforms will have on our business. See "Business--
Government Regulations".
30
<PAGE>
Current Medicare regulations applicable to transactions between related
parties, such as our subsidiaries, are relevant to the amount of Medicare
reimbursement that we are entitled to receive for goods and services that are
charged to the Medicare program. We believe that we satisfy the requirements for
exception to the related party rules in transactions between our long-term care
facilities and our therapy, pharmacy and DME subsidiaries. If, however, we
failed, or in the future fail, to satisfy regulations for the related party
exception with respect to inter-corporate transactions, the Medicare
reimbursement that we received or will receive could be reduced, and as a
result, our financial condition could be materially and adversely affected. See
"Business--Government Regulations".
UNCERTAINTY OF HEALTHCARE LEGISLATION
In addition to extensive government healthcare regulations, there are
numerous initiatives on federal and state levels for comprehensive reforms
affecting the payment for and availability of healthcare services. Changes in
the law, new interpretations of existing laws, or changes in payment methodology
may have a dramatic effect on the definition of permissible or impermissible
activities, the relative costs associated with doing business and the amount of
reimbursement by the government. In addition, we cannot assure you that
currently proposed or future healthcare legislation or other changes in the
administration or interpretation of governmental healthcare programs will not
have an adverse effect on us. See "Business--Government Regulations".
DEVELOPMENT OF MANAGED CARE CONTRACTS IN RESPONSE TO PRICING PRESSURES
The healthcare services industry is currently experiencing market-
driven reforms from forces within and outside the industry that are exerting
pressure on healthcare and related companies to reduce healthcare costs. These
market-driven reforms are resulting in industry-wide consolidation that is
expected to increase the downward pressure on healthcare service providers'
margins, as larger buyer and supplier groups exert pricing pressure on
healthcare providers. Given the increasing importance of managed care in the
healthcare industry and the continued cost containment pressures for Medicare
and Medicaid, we are focusing on developing managed care contracts.
Additionally, we are establishing a network of services to meet the needs of
managed care organizations. The success of our managed care strategy will depend
in large part on our ability to increase demand for sub-acute services among
managed care organizations, to obtain favorable agreements with managed care
organizations and to manage effectively our operations and healthcare delivery
costs through various methods, including utilization management and competitive
pricing for purchased services.
HEALTHCARE INDUSTRY EXTREMELY COMPETITIVE
We operate in a highly competitive industry. Our SNFs and ALFs are
located in communities that also are served by similar facilities operated by
others. Some competing facilities provide services we do not offer and some are
operated by entities having greater financial and other resources than we have.
In addition, some are operated by non-profit organizations or government
agencies which are exempt from federal, state and/or local taxes and are
supported by endowments, charitable contributions, tax revenues and other
sources not available to us. Furthermore, cost containment efforts, which
encourage more efficient utilization of acute care hospital services, have
resulted in decreased hospital occupancy in recent years. As a result, a
significant number of acute care hospitals have converted portions of their
facilities to other purposes, including specialty and sub-acute units. In
California, Texas and Arizona, states in which we operate, a certificate of need
is no longer required in order to build
31
<PAGE>
or expand a SNF, which is another factor increasing competition. However, in
Texas, competition is limited by restrictions on the number of beds that can be
enrolled in the Medicaid program. We also may encounter competition in acquiring
or developing new facilities.
Our pharmacies and DME business also operate in highly competitive
environments and compete with regional and local pharmacies, medical supply
companies and pharmacies operated by other long-term care chains or by other
companies ranging from small local operators to companies which are national in
scope and distribution capability. We also may encounter competition in
connection with the provision of other ancillary services, including physical,
occupational and speech therapy.
GEOGRAPHIC CONCENTRATION; DEPENDENCE ON CERTAIN STATE MEDICAID PROGRAMS
Approximately 54% of our properties are located in California and
approximately 44% are located in Texas. We are and will be dependent on the
economies of California and Texas, the supply and demand in these states for the
services we provide, the regulatory environment in these states and, to a
certain extent, on the continued funding of and reimbursement rates paid under
those states' Medicaid programs. During both 1996 and 1997, payments received
from state Medicaid agencies accounted for approximately 31% of our revenue. We
expect that the California and Texas Medicaid reimbursement programs will
continue to constitute a significant source of our revenue. Adverse changes in
general economic factors affecting these states' healthcare industries or in
these states' laws and regulatory environment, including Medicaid reimbursement
rates, could have a material adverse effect on our business, financial condition
and results of operations.
LIABILITY, INSURANCE AND LEGAL PROCEEDINGS
Providing healthcare services entails an inherent risk of liability. In
recent years, participants in the long-term care industry have become subject to
an increasing number of lawsuits alleging malpractice or related legal theories,
many of which involve large claims and significant defense costs. We currently
maintain liability insurance intended to cover such claims. We believe that our
insurance is in keeping with industry standards. We cannot assure you, however,
that claims in excess of our insurance coverage or claims not covered by our
insurance coverage (for example, claims for punitive damages) will not arise. A
successful claim against us not covered by, or in excess of, our insurance
coverage could have a material adverse effect upon our financial condition and
results of operations. Claims against us, regardless of their merit or actual
outcome, may also adversely effect our ability to attract patients or expand our
business. In addition management would have to devote time to matters unrelated
to the operation of our business. In addition, our insurance policies must be
renewed annually. We cannot assure that we will be able to obtain liability
insurance coverage in the future or that, if such coverage is available, it will
be available on acceptable terms.
DEPENDENCE ON KEY PERSONNEL
Our success depends to a significant degree upon the continued
contributions of management, some of whom would be difficult to replace. The
loss of the services of certain members of senior management could have a
material adverse effect on us. Although Mr. Snukal and certain other members of
senior management are stockholders and have employment contracts with us, we
cannot assure you that the services of such personnel will continue to be
available to us. See "Management" and "Principal Stockholders".
32
<PAGE>
CONTROLLING STOCKHOLDERS
Heritage and certain members of our senior management own approximately
68.6% of our outstanding common stock. By virtue of such ownership, these
stockholders control our company, and have the power to elect a majority of
directors, appoint new management and approve any action requiring the approval
of our stockholders, including the adoption of most amendments to our
Certificate of Incorporation, the approval of mergers or sales of substantially
all of our assets and the creation of new classes or series of capital stock.
The directors elected by these stockholders have the authority to make decisions
affecting our capital structure, including the issuance of additional capital
stock, the implementation of stock repurchase programs and the declaration of
dividends. See "Principal Stockholders".
CONFLICTS OF INTEREST
Circumstances may occur in which the interests of the controlling
stockholders conflict with the interests of the holders of the notes. For
example, if we encounter financial difficulties or are unable to pay certain of
our debts as they mature, the interests of such controlling persons might
conflict with those of holders of our indebtedness, including the notes. In
addition, these stockholders may have an interest in pursuing acquisitions,
divestitures or other transactions that, in their judgment, enhance their equity
investment, even though such transactions might involve risks to the holders of
the notes. See "Principal Stockholders", "Management" and "Certain Relationships
and Related Transactions".
POSSIBLE INABILITY TO FUND A CHANGE OF CONTROL OFFER
Upon the occurrence of a change of control, we will be required to make
an offer to repurchase all of the outstanding notes. See "Description of Notes--
Change of Control." We can give no assurance that we will have the funds
necessary to effect such a repurchase if such an event were to occur. In
addition, the New Credit Facility prohibits us from repurchasing any notes and
also provides that certain changes of control will constitute a default. Any
future credit agreements or other agreements relating to senior indebtedness to
which we become a party may contain similar restrictions and provisions. In the
event a change of control occurs at a time when we are prohibited from
repurchasing notes, we could seek the consent of our lenders to repurchase the
securities or could attempt to refinance the borrowings that contain such
prohibition. If we do not obtain such a consent or repay such borrowings, we
will remain prohibited from repurchasing the notes. In such case, our failure to
repurchase tendered notes would constitute an event of default under the
indenture under which such securities were issued, which would cause a default
under the New Credit Facility.
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if, at the
time we issued the notes, we (1) incurred such indebtedness with intent to
hinder, delay or defraud creditors, or (2) received less than reasonably
equivalent value or fair consideration therefor and:
- were insolvent at the time of the incurrence;
- were rendered insolvent by reason of such incurrence (and the
application of the proceeds thereof);
33
<PAGE>
- were engaged or were about to engage in a business or transaction
for which the assets remaining with us constituted unreasonably
small capital to carry on our business; or
- intended to incur, or believed that we would incur, debts beyond
our ability to pay such debts as they mature,
then, in each such case, a court of competent jurisdiction could avoid, in whole
or in part, the notes and order that all or part of any payments on the notes be
returned to us or to a fund for the benefit of creditors or, in the alternative,
such court could subordinate the notes to our existing and future indebtedness.
A portion of the proceeds of the borrowings under the New Credit
Facility and the offering of the notes was used by us to finance, in part, the
tender offer. See "The Transactions" and "Use of Proceeds." In addition, we will
rely on dividends, loans and other advances from our subsidiaries as a source of
payment on the notes. Dividend payments, however, are generally considered to
have been made for less than a reasonably equivalent value as the payor receives
no value in return. As a result, such dividend payments may be attacked by an
unpaid creditor of our subsidiaries or a representative of such creditors
pursuant to the same fraudulent transfer theory set forth above. If such an
attack were successful, our subsidiaries could be prevented from paying
dividends to us, or we could be obliged to repay dividends received if such
dividends were successfully avoided as fraudulent transfers. In such case, our
ability to make payments on the Notes would be materially impaired.
The measure of insolvency for purposes of all of the foregoing varies
based upon the law of the jurisdiction applied. Generally, however, an entity
would be considered insolvent if the sum of its debts (including contingent
liabilities) is greater than all of its property at a fair valuation, or if the
present fair saleable value of its assets is less than the amount that will be
required to pay its probable liabilities on its existing debts (including
contingent liabilities), as they become absolute and matured. In addition, an
entity may be presumed insolvent under some fraudulent transfer laws if it is
not generally paying its debts as they become due. We believe, based upon
valuations and forecasts, that we will continue to be at all times that payments
on the notes are made, solvent, will have sufficient capital to carry on our
business and will continue to be able to pay our debts as they mature.
Similarly, we believe that, based on such information, we and each of our
subsidiaries will continue to be at the times it is projected to pay dividends
to its corporate parent, solvent, will have sufficient capital to carry on our
business and will continue to be able to pay our debts as they mature.
Accordingly, we believe that in a bankruptcy case or a lawsuit by our creditors,
none of the notes should be held to have been issued, nor payments on the notes
held to have been made, in violation of applicable Federal bankruptcy law or
state fraudulent transfer laws, and that in a suit by our creditors, none of the
dividends made by our subsidiaries should be held to have been made in violation
of applicable Federal bankruptcy law or state fraudulent transfer laws. We can
give no assurance, however, as to what standard a court would apply to determine
whether we and our subsidiaries were "insolvent" as of the date the notes were
issued; or that, regardless of the method of valuation, a court would not
determine that we or our subsidiaries were insolvent on such other relevant
dates. Nor can we give any assurance that a court would not determine,
regardless of whether we were solvent on the date the notes were issued, that
the payments constituted fraudulent transfers on another of the grounds set
forth above.
34
<PAGE>
CONSEQUENCES OF FAILURE TO EXCHANGE THE OUTSTANDING NOTES
Untendered outstanding notes that are not exchanged for the exchange
notes pursuant to the Exchange Offer will remain restricted securities.
Outstanding notes will continue to be subject to the following restrictions on
transfer:
- outstanding notes may be resold only if registered pursuant to the
Securities Act, if an exemption from registration is available
thereunder, or if neither such registration nor such exemption is
required by law;
- outstanding notes shall bear a legend restricting transfer in the
absence of registration or an exemption therefrom; and
- a holder of outstanding notes who desires to sell or otherwise
dispose of all or any part of its outstanding notes under an
exemption from registration under the Securities Act, if requested
by us, must deliver to us an opinion of independent counsel
experienced in Securities Act matters, reasonably satisfactory in
form and substance to us, that such exemption is available.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
We do not intend to apply for listing or quotation of the notes on any
securities exchange or stock market. In connection with the prior exchange
offer, the Initial Purchasers advised us that they intended to make a market in
the notes, subject to the limits imposed by the Securities Act and the Exchange
Act and subject to any limits imposed during the pendency of any registration
statement or shelf registration statement filed under the Securities Act;
however, the Initial Purchasers are not obligated to continue to do so, and may
discontinue such market-making at any time without notice. Therefore, we can
give no assurance as to the liquidity of any trading market for the notes or
that an active market for the notes will develop. Future trading prices of the
notes will depend on many factors, including, among other things, prevailing
interest rates, our operating results and the market for similar securities.
Historically, the market for non-investment grade debt has been subject
to disruptions that have caused substantial volatility in the prices of such
securities. We can give no assurance that the market for the notes will not be
subject to similar disruptions. Any such disruptions could have an adverse
effect on the notes.
STATE LAWS REGARDING THE PROHIBITION OF CORPORATE PRACTICE OF MEDICINE
We are organized as a general business corporation. Corporations are
not permitted under certain state laws to practice medicine or exercise control
over the medical judgments or decisions of practitioners. Corporate practice of
medicine laws and their interpretations vary from state to state and are
enforced by the courts and by regulatory authorities with broad discretion. We
believe that we perform only non-medical services, do not represent to the
public or our clients that we offer medical services and do not exercise
influence or control over the practice of medicine by the practitioners with
whom we deal. Although we believe our operations as currently conducted are in
material compliance with existing applicable laws, we cannot assure you that our
structure will not be challenged as constituting the unlicensed practice of
medicine or that the enforceability of the agreements underlying this structure
will not be limited. If such a challenge were made successfully in any state, we
could be subject to civil and criminal penalties under such state's law. Such
results could have a material adverse effect upon our business.
35
<PAGE>
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of our
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send billings, or
engage in similar normal business activities.
We are in the process of assessing our Year 2000 issues. This
assessment will address information technology and non-information technology
systems, as well as Year 2000 issues relating to third parties. This assessment
will include estimated costs, an evaluation of associated risks and contingency
plans, as necessary, to ensure we are Year 2000 compliant. Our plan with regard
to the Year 2000 issue for each of these items involves the following phases:
- assessment of systems to determine the extent to which we may be
vulnerable to the Year 2000 issue, both internally and with respect
to third parties;
- the development of remedies to address problems discovered in the
assessment phase;
- the testing and implementation of such remedies; and
- the preparation of contingency plans to address potential worst
case scenarios should the remedies not be successful.
We expect to complete our assessment in the first quarter of 1999. We
cannot assure you, however, that we will complete such assessment in a timely
manner nor that such assessment will identify all potential Year 2000 issues.
Failure to timely complete an assessment of Year 2000 issues which may affect
us, the failure of such assessment to identify all potential Year 2000 issues,
or our failure to timely develop and test remedies to any such issues, could
result in delays in implementing any required modifications, conversions and
updates to our computer systems, as well as the implementation of any
contingency plans. If such modifications, conversions and updates are not made
or not completed in a timely manner, the Year 2000 issue could have a material
adverse impact on our operations.
36
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds of the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange
Outstanding Notes in like principal amount. The issuance of the Exchange Notes
in exchange for the surrender of the Outstanding Notes will not result in any
increase in the indebtedness of the Company.
The net proceeds of the original sale of all the Outstanding Notes were
approximately $114 million, after deducting discounts and commissions and
expenses related to the sale of the Outstanding Notes. The Company used the net
proceeds of the sale of the Outstanding Notes to consummate the Transactions,
repay certain existing indebtedness, pay certain fees and expenses in connection
with the Transactions and for general corporate purposes (see "Prospectus
Summary--The Financings").
CAPITALIZATION
The following table sets forth cash and cash equivalents and the
capitalization of Fountain View as of September 30, 1998, and of the Company as
of such date. The Summit acquisition and financing transactions were finalized
as of September 30, 1998. Accordingly, the September 30, 1998 balance sheet
gives effect to those transactions. This table should be read in conjunction
with "Unaudited Pro Forma Financial Data", "Selected Historical Financial and
Other Data-- Fountain View", "Selected Historical Financial and Other Data--
Summit", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements and the related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
---------------------
ACTUAL
---------------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents...................................................................... $ 3,765
========
New Credit Facility(1)......................................................................... 105,161
Outstanding Notes.............................................................................. 120,000
Mortgages, capital leases and other debt assumed............................................... 20,465
--------
Total debt............................................................................ 245,626
Mandatory redeemable preferred stock........................................................... 15,000
Shareholders' equity........................................................................... 70,470
--------
Total capitalization.................................................................. $331,096
========
</TABLE>
______________________
(1) The New Credit Facility provides for up to $30.0 million of revolving
credit borrowings (with a $4.0 million sublimit for letters of credit)
and up to $85.0 million of term loans and matures in 2004. As of
September 30, 1998, revolving credit loans in the aggregate amount of
approximately $20.1 million and term loans in the aggregate amount of
approximately $85 million were outstanding under the New Credit
Facility, and $9.9 million of revolving credit borrowings were
available to the Company.
37
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data for the nine months
ended September 30, 1998 and for the year ended December 31, 1997 have been
derived by the application of pro forma adjustments to the financial statements
of Fountain View and Summit included elsewhere in this Prospectus. The Summit
acquisition and financing transactions were finalized as of June 30, 1998.
Accordingly, the September 30, 1998 balance sheet presented on pages F-16 and F-
17 gives effect to these transactions and therefore a pro forma balance sheet is
not presented. The pro forma statement of operations data for the nine months
ended September 30, 1998 give effect to the transactions as if they had occurred
on January 1, 1998. The pro forma statement of operations data for the year
ended December 31, 1997 give effect to (1) the Transactions and (2) the
acquisition of Briarcliff, a SNF acquired by Summit on December 1, 1997, as if
each had occurred as of January 1, 1997. The adjustments are described in the
accompanying notes.
The pro forma adjustments are based on available data and certain
assumptions that management believes are reasonable. The unaudited pro forma
financial data do not purport to represent what the Company's results of
operations actually would have been if the transactions described above had been
consummated as of the dates or for the periods indicated above, or what such
results will be for any future date or future period. The unaudited pro forma
data should be read in conjunction with "Selected Historical Financial and Other
Data--Fountain View", "Selected Historical Financial and Other Data--Summit",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes thereto included
elsewhere in this Prospectus.
38
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BRIARCLIFF
11
SUMMIT MONTHS
FOUNTAIN CARE ENDED PRO FORMA
VIEW, INC. CORPORATION 11/30/97 TOTAL ADJUSTMENTS PRO FORMA
---------- ----------- -------- ----- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Revenue........................ $67,905 $211,346 $7,893 $287,144 $ -- $287,144
--
Expenses:
Salaries and related benefits... 38,215 93,933 3,100 135,248 -- 135,248
Supplies........................ 8,293 20,040 644 28,977 -- 28,977
Purchased services.............. 4,256 53,587 70 57,913 -- 57,913
Provision for doubtful accounts. 395 3,343 858 4,596 -- 4,596
Other expenses.................. 5,046 16,948 1,542 23,536 -- 23,536
Depreciation and amortization... 1,198 7,996 688 9,882 4,190 (1) 14,072
Rent expense.................... 2,004 2,979 -- 4,983 -- 4,983
Rent expense to related parties. 1,771 -- -- 1,771 -- 1,771
Interest, net................... 1,164 8,504 11 9,679 13,645 (2) 23,324
------- ------- ------ -------- -------- --------
62,342 207,330 6,913 276,585 17,835 294,420
------- ------- ------ -------- -------- --------
Income (loss) before provision
for income taxes................... 5,563 4,016 980 10,559 (17,835) (7,276)
Income tax benefit (provision)..... (1,951) (1,631) (402) (3,984) 6,838 (3) 2,854
------- ------- ------ -------- -------- --------
Net income (loss).................. 3,612 2,385 578 6,575 (10,997) (4,422)
Preferred stock dividends.......... --- --- --- --- (1,800)(4) (1,800)
------- ------- ------ -------- -------- --------
Net income (loss) available to
common shareholders............. $ 3,612 $ 2,385 $ 578 $ 6,575 $(12,797) $ (6,222)
======= ======= ====== ======== ======== ========
Basic and diluted earnings per share
available to common shareholders.. $ 18.06 $ (31.11)
======= ========
OTHER DATA:
EBITDA (as defined) (5)............ $ 30,120
Adjusted EBITDA (6)................ 37,795
Adjusted EBITDA margin............. 13.2%
Adjusted EBITDAR (6)............... $ 44,549
Adjusted EBITDAR margin............ 15.5%
Ratio of earnings to fixed......... --
charges (7)
Ratio of Adjusted EBITDA to net
interest expense............. 1.6x
Ratio of net debt to Adjusted
EBITDA (8)................... 6.3
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations
39
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUMMIT CARE
CORPORATION
PERIOD FROM
FOUNTAIN JANUARY 1 TO PRO FORMA
VIEW, INC. MARCH 26, 1998 TOTAL ADJUSTMENTS PRO FORMA
---------- -------------- ----- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net Revenue......................... $155,487 $53,918 $209,405 $ -- $209,405
Expenses:
Salaries and benefits............ 81,015 23,632 104,647 -- 104,647
Supplies......................... 17,682 5,165 22,847 -- 22,847
Purchased services............... 19,786 13,743 33,529 -- 33,529
Provision for doubtful accounts.. 1,448 624 2,072 -- 2,072
Other expenses................... 9,524 3,851 13,375 -- 13,375
Rental........................... 4,389 723 5,112 -- 5,112
Depreciation and amortization.... 7,518 2,119 9,637 1,099 (1) 10,736
Interest, net of Interest Income. 12,089 2,604 14,693 2,376 (2) 17,069
-------- ------- -------- ------- -------
153,451 52,461 205,912 3,475 209,387
-------- ------- -------- ------- -------
Income before provision for
income taxes........................ 2,036 1,457 3,493 (3,475) 18
Income tax benefit (provision)...... (813) (575) (1,388) 1,306 (3) (82)
Extraordinary item, net of tax...... (517) -- (517) -- (517)
-------- ------- -------- ------- -------
Net income (loss)................... 706 882 1,588 (2,169) (581)
Preferred stock dividends........... (805) -- (805) (545) (4) (1,350)
-------- ------- -------- ------- -------
Net income (loss) available
to common shareholders........... $ (99) $ 882 $ 783 $(2,714) $ (1,931)
======== ======= ======== ======= =======
Basic and diluted earnings
per share available to common
shareholders before
extraordinary item............... $ 0.50 $ (1.70)
Basic and diluted loss per
share available to common
shareholders -- extraordinary item (0.62) (0.62)
-------- -------
Basic and diluted earnings
per share available to common
shareholders -- net income (loss) $ (0.12) $ (2.32)
======== =======
OTHER DATA:
EBITDA (as defined (5).............. $ 27,823
Adjusted EBITDA..................... 27,823
Adjusted EBITDA margin (6).......... 13.3%
Adjusted EBITDAR (6)................ $ 32,935
Adjusted EBITDAR margin............. 15.7%
Ratio of earnings to fixed
charges (7)..................... 1.0x
Ratio of Adjusted EBITDA to
net interest expense................ 1.6
Ratio of net debt to Adjusted
EBITDA (8).......................... 6.5
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations
40
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(1) Pro forma adjustments to reflect the step-up in basis of property, plant and
equipment and intangible assets, in connection with the Summit Care
Corporation acquisition:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
AMORTIZATION DECEMBER 31, ENDED
PERIOD 1997 MARCH 31, 1998(A)
------------ ------------ -----------------
<S> <C> <C> <C>
Increase in amortization of deferred financing
costs.......................................... 10 years $1,414 $ 353
Increase in amortization of goodwill.............. 35 years 1,157 289
Increase in depreciation of buildings,
leaseholds and equipment ...................... 5-35 years 1,619 457
------ ------
$4,190 $1,099
====== ======
</TABLE>
(a) Represents the period prior to the completion of the Summit Care
Corporation acquisition.
(2) Reflects additional interest on debt as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
1997 MARCH 31, 1998(A)
------------ -----------------
<S> <C> <C>
Interest on the New Credit Facility --
Term Loan (8.44%)(b) ............................ $ 7,171 $ 1,792
Interest on New Credit Facility --
Revolver (8.44%) ................................ 1,265 316
Interest on Notes offered hereby (11.25%) .......... 13,500 3,375
Interest on capital leases and other existing
debt (various rates) ........................ 2,038 509
-------- -------
Total interest expense ............................. 23,974 5,992
Net historical interest (gross of interest
expense) ................................... (10,329) (3,616)
-------- -------
Incremental interest ............................... $ 13,645 $ 2,376
======== =======
</TABLE>
(a) Represents the period prior to the completion of the financing.
(b) Interest with respect to the New Credit Facility, for both the Term
Loan and the Revolver, is computed on a floating rate based on LIBOR
plus 2.75%. A 0.125% increase in the interest rate on the New Credit
Facility would result in additional interest expense of $125 and would
reduce net income by $74 for the year ended December 31, 1997.
(3) Represents incremental income tax benefit relating to amortization of
deferred financing costs, depreciation and interest expense at an
incremental rate of 41%.
(4) Represents the preferred stock dividend of 12% computed on the $15 million
of mandatory redeemable preferred stock.
(5) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is a widely recognized financial indicator of a
company's ability to service or incur debt. EBITDA is not a measurement of
operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other statement
of operations or cash flow data prepared in conformity with generally
accepted accounting principles, or as a measure of profitability or
liquidity. In addition, EBITDA may not be comparable to
41
<PAGE>
similarly titled measures of other companies. EBITDA may not be indicative
of the historical operating results of the Company, nor is it meant to be
predictive of future results of operations or cash flows.
(6) For the year ended December 31, 1997, Adjusted EBITDA represents EBITDA
adjusted for certain non-recurring charges shown below. Adjusted EBITDAR
represents Adjusted EBITDA plus rent expense. EBITDAR is not a measurement
of operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other statement
of operations or cash flow data prepared in conformity with generally
accepted accounting principles, or as a measure of profitability or
liquidity. Similar to EBITDA, management views EBITDAR as a financial
indicator of a company's ability to service or incur debt. A majority of
Fountain View's nursing homes are leased, under operating leases, and not
owned. Accordingly, EBITDAR is used since the rent expense approximates the
interest and depreciation expense Fountain View may have incurred as if the
nursing homes were owned as opposed to leased:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
EBITDA ............................................. $30,120
Non-recurring charges(a) ........................... 7,675
-------
Adjusted EBITDA(b) ................................. 37,795
Rent expense ....................................... 6,754
-------
Adjusted EBITDAR(b) ................................ $44,549
=======
</TABLE>
(a) EBITDA is adjusted for the non-recurring entries in order to present
comparable EBITDA with the preceding years since these entries are only
reflected in the results of operations for the year ended December 31,
1997 for Fountain View and for the six months ended December 31, 1997
for Summit. In addition, the Company does not expect to incur similar
costs in the future. Non-recurring charges consist of: (1) $2,100 of
Medicare reserves taken by Summit due to adjustments proposed by the
Medicare intermediary during their audit of prior year cost reports. The
adjustments relate to issues not proposed by the Medicare intermediary
during previous audits and therefore the one time impact relating to
these adjustments for prior year cost reports is all reflected in the
results of operations for the year ended December 31, 1997 when the cost
reports were audited and finalized with the Medicare intermediary; (2)
$1,074 of retroactive workers' compensation, group and general liability
costs due to the recording of tail coverage insurance expense at the
time Summit converted from an occurrence based insurance policy to a
claims made insurance policy; (3) $983 of incremental bad debt expense
relating to 1996 and prior periods recorded in 1997 resulting from a
change in management's methodology for determining the allowance for bad
debts; the change in methodology was made to convert Summit's allowance
methodology accounting practices to Fountain View's accounting as a
result of the acquisition; (4) termination of non-compete agreements and
consulting arrangements totaling $965 relating to Fountain View Equity
Transactions; (5) certain transaction expenses including discretionary
employee bonuses totaling $872 paid upon completion of Fountain View
Equity Transactions; (6) severance for an executive and other costs
totaling $871, the severance package was paid in connection with the
acquisition of Summit by Fountain View; and (7) $810 related to an
employee lawsuit settled in 1997 involving a specific type of liability
for which the Company currently maintains insurance coverage (net of
ongoing insurance costs).
42
<PAGE>
(b) Management believes that as a consequence of the Transactions, the
Company will realize significant ongoing cost savings and revenue
enhancements. However there can be no assurance that these cost savings
or revenue enhancements will be realized. Management's estimate of the
ongoing cost reductions relating to the Transactions includes: (i)
certain reductions in facility-level operating expense items totaling
$1,451; (ii) $1,355 relating to the elimination of specifically
identified duplicative staff; (iii) $512 relating to reductions in
corporate expenses, including the elimination of certain public company
expenses; and (iv) a reduction in costs of supplies. Such amounts have
not been included in adjusted EBITDA or adjusted EBITDAR.
(7) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed charges
consists of interest expense and one-third of operating rental expense,
which management believes is representative of the interest component of
rent expense. Earnings were not sufficient to cover fixed charges. The
amount of the shortfall approximated $7.3 million for the pro forma year
ended December 31, 1997.
(8) Ratio of net debt to Adjusted EBITDA represents the ratio of total debt,
exclusive of mandatory redeemable preferred stock, less cash and cash
equivalents to Adjusted EBITDA.
43
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA--FOUNTAIN VIEW
Set forth below are selected historical financial data of Fountain View as
of December 31, 1996 and 1997 and for each of the three years in the period
ended December 31, 1997, which are derived from the audited financial statements
included elsewhere herein. The selected historical financial data as of December
31, 1993, 1994 and 1995, for the two years in the period ended December 31, 1994
and for the nine months ended September 30, 1997 and 1998 have been derived from
Fountain View's unaudited financial statements included elsewhere herein, and,
in the opinion of management, include all necessary adjustments for a fair
presentation of such information in conformity with generally accepted
accounting principles. The selected historical financial data below should be
read in conjunction with "Capitalization", "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30
------------------------------------------------ ------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenue..................................... $41,061 $51,824 $55,836 $59,432 $ 67,905 $50,393 $155,487
Salaries and related benefits................... 23,248 27,823 35,048 36,166 38,215 28,549 81,015
Other operating costs........................... 10,884 14,886 13,454 14,614 17,990 13,733 48,440
Depreciation and amortization................... 110 149 416 600 1,198 655 7,518
Rent expense.................................... 4,002 4,017 3,946 3,896 3,775 2,832 4,389
Interest, net................................... 307 355 332 278 1,164 497 12,089
------- ------- ------- ------- -------- ------- --------
38,551 47,230 53,196 55,554 62,342 46,266 153,451
------- ------- ------- ------- -------- ------- --------
Income before provision for income
taxes and extraordinary item................. 2,510 4,594 2,640 3,878 5,563 4,127 2,036
Income tax benefit (provision).................. (81) 43 (54) (78) (361) (423) (813)
Extraordinary item, net of tax.................. ---- ---- ---- ---- ---- ---- (517)
------- ------- ------- ------- -------- ------- --------
Net income...................................... 2,429 4,637 2,586 3,800 5,202 3,704 706
Preferred stock dividends....................... ---- ---- ---- ---- ---- ---- (805)
------- ------- ------- ------- -------- ------- --------
Net income (loss) available to common
shareholders................................. $ 2,429 $ 4,637 $ 2,586 $ 3,800 $ 5,202 $ 3,704 $ (99)
======= ======= ======= ======= ======== ======= ========
Basic and diluted earnings per share
available to common shareholders
before extraordinary item(5)................. $ 12.15 $ 23.19 $ 12.93 $ 19.00 $ 26.01 $ 18.52 $ 0.50
Basic and diluted loss per share available to
common shareholders extraordinary item....... ---- ---- ---- ---- ---- ---- (.62)
------- ------- ------- ------- -------- ------- --------
Basic and diluted earnings per share available
to common shareholders - net income.......... $ 12.15 $ 23.19 $ 12.93 $ 19.00 $ 26.01 $ 18.52 $ (0.12)
======= ======= ======= ======= ======== ======= ========
OTHER FINANCIAL DATA
EBITDA(1)....................................... $ 2,927 $ 5,098 $ 3,388 $ 4,756 $ 7,925 $ 5,279 $ 21,643
EBITDA margin................................... 7.1% 9.8% 6.1% 8.0% 11.7% 10.5% 13.9%
EBITDAR(1)...................................... $ 6,929 $ 9,115 $ 7,334 $ 8,652 $ 11,700 $ 8,111 $ 26,032
EBITDAR margin.................................. 16.9% 17.6% 13.1% 14.6% 17.2% 16.1% 16.7%
Capital expenditures............................ $ 8 $ 537 $ 665 $ 1,816 $ 2,570 $ 1,983 $ 5,695
Ratio of earnings to fixed charges(2)........... 2.5x 3.7x 2.6x 3.5x 3.3x 3.9x 1.2x
Net cash provided by (used in) operating
activities................................... $(1,804) $ 908 $ 5,832 $ 1,059 $ 12,739 $10,554 $ 4,137
OTHER DATA
Number of facilities (end of period)............ 9 9 9 9 9 9 50
Average licensed beds(3)........................ 1,061 1,061 1,061 1,061 1,061 1,061 5,937
Total beds (end of period)...................... 1,227 1,227 1,227 1,227 1,227 1,227 6,578
Patient days (in thousands)..................... 337 345 341 344 346 264 1,098
Average occupancy rate(4)....................... 87.0% 89.1% 88.1% 88.8% 89.3% 84.3% 86.5%
Percentage of revenues from:
Managed care, private pay and medicare... 58.4% 65.1% 67.2% 69.7% 72.9% 71.8% 64.3%
Medicaid................................. 41.6 34.9 32.8 30.3 27.1 29.2 38.7
BALANCE SHEET DATA (END OF PERIOD)
Cash and cash equivalents....................... $ 465 $ 629 $ 2,355 $ 1,161 $ 2,551 ---- $ 3,765
Working capital................................. 8,266 11,140 10,334 13,566 10,021 ---- 31,662
Total assets.................................... 14,408 18,433 24,693 24,122 25,941 ---- 407,277
Total debt, including current maturities and
excluding redeemable, preferred stock....... 6,758 7,359 6,764 666 30,076 ---- 245,626
Stockholders' equity (deficit).................. 5,570 9,399 9,957 16,601 (12,236) ---- 70,470
</TABLE>
44
<PAGE>
__________________________
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is a widely recognized financial indicator of a
company's ability to service or incur debt. EBITDA is not a measurement of
operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of profitability
or liquidity. In addition, EBITDA may not be comparable to similarly titled
measures of other companies. EBITDA may not be indicative of the historical
operating results of the Company, nor is it meant to predictive of future
results of operations or cash flows. EBITDAR represents EBITDA plus rent
expense. EBITDAR is not a measurement of operating performance computed in
accordance with generally accepted accounting principles and should not be
considered as a substitute for operating income, net income, cash flows
from operations, or other statement of operations or cash flow data
prepared in conformity with generally accepted accounting principles, or as
a measure of profitability or liquidity. Similar to EBITDA, management
views EBITDA as a financial indicator of a company's ability to service or
incur debt. A majority of Fountain View's nursing homes are leased, under
operating leases, and not owned. Accordingly, EBITDAR is used since the
rent expense approximates the interest and depreciation expense Fountain
View may have incurred as if the nursing homes were owned as opposed to
leased.
(2) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed
charges consist of interest expense and one-third of operating rental
expense, which management believes is representative of the interest
component of rent expense.
(3) Excludes ALF beds.
(4) Excludes Fountain View's ALF through March 26, 1998, which represents less
than 2% of total revenue.
(5) Weighted average shares outstanding for the five years ended December 31,
1997 and for the nine months ended September 30, 1997 and 1998 has been
computed based on the 200,000 shares of Common Stock issued and outstanding
in connection with the Fountain View Equity Transactions. See note 2 to the
consolidated financial statements of Fountain View included elsewhere
herein.
45
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA--SUMMIT
Set forth below are selected historical financial data of Summit as of and
for each of the five years in the period ended June 30, 1997, which are derived
from Summit's audited financial statements. The selected historical financial
data for the six months ended December 31, 1996 and 1997 have been derived from
Summit's unaudited financial statements included elsewhere herein and, in the
opinion of management, include all necessary adjustments for a fair presentation
of such information in conformity with generally accepted accounting principles.
The selected historical financial data below should be read in conjunction with
"Capitalization", "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1996 1997
-------- --------- --------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenue................................ $83,992 $ 97,599 $137,026 $176,062 $197,927 $95,088 $108,507
Salaries and related benefits.............. 40,044 45,962 63,171 78,233 89,577 43,386 47,742
Other operating costs...................... 29,998 34,655 49,206 70,696 89,932 41,750 45,736
Depreciation and amortization.............. 2,308 2,949 5,249 6,142 7,393 3,632 4,235
Rent expense............................... 2,315 1,613 2,141 2,656 2,864 1,410 1,525
Interest, net.............................. 1,080 2,243 4,761 6,574 7,973 4,057 4,588
------- -------- -------- -------- -------- ------- --------
75,745 87,422 124,528 164,301 197,739 94,235 103,826
------- -------- -------- -------- -------- ------- --------
Income before provision for income taxes... 8,247 10,177 12,498 11,761 188 853 4,681
Income tax provision....................... (3,224) (4,010) (4,987) (4,452) (119) (337) (1,849)
------- -------- -------- -------- -------- ------- --------
Net income................................. $ 5,023 $ 6,167 $ 7,511 $ 7,309 $ 69 $ 516 $ 2,832
======= ======== ======== ======== ======== ======= ========
OTHER FINANCIAL DATA
EBITDA(1).................................. $11,635 $ 15,369 $ 22,508 $ 24,477 $ 15,554 $ 8,542 $ 13,504
EBITDA margin.............................. 13.9% 15.7% 16.4% 13.9% 7.9% 9.0% 12.4%
EBITDAR(1)................................. $13,950 $ 16,982 $ 24,649 $ 27,133 $ 18,418 $ 9,952 $ 15,029
EBITDAR margin............................. 16.6% 17.4% 18.0% 15.4% 9.3% 10.5% 13.9%
Capital expenditures....................... $29,901 $ 15,505 $ 9,004 $ 26,558 $ 24,075 $12,049 $ 6,706
Ratio of earnings to fixed charges(2)...... 5.5x 4.7x 3.3x 2.6x 1.0x 1.2x 1.9x
Net cash provided by operating activities.. $ 4,186 $ 7,512 $ 7,014 $ 6,866 $ 18,015 $ 3,563 $ 7,793
OTHER DATA
Number of facilities (end of period)....... 21 23 37 38 39 39 41
Average licensed beds...................... 2,696 2,876 4,197 4,816 5,078 5,065 5,154
Total beds (end of period)................. 2,696 3,002 4,762 4,940 5,040 ---- 5,347
Patient days (in thousands)................ 858 908 1,316 1,514 1,573 783 827
Average occupancy rate..................... 87.2% 86.5% 85.9% 85.9% 84.8% 84.0% 87.2%
Percentage of revenues from:
Managed care and private pay...... 36.5% 34.0% 33.8% 31.9% 29.9% 30.5% 31.6%
Medicare.......................... 28.3 30.3 29.5 34.7 39.7 39.1 36.7
Medicaid.......................... 35.2 35.7 36.7 33.4 30.4 30.4 31.7
BALANCE SHEET DATA (END OF PERIOD)
Cash and cash equivalents.................. $ 6,301 $ 21,613 $ 3,101 $ 2,658 $ 3,994 ---- $ 1,702
Working capital............................ 7,151 24,880 10,161 13,906 12,648 ---- 11,384
Total assets............................... 73,369 114,915 184,480 223,052 250,516 ---- 267,420
Total debt and capital leases, including
current maturities...................... 30,331 32,025 89,788 110,374 121,452 ---- 129,754
Shareholders' equity....................... 31,337 66,361 73,813 81,286 81,412 ---- 84, 721
</TABLE>
46
<PAGE>
_________________________
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is a widely recognized financial indicator of a
company's ability to service or incur debt. EBITDA is not a measurement of
operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other
statement of operations or cash flow data prepared in conformity with
generally accepted accounting principles, or as a measure of profitability
or liquidity. In addition, EBITDA may not be comparable to similarly titled
measures of other companies. EBITDA may not be indicative of the historical
operating results of the Company, nor is it meant to be predictive of
future results of operations or cash flows. EBITDAR represents EBITDA plus
rent expense. EBITDAR is not a measurement of operating performance
computed in accordance with generally accepted accounting principles and
should not be considered as a substitute for operating income, net income,
cash flows from operations, or other statement of operations or cash flow
data prepared in conformity with generally accepted accounting principles,
or as a measure of profitability or liquidity. Similar to EBITDA,
management views EBITDA as a financial indicator of a company's ability to
service or incur debt. A majority of Summit's nursing homes are leased,
under operating leases, and not owned. Accordingly, EBITDAR is used since
the rent expense approximates the interest and depreciation expense Summit
may have incurred as if the nursing homes were owned as opposed to leased.
(2) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed
charges consist of interest expense and one-third of operating rental
expense, which management believes is representative of the interest
component of rent expense.
47
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW--THE COMPANY
The Company's business consists of the combined operations of Fountain View
and Summit. At September 30, 1998, the Company operated 50 facilities in
California, Texas and Arizona with approximately 6,600 skilled nursing and
assisted living beds, three institutional pharmacies (one of which is a joint
venture), a contract therapy company, an outpatient therapy clinic and a DME
company.
The Company generates revenues by providing basic healthcare services and
specialty medical care. Basic healthcare services refer to (i) skilled nursing
care which consists of room and board, special nutritional programs, social
services, recreational activities and related medical services, and (ii)
assisted living services which consist of room and board, social activities and
assistance with activities of daily living such as dressing and bathing.
Specialty medical care includes services other than routine skilled nursing care
and are provided to patients who generally require more intensive treatment and
a higher level of acute care. Specialty medical care also includes sub-acute
services such as therapy, pharmacy and durable medical equipment, which the
Company provides to both affiliated and unaffiliated facilities. Since the
services comprising specialty medical care are reimbursed at higher rates as
compared to basic healthcare services, specialty medical care generally
represents the most profitable type of services offered by the Company. On a pro
forma basis for the twelve months ended December 31, 1997, specialty medical
revenues represented 55% of total revenues.
The Company provides services to Medicare, Medicaid, managed care and
private pay patients. Government payors, such as state-administered Medicaid
programs, generally provide more restricted coverage and lower reimbursement
rates than private pay and managed care payors. On a pro forma basis for the
twelve months ended December 31, 1997, revenues from Medicare and Medicaid
payors represented 36% and 31% of total revenues, respectively. Management
believes the Company is well-positioned to benefit from the trend toward
increased enrollment in managed care organizations by providing sub-acute
specialty medical care on a cost-effective basis, offering managed care
organizations an attractive alternative to acute hospital care.
On a prospective basis, the Company will operate on a December 31 fiscal
year end. Summit's historical results of operations, which were based on a June
30 fiscal year end, have not been restated for the purpose of any pro forma
financial presentation of the Company's historical operations.
In July 1997, Fountain View's predecessor, which was comprised of all of
Fountain View's operating units owned individually by certain controlling
stockholders, was merged with and into several companies formed by Fountain View
in connection with the Fountain View Equity Transactions. The Fountain View
Equity Transactions are described in more detail in Note 3 to the audited
financial statements of Fountain View contained elsewhere in this Prospectus.
48
<PAGE>
RESULTS OF OPERATIONS--FOUNTAIN VIEW
The following table presents Fountain View's results of operations for the
nine months ended September 30, 1997 and 1998 and the three years ended December
31, 1997:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
--------------------------------------------- ---------------------------------------
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
------------------------- ----------------- ---------------------- --------------
1995 1996 1997 1997 1998 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue..................... $55,836 $59,432 $67,905 $50,313 $155,487 100.0% 100.0% 100.0% 100.0% 100.0%
Salaries and related
benefits........................ 35,048 36,166 38,215 28,549 81,015 62.8 60.9 56.3 56.7 52.1
Other operating costs........... 13,454 14,614 17,990 13,733 48,440 24.1 24.5 26.5 27.3 31.2
Rent expense.................... 3,946 3,896 3,775 2,832 4,389 7.1 6.6 5.5 5.6 2.8
Depreciation and
amortization.................... 416 600 1,198 655 7,518 0.7 1.0 1.8 1.3 4.8
Interest, net................... 332 278 1,164 497 12,089 0.6 0.5 1.7 1.0 7.8
------- ------- ------- ------- -------- ----- ----- ----- ----- -----
$53,196 $55,554 $62,342 $46,266 $153,451 95.3% 93.5% 91.8% 91.9% 98.7%
------- ------- ------- ------- -------- ----- ----- ----- ----- -----
Income before provision
for income taxes and
extraordinary item.............. 2,640 3,878 5,563 4,047 2,036 4.7 6.5 8.2 8.1 1.3
Income tax provision............ (1,079) (1,571) (1,951) (423) (813) (1.9) (2.6) (2.9) (0.8) (0.5)
Extraordinary Item.............. -- -- -- -- (517) -- -- -- -- (0.3)
------- ------- ------- ------- -------- ----- ----- ----- ----- -----
Net income...................... $ 1,561 $ 2,307 $ 3,612 $ 3,704 $ 706 2.8% 3.9% 5.3% 7.3% 0.5%
======= ======= ======= ======= ======== ===== ===== ===== ===== =====
OCCUPANCY:
Average Licensed Beds............................................................ 1,061 1,061 1,061 1,061 5,937
Patient Days (in thousands)...................................................... 341 344 346 246 1,099
Average Occupancy................................................................ 88.1% 88.8% 89.3% 84.3% 86.5%
</TABLE>
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
Net revenues increased $50,148 or 295.5% from $16,970 for the quarter ended
September 30, 1997 to $67,118 for the quarter ended September 30, 1998.
Substantially all of the increase was due to the acquisition of Summit Care.
Average occupancy was 86.5% in the quarter ended September 30, 1998 and
83.7% in the quarter ended September 30, 1997. The Company's quality mix (total
net revenues less Medicaid net revenues) was 62.8% in the quarter ended
September 30, 1998 and 72.9% in the quarter ended September 30, 1997.
Expenses, consisting of salaries and benefits, provision for doubtful
accounts, supplies, purchased services and other expenses as a percent of net
revenues decreased from 89.1% of net revenues in the quarter ended September 30,
1997 to 82.4% in the quarter ended September 30, 1998. This decrease was
substantially due to certain charges (related to the Fountain View Equity
Transactions, as described in Note 3) which were recorded in the quarter ended
September 30, 1997. Expenses increased $40,155 or 265.6% from $15,119 in the
quarter ended September 30, 1997 to $55,274 in the quarter ended September 30,
1998. Substantially all of the increase was due to the acquisition of Summit
Care.
Income before rent, rent to related parties, depreciation and amortization
and interest expense increased $9,993 or 539.9% from $1,851 in the quarter ended
September 30, 1997 to $11,844 in the quarter ended September 30, 1998 and was
17.6% of net revenues in the quarter ended September 30, 1998 compared to 10.9%
in the quarter ended September 30, 1997.
49
<PAGE>
Rent, rent to related parties, depreciation and amortization and interest
expense increased $9,453 or 553.1% from $1,709 in the quarter ended September
30, 1997 to $11,162 in the quarter ended September 30, 1998. Substantially all
of this increase was due to higher depreciation and amortization costs related
to the acquisition of Summit Care's tangible and intangible assets and an
increase in amortization costs and interest expense as a result of the debt
refinancing.
The Company's effective tax rate was 39.9% of income in the quarter ended
September 30, 1998. The Company was organized as a Subchapter S Corporation for
tax purposes until July 31, 1997 and only recorded state income taxes. On a
proforma basis, for the quarter ended September 30, 1997, the Company has
recorded a charge in lieu of income taxes to arrive at a combined proforma
effective tax rate of 39.4%. Net income after the proforma charge in lieu of
income taxes, increased $324 from $86 in the quarter ended September 30, 1997 to
$410 in the quarter ended September 30, 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Net revenues increased $105,094 or 208.5% from $50,393 in the nine months
ended September 30, 1997 to $155,487 in the nine months ended September 30,
1998. Substantially all of the increase was due to the acquisition of Summit
Care.
Average occupancy was 86.5% in the nine months ended September 30, 1998
and 84.3% in the nine months ended September 30, 1997. The Company's quality
mix (total net revenues, less Medicaid net revenues) was 64.3% in the nine
months ended September 30, 1998 and 71.8% in the nine months ended September 30,
1997.
Expenses consisting of salaries and benefits, provision for doubtful
accounts, supplies, purchased services and other expenses as a percent of net
revenues, decreased from 83.9% of net revenues in the nine months ended
September 30, 1997 to 83.3% in the nine months ended September 30, 1998.
Expenses increased $87,173 or 206.2% from $42,282 in the nine months ended
September 30, 1997 to $129,455 in the nine months ended September 30, 1998.
Substantially all of the increase was due to the acquisition of Summit Care.
Income before rent, rent to related parties, depreciation and amortization
and interest expense increased $17,921 or 220.9% from $8,111 in the nine months
ended September 30, 1997 to $26,032 in the nine months ended September 30, 1998
and was 16.7% of net revenues in the nine months ended September 30, 1998
compared to 16.1% in the nine months ended September 30, 1997.
Rent, rent to related parties, depreciation and amortization and interest
expense increased by $20,012 or 502.3% from $3,984 in the nine months ended
September 30, 1997 to $23,996 in the nine months ended September 30, 1998.
Substantially all of this increase was due to higher depreciation and
amortization costs related to the acquisition of Summit Care's tangible and
intangible assets and an increase in amortization costs and interest expense as
a result of the debt refinancing.
The Company's effective tax rate was 39.9% of income in the nine months
ended September 30, 1998. The Company was organized as a Subchapter S
Corporation for tax purposes until July 31, 1997 and only recorded state income
taxes. On a proforma basis, for the nine months ended September 30, 1997, the
Company has recorded a charge in lieu of income taxes to arrive at a combined
proforma effective tax rate of 39.9%. Net income after the
50
<PAGE>
proforma charge in lieu of income taxes, decreased $1,774 from $2,480 in the
nine months ended September 30, 1997 to $706 in the nine months ended September
30, 1998.
Selected statistics are shown below:
<TABLE>
<CAPTION>
INCREASE
1998 1997 (DECREASE)
---- ---- ----------
<S> <C> <C> <C>
Facilities in operation at:
March 31.............................................. 50 9 41
June 30............................................... 50 9 41
September 30.......................................... 50 9 41
Nursing center beds at:
March 31.............................................. 5,937 1,061 4,876
June 30............................................... 5,937 1,061 4,876
September 30.......................................... 5,937 1,061 4,876
Assisted living beds at:
March 31.............................................. 641 166 475
June 30............................................... 641 166 475
September 30.......................................... 641 166 475
Total beds at:
March 31.............................................. 6,578 1,227 5,351
June 30............................................... 6,578 1,227 5,351
September 30.......................................... 6,578 1,227 5,351
Total occupancy:
First quarter......................................... 86.6% 84.9% 1.7%
Second quarter........................................ 86.4% 84.4% 2.0%
Third quarter......................................... 86.5% 83.7% 2.8%
Nursing center occupancy:
First quarter......................................... 89.4% 89.8% (0.4%)
Second quarter........................................ 87.5% 89.3% (1.8%)
Third quarter......................................... 87.6% 88.8% (1.2%)
Assisted living center occupancy:
First quarter......................................... 67.4% 53.7% 13.7%
Second quarter........................................ 76.1% 52.8% 23.3%
Third quarter......................................... 76.9% 50.5% 26.4%
Percentage of revenues from private, managed care
and Medicare (quality mix):
First quarter......................................... 72.0% 72.8% (0.8%)
Second quarter........................................ 63.5% 69.8% (6.3%)
Third quarter......................................... 62.8% 72.9% (10.1%)
Percentage of revenues from Medicaid:
First quarter......................................... 28.0% 27.2% 0.8%
Second quarter........................................ 36.5% 30.2% 6.3%
Third quarter......................................... 37.2% 27.1% 10.1%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had $3,765 in cash and cash equivalents
and working capital of $31,662. During the nine months ended September 30, 1998,
the Company's cash and cash equivalents increased by $1,214.
51
<PAGE>
Net cash provided by operating activities decreased $6,417 from $10,554 in
the first nine months of 1997 to $4,137 in the first nine months of 1998. This
decrease was primarily due to an increase in accounts receivable.
Long-term debt totaling $242,136 at September 30, 1998, consisted of
mortgage and capital lease obligations of $19,475, a term-loan credit facility
of $82,500, borrowings on the Company's bank line of credit of $20,161 and
$120,000 in senior subordinated notes.
The Company had $9,839 in available borrowings on its bank line of credit
at September 30, 1998. The Company believes that it has sufficient cash flow
from its existing operations and from its bank line of credit to service long-
term debt due within one year of $3,490, to make normal recurring capital
replacements, additions and improvements of approximately $6,000 planned for the
next 12 months and to meet other long-term working capital needs and
obligations. The Company expects, on a selective basis, to pursue expansion of
its existing centers and the acquisition or development of additional centers in
markets where demographics and competitive factors are favorable.
Recent Accounting Pronouncements
See Note 8 to the Unaudited Consolidated Financial Statements for the Three
and Nine Months Ended September 30, 1998 and 1997.
Impact of Inflation
The health care industry is labor intensive. Wages and other expenses
increase more rapidly during periods of inflation and when shortages in the
labor market occur. In addition, suppliers pass along rising costs in the form
of higher prices. Increases in reimbursement rates under Medicaid generally lag
behind actual cost increases, so that the Company may have difficulty covering
these cost increases in a timely fashion. In addition, as described in Note 6
to the Unaudited Consolidated Financial Statements for the Three and Nine Months
Ended September 30, 1998 and 1997, Medicare SNFs are now paid a federal per diem
rate under PPS, in lieu of the former cost-based reimbursement rate. Increases
in the federal portion of the per diem rates may also lag behind actual cost
increases.
Impact of Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send billings, or
engage in similar normal business activities.
The Company is in the process of assessing its Year 2000 issues. This
assessment will address information technology and non-information technology
systems, as well as, Year 2000 issues relating to third parties. This
assessment will include estimated costs, an evaluation of associated risks and
contingency plans, as necessary, to ensure the Company is Year 2000 compliant.
The Company's plan with regard to the Year 2000 issue for each of these items
involves the following phases: (i) assessment of systems to determine the
extent to which the Company may be vulnerable to the Year 2000 issue, both
internally and with respect to third parties; (ii) the development of remedies
to address problems discovered in the assessment phase; (iii) the testing and
implementation of such remedies; and (iv) the preparation of contingency plans
to address potential worst case scenarios should the remedies not be successful.
52
<PAGE>
The Company expects to complete its assessment in the first quarter of
1999. There can be no assurance, however, that the Company will complete such
assessment in a timely manner nor that such assessment, when completed will
identify all potential Year 2000 issues. Failure to timely complete an
assessment of Year 2000 issues which may affect the Company, the failure of such
assessment to identify all potential Year 2000 issues, or the failure of the
Company to timely develop and test remedies to any such issues, could result in
delays in implementing any required modifications, conversions and updates to
the Company's computer systems, as well as the implementation of any contingency
plans. If such modifications, conversions and updates are not made or not
completed in a timely manner, the Year 2000 issue could have a material adverse
impact on the operations of the Company.
1997 COMPARED TO 1996 (DOLLARS IN THOUSANDS)
Net revenue increased from $59,432 in 1996 to $67,905 in 1997, an increase
of $8,473 or 14.3%. The increase in net revenue is due in part to growth in the
skilled nursing business, driven by occupancy, improving quality mix, and the
increase in provision of services by Medi-Cal sub-acute units in two facilities.
During 1997, Medi-Cal sub-acute per diem reimbursement rates were approximately
three times higher than Medi-Cal SNF per diem reimbursement rates. Fountain
View's quality mix (percentage of revenues from Medicare, Medi-Cal sub-acute,
managed care, private pay patients and therapy) as a percentage of total
revenues increased from 69.7% in 1996 to 72.9% in 1997. The increase in net
revenue was also attributable to increased revenues generated by Fountain View's
Locomotion Therapy subsidiary.
Expenses consisting of salaries, benefits, supplies, purchased services,
provision for doubtful accounts and other operating costs increased from $50,780
in 1996 to $56,205 in 1997, an increase of $5,425 or 10.7%, and as a percentage
of net revenue, decreased from 85.4% in 1996 to 82.8% in 1997. Salary and
related benefit expenses increased primarily as the result of four separate
increases in federal and state minimum wage levels between October 1, 1996 and
December 31, 1997 as well as discretionary employee bonuses paid during 1997.
However, salary and related benefit expenses decreased as a percentage of net
revenue from 60.9% in 1996 to 56.3% in 1997, reflecting the revenue benefit of
improvement in Fountain View's quality mix relative to the level of increased
salary expenses associated therewith. Other operating costs increased as the
result of the termination of non-compete agreements and consulting agreements
relating to the Fountain View Equity Transactions totaling $965, $810 (net of
ongoing insurance costs) of settlement costs associated with an employee lawsuit
involving a specific type of liability for which the Company currently maintains
insurance coverage, and $415 of other charges related to the Fountain View
Equity Transactions.
Rent expense, depreciation and amortization and interest expense, net of
interest income, was $6,137 in 1997 compared to $4,774 in 1996, an increase of
$1,363 or 28.6%. The increase was primarily due to increased depreciation costs
related to renovation expenditures during 1996 and 1997 and an increase in
interest expense as a result of the Fountain View Equity Transactions.
Fountain View's pro forma effective tax rate was 40% in both 1996 and 1997.
Prior to the Fountain View Equity Transactions, the entities comprising Fountain
View were owned individually by certain controlling stockholders, and were
primarily formed as S-corporations. The pro forma effective tax rate represents
the estimated taxes had such companies been taxed as C-corporations.
53
<PAGE>
1996 COMPARED TO 1995 (DOLLARS IN THOUSANDS)
Net revenue increased from $55,836 in 1995 to $59,432 in 1996, an increase
of $3,596 or 6.4%. The increase in net revenue relates primarily to revenues
generated by Medi-Cal sub-acute units established in two facilities and a
transitional care unit opened in one facility during 1996. Net revenue also
increased as the result of higher revenues from managed care patients, which are
typically reimbursed at higher rates than Fountain View's private or Medicaid
patients.
Expenses consisting of salaries, benefits, supplies, purchased services,
provision for doubtful accounts and other expenses increased from $48,502 in
1995 to $50,780 in 1996, an increase of $2,278 or 4.7%. However, salary and
related benefit expenses decreased from 62.8% in 1995 to 60.9% in 1996 as a
percentage of net revenue, reflecting the benefit of an increase in revenues
from managed care patients relative to the level of increased salary expenses
associated therewith.
Rent expense, depreciation and amortization and interest expense, net of
interest income, was $4,774 in 1996 compared to $4,694 in 1995, an increase of
$80 or 1.7%.
Fountain View's pro forma effective tax rate was 40% in both 1995 and 1996.
Prior to the Fountain View Equity Transactions, the entities comprising Fountain
View were owned individually by certain controlling stockholders and were
primarily formed as S-corporations. The pro forma effective tax rate represents
the estimated taxes had such companies been taxed as C- corporations.
HISTORIC LIQUIDITY AND CAPITAL RESOURCES (DOLLARS IN THOUSANDS)
Cash and cash equivalents were $2,551 as of December 31, 1997, and working
capital was $10,021. This compares to cash and cash equivalents of $1,161 and
working capital of $13,566 as of December 31, 1996. Working capital declined
primarily as a result of the Fountain View Equity Transactions and payment of a
$43,700 distribution to certain controlling stockholders in August 1997.
Proceeds of $14,000 from an investment by Heritage and $32,500 in bank
borrowings financed the $43,700 distribution and payment of related transaction
costs.
Cash generated from operating activities increased to $12,739 in 1997
compared to $1,059 in 1996 and $5,832 in 1995. The increased level of cash from
operating activities in 1997 as compared to 1996 reflects differences in the
timing of receiving payments on accounts receivable, primarily managed care and
Medicare balances. Receivables increased by $3,757 in 1996, and decreased by
$2,908 in 1997. The combination of the increase in receivables in 1996 and
decrease in 1997 resulted in a variance of $6,665 in cash from operations
between such periods. In addition, accounts payable and accrued expenses
increased by $2,772 in 1997 compared to an increase in 1996 of $421.
In 1997, $2,570 of cash was used for the acquisition of leasehold
improvements and purchases of equipment compared to $1,816 and $665 used in 1996
and 1995, respectively, for the acquisition of leaseholds and equipment.
Cash used in financing activities was $7,604 in 1997 compared to $438 in
1996 and $3,159 in 1995. In 1997, $32,500 of new bank borrowings and $14,000 of
proceeds from an investment by Heritage were used to repay $6,065 in bank
borrowings and $48,118 in total distributions to certain stockholders inclusive
of the $43,700 distribution made in connection with the Fountain View Equity
Transactions.
54
<PAGE>
RESULTS OF OPERATIONS--SUMMIT
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED
DECEMBER 31, 1996 (DOLLARS IN THOUSANDS)
Net revenues increased $13,419 or 14.1% from $95,088 for the six months
ended December 31, 1996 to $108,507 for the six months ended December 31, 1997.
The increase occurred due to the following:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
<S> <C> <C>
1. Increased census days and revenue rates........ $ 4,874 36.3%
2. Special charge to Medicare revenues............ 4,000 29.8
3. New beds opened in fiscal years 1997 and 1998.. 3,973 29.6
4. Pharmacy operations............................ 1,406 10.5
5. Rehabilitative and other specialty services.... (834) (6.2)
------- ------
$13,419 100.0%
======= ======
</TABLE>
In December 1996, Summit recorded a special charge of $4,000 against
Medicare revenues as a result of adjustments proposed by Medicare in connection
with an audit of fiscal 1995, which would have an effect on revenues for that
fiscal year, fiscal 1996 and the six months ended December 31, 1996. Average
occupancy was 87.2% in the six months ended December 31, 1997 and 84.0% in the
six months ended December 31, 1996. Excluding newly constructed beds, the
average occupancy was 90.3% in the six months ended December 31, 1997 and 85.9%
in the six months ended December 31, 1996. Summit's quality mix (revenues from
Medicare, managed care and private pay patients, including pharmacy revenue) as
a percentage of gross revenues was 68.3% in the six months ended December 31,
1997 and 69.6% in the six months ended December 31, 1996.
Expenses, consisting of salaries and benefits, supplies, purchased
services, provision for doubtful accounts and other expenses as a percent of net
revenues, before the effect of the special charge, increased from 85.9% of net
revenues in the six months ended December 31, 1996 to 86.1% in the six months
ended December 31, 1997. Total salaries and employee related benefits were 44.0%
of net revenues in the six months ended December 31, 1997 compared to 43.8% of
net revenues, before the effect of the special charge, in the six months ended
December 31, 1996.
Expenses increased $8,342 or 9.8% from $85,136 in the six months ended
December 31, 1996 to $93,478 in the six months ended December 31, 1997 for the
following reasons:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
<S> <C> <C>
1. Expenses relating to new beds opened in fiscal years
1997 and 1998........................................ $3,232 38.7%
2. Salaries and benefits.................................. 2,776 33.3
3. Other expenses......................................... 1,540 18.5
4. Rehabilitative and other specialty services............ 794 9.5
------ ------
$8,342 100.0%
====== ======
</TABLE>
Income before rental, depreciation and amortization and interest expense,
net of interest income, increased $5,077 or 51.0% from $9,952 in the six months
ended December 31, 1996 to $15,029 in the six months ended December 31, 1997 and
was 13.9% of net revenues in the six months ended December 31, 1997 compared to
10.5% in the six months ended December 31, 1996 (and 14.1% of net revenues
before the special charge to revenues).
55
<PAGE>
Rent, depreciation and amortization and interest expense, net of interest
income, increased by $1,249 or 13.7% from $9,099 in the six months ended
December 31, 1996 to $10,348 in the six months ended December 31, 1997.
Substantially all of this increase was due to interest expense related to higher
debt and depreciation expense related to capital additions.
Summit's effective tax rate was 39.5% of income in the six months ended
December 31, 1997 and in the six months ended December 31, 1996. Net income
increased $2,316 from $516 in the six months ended December 31, 1996 to $2,832
in the six months ended December 31, 1997. The net income of $516 for the six
months ended December 31, 1996 included $2,420 for the special charge described
earlier. Net income before the special charge, decreased $104 or 3.5% from
$2,936 in the six months ended December 31, 1996 to $2,832 in the six months
ended December 31, 1997.
1997 COMPARED TO 1996 (DOLLARS IN THOUSANDS)
Net revenues increased $21,865 or 12.4% from $176,062 in fiscal 1996 to
$197,927 in fiscal 1997. The increase occurred due to the following:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
<S> <C> <C>
1. Rehabilitative and other speciality services..... $ 7,553 34.6%
2. New beds opened in fiscal years 1996 and 1997.... 12,450 56.9
3. Increased census days and revenue rate........... 5,647 25.8
4. Pharmacy operations.............................. 2,315 10.6
5. Special charge to Medicare revenue............... (6,100) (27.9)
------- -----
$21,865 100.0%
======= =====
</TABLE>
The special charge to Medicare revenues reflects the result of adjustments
proposed by Medicare in connection with an audit of fiscal 1995, which would
have an effect on revenues for that fiscal year, fiscal 1996 and fiscal 1997.
Average occupancy was 84.8% in the fiscal year ended June 30, 1997 compared to
85.9% in the fiscal year ended June 30, 1996. Excluding newly constructed beds,
the average occupancy was 87.0% in the fiscal year ended June 30, 1997 and 86.4%
in the fiscal year ended June 30, 1996. Summit's quality mix (revenues from
Medicare, managed care and private pay patients, including pharmacy revenue)
patients as a percentage of gross revenues was 69.6% in the fiscal year ended
June 30, 1997 and 66.6% in the fiscal year ended June 30, 1996.
Expenses, consisting of salaries and benefits, supplies, purchased
services, provision for doubtful accounts and other expenses as a percent of net
revenues, before the effect of the special charge, increased from 84.6% of net
revenues in the fiscal year ended June 30, 1996 to 88.0% in the fiscal year
ended June 30, 1997. Total salaries and employee related benefits were 43.9% of
net revenues, before the effect of the special charge, in the fiscal year ended
June 30, 1997 compared to 44.4% of net revenues in the fiscal year ended June
30, 1996. Purchases of rehabilitative and other specialty services were 25.3% of
net revenues, before the effect of the special charge, in the fiscal year ended
June 30, 1997 compared to 21.6% of net revenues in the fiscal year ended June
30, 1996. Expenses increased $30,580 or 20.5% from $148,929 in the fiscal year
ended June 30, 1996 to $179, 509 in the fiscal year ended June 30, 1997 for the
following reasons:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------- -------
<S> <C> <C>
1. Rehabilitative and other speciality services........................... $ 8,680 28.4%
2. Expenses relating to new beds opened in fiscal years 1996 and 1997..... 11,529 37.7
3. Salaries and benefits.................................................. 6,612 21.6
4. Other expenses......................................................... 3,759 12.3
------- -----
$30,580 100.0%
======= =====
</TABLE>
56
<PAGE>
Income before rental, depreciation and amortization and interest expense,
net of interest income, decreased $8,715 or 32.1% from $27,133 in the fiscal
year ended June 30, 1996 to $18,418 in the fiscal year ended June 30, 1997 and
was 9.3% of net revenues in the fiscal year ended June 30, 1997 (and 12.0% of
net revenues before the special charge to revenues) compared to 15.4% in the
fiscal year ended June 30, 1996.
Rental, depreciation and amortization and interest expense, net of interest
income, increased by $2,858 or 18.6% from $15,372 in the fiscal year ended June
30, 1996 to $18,230 in the fiscal year ended June 30, 1997. The increase was
primarily due to depreciation of additions to property and equipment and
interest expense related to higher long-term debt.
Summit's effective tax rate was 63.3% of income in the fiscal year ended
June 30, 1997 compared to 37.9% of income in the fiscal year ended June 30,
1996. The increase in the effective tax rate was primarily due to certain
permanent differences between book income and taxable income. Net income was $69
for the fiscal year ended June 30, 1997, a decrease of $7,240 or 99.1% from
$7,309 for the fiscal year ended June 30, 1996.
1996 COMPARED TO 1995 (DOLLARS IN THOUSANDS)
Net revenues increased $39,036 or 28.5% from $137,026 in fiscal 1995 to
$176,062 in the fiscal year 1996. The increase occurred due to the following:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
<S> <C> <C>
1. Acquisitions in fiscal year 1995................ $13,228 33.9%
2. Rehabilitative and other speciality services.... 11,527 29.5
3. Increased census days and revenue rate.......... 8,017 20.5
4. New beds opened in fiscal years 1995 and 1996... 3,614 9.3
5. Pharmacy operations............................. 2,650 6.8
------- ------
$39,036 100.0%
======= ======
</TABLE>
Average occupancy was 85.9% in the fiscal years ended June 30, 1996 and
1995, and new beds were opened in both fiscal years. Excluding acquisitions and
newly constructed beds, the average occupancy was 88.4% in the fiscal year ended
June 30, 1996 and 89.0% in the fiscal year ended June 30, 1995. Summit's quality
mix (revenues from Medicare, managed care and private pay patients, including
pharmacy revenue) as a percentage of gross revenues was 66.6% in the fiscal year
ended June 30, 1996 and 63.3% in the fiscal year ended June 30, 1995.
Expenses, consisting of salaries and benefits, supplies, purchased
services, provision for doubtful accounts and other as a percent of net revenues
increased from 82.0% of net revenues in the fiscal year ended June 30, 1995 to
84.6% in the fiscal year ended June 30, 1996. Total salaries and employee
related benefits were 44.4% of net revenues in the fiscal year ended June 30,
1996 compared to 46.1% of net revenues in the fiscal year ended June 30, 1995.
Expenses increased $36,552 or 32.5% from $112,377 in the fiscal year ended June
30, 1995 to $148,929 in the fiscal year ended June 30, 1996 for the following
reasons:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
<S> <C> <C>
1. Rehabilitative and other speciality services....... $10,906 29.8%
2. Acquisitions in fiscal year 1995................... 10,454 28.6
3. Salaries and benefits.............................. 7,592 20.8
4. Expenses relating to new beds opened in fiscal
years 1995 and 1996.............................. 3,202 8.8
5. Other expenses..................................... 4,398 12.0
------- ------
$36,552 100.0%
======= ======
</TABLE>
57
<PAGE>
Income before rental, depreciation and amortization and interest expense,
net of interest income, increased $2,484 or 10.1% from $24,649 in the fiscal
year ended June 30, 1995 to $27,133 in the fiscal year ended June 30, 1996 and
was 15.4% of net revenues in the fiscal year ended June 30, 1996 compared to
18.0% in the fiscal year ended June 30, 1995.
Rental, depreciation and amortization and interest expense, net of interest
income, increased by $3,221 or 26.5% from $12,151 in the fiscal year ended June
30, 1995 to $15,372 in the fiscal year ended June 30, 1996. Substantially all of
this increase was due to depreciation and amortization, rent and interest
expense related to acquisitions and newly constructed beds in fiscal years 1995
and 1996.
Summit's effective tax rate was 37.9% of income in the fiscal year ended
June 30, 1996 and 39.9% of income in the fiscal year ended June 30, 1995. Net
income after taxes decreased $202 or 2.7% from $7,511 in the fiscal year ended
June 30, 1995 to $7,309 in the fiscal year ended June 30, 1996.
HISTORIC LIQUIDITY AND CAPITAL RESOURCES (DOLLARS IN THOUSANDS)
At June 30, 1997, Summit had $3,994 in cash and cash equivalents and
working capital of $12,648. For the fiscal year ended June 30, 1997, Summit's
cash and cash equivalents increased by $1,336 over the prior year.
Net cash provided by operating activities increased $11,149 from $6,866 for
the fiscal year ended June 30, 1996 to $18,015 for the fiscal year ended June
30, 1997. Net cash provided by operating activities, plus proceeds of $15,000 in
new long-term debt (see description below) were used principally for capital
expenditures of $24,075 for new and existing centers, the net reduction of loans
outstanding on the line of credit of $1,000, the purchase of a lease option for
$2,022, and the acquisition of a 50% interest in an institutional pharmacy for
$1,565.
Accounts receivable, less allowance for doubtful accounts, increased $5,819
due to increased total revenues in the fiscal year ended June 30, 1997 compared
to the prior year, primarily in Medicare and managed care revenues. At June 30,
1997, Summit's average accounts receivable days outstanding were 41, compared to
39 at June 30, 1996.
For the fiscal year ended June 30, 1997, Summit added $24,075 to its
property and equipment. These additions were primarily for the completion of a
210-bed SNF in Fort Worth, Texas, at a cost of $2,300, construction of a 66-bed
ALF in Orange, California, at a cost of $3,525, and the renovation of buildings
and replacement of furniture and equipment at the remaining centers and the
pharmacies, at a cost of $18,250.
These additions to property and equipment were primarily financed with
funds from $15,000 of Senior Secured Notes issued in July 1996 and with cash
generated from operations. The $15,000 funding represents the second and last
issuance of the $70,000 Senior Secured Notes. The initial funding of $55,000
occurred in December 1995.
Summit believes that it has sufficient cash flow from its existing
operations and from its bank line of credit to service long-term debt due within
one year of $6,997 (Summit intends to borrow this amount against its bank line
of credit which has a revolver extending to September 30, 1998 followed by a
three-year payment period), to make normal recurring capital replacements,
additions and improvements to existing centers of approximately $9,100 planned
58
<PAGE>
for the next twelve months, to develop properties costing approximately $3,000
over the next twelve months, to purchase a 111-bed center for $1,871 in
accordance with a purchase option in a lease and to meet other long-term working
capital needs and obligations. The loans outstanding on the line of credit at
June 30, 1997 were $5,000. Summit expects, on a selective basis, to pursue
expansion of its existing centers and the acquisition or development of
additional centers in markets where demographics and competitive factors are
favorable.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY FOLLOWING THE TRANSACTIONS
(DOLLARS IN THOUSANDS)
Interest payments on the Notes and any borrowings under the New Credit
Facility will represent significant liquidity requirements for the Company. Any
future borrowings under the New Credit Facility will bear interest at floating
rates and will require interest payments on varying dates depending on the
interest rate option selected by the Company. See "Description of Other
Indebtedness--New Credit Facility".
The Company's remaining liquidity demands will be primarily for capital
expenditures and working capital needs. The Company expects to spend
approximately $4.5 million on capital projects in 1998, with approximately $4.0
million of that amount representing maintenance-related capital expenditures.
The Company currently expects to spend a similar amount on capital expenditures
in fiscal 1999. The New Credit Facility and the Indenture will impose
restrictions on the Company's investments.
The Company's primary sources of liquidity are expected to be cash flows
from operations and borrowings under the New Credit Facility. See "Description
of Other Indebtedness--New Credit Facility". Approximately $16.0 million is
available to be drawn by the Company under the New Credit Facility. In addition,
the Company has approximately $14.0 million in revolving credit loans and $85.0
million in term loans outstanding under the New Credit Facility. See
"Description of Other Indebtedness--New Credit Facility".
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures and
any acquisitions will depend on its future performance, which, to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control. Based upon the current
level of operations and anticipated cost savings and revenue growth, management
believes that cash flow from operations and available cash, together with
available borrowings under the New Credit Facility, will be adequate to meet the
Company's future liquidity needs for at least the next several years. The
Company may, however, need to refinance all or a portion of the principal of the
Notes on or prior to maturity. There can be no assurance that the Company's
business will generate sufficient cash flow from operations, that anticipated
revenue growth and operating improvements will be realized or that future
borrowings will be available under the New Credit Facility in an amount
sufficient to enable the Company to service its indebtedness, including the
Notes, or to fund its other liquidity needs. In addition, there can be no
assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms or at all. See "Risk Factors".
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<PAGE>
BUSINESS
THE COMPANY
The Company is a leading operator of long-term care facilities and a
leading provider of a full continuum of post-acute care services, with a
strategic emphasis on sub-acute specialty medical care. The Company operates a
network of facilities in California, Texas and Arizona, including 44 SNFs that
offer sub-acute, rehabilitative and specialty medical skilled nursing care, as
well as six ALFs that provide room and board and social services in a secure
environment. In addition to long-term care, the Company provides a variety of
high-quality ancillary services such as physical, occupational and speech
therapy in Company-operated facilities, unaffiliated facilities and acute care
hospitals. The Company also operates three institutional pharmacies (one of
which is a joint venture), which service acute care hospitals as well as SNFs
and ALFs both affiliated and unaffiliated with the Company, an outpatient
therapy clinic and a DME company. The Company operates 50 facilities with
approximately 6,600 beds serving Medicare, Medicaid, managed care, private pay
and other patients.
Both Fountain View and Summit have demonstrated records of revenue growth,
increasing average census (occupancy) levels and improvements in quality mix
(defined as non-Medicaid revenues). During the five fiscal years ended 1997,
revenues for Fountain View and Summit increased at compound annual growth rates
of 13.1% and 27.1%, respectively. During the same period, average census levels
at Fountain View facilities increased from 87.0% to 89.3%, quality mix increased
from 58.4% to 72.9% and net income increased from $2.4 million to $5.2 million.
Average census levels at Summit facilities (excluding three facilities which
commenced operations or were renovated in 1996 or later) increased from 87.2%
for the year ended June 30, 1993 to 88.7% for the six months ended December 31,
1997, quality mix increased from 64.8% to 69.6% during the four fiscal years
ended 1997 and net income was $5.0 million for the year ended June 30, 1993 and
$2.8 million for the six months ended December 31, 1997. The Company had
revenues of $155.5 million, an average census level of 86.5% (excluding three
Summit facilities which commenced operations or were renovated in 1996 or
later), a quality mix of 64.3% and net income of $706,000 for the nine months
ended September 30, 1998.
Management believes that the Company's strong operating performance has
been supported by the Company's ability to (i) provide high-quality, high-acuity
care, (ii) utilize an efficient cost structure, (iii) operate a network of
attractive, modern facilities, (iv) maintain a leading market position and (v)
capitalize on the extensive experience of its management.
The Company intends to pursue a strategy of further increasing its revenues
and profitability by capitalizing on the relative strengths of Fountain View and
Summit. In implementing its strategy, the Company expects to (i) further
increase the proportion of revenues derived from high-acuity specialty medical
services, (ii) broaden the implementation of its cost-effective operating model,
(iii) expand its ancillary services businesses, (iv) pursue controlled expansion
through construction and acquisition-related growth, and (v) capitalize on
benefits derived from the Transactions.
COMPANY HISTORY
Fountain View was founded in 1964 and originally operated two nursing homes
in Los Angeles, California. Fountain View has expanded the size and scope of its
core long-term care business by acquiring facilities and by introducing
ancillary services to existing operations. Since 1982, the business has grown
from two facilities to nine, with each facility providing a
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broad array of specialty medical care. Fountain View was one of the first
operators of long- term care facilities to receive a contract with Medi-Cal to
provide sub-acute care and currently has 36 beds in two facilities dedicated to
providing Medi-Cal patients with sub-acute services (which are eligible for
significantly higher per diem reimbursement rates than standard Medi-Cal per
diem reimbursement rates). Fountain View's nine facilities have a total of 1,227
beds, of which 1,061 are dedicated to serving skilled nursing patients and 166
of which comprise an ALF. Each of Fountain View's facilities is located in close
proximity to a hospital, facilitating patient referrals. Many of Fountain View's
skilled nursing patients have been discharged from acute care hospitals and
require medically complex treatments. Fountain View has placed strategic
emphasis on providing higher-acuity care while simultaneously developing a cost-
effective operating model. Fountain View, through Locomotion Therapy, also
provides physical, occupational and speech therapy to unaffiliated nursing homes
and acute care hospitals as well as several Fountain View facilities. Fountain
View also owns an outpatient therapy clinic company and a DME business.
Summit was incorporated in 1981 as a wholly-owned subsidiary of Summit
Health Ltd., an operator of acute care hospitals. Summit provides diversified
nursing, specialty medical and sub-acute care at 36 owned or leased SNFs as well
as assisted living services at five ALFs located in California, Texas and
Arizona. Summit currently operates 36 SNFs with a total of 4,872 beds. Within
its SNFs, Summit has established separate units for specialty medical and sub-
acute care dedicated to patients requiring complex services such as
chemotherapy, pulmonary and cardiac care, wound care, respiratory therapy and
intensive physical, occupational and speech therapies. Summit also operates five
ALFs with a total of 475 beds which include certain beds designated as specialty
beds, primarily for early-stage Alzheimer's residents. Summit also operates two
institutional pharmacies in Southern California and owns a 50% interest in a
pharmacy in Texas through a joint venture. The pharmacies provide pharmaceutical
products and services to all of Summit's facilities as well as to unaffiliated
SNFs, ALFs and acute care hospitals in Southern California and Texas, including
certain Fountain View facilities.
INDUSTRY
In 1997, nursing home spending was approximately $85 billion and is
expected to reach more than $100 billion by the year 2000, representing an
average annual increase of approximately 6.1%. Demand for long-term care
facilities is expected to continue to increase substantially as the result of
cost containment initiatives, demographic and social trends as well as industry
consolidation.
COST CONTAINMENT INITIATIVES. During the past several years, Medicare
managed care enrollment has grown to more than 14% nationwide. The trend toward
managed care in the Medicare population is particularly evident in California,
where approximately 35% of Medicare enrollees were participating in a managed
care program during 1996. Cost containment initiatives developed by managed care
plans have contributed to shorter hospital stays for acute care patients.
Because acute care patients often still require medically complex treatments
following discharge from a hospital, management believes that SNFs will
experience increased demand for high-acuity services, which are typically
eligible for higher reimbursement rates. In addition, management believes that
certain SNFs will further develop the ability to offer attractive rates to
third-party payors for high-acuity specialty medical services primarily as the
result of the significantly lower overhead costs generated by SNFs relative to
acute care hospitals and hospital-based SNFs. Labor costs are also generally
lower in SNFs than in hospitals, which typically have higher staffing ratios,
higher salary structures, and significantly
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more administrative personnel, including nursing staff resources not fully
dedicated to providing care.
DEMOGRAPHIC TRENDS. Demand for long-term care services rises meaningfully
among persons over the age of 75, an age group that has been growing and is
projected to continue growing significantly faster than the overall population
according to the United States Bureau of the Census. This increase in the
elderly portion of the population reflects, among other things, improvements in
medical technology, disease prevention, nutrition and overall health
maintenance. The segment of the population over 85 years of age, which comprises
the largest percentage of long-term care residents, is the fastest- growing
segment of the population and is projected to increase by more than 19.4% from
approximately 3.6 million or 1.4% of the domestic population in 1995 to
approximately 4.3 million or 1.6% of the domestic population in the year 2000.
By 2010, the population of this segment is expected to be approximately 5.7
million, representing more than a 58% increase from 1995.
SOCIAL TRENDS. Two-income families often experience significant challenges
in providing home care for elderly relatives. Management believes that ALFs will
continue to experience increased demand as working families seek attractive
alternatives to home care for the elderly. Additionally, management believes
demand for higher-acuity services in long-term care facilities has contributed
to the perception of SNFs as an increasingly attractive alternative to a wide
range of potential patients.
INDUSTRY CONSOLIDATION. Currently, approximately 1.7 million people receive
care in approximately 17,000 long-term care facilities in the United States.
Market share data indicates that the industry is highly fragmented, with the 30
largest operators accounting for less than 25% of total beds. Management
believes that consolidation initiatives by industry participants have been
structured to achieve economies of scale and to create networks of facilities
that can be effectively marketed to managed care organizations. As a result,
management expects that consolidation will continue among smaller local
operators which lack sophisticated management information systems, high-acuity
services necessary to remain attractive to acute patients and the ability to
maintain strict compliance with complex regulations which govern the long-term
care industry.
COMPANY STRENGTHS
ABILITY TO PROVIDE HIGH-QUALITY AND HIGH-ACUITY CARE. Management believes
that the Company's strong operating performance has been supported by the
Company's ability to provide a broad range of high-quality, high-acuity services
which are generally more profitable than routine healthcare services. Pro forma
for the Transactions, revenues from sub-acute and specialty medical care would
have represented 55% of the Company's total revenues for the year ended December
31, 1997. The Company currently serves Medicare, Medicaid, managed care, private
pay and other patients by providing a continuum of sub-acute and specialty
medical care, which consists of ventilator services, tracheotomy care, multiple
intravenous therapy, chemotherapy, enteral/parenteral nutrition, end-stage renal
disease care, blood transfusions, dialysis, wound care, rehabilitation services,
pharmacy services and the provision of durable medical equipment. In addition,
both Fountain View and Summit have responded to the increased demand for
Alzheimer's care by broadening their specialty medical care to include
Alzheimer's units in a total of 21 facilities.
Management believes that the Company's facilities provide services similar
to those provided in acute care hospitals for approximately 40% to 60% of the
costs generated by acute care hospitals in providing such services. As a result,
management believes the Company will
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increase revenues by continuing to attract managed care payors and is well-
positioned to benefit from growing managed care enrollment levels.
EFFICIENT OPERATOR AND COST-EFFECTIVE PROVIDER. Management believes it has
developed significant expertise in delivering high-quality, high-acuity care
through the implementation of an efficient and cost-effective operating model.
Developed within the Fountain View network of facilities, management believes
this model has produced high levels of efficiency and facility-level EBITDAR
through the application of specific operating initiatives. EBITDAR is not a
measurement of operating performance computed in accordance with generally
accepted accounting principles and should not be considered as a substitute for
operating income, net income, cash flows from operations, or other statement of
operations or cash flow data prepared in conformity with generally accepted
accounting principles, or as a measure of profitability or liquidity. Similar to
EBITDA, management views EBITDAR as a financial indicator of a company's ability
to service or incur debt. A majority of Fountain View's nursing homes are
leased, under operating leases, and not owned. Accordingly, EBITDAR is used
since the rent expense approximates the interest and depreciation expense
Fountain View may have incurred as if the nursing homes were owned as opposed to
leased. Management intends to expand its cost-effective operating model to
maximize profitability and the quality of care provided across the Company's
entire facility network.
ATTRACTIVE, MODERN FACILITY NETWORK. Management believes the Company's
facilities are in excellent aesthetic and operational condition as the result of
recent comprehensive construction and renovation initiatives. Summit has
expended more than $180 million over the past five years constructing,
acquiring, expanding and upgrading facilities, and Fountain View has spent more
than $4 million on facility improvements during the past two years.
Approximately 80% of the Company's facilities were either constructed or
renovated within the past three years. Management believes the Company's
attractive and modern facility network will continue to support high average
census and quality mix levels. In addition, management believes that the
Company's recent construction and renovation initiatives will facilitate
improvements in operating efficiency and reductions in maintenance capital
expenditure levels. The Company owns 60% of its facilities (representing 61% of
its beds) and holds options to purchase an additional 10% of its facilities,
providing the Company with an attractive asset base, enhanced credit quality and
increased financial flexibility.
LEADING MARKET POSITION. Management believes the Company will operate as a
leading provider of long-term and specialty medical care in several Southern
California and Texas markets. The Company's Southern California facilities are
strategically located in geographically clustered networks which management
believes are particularly attractive to managed care organizations. Management
believes the Company is well-positioned to benefit from California's rapidly
increasing managed care enrollment levels, which included 35% of Medicare
enrollees during 1996 as compared to a nationwide enrollment level of 14% as of
July 1997. The Company also expects that the increased density of its Southern
California market presence as a result of the Transactions will result in
heightened brand awareness, expanded referral networks, operating and
administrative economies of scale as well as improved purchasing economies.
In addition to the Company's geographically clustered networks in Southern
California, the Company operates a broad network of facilities in small to mid-
size markets in Texas. Management believes the Company's Texas facilities are
located in several demographically attractive markets and are generally
characterized by leading market positions. In addition to the Company's strong
local market presence in both Southern California and Texas, management believes
the Company will be subject to a relatively low level of direct competition
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from any single large competitor due to the considerable fragmentation which
characterizes the Company's markets.
STRONG MANAGEMENT TEAM. Mr. Scott, the Chairman of the Company, and Mr.
Snukal, the Chief Executive Officer of the Company, together have more than 43
years of senior management experience in the long-term care industry in Southern
California and Texas. Mr. Scott has supervised significant expansion in the
number of Summit's facilities and services through strategic acquisitions and
construction. Mr. Snukal has demonstrated expertise in developing Fountain
View's ability to provide specialty medical and sub-acute care in a cost-
effective manner, and achieving strong facility-level operating and financial
performance. Both Mr. Scott and Mr. Snukal will maintain significant involvement
in the daily operations of the Company and have made significant equity
contributions to the Company in connection with the Transactions. See
"Prospectus Summary--The Transactions".
BUSINESS STRATEGY
FURTHER INCREASE PROPORTION OF REVENUES DERIVED FROM SPECIALTY MEDICAL
CARE. The Company intends to leverage its existing specialty medical
infrastructure, further increasing the proportion of total revenues derived from
specialty medical care. On a pro forma basis for the twelve months ended
December 31, 1997, specialty medical revenues represented 55% of total revenues.
Services comprising specialty medical care generally represent the most
profitable types of services offered by long-term care providers since such
services are reimbursed at higher rates than routine skilled nursing care and
basic assisted living services. As a result of the trend toward shorter hospital
stays by patients who require medically complex treatments and in order to
deliver the highest quality care possible to its residents, the Company has
developed significant expertise and experience caring for high-acuity patients.
The Company's ability to provide high-acuity specialty medical and sub-acute
care in its own facilities generates substantial revenue for the Company and
benefits managed care payors by reducing hospital costs and by eliminating costs
incurred by transferring patients to acute care hospitals to receive specialty
medical care.
BROADEN IMPLEMENTATION OF COST-EFFECTIVE OPERATING MODEL. Management
intends to expand the Company's cost-effective operating model to maximize
profitability and the quality of care provided across the Company's facilities.
Management believes that expanded implementation of a well- designed and well-
monitored operating model will enhance the quality and consistency of care
delivered and improve profitability by simplifying procedures for administering
care.
EXPAND ANCILLARY SERVICES. The Company intends to increase the penetration
of its therapy and pharmacy businesses within both affiliated and unaffiliated
facilities. Ancillary services generally have produced higher revenues and
profitability than routine long-term care services. The Company currently
provides rehabilitative physical, occupational and speech therapy through
Locomotion Therapy. Locomotion Therapy generated $19.7 million of revenues for
the year ended December 31, 1997, providing services to unaffiliated nursing
homes and acute care hospitals under 97 contracts and to eight Fountain View
facilities. Management expects Locomotion Therapy to expand its provision of
services to Summit facilities, which purchased approximately $34 million of
therapy services from nonaffiliates during fiscal 1997. The Company also intends
to pursue increased "bundling" of ancillary services, offering a unique package
of rehabilitative and pharmacy services to unaffiliated facilities in a cost-
efficient manner. In addition to providing ancillary therapy services, the
Company operates three institutional pharmacies (one of which is a joint
venture), a DME company and an outpatient therapy clinic through its subsidiary,
On-Track. Several of Summit's facilities have existing,
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unoccupied space allocated to outpatient therapy services which the Company
expects to utilize for the expansion of services provided by On-Track.
PURSUE CONTROLLED EXPANSION THROUGH CONSTRUCTION AND ACQUISITION-RELATED
GROWTH. The Company intends to acquire and construct facilities selectively in
strategic locations which will facilitate operating efficiencies through
economies of scale, will generate marketing synergies through further expansion
of relationships and contracts with hospitals, physicians and physician groups
and will lead to reduced overhead expenditures. The Company expects to acquire
or construct new beds and facilities in a cost-effective manner, including
expansion initiatives which utilize real estate currently owned by the Company.
The Company currently owns properties adjacent to several facility locations
which management believes can support the construction of approximately 1,400
additional beds at reduced cost levels relative to the expense associated with
acquisition and development of new real estate.
CAPITALIZE ON BENEFITS DERIVED FROM THE TRANSACTIONS. As a result of the
Transactions, management believes the Company will be able to realize
significant cost savings. As a result of the Company's contiguous geographic
locations in several Southern California markets, management intends to
eliminate specifically identified corporate expenses and leverage administrative
resources across facilities. Management believes the Company will be able to
reduce its cost of food, sanitary and medical supplies as a result of improved
purchasing power and expects the Company to realize marketing and referral
benefits as a result of the increased geographic density of the Company's
clustered facilities. In addition, the Company expects to expand its provision
of services through Locomotion Therapy to Summit facilities, which purchased
approximately $34 million of therapy services from nonaffiliates during 1997.
SERVICES
BASIC HEALTHCARE SERVICES
Basic healthcare services refer to skilled nursing care and assisted living
services. The Company provides skilled nursing care in each of Fountain View's
eight SNFs and in each of Summit's 36 SNFs (which collectively have 5,933 beds).
Skilled nursing care consists of 24-hour care by registered nurses, licensed
practical or vocational nurses and certified aides, as well as room and board,
special nutritional programs, social services, recreational activities and
related medical and other services that may be prescribed by a physician.
Assisted living services include general services provided by Fountain View in
its ALF and by Summit in its five ALFs, all of which are located in California
and which collectively have 641 beds. These services consist of basic room and
board, social activities and assistance with activities of daily living such as
dressing and bathing.
SPECIALTY MEDICAL CARE
The Company provides specialty medical care, including a wide range of sub-
acute services, to patients with medically complex needs who generally require
more intensive treatment and a higher level of skilled nursing care. These
services represent an area of strategic emphasis for the Company and typically
generate higher profit margins than basic healthcare services.
SUB-ACUTE CARE. The Company provides a wide range of sub-acute services to
patients with medically complex needs, including the following:
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COMPLEX MEDICAL CARE. The Company provides complex medical care to
those patients who require a combination of medical treatments. Complex
medical needs often include the administration of intravenous medications
for various conditions, such as fluids for hydration, diuretics for
congestive heart failure, antibiotics for the treatment of infection, anti-
coagulants to prevent clotting or pain control for cancer patients.
Patients requiring complex medical care have typically undergone surgical
procedures ranging from common joint replacements to organ transplants, and
require close monitoring.
MULTIPLE INTRAVENOUS MEDICATIONS. A variety of intravenous medications
are administered to patients through several types of venous access. The
Company's licensed nurses are intravenous therapy certified and skilled in
initiating and handling central and peripheral lines for intravenous
medications.
BLOOD TRANSFUSIONS. The Company provides blood transfusions to post-
surgical patients with severe and unresolved anemia. Blood products for
transfusion are obtained through a contract with the American Red Cross.
CHEMOTHERAPY. The Company provides chemotherapy to patients in
accordance with instructions by attending hematologists/oncologists for the
treatment of various cancers. Chemotherapy requires strict and careful
handling of highly toxic chemotherapy agents.
DIALYSIS. Peritoneal dialysis is typically provided to younger
patients who can perform their own dialysis treatments, utilizing
specialized solutions which are introduced through a peritoneal cavity
port. Whenever possible, patients are taught to perform the procedure
themselves upon discharge from the Company's facility. In addition, the
Company provides hemodialysis to qualified patients.
WOUND CARE PROGRAMS. Wound care programs address the needs of patients
suffering from post-operative wounds, including stoma and ostomy care, and
the care of amputees. Treatment for surgical wounds includes the prevention
of post-operative infections and the removal of surgical staples. The
Company also treats patients for existing infections, including the
treatment of antibiotic resistant micro-organisms with multiple intravenous
antibiotics.
Physical therapists aid in the debridement of necrotic wounds with jet
lavage or pulsed irrigation and whirlpool treatments. Electrical
stimulation is used to encourage the growth of healthy tissue.
ENTERAL/PARENTERAL NUTRITION. Patients who are unable to eat for
various reasons may receive enteral or parenteral feeding. The Company's
registered dietitians periodically review the nutritional needs of each
patient.
TRACHEOTOMY CARE. The Company provides care to patients who, due to
any number of conditions, cannot maintain a clear or adequate airway and
have undergone a tracheotomy. These patients often require mechanical
ventilator support. All such patients require frequent suctioning and
humidified oxygen and aggressive pulmonary rehabilitation.
VENTILATOR CARE. Many patients who have undergone a tracheotomy also
require mechanical ventilation. In treating such patients, the Company
utilizes a ventilator which mechanically regulates the breathing function
of the patient by dictating the volume
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and/or the rates of inhalation and exhalation. The Company's licensed
nurses and respiratory therapists oversee a ventilator weaning program
under the direction of a pulmonologist.
ALZHEIMER'S CARE. The Company's dedicated Alzheimer's units provide care
for patients with Alzheimer's disease and severe dementia. This type of care is
designed to reduce the stress and agitation associated with Alzheimer's disease
by addressing the problems of short attention spans and hyperactivity. The
physical environment of the Company's units is designed to address the problems
of disorientation and perceptual confusion experienced by Alzheimer's sufferers.
THERAPY SERVICES. Many of the Company's patients that have undergone
orthopedic surgeries, including joint replacements such as total hip or knee
replacements or fractures, receive physical therapy. The Company's physical
therapists also perform wound care and utilize electric stimulation to stimulate
viable tissue regrowth. Occupational therapy addresses functional skills of the
upper body and all aspects of self-care. The Company also provides range of
motion and strengthening exercises for contracture prevention and reduction.
Speech therapists treat patients with speech disorders, perceptual problems,
cognitive problems, and swallowing problems. In coordination with the efforts of
the Company's nursing staff and respiratory therapists, speech therapists help
tracheotomy and ventilator patients use speaking valves and breathing methods
which allow them to communicate with others.
During 1997, Locomotion Therapy provided rehabilitative physical,
occupational and speech therapy to unaffiliated nursing home operators and acute
care hospitals under 97 contracts, as well as to eight Fountain View facilities,
using a progressive, personalized treatment approach to promote the resident's
highest level of independence in mobility and strength. Historically, a
majority of Fountain View's therapy services has been provided by Locomotion
Therapy, which employs approximately 150 therapists licensed in various
specialties who are assigned to facilities based on the types of contract
services requested and the specialization of the therapists. Throughout the
duration of the contract, the selected therapist functions as the resident
therapist for a particular facility.
Summit has also provided rehabilitative care in each of its 36 SNFs through
the use of outside contractors. Historically, Summit has monitored the
rehabilitative care provided in each Summit facility through the use of in-house
supervisory therapists and therapy administration.
PHARMACIES. The Company provides pharmaceutical products and services
through two institutional pharmacies in Southern California. The Company also
owns a 50% equity interest in a limited liability company that operates a
pharmacy in Austin, Texas, which services Summit facilities in Texas as well as
several unaffiliated facilities. These pharmacies service 86 unaffiliated SNFs,
ALFs and acute care hospitals located throughout much of Southern California and
in certain Texas markets, as well as all of Summit's and several of Fountain
View's SNFs and ALFs. The Company's pharmacies, historically operated by Summit,
provide prescription drugs, intravenous products, enteral nutrition therapy
services and infusion therapy services, including nutrition, pain management,
antibiotics and hydration.
OUTPATIENT THERAPY CLINICS. The Company's On-Track subsidiary provides
physical therapy services to the outpatient community through a facility in
Fresno, California. The Company intends to open additional facilities in
underserved markets where it has existing relationships with doctors and
currently provides physical therapy services to nursing homes through Locomotion
Therapy. Several of Summit's Texas facilities have excess capacity
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intended for outpatient clinics which the Company expects to utilize for the
expansion of services provided by On-Track.
DURABLE MEDICAL EQUIPMENT. The Company provides various types of durable
medical equipment to Fountain View-owned facilities, as well as unaffiliated
facilities, through a subsidiary. The types of equipment and supplies provided
include enteral feeding supplies, poles and pumps (on a rental basis),
catheterization equipment and orthotics.
SOURCES OF REVENUE
The Company's SNFs receive payment for healthcare services from federally
assisted Medicaid programs, Medicare, programs operated by preferred provider
organizations, health maintenance organizations, the Veterans Administration and
directly from patients or their responsible parties or insurers. The Company's
ALFs receive payment exclusively from private individuals, some of whom depend
upon supplemental Social Security payments as a primary source of income. The
sources and amounts of the Company's revenues are and will continue to be
determined by a number of factors, including the licensed bed capacity of its
facilities, occupancy rate, quality mix, the type of services rendered to the
patient and the rates of reimbursement among payor categories (primarily
private, Medicare and Medicaid).
The following table sets forth for Fountain View's SNFs, ALFs and therapy
operations the approximate percentages of net revenues derived from the various
sources of payment for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Managed care and private pay, including Locomotion Therapy... 46.6% 47.5% 44.2%
Medicare..................................................... 20.3 19.6 25.6
Medi-Cal Sub-Acute........................................... 0.3 2.6 3.1
----- ----- -----
Subtotal (Quality Mix)................................ 67.2 69.7 72.9
Medi-Cal..................................................... 32.8 30.3 27.1
----- ----- -----
Total................................................. 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
The following table sets forth for Summit's SNFs, ALFs and pharmacy
operations the approximate percentages of total revenues derived from the
various sources of payment for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Managed care and private pay.......................... 33.8% 31.9% 29.9%
Medicare.............................................. 29.5 34.7 39.7
----- ----- -----
Subtotal (Quality Mix)......................... 63.3 66.6 69.6
Medi-Cal.............................................. 36.7 33.4 30.4
----- ----- -----
Total.......................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Changes in the quality mix between Medicaid (known as Medi-Cal in
California), on the one hand, and either Medicare, managed care or private pay,
on the other hand, can significantly affect profitability. Quality mix
represents revenues from Medicare, Medi-Cal sub-acute, managed care, and private
pay patients as a percentage of revenues. Medicare, Medi-Cal sub- acute, managed
care and private pay patients constitute the most profitable categories of
patient mix and Medicaid patients the least profitable. Management believes the
Company has maintained an attractive and improving high quality mix. In
addition, the Company's average reimbursement rate per patient day for Medicare
patients has increased more rapidly than for Medicaid patients, reflecting the
increasing acuity level of the services
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provided by the Company. Services provided to Medicare patients generate a
higher level of revenue per patient day at margins that generally exceed the
level of profitability associated with services provided to Medicaid patients.
However, the Company's profitability has not correlated directly with revenue
growth, reflecting the additional costs associated with providing the higher
level of care and other services required by high-acuity Medicare patients.
QUALITY MIX, PATIENT MIX AND OCCUPANCY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------
FOUNTAIN VIEW SUMMIT COMPANY
-------------- ------ -------
<S> <C> <C> <C>
QUALITY MIX
Managed care and private pay, including Locomotion
Therapy............................................. 44.2% 30.5% 33.4%
Medicare............................................. 25.6 38.5 35.8
Medi-Cal sub-acute................................... 3.1 --- 0.6
----- ----- -----
Total (Quality Mix)............................. 72.9 69.0 69.8
Medicaid............................................. 27.1 31.0 30.2
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
PATIENT MIX
Managed care and private pay......................... 17.3 36.8 33.4
Medicare............................................. 9.0 9.1 9.1
Medi-Cal sub-acute................................... 2.2 --- 0.4
----- ----- -----
28.5 45.9 42.9
Medicaid............................................. 71.5 54.1 57.1
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
OCCUPANCY............................................ 89.0% 86.0% 89.0%
</TABLE>
The Company's contract therapy services are provided predominantly by
Locomotion Therapy. Contract therapy revenues, after intercompany eliminations,
represented $17.7 million, or 26.1%, of Fountain View's fiscal 1997 revenues
and, on a pro forma basis after giving effect to the Transactions, would have
represented 6.2% of the Company's revenues for the year ended December 31, 1997.
The Company's pharmacy services are derived from the three institutional
pharmacies historically operated by Summit (one of which is a joint venture).
Pharmacy revenues represented $20.4 million, or 10.3%, of Summit's fiscal 1997
revenues and, on a pro forma basis after giving effect to the Transactions,
would have represented 7.1% of the Company's revenues for the year ended
December 31, 1997.
The Company's DME business is provided by a Fountain View subsidiary. DME
revenues represented approximately $3.0 million, or 4.4%, of Fountain View's
fiscal 1997 revenues and, on a pro forma basis after giving effect to the
Transactions, would have represented 1.0% of the Company's revenues for the year
ended December 31, 1997.
COMPLIANCE PROGRAM
Historically, senior management of the Company has supervised the Company's
compliance with applicable laws and regulations. The Company is in the process
of developing and implementing an enhanced compliance program to facilitate the
integration of Fountain View and Summit. In the past several years, federal and
state governments have increased their scrutiny of healthcare providers with
regard to compliance with applicable laws and regulations. The Accountability
Act and the Balanced Budget Act have provided the federal
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government with increased funding for this initiative as well as a broader range
of penalties available for violation of applicable laws and regulations. See "--
Government Regulations". Management believes that compliance programs are
advisable, particularly in the current environment of stricter government
enforcement in the healthcare industry. The OIG has released guidelines
applicable to compliance programs for laboratories and hospitals, but has not
yet developed a model compliance program or compliance program guidelines for
the long-term care industry. Given the federal government's current fraud and
abuse initiatives however, including Operation Restore Trust which focuses on
the long-term care and home health industry, management believes that a
compliance program will give the Company an additional layer of protection and
assurance in a heavily regulated and continuously evolving industry. Management
believes that an effective compliance program should maximize the Company's
ability to detect and prevent potential infractions of applicable law (thus
reducing the risk of a qui tam, or "whistleblower", action against the Company
for infractions that were not timely detected and addressed) and may be used to
resolve any infractions that do occur in a consistent and organized fashion.
Further, the existence of an effective compliance program may be taken into
account by the government to reduce any fines or penalties incurred by the
Company for infractions or violations of applicable law or regulation.
Management intends to develop and implement a compliance program that will
involve the appointment of a compliance officer, who will report directly to the
Company's board of directors and Chief Executive Officer, to assist in the
development, implementation and maintenance of the compliance program. The
Company anticipates that the compliance program will include policies and
procedures applicable to all Fountain View and Summit facilities and will
address all aspects of compliance with government requirements, including, among
others, licensing obligations, quality of care, documentation requirements,
billing and coding requirements, regulations regarding relationships with
physicians and other healthcare providers, and federal and state reporting
obligations. It is anticipated that the Company's compliance program will
establish formal training requirements for all Company employees in areas
applicable to individual job functions, as well as general training regarding
criteria and requirements for participation in federal government healthcare
programs. Management intends to establish a Company-wide hotline pursuant to
which any employee may report activity that does not conform to current
standards. Further, the Company anticipates that the existence of a compliance
program will assist it in integrating all Fountain View and Summit facilities
into a consistent Company-wide infrastructure, thereby facilitating operational
and management economies of scale.
QUALITY ASSURANCE
The Company is committed to providing its patients with the highest
possible standard of quality of care. To this end, both Fountain View and Summit
have in place a Quality Assurance department consisting of registered nurses who
routinely visit the Company's facilities and conduct quality assurance tests to
ensure the consistently high quality of care provided in each facility. Further,
Quality Assurance personnel conduct regular training for the nursing and other
staff of each facility. The Company intends to consolidate the Quality Assurance
departments of Fountain View and Summit in order to continue their tradition of
providing the highest possible quality of care. In addition, the Company intends
to develop and implement a compliance program that will address, in part,
quality of care issues. See "--Compliance Program".
The Company is in the process of obtaining accreditation by the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO") for each of
its facilities. As of March 1, 1998, twelve of the Company's 44 SNFs are JCAHO
accredited or are awaiting formal declaration of such accreditation, with the
remainder of the facilities slated for JCAHO
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accreditation review in the next 24 months. Management believes that the
Company's JCAHO accreditation will assist the Company in obtaining and
maintaining high occupancy rates at its facilities and demonstrates its
commitment to a high standard of quality of care.
MARKETING
The Company's sales and marketing efforts are directed toward improving
overall occupancy and quality mix by maximizing the number of private pay,
managed care and Medicare patients on each facility's census. The Company
believes that the selection of a long-term care facility is strongly influenced
by word-of-mouth marketing and referrals from physicians, hospital discharge
planners, community leaders and family members. Therefore, the Company's
marketing strategy is focused at the local level, and the administrator,
admissions coordinator and other personnel at each facility are responsible for
contacting potential referral sources. Case managers at certain facilities
actively market services to managed care organizations. Regional marketing
directors support and coordinate sales and marketing efforts. The Company
maintains a sales and marketing information system to monitor the results of its
strategy.
GOVERNMENT REGULATIONS
LICENSURE. The Company's SNF, ALF, sub-acute and specialty medical service,
therapy, pharmacy and DME supplies businesses are subject to various regulatory
and licensing requirements of state and local authorities in California, Texas
and Arizona. Each SNF is licensed by either the California Department of Health
Services, the Texas Department of Human Services or the Arizona Department of
Health Services, as applicable. Each ALF is licensed by the California
Department of Social Services and the pharmacies are licensed by the California
Board of Pharmacy and the Texas State Board of Pharmacy. All licenses must be
renewed annually, and failure to comply with applicable rules, laws and
regulations could lead to loss of licenses. In granting, monitoring and renewing
licenses, these agencies consider, among other things, the physical condition of
the facility, the qualifications of the administrative and nursing staffs, the
quality of care and compliance with applicable laws and regulations. Such
regulatory and licensing requirements are subject to change, and there can be no
assurance that the Company will continue to be able to maintain necessary
licenses or that it will not incur substantial costs in doing so. Failure to
comply with such requirements could result in the loss of the right to payment
by Medicare or Medicaid as well as the right to conduct the business of the
licensed entity. Further, the facilities operated by the Company are subject to
periodic inspection by governmental and other regulatory authorities to assure
continued compliance with various standards and to provide for their continued
licensing under state law and certification under the Medicare and Medicaid
programs.
From time to time, the Company receives notices from federal and state
regulatory agencies relating to alleged deficiencies for failure to comply with
all components of the regulations. Facilities which are not in substantial
compliance and do not correct deficiencies within a certain time frame may be
subject to civil money penalties and/or terminated from the Medicare and/or
Medicaid programs. While the Company endeavors to comply with all applicable
regulatory requirements, from time to time certain of the Company's nursing
facilities have been subject to various sanctions and penalties as a result of
deficiencies alleged by HCFA or state survey agencies. While in certain
instances denial of certification or licensure revocation actions have been
threatened, none have been implemented. There can be no assurance, however, that
the Company will not be subject to sanctions and penalties in the future as a
result of such actions.
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MEDICARE AND MEDICAID. The Company's SNFs are subject to various
requirements for participation in government-sponsored healthcare funding
programs such as Medicare and Medicaid. To receive Medicare and Medicaid
payments, each facility must also comply with a number of rules regarding
charges and claims procedures, the violation of which can result in denial of
reimbursement. Medicare is a health insurance program operated by the federal
government for the aged and certain chronically disabled individuals. Medicare
benefits are not available for the costs of intermediate and custodial levels of
care including but not limited to residence in ALFs; however, medical and
physician services furnished to patients requiring such care may be reimbursable
under Medicare.
Currently, the Medicare program utilizes a cost-based reimbursement system
for free-standing SNFs which, subject to limits fixed for the particular
geographic area on the costs for routine services (excluding capital related
expenses), reimburses SNFs for reasonable direct and indirect allowable costs
incurred in providing services (as defined by the Medicare program). Allowable
costs normally include administrative and general costs, as well as operating
costs and rental, depreciation and interest expenses. Reimbursement is subject
to retrospective audit adjustment. An interim rate based upon estimated costs is
paid by Medicare during the cost reporting period and a cost settlement is made
following an audit of the actual costs as reported in the filed cost report.
Such adjustments may result in additional payments being made to the Company or
in recoupments from the Company. The Company maintains reserves to cover
retroactive audit adjustments. To the extent that the Company's costs exceed
certain limits known as the Medicare Routine Cost Limits, the Company may submit
exception requests seeking reimbursement for such excess costs from Medicare. To
date, Summit has filed three exception requests and has received approval on all
three. Fountain View has not filed any exception requests to date. There is no
assurance the Company will be able to recover such excess costs on any future
requests. If the Company files exception requests on a regular basis in the
future and fails to recover the excess costs covered by such requests, such
failure could adversely affect the Company's financial position and results of
operations. However, exception requests will no longer be necessary upon
implementation of PPS, as discussed more fully below.
Fiscal intermediaries also occasionally undertake a more in-depth audit of
a facility's billing records. In March 1997, one of Summit's facilities was the
subject of a Medicare billing audit by its fiscal intermediary, resulting in a
finding that approximately $1,500,000 of charges for SNF services (after cost
report settlement and subject to downward adjustment) lacked a timely
certification of medical necessity by a physician. Summit has repaid such
charges against reimbursement of current claims. Following this audit, Summit
adopted measures to strengthen its documentation relating to physician
certification. While the Company does not believe that it is the target of any
other focused reviews, there can be no assurance that substantial amounts will
not be expended by the Company in connection with any such audit or to defend
allegations arising therefrom. If it were found that a significant number of the
Company's Medicare claims failed to comply with Medicare billing requirements,
the Company could be materially adversely affected.
The Balanced Budget Act requires the establishment of a prospective payment
system, or PPS, for Medicare SNFs under which facilities will be paid a federal
per diem rate for virtually all covered SNF services in lieu of the current
cost-based reimbursement rate. PPS for SNFs will be phased in over three cost
reporting periods, starting with cost reporting periods beginning on or after
July 1, 1998. For fiscal year 1999, the actual per diem is calculated as a blend
of 75% facility-specific costs and 25% of the federal rate applicable to all
SNFs. For fiscal year 2000, the per diem is blended at 50% facility-specific
and 50% federal, for fiscal year 2001, the per diem is blended at 25% facility-
specific and 75% federal, and for fiscal year 2002 and
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beyond, the per diem is equal to 100% of the federal rate. Further, as part of
PPS, SNFs are required to implement "consolidated billing" for certain services
beginning in fiscal year 1999. Remaining services, with the exception of
specifically excluded services such as physician and nurse practitioner
services, will be subject to consolidated billing in the future upon notice from
HCFA. Consolidated billing requires that SNFs be responsible for billing all but
specifically excluded services provided to Medicare residents. Prior to
consolidated billing, vendors who contracted with SNFs to provide Medicare-
covered services, such as therapy services, billed Medicare independently for
those services. Under consolidated billing, SNFs will be responsible for billing
for most such services and, consequently, directly compensating their vendors
for services provided to Medicare residents. Because the SNF PPS is in the
process of being phased in and its actual impact still uncertain, there can be
no assurance that the Company's revenues under PPS will be sufficient to cover
its costs to operate its facilities.
In addition, prior to the enactment of the Balanced Budget Act, federal law
required state Medicaid programs to reimburse SNFs for costs incurred by
efficiently and economically operated providers in order to meet quality and
safety standards. The Balanced Budget Act repealed this payment standard,
effective for services provided on or after October 1, 1997, thereby granting
states greater flexibility in establishing payment rates. There can be no
assurance that budget constraints or other factors will not cause states to
reduce Medicaid reimbursement to SNFs or that payments to SNFs will be made on a
timely basis. Any such efforts to reduce Medicaid payment rates or failure of
states to meet their Medicaid obligations on a timely basis would have a
material adverse effect on the Company.
Current Medicare regulations applicable to transactions between related
parties, such as the Company's subsidiaries, are relevant to the amount of
Medicare reimbursement that the Company is entitled to receive for goods and
services which are charged to the Medicare program. The amount charged on
related party transactions is dependent upon whether or not the related party
exception applies. For transactions between each provider and the applicable
related party which do not qualify for the related party exception, the
transaction is recorded at cost and no profit may be earned by the related
party. For transactions which do qualify for the related party exception, the
transaction is recorded at fair market value. In order for transactions to
qualify as an exception to the related party rule, the following conditions must
be met: (i) the related party must be a bona fide organization; (ii) a
substantial part of the services of each such related party must be transacted
with non-affiliated entities, and there must be an open, competitive market for
such services; (iii) the services provided by each such entity commonly are
obtained by a provider from other organizations, and are not a basic element of
patient care provided by such facilities; and (iv) the prices charged to the
provider by such entities are in line with the charges for such services in the
open market, and no more than the prices charged by such entities under
comparable circumstances to non-affiliated entities. The Company believes that
it satisfies the requirements for exception to the related party rules in
transactions between its long-term care facilities and its therapy, DME and
pharmacy subsidiaries. If, however, the Company has failed or, in the future,
fails to satisfy regulations for the related party exception with respect to
inter-corporate transactions, the Medicare reimbursement that the Company
received or will receive could be reduced, and as a result, the Company's
financial condition could be materially and adversely affected.
The Company's financial condition and results of operations may also be
affected by the revenue reimbursement process, which in the Company's industry
is complex and can involve lengthy delays between the time that revenue is
recognized and the time that reimbursement amounts are settled. Net revenues
realizable under third-party payor agreements are subject to change due to
examination and retroactive adjustment by payors during the settlement process.
Payors may disallow, in whole or in part, requests for reimbursement based on
determinations
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that certain costs are not reimbursable or because additional supporting
documentation is necessary. The majority of third-party payor balances are
settled within two to three years following provision of services. The Company's
results of operations would be materially and adversely affected if the amount
actually received from third-party payors in any reporting period differed
materially from the amounts accrued in prior periods. The Company's financial
condition and results of operations may also be affected by the timing of
reimbursement payments and rate adjustments from third-party payors (for
example, Medi-Cal has in the past exposed providers to payment delays, thus
affecting reimbursement).
THERAPY REGULATION. The Company furnishes therapy services on a contract
basis to certain affiliated and unaffiliated providers. For Medicare patients,
the providers bill the Medicare program for reimbursement of the amounts paid to
the Company for these services. HCFA has the authority to establish limits on
the amount Medicare reimburses for therapy services. For services other than
inpatient hospital services, these limits are equivalent to the reasonable
amount that would have been paid if provider employees had furnished the
services. HCFA has exercised this authority by publishing "salary equivalency
guidelines" for physical therapy, respiratory therapy, speech language pathology
and occupational therapy services. On January 30, 1998, HCFA issued a final
regulation, effective April 1, 1998, that will revise the pre-existing salary
equivalency guidelines for physical therapy and respiratory therapy and
establishes, for the first time, salary equivalency guidelines for speech
language pathology and occupational therapy services. HCFA estimates that the
regulation will increase the reimbursement rates for physical therapy by 35% and
for respiratory therapy by 10%. In contrast, however, HCFA expects the salary
equivalency rates for occupational therapy and speech language pathology to
reduce current reimbursement rates by 40% and 25%, respectively. The salary
equivalency guidelines will not apply to SNFs that are paid under PPS, which is
being phased-in by Medicare, as discussed above. Management cannot predict the
effect the salary equivalency guidelines will have on the Company.
PHARMACY REGULATION. The Company's pharmacies are subject to a variety of
state licensing and other laws governing the storage, handling, sale or
dispensing of drugs, and the provision of a duly licensed pharmacist in each
pharmacy, in addition to federal regulation under the Food, Drug and Cosmetic
Act and the Prescription Drug Marketing Act. Moreover, the Company is required
to register its pharmacies with the United States Drug Enforcement
Administration, and to comply with requirements imposed by that agency with
respect to security and reporting of inventories and transactions. Medicare pays
for the costs of prescription drugs furnished in a number of different settings
under very limited circumstances. The California and Texas Medicaid programs
reimburse pharmacies for drugs supplied to patients based on the cost of the
drug plus an additional amount which varies depending on the type of drugs
supplied.
OUTPATIENT THERAPY REGULATION. Outpatient therapy services are currently
reimbursed on a per visit basis, subject to cost limits established by HCFA for
the given type of therapy provided to the patient. The Balanced Budget Act
contains provisions affecting outpatient rehabilitation agencies and providers,
including a 10% reduction in operating and capital costs for 1998, a fee
schedule for therapy services beginning in 1999, and the application of per
beneficiary therapy caps currently applicable to independent therapists to all
outpatient rehabilitation services beginning in 1999. These provisions may
affect the reimbursement to the Company in connection with the services provided
by On-Track, the Company's outpatient therapy subsidiary.
DME REGULATION. Medicare generally provides reimbursement for DME on a fee
schedule basis. The amount reimbursed depends on the classification of the DME
and,
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generally, will be the lesser of (1) the provider's actual charge for the DME or
(2) the fee schedule amount.
REFERRAL RESTRICTIONS AND FRAUD AND ABUSE. The Company is also subject to
federal and state laws which govern financial and other arrangements between
healthcare providers. Federal law, as well as the law in California, Texas and
Arizona and other states, prohibits direct or indirect payments in some cases or
fee-splitting arrangements between healthcare providers that are designed to
induce or encourage the referral of patients to, or the recommendation of, a
particular provider for medical products and services. These laws include the
federal Anti-Kickback Statute which prohibits, among other things, the offer,
payment, solicitation or receipt of any form of remuneration in return for, or
to induce, the referral of Medicare and Medicaid patients. A wide array of
relationships and arrangements, including ownership interests in a company by
persons who refer or are in a position to refer patients, as well as personal
service agreements have, under certain circumstances, been alleged or been found
to violate these provisions. Certain arrangements, such as the provision of
services for less than fair market value compensation, may also violate such
laws. Because of the law's broad reach, the federal government has published
regulations, known commonly as "safe harbors", which set forth the requirements
under which certain relationships will not be considered to violate the law. One
of these safe harbors protects payments for personal services which are set in
advance at a fair market rate and which do not vary with the value or volume of
services referred, provided there is a written contract which meets certain
requirements. A similar safe harbor applies for certain agreements for
management services. A safe harbor for discounts, which focuses primarily on
appropriate disclosure, is also available. A violation of the federal Anti-
Kickback Statute and similar state laws could result in the loss of eligibility
to participate in Medicare or Medicaid, or in criminal penalties of up to five
years imprisonment and/or $25,000 fines.
In addition, the federal government and some states restrict certain
business relationships between physicians and other providers of healthcare
services. Effective January 1, 1995, Stark II prohibits any physician with a
financial relationship (defined as a direct or indirect ownership or investment
interest or compensation arrangement) with an entity from making any Medicare or
Medicaid referrals for a broad array of "designated health services" to such
entity. Violations of Stark II may result in the imposition of civil monetary
penalties of up to $15,000 for each prohibited service provided as well as
restitution of reimbursement for such services.
There are various federal and state laws prohibiting other types of fraud
by healthcare providers, including criminal provisions which prohibit filing
false claims or making false statements to receive payment or certification
under Medicare and Medicaid, or failing to refund overpayments or improper
payments. Violation of these provisions is a felony punishable by up to five
years imprisonment and/or $25,000 fines. Civil provisions prohibit the knowing
filing of a false claim or the knowing use of false statements to obtain
payment. The penalties for such a violation are fines of not less than $5,000
nor more than $10,000, plus treble damages, for each claim filed.
State and federal governments are devoting increasing attention and
resources to anti-fraud initiatives against healthcare providers. The
Accountability Act and the Balanced Budget Act expand the penalties for
healthcare fraud, including broader provisions for the exclusion of providers
from the Medicare and Medicaid programs and the establishment of civil monetary
penalties for violations of the anti-kickback provisions. While the Company
believes that its billing practices are consistent with Medicare and Medicaid
criteria, those criteria are
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often vague and subject to interpretation. There can be no assurance that
aggressive anti-fraud enforcement actions will not adversely affect the business
of the Company.
Under Operation Restore Trust, a major anti-fraud demonstration project,
the OIG, in cooperation with other federal and state agencies, has focused on
the activities of SNFs, home health agencies, hospices, and DME suppliers in
certain states, including California and Texas, in which the Company currently
operates. Due to the success of Operation Restore Trust, the project has been
expanded to numerous other states and to additional healthcare providers
including providers of ancillary nursing home services. While management does
not believe the Company is the target of any Operation Restore Trust
investigations, there can be no assurance that substantial amounts will not be
expended by the Company to cooperate with any such investigation or to defend
allegations arising therefrom. If it were found that any of the Company's
practices failed to comply with the anti-fraud provisions, the Company could be
materially affected.
CORPORATE PRACTICE OF MEDICINE. Many states, including California, Texas
and Arizona, prohibit business corporations and other persons or entities not
licensed to practice medicine from providing, or holding themselves out as a
provider of, medical care. Possible sanctions for violation of any of these
restrictions or prohibitions include loss of licensure or eligibility to
participate in reimbursement programs and civil and criminal penalties. These
laws, their construction and level of enforcement, vary from state to state and
are enforced by both the courts and regulatory authorities, each with broad
discretion. Some states interpret the 'practice of medicine' broadly to include
activities of corporations such as the Company that have an indirect impact on
the practice of medicine, even where the physician rendering the medical
services is not an employee of the corporation and the corporation exercises no
discretion with respect to the diagnosis or treatment of a particular patient.
The Company believes that its current and intended operations do not and will
not violate applicable state laws regulating the unlicensed practice of medicine
by a business corporation. However, because the laws governing the corporate
practice of medicine vary from state to state, any expansion of the operations
of the Company to a state with strict corporate practice of medicine laws may
require the Company to modify its operations with respect to one or more of such
practices, which may result in increased financial risk to the Company. Further,
there can be no assurance that the Company's arrangements will not be
successfully challenged as constituting the unauthorized practice of medicine.
See "Risk Factors -- State Laws Regarding Prohibition of Corporate Practice of
Medicine".
PENDING LEGISLATION. Government reimbursement programs are subject to
statutory and regulatory changes, retroactive rate adjustments, administrative
ceilings and government funding restrictions, all of which could materially
decrease the rates paid to the Company for its future services or the services
for which the Company will be able to seek reimbursement. Since 1972, Congress
has consistently attempted to curb federal spending on healthcare programs. The
Company expects that there will continue to be a number of state and federal
proposals to limit Medicare and Medicaid reimbursement for healthcare services.
The Company cannot at this time predict what healthcare reform legislation will
ultimately be enacted and implemented or whether other changes in the
administration or interpretation of the governmental healthcare programs will
occur. There can be no assurance that future healthcare legislation or other
changes in the administration or interpretation of governmental healthcare
programs, if enacted, will not have a material adverse effect on the results of
operations of the Company.
SHIFT TO MANAGED CARE. The growth in healthcare spending has caused the
private sector, Medicare and state Medicaid programs to reshape the financing of
healthcare services for their beneficiaries. Management anticipates that one of
the most significant changes to the
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financing of healthcare services will be the shift to managed care, and that the
federal Medicare program, state Medicaid programs and private insurers will
place greater reliance on managed care alternatives in the future. According to
HCFA, as of 1996, 35% of Medicare enrollees in California had enrolled in a
managed care program. In comparison, 8% of Medicare enrollees in Texas are
enrolled in managed care programs, and approximately 14% of Medicare enrollees
nationwide are enrolled in a managed care program. Providers are generally
willing to discount charges for services to managed care patients because
managed care plans can direct (or strongly influence) the flow of patients.
Management believes that the Company is likely to service an increasing
proportion of managed care enrollees in the future, although payment rates for
such services may not be as favorable as those presently in effect. There can be
no assurance that reimbursements for services provided under managed care
programs will not adversely affect the Company's revenues.
ENVIRONMENTAL REGULATION. The Company is also subject to a wide variety of
federal, state and local environmental and occupational health and safety laws
and regulations. Among the types of regulatory requirements faced by healthcare
providers are: air and water quality control requirements; waste management
requirements; specific regulatory requirements applicable to asbestos,
polychlorinated biphenyls, and radioactive substances; requirements for
providing notice to employees and members of the public about hazardous
materials and wastes; and certain other requirements.
In its role as owner and/or operator of properties or centers, the Company
may be subject to liability for investigating and remedying any hazardous
substances that have come to be located on the property, including any such
substances that may have migrated off, or emitted, discharged, leaked, escaped
or been transported from, the property. Ancillary to the Company's operations
are, in various combinations, the handling, use, storage, transportation,
disposal and/or discharge of hazardous, infectious, toxic, radioactive,
flammable and other hazardous materials, wastes, pollutants or contaminants.
Such activities may result in damage to individuals, property or the
environment; may interrupt operations and/or increase their costs; may result in
legal liability, damages, injunctions or fines; may result in investigations,
administrative proceedings, penalties or other governmental agency actions; and
may not be covered by insurance. There can be no assurance that the Company will
not encounter such risks in the future, and such risks may result in material
adverse consequences to the operations or financial condition of the Company.
COMPETITION
The Company operates in a highly competitive industry. The Company's SNFs
and ALFs are located in communities that also are served by similar facilities
operated by others. Some competing facilities provide services not offered by
the Company and some are operated by entities having greater financial and other
resources than the Company. In addition, some competing facilities are operated
by non-profit organizations or government agencies supported by endowments,
charitable contributions, tax revenues and other resources not available to the
Company. Furthermore, cost containment efforts, which encourage more efficient
utilization of acute care hospital services, have resulted in decreased hospital
occupancy in recent years. As a result, a significant number of acute care
hospitals have converted portions of their facilities to other purposes,
including specialty and sub-acute units. The competitiveness of the Company's
markets is further supported by the fact that within California, Texas and
Arizona, a Certificate of Need is no longer required in order to build or expand
a SNF. However, in Texas, competition is limited by restrictions on the number
of beds that can be enrolled in the Medicaid program.
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The Company also expects to encounter competition during future initiatives
of acquiring or developing new facilities. The Company's pharmacies and DME
business also operate in highly competitive environments and compete with
regional and local pharmacies, medical supply companies and pharmacies operated
by other long-term care chains or by other companies ranging from small local
operators to companies which are national in scope and distribution capability.
The Company also expects to encounter continued competition in connection with
the provision of other ancillary services, including physical, occupational and
speech therapy.
PROPERTIES
As of September 30, 1998, the Company had a total of 44 SNFs with an
aggregate of 5,937 beds and 6 ALFs with an aggregate of 641 beds, as reflected
in the following tables:
<TABLE>
<CAPTION>
SUMMIT FOUNTAIN VIEW TOTAL TOTAL
------ -------------
STATES FACILITIES BEDS FACILITIES BEDS FACILITIES BEDS
------ ---------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
SNFs
California..... 13 1,515 8 1,061 21 2,576
Texas.......... 22 3,211 -- -- 22 3,211
Arizona........ 1 150 -- -- 1 150
-- ----- -- ----- -- -----
Subtotal.... 36 4,876 8 1,061 44 5,937
ALFs
California..... 5 475 1 166 6 641
-- ----- -- ----- -- -----
Total....... 41 5,351 9 1,227 50 6,578
== ===== == ===== == =====
</TABLE>
FOUNTAIN VIEW FACILITIES
<TABLE>
<CAPTION>
YEAR YEAR
FACILITY LOCATION #BEDS OWNED/LEASED BUILT RENOVATED
-------- -------- ----- ------------ ----- ---------
<S> <C> <C> <C> <C> <C>
SKILLED NURSING-CALIFORNIA
Rio Hondo.................. Montebello 200 Leased(a) 1968 1996/1998
Hancock Park............... Los Angeles 141 Leased 1969 1996/1998
Brier Oak Terrace.......... Los Angeles 159 Leased 1966 1997/1998
Alexandria................. Los Angeles 177 Leased 1969 1997
Montebello................. Montebello 99 Leased(a) 1969 --
Fountain View.............. Los Angeles 99 Leased(a) 1963 1996/1998
Sycamore Park.............. Los Angeles 90 Leased(a) 1965 1997
Elmcrest................... El Monte 96 Leased 1958 1997
ASSISTED LIVING-CALIFORNIA
Hancock Park............... Los Angeles 166 Leased 1971 1996/1998
-----
TOTAL......................... 1,227
=====
</TABLE>
______________
(a) Facility is owned by the Snukal family and leased to a subsidiary of
Fountain View.
78
<PAGE>
SUMMIT FACILITIES
<TABLE>
<CAPTION>
YEAR
----
FACILITY LOCATION #BEDS LEASED/OWNED YEAR BUILT RENOVATED
-------- -------- ----- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
SKILLED NURSING - CALIFORNIA
Woodland...................... Reseda 153 Leased 1972 1996
Royalwood..................... Torrance 108 Leased 1952 1998(c)
Valley........................ Fresno 99 Owned 1960 1996
Villa Maria................... Santa Maria 85 Owned 1970 1995
Earlwood...................... Torrance 85 Owned 1967 1993
Sharon........................ Los Angeles 85 Leased 1967 1996
Bay Crest..................... Torrance 78 Leased 1960/1968(b) 1995
Fountain...................... Orange 172 Owned 1963/1966(b) 1994
Carehouse..................... Santa Ana 174 Owned 1974/1994(b) 1998(c)
Palm Grove.................... Garden Grove 122 Leased 1958 1994
Anaheim....................... Anaheim 97 Leased 1967 1997
Devonshire.................... Hemet 98 Owned 1969 1992
Willow Creek.................. Fresno 159 Owned 1996 ----
-----
Subtotal................. 1,515
SKILLED NURSING - TEXAS
Coronado...................... Abilene 219 Owned 1969 1996
West Side..................... White Settlement 238 Owned 1985 1996
The Woodlands................. Houston 212 Owned 1988 1994
Colonial Tyler................ Tyler 162 Owned 1968 1997
Colonial Manor................ New Braunfels 152 Owned 1967 1996
Guadalupe Valley.............. Seguin 149 Leased(a) 1990 1996
Town & Country................ Boerme 124 Owned 1972 1994
Clairmont - Longview.......... Longview 174 Owned 1986/1996(b) ----
Clairmont-Beaumont............ Beaumont 148 Owned 1987/1996(b) ----
Clairmont-Tyler............... Tyler 116 Owned 1989 1998
Southern Manor................ Hallettsville 114 Owned 1991 1995
Southwood..................... Austin 112 Owned 1975 1992
Comanche Trail................ Big Spring 115 Leased(a) 1991 1995
Lubbock....................... Lubbock 114 Owned 1968 1995
Monument Hill................. La Grange 111 Owned 1987 1997
Live Oak...................... George West 100 Leased(a) 1993 1995
Oak Crest..................... Rockport 92 Owned 1991 1996
Oakland Manor................. Giddings 114 Owned 1992 1995
Oak Manor..................... Flatonia 80 Owned 1980 1995
Heritage Oaks................. Lubbock 161 Owned 1995/1996(b) ----
Cityview...................... Fort Worth 210 Owned 1997 ----
Briarcliff.................... McAllen 194 Leased(a) 1993/1996(b) ----
-----
Subtotal................. 3,211
SKILLED NURSING - ARIZONA
Phoenix....................... Phoenix 150 Leased 1965/1995(b) 1995
ASSISTED LIVING - CALIFORNIA
Carson........................ Carson 202 Owned 1972 1994
Spring........................ Torrance 51 Owned 1962 1993
Hemet......................... Hemet 84 Owned(d) 1965 1997
Fountain...................... Orange 72 Owned 1967 1995
Ashton Court.................. Orange 66 Owned 1967 1997
-----
Subtotal................. 475
-----
Total.................... 5,351
</TABLE>
_____________
(a) Option to purchase.
(b) Year of latest addition to facility.
(c) Scheduled.
(d) Building owned by Summit with real property held under a ground lease
extending to 2030.
79
<PAGE>
EMPLOYEES
As of September 30, 1998, Fountain View had approximately 1,200 full-time
equivalent employees, and Summit had approximately 4,700 full-time equivalent
employees. Fountain View has three collective bargaining agreements for a union
covering approximately 400 of Fountain View's employees. Fountain View considers
the relations with its employees to be good and it has not experienced any
strikes or work stoppages. None of Summit's employees are covered by collective
bargaining agreements and Summit considers the relations with its employees to
be good and it has not experienced any strikes or work stoppages. Both Fountain
View and Summit are subject to federal and state minimum wage and applicable
federal and state wage and hour laws and maintain various employee benefit
plans.
INSURANCE
Fountain View maintains general and professional liability coverage,
employee benefits liability, property, inland marine, crime, boiler and
machinery coverage, health, automobile, employment practices liability,
earthquake and flood, workers' compensation and employers' liability that
Fountain View believes is adequate. Summit maintains general and professional,
property, casualty, health, directors and officers, automobile, crime,
employee's and workers' compensation coverage that Summit believes is adequate.
Summit's workers' compensation insurance for its California and Arizona
employees pays for claims up to $250,000 per claim and for the purchase of
reinsurance coverage for amounts in excess of the per claim limit and for annual
aggregate claim amounts in excess of $986,000. Texas employees are covered by a
policy for employer's excess and occupational indemnity for risks in excess of
$150,000 up to $1,000,000 per occurrence and no annual aggregate stop loss.
Summit pays for claims up to $150,000 per occurrence.
Fountain View's and Summit's services subject them to liability risk.
Malpractice claims may be asserted against them if their services are alleged to
have resulted in patient injury or other adverse effects, the risk of which is
greater for higher-acuity patients, such as those treated by specialty and sub-
acute services, than for traditional long-term care patients. Fountain View and
Summit have from time to time been subject to malpractice claims and other
litigation in the ordinary course of their businesses. While the Company
believes that the ultimate resolution of all pending legal proceedings will not
have a material adverse effect on the Company's business or financial condition,
there can be no assurance that future claims will not have such an effect on the
Company. Fountain View's current policy for general and professional liability
coverage is a per occurrence policy and has limits of $1,000,000 per occurrence
and $3,000,000 in the aggregate per year and carries no deductible except for
employee benefits liability coverage, which carries a $1,000 deductible per
claim. In addition, Fountain View has a per occurrence umbrella policy which
provides additional insurance limits of $10,000,000 per occurrence and
$10,000,000 aggregate per year with a self-insured retention of $10,000 per
occurrence over its primary general, professional, automobile and employers'
liability coverage policies. Summit's current policy for general and
professional liability coverages is a claims-made policy and has limits of
$500,000 per occurrence and $1,000,000 in the aggregate per year and carries a
self-insured retention of $100,000 per occurrence and a $700,000 annual
aggregate loss limit. In addition, Summit has a claims-made umbrella policy
which provides additional insurance of $8,500,000 per occurrence and $8,500,000
aggregate per year over its primary general and professional policy, its
automobile liability policy and its employer liability policy.
Although Fountain View and Summit have not been subject to any judgments or
settlements in excess of their respective insurance limits, there can be no
assurance that claims for damages in excess of such coverage limits will not
arise in the future.
80
<PAGE>
LEGAL PROCEEDINGS
Fountain View and Summit are subject to routine litigation in the ordinary
course of business. Although there can be no assurances, in the opinion of
management, the ultimate resolution of all pending legal proceedings will not
have a material adverse effect on the Company's business, financial condition or
results of operations.
81
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
William C. Scott............................ 60 Director and Chairman
Robert M. Snukal............................ 55 Director, Chief Executive Officer and
President
Sheila S. Snukal............................ 54 Director and Executive Vice President
Paul C. Rathbun............................. 39 Chief Financial Officer
Keith Abrahams.............................. 38 President, Locomotion Therapy, Inc.
and On-Track Therapy Center, Inc.
Michael H. Martel........................... 35 Senior Vice President, Texas and
Arizona Operations
Michel Reichert............................. 47 Director
Michael F. Gilligan......................... 42 Director
Peter Z. Hermann............................ 43 Director
Mark J. Jrolf............................... 33 Director
Boone Powell, Jr............................ 62 Director
</TABLE>
William C. Scott became a Director and Chairman upon the closing of the
purchase of Summit Shares in the Tender Offer on March 27, 1998. Mr. Scott
previously served as Chief Executive Officer of Summit since May 1994 and
Chairman of the Board of Summit since December 1995. Mr. Scott served as
President of Summit from December 1985 until January 1996 and held the office of
Chief Operating Officer from December 1985 until May 1994. Mr. Scott served as
Senior Vice President of Summit Health Ltd., Summit's former parent company,
from December 1985 until its acquisition by OrNda Health Corp. in April 1994 and
previously was a partner with Arthur Andersen & Co.
Robert M. Snukal became a Director, Chief Executive Officer and President
on August 1, 1997, upon the formation of Fountain View. For the preceding five
years, Mr. Snukal has served as a Director and President of each of Fountain
View's subsidiaries, which were owned directly by Mr. Snukal and Sheila Snukal
during that period and prior to the formation of Fountain View. Mr. Snukal is
the husband of Sheila Snukal and the father-in-law of Mr. Abrahams.
Sheila S. Snukal became a Director and Executive Vice President on August
1, 1997, upon the formation of Fountain View. For the preceding five years, Mrs.
Snukal has served as a Director and Executive Vice President of each of Fountain
View's subsidiaries, which were owned directly by Mrs. Snukal and Robert M.
Snukal during that period and prior to the formation of Fountain View. Mrs.
Snukal is the wife of Robert M. Snukal and the mother-in-law of Mr. Abrahams.
Paul C. Rathbun joined the Company as Chief Financial Officer
effective September 17, 1998. Mr. Rathbun previously served as the Executive
Vice President, Chief Financial Officer of Life Care Centers of America (a
privately held nursing home chain) from 1995. From 1994 to 1995, Mr. Rathbun
served as the chief financial officer of Largo Medical Center/Clearwater
Community Hospital. Prior to that, from 1993 to 1994, Mr. Rathbun was a director
of PriceWaterhouse with responsibilities for the healthcare practice in the
state of Florida.
Keith Abrahams has been President of Locomotion since 1995. Mr. Abrahams
was previously employed as a Chief Financial Officer of Heftel Broadcasting from
1987 to 1992, a
82
<PAGE>
radio broadcasting company. He is also a certified public accountant. Mr.
Abrahams is the son-in-law of Mr. and Mrs. Snukal.
Michael H. Martel assumed the role of Senior Vice President--Texas and
Arizona Operations in June 1998. Mr. Martel previously served as Senior Vice
President--Marketing of the Company from April 16, 1998 and as Senior Vice
President--Marketing of Summit from March 1995 to April 1998. Prior to joining
Summit, Mr. Martel was Vice President--Marketing for Arbor Health Care Company
from August 1992 to March 1995. Mr. Martel served as Regional Director of
Marketing for the acute care rehabilitation division of National Medical
Enterprises from April 1988 to August 1992.
Michel Reichert has been a Director of the Company since August 1, 1997.
Since 1994, Mr. Reichert has been a Managing General Partner of Heritage
Partners, Inc., a Boston-based private investment firm. Prior to 1994, Mr.
Reichert was a Managing Director of BancBoston Capital Inc., a private
investment firm.
Michael F. Gilligan became a Director of the Company immediately prior to
the consummation of the Tender Offer on March 27, 1998. Since December 1993, Mr.
Gilligan has been a General Partner of Heritage Partners, Inc., a Boston- based
private investment firm. Prior to 1994, Mr. Gilligan was a Director of
BancBoston Capital Inc., a private investment firm.
Peter Z. Hermann became a Director of the Company immediately prior to the
consummation of the Tender Offer on March 27, 1998. Since January 1994, Mr.
Hermann has been a General Partner of Heritage Partners, Inc., a Boston- based
private investment firm. Prior to 1994, Mr. Hermann was a Director of BancBoston
Capital Inc., a private investment firm.
Mark J. Jrolf has been a Director of the Company since August 1, 1997.
Since February 1997, Mr. Jrolf has served as Partner and Vice President of
Heritage Partners, Inc. From September 1996 to January 1997, Mr. Jrolf served as
a Vice President of Heritage Partners, Inc. From September 1993 to September
1996, Mr. Jrolf was a consultant with McKinsey & Co. specializing in healthcare.
Boone Powell, Jr. became a director of the Company in August 1998. Mr.
Powell has been President and Chief Executive Officer of Baylor Health Care
System and Baylor University Medical Center since 1980.
Executive officers of the Company are appointed by the Board, subject to
the provisions of such officers' respective employment agreements. See "--
Employment Agreements". Under the terms of their employment agreements, each of
Mr. Snukal, Mrs. Snukal and Mr. Scott is employed for a period of five years as
Chief Executive Officer, Executive Vice President and Chairman, respectively,
commencing on March 27, 1998. The employment agreements will automatically renew
for up to five additional one year terms unless either the Company or the
respective employee provides prior written notice of termination to the other
party. The other officers and Directors are elected to serve until their
respective successors have been duly elected and qualified or until their
earlier resignation or removal.
83
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth compensation for
the past three fiscal years for the Company's Chief Executive Officer and the
other four most highly compensated executive officers (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION FISCAL YEAR ($) ($) (#) ($)
--------------------------- ----------- --------- --------- ------- ------------
<S> <C> <C> <C> <C> <C>
Robert M. Snukal............. 1998 470,843 133,334 -- --
President, Chief Executive 1997 298,340 400,000 -- --
Officer and Director 1996 258,750 696,912 -- --
William C. Scott (2)......... 1998 415,385 650,000 -- 2,037,978(3)
Director and Chairman 1997 394,773 -- -- --
1996 369,869 150,000 165,000 --
Sheila S. Snukal............. 1998 225,000 83,333 -- --
Executive Vice President 1997 178,125 200,000 -- --
and Director 1996 144,750 327,570 -- --
Keith Abrahams............... 1998 168,417 70,000 -- --
President, Locomotion Therapy, 1997 150,005 160,000 -- --
Inc. and On-Track Therapy 1996 150,005 50,000 -- --
Center, Inc.
Michael H. Martel (1)(2)..... 1998 161,306 -- -- 103,536(3)
Senior Vice President-- 1997 152,404 10,000 10,000 --
Texas and Arizona Operations 1996 141,308 -- 10,000 --
</TABLE>
________
(1) Mr. Martel joined Summit Care Corporation in March 1995.
(2) Compensation indicated is for the fiscal year ended June 30.
(3) Represents payments to Mr. Scott in connection with the Merger as follows:
$1,275,000 (cash payment under Summit Executive Incentive Plan) and
$749,125 (redemption of Summit stock options). See "Certain Relationships
and Related Transactions--Payments to Certain Stockholders". Represents
payments to Mr. Martel of $103,536 (redemption of Summit stock options.)
Option Grants in Last Fiscal Year. In August 1998, the Company adopted the
1998 Stock Option Plan (the "Option Plan"). The Plan provides for the grant of
incentive stock options to certain directors, employees and consultants of the
Company to purchase up to 49,388 shares of Series C Common Stock of the Company.
These options represent non-qualified stock options and have an exercise price
of $104.61 per share. The options vest twenty (20) percent on each anniversary
of the option grant and are fully vested upon the sale of the Company.
The following table sets forth the stock options granted to the Named
Executive Officers during the last fiscal year.
<TABLE>
<CAPTION>
Number of
Securities Percent of Total
Underlying Options Granted to Exercise or
Options Granted Employees in Fiscal Base Price
Name (#) Year ($/Sh) Expiration Date
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sheila S. Snukal................ 6,173 23.0% $104.61 August 2008
- ----------------------------------------------------------------------------------------------------------------------------------
Keith Abrahams.................. 1,976 7.4% $104.61 August 2008
- ----------------------------------------------------------------------------------------------------------------------------------
Michael H. Martel............... 1,976 7.4% $104.61 August 2008
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Fiscal Year-End Option Values. During fiscal 1998, none of the Named
Executive Officers exercised stock options issued by the Company.
84
<PAGE>
STOCKHOLDERS AGREEMENT
CORPORATE GOVERNANCE. On March 27, 1998, the Company and its stockholders
entered into a Stockholders Agreement (the "Stockholders Agreement")
concurrently with the closing of the Tender Offer. The Stockholders Agreement,
which was amended on May 4, 1998, provides that the Company's board of directors
(the "Board") will consist of directors nominated as follows: (i) two
individuals (but not less than 25% of the total number of directors) will be
designated by Mr. Snukal, as long as he continues to hold any shares of the
Company's common stock; (ii) one individual will be designated by Mr. Scott, as
long as he continues to hold any shares of the Company's common stock; (iii) one
individual will be designated by Baylor, as long as it continues to hold any
shares of the Company's common stock or any securities convertible into or
exercisable for the Company's common stock; and (iv) all other directors will be
designated by the holders of a majority of the shares of common stock of the
Company held by Heritage and certain co-investors (which designation is expected
to be controlled by Heritage). The Board includes a majority of directors
designated by Heritage. Under the Stockholders Agreement, each stockholder of
the Company has granted Heritage an irrevocable proxy to vote such stockholder's
securities of the Company, except with respect to matters the effect of which on
such stockholder differs materially and adversely from the effect on Heritage.
The practical effect of the grant of the proxy is that Heritage will control the
outcome of most matters which come before the stockholders of the Company,
except where such matter will result in significant harm to the other
stockholders of the Company, but not to Heritage. For example, Heritage would
not be able to exercise the proxy to vote the shares of the other stockholders
in favor of an amendment to the Stockholders Agreement which would provide that,
in the event of a sale of the Company, the other stockholders would receive one-
half the consideration per share that Heritage would receive. The purpose of the
limitation on Heritage's exercise of the proxy is to protect the other
stockholders from Heritage abusing its control position.
Board vacancies will be filled by a designee of the individual or group who
originally designated the vacating director. Each individual or group entitled
to designate a director will also be entitled to direct the removal of such
director and designate a replacement director.
SPECIAL PROVISIONS FOR SERIES B NON-VOTING COMMON STOCK. Mr. and Mrs.
Snukal own an aggregate of 62,599 shares of the Company's Series B Non-Voting
Common Stock and Mr. Scott owns 51,603 shares of the Company's Series B Non-
Voting Common Stock, all of which were issued to them by the Company for nominal
consideration. These shares represent approximately 9.63% of the total number of
outstanding shares of the Company's common stock, on a fully-diluted basis. The
Stockholders Agreement provides that some or all of the Company's Series B Non-
Voting Common Stock will be subject to forfeiture upon a change of control of
the Company, an initial public offering of its shares or other similar events
(each, a "Trigger Event"), with the precise number of shares forfeited to be
determined on a sliding scale based on the value of the Company's common equity
at the date of the Trigger Event in relation to certain value targets at various
dates in the future. Under this arrangement, the higher the value of the Company
at the date of the Trigger Event, the more shares of Series B Non-Voting Common
Stock Mr. and Mrs. Snukal and Mr. Scott will retain.
STOCK TRANSFER RESTRICTIONS AND RIGHTS. The Stockholders Agreement provides
for certain transfer restrictions on securities of the Company. The stockholders
of the Company who are members of management may not transfer their securities
until four years after the consummation of the Tender Offer, except for certain
transfers in connection with estate planning, provided that Mr. Snukal may
transfer his securities earlier if the Company terminates his employment without
cause. See "--Employment Agreements". The Company and certain
85
<PAGE>
stockholders have a right of first refusal on transfers of Company securities by
a stockholder, other than estate planning transfers by management, transfers by
Heritage and certain transfers to affiliates. If Heritage transfers its
securities, other than to its partners, the other stockholders will have the
right to participate on a pro rata basis with Heritage in such transfers.
Heritage will also have the right to require all other stockholders to transfer
a pro rata portion of their shares in a transaction in which Heritage transfers
its shares. For example, on the one hand, if Heritage decides to sell half of
its shares to a third party (other than one of its partners), each of the other
stockholders will have the right also to sell half of their shares to the same
third party; on the other hand, if a third party wants to buy half of the
Company, and Heritage is willing to sell only half of its shares to this third
party, then Heritage can require each other stockholder to sell half of his
shares to the same third party.
OTHER. The Stockholders Agreement also (i) provides stockholders with pre-
emptive rights in the event of certain future issuances of securities by the
Company, (ii) restricts the ability of the Company to issue shares of capital
stock having rights senior or on par with those of the Series A Preferred Stock
and of the Company's subsidiaries to issue shares of capital stock while any
shares of Series A Preferred Stock are outstanding, unless the Company is in
compliance with certain financial tests, (iii) limits the amounts of dividends
or distributions which the Company may pay with respect to its common stock
while the Series A Preferred Stock remains outstanding, and (iv) includes a
mechanism to convert all existing shares of common stock into a single series of
common stock upon an initial public offering of the Company. The agreement will
terminate upon the consummation of an initial public offering by the Company.
EMPLOYMENT AGREEMENTS
On March 27, 1998, the Company entered into employment agreements with Mr.
Snukal, Mrs. Snukal and Mr. Scott.
Each employment agreement provides a term of employment of five years,
which will automatically renew for up to five additional one-year terms unless
either the Company or the respective employee provides prior written notice of
termination to the other party, and specifies a base salary, a bonus range and a
package of benefits. Mr. Snukal is employed as Chief Executive Officer, Mrs.
Snukal is employed as Executive Vice President and Mr. Scott is employed as
Chairman of the Company. The employment agreements provide base salaries for the
year ending March 1999 as follows: William C. Scott--$450,000; Robert M.
Snukal--$500,000; and Sheila Snukal--$225,000. Such base salaries will be
subject to cost of living adjustments for each subsequent year. The employment
agreements provide for annual bonuses, based upon the achievement of certain
financial targets, of up to the following amounts for the year ending March 1999
and each subsequent year: William C. Scott--$350,000; Robert M. Snukal--
$500,000; and Sheila Snukal--$125,000.
Each employment agreement provides for termination of employment at any
time by the Company with or without cause or in the event of the death or
disability of the employee. Each of the employment agreements also provides for
severance pay upon termination by the Company without cause (other than for
death or disability). The Company must pay the employee his or her base salary
as in effect prior to any such termination for the duration of the employee's
scheduled employment term (plus an additional $25,000 annually in the case of
such termination of both Mr. and Mrs. Snukal and, in the case of Mr. Scott, less
an amount, if any, he is then due under the Summit Special Severance Plan
adopted by Summit in connection with the Merger). If Mr. Snukal is terminated
without cause, Mrs. Snukal may, at her option, deem her employment to have been
terminated without cause and receive the severance referred to in the preceding
sentence. No severance will be payable in the event of a
86
<PAGE>
termination of employment as a result of death, disability or retirement, or a
termination by the employee without good reason or by the Company with cause.
Under the employment agreements, each of Mr. and Mrs. Snukal and Mr. Scott
agree not to compete with the Company for the greater of five years after the
date of such agreements or three years after termination of employment, subject
to certain exceptions. In addition, each of Mr. and Mrs. Snukal and Mr. Scott
agree that, for the greater of five years after the date of the employment
agreement or two years after termination, he or she will not solicit (i) any
person who is, or was within the one-year period immediately prior to
termination of the employee's employment with the Company, employed by, a
consultant to or associated with the Company or (ii) a recent (within two years)
client, customer or supplier to the Company.
On August 12, 1998, the Company entered into an employment agreement with
Mr. Rathbun, which provides for a term of employment of five years commencing
September 1998. Mr. Rathbun is employed as Chief Financial Officer of the
Company. The employment agreement provides a base salary of $250,000, subject to
annual cost of living adjustments. The employment agreement provides for annual
bonuses of up to $125,000, based upon the achievement of certain financial
targets. However, the bonus is limited to $65,000 for the period ending June 30,
1999 (based on a June 30 year end).
The employment agreement provides for termination of employment at any time
by the Company with or without cause or in the event of the death or disability
of the employee. The employment agreement also provides for severance pay upon
termination by the Company without cause. The Company must pay the employee his
base salary and prorated bonus for the duration of six months.
Under the employment agreement, Mr. Rathbun agrees that, for the greater of
five years after the date of such agreement or two years after termination of
employment, he will not solicit (i) any person who is, or was, within the
one-year period immediately prior to termination of Mr. Rathbun's employment
with the Company, employed by, a consultant to or associated with the Company or
(ii) a recent (within two years) client, customer or supplier to the Company.
MANAGEMENT EQUITY INCENTIVE PLANS
In August 1998, the Company adopted the 1998 Stock Option Plan (the "Option
Plan"). The Option Plan provides for the grant of incentive stock options to
certain directors, employees and consultants of the Company to purchase up to
49,388 shares of Series C Common Stock of the Company. These options represent
non-qualified stock options and have an exercise price of $104.61 per share. The
options vest twenty (20) percent on each anniversary of the option grant and are
fully vested upon the sale of the Company.
DIRECTOR COMPENSATION
Directors of the Company do not currently receive compensation from the
Company for their service in such capacity.
87
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership of
the voting common stock of the Company by (i) each person who beneficially owns
more than 5% of the outstanding shares of the Company's voting common stock,
(ii) each director of the Company, (iii) each of the executive officers of the
Company and (iv) each of the directors and executive officers of the Company as
a group. Each of the following stockholders has sole voting and investment power
with respect to shares beneficially owned by such stockholder, except to the
extent that authority is shared with spouses under applicable law or as
otherwise noted.
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME OF SHARES OF CLASS
---- --------- ---------
<S> <C> <C>
Heritage Fund II, L.P.(2)..................................... 537,486 50.2%
Michel Reichert(2)............................................ 537,486 50.2
Michael F. Gilligan(2)........................................ 537,486 50.2
Peter Z. Hermann(2)........................................... 537,486 50.2
Mark J. Jrolf(2).............................................. 537,486 50.2
Robert M. Snukal(3)........................................... 149,484 14.0
Sheila S. Snukal(3)........................................... 149,484 14.0
Goldman, Sachs & Co.(4)....................................... 79,032 7.4
GS Private Equity Partners, L.P.(4)........................... 79,032 7.4
GS Private Equity Partners Offshore, L.P.(4).................. 79,032 7.4
PMI Mezzanine Fund, L.P.(5)................................... 59,275 5.5
Baylor Health Care System(6).................................. 54,999 5.1
William C. Scott(7)........................................... 31,357 2.9
Keith Abrahams(8)............................................. 16,588 1.6
All directors and executive officers as a group (10 persons) 734,915 68.6
</TABLE>
_________________
(1) Number of shares represents the number of shares of Series A Common Stock
and Series C Common Stock, which comprise all of the Company's voting
stock. It does not include the Series A Preferred Stock and Series B Non-
Voting Common Stock. For purposes of this table, a person or group of
persons is deemed to have "beneficial ownership" of any shares as of a
given date which such person has the right to acquire within 60 days after
such date.
(2) The address of such stockholder is c/o Heritage Partners, Inc., 30 Rowes
Wharf, Boston, MA 02110. The shares shown as beneficially owned by Mr.
Reichert, Mr. Gilligan, Mr. Hermann and Mr. Jrolf represent 525,633 shares
and warrants to purchase 11,853 shares owned of record by Heritage. Each of
such persons, through one or more intermediaries may be deemed to control
the voting and disposition of the securities owned by Heritage, and
accordingly may be deemed to have shared voting and investment power with
respect to all shares held by Heritage. However, each of such persons
disclaims beneficial ownership of the securities held by Heritage. Heritage
has a proxy to vote an additional 474,367 shares held by other
stockholders, representing 44.2% of the Company's voting stock, except with
respect to matters the effect of which on such other stockholders differs
materially and adversely from the effect on Heritage. Heritage, Mr.
Reichert, Mr. Gilligan, Mr. Hermann and Mr. Jrolf disclaim beneficial
ownership of such shares.
(3) The address of such stockholder is c/o Fountain View, Inc., 11900 Olympic
Boulevard, Suite 680, Los Angeles, CA 90064. The shares shown as
beneficially owned by Mr. Snukal and by Mrs. Snukal represent an aggregate
of 149,484 shares owned jointly by them, and as to which they have shared
voting and investment power. Mr. and Mrs. Snukal also own an aggregate of
62,599 shares of the Company's Series B Non-Voting Common Stock.
(4) The address of such stockholder is c/o Goldman, Sachs & Co., 85 Broad
Street, New York, NY 10004. Shares shown as beneficially owned by Goldman,
Sachs & Co., GS Private Equity Partners, L.P. and GS Private Equity
Partners Offshore, L.P. represent 53,393 shares owned of record by GS
Private Equity Partners, L.P. and 25,639 shares owned of record by GS
Private Equity Partners Offshore, L.P. Each of GS Private Equity Partners,
L.P. and GS Private Equity Partners Offshore, L.P. is an affiliate of
Goldman, Sachs & Co. and each of such entities disclaims beneficial
ownership of the other entity's securities. Goldman, Sachs & Co. disclaims
beneficial ownership of the securities owned by such entities.
(5) The address of such stockholder is c/o Pacific Mezzanine Group, 610 Newport
Center Dr., Suite 1100, Newport Beach, CA 92660.
(6) The address of such stockholder is 3500 Gaston Avenue, Suite 150, Dallas,
TX 75246.
(7) Mr. Scott also owns an aggregate of 51,603 shares of the Company's Series B
Non-Voting Common Stock.
(8) The address of such stockholder is c/o Fountain View, Inc., 11900 Olympic
Blvd., Suite 680, Los Angeles, CA 90064. Shares shown as beneficially owned
by Mr. Abrahams include 8,294 shares owned by Stacy Abrahams, his wife.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INVESTMENT AGREEMENT
The Company and Robert Snukal, Sheila Snukal, William Scott, Heritage Fund
II, L.P., Heritage Investors II, L.L.C., Heritage Fund II Investment
Corporation, HFV Holdings, LLC, Nassau Capital Partners II L.P., NAS Partners I
LLC, Paribas North America, Inc., Phoenix Home Life Mutual Insurance Company,
PMI Mezzanine Fund, L.P., GS Private Equity Partners, L.P., GS Private Equity
Partners Offshore, L.P. and Sutro Investment Partners V, LLC (collectively, the
"Investors") entered into an Investment Agreement dated March 27, 1998,
providing for the issuance by the Company to such stockholders of an aggregate
of 15,000 shares of Series A Preferred Stock, 668,065 shares of Series A Common
Stock, 114,202 shares of Series B Common Stock and a warrant to purchase 71,119
shares of Series C Common Stock. These securities were issued immediately prior
to the consummation of the Tender Offer (other than the Series A Preferred
Stock, the warrant and certain shares issued to Mr. Scott, which were issued
promptly after the Merger). The Investment Agreement specifies the consideration
paid by the Investors for the issuance of such Company securities, which
includes (i) a new cash investment in an aggregate amount of approximately $82
million, (ii) in the case of Heritage, Mr. Snukal and Mrs. Snukal, the exchange
of previously-held stock of Fountain View, and (iii) in the case of Mr. Scott,
the issuance by him to the Company of a limited recourse promissory note in the
amount of $2,530,600, with an interest rate of 5.7%, due and payable on the
earlier to occur of (A) April 15, 2007, or (B) the sale by Mr. Scott of the
20,000 shares of the Company's common stock pledged as security for the note;
the Company has recourse for the payment of up to $1,012,240 of the principal
amount of the note. Pursuant to the terms of the Investment Agreement, Heritage
made an additional cash investment of $2.6 million for the purchase of the
shares of Series A Preferred Stock and the warrants for shares of Series C
Common Stock. On May 4, 1998, Baylor and Buckner purchased certain shares of the
Company's Series A Preferred Stock and a portion of the warrants to purchase
Series C Preferred Stock from Heritage and signed a supplemental signature page
agreeing to become parties to the Investment Agreement. See "Prospectus
Summary--The Financings" and "--Recent Developments".
THE CERTIFICATE OF INCORPORATION
In connection with the Transactions, on March 27, 1998 and May 6, 1998, the
Company amended its certificate of incorporation to provide that its authorized
capital stock consists of (a) 3,000,000 shares of Common Stock designated as
follows: (i) 1,500,000 shares of Series A Common Stock, (ii) 200,000 shares of
Series B Non-Voting Common Stock, (iii) 1,300,000 shares of Series C Common
Stock and (b) 1,000,000 shares of Preferred Stock, 200,000 of which are
designated Series A Preferred Stock. The shares of Series A Preferred Stock are
subject to mandatory redemption upon an underwritten initial public offering of
the Company's common stock or after May 1, 2010. The certificate of
incorporation further provides that, on liquidation of the Company, the holders
of Series A Preferred Stock are entitled to receive a liquidation payment. After
such payment, the assets of the Company will be divided ratably among the
holders of (i) the Series A Common Stock and the Series B Non-Voting Common
Stock, on the one hand, and (ii) the holders of the Series C Common Stock, on
the other, based on the relative number of shares of Common Stock outstanding
and held by such holders, provided that the aggregate number of outstanding
shares of Series A Common Stock and Series B Non-Voting Common Stock shall be
deemed to be 1,114,202, or, if different, shall be deemed to be the number of
shares of Series A Common Stock and Series B Non- Voting Common Stock then
outstanding plus any shares of Series B Non-Voting Common Stock previously
outstanding but forfeited pursuant to the Stockholders Agreement. All amounts
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distributable among the Series A Common Stock and the Series B Non-Voting Common
Stock will be divided as follows, to the extent of available proceeds: (A)
first, each share of Series A Common Stock will receive $126.53 plus a 22%
internal rate of return thereon calculated from March 27, 1998 (the "Series A
Common Stock Preference"); (B) second, each share of Series B Non-Voting Common
Stock will receive an amount equal to the Series A Common Stock Preference; and
(C) third, the remaining assets will be distributed ratably among the Series A
Common Stock and the Series B Non-Voting Common Stock.
The March 27 amendment to the Company's certificate of incorporation also
provides that all shares of Company stock outstanding prior to the amendment
were reclassified into an aggregate of 331,935 shares of Series A Common Stock.
REGISTRATION RIGHTS AGREEMENT
The Company and its stockholders entered into a Registration Rights
Agreement (the "Investor Registration Rights Agreement") on March 27, 1998
concurrently with the consummation of the Tender Offer. The Investor
Registration Rights Agreement provides that Heritage has the right to require
the Company on two occasions to effect the registration of the Company's common
stock held by it under the Securities Act and Mr. and Mrs. Snukal have the right
to cause the Company to effect one demand registration, each at the Company's
expense and subject to certain conditions. Mr. Scott has the right to request
inclusion of the Company common stock held by him in any such registrations. In
addition, all holders of Registrable Securities (as defined in the Investor
Registration Rights Agreement) are entitled to request the inclusion of any
shares of common stock of the Company in any registration statement at the
Company's expense whenever the Company proposes to register any of its common
stock under the Securities Act. However, the underwriter managing any such
offering or any offering effected pursuant to a demand registration may reduce
the number of shares included therein.
PAYMENTS TO CERTAIN STOCKHOLDERS
SUMMIT EXECUTIVE INCENTIVE PLAN FOR MR. SCOTT. Mr. Scott was the
beneficiary of an Executive Incentive Plan maintained by Summit. Under the terms
of this plan, which was amended by Summit prior to the signing of the Merger
Agreement, Mr. Scott received a cash payment from Summit at the effective time
of the Merger of approximately $1,275,000.
REDEMPTION OF MR. SCOTT'S SUMMIT STOCK OPTIONS. Under the Summit Stock
Option Plan, which terminated at the effective time of the Merger, Mr. Scott
received in cash from Summit the net value of his options to purchase Summit
Shares, which equaled $749,125. Mr. Scott held options to acquire 300,000 Summit
Shares.
BONUS TO MR. SCOTT FROM THE COMPANY. At the effective time of the Merger,
the Company paid Mr. Scott a bonus equal to $550,000 to partially cover the tax
cost he will incur upon redemption of his stock options described in the
preceding paragraph. The amount of the bonus was calculated not to exceed the
tax benefit which Summit realized as a result of the payments of those amounts.
BONUS TO MR. SCOTT FROM SUMMIT. At the effective time of the Merger, Summit
paid Mr. Scott a $100,000 bonus.
REINVESTMENT BY MR. SCOTT. The entire net after-tax proceeds of the
foregoing payments to Mr. Scott were invested by Mr. Scott in securities of the
Company under the terms of the Investment Agreement.
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PAYMENT TO HERITAGE PARTNERS MANAGEMENT COMPANY, INC. At the effective time
of the Merger, the Company paid Heritage Partners Management Company, Inc., a
fee of $3 million in connection with the Transactions.
PRE-TRANSACTION ARRANGEMENTS
FOUNTAIN VIEW EQUITY TRANSACTIONS
Prior to August 1, 1997, each of the corporations which is now a subsidiary
of Fountain View (other than Summit and its subsidiaries) was owned directly by
Mr. and Mrs. Snukal. On July 24, 1997, each of those corporations entered into a
Stock Purchase and Contribution Agreement (the "1997 Agreement") with Mr. and
Mrs. Snukal, Heritage and Fountain View providing for the recapitalization of
Fountain View, the issuance of stock of Fountain View to Heritage and the
restructuring of the ownership of the various corporations so that all of them
became wholly-owned subsidiaries of Fountain View. In addition, under the terms
of the 1997 Agreement, Mr. and Mrs. Snukal received cash payments from the
investments by Heritage and loans from a senior lender in the aggregate amount
of $43.7 million.
The 1997 Agreement contained certain representations, warranties and
covenants, and provided for Mr. and Mrs. Snukal to indemnify Heritage and
Fountain View for varying amounts.
The transactions contemplated by the 1997 Agreement were consummated on
August 1, 1997. From August 1, 1997, until the closing of the purchase of Summit
Shares in the Tender Offer, Fountain View's Board of Directors has consisted and
will consist of three nominees of Mr. and Mrs. Snukal and two nominees of
Heritage. For additional information with respect to the Fountain View Equity
Transactions, see Note 3 to the audited financial statements of Fountain View
included elsewhere in this Prospectus.
RELATED PARTY LEASES
Fountain View leases four SNFs from Mr. and Mrs. Snukal under leases
entered into on August 1, 1997 pursuant to the 1997 Agreement. These facilities
are Fountainview Convalescent Hospital in Los Angeles, California, Montebello
Convalescent Hospital in Montebello, California, Rio Hondo Nursing Center in
Montebello, California and Sycamore Park Convalescent Hospital in Los Angeles,
California. Each lease is for a term of 20 years. The annual rent for the year
ending July 31, 1998 for each of these facilities is as follows: Fountainview
Convalescent Hospital--$360,000; Montebello Convalescent Hospital--$360,000; Rio
Hondo Nursing Center--$720,000; and Sycamore Park Convalescent Hospital--
$324,000. The leases contain rent escalation clauses based on increases in the
consumer price index. Fountain View believes the terms of these leases to be at
fair market value.
TWIN MED
Mrs. Snukal owns approximately 33% of the outstanding equity of Twin Med,
Inc. ("Twin Med"), a supplier of disposable products to long-term care
facilities. Twin Med is one of Fountain View's and Summit's suppliers. Average
monthly payments by Fountain View and Summit to Twin Med are approximately
$50,000 to $70,000 in the aggregate.
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DESCRIPTION OF OTHER INDEBTEDNESS
NEW CREDIT FACILITY
GENERAL. The Company entered into a credit facility with Bank of Montreal
("BMO") that provides Fountain View with financing in the aggregate amount of up
to $115 million. The following summary of the material provisions of the New
Credit Facility does not purport to be complete, and is subject to, and
qualified in its entirety by reference to, (i) the Credit Agreement dated as of
April 16, 1998 among Fountain View, the Banks party thereto and BMO, as Agent
and (ii) the Loan Documents referenced therein.
While BMO committed to fund the entire amount of the credit facilities
described in the Summary of Terms, subject to the conditions described therein,
BMO has formed a syndicate to participate in the New Credit Facility, and in the
future may add financial institutions and other investors (collectively with
BMO, the "Lenders") to such syndicate, who shall be reasonably acceptable to
Fountain View, to join with BMO in providing the financing. BMO will act as
agent for the Lenders (the "Agent"). The New Credit Facility commitments of the
Lenders, which, after syndication, will be several and not joint, were allocated
among (i) a $30 million revolving credit facility (the "Revolving Credit
Facility"), with a $4 million sublimit for letters of credit (with BMO as the
issuing bank), and (ii) one or more term loan facilities in an aggregate amount
of up to $85.0 million (collectively, the "Term Loan Facility"). The proceeds of
the New Credit Facility were used to refinance certain indebtedness incurred by
Fountain View in connection with the Tender Offer and the Merger, to refinance
certain indebtedness of Summit, to pay fees and expenses incurred in connection
with the Transactions (not to exceed $28 million) and to fund working capital
and capital expenditure needs of the Company and its subsidiaries and for other
general corporate purposes.
MATURITY AND PREPAYMENT. The Revolving Credit Facility will mature on April
16, 2004. The Term Loan Facility will be payable in installments with a final
maturity on March 31, 2004. The Term Loan amortization schedule is as follows:
year 1--$0; year 2--$5,000,000; year 3--$10,000,000; year 4--$20,000,000; year
5--$22,500,000; and year 6--$27,500,000. The New Credit Facility is also subject
to mandatory prepayment out of the net cash proceeds of certain asset sales,
issuances of equity, subordinated debt (excluding the Notes offered hereby) or
senior debt securities, as well as out of 85% of excess cash flow if a specified
leverage ratio is exceeded. Prepayments will be applied to reduce the Term Loan
Facility.
REPRESENTATIONS AND WARRANTIES. The credit documents relating to the New
Credit Facility contain customary representations and warranties, including with
respect to corporate status; corporate power, authority and enforceability; no
violation of law, contracts or organizational documents; no material litigation;
correctness of specified financial statements and no material adverse change; no
required governmental or third party approvals; use of proceeds and compliance
with margin regulations; status under the Investment Company Act of 1940; the
Employment Retirement Income Security Act of 1974, as amended ("ERISA");
environmental matters; perfected liens and security interests; and payment of
taxes.
COVENANTS. The credit documents contain usual and customary covenants,
including covenants with respect to delivery of financial statements and other
reports; compliance with laws; payment of taxes; maintenance of insurance;
limitations on liens; limitations on future mergers, consolidations, joint
ventures and partnerships; prohibitions on sale of all or a substantial part of
the Company's assets; limitations on the incurrence of debt; limitations on
dividends, stock redemptions and the redemption and/or prepayment of other debt;
limitations on investments and acquisitions; limitations on capital
expenditures; compliance with ERISA;
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limitations on transactions with affiliates; and a negative pledge, with certain
exceptions, for equipment financing. The credit documents also contain certain
financial covenants, including a minimum fixed charge coverage ratio, a maximum
leverage ratio and a minimum net worth test.
INTEREST AND FEES. Pursuant to the terms of New Credit Facility, Fountain
View may elect to have the interest rate on loans outstanding under the
Revolving Credit Facility and loans outstanding under the Term Loan Facility
bear interest at the LIBOR or the applicable alternate base rate (defined as the
higher of the federal funds rate plus 0.50% or BMO's base rate), in each case
plus an applicable margin which will vary between 1.75% and 2.75% for LIBOR
loans and between 0.75% and 1.75% for alternate base rate loans, depending upon
the ratio of the sum of Fountain View's total funded debt plus a multiple of its
operating rents to EBITDAR. During the continuance of an event of default, a
default interest rate equal to 2.00% above the rate otherwise in effect shall
apply. The Company will pay a commitment fee of 0.50% on the unused portion of
the Revolving Credit Facility. The Company will also pay BMO, as Agent, a
customary annual administration fee.
EVENTS OF DEFAULT; REMEDIES. The New Credit Facility contains customary
events of default, including with respect to nonpayment of principal, interest,
fees or other amounts; violation of covenants; inaccuracy of representations and
warranties; cross-default to other material agreements and indebtedness;
bankruptcy; material judgments; ERISA; and actual or asserted invalidity of any
loan documents or security interest.
INDEMNIFICATION. Under the New Credit Facility, the Company will indemnify
the Lenders from and against all losses, liabilities, claims, damages or
expenses relating to their loans and the Company's use of loan proceeds or the
commitments, including but not limited to, reasonable attorneys' fees and
settlement costs.
SECURITY AND GUARANTEES. The New Credit Facility contains a perfected first
lien on all of the Company's assets, both tangible and intangible, including
without limitation, cash, cash equivalents, inventory, accounts receivable,
property, plant and equipment, intangibles, bank accounts, instruments,
securities, contract rights and other agreements, and the stock of or other
equity interests in all currently owned or to be acquired subsidiaries of the
Company (other than the capital stock of Alexandria Convalescent Hospital,
Inc.). The New Credit Facility is fully guaranteed by all existing and future
subsidiaries of the Company. The guarantees are secured by a perfected first
lien on all assets of the subsidiaries of the Company.
RECENT AMENDMENT. On October 6, 1998 the Company amended its $85.0 million
term-loan credit agreement with the bank extending $5.0 million of additional
mortgage refinancing loans to the Company. The Company used the proceeds to
finance the exercise of capital lease purchase options on two skilled nursing
facilities in Texas.
BMO is an affiliate of Nesbitt Burns Securities Inc., one of the Initial
Purchasers of the Notes. One of the other Lenders is Banque Paribas, an
affiliate of Paribas Corporation, one of the Initial Purchasers of the Notes,
and another affiliate of Paribas Corporation is a Fountain View stockholder.
CAPITAL LEASES
In addition to the indebtedness described above, Summit is also party to
seven capital leases for certain of its facilities. All of these capital leases
contain purchase options and certain of these leases contain various renewal
options and extend up to the year 2030. For the year ended June 30, 1997,
property and equipment of Summit includes the following amounts for
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leases which have been capitalized (assuming the purchase options contained in
these leases will be exercised):
(DOLLARS IN THOUSANDS)
----------------------
Land and land improvements............ $ 1,400
Buildings and leasehold improvements.. 21,481
Furniture and equipment............... 2,405
-------
25,286
Less accumulated amortization......... 2,070
-------
$23,216
=======
The minimum rental payments for the next five years under noncancellable
capital leases (including purchase options when expected to be exercised) that
have initial or remaining lease terms in excess of one year as of the year ended
June 30, 1997 are $3,321,000, $4,634,000, $4,297,000, $350,000 and $350,000 for
1998, 1999, 2000, 2001 and 2002, respectively.
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THE EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $7,520,000 aggregate
principal amount of Exchange Notes for a like aggregate principal amount of
Outstanding Notes properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to all of the Outstanding Notes; the total
aggregate principal amount of Outstanding Notes and Exchange Notes will in no
event exceed $7,520,000.
PURPOSE OF THE EXCHANGE OFFER
On April 16, 1998, the Company issued $120.0 million aggregate principal
amount of Outstanding Notes. The issuance of the Outstanding Notes was not
registered under the Securities Act in reliance upon exemptions provided in Rule
144A and Regulation S under the Securities Act.
The Company, the Guarantors and the Initial Purchasers entered into the
Registration Rights Agreement on the Closing Date. Pursuant to the Registration
Rights Agreement, the Company and the Guarantors agreed to use commercially
reasonable efforts to file with the Commission on Exchange Offer Registration
Statement on the appropriate form under the Securities Act with respect to the
Exchange Notes. The Exchange Offer Registration Statement was declared
effective on September 9, 1998, and approximately $112,480,000 face amount of
the Outstanding Notes were exchanged for $112,480,000 face amount of Exchange
Notes. Nesbitt Burns Securities Inc. failed to exchange its Outstanding Notes
before the expiration of the exchange offer. As a result, the Company, at the
request of Nesbitt Burns Securities Inc., is filing a new Exchange Offer
Registration Statement to cover the Exchange of the notes.
Holders of such notes will be required to make certain representations to
the Company and the Guarantors in order to participate in the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 P.M., New York City time, on
____________, 1999, unless the Company, in its sole discretion, has extended the
period of time (as described below) for which the Exchange Offer is open (such
date, as it may be extended, is referred to herein as the "Expiration Date").
The Expiration Date will be at least 20 business days after the commencement of
the Exchange Offer (or longer if required by applicable law). The Company
expressly reserves the right, at any time or from time to time, to extend the
period of time during which the Exchange Offer is open, and thereby delay
acceptance for exchange of any Outstanding Notes by giving oral notice
(confirmed in writing) or written notice to the Exchange Agent (as defined
herein) and by giving written notice of such extension to the holders thereof or
by timely public announcement communicated, unless otherwise required by
applicable law or regulation, by making a release through the Dow Jones News
Service, in each case, no later than 9:00 A.M. New York City time, on the next
business day after the previously scheduled Expiration Date. Such announcement
may state that the Company is extending the Exchange Offer for a specified
period of time. During any such extension, all Outstanding Notes previously
tendered will remain subject to the Exchange Offer.
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In addition, the Company expressly reserves the right to terminate or amend
the Exchange Offer and not to accept for exchange any Outstanding Notes not
theretofore accepted for exchange upon the occurrence of any of the events
specified below under "-- Certain Conditions to the Exchange Offer". If any such
termination or amendment occurs, the Company will notify the Exchange Agent and
will either issue a press release or give oral or written notice to the holders
of the Outstanding Notes as promptly as practicable.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
The tender to the Company of Outstanding Notes by a holder thereof as set
forth below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of Outstanding Notes may tender the same by (i) properly
completing and signing the Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to the Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the Outstanding Notes being tendered,
if any, and any required signature guarantees, to the Exchange Agent at its
address set forth below on or prior to 5:00 p.m., New York City time, on the
Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below. THE METHOD OF DELIVERY OF OUTSTANDING Notes, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, OR AN OVERNIGHT OR HAND
DELIVERY SERVICE, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
INSURE TIMELY DELIVERY. NO OUTSTANDING NOTES OR LETTERS OF TRANSMITTAL SHOULD BE
SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Outstanding Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Outstanding Notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution (as defined herein). In the
event that signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guarantee must be by a
participant in a recognized signature guaranty medallion program (each an
"Eligible Institution"). If Outstanding Notes are registered in the name of a
person other than a signer of the Letter of Transmittal, the Outstanding Notes
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Outstanding Notes at the
book-entry transfer facility, The Depository Trust Company, for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of Outstanding Notes by causing
such book-entry transfer facility to transfer such Outstanding Notes into the
Exchange Agent's account with respect to the Outstanding Notes in accordance
with the book-entry transfer facility's procedures for such transfer. Although
delivery of Outstanding Notes may be effected
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through book-entry transfer in the Exchange Agent's account at the book-entry
transfer facility, an appropriate Letter of Transmittal with any required
signature guarantee and other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Outstanding Notes to reach the Exchange Agent before
the Expiration Date or the procedure for book-entry transfer cannot be completed
on a timely basis, a tender may be effected if the Exchange Agent has received
at its address or facsimile number set forth below on or prior to the Expiration
Date a letter, telegram or facsimile from an Eligible Institution setting forth
the name and address of the tendering holder, the name in which the Outstanding
Notes are registered and, if possible the certificate number or numbers of the
certificate or certificates representing the Outstanding Notes to be tendered,
and stating that the tender is being made thereby and guaranteeing that within
three business days after the Expiration Date the Outstanding Notes in proper
form for transfer (or a confirmation of book-entry transfer of such Outstanding
Notes into the Exchange Agent's account at the book-entry transfer facility),
will be delivered by such Eligible Institution together with a properly
completed and duly executed Letter of Transmittal (and any other required
documents). Unless Outstanding Notes being tendered by the above-described
method are deposited with the Exchange Agent within the time period set forth
above (accompanied or preceded by a properly completed Letter of Transmittal and
any other required documents), the Company may, at its option, reject the
tender. Copies of a Notice of Guaranteed Delivery which may be used by an
Eligible Institution for the purposes described in this paragraph are available
from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Outstanding Notes (or a confirmation of book-entry transfer
of such Outstanding Notes into the Exchange Agent's account at the book-entry
transfer facility) is received by the Exchange Agent, or (ii) a Notice of
Guaranteed Delivery or letter, telegram or facsimile to similar effect (as
provided above) from an Eligible Institution is received by the Exchange Agent.
Issuances of Exchange Notes in exchange for Outstanding Notes tendered pursuant
to a Notice of Guaranteed Delivery or letter, telegram or facsimile to similar
effect (as provided above) by an Eligible Institution will be made only against
deposit of the Letter of Transmittal (and any other required documents) and the
tendered Outstanding Notes. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of Outstanding Notes tendered for
exchange will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
right to reject any and all tenders of any particular Outstanding Notes not
properly tendered or reject any particular shares of Outstanding Notes the
acceptance of which might, in the judgment of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities or condition of the Exchange Offer as to any particular
Outstanding Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Outstanding
Notes in the Exchange Offer). The interpretation of the terms and conditions of
the Exchange Offer (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Outstanding
Notes for exchange must be cured within such time as the Company shall
determine. Neither the Company nor any other person shall be under any duty to
give notification of defects or irregularities with respect to tenders of
Outstanding Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
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If the Letter of Transmittal or any Outstanding Notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted.
By tendering, each holder that is not a broker-dealer or is a broker-dealer
but is not receiving Exchange Notes for its own account will represent to the
Company that the Exchange Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of such holder's business, that such
holder has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes and that such holder is not an "affiliate"
of the Company as defined in Rule 405 under the Securities Act or, if it is an
affiliate, such holder will comply with the registration and prospectus delivery
requirements of the Securities Act, to the extent applicable. Each broker-dealer
that is receiving Exchange Notes for its own account in exchange for Outstanding
Notes that were acquired as a result of market-making or other trading
activities will represent to the Company that it will deliver a prospectus in
connection with any resale of such Outstanding Notes. In addition, the Letter of
Transmittal requires each holder to represent and warrant that (a) the holder
accepts the terms and conditions of the Exchange Offer, (b) the holder has a net
long position within the meaning of Rule 14e-4 under the Exchange Act ("Rule
14e-4") equal to or greater than the principal amount of Outstanding Notes being
tendered, (c) the tender of such Outstanding Notes complies with Rule 14e-4 (to
the extent that Rule 14e-4 is applicable to such exchange), (d) the holder has
full power and authority to tender, exchange, assign and transfer the
Outstanding Notes being tendered, and (e) when the same are accepted for
exchange by the Company, the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim or right.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Outstanding Notes that remain outstanding
subsequent to the Expiration Date, or, as set forth under "--Certain Conditions
to the Exchange Offer", to terminate the Exchange Offer and (b) to the extent
permitted by applicable law, purchase Outstanding Notes in the open market, in
privately negotiated transactions or otherwise. The terms of any such purchases
or offers may differ from the terms of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of Outstanding Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the business day prior to the Expiration Date. For
a withdrawal to be effective, a written notice of withdrawal sent by letter,
telegram or facsimile must be received by the Exchange Agent at any time prior
to 5:00 p.m., New York City time, on the business day prior to the Expiration
Date at its address or facsimile number set forth below. Any such notice of
withdrawal must (i) specify the name of the person having tendered the
Outstanding Notes to be withdrawn (the "Depositor"), (ii) identify the
Outstanding Notes to be withdrawn (including the certificate number of numbers
of the certificate or certificates representing such Outstanding Notes and the
aggregate principal amount of such Outstanding Notes), (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Outstanding Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to permit the
Transfer Agent with respect to the Outstanding Notes to register the transfer of
such Outstanding Notes into the name of the person withdrawing the tender and
(iv) specify the name in which any such Outstanding Notes are to be registered,
if different from that of the Depositor. All questions as to the validity, form
and eligibility (including time of receipt) of such withdrawal notices will be
determined by the
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Company in its sole discretion, which determination will be final and binding on
all parties. Any Outstanding Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no Exchange Notes will
be issued with respect thereto unless the Outstanding Notes so withdrawn are
validly retendered. Any Outstanding Notes which have been tendered but which are
withdrawn will be returned to the holder thereof without cost to such holder as
soon as practicable after such withdrawal. Properly withdrawn Outstanding Notes
may be retendered by following one of the procedures described above under "--
Procedures for Tendering Outstanding Notes" at any time prior to the Expiration
Date.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Outstanding
Notes properly tendered and will issue the Exchange Notes promptly after
acceptance of the Exchange Offer. See "-- Certain Conditions to the Exchange
Offer" below. For purposes of the Exchange Offer, the Company will be deemed to
have accepted properly tendered Outstanding Notes for exchange when the Company
has given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of the Exchange Notes in exchange for Outstanding
Notes pursuant to the Exchange Offer will be made only after timely receipt by
the Company of such Outstanding Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents. If any tendered
Outstanding Notes are not accepted for exchange for any reason set forth in the
terms and conditions of the Exchange Offer, such unaccepted Outstanding Notes
will be returned without expense to the tendering holder thereof as promptly as
practicable after the rejection of such tender or the expiration or termination
of the Exchange Offer.
UNTENDERED OUTSTANDING NOTES
Holders of Outstanding Notes whose Outstanding Notes are not tendered or
are tendered but not accepted in the Exchange Offer will continue to hold such
Outstanding Notes and will be entitled to all the rights and preferences and
subject to the limitations applicable thereto. Following consummation of the
Exchange Offer, the holders of Outstanding Notes will continue to be subject to
the existing restrictions upon transfer thereof and, except as provided herein,
the Company will have no obligation to such holders to provide for the
registration under the Securities Act of the Outstanding Notes held by them. To
the extent that Outstanding Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Outstanding
Notes could be adversely affected.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or issue Exchange Notes in exchange for, any
Outstanding Notes, and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Outstanding Notes for exchange, any of the
following events shall occur:
(A) an injunction, order or decree shall have been issued by any
court or governmental agency that would prohibit, prevent or otherwise
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(B) there shall occur a change in the current interpretation of the
staff of the Commission which current interpretation permits the Exchange
Notes issued pursuant to the Exchange
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Offer in exchange for the Outstanding Notes to be offered for resale,
resold and otherwise transferred by holders thereof (other than (i) a
broker-dealer who purchases such Exchange Notes directly from the Company
to resell pursuant to Rule 144A, Regulation S or any other available
exemption under the Securities Act or (ii) a person that is an affiliate of
the Company within the meaning of Rule 405 under the Securities Act),
without compliance with the registration and prospectus delivery provisions
of the Securities Act provided that such Exchange Notes are acquired in the
ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of Exchange
Notes.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Outstanding Notes and
return any Outstanding Notes that have been tendered to the holders thereof,
(ii) extend the Exchange Offer and retain all Outstanding Notes tendered prior
to the Expiration Date, subject to the rights of such holders of tendered shares
of Outstanding Notes to withdraw their tendered Outstanding Notes, or (iii)
waive such termination event with respect to the Exchange Offer and accept all
properly tendered Outstanding Notes that have not been withdrawn. If such waiver
constitutes a material change in the Exchange Offer, the Company will disclose
such change by means of a supplement to this Prospectus that will be distributed
to each registered holder of Outstanding Notes, and the Company will extend the
Exchange Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the Outstanding Notes, if the Exchange Offer would otherwise expire
during such period.
In addition, the Company will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, if at any time any stop order shall be threatened by the
Commission or in effect with respect to the Registration Statement.
The Exchange Offer is not conditioned on any minimum principal amount of
Outstanding Notes being tendered for exchange.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent
for the Exchange Offer. Questions regarding Exchange Offer procedures and
requests for additional copies of this Prospectus or the Letter of Transmittal
should be directed to the Exchange Agent addressed as follows:
By Mail:
By Hand:
or Overnight Delivery:
State Street Bank and Trust Company of California, N.A.
c/o State Street Bank and Trust Company
Two International Place
Boston, MA 02110
Attention: Kellie Mullen
Re: Fountain View, Inc.
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By Facsimile:
617-664-5290
Confirm by Telephone:
617-664-5587
State Street Bank and Trust Company of California, N.A. is also the
Transfer Agent for the Outstanding Notes and Exchange Notes.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptance of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The cash expenses to be incurred by the Company in
connection with the Exchange Offer will be paid by Nesbitt Burns Securities,
Inc.
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Outstanding Notes in any jurisdiction
in which the making of the Exchange Offer or the acceptance thereof would not be
in compliance with the laws of such jurisdiction.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Outstanding Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Outstanding Notes not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Outstanding Notes
tendered, or if tendered Outstanding Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of Exchange Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holders.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. Expenses incurred in connection
with the issuance of the Exchange Notes will be amortized by the Company over
the term of the Exchange Notes under generally accepted accounting principles.
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PLAN OF DISTRIBUTION
Based on interpretations of the staff of the Division of Corporation
Finance of the Commission set forth in no-action letters issued to third
parties, the Company believes that, except as described below, Exchange Notes
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by the respective holders thereof without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that (i) such Exchange Notes are acquired in the
ordinary course of such holder's business and (ii) such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution of the Exchange Notes. A holder of Outstanding
Notes that is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act or that is a broker-dealer that purchased Outstanding Notes
from the Company to resell pursuant to an exemption from registration under the
Securities Act (a) cannot rely on such interpretations by the staff of the
Division of Corporation Finance of the Commission, (b) will not be permitted or
entitled to tender such Outstanding Notes in the Exchange Offer and (c) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or other transfer of such Outstanding
Notes unless such sale or transfer is made pursuant to an exemption from such
requirements. In addition, any holder who tenders Outstanding Notes in the
Exchange Offer with the intention or for the purpose of participating in a
distribution of the Exchange Notes cannot rely on such interpretations by the
staff of the Division of Corporation Finance of the Commission and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with the secondary resale transaction. Unless an exemption from
registration is otherwise available, any such resale transaction should be
covered by an effective registration statement containing selling security
holders information required by Item 507 of Regulation S-K under the Securities
Act. To date, the staff of the Division of Corporation Finance of the Commission
has taken the position that a broker-dealer that has acquired securities in
exchange for securities that were acquired by such broker-dealer as a result of
market-making activities or other trading activities may fulfill the prospectus
delivery requirements with the prospectus contained in an exchange offer
registration statement.
Each holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company set forth in "The Exchange Offer-- Purpose of the
Exchange Offer".
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. This Prospectus may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Outstanding
Notes where such Outstanding Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of up to 180 days after the effective date of the Registration Statement,
it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Risk Factors--Absence of Public Market for
the Notes" and "The Exchange Offer--Procedures for Tendering Outstanding Notes".
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such
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resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-
dealer that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit from any such resale of
Exchange Notes and any commissions or concessions received by any such person
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the effective date of the Registration
Statement, the Company will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any participating broker-
dealer that requests such documents in the Letter of Transmittal. Nesbitt Burns
Securities Inc. has agreed to pay the expenses incident to the Exchange Offer,
other than any discounts or commissions incurred upon the sale of the Exchange
Notes. The Company will indemnify each participating broker-dealer selling
Exchange Notes against certain liabilities, including liabilities under the
Securities Act.
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DESCRIPTION OF NOTES
GENERAL
Except as otherwise indicated, the following description relates both to
the Outstanding Notes issued in the Note Offering and the Exchange Notes,
together with the Exchange Guarantees, to be issued in exchange for the
Outstanding Notes in the Exchange Offer. The form and terms of the Exchange
Notes are the same as the form and terms of the Outstanding Notes, except that
the Exchange Notes have been registered under the Securities Act and therefore
will not bear legends restricting the transfer thereof. The Exchange Notes will
be obligations of the Company evidencing the same indebtedness as the
Outstanding Notes. The Outstanding Notes were issued, and the Exchange Notes
offered hereby will be issued, pursuant to an Indenture (the "Indenture")
between the Company, the Guarantors and State Street Bank and Trust Company of
California, N.A., as trustee (the "Trustee"), in a private transaction that is
not subject to the registration requirements of the Securities Act. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture
Act"). The Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of the material provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. Copies
of the form of Indenture are available as set forth below under "--Additional
Information". The definitions of certain terms used in the following summary are
set forth below under "--Certain Definitions". For purposes of this summary, the
term "Company" refers only to Fountain View, Inc. and not to any of its
Subsidiaries.
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all current and future Senior Debt. As of
September 30, 1998, the Company had Senior Debt of approximately $125.6 million,
$15.0 million of mandatory redeemable preferred stock and, through its
Subsidiaries, would have had additional liabilities (including trade payables)
aggregating approximately $44.2 million. The Indenture permits the incurrence of
additional Senior Debt in the future.
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Notes. The Notes are
effectively subordinated to all Indebtedness and other liabilities and
commitments (including trade payables) of the Company's Subsidiaries. Any right
of the Company to receive assets of any of its Subsidiaries upon the latter's
liquidation or reorganization (and the consequent right of the Holders of the
Notes to participate in those assets) will be effectively subordinated to the
claims of that Subsidiary's creditors, except to the extent that the Company is
itself recognized as a creditor of such Subsidiary, in which case the claims of
the Company would still be subordinate to any security in the assets of such
Subsidiary and any indebtedness of such Subsidiary senior to that held by the
Company. As of September 30, 1998, the Company's Subsidiaries had approximately
$20.5 million of Indebtedness, $44.2 million of trade payables and other
liabilities outstanding and $15.0 million of mandatory redeemable preferred
stock. See "Risk Factors--Ability of Company to Obtain Funds from Subsidiaries".
As of the date of the Indenture, all of the Company's Subsidiaries are
Restricted Subsidiaries. However, under certain circumstances, the Company will
be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
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PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $120.0 million and
will mature on April 15, 2008. Interest on the Notes accrues at the rate of 11
1/4% per annum and will be payable semi-annually in arrears on April 15 and
October 15, commencing on October 15, 1998, to Holders of record on the
immediately preceding April 1 and October 1. Interest on the Notes accrues from
the most recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance. Interest is computed on the basis of a
360-day year comprised of twelve 30-day months. Principal, premium, if any, and
interest and Liquidated Damages on the Notes is payable at the office or agency
of the Company maintained for such purpose within the City and State of New York
or, at the option of the Company, payment of interest and Liquidated Damages may
be made by check mailed to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes; provided that all
payments of principal, premium, interest and Liquidated Damages with respect to
Notes the Holders of which have given wire transfer instructions to the Company
will be required to be made by wire transfer of immediately available funds to
the respective accounts specified by the Holders thereof. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Notes will be issued
in denominations of $1,000 and integral multiples thereof.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes are jointly and severally
guaranteed by the Guarantors. The Guarantee of each Guarantor are unsecured and
subordinated to the prior payment in full of all Senior Debt of such Guarantor,
which as of September 30, 1998 included approximately $125.6 million of Senior
Debt and the amounts for which the Guarantors are liable under the guarantees
issued from time to time with respect to Senior Debt, including guarantees of
all Obligations under the New Credit Facility. The Subsidiary Guarantees provide
that the Obligations of each Guarantor thereunder are limited so as not to
constitute a fraudulent conveyance under applicable law. See, however, "Risk
Factors--Fraudulent Transfer Considerations".
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor under the Registration
Rights Agreement and, pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under the Notes and the Indenture; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists; and (iii) except in the case of a merger of a Guarantor with or
into another Guarantor or a merger of a Guarantor with or into the Company, the
Company would be permitted by virtue of the Company's pro forma Fixed Charge
Coverage Ratio, immediately after giving effect to such transaction, to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the covenant described below under the caption "--
Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock".
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor (other than to the Company or another
Guarantor), by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the Capital Stock of any Guarantor (other than to the
Company or another Guarantor), then such Guarantor (in the event of a sale or
other disposition, by way of such a merger, consolidation or otherwise, of all
of the
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capital stock of such Guarantor) or the entity acquiring the property (in the
event of a sale or other disposition of all of the assets of such Guarantor)
will be released and relieved of any obligations under its Subsidiary Guarantee
and any such acquiring entity will not be required to assume any obligations of
such Guarantor under the applicable Subsidiary Guarantee; provided that the Net
Proceeds of such sale or other disposition are applied in accordance with the
applicable provisions of the Indenture. See "Repurchase at Option of Holders--
Asset Sales".
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes is
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Debt, whether outstanding on the date of the
Indenture or thereafter incurred.
Upon any distribution to creditors of the Company or any Guarantor in a
liquidation or dissolution of the Company or any Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or any Guarantor or its property, an assignment for the benefit of
creditors or any marshaling of the Company's or any Guarantor's assets and
liabilities, the holders of Senior Debt will be entitled to receive payment in
full of all Obligations due in respect of such Senior Debt (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Senior Debt) before the Holders of Notes will be entitled to receive
any payment with respect to the Notes, and until all Obligations with respect to
Senior Debt are paid in full, any distribution to which the Holders of Notes
would be entitled shall be made to the holders of Senior Debt (except that
Holders of Notes may receive and retain Permitted Junior Securities and payments
made from the trust described under "--Legal Defeasance and Covenant
Defeasance").
The Company and the Guarantors also may not make any payment upon or in
respect of the Notes or the Guarantees (except in Permitted Junior Securities or
from the trust described under "--Legal Defeasance and Covenant Defeasance") if
(i) a default in the payment of the principal of, premium, if any, or interest
on Senior Debt occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Debt that permits holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity and the Trustee receives a notice of
such default (a "Payment Blockage Notice") from the Company or the holders of
any Designated Senior Debt. Payments on the Notes may and shall be resumed (a)
in the case of a payment default, upon the date on which such default is cured
or waived and (b) in case of a nonpayment default, the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received by the Trustee, unless
the maturity of any Designated Senior Debt has been accelerated. No new period
of payment blockage under clause (ii) above may be commenced unless and until
(i) 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice and (ii) all scheduled payments of principal, premium,
if any, and interest on the Notes that have come due have been paid in full in
cash. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been waived for a period of not less than 180 days.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company and the
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Guarantors who are holders of Senior Debt. The principal amount of Senior Debt
outstanding at September 30, 1998 was approximately $125.6 million. The
Indenture limits, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Debt, that the Company and its Subsidiaries can
incur. See "--Certain Covenants-- Incurrence of Indebtedness and Issuance of
Preferred Stock".
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to April 15,
2003. Thereafter, the Notes will be subject to redemption at any time or from
time to time at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on April 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003................................................... 105.625%
2004................................................... 103.750
2005................................................... 101.875
2006 and thereafter.................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 15, 2001, the
Company may redeem up to 35% of the aggregate principal amount of Notes
originally issued under the Indenture at a redemption price of 111.25% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of
one or more Public Equity Offerings by the Company; provided that at least $78.0
million in aggregate principal amount of Notes remain outstanding immediately
after the occurrence of such redemption (excluding Notes held by the Company and
its Subsidiaries); and provided, further, that such redemption shall occur
within 60 days of the date of the closing of such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. Notices of redemption may not be conditional. If any Note is
to be redeemed in part only, the notice of redemption that relates to such Note
shall state the portion of the principal amount thereof to be redeemed. A new
Note in principal amount equal to the unredeemed portion thereof will be issued
in the name of the Holder thereof upon cancellation of the original Note. Notes
called for redemption become due on the date fixed for redemption. On and after
the redemption date, interest ceases to accrue on Notes or portions of them
called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
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REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within fifteen Business Days following any Change
of Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by the Indenture and described in such notice. The Company comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture will provide
that, prior to complying with the provisions of this covenant, but in any event
within 90 days following a Change of Control, the Company will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of Notes
required by this covenant. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The New Credit Facility currently prohibits the Company from purchasing any
Notes and also provides that certain change of control events, including,
without limitation, a Change of Control, with respect to the Company would
constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing Notes, the
Company could seek the consent of its lenders to the purchase of Notes or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the
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Indenture which would, in turn, constitute a default under the New Credit
Facility. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all", there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash; provided that the amount of (x) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet), of
the Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or the Subsidiary
Guarantees thereof) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) in the case of any Asset
Sale constituting the transfer (by merger or otherwise) of all of the Capital
Stock of a Restricted Subsidiary, any liabilities (as shown on such Restricted
Subsidiary's most recent balance sheet) of such Restricted Subsidiary (other
than contingent liabilities and liabilities that are by their terms subordinated
to the Notes or the Subsidiary Guarantees) that will remain outstanding after
such transfer and will not be a liability of the Company or any other Restricted
Subsidiary of the Company following such transfer and (z) any securities, notes
or other obligations received by the Company or any such Restricted Subsidiary
from such transferee that are contemporaneously (subject to ordinary settlement
periods) converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received), shall be deemed to be cash for purposes of
this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to repay Senior
Debt, or (b) to the acquisition of a majority of the assets of, or a majority of
the Voting Stock of, a Healthcare Related Business, the making of a capital
expenditure or the acquisition of other long-term assets for use in a Healthcare
Related Business. Pending the final application of any such Net Proceeds, the
Company may temporarily reduce revolving credit borrowings or otherwise invest
such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be
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deemed to constitute "Excess Proceeds". When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company will be required to make an offer to
all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase, in accordance with the procedures set forth in the Indenture. To
the extent that any Excess Proceeds remain after consummation of an Asset Sale
Offer, the Company may use such Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount of Notes tendered
into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company or any of its Restricted Subsidiaries) or to the direct or
indirect holders of the Company's or any of its Restricted Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or to
the Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem or
otherwise acquire or retire for value (including, without limitation, in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company; (iii)
make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated to
the Notes except a payment of interest or principal at Stated Maturity, or (iv)
make any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv), (vi) and (vii) of the next succeeding
paragraph), is less than the sum, without duplication, of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
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such deficit), plus (ii) 100% of the aggregate net cash proceeds received
by the Company since the date of the Indenture as a contribution to its
common equity capital or from the issue or sale of Equity Interests of the
Company (other than Disqualified Stock) or from the issue or sale of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company), plus (iii) to the extent that any Restricted Investment that
was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) and (B) the initial amount of such Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Indebtedness that is subordinated to the Notes or Equity
Interests of the Company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of, other Equity Interests of the Company (other than any Disqualified
Stock); provided that the amount of any such net cash proceeds that are utilized
for any such redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of Indebtedness that is
subordinated to the Notes with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; (iv) the payment of any dividend (in cash or
otherwise) by a Restricted Subsidiary of the Company to the holders of its
common Equity Interests on a pro rata basis; and (v) the repurchase, redemption
or other acquisition or retirement for value of any Equity Interests of the
Company or any Restricted Subsidiary of the Company held by any member of the
Company's (or any of its Restricted Subsidiaries') management pursuant to any
management equity subscription agreement, stock option agreement or employment
agreement; provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $2.0 million in
any twelve-month period and no Default or Event of Default shall have occurred
and be continuing immediately after such transaction; (vi) the repurchase,
redemption or other acquisition or retirement for value of any Equity Interests
of the Company or any Subsidiary of the Company held by any member of the
Company's (or any of its Subsidiaries') management pursuant to any management
equity subscription agreement, stock option agreement or employment agreement,
provided that the purchase price is paid with the proceeds to the Company of key
man life insurance or disability insurance policies purchased by the Company
specifically to finance any such repurchase, redemption or other acquisition; or
(vii) the payment of the Transaction Related Payments.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant or Permitted Investments, as
applicable. All such outstanding investments will be deemed to constitute
Restricted Investments in an amount equal to the greatest of (x) the net book
value of such Investments at the time of such designation, (y) the fair market
value of such Investments at the time of such designation and (z) the original
fair market value of such Investments at the time they were made. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted
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Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if such redesignation would not cause a Default.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
assets or securities that are required to be valued by this covenant shall be
determined by the Board of Directors whose resolution with respect thereto shall
be delivered to the Trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if such fair market value exceeds $10.0 million. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed, together with a copy of any
fairness opinion or appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock,
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock and the Company's Subsidiaries may
incur Indebtedness or issue preferred stock if the Fixed Charge Coverage Ratio
for the Company's most recently ended four full fiscal quarters (excluding any
fiscal quarters ending prior to July 1, 1997) for which internal financial
statements are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock or preferred stock is issued
would have been at least 2.0 to 1, determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock or preferred stock had
been issued, as the case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company of Indebtedness and letters of
credit (with letters of credit being deemed to have a principal amount
equal to the stated amount thereof) and other obligations under Credit
Facilities in an aggregate principal amount that does not exceed at any one
time $115.0 million less the aggregate amount of all Net Proceeds of Asset
Sales applied by the Company or any of its Subsidiaries to repay
Indebtedness under such Credit Facilities pursuant to the covenant
described above under the caption "--Asset Sales" (other than temporary
paydowns pending application of such Net Proceeds);
(ii) the incurrence by the Company and the Guarantors of the Existing
Indebtedness and the issuance of the Existing Disqualified Stock;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes in an aggregate principal amount not to exceed $120.0 million;
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(iv) the incurrence by the Company or any of the Guarantors of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Subsidiary, in an aggregate principal amount, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any other Indebtedness incurred pursuant to this clause (iv), that does not
exceed at any one time the amount of such Capital Lease Obligations,
mortgage financings or purchase money obligations outstanding as of the
date of the Indenture, plus $5.0 million;
(v) the incurrence by the Company or any of the Guarantors of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to be
incurred under the first paragraph hereof or clauses (ii) or (iv) of this
paragraph;
(vi) the incurrence by the Company or any of the Guarantors of
intercompany Indebtedness between or among the Company and any Guarantor;
provided, however, that (i) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the Notes and
(ii)(A) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the
Company or a Guarantor thereof and (B) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a Guarantor
thereof shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Guarantor, as the case may be, that was
not permitted by this clause (vi);
(vii) the incurrence by the Company or any of the Guarantors of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of this Indenture to be outstanding;
(viii) the guarantee by the Company or any of its Subsidiaries or any
of the Guarantors of Indebtedness of the Company or another Guarantor that
was permitted to be incurred by another provision of this covenant;
(ix) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (ix), and
the issuance of preferred stock by Unrestricted Subsidiaries; and
(x) the incurrence by the Company or any of the Guarantors of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (x), not to exceed $5.0
million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (x) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional
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Indebtedness with the same terms, and the payment of dividends on Disqualified
Stock in the form of additional shares of the same class of Disqualified Stock
will not be deemed to be an incurrence of Indebtedness or an issuance of
Disqualified Stock for purposes of this covenant; provided, in each such case,
that the amount thereof is included in Fixed Charges of the Company as accrued
(to the extent not already included in Fixed Charges).
Liens
Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind on any asset now owned or hereafter
acquired, securing Indebtedness or trade payables, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries. However, the
foregoing restrictions will not apply to encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided that
such amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are not materially more restrictive,
taken as a whole, with respect to such dividend and other payment restrictions
than those contained in the agreements governing such Existing Indebtedness as
in effect on the date of the Indenture, (b) the New Credit Facility as in effect
as of the date of the Indenture, or other Credit Facilities entered into
subsequent to the date of the Indenture, and in either case any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such other Credit Facilities
or amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are not materially more restrictive,
taken as a whole, with respect to such dividend and other payment restrictions
than those contained in the New Credit Facility as in effect on the date of the
Indenture, (c) the Indenture and the Notes, (d) applicable law, (e) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of the Indenture to be incurred, (f) customary non-assignment
provisions in leases and other contracts and other contracts entered into in the
ordinary course of business and consistent with past practices, (g) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (h) any agreement for the sale of a Subsidiary or a
substantial proportion of such Subsidiary's assets that restricts distributions
by that Subsidiary pending its sale, (i) Permitted Refinancing Indebtedness,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness
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are not materially more restrictive, taken as a whole, than those contained in
the agreements governing the Indebtedness being refinanced, (j) secured
Indebtedness otherwise permitted to be incurred pursuant to the provisions of
the covenant described above under the caption "--Liens" that limits the right
of the debtor to dispose of the assets securing such Indebtedness, (k)
provisions with respect to the disposition or distribution of assets or property
in joint venture agreements and other similar agreements entered into in the
ordinary course of business and (l) restrictions on cash or other deposits or
net worth imposed by customers under contracts entered into in the ordinary
course of business.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any state
thereof or the District of Columbia; (ii) except in the case of a merger or
consolidation of the Company with or into a Wholly Owned Restricted Subsidiary
of the Company, the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, conveyance or other disposition shall
have been made assumes all the obligations of the Company under the Registration
Rights Agreement, the Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) except in
the case of a merger of the Company with or into a Wholly Owned Subsidiary of
the Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made (A)
will have Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of the Company immediately preceding the
transaction and (B) will, immediately after such transaction after giving pro
forma effect thereto and any related financing transaction as if the same had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
above under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock". The Indenture provides that the Company shall not lease its properties
and assets substantially as an entirety to any Person.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction
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complies with clause (i) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors
and (b) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0 million, an
opinion as to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment banking
firm of national standing. Notwithstanding the foregoing, the following items
shall not be deemed to be Affiliate Transactions: (i) any employment agreement
entered into by the Company or any of its Subsidiaries in the ordinary course of
business and consistent with the past practice of the Company or such
Subsidiary, (ii) transactions between or among the Company and/or its Restricted
Subsidiaries, (iii) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of the Company, (iv) any sale or other issuance of Equity
Interests (other than Disqualified Stock) of the Company, (v) Restricted
Payments that are permitted by the provisions of the Indenture described above
under the caption "--Restricted Payments", and (vi) Existing Affiliate
Transactions.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company may enter into a sale and leaseback
transaction if (i) the Company could have incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "--Incurrence of
Additional Indebtedness and Issuance of Preferred Stock", (ii) the gross cash
proceeds of such sale and leaseback transaction are at least equal to the fair
market value (as determined in good faith by the Board of Directors and set
forth in an Officers' Certificate delivered to the Trustee) of the property that
is the subject of such sale and leaseback transaction and (iii) the transfer of
assets in such sale and leaseback transaction is permitted by, and the Company
applies the proceeds of such transaction in compliance with, the covenant
described above under the caption "--Asset Sales".
Senior Subordinated Debt
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
expressly subordinate or junior in right of payment to any Senior Debt and
senior in any respect in right of payment to the Notes, and (ii) no Guarantor
will incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is expressly subordinate or junior in right of payment to the
Senior Guarantees and senior in any respect in right of payment to the
Guarantees.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
is paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
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Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall acquire or create another Subsidiary after the date of the
Indenture, then such newly acquired or created Subsidiary shall become a
Guarantor and execute a Supplemental Indenture and deliver an Opinion of
Counsel, in accordance with the terms of the Indenture; provided, that all
Subsidiaries that have properly been designated as Unrestricted Subsidiaries in
accordance with the Indenture (i) shall not be subject to the requirements of
this covenant and (ii) shall be released from all Obligations under any
Guarantee, in each case for so long as they continue to constitute Unrestricted
Subsidiaries.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports, in each case within the
time periods specified in the Commission's rules and regulations. In addition,
following the consummation of the Exchange Offer, whether or not required by the
rules and regulations of the Commission, the Company will file a copy of all
such information and reports with the Commission for public availability within
the time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company and the Guarantors have agreed that, for so long as any Notes remain
outstanding, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act. Any materials
required to be furnished to Holders of Notes by this covenant shall discuss, in
reasonable detail, either on the face of the financial statements included
therein or in the footnotes thereto and in any Management's Discussion and
Analysis of Financial Condition and Results of Operations, the financial
condition and results of operations of the Company and its Restricted
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries of the Company.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due of
the principal of or premium, if any, on the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (iii) failure by the Company or
any of its Subsidiaries for 30 days after notice to comply with the provisions
described under the captions "--Change of Control", "--Asset Sales", "--
Restricted Payments" or "--Incurrence of Indebtedness and Issuance of Preferred
Stock"; (iv) failure by the Company or any of its Subsidiaries for 60 days after
notice to comply with any of its other agreements in the Indenture or the Notes;
(v) default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee now
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exists, or is created after the date of the Indenture, which default results in
the acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness the maturity of which has been so
accelerated, aggregates $5.0 million or more; (vi) failure by the Company or any
of its Restricted Subsidiaries to pay final judgments aggregating in excess of
$5.0 million, which judgments are not paid, discharged or stayed for a period of
60 days; (vii) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries; and (viii) except as permitted
by the Indenture, any Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid in any material respect or shall cease for any reason
to be in full force and effect or any Guarantor, or any Person acting on behalf
of any Guarantor, shall deny or disaffirm its obligations under its Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to April
15, 2003 by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to April 15, 2003, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest, Liquidated Damages or premium on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of
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Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages on
the outstanding Notes on the Stated Maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the Company
or any of its
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Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound, including, without limitation, the New Credit Facility; (vi) the Company
must have delivered to the Trustee an opinion of counsel to the effect that
after the 91st day following the deposit, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (vii) the Company must deliver to
the Trustee an Officers' Certificate stating that the deposit was not made by
the Company with the intent of preferring the Holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver; (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption "--
Repurchase at the Option of Holders"); (iii) reduce the rate of or change the
time for payment of interest on any Note; (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, Liquidated Damages,
if any, or interest on the Notes (except a rescission of acceleration of the
Notes by the Holders of at least a majority in aggregate principal amount of the
Notes and a waiver of the payment default that resulted from such acceleration);
(v) make any Note payable in money other than that stated in the Notes; (vi)
make any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of Notes to receive payments of principal of
or premium, if any, or interest on the Notes; (vii) waive a redemption payment
with respect to any Note (other than a payment required by one of the covenants
described above under the caption "--Repurchase at the Option of Holders"); or
(viii) make any change in the foregoing amendment and waiver provisions. In
addition, any amendment to the provisions of Article 10 of the Indenture (which
relate to subordination) will
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require the consent of the Holders of at least 75% in aggregate principal amount
of the Notes then outstanding if such amendment would adversely affect the
rights of Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's
assets, to make any change that would provide any additional rights or benefits
to the Holders of Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Fountain View, Inc., 11900 W. Olympic Blvd., Suite
680, Los Angeles, California 90064, Attention: Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The Outstanding Notes were offered and sold to qualified institutional
buyers in reliance on Rule 144A ("Rule 144A Notes"). The Outstanding Notes were
also offered and sold in offshore transactions in reliance on Regulation S
("Regulation S Notes"). Except as set forth below, the Outstanding Notes are
issued in registered, global form in minimum denominations of $1,000 and
integral multiples of $1,000 in excess thereof. Notes were issued at the Closing
only against payment in immediately available funds.
Rule 144A Notes are represented by one or more Notes in registered, global
form without interest coupons (collectively, the "Rule 144A Global Notes").
Regulation S Notes are represented by one or more Notes in registered, global
form without interest coupons (collectively, the "Regulation S Global Notes"
and, together with the Rule 144A Global Notes, the "Outstanding Global Notes").
The Outstanding Global Notes were deposited upon issuance
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with the Trustee as custodian for The Depository Trust Company ("DTC"), in New
York, New York, and registered in the name of DTC or its nominee, in each case
for credit to an account of a direct or indirect participant in DTC as described
below. Through and including the 40th day after the later of the commencement of
the Note Offering and the Closing (such period through and including such 40th
day, the "Restricted Period"), beneficial interests in the Regulation S Global
Notes could be held only through the Euroclear System ("Euroclear") and Cedel,
S.A. ("Cedel") (as indirect participants in DTC), unless transferred to a person
that took delivery through a Rule 144A Global Note in accordance with the
certification requirements described below. Beneficial interests in the Rule
144A Global Notes may not be exchanged for beneficial interests in the
Regulation S Global Notes at any time except in the limited circumstances
described below. See "--Exchanges Between Regulation S Notes and Rule 144A
Notes".
Except as set forth below, the Outstanding Global Notes may be transferred,
in whole and not in part, only to another nominee of DTC or to a successor of
DTC or its nominee. Beneficial interests in the Outstanding Global Notes may not
be exchanged for Outstanding Notes in certificated form except in the limited
circumstances described below. See "--Exchange of Book-Entry Notes for
Certificated Notes". Except in the limited circumstances described below, owners
of beneficial interests in the Outstanding Global Notes are not entitled to
receive physical delivery of Certificated Notes (as defined below).
Rule 144A Notes (including beneficial interests in the Rule 144A Global
Notes) are subject to certain restrictions on transfer and bear a restrictive
legend. Regulation S Notes also bear a restrictive legend. In addition,
transfers of beneficial interests in the Outstanding Global Notes are subject to
the applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of Euroclear and Cedel), which may
change from time to time.
The Trustee acts as Paying Agent and Registrar. The Outstanding Notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
Depository Procedures
The following description of the operations and procedures of DTC,
Euroclear and Cedel are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them from time to time. The
Company takes no responsibility for these operations and procedures and urges
investors to contact the system or their participants directly to discuss these
matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established
by it, (i) upon deposit of the Outstanding Global Notes, DTC credited the
accounts of Participants designated
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by the Initial Purchasers with portions of the principal amount of the
Outstanding Global Notes and (ii) ownership of such interests in the Outstanding
Global Notes is shown on, and the transfer of ownership thereof will be effected
only through, records maintained by DTC (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other owners of
beneficial interest in the Outstanding Global Notes).
Investors in the Rule 144A Global Notes may hold their interests therein
directly through DTC, if they are Participants in such system, or indirectly
through organizations (including Euroclear and Cedel) which are Participants in
such system. Investors in the Regulation S Global Notes must initially hold
their interests therein through Euroclear or Cedel, if they are participants in
such systems, or indirectly through organizations that are participants in such
systems. After the expiration of the Restricted Period (but not earlier),
investors may also hold interests in the Regulation S Global Notes through
Participants in the DTC system other than Euroclear and Cedel. Euroclear and
Cedel will hold interests in the Regulation S Global Notes on behalf of their
participants through customers' securities accounts in their respective names on
the books of their respective depositories, which are Morgan Guaranty Trust
Company of New York, Brussels office, as operator of Euroclear, and Citibank,
N.A., as operator of Cedel. All interests in a Global Note, including those held
through Euroclear or Cedel, may be subject to the procedures and requirements of
DTC. Those interests held through Euroclear or Cedel may also be subject to the
procedures and requirements of such systems. The laws of some states require
that certain persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer beneficial interests in a
Global Note to such persons will be limited to that extent. Because DTC can act
only on behalf of Participants, which in turn act on behalf of Indirect
Participants and certain banks, the ability of a person having beneficial
interests in a Outstanding Global Note to pledge such interests to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such interests, may be affected by the lack of a physical certificate
evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE OUTSTANDING GLOBAL
NOTES DO NOT HAVE OUTSTANDING NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE
PHYSICAL DELIVERY OF OUTSTANDING NOTES IN CERTIFICATED FORM AND WILL NOT BE
CONSIDERED THE REGISTERED OWNERS OR "HOLDERS" THEREOF UNDER THE INDENTURE FOR
ANY PURPOSE.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on an Outstanding Global Note registered in the
name of DTC or its nominee will be payable to DTC in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee will treat the persons in whose names the Outstanding
Notes, including the Outstanding Global Notes, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither the Company, the Trustee nor any
agent of the Company or the Trustee has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the Outstanding Global Notes, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Outstanding Global Notes or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Company that its current practice, upon receipt of any payment in
respect of securities such as the Outstanding Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in the principal amount of beneficial interest in the relevant security
as shown on the records of DTC unless DTC has reason to believe it will not
receive payment on such payment date. Payments by the Participants and the
Indirect
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Participants to the beneficial owners of the Outstanding Notes will be governed
by standing instructions and customary practices and will be the responsibility
of the Participants or the Indirect Participants and will not be the
responsibility of DTC, the Trustee or the Company. Neither the Company nor the
Trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the Outstanding Notes, and the Company and
the Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants, interest
in the Outstanding Global Notes are eligible to trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its Participants. See "--Same Day Settlement and
Payment".
Subject to any applicable transfer restrictions, transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same day funds, and transfers between participants in
Euroclear and Cedel will be effected in the ordinary way in accordance with
their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Outstanding Notes described herein, cross-market transfers between the
Participants in DTC, on the one hand, and Euroclear or Cedel participants, on
the other hand, will be effected through DTC in accordance with DTC's rules on
behalf of Euroclear or Cedel, as the case may be, by its respective depositary;
however, such cross-market transactions will require delivery of instructions to
Euroclear or Cedel, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Cedel, as the case may be, will, if
the transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Outstanding Global Note in
DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositories for
Euroclear or Cedel.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of the Outstanding Notes only at the direction of one or more
Participants to whose account DTC has credited the interests in the Outstanding
Global Notes and only in respect of such portion of the aggregate principal
amount of the Outstanding Notes as to which such Participant or Participants has
or have given such direction. However, if there is an Event of Default under the
Outstanding Notes, DTC reserves the right to exchange the Outstanding Global
Notes for legended Outstanding Notes in certificated form, and to distribute
such Outstanding Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Regulation S Global Notes and in the
Rule 144A Global Notes among Participants in DTC, Euroclear and Cedel, they are
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee nor any of their respective agents will have any responsibility for the
performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
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Exchange of Book-Entry Notes for Certificated Notes
An Outstanding Global Note is exchangeable for definitive Outstanding Notes
in registered certificated form ("Certificated Notes") if (i) DTC (x) notifies
the Company that it is unwilling or unable to continue as depositary for the
Outstanding Global Notes and the Company thereupon fails to appoint a successor
depositary or (y) has ceased to be a clearing agency registered under the
Exchange Act, (ii) the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of the Certificated Notes or (iii) there
shall have occurred and be continuing a Default or Event of Default with respect
to the Outstanding Notes. In addition, beneficial interests in an Outstanding
Global Note may be exchanged for Certificated Notes upon request upon compliance
with the procedures set forth in the Indenture. In all cases, Certificated Notes
delivered in exchange for any Outstanding Global Note or beneficial interests
therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with
its customary procedures) and will bear the applicable restrictive legend,
unless the Company determines otherwise in compliance with applicable law.
Exchange of Certificated Notes for Book-Entry Notes
Outstanding Notes issued in certificated form may not be exchanged for
beneficial interests in any Outstanding Global Note unless the transferor first
delivers to the Trustee a written certificate (in the form provided in the
Indenture) to the effect that such transfer will comply with any appropriate
transfer restrictions applicable to such Outstanding Notes.
Exchanges Between Regulation S Notes and Rule 144A Notes
Prior to the expiration of the Restricted Period, beneficial interests in
the Regulation S Global Note may be exchanged for beneficial interests in the
Rule 144A Global Note only if such exchange occurs in connection with a transfer
of the Outstanding Notes pursuant to Rule 144A and the transferor first delivers
to the Trustee a written certificate (in the form provided in the Indenture) to
the effect that the Outstanding Notes are being transferred to a person who the
transferor reasonably believes to be a qualified institutional buyer within the
meaning of Rule 144A, purchasing for its own account or the account of a
qualified institutional buyer in a transaction meeting the requirements of Rule
144A and in accordance with all applicable securities laws of the states of the
United States and other jurisdictions.
Beneficial interest in a Rule 144A Global Note may be transferred to a
person who takes delivery in the form of an interest in the Regulation S Global
Note, whether before or after the expiration of the Restricted Period, only if
the transferor first delivers to the Trustee a written certificate (in the form
provided in the Indenture) to the effect that such transfer is being made in
accordance with Rule 903 or 904 of Regulation S or Rule 144 (if available) and
that, if such transfer occurs prior to the expiration of the Restricted Period,
the interest transferred will be held immediately thereafter through Euroclear
or Cedel.
Transfers involving an exchange of a beneficial interest in the Regulation
S Global Note for a beneficial interest in a Rule 144A Global Note or vice versa
will be effected in DTC by means of an instruction originated by the Trustee
through the DTC Deposit/Withdraw at Custodian system. Accordingly, in connection
with any such transfer, appropriate adjustments will be made to reflect a
decrease in the principal amount of the Regulation S Global Note and a
corresponding increase in the principal amount of the Rule 144A Global Note or
vice versa, as applicable. Any beneficial interest in one of the Outstanding
Global Notes that is transferred to a person who takes delivery in the form of
an interest in the other Outstanding Global Note will,
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upon transfer, cease to be an interest in such Outstanding Global Note and will
become an interest in the other Outstanding Global Note and, accordingly, will
thereafter be subject to all transfer restrictions and other procedures
applicable to beneficial interest in such other Outstanding Global Note for so
long as it remains such an interest. The policies and practices of DTC may
prohibit transfers of beneficial interests in the Regulation S Global Note prior
to the expiration of the Restricted Period.
Same Day Settlement and Payment
The Indenture requires that payments in respect of the Outstanding Notes
represented by the Outstanding Global Notes (including principal, premium, if
any, interest and Liquidated Damages, if any) be made by wire transfer of
immediately available funds to the accounts specified by the Outstanding Global
Note Holder. With respect to Outstanding Notes in certificated form, the Company
will make all payments of principal, premium, if any, interest and Liquidated
Damages, if any, by wire transfer of immediately available funds to the accounts
specified by the Holders thereof or, if no such account is specified, by mailing
a check to each such Holder's registered address. The Outstanding Notes
represented by the Outstanding Global Notes are expected to be eligible to trade
in the PORTAL market and to trade in the Depositary's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such Outstanding
Notes will, therefore, be required by the Depositary to be settled in
immediately available funds. The Company expects that secondary trading in any
certificated Outstanding Notes will also be settled in immediately available
funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in an Outstanding Global Note from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Cedel participant, during the securities settlement
processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of DTC. DTC has advised the Company
that cash received in Euroclear or Cedel as a result of sales of interests in an
Outstanding Global Note by or through a Euroclear or Cedel participant to a
Participant in DTC will be received with value on the settlement date of DTC but
will be available in the relevant Euroclear or Cedel cash account only as of the
business day for Euroclear or Cedel following DTC's settlement date.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of
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voting securities, by agreement or otherwise; provided that beneficial ownership
of 10% or more of the Voting Stock of a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole will be governed by the provisions
of the Indenture described above under the caption "--Change of Control" and/or
the provisions described above under the caption "--Merger, Consolidation or
Sale of Assets" and not by the provisions of the Asset Sale covenant), and (ii)
the issue or sale by the Company or any of its Restricted Subsidiaries of Equity
Interests of any of the Company's Restricted Subsidiaries, in the case of either
clause (i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $1.0 million or (b)
for net proceeds in excess of $1.0 million. Notwithstanding the foregoing, the
following items shall not be deemed to be Asset Sales: (i) a transfer of assets
by the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary, (ii) an issuance of Equity
Interests by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary, (iii) a Restricted Payment that is permitted by the covenant
described above under the caption "--Restricted Payments", and (iv) an exchange
of facilities by the Company or a Restricted Subsidiary to the extent that such
facilities are exchanged for one or more nursing centers, long-term care
facilities, assisted living facilities, outpatient clinics or any other
facilities or businesses that are used or useful in the provision of healthcare
related services, in each case the aggregate fair market value of which is equal
to or greater than the fair market value of the facilities so exchanged, as
determined in good faith by the Board of Directors.
"Attributable Debt" in respect of a sale and leaseback transaction or an
operating lease in respect of a healthcare facility means, at the time of
determination, the present value (discounted at the rate of interest implicit in
such transaction, determined in accordance with GAAP) of the obligation of the
lessee of the property subject to such sale and leaseback transaction or
operating lease in respect of a healthcare facility for net rental payments
during the remaining term of the lease included in such transaction (including
any period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with
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any lender party to the New Credit Facility or with any domestic commercial bank
having capital and surplus in excess of $500 million and a Thompson Bank Watch
Rating of "B" or better, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (ii)
and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having the
highest rating obtainable from Moody's Investors Service, Inc. or Standard &
Poor's Corporation and in each case maturing within six months after the date of
acquisition and (vi) money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (i)-(v) of this
definition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than one or more Principals and their Related Parties,
(ii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above), other than one or more Principals and their Related Parties, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition), directly or indirectly, of more than 50% of the
Voting Stock of the Company (measured by voting power rather than number of
shares), (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than one or more Principals and their Related
Parties, becomes the "beneficial owner" (as defined above), directly or
indirectly, of more than 35% of the Voting Stock of the Company (measured by
voting power rather than number of shares) and the Principals and their Related
Parties in the aggregate "beneficially own" (as defined above) less than 35% of
the Voting Stock of the Company (measured by voting power rather than number of
shares) or, in the event the Company has consummated a Public Equity Offering,
less than 20% of the Voting Stock of the Company (measured by voting power
rather than number of shares), or (iv) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of
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such Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, plus (v) any non-recurring expenses
related to Fountain View's reorganization transactions during August 1997, plus
(vi) non-recurring financing, advisory and other expenses incurred in connection
with the Transactions, minus (vii) non-cash items increasing such Consolidated
Net Income for such period (other than items that were accrued in the ordinary
course of business), in each case, on a consolidated basis and determined in
accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on
the income or profits of, and the depreciation and amortization and other non-
cash expenses of, a Subsidiary of the Company shall be added to Consolidated Net
Income to compute Consolidated Cash Flow of the Company only to the extent that
a corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior governmental approval
(that has not been obtained), and without direct or indirect restriction
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof that is a Guarantor, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded, (v) the Net Income of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Subsidiaries and (vi) the Net Income of any Restricted Subsidiary shall
be calculated after deducting preferred stock dividends payable by such
Restricted Subsidiary to Persons other than the Company and its other Restricted
Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less all investments as of such
date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries
(except, in each case, Permitted Investments).
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture, (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election, or (iii) was elected to such Board of Directors pursuant
to a designation
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made pursuant to the Stockholder Agreement, provided that at such time the
Principals and their Related Parties own more than 35% of the Voting Stock of
the Company.
"Credit Facilities" means, one or more debt facilities (including, without
limitation, the New Credit Facility) or commercial paper facilities with banks
or other institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under Credit Facilities outstanding on the date on which Notes are
first issued and authenticated under the Indenture shall be deemed to have been
incurred on such date in reliance on the exception provided by clause (i) of the
definition of Permitted Indebtedness.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) so long as the New Credit Facility is
outstanding, any Indebtedness outstanding under the New Credit Facility, and
(ii) at any time thereafter any other Senior Debt permitted under the Indenture
the principal amount of which is $25.0 million or more and that has been
designated by the Company as "Designated Senior Debt".
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require the Company to repurchase such Capital Stock upon the occurrence of a
Change of Control or an Asset Sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that the Company may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with the covenant described above under the caption "--
Certain Covenants--Restricted Payments".
"Employment Agreement" means any of the employment agreements between the
Company and William C. Scott, Robert M. Snukal or Sheila S. Snukal in effect as
of the date of the Indenture.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Affiliate Transactions" means any transaction contemplated by any
of (i) the Stockholder Agreement, (ii) the Employment Agreements, (iii) the
Agreement and Plan of Merger, dated as of February 6, 1998, among the Company,
Summit Care Corporation, Heritage Fund II, L.P. and FV-SCC Acquisition Corp.,
(iv) the Investment Agreement, dated as of March 27, 1998, among the Company,
Heritage Fund II, L.P., Heritage Investors II, L.L.C. and certain other Persons
named therein, (v) the leases of the Company's Rio Hondo, Fountain View,
Montebello and Sycamore Park skilled nursing facilities, between Robert M.
Snukal, Sheila S. Snukal or their affiliates and the Company, and (vi) the
purchase and supply agreements between the Company or its Subsidiaries and Twin
Med, Inc. consistent with past practice in the ordinary course of business.
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"Existing Disqualified Stock" means the Series A Preferred Stock of the
Company.
"Existing Indebtedness" means up to $165 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the New Credit Facility) in existence on the date of the
Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs (other than any such
costs incurred in connection with the Transactions) and original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of
such Person and its Restricted Subsidiaries that was capitalized during such
period, and (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or any of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or any of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon) and (iv) the product of (a) all
dividend payments, whether or not in cash, on any series of preferred stock of
such Person or any of its Restricted Subsidiaries, other than dividend payments
on Equity Interests payable solely in Equity Interests of the Company (other
than Disqualified Stock) or to the Company or a Restricted Subsidiary of the
Company, times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
referent Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but prior
to the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Restricted Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantors" means each of Summit Care Corporation, a California
corporation, Summit Care-California, Inc., a California corporation, Summit Care
Pharmacy, Inc., a California corporation, Skilled Care Network, a California
corporation, Summit Care Texas Equity, Inc., a California corporation, Summit
Care-Texas No. 2, Inc., a Texas corporation, Summit Care-Texas No. 3, Inc., a
Texas corporation, Summit Care Management Texas, Inc., a Texas corporation,
Summit Care Texas, L.P., a Texas limited partnership, Fountain View Holdings,
Inc., a Delaware corporation, AIB Corp., a California corporation, Alexandria
Convalescent Hospital, Inc., a California corporation, BIA Hotel Corp., a
California corporation, Brier Oak Convalescent, Inc., a California corporation,
Elmcrest Convalescent Hospital, a California corporation, Fountainview
Convalescent Hospital, a California corporation, Fountain View Management, Inc.,
a California corporation, Rio Hondo Nursing Center, a California corporation,
Locomotion Holdings, Inc., a Delaware corporation, Locomotion Therapy, Inc., a
Delaware corporation, On-Track Therapy Center, Inc., a California corporation,
I.'N O., Inc., a California corporation, and Sycamore Park Convalescent
Hospital, a California corporation, and (ii) any other subsidiary that executes
a Guarantee in accordance with the provisions of this Indenture, and their
respective successors and assigns.
"Healthcare Related Business" means a business, at least a majority of
whose revenues result from healthcare, long-term care or assisted living related
businesses or facilities.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included, the Guarantee
by such Person of any Indebtedness of any other Person. The amount of any
Indebtedness outstanding as of any date shall be (i) the accreted value thereof,
in the case of any Indebtedness issued with original issue discount, and (ii)
the principal amount thereof, together with any interest thereon that is more
than 30 days past due, in the case of any other Indebtedness.
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"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or indirect
loans (including Guarantees of Indebtedness or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Restricted Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Subsidiary of the Company, the Company shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Restricted Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Restricted Payments".
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary gain (but not loss),
together with any related provision for taxes on such extraordinary gain (but
not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under the New Credit Facility) secured by a lien on the
asset or assets that were the subject of such Asset Sale, and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"New Credit Facility" means that certain Credit Agreement, by and among the
Company and Bank of Montreal, as agent, providing for up to $30 million of
revolving credit borrowings and $85 million of term loan borrowings, including
any related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
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"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes being offered hereby) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company that is a Guarantor; (b) any Investment in
Cash Equivalents; (c) any Investment by the Company or any Restricted Subsidiary
of the Company in a Person, if as a result of such Investment (i) such Person
becomes a Restricted Subsidiary of the Company and a Guarantor or (ii) such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the Company
or a Restricted Subsidiary of the Company that is a Guarantor; (d) any
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "--Repurchase at the Option of Holders--Asset
Sales"; (e) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company; (f) Hedging
Obligations; (g) any Investment in Permitted Joint Ventures; (h) other
Investments in any Person having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (h) that are at the time outstanding, not to exceed $2.5 million;
and (i) Investments provided for in the Investment Agreement as of the date of
the Indenture.
"Permitted Joint Venture" means (i) any Restricted Subsidiary which owns,
operates or services a Healthcare Related Business, and (ii) Summit Care
Pharmacy, L.L.C., which owns and operates a pharmacy in Texas.
"Permitted Junior Securities" means Equity Interests in the Company or any
Guarantor or debt securities that are unsecured and subordinated to all Senior
Debt (and any debt securities issued in exchange for Senior Debt) to at least
the same extent as, or to a greater extent than, the Notes are subordinated to
Senior Debt pursuant to Article 10 of the Indenture.
"Permitted Liens" means (i) Liens on assets of the Company, and of its
Restricted Subsidiaries or any of the Guarantors securing Senior Debt that was
permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of
the Company; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof or
the acquisition of a Person owning such property or assets by the Company or any
Restricted Subsidiary of the Company, provided that such Liens
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were in existence prior to the contemplation of such acquisition; (v) Liens to
secure the performance of statutory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the ordinary
course of business; (vi) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iv) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock" covering
only the assets acquired with such Indebtedness; (vii) Liens existing on the
date of the Indenture; (viii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (ix) statutory
Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen and other Liens imposed by law incurred in the ordinary
course of business for sums not yet delinquent or being contested in good faith,
if such reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made in respect thereof; (x) easements, rights-of-way,
zoning restrictions and other similar charges or encumbrances in respect of real
property not interfering in any material respect with the ordinary conduct of
the business of the Company or any of its Restricted Subsidiaries; (xi) Liens on
assets of Guarantors to secure Senior Debt of such Guarantors that was permitted
by the Indenture to be incurred; (xii) Liens incurred in the ordinary course of
business of the Company or any Restricted Subsidiary of the Company with respect
to obligations that do not exceed $5.0 million at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary course
of business) and (b) do not in the aggregate materially detract from the value
of the property or materially impair the use thereof in the operation of
business by the Company or such Restricted Subsidiary; and (xiii) Liens on
assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of
Unrestricted Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Principals" means Heritage Partners Management Company, Inc. and Heritage
Fund II, L.P.
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"Public Equity Offerings" means a public offering of common stock of the
Company pursuant to a registration statement filed with the Securities and
Exchange Commission in accordance with the Securities Act.
"Related Party" with respect to any Principal means (A) any controlling
holder of Equity Interests, 80% (or more) owned Subsidiary, or spouse or ex-
spouse or immediate family member (in the case of an individual) of such
Principal or (B) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding an
80% or more controlling interest of which consist of such Principal and/or such
other Persons referred to in the immediately preceding clause (A) or (C) any
investment fund, whether a limited partnership, limited liability company or
corporation or other entity managed or controlled by Heritage Partners
Management Company, Inc.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" means (i) all Indebtedness outstanding under Credit
Facilities and all Hedging Obligations with respect thereto, (ii) any other
Indebtedness permitted to be incurred by the Company under the terms of the
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes and (iii) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will not
include (w) any liability for federal, state, local or other taxes owed or owing
by the Company, (x) any Indebtedness of the Company to any of its Subsidiaries
or other Affiliates, (y) any trade payables or (z) any Indebtedness that is
incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Transaction Related Payments" means (i) certain bonus and other payments
not to exceed $1,925,000 from Summit or the Company to William Scott, payable at
the effective time of the Merger, (ii) payments not to exceed $2,535,000 in the
aggregate to effect the cash-out of Summit stock options, as described in the
Merger Agreement, (iii) the payment of a transaction fee of up to $3 million by
the Company to Heritage, payable at the effective time of the Merger,
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and (iv) payments to Mr. and Mrs. Snukal and William Scott, not to exceed
$150,000 in the aggregate, upon the forfeiture of Series B Common Stock pursuant
to the Stockholders Agreement.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution;
but only to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries; and (e) has at least one director on its board of
directors that is not a director or executive officer of the Company or any of
its Restricted Subsidiaries and has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "Certain Covenants--
Restricted Payments". If, at any time, any Unrestricted Subsidiary would fail to
meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date (and, if such Indebtedness
is not permitted to be incurred as of such date under the covenant described
under the caption "Incurrence of Indebtedness and Issuance of Preferred Stock",
the Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption "Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock", calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, and (ii) no
Default or Event of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more
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Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following general discussion represents Choate, Hall & Stewart's
opinion as to the material United States federal income tax consequences of an
exchange of the Outstanding Notes for the Exchange Notes and of the purchase at
original issue, ownership and disposition of the Exchange Notes. This discussion
is based upon the provisions of the Internal Revenue Code of 1986, as amended,
(the "Code"), the final, temporary and proposed regulations promulgated
thereunder, and administrative rulings and judicial decisions now in effect, all
of which are subject to change (possibly with retroactive effect) or different
interpretations. This discussion does not purport to deal with all aspects of
federal income taxation that may be relevant to a particular investor, nor any
tax consequences arising under the laws of any state, locality, or foreign
jurisdiction, and it is not intended to be applicable to all categories of
investors, some of which may be subject to special rules. The tax treatment of
holders of the Notes may vary depending upon their particular situations.
Certain holders (including insurance companies, tax-exempt organizations,
financial institutions, subsequent purchasers of Notes and broker-dealers) may
be subject to special rules not discussed below. In general, this discussion
assumes that a holder acquires a Note at original issuance and holds such Note
as a capital asset and not as part of a "hedge", "straddle", "conversion
transaction", "synthetic security" or other integrated investment.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
UNITED STATES FEDERAL TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF
NOTES, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY
FOREIGN, STATE, LOCAL OR OTHER TAXING JURISDICTION.
TAXATION OF HOLDERS ON EXCHANGE
Subject to the limitations set forth above, an exchange of Outstanding
Notes for Exchange Notes will not be a taxable event to holders of Outstanding
Notes, and holders will not recognize any taxable gain or loss as a result of
such an exchange. Accordingly, a holder would have the same adjusted basis and
holding period in the Exchange Notes as it had in the Outstanding Notes
immediately before the exchange. Further, the tax consequences of ownership and
disposition of any Exchange Notes will be the same as the tax consequences of
ownership and disposition of Outstanding Notes.
As used herein, the term "United States Holder" means a beneficial owner of
a Note that is, for United States federal income tax purposes, a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in the United States or under the law of the United States
or of any political subdivision thereof, an estate whose income is includible in
gross income for United States federal income tax purposes regardless of its
source, or a trust, if a United States court is able to exercise primary
supervision over the administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust.
UNITED STATES HOLDERS
STATED INTEREST. Stated interest on a Note will be taxable to a United
States Holder as ordinary interest income at the time that such interest accrues
or is received, in accordance with the United States Holder's regular method of
accounting for federal income tax purposes. The Company expects that the Notes
will not be considered to be issued with original issue discount for federal
income tax purposes.
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SALE, EXCHANGE OR RETIREMENT OF THE NOTES. Upon the sale, exchange,
redemption, retirement at maturity or other disposition of a Note, a United
States Holder will generally recognize taxable gain or loss equal to the
difference between the sum of cash plus the fair market value of all other
property received on such disposition (except to the extent such cash or
property is attributable to accrued interest which will be taxable as ordinary
income) and such holder's adjusted tax basis in the Note. Gain or loss
recognized on the disposition of a Note generally will be capital gain or loss.
Long-term capital gains tax rates apply to dispositions by individuals of
capital assets (such as the Notes) held for more than one year. The maximum
long-term capital gains tax rate applicable to individuals is currently 20% (10%
for individuals in the 15% tax bracket). Corporate taxpayers continue to be
subject to a maximum regular tax rate of 35% on all capital gains and ordinary
income.
The exchange of an Outstanding Note by a United States Holder for an
Exchange Note will not constitute a taxable exchange of the Note. As a result, a
United States Holder will not recognize taxable gain or loss upon receipt of an
Exchange Note, a United States Holder's holding period for an Exchange Note will
generally include the holding period for the Note so exchanged and such holder's
adjusted tax basis in an Exchange Note will generally be the same as such
holder's adjusted tax basis in the Outstanding Note so exchanged.
BACKUP WITHHOLDING AND INFORMATION REPORTING. In general, a United States
Holder of a Note will be subject to backup withholding at the rate of 31% with
respect to interest, premium and possibly principal, if any, paid on a Note,
unless the holder (a) is an entity (including corporations, tax-exempt
organizations and certain qualified nominees) that is exempt from withholding
and, when required, demonstrates this fact, or (b) provides the Company with its
Taxpayer Identification Number ("TIN") (which, for an individual, would be the
holder's Social Security number), certifies that the TIN provided to the Company
is correct and that the holder has not been notified by the IRS that it is
subject to backup withholding due to underreporting of interest or dividends,
and otherwise complies with applicable requirements of the backup withholding
rules. In addition, such payments of interest, premium and possibly principal to
United States Holders that are not corporations, tax-exempt organizations or
qualified nominees will generally be subject to information reporting
requirements.
The amount of any backup withholding from a payment to a United States
Holder will be allowed as a credit against such holder's federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the IRS.
NON-UNITED STATES HOLDERS
STATED INTEREST. Interest paid by the Company to any beneficial owner of a
Note that is not a United States Holder (a "Non-United States Holder") will not
be subject to United States federal income or withholding tax if such interest
is not effectively connected with the conduct of a trade or business within the
United States by such Non-United States Holder and (a) such Non- United States
Holder (i) does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company; (ii) is not a
controlled foreign corporation with respect to which the Company is a "related
person" within the meaning of the Code and (iii) satisfies certain certification
requirements or (b) such Non-United States Holder is entitled to the benefits of
an income tax treaty under which the interest is exempt from United States
withholding tax, and such Non-United States Holder provides a properly executed
IRS Form 1001 claiming the exemption (or, after December 31, 1999, IRS Form W-8,
which may require obtaining a TIN and making certain certifications). However,
to the extent that any payment of Liquidated Damages is not treated as a payment
of interest on the Notes, such payment may be subject to U.S. withholding taxes.
See "--United States Holders".
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SALE, EXCHANGE OR RETIREMENT OF THE NOTES. A Non-United States Holder will
generally not be subject to United States federal income tax on gain recognized
on a sale, exchange, redemption, retirement at maturity or other disposition of
a Note unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-United States Holder or (ii) in
the case of a Non-United States Holder who is a nonresident alien individual and
holds the Note as a capital asset, such holder is present in the United States
for 183 or more days in the taxable year and certain other requirements are met.
FEDERAL ESTATE TAXES. If interest on the Notes is exempt from withholding
of United States federal income tax under clause (a) of the rules described
under "--Stated Interest", the Notes will not be included in the estate of a
deceased Non-United States Holder for United States federal estate tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING. The Company will, where
required, report to the holders of Notes and the IRS the amount of any interest
paid on the Notes in each calendar year and the amounts of tax withheld, if any,
with respect to such payments.
In the case of payments of interest to Non-United States Holders, Treasury
Regulations provide that the 31% backup withholding tax and certain information
reporting will not apply to such payment with respect to which either the
requisite certification has been received or an exemption has otherwise been
established; provided that neither the Company nor its payment agent has actual
knowledge that the holder is a United States person or that the conditions of
any other exemption are not in fact satisfied. Under the Treasury Regulations,
these information reporting and backup withholding requirements will apply,
however, to the gross proceeds paid to a Non-United States Holder on the
disposition of the Notes by or through a United States office of a United States
or foreign broker, unless certain certification requirements are met or the
holder otherwise establishes an exemption. Information reporting requirements,
but not backup withholding, will also apply to a payment of the proceeds of a
disposition of the Notes by or through a foreign office of a United States
broker or foreign brokers with certain types of relationships to the United
States unless the holder is an exempt recipient (as demonstrated through
appropriate certification) or such broker has documentary evidence in its file
that the holder of the Notes is not a United States person and has no actual
knowledge to the contrary and certain other conditions are met. Neither
information reporting nor backup withholding generally will apply to a payment
of the proceeds of a disposition of the Notes by or through a foreign office of
a foreign broker not subject to the preceding sentence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the IRS.
Recently, the Treasury Department has promulgated final regulations
regarding the withholding and information reporting rules discussed above. In
general, the final regulations do not significantly alter the substantive
withholding and information reporting requirements but unify current
certification procedures and forms and clarify reliance standards. Under the
final regulations, special rules apply which permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners. The final regulations are generally effective for
payments made after December 31, 1999, subject to certain transition rules. Non-
United States Holders are urged to consult their tax advisors with respect to
the application of these final regulations.
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VALIDITY OF THE NOTES
Certain legal matters with respect to U.S. federal and Delaware law in
connection with the Exchange Notes offered hereby will be passed upon for the
Company by Choate, Hall & Stewart (a partnership including professional
corporations), Boston, Massachusetts; certain legal matters with respect to
California, Texas and New York law in connection with the Exchange Notes offered
hereby will be passed upon for the Company by Brobeck, Phleger & Harrison LLP,
Los Angeles, California. Stephen M. L. Cohen, a partner of Choate, Hall &
Stewart, is a limited partner in Heritage Fund II, L.P.
EXPERTS
The consolidated financial statements and schedule of Fountain View, Inc.
as of December 31, 1996 and 1997, and for each of the three years in the period
ended December 31, 1997, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as stated in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Summit Care Corporation at June
30, 1997 and 1996, and for each of the three years in the period ended June 30,
1997, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FOUNTAIN VIEW, INC.
Report of Independent Auditors........................................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1997................................ F-3
Consolidated Statements of Income for the Years Ended December 31, 1995, 1996 and 1997.. F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Three Years Ended
December 31, 1997..................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995,
1996 and 1997......................................................................... F-6
Notes to Consolidated Financial Statements............................................... F-7
Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended
September 30, 1997 and 1998........................................................... F-15
Consolidated Balance Sheet (Unaudited) at September 30, 1998............................. F-16
Consolidated Statements of Cash Flows (Unaudited) for the Three and Nine Months Ended
September 30, 1997 and 1998........................................................... F-18
Notes to Unaudited Consolidated Financial Statements..................................... F-20
SUMMIT CARE CORPORATION
Report of Independent Auditors........................................................... F-24
Consolidated Balance Sheets at June 30, 1996 and 1997.................................... F-25
Consolidated Statements of Income for the Years Ended June 30, 1995, 1996 and 1997....... F-26
Consolidated Statements of Shareholders' Equity for the Three Years Ended June 30, 1997.. F-27
Consolidated Statements of Cash Flows for the Years Ended June 30, 1995, 1996 and 1997... F-28
Notes to Consolidated Financial Statements............................................... F-29
Consolidated Balance Sheet (Unaudited) at December 31, 1997.............................. F-39
Consolidated Statements of Income (Unaudited) for the Period from July 1, 1997 to
December 31, 1997..................................................................... F-40
Consolidated Statements of Cash Flows (Unaudited) for the Period from July 1, 1997 to
December 31, 1997..................................................................... F-41
Notes to Unaudited Consolidated Financial Statements..................................... F-42
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Fountain View, Inc.
We have audited the accompanying consolidated balance sheets of Fountain View,
Inc. as of December 31, 1996 and 1997 and the related consolidated statements of
income, shareholders' equity (deficit), and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Fountain View, Inc. at December 31, 1996 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Los Angeles, California
March 11, 1998
F-2
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 1,161 $ 2,551
Accounts receivable, less allowance for uncollectible accounts of
$779 and $1,152, respectively..................................... 18,717 15,809
Deferred income taxes.............................................. --- 927
Other current assets 713 576
------- --------
Total current assets.............................................. 20,591 19,863
------- --------
Leasehold improvements and equipment, at cost:
Leasehold improvements............................................. 2,329 4,659
Furniture and equipment............................................ 1,914 2,096
------- --------
4,243 6,755
Less accumulated depreciation and amortization..................... (1,680) (2,481)
------- --------
2,563 4,274
Other assets........................................................ 968 1,804
------- --------
Total assets........................................................ $24,122 $ 25,941
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Payable to banks................................................... $ 2,975 $ ---
Accounts payable and accrued liabilities........................... 1,457 4,179
Employee compensation and benefits................................. 2,423 2,479
Income taxes payable............................................... --- 1,443
Current maturities of long-term debt............................... 170 1,741
------- --------
Total current liabilities......................................... 7,025 9,842
------- --------
Long-term debt, less current maturities............................. 496 28,335
------- --------
Total liabilities................................................... 7,521 38,177
Commitments and contingencies....................................... --- ---
Shareholders' equity (deficit):
Preferred stock, $0.01 par value:
7,000 shares authorized, issued and outstanding
(liquidation preference $7,000)................................... $ --- $ ---
Common Stock Series A-1, $0.01 par value:
53,850 shares authorized, issued and outstanding.................. --- 1
Common Stock Series A-2, $0.01 par value:
99,950 shares authorized, issued and outstanding.................. --- 1
Common Stock Series A-3, non-voting, $0.01 par value:
46,200 shares authorized, issued and outstanding.................. --- ---
Additional paid-in capital......................................... 8,000 21,957
Treasury Stock..................................................... (120) ---
Retained earnings (accumulated deficit)............................ 8,721 (34,195)
------- --------
Total shareholders' equity (deficit)................................ 16,601 (12,236)
------- --------
Total liabilities and shareholders' equity (deficit)................ $24,122 $ 25,941
======= ========
</TABLE>
F-3
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1995 1996 1997
----------- ------- -------
<S> <C> <C> <C>
REVENUES:
Net revenue............................................. $ 55,836 $59,432 $67,905
EXPENSES:
Salaries and benefits.................................. 35,048 36,166 38,215
Supplies............................................... 5,642 5,483 8,293
Purchased services..................................... 3,964 4,658 4,256
Provision for doubtful accounts........................ 427 430 395
Other expenses......................................... 3,421 4,043 5,046
Rent................................................... 1,890 2,120 2,004
Rent to related parties................................ 2,056 1,776 1,771
Depreciation and amortization.......................... 416 600 1,198
Interest (net of interest income--$65, $29 and $4 for
1995, 1996 and 1997, respectively).................... 332 278 1,164
----------- ------- -------
Total expenses...................................... 53,196 55,554 62,342
----------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES................ 2,640 3,878 5,563
Provision for income taxes.............................. 54 78 361
----------- ------- -------
NET INCOME.............................................. $ 2,586 $ 3,800 $ 5,202
=========== ======= =======
Pro forma net income:
Net income as reported................................ $ 2,586 $ 3,800 $ 5,202
Charge in lieu of income taxes......................... 1,025 1,493 1,590
----------- ------- -------
Net income.............................................. $ 1,561 $ 2,307 $ 3,612
=========== ======= =======
Earnings per share:
Basic and diluted--Historical.......................... $12.93 $19.0 $26.01
=========== ======= =======
Pro forma.......................................... $7.81 $11.53 $18.06
=========== ======= =======
Weighted average shares outstanding:
Basic and diluted...................................... 200 200 200
=========== ======= =======
</TABLE>
See accompanying notes
F-4
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Three years ended December 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Series A
Preferred Series A-1 Series A-2 Series A-3 Additional
Stock Common Stock Common Stock Common Stock Paid-in Treasury
----------------- --------------- --------------- -------------
Shares Amount Shares Amount Shares Amount Shares Amount Capital Stock
-------- ------- ------ ------ ------ ------- ------ ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995............ --- $--- --- $--- --- $--- --- $--- $ 916 $ (120)
Net income.......................... --- --- --- --- --- --- --- --- --- ---
Issuance of common stock............ --- --- --- --- --- --- --- --- 300 ---
Distributions to shareholders....... --- --- --- --- --- --- --- --- --- ---
------ ----- ------ ------ ----- ------ ----- ------ -------- --------
Balance at December 31, 1995.......... --- --- --- --- --- --- --- --- 1,216 (120)
Contributions from shareholders..... --- --- --- --- --- --- --- --- 6,784 ---
Net income.......................... --- --- --- --- --- --- --- --- --- ---
Distributions to shareholders....... --- --- --- --- --- --- --- --- --- ---
------ ----- ------ ------ ----- ------ ----- ------ -------- --------
Balance at December 31, 1996.......... --- --- --- --- --- --- --- --- 8,000 (120)
Net income.......................... --- --- --- --- --- --- --- --- --- ---
Contributions before
reorganization................... --- --- --- --- --- --- --- --- 1,277 ---
Cancellation of treasury stock...... --- --- --- --- --- --- --- --- --- 120
Distributions to shareholders
before reorganization............ --- --- --- --- --- --- --- --- --- ---
Reorganization:
Issuance of preferred stock.... 7,000 --- --- --- --- --- --- --- 7,000 ---
Issuance of common stock....... --- --- 53,850 1 99,950 1 46,200 --- 6,998 ---
Transactional costs............ --- --- --- --- --- --- --- --- (1,318) ---
Distributions to shareholders.. --- --- --- --- --- --- --- --- --- ---
------- ----- -------- ------ ------- ----- ------- ------- -------- --------
Balance at December 31,
1997................................. 7,000 $--- $ 53,850 $ 1 99,950 $ 1 46,200 $ --- $ 21,957 $ ---
======= ===== ======== ====== ======= ===== ======= ======= ======== ========
<CAPTION>
Retained
Earnings
(Accumulated
Deficit) Total
--------- ---------
<S> <C> <C>
Balance at January 1, 1995............ $ 8,998 $ 9,794
Net income.......................... 2,586 2,586
Issuance of common stock............ -- 300
Distributions to shareholders....... (2,724) (2,724)
------- --------
Balance at December 31, 1995.......... 8,860 9,956
Contributions from shareholders..... -- 6,784
Net income.......................... 3,800 3,800
Distributions to shareholders....... (3,939) (3,939)
------- --------
Balance at December 31, 1996.......... 8,721 16,601
Net income.......................... 5,202 5,202
Contributions before
reorganization................... -- 1,277
Cancellation of treasury stock...... -- 120
Distributions to shareholders
before reorganization............ (4,418) (4,418)
Reorganization:
Issuance of preferred stock.... -- 7,000
Issuance of common stock....... -- 7,000
Transactional costs............ -- (1,318)
Distributions to shareholders.. (43,700) (43,700)
-------- --------
Balance at December 31, 1997.......... $(34,195) $(12,236)
======== ========
</TABLE>
See accompanying notes
F-5
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1995 1996 1997
---- ---- -----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.............................................................. $ 2,586 $ 3,800 $ 5,202
------- ------- --------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization...................................... 416 600 1,198
Changes in operating assets and liabilities:
Accounts receivable................................................ 1,176 (3,757) 2,908
Other current assets............................................... 165 (92) 137
Accounts payable and accrued liabilities........................... 317 421 2,722
Employee compensation and benefits................................. 1,152 116 56
Income taxes payable............................................... 20 (29) 1,443
Deferred income taxes.............................................. --- --- (927)
------- ------- --------
Total adjustments.......................................... 3,246 (2,741) 7,537
------- ------- --------
Net cash provided by operating activities.................. 5,832 1,059 12,739
------- ------- --------
INVESTING ACTIVITIES:
Additions to leasehold improvements and
equipment.............................................................. (665) (1,816) (2,570)
Additions to other assets............................................... (282) --- (1,175)
------- ------- --------
Net cash used in investing activities.............................. (947) (1,816) (3,745)
------- ------- --------
FINANCING ACTIVITIES:
Decrease in payable to bank............................................. (250) (925) (2,975)
Principal payments on long-term debt.................................... (910) (472) (3,090)
Proceeds from long-term debt............................................ 725 249 32,500
Proceeds from issuances of stock........................................ --- --- 12,682
Contributions from shareholders......................................... --- 4,649 1,277
Cancellation of treasury stock.......................................... --- --- 120
Distributions to shareholders........................................... (2,724) (3,939) (48,118)
------- ------- --------
Net cash used in financing activities.............................. (3,159) (438) (7,604)
------- ------- --------
Increase (decrease) in cash and cash equivalents.......................... 1,726 (1,195) 1,390
Cash and cash equivalents at beginning of year............................ 630 2,356 1,161
------- ------- --------
Cash and cash equivalents at end of year.................................. $ 2,356 $ 1,161 $ 2,551
======= ======= ========
NONCASH ACTIVITY:
Additional paid-in-capital relating to debt forgiveness................. $ --- $ 2,135 $ ---
Additional paid-in-capital relating to stock acquisition................ 300 ---- ---
</TABLE>
See accompanying notes
F-6
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. DESCRIPTION OF BUSINESS
Fountain View, Inc. (the "Company") provides a variety of healthcare
services primarily to the elderly through the operation of eight skilled nursing
care centers and a retirement hotel in California. These services include
nursing care, lodging, food and certain specialty medical services, including
rehabilitation care, infusion therapy and other ancillary services. The Company
also provides therapy services to other long-term care providers. In July 1997,
the Company's predecessor, which was comprised of all of the Company's operating
units owned individually by the controlling shareholders, was merged with and
into several companies formed by Fountain View, Inc., a holding company, formed
for the express purpose of effectuating the reorganization of the Company. These
transactions are described further in Note 3 to the consolidated financial
statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
EARNINGS PER SHARE
Basic and diluted earnings per share have been computed reflecting the
Fountain View Equity Transactions as if such transactions had occurred as of
January 1, 1995, and all common stock, series A-1, A-2 and A-3, was outstanding
from that date.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with an
original or remaining maturity of three months or less when purchased. The
Company places its temporary cash investments with high credit quality financial
institutions.
LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Depreciation and amortization (straight-line method) is based on the
estimated useful lives of the individual assets as follows:
Leasehold improvements ......................... Shorter of lease term or
estimated useful life,
generally 5-10 years.
Furniture and equipment......................... 3-10 years.
NET PATIENT SERVICES REVENUE
Approximately 53 percent, 52 percent and 56 percent of the Company's
revenues in the years ended December 31, 1995, 1996 and 1997, respectively, were
derived from funds under federal and state medical assistance programs, the
continuation of which are dependent upon governmental policies. These revenues
are based, in certain cases, upon cost reimbursement principles and are subject
to audit. Revenues are recorded on an accrual basis as services are performed at
their estimated net realizable value. Differences between final settlement and
estimated net realizable value accrued in prior years are reported as
adjustments to the current year's net revenues. A significant portion of the
Company's skilled nursing care center revenues
F-7
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
is derived from government-sponsored healthcare programs such as Medicare and
Medicaid. These programs are highly regulated and are subject to budgetary and
other constraints. While the Company's cash flow could be adversely affected by
periodic government program funding delays or shortfalls, management does not
believe there are any significant credit risks associated with these government
programs.
REGULATORY MATTERS
Laws and regulations governing the Medicare program are complex and subject
to interpretation. The Company believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. Compliance with
such laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties, and exclusion from the Medicare and Medicaid programs.
INSURANCE COVERAGE
The Company insures for workers' compensation and general and professional
liability coverage under an occurrence based policy, with no deductible. Prior
to October 1997, the Company was self-insured for claims arising from employees
relating to employment matters.
ACCOUNTING FOR THE IMPAIRMENT AND DISPOSAL OF LONG LIVED ASSETS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121), requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company believes, based on current
circumstances, that there are no indicators of impairment to its long-lived
assets, and the Company presently has no expectations for disposing of any long-
lived assets.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130), which is effective for fiscal years beginning after December 15, 1997.
This statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Items recognized as components of comprehensive income
which are not included in the income statement include unrealized gains and
losses in marketable securities, foreign currency translation adjustments, tax
benefits related to nonqualified stock options, and others. The Company is
presently evaluating the new standard to determine how it will present
comprehensive income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Settlements of an
Enterprise and Related Information" (SFAS 131), which is effective for fiscal
years ending after December 15, 1997. SFAS 131 establishes standards for the way
that public enterprises report information about operating segments in annual
financial statements. It also requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. Under existing accounting standards, the Company has reported its
operations as one line of business because substantially all of its revenues
have been derived from its skilled nursing care centers and assisted living
centers and closely related ancillary services. The Company is presently
evaluating the new standard in order to determine its effect, if any, on the way
the Company might report its operations in the future.
F-8
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. FOUNTAIN VIEW EQUITY TRANSACTIONS
On or about August 1, 1997, the controlling shareholders of the Company
consummated a reorganization transaction (the "Fountain View Equity
Transactions"). Prior to the Fountain View Equity Transactions, the controlling
shareholders were the sole owners of a number of healthcare companies, which
they managed as one business enterprise. The separately owned companies
consisted of eight skilled nursing facilities, an assisted living facility and a
therapy company which provides therapy services primarily to third-party owned
facilities as well as Company-owned facilities. Additionally, the controlling
shareholders owned the real estate which is operated by four of the nursing
homes. The remaining real estate is leased from unrelated third parties.
The controlling shareholders along with Heritage formed a new holding
company known as Fountain View, Inc. ("New Fountain View") along with several
acquisition subsidiaries to consolidate the healthcare companies owned by the
controlling shareholders into one company. At the same time, New Fountain View
entered into market rate leases for the four real estate facilities owned by the
controlling shareholders.
Under the terms of the Fountain View Equity Transactions, Heritage invested
$14.0 million in cash in New Fountain View in exchange for all of the Company's
preferred stock with a liquidation value of $7.0 million, and 99,950 shares of
the Company's Common Stock Series A-2. The controlling shareholders at the same
time contributed all of their healthcare assets, except for owned real estate,
to New Fountain View in exchange for 53,850 shares of the Company's Common Stock
Series A-1 and 46,200 shares of the Company's common Stock Series A-3.
Concurrent with the exchange of shares, the New Fountain View obtained bank
financing totaling $32.5 million, the proceeds of which along with the $14.0
million invested by Heritage was used to fund a distribution of $43.7 million of
cash to the controlling shareholders and pay $1,318,000 in transaction costs.
The Common Stock Series A-1 shares have three votes for each share, whereas
Series A-2 has one vote per share, and Series A- 3 is non-voting. By virtue of
the voting features, the controlling shareholders maintained a controlling
financial interest in New Fountain View. Also, a shareholders agreement between
the controlling shareholders and Heritage provides that the Controlling
Shareholders hold a majority of the seats on the Board of Directors.
The preferred shareholders are entitled to receive dividends, at the Board
of Director's discretion, at an annual rate of 10 percent of the preferred stock
base amount, as defined. The initial base amount is $7,000,000. The preferred
stock is non-voting and the holders are entitled to be paid in cash, in respect
of each share of preferred stock held, upon any liquidation or dissolution of
the Company before any distribution is made to the common shareholders. Since
the controlling shareholders maintained a controlling financial interest in New
Fountain View, a change in control was not deemed to have occurred upon the
consummation of the Fountain View Equity Transactions. Therefore, the Fountain
View Equity Transactions were treated as a reorganization/merger of companies
under common control, with no step-up in basis of the assets of New Fountain
View.
F-9
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair market value disclosures.
CASH AND CASH EQUIVALENTS
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates its fair value.
LONG-TERM DEBT (INCLUDING CURRENT PORTION)
The carrying value of $30,076,000 of long-term approximates the fair market
value of such debt since the interest rate approximates the Company's
incremental borrowing rate.
5. MATERIAL TRANSACTIONS WITH RELATED ENTITIES
Robert and Sheila Snukal own the real estate for four of the Company's
facilities. Such real estate has not been included in the financial statements
for any of the years presented herein since such real estate was excluded from
the Fountain View Equity Transactions discussed in Note 3. Lease payments to the
shareholders under operating leases for these facilities totaled $2,056,000,
$1,776,000 and $1,771,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
6. OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---- ----
<S> <C> <C>
Deposits.......................................................... $ 56 $ 56
Goodwill, net..................................................... 530 500
Lease acquisition costs, net...................................... 382 337
Deferred loan fees................................................ -- 911
----- ------
$ 968 $1,804
===== ======
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---- ----
<S> <C> <C>
Union Bank of California, $15 million Term Loan A due in 2002
and $15 million Term Loan B due in 2004, payable in quarterly
installments ranging from $37 to $1,781, including interest
based on the LIBOR rate. The Company's accounts receivable and
equipment collateralize the Term Loans.......................... $ -- $29,925
Note payable to shareholders......................................... 337 --
Other................................................................ 329 151
----- -------
666 30,076
Less current maturities.............................................. 170 1,741
----- -------
$ 496 $28,335
===== =======
</TABLE>
F-10
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
Future maturities of long-term debt are as follows: years ending December
31, 1998 -- $1,741,000; 1999--$3,710,000; 2000--$4,150,000; 2001--$4,150,000;
2002--$5,638,000; and thereafter $10,687,000.
Interest payments were $397,000, $307,000 and $1,105,000, in 1995, 1996 and
1997, respectively.
8. LINE OF CREDIT
The Company has a line of credit with a financial institution amounting to
$4,500,000 in 1996 and $15,000,000 in 1997. Total draws on the line amounted to
$0 and $2,975,000 as of December 31, 1996 and 1997, respectively. The line of
credit terminates on August 1, 2002 and bears interest at the LIBOR rate. The
Company's accounts receivable and equipment collateralize the line of credit.
9. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Federal:
Current.............................................. $ -- $ -- $1,004
Deferred............................................. -- -- (722)
State:
Current.............................................. 54 78 282
Deferred............................................. -- -- (203)
------ ------ ------
54 78 361
Charge in lieu of income taxes................................ 1,025 1,493 1,590
------ ------ ------
$1,079 $1,571 $1,951
====== ====== ======
</TABLE>
Deferred income taxes result from temporary differences between the tax
basis of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Temporary differences are primarily attributable
to reporting for income tax purposes the excess of tax over book depreciation,
allowance for uncollectible accounts, accrued expenses and accrued vacation
benefits. Significant components of the Company's deferred tax liabilities and
assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1997
---------------- ----------------
NON- NON-
CURRENT CURRENT CURRENT CURRENT
------- ------- ------- -------
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Tax over book depreciation............................. $ -- $ -- $ -- $ 1
Total deferred tax liabilities........................... -- -- -- 1
Deferred tax assets:
Vacation, accrued expenses and allowance for
uncollectible accounts....................... -- -- 770 --
State tax................................................ -- -- 157 --
------- ------- -------- ------
Total deferred tax assets................................ -- -- 927 --
------- ------- -------- ------
Net deferred tax assets.................................. $ -- $ -- $ 927 $ 1
======= ======= ======== ======
</TABLE>
F-11
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. INCOME TAXES (CONTINUED)
A reconciliation of the provision for income taxes with the amount computed
using the federal statutory rate is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1996 1997
---- ----- ----
<S> <C> <C> <C>
Federal rate (34%).................................................... $ 898 $1,324 $1,902
State taxes, net of federal tax benefit....................... 158 234 336
Goodwill...................................................... -- -- 84
Other, net.................................................... 23 13 (4)
Establishment of deferred taxes due to conversion from
S-Corporation to C-Corporation........................... -- -- (367)
------ ------ ------
$1,079 $1,571 $1,951
====== ====== ======
</TABLE>
Total income tax payments during 1995, 1996 and 1997 were $17,000, $30,000
and $8,000, respectively.
CHARGE IN LIEU OF INCOME TAXES AND S-CORPORATION STATUS
Prior to the Fountain View Equity Transactions, most of the individually
owned corporations had elected to be taxed as cash basis S-Corporations.
Included herein are pro forma charges in lieu of income taxes to indicate what
the tax provision would have been had the Company been taxed as a C- Corporation
for all years with a federal and state effective tax rate of 41%.
In connection with the Fountain View Equity Transactions, the controlling
shareholders elected to make a Section 338(h)(10) election (the "Election").
Since the corporations which comprised the predecessor organization were owned
individually by the controlling shareholders, and some of such corporations had
previously elected to be taxed as cash basis S-Corporations, upon the Election,
the cash basis S-Corporations incurred taxable income to the extent of any
receivables and payables not previously recognized in the S-Corporation tax
returns. The controlling shareholders, and not the Company, are responsible for
the taxes due as a result of the Election.
10. LEASES
The Company leases certain of its centers and equipment under noncancelable
operating leases. The leases generally provide for payment of property taxes,
insurance and repairs, and have rent escalation clauses based upon the consumer
price index or annual per bed adjustments.
The future minimum rental payments under noncancelable operating leases
that have initial or remaining lease terms in excess of one year as of December
31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Related
Party Other Total
------------ ------------ ------------
<S> <C> <C> <C>
1998......................................................... $ 1,764 $ 1,954 $ 3,718
1999......................................................... 1,764 2,003 3,767
2000......................................................... 1,764 1,938 3,702
2001......................................................... 1,764 1,995 3,759
2002......................................................... 1,764 2,203 3,967
Thereafter................................................... 25,726 7,008 32,734
------- ------- -------
$ 34,546 $ 17,101 $ 51,647
======= ======= =======
</TABLE>
F-12
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. CONTINGENCIES
The Company is subject to malpractice claims and other litigation arising
in the ordinary course of business. In the opinion of management, any liability
beyond amounts covered by insurance and the ultimate resolution of all pending
legal proceedings will not have a material adverse effect on the Company's
financial position or results of operations.
YEAR 2000 (UNAUDITED)
Some of the Company's information systems and biomedical equipment have
time-sensitive software that will not properly recognize the year 2000. This
could result in a system failure or miscalculations causing disruption of the
Company's operations. The Company is currently completing an assessment and
developing a plan to modify or replace portions of its software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter.
12. SHAREHOLDERS' EQUITY
SHAREHOLDERS AGREEMENT
In connection with the Fountain View Equity Transactions, the controlling
shareholders and Heritage which owns all of the preferred stock, and all of the
Series A-2 common stock consummated a shareholders agreement (the Agreement).
Under the Agreement, each of the parties has certain rights and obligations. The
controlling shareholders retain 3 of the 5 board of directors seats unless
certain events occur including non-payment of any debt of $1 million or more,
and the failure to meet certain earnings targets. In addition, at any time on or
after July 1, 2001, at the option of Heritage, Heritage will have the right to
put its common stock holdings to the Company at appraised value. At any time on
or after July 1, 2003, if Heritage has not elected to put its stock to the
Company, at the option of a majority of the controlling shareholders, the
controlling shareholders will have the right to put the stock to the Company at
appraised value. Heritage has also retained certain protective rights with
respect to its investment in the Company.
In addition to the above rights and obligations, should certain Company
terminal value targets not be met, then the Common Stock Series A-3 will be
returned to the Company and cancelled, without remuneration to the controlling
shareholders. The number of shares returned is based on a formula included in
the Agreement. The Agreement terminates upon the occurrence of an IPO.
PURCHASE AND CONTRIBUTION AGREEMENT
In connection with the Fountain View Equity Transactions, the controlling
shareholders agreed to reimburse the Company for any adverse change in cost
report settlements for periods prior to the investment of funds by Heritage. The
controlling shareholders also agreed to indemnify the Company from any future
liability arising from a certain lawsuit.
13. SUBSEQUENT EVENT
In February 1998, the Company entered into a purchase agreement with Summit
Care Corporation ("Summit") to acquire all of the outstanding common stock of
Summit for cash of $21 per share. The total purchase price approximates $145
million.
F-13
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- --------------------
1997 1998 1997 1998
------- ------ -------- ---------
<S> <C> <C> <C> <C>
Net revenues............................................................ $ 16,970 $ 67,118 $ 50,393 $155,487
Expenses:............................................................... 9,911 35,296 28,549 81,015
Salaries and benefits................................................ 252 680 394 1,448
Provision for doubtful accounts...................................... 2,681 7,157 7,215 17,682
Supplies............................................................. 1,517 7,670 4,079 19,786
Purchased services................................................... 758 4,471 2,045 9,524
Other expenses....................................................... 518 1,250 1,509 3,050
Rent to related parties.............................................. 435 457 1,323 1,339
Depreciation and amortization........................................ 289 3,585 655 7,518
Interest expense, net of interest income............................. 467 5,870 497 12,089
-------- ---------- -------- --------
16,828 66,436 46,266 153,451
Income before provision for
income taxes and extraordinary item................................... 142 682 4,127 2,036
Provision for income taxes.............................................. 373 272 423 813
-------- ---------- -------- --------
Income (loss) before extraordinary item................................. (231) 410 3,704 1,223
-------- ---------- -------- --------
Extraordinary item:
Loss on early extinguishment of debt,
net of taxes.......................................................... -- -- -- (517)
-------- ---------- -------- --------
Net income (loss)....................................................... $ (231) $ 410 $ 3,704 $ 706
======== ========== ======== ========
Pro forma net income:
Net income (loss) as reported......................................... $ (231) $ 410 $ 3,704 $ 706
Charge (credit) in lieu of income taxes
for S-Corporation.................................................... (317) -- 1,224 --
-------- ---------- -------- --------
Net income.............................................................. $ 86 $ 410 $ 2,480 $ 706
======== ========== ======== ========
Basic and diluted earnings per share available
to common shareholders before
extraordinary item.................................................... $ (1.15) $ (.04) $ 18.52 $ .50
Basic and diluted earnings per share available
to common shareholders --
extraordinary item, net of taxes...................................... -- -- -- $ (.62)
-------- ---------- -------- --------
Basic and diluted earnings per share available
to common shareholders--net income(loss).............................. $ (1.15) $ (.04) $ 18.52 $ (.12)
======== ========== ======== ========
Basic and diluted earnings per share--
pro forma............................................................. $ .43 -- $ 12.40 --
======== ========== ======== ========
Weighted Average shares outstanding:
Basic and diluted..................................................... 200,000 1,114,202 200,000 823,909
======== ========== ======== ========
</TABLE>
See accompanying notes
F-14
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
DEC. 31, 1997 SEPT. 30, 1998
------------- --------------
(NOTE) (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 2,551 $ 3,765
Accounts receivable, less allowance for
doubtful accounts: $1,152 at 1997 and $7,022 at 1998............ 15,809 58,972
Other current assets.............................................. 1,503 17,737
------- --------
Total current assets...................................... 19,863 80,474
Property and equipment, at cost:
Land and land improvements........................................ -- 25,064
Buildings and leasehold improvements.............................. 4,659 208,670
Furniture and equipment........................................... 2,096 27,339
Construction in progress.......................................... -- 3,109
------- --------
6,755 264,182
Less accumulated depreciation and amortization.................... (2,481) (8,303)
------- --------
4,274 255,879
Notes receivable, less allowance for
doubtful accounts: $662 at 1998.................................... -- 5,723
Goodwill and other intangible assets, net............................ -- 49,073
Deferred financing costs, net........................................ -- 11,398
Other assets......................................................... 1,804 4,730
------- --------
$25,941 $407,277
======= ========
</TABLE>
NOTE: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
F-15
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
DEC. 31, 1997 SEPT. 30, 1998
------------- --------------
(NOTE) (UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Payable to banks..................................... $ -- $ 768
Accounts payable and accrued liabilities............. 4,179 34,985
Employee compensation and benefits................... 2,479 9,234
Income taxes payable................................. 1,443 335
Current portion of long-term debt.................... 1,741 3,490
-------- --------
Total current liabilities........................ 9,842 48,812
Long-term debt, less current portion................... 28,335 242,136
Deferred income taxes.................................. -- 30,859
Mandatory redeemable preferred stock................... -- 15,000
Commitments and contingencies.......................... -- --
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred Stock Series A, $0.01 par value:
1,000,000 shares authorized; 15,000 issued
and outstanding at 1998.......................... -- --
Common Stock Series A, $0.01 par value:
1,500,000 shares authorized; 200,000 shares and
1,100,000 shares issued and outstanding at 1997
and 1998......................................... 2 10
Common Stock Series B, $0.01 par value:
200,000 shares authorized; 114,202 shares
issued and outstanding at 1998................... -- 1
Common Stock Series C, $0.01 par value:
1,300,000 shares authorized; none issued........... -- --
Paid in capital...................................... 21,957 103,948
Accumulated deficit.................................. (34,195) (33,489)
-------- --------
Total shareholders' equity (deficit)............. (12,236) 70,470
-------- --------
$ 25,941 $407,277
======== ========
</TABLE>
NOTE: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See acompanying notes.
F-16
<PAGE>
FOUNTAIN VIEW, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income..................................................... $ 3,704 $ 706
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................... 655 7,518
(Increase) decrease in accounts receivable, net............. 4,309 (6,502)
(Incease) decrease in other current assets.................. (24) 4,148
(Increase) decrease in accounts payable and
accrued liabilities........................................ 1,785 (2,390)
Decrease (increase) in employee compensation
and benefits............................................... (292) 1,569
(Increase) decrease in income taxes payable................ 417 (912)
-------- ---------
Total adjustments................................. 6,850 3,431
-------- ---------
Net cash provided by operating activities......... 10,554 4,137
-------- ---------
INVESTING ACTIVITIES:
Principal payments on notes receivable.......................... -- 873
Additions to property and equipment............................. (1,983) (5,695)
(Increase) in deferred financing costs.......................... -- (9,807)
Acquisition of Summit Care, net of cash acquired................ -- (150,291)
(Decrease) in acquisition related liabilities................... -- (16,531)
(Increase) in other assets...................................... (954) (318)
-------- ---------
Net cash (used in) investing activities........... (2,937) (181,769)
-------- ---------
FINANCING ACTIVITIES:
(Decrease) in payable to banks.................................. -- (1,177)
Distributions to shareholders................................... (53,740) --
Retirement of long-term debt.................................... (4,850) (29,933)
(Decrease) in capital lease obligations......................... (71) (4,071)
Proceeds from long-term debt.................................... 32,500 225,160
Principal payments on long-term debt............................ -- (108,133)
Proceeds from stock issuance.................................... 19,682 97,000
-------- ---------
Net cash provided by (used in) financing activities (6,479) 178,846
-------- ---------
Increase in cash and cash equivalents............................. 1,138 1,214
Cash and cash equivalents at beginning of period.................. 1,161 2,551
-------- ---------
Cash and cash equivalents at end of period........................ $ 2,299 3,765
Supplemental disclosures of cash flow information: ======== =========
Cash paid during the period for:
Interest...................................................... $ 497 $ 4,564
Income Taxes.................................................. 50 1,250
Detail of purchase business combination:
Fair value of assets acquired.................................... -- 374,440
Less: Liabilities assumed....................................... -- (222,785)
-------- ---------
Cash paid for acquisition........................................ -- 151,655
Less: Cash acquired from Summit................................. -- (1,364)
Net cash paid for acquisition..................... $ -- $ 150,291
======== =========
</TABLE>
See accompanying notes
F-17
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS
Fountain View, Inc. ("Fountain View" or "Company") is a leading operator of
long-term care facilities and a leading provider of a full continuum of post-
acute care services, with a strategic emphasis on sub-acute specialty medical
care. Fountain View operates a network of facilities in California, Texas, and
Arizona, including 44 skilled nursing facilities ("SNFs") that offer sub-acute,
rehabilitative and specialty medical skilled nursing care, as well as six
assisted living facilities ("ALFs") that provide room and board and social
services in a secure environment. In addition, Fountain View provides a variety
of high-quality ancillary services such as physical, occupational and speech
therapy in Fountain View-operated facilities, unaffiliated facilities and acute
care hospitals. Fountain View also operates three institutional pharmacies (one
of which is a joint venture), which serve acute care hospitals as well as SNFs
and ALFs, both affiliated and unaffiliated with Fountain View, an outpatient
therapy clinic and a durable medical equipment ("DME") company.
The Company acquired Summit Care Corporation ("Summit") on March 27, 1998
(see Note 4). The Summit operation consisted of 36 SNFs, five ALFs and three
institutional pharmacies. The acquisition has been accounted for under the
purchase method and, as such, the accompanying financial statements include the
results of the Summit operation from the acquisition date.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. In the opinion of management, the unaudited financial
information reflects all adjustments (all of which are of a normal recurring
nature), which are considered necessary to fairly state the Company's financial
position, its cash flows and the results of operations. These statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1997. The interim financial information herein is not necessarily
representative of that to be expected for a full year.
3. FOUNTAIN VIEW EQUITY TRANSACTIONS
On or about August 1, 1997, the controlling shareholders of the Company
consummated a reorganization transaction (the "Fountain View Equity
Transactions"). Prior to the Fountain View Equity Transactions, the controlling
shareholders were the sole owners of a number of healthcare companies, which
they managed as one business enterprise. The separately owned companies
consisted of eight skilled nursing facilities, an assisted living facility and a
therapy company which provides therapy services primarily to third-party owned
facilities as well as Company-owned facilities. Additionally, the controlling
shareholders owned the real estate which is operated by four of the nursing
homes. The remaining real estate is leased from unrelated third parties.
The controlling shareholders along with Heritage Fund II, L.P. ("Heritage")
formed a new holding company known as Fountain View, Inc. along with several
acquisition subsidiaries to consolidate the healthcare companies owned by the
controlling shareholders into one company. At the same time, Fountain View
entered into market rate leases for the four real estate facilities owned by the
controlling shareholders.
F-18
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Under the terms of the Fountain View Equity Transactions, Heritage invested
$14.0 million in cash in Fountain View in exchange for all of the Company's
preferred stock with a liquidation value of $7.0 million and 99,950 shares of
the Company's Common Stock Series A-2. The controlling shareholders at the same
time contributed all of their healthcare assets, except for owned real estate,
to Fountain View in exchange for 53,850 shares of the Company's Common Stock
Series A-1 and 46,200 shares of the Company's Common Stock Series A-3.
Concurrent with the exchange of shares, Fountain View obtained bank financing
totaling $31.0 million, the proceeds of which along with the $14.0 million
invested by Heritage were used to fund a distribution of $43.7 million of cash
to the controlling shareholders and pay $1.3 million in transaction costs.
Since the controlling shareholders maintained a controlling financial interest
in Fountain View, a change in control was not deemed to have occurred upon the
consummation of the Fountain View Equity Transactions. Therefore, the Fountain
View Equity Transactions were treated as a reorganization/merger of companies
under common control, with no step-up in basis of the assets of Fountain View.
4. ACQUISITION OF SUMMIT CARE CORPORATION
On February 6, 1998, Fountain View, Summit, Heritage and FV-SCC Acquisition
Corp. ("Acquisition"), a wholly-owned subsidiary of Fountain View entered into
an Agreement and Plan of Merger providing for the acquisition of Summit by
Fountain View at a price of $21.00 per share. On February 13, 1998, Acquisition
initiated a Tender Offer for the outstanding shares of Summit. The Tender Offer
expired on March 25, 1998 and Acquisition purchased approximately 99% of the
shares of Summit for approximately $141.8 million at the closing of the Tender
Offer on March 27, 1998. Pursuant to the short form merger provisions of
California law the Merger became effective 20 days later on April 16, 1998 and
Summit was merged into Acquisition, a wholly owned subsidiary of Fountain View.
In order to consummate the purchase of the Summit shares in the Tender
Offer and to refinance Fountain View's existing debt, Fountain View entered into
a term- loan of $32.0 million and a credit facility of approximately $62.7
million. In addition, Fountain View raised approximately $82.0 million of new
equity investments in the amounts of $75.6 million from Heritage and certain
other co- investors, $5.0 million from Mr. Robert Snukal, Fountain View's Chief
Executive Officer, and Mrs. Sheila Snukal, Fountain View's Executive Vice
President, and $1.4 million from Mr. William Scott, Summit's Chairman and Chief
Executive Officer.
On April 16, 1998, concurrent with the Merger becoming effective, Fountain
View entered into a new $30.0 million revolving credit facility, an $85.0
million term-loan facility, and successfully completed a Senior Subordinated
Note Offering providing for borrowings of $120.0 million. In addition, Heritage
made an additional equity investment of $15.0 million and received 15,000 shares
of Series A Preferred Stock of Fountain View that entitles them to a dividend at
the time of a liquidity event calculated to achieve a 12% annual rate of return,
as well as warrants to purchase 71,119 shares of Fountain View's Series C Common
Stock. These funds were used to consummate the purchase of Summit's remaining
shares, refinance all then existing Fountain View indebtedness, as described
above, and Summit indebtedness (except for capital lease and mortgage
obligations) totaling $107.8 million, redeem all outstanding options for Summit
shares, and pay certain fees, expenses, and other costs arising in connection
with such transactions.
On May 4, 1998, Fountain View signed an investment agreement with Baylor
Health Foundation System ("Baylor"), a vertically integrated healthcare system
operating in Texas, and Buckner, a non-profit foundation, (collectively, the
"Baylor Group"). In addition, Fountain View signed an operating agreement with
Baylor. Pursuant to these agreements, Baylor invested $10.0 million and Buckner
invested $2.5 million in
F-19
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Fountain View through the purchase of 12,342 shares of Series A Preferred Stock
from Heritage that entitles them to a dividend at the time of a liquidity event
calculated to achieve a 12% annual rate of return, as well as warrants to
purchase 59,266 shares of Fountain View's Series C Common Stock. As part of its
investment, the Baylor Group is entitled to have one of its nominees serve on
Fountain View's board of directors. Fountain View and Baylor are also in the
process of discussing the possible development or operation of certain
facilities on a joint or cooperative basis.
5. PROFORMA FINANCIAL RESULTS
The following table sets forth the financial results (in thousands) of the
Company on a proforma basis, as if the acquisition of Summit occurred on January
1, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30,
----------------------- ---------------------
1998 1997 1998 1997
---- ---- ---- -----
<S> <C> <C> <C> <C>
Net revenues............................................. $67,118 $70,378 $209,405 $203,159
Income (loss) before extraordinary item.................. 410 (1,037) (65) (4,952)
Net income (loss)........................................ 410 (1,037) (582) (4,952)
</TABLE>
6. PROSPECTIVE PAYMENT SYSTEM
Pursuant to the Balanced Budget Act, a prospective payment system ("PPS") was
established for Medicare SNFs. Under PPS, facilities are paid a federal per diem
rate for virtually all covered SNF services in lieu of the former cost-based
reimbursement rate. PPS will be phased in over three cost reporting periods
beginning on or after July 1, 1998. As of July 1, 1998, 36 of the Company's 44
SNFs transitioned to PPS. The remaining eight facilities will transition on
January 1, 1999.
7. OTHER CURRENT ASSETS
Other current assets (in thousands) consist of the following:
<TABLE>
<CAPTION>
SEPT. 30, 1998 DEC. 31, 1997
-------------- -------------
<S> <C> <C>
Deferred taxes............ $ 9,468 $ 926
Notes receivable.......... 1,086 --
Prepaid expenses.......... 1,832 551
Recoverable income taxes.. 1,765 --
Other receivables......... 407 26
Other..................... 3,179 --
------- ------
$17,737 $1,503
======= ======
</TABLE>
8. RECENT ACCOUNTING PRONOUNCEMENTS
REPORTING COMPREHENSIVE INCOME
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") which establishes standards for the reporting of comprehensive income and
its components in a full set of general purpose financial statements.
F-20
<PAGE>
FOUNTAIN VIEW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The standard is effective for fiscal years beginning after December 15, 1997. An
enterprise is required to report a total for comprehensive income in condensed
financial statements of interim periods issued for external reporting purposes.
Comprehensive income is defined as the change in equity (net assets) of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. SFAS 130 uses the term comprehensive
income to describe the total of all components of comprehensive income, that is,
net income plus other comprehensive income. Other comprehensive income items
include unrealized gains and losses on available-for-sale securities; foreign
currency translation adjustments; changes in the market value of certain futures
contracts; and changes in certain minimum pension liabilities. Fountain View has
no items of other comprehensive income in the periods reported, and, therefore,
comprehensive income is equal to net income, as reported.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of An
Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal
years beginning after December 15, 1997. This Statement is not required to be
applied to interim financial statements in the initial year of its application.
SFAS 131 establishes standards for the way that public enterprises report
information about operating segments in annual financial statements. It also
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. Under existing
accounting standards, the Company has reported its operations as one line of
business because substantially all of its revenues have been derived from its
skilled nursing facilities and assisted living facilities and closely related
ancillary services. The Company is presently evaluating the new standard in
order to determine its effect, if any, on the way the Company might report its
operations in the future.
9. SUBSEQUENT EVENTS
On October 6, 1998 the Company amended its $85.0 million term-loan credit
agreement with the bank extending $5.0 million of additional mortgage
refinancing loans to the Company. The Company used the proceeds to finance the
exercise of capital lease purchase options on two skilled nursing facilities in
Texas.
F-21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Summit Care Corporation
We have audited the accompanying consolidated balance sheets of Summit Care
Corporation and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Summit Care Corporation at June 30, 1997 and 1996, and the consolidated results
of its operations and cash flows for each of the three years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
August 22, 1997
F-22
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1996 1997
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 2,658 $ 3,994
Accounts receivable, less allowance for doubtful accounts:
1996--$2,084; 1997--$2,028........................................... 27,930 33,749
Supplies inventory, at cost............................................ 2,058 2,690
Other current assets................................................... 13,032 12,356
-------- --------
Total current assets............................................. 45,678 52,789
Property and equipment, at cost:
Land and land improvements............................................. 16,018 19,513
Buildings and leasehold improvements. ................................. 136,907 161,080
Furniture and equipment................................................ 18,668 23,978
Construction in progress............................................... 15,043 5,947
-------- --------
186,636 210,518
Less accumulated depreciation and amortization......................... 21,713 28,605
-------- --------
164,923 181,913
Notes receivable, less allowance for doubtful accounts:
1996--$268; 1997--$322................................................. 4,845 6,859
Other assets............................................................ 7,606 8,955
-------- --------
$223,052 $250,516
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Payable to bank........................................................ $ 4,165 $ 4,678
Accounts payable....................................................... 19,895 29,586
Employee compensation and benefits..................................... 3,738 5,877
Income taxes payable................................................... 989 ---
Long-term debt due within one year..................................... 2,985 ---
-------- --------
Total current liabilities........................................ 31,772 40,141
Long-term debt.......................................................... 107,389 121,452
Deferred income taxes................................................... 2,605 7,511
-------- --------
Total liabilities...................................................... 141,766 169,104
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 2,000,000 authorized shares,
none issued............................................................ --- ---
Common stock, no par value, 100,000,000 authorized shares;
6,776,000 and 6,772,800 issued and outstanding, respectively........... 51,486 51,543
Retained earnings....................................................... 29,800 29,869
-------- --------
Total shareholders' equity....................................... 81,286 81,412
-------- --------
$223,052 $250,516
======== ========
</TABLE>
See accompanying notes.
F-23
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Net revenues................................................. $ 137,026 $ 176,062 $ 197,927
EXPENSES:
Salaries and benefits....................................... 63,171 78,233 89,577
Supplies.................................................... 15,374 18,071 20,160
Purchased services.......................................... 22,234 37,963 51,520
Provision for doubtful accounts............................. 1,330 2,241 2,530
Other expenses.............................................. 10,268 12,421 15,722
Rental...................................................... 1,691 2,656 2,864
Rental to related parties................................... 450 --- ---
Depreciation and amortization............................... 5,249 6,142 7,393
Interest (net of interest income: $513, $522 and
$645, respectively)........................................ 4,761 6,574 7,973
--------- --------- ---------
124,528 164,301 197,739
--------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES..................... 12,498 11,761 188
Provision for income taxes.................................. 4,987 4,452 119
--------- --------- ---------
NET INCOME................................................... $ 7,511 $ 7,309 $ 69
========= ========= =========
</TABLE>
See accompanying notes.
F-24
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended June 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Retained
-----------------------
Shares Amount Earnings Total
------ ------ -------- -----
<S> <C> <C> <C> <C>
Balances at June 30, 1994........... 6,743,600 $51,381 $14,980 $66,361
Net income........................ --- --- 7,511 7,511
Exercise of stock options......... 15,700 192 --- 192
Expenses on sale of common stock.. --- (251) --- (251)
--------- ------- ------- -------
Balances at June 30, 1995........... 6,759,300 51,322 22,491 73,813
Net income........................ --- --- 7,309 7,309
Exercise of stock options......... 13,500 164 --- 164
--------- ------- ------- -------
Balances at June 30, 1996........... 6,772,800 51,486 29,800 81,286
Net income........................ --- --- 69 69
Exercise of stock options......... 3,200 57 --- 57
--------- ------- ------- -------
Balances at June 30, 1997........... 6,776,000 $51,543 $29,869 $81,412
========= ======= ======= =======
</TABLE>
See accompanying notes.
F-25
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................ $ 7,511 $ 7,309 $ 69
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation and amortization.................... 5,249 6,142 7,393
(Increase) in accounts receivable................ (6,907) (7,594) (5,819)
(Increase) decrease in supplies inventory........ (623) 118 (632)
Decrease (increase) in other current assets...... (1,740) (8,429) 1,257
Increase in accounts payable..................... 2,512 8,923 9,691
Increase (decrease) in employee compensation
and benefits.................................... 478 (270) 2,139
(Decrease) increase in income taxes payable...... 577 (72) (989)
Increase (decrease) in deferred income taxes..... (43) 739 4,906
-------- -------- --------
Total adjustments (497) (443) 17,946
-------- -------- --------
Net cash provided by operating activities........ 7,014 6,866 18,015
-------- -------- --------
INVESTING ACTIVITIES:
Issuance of notes receivable.......................... (2,089) (916) (3,142)
Principal payments of notes receivable................ 962 498 547
Additions to property and equipment................... (9,004) (26,558) (24,075)
Acquisitions of nursing centers....................... (51,178) --- ---
Additions to other assets............................. (3,279) (2,276) (1,657)
-------- -------- --------
Net cash used in investing activities............ (64,588) (29,252) (28,327)
FINANCING ACTIVITIES:
Increase in payable to bank........................... 826 1,193 513
Principal payments on long-term debt.................. (38,225) (49,914) (17,922)
Proceeds from long-term debt.......................... 76,520 70,500 29,000
Net expenses from sale of common stock................ (251) --- ---
Net proceeds on exercise of stock options............. 192 164 57
-------- -------- --------
Net cash provided by financing activities........ 39,062 21,943 11,648
-------- -------- --------
Increase (decrease) in cash and cash equivalents........ (18,512) (443) 1,336
Cash and cash equivalents at beginning of year.......... 21,613 3,101 2,658
-------- -------- --------
Cash and cash equivalents at end of year................ $ 3,101 $ 2,658 $ 3,994
======== ======== ========
Supplemental disclosures of non-cash investing and
financing activities:
Acquisition notes payable............................. $ (2,814) $ --- $ ---
Acquisition of nursing care centers................... 2,814 --- ---
Acquisition of nursing care centers under capital
leases............................................... 16,654 --- ---
Capital lease obligations............................. (16,654) --- ---
</TABLE>
See accompanying notes.
F-26
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended June 30, 1997
(Dollars in Thousands, Except per Share Data)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business. Summit Care Corporation ("Company" or "Summit")
provides a variety of healthcare services primarily to the elderly through the
operation of sub-acute, skilled nursing, Alzheimer's and assisted living units
in skilled nursing care centers and assisted living centers in California, Texas
and Arizona. These services include nursing care, room, board and certain
specialty medical services, including rehabilitation care, infusion therapy and
other ancillary services. The Company also provides specialty pharmaceutical and
infusion therapy services to other long-term care providers. In April 1994,
OrNda HealthCorp ("OrNda") acquired the Company's then majority shareholder,
Summit Health Ltd. ("SHL"). OrNda's 7.5% Exchangeable Subordinated Notes ("OrNda
Notes") were exchangeable into its equity interest in the Company's common
stock, at the option of the holders. OrNda redeemed 100% of the outstanding
OrNda Notes in exchange for its equity interest in the Company's common stock in
August 1995. OrNda currently has no position in the Company's common stock. In
January 1997, OrNda was merged into Tenet Healthcare Corporation ("Tenet").
BASIS OF CONSOLIDATION. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated.
USE OF ESTIMATES. The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
INVENTORIES. Inventories are stated at the lower of cost (first-in, first-
out method) or market.
REVENUES. Approximately 68 percent, 70 percent and 72 percent of the
Company's revenues in the years ended June 30, 1995, 1996 and 1997 were derived
from funds under federal and state medical assistance programs, the continuation
of which are dependent upon governmental policies. These revenues are based, in
certain cases, upon cost reimbursement principles and are subject to audit.
Revenues are recorded on an accrual basis as services are performed at their
estimated net realizable value. Differences between final settlement and
estimated net realizable value accrued in prior years are reported as
adjustments to the current year's net revenues. These adjustments decreased net
revenues by $4,892 in fiscal 1997. A significant portion of the Company's
skilled nursing care center revenues is derived from government sponsored
healthcare programs such as Medicare and Medicaid. These programs are highly
regulated and are subject to budgetary and other constraints. While the
Company's cash flow could be adversely affected by periodic government program
funding delays or shortfalls, management does not believe there are any
significant credit risks associated with these government programs.
PROPERTY AND EQUIPMENT. Depreciation and amortization (straight-line
method) is based on the estimated useful lives of the individual assets as
follows:
<TABLE>
<S> <C>
Buildings and improvements ......................... 15-40 years
Leasehold improvements ............................. Shorter of lease term or estimated useful life
Furniture and equipment ............................ 3-20 years
</TABLE>
F-27
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Amortization of capital leases is included in depreciation and amortization
expense. For leasehold improvements, where the Company has acquired the right of
first refusal to purchase or to renew the lease, amortization is based on the
lesser of the estimated useful lives and the period covered by the right.
INTANGIBLE ASSETS. Goodwill of $2,321 less accumulated amortization of $182
is included in other assets at June 30, 1997 and is amortized over 35 years
using the straight-line method.
INSURANCE COVERAGE. The Company self insures for certain levels of workers'
compensation and general and professional liability coverage. The Company
utilizes a captive insurance company for the purpose of providing reinsurance
coverage for workers' compensation claims filed by its California and Arizona
employees in excess of a $250 self insurance retention per occurrence and not
subject to an annual aggregate limit. The Company has elected under Texas law to
decline to participate in the Texas workers' compensation insurance program and
maintains employer's excess and occupational indemnity insurance on claims
subject to a $150 self insurance retention per occurrence with no annual
aggregate limit. The Company maintains general and professional liability
insurance on a claims made basis, subject to a $100 self insurance retention per
occurrence and $600 on an annual aggregate basis.
Under both self insurance programs, the Company estimates its liability,
including potential legal fees and settlement amounts, based on claims filed and
estimates of claims incurred but not reported, utilizing historical experience
on an undiscounted basis. Differences between the amounts accrued and subsequent
settlements are recorded in operations in the year of settlement.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include highly liquid
investments with an original maturity of three months or less. The Company
places its temporary cash investments with high credit quality financial
institutions.
CASH MANAGEMENT. The Company utilizes a centralized cash management system.
Payable to bank represents checks outstanding.
ACCOUNTING FOR THE IMPAIRMENT AND DISPOSAL OF LONG-LIVED ASSETS. Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"),
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company believes, based on current
circumstances, that there are no indicators of impairment to its long-lived
assets, and the Company presently has no expectations for disposing of any long-
lived assets.
RECENT ACCOUNTING PRONOUNCEMENTS. In October 1995, Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), was issued which, if elected, would require companies to use a new fair
value method of valuing stock-based compensation plans. The Company has elected
to continue following present accounting rules under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" which uses an
intrinsic value method and often results in no compensation expense. In
accordance with SFAS 123, the Company has provided pro forma disclosure of what
net income and earnings per share would have been had the new fair value method
been used (see Note 10).
F-28
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which is effective for fiscal years ending after December 15, 1997, including
interim periods. Earlier adoption is not permitted. However, an entity is
permitted to disclose pro forma earnings per share amounts computed under SFAS
128 in the notes to the financial statements in periods prior to adoption. The
statement requires restatement of all prior-period earnings per share data
presented after the effective date. SFAS 128 specifies the computation,
presentation, and disclosure requirements for earnings per share and is
substantially similar to the standard recently issued by the International
Accounting Standards Committee entitled "International Accounting Standards,
Earnings per Share." The Company plans to adopt SFAS 128 in fiscal year 1998 and
has not determined the impact of adoption.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal
years ending after December 15, 1997. SFAS 131 establishes standards for the way
that public enterprises report information about operating segments in annual
financial statements. It also requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. Under existing accounting standards, the Company has reported its
operations as one line of business because substantially all of its revenues
have been derived from its skilled nursing care centers and assisted living
centers and closely related ancillary services. The Company is presently
evaluating the new standard in order to determine its effect, if any, on the way
the Company might report its operations in the future.
RECLASSIFICATIONS. Certain amounts have been reclassified to conform with
1997 presentations.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair market value disclosures.
CASH AND CASH EQUIVALENTS. The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
NOTES RECEIVABLE (INCLUDING CURRENT PORTION). The carrying amount,
before the allowance for doubtful accounts, is $8,434. The fair value of
$8,400 is estimated using discounted cash flow analyses, based on interest
rates currently being offered for notes with similar terms to borrowers of
similar credit quality.
LONG-TERM DEBT (INCLUDING CURRENT PORTION). The carrying value of
$121,452 of long-term debt is based on the original face value (issue
amount). The fair value of $120,300 is estimated based on the present value
of the underlying cash flows discounted at the Company's incremental
borrowing rate.
3. MATERIAL TRANSACTIONS WITH RELATED ENTITIES
TENET HEALTHCARE CORPORATION, ORNDA HEALTHCORP AND SUMMIT HEALTH LTD. The
Company had an agreement with Tenet/OrNda, which expired in March 1997, under
which the Company leased a portion of its corporate office space to OrNda and
shared the cost of building services with OrNda. The agreement also required
OrNda to provide tax accounting to the Company. The Company's rental income from
OrNda
F-29
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for the space exceeded the payments to OrNda for services by $31 for the
year ended June 30, 1997. For the years
3. MATERIAL TRANSACTIONS WITH RELATED ENTITIES (CONTINUED)
ended June 30, 1996 and 1995, payments to OrNda for services exceeded rental
income for the space by $50 and $23, respectively. The Company believes that the
amount reimbursed for the services provided and the rental income received are
reasonable. The agreement also indemnified the Company against any liability
arising from its divestiture of facilities, the net assets of which were
purchased by SHL during the year ended June 30, 1992. The provisions of the
indemnification survive the termination of the agreement. Certain provisions of
this agreement were terminated or amended as a result of the redemption on
August 28, 1995 by OrNda of 100% of the OrNda Notes in exchange for the
Company's common stock (see Note 1).
In January 1994, the Company entered into a ten-year sub-lease of a nursing
care center with SHL. The Company believes the monthly lease payments of $37 are
reasonable for the market areas. Lease payments to Tenet, OrNda and SHL were
$450 for each of the years ended June 30, 1995, 1996 and 1997.
At June 30, 1997, the net amount due from Tenet for transactions between
the Company and Tenet was $918 and is included in Other Current Assets (see Note
5).
4. ACQUISITIONS AND CONSTRUCTION ACTIVITY
FISCAL YEAR 1995. On September 1, 1994, the Company purchased a 220-bed
skilled nursing care center in White Settlement (Fort Worth), Texas, for $11,925
in cash and a four-acre site for $1,500 in cash for construction of a 210-bed
skilled nursing care center located in Fort Worth, Texas, which began in May
1995.
The Company acquired on October 1, 1994 the leasehold interest in six
skilled nursing care centers and the real and personal property of a seventh
with a combined total of 783 beds located in various communities in Texas for
$30,938, including goodwill of $2,321. The purchase price consists of (i)
$11,470 in cash (of which $8,541 was funded under the Company's bank line of
credit), (ii) a $2,814 promissory note ($3,000 less a $186 discount) at 9%
interest (7% contract rate) fully amortized in seven years and (iii) a $16,654
capital lease obligation assumed by the Company. The leases on the six centers
range from eight to twenty-one years, include purchase options, the first
exercisable in July 1996, and the last exercisable in February 2005, and have
combined monthly payments of $159.
On December 1, 1994, the Company acquired four skilled nursing care centers
in three communities in East Texas with a combined total of 548 beds for $27,000
in cash and, in a separate transaction, the leasehold interest in a 119-bed
skilled nursing care center located in Big Spring, Texas, for $800 in cash. Both
transactions were funded under the Company's bank line of credit.
The Company's acquisitions have been accounted for as purchases and,
accordingly, the results of operations of the acquired centers have been
included in the consolidated statement of income since the date of acquisition.
The Company completed in May 1995 an addition of 74 beds to a 76-bed
nursing care center which is operated under a ten-year sub-lease with OrNda (see
Note 3).
FISCAL YEAR 1996. On January 8, 1996, the Company opened a 108-bed skilled
nursing care center in Fresno, California, and in August 1996, opened another 51
beds at the same site. Total cost of construction including the original
purchase price was $14,024. In March 1996, the Company added
F-30
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20 licensed beds to one of its two skilled nursing care centers in Beaumont,
Texas, increasing the center's total beds to 148. Total cost of construction was
$785. In June 1996, the Company also added 54 beds to its skilled nursing care
center in Longview, Texas, increasing the total beds to 182. Total cost of
construction was
4. ACQUISITIONS AND CONSTRUCTION ACTIVITY (CONTINUED)
$1,860. Cost of construction completed in the year ended June 30, 1996 was
financed with funds from Notes issued in December 1995 and draws against the
Company's bank line of credit (see Note 6).
FISCAL YEAR 1997. In August 1996, the Company opened a 110-bed skilled
nursing care center in Fort Worth, Texas, and in June 1997, opened another 100
beds at the same site. Total cost of construction including the original
purchase price (see this Note, Fiscal Year 1995) was $12,012. On July 1, 1997,
the Company opened a 66-bed assisted living center in Orange, California,
dedicated to Alzheimer's and other patients with dementia. Total cost of
construction, which constituted renovation of an existing building on a campus
with a 172-bed skilled nursing center and a 72-bed assisted living center, was
$3,525. Cost of construction completed in the year ended June 30, 1997 was
financed with funds from $15 million of Senior Secured Notes ("Notes") issued in
July 1996 and with cash generated from operations. The Notes represented the
second and last issuance of $70 million of Notes. The first issuance of $55
million occurred in December 1995.
In July 1996, the Company exercised a purchase option in its lease of a 88-
bed skilled nursing care center in Rockport, Texas. The purchase price of $2,022
was financed with funds from the Notes.
In December 1996, the Company entered into a limited liability company
("LLC") agreement to operate a pharmacy in Austin, Texas. The purchase price for
its 50% membership interest was $1,565 in cash. The pharmacy services nursing
centers in Texas operated by either the Company, the other LLC member or non-
affiliated nursing center owners. The Company accounts for its investment in the
LLC under the equity method of accounting. The Company's equity in earnings of
the LLC was insignificant during fiscal year 1997.
In June 1997, the Company purchased 10 acres of vacant land in Longview,
Texas for $648 in cash. The land will be used for new services which will
complement the 174-bed skilled nursing center currently owned and operated by
the Company.
5. OTHER CURRENT ASSETS
Other current assets consist of the following:
<TABLE>
<CAPTION>
June 30,
------------------------------
1996 1997
------------- ---------------
<S> <C> <C>
Due from third party payors................... $ 8,055 $ 2,491
Deferred tax assets........................... 1,810 1,956
Notes receivable.............................. 672 1,253
Prepaid expenses.............................. 952 1,004
Income tax receivable......................... -- 4,128
Other receivables............................. 1,543 1,524
------- -------
$13,032 $12,356
======= =======
</TABLE>
F-31
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1996 1997
---- ----
<S> <C> <C>
Senior secured notes, at fixed interest rates from 7.38% to 8.14%, interest only
payable semi-annually, principal due from December 2000 to December
2010 in various annual payments, secured by property and equipment with a
book value of approximately $91,781 at June 30, 1997........................... $ 55,000 $ 70,000
Secured revolving bank line of credit expires September 30, 1998, variable
interest rates approximating 7.44% in the year ending June 30, 1997,
convertible to a term loan due in equal quarterly principal payments through
September 2001, secured by property and equipment with a book value of
approximately $6,556 at June 30, 1997.......................................... 6,000 5,000
8.96% senior secured notes, due 2002, interest only, payable semi-annually
through June 1997, annual principal payments of $4,150 beginning
December 1997, secured by property and equipment with a book value
of approximately $32,779 at June 30, 1997...................................... 25,000 25,000
Present value of capital lease obligations at effective interest rates from 7% to
9%, secured by property and equipment with a book value of approximately
$23,216 at June 30, 1997....................................................... 15,680 13,133
Mortgage and other note payable, fixed interest rates from 7.75% to 9%,
due in various monthly installments through January 2026, secured by property
and equipment with a book value of approximately $7,379 at June 30, 1997....... 5,231 5,281
Promissory note, less imputed interest of $81 in the year ended June 30, 1997,
at an effective interest rate of 9% due in October 2001, secured by the
leasehold interest in a nursing care center, with a book value of
approximately $3,060 at June 30, 1997.......................................... 2,304 1,944
Mortgage note payable, variable interest rates from 8.25% to 9.0% in year
ended June 30, 1997, due in equal monthly principal installments through
March 2001, secured by property and equipment with a book value of
approximately $2,816 at June 30, 1997.......................................... 1,159 1,094
Less current portion............................................................. (2,985) --
-------- --------
Non-current portion.............................................................. $107,389 $121,452
======== ========
</TABLE>
Future maturities of long-term debt (including capital lease obligations)
are as follows: years ending June 30, 1998--$-0-; 1999--$8,699; 2000--$13,788;
2001--$17,187; 2002--$10,904, and thereafter--$70,874.
In December 1995, the Company amended its secured bank line of credit which
reduced the commitment from $60,000 to $40,000, converted accounts receivable
from collateral to a negative pledge, extended the revolver to September 30,
1997 (the revolver has been subsequently extended to September 30, 1998) and
reduced the period of the term loan upon termination of the revolver from four
to three years. The interest rate is variable and at the Company's option, will
equal either the bank prime rate or the Eurodollar rate plus a margin (reduced
by the amendment) that varies depending on the ratio of certain senior debt to
earnings before certain interest, taxes, depreciation and amortization.
F-32
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
At June 30, 1997, credit line loans outstanding were $5,000 which was used
to finance the construction described in Note 4. At June 30, 1997, the Company
classified $6,997 of current debt maturities as long-term debt based on its
intent and ability to refinance these obligations under the bank line of credit.
The bank line of credit loan agreement and the two senior secured note
agreements contain covenants that include requirements to comply with certain
financial tests and ratios and restrict the ability of the Company to incur
additional indebtedness. Also, the Company is restricted by the agreements from
the payment of dividends (other than dividends payable in common stock) or to
acquire its common stock to the extent that such payments exceed $5,000 plus 50%
of the Company's net income after June 30, 1995. The Company currently is
meeting all financial tests and ratios.
Interest expense was $6,033, $8,701 and $10,296 in fiscal years 1995, 1996
and 1997, respectively, of which $759, $1,605 and $1,678 in 1995, 1996 and 1997
were capitalized as part of the ongoing construction projects. Interest payments
were $5,712 , $7,874 and $10,124 in fiscal years 1995, 1996 and 1997,
respectively.
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------
1995 1996 1997
------------- ----------- ------------
<S> <C> <C> <C>
Federal:
Current............................................. $4,359 $3,611 $(3,979)
Deferred............................................ (277) 19 4,003
------ ------ -------
4,082 3,630 24
State:
Current............................................. 952 798 (662)
Deferred............................................ (47) 24 757
------ ------ -------
905 822 95
------ ------ -------
$4,987 $4,452 $ 119
====== ====== =======
</TABLE>
See accompanying notes.
F-33
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES (CONTINUED)
Deferred income taxes result from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements and represent differences between income for tax purposes and income
for financial statement purposes in future years. Temporary differences are
primarily attributable to reporting for income tax purposes the excess of tax
over book depreciation, bad debts and vacation benefits. The current deferred
tax assets are included in other current assets (see Note 5). Significant
components of the Company's deferred tax liabilities and assets as of June 30
are as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------- -------------------------
NON- NON-
CURRENT Current CURRENT Current
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Income Taxes
Deferred tax liabilities:
Tax over book depreciation................................ $ -- $(3,136) $ -- $(7,858)
Other..................................................... -- (137) -- (264)
----------- ------------ ----------- ------------
Total deferred tax liabilities............................ -- (3,273) -- (8,122)
Deferred tax assets:
Vacation and deferred compensation benefits and bad debt.. 1,810 330 1,956 452
State Tax................................................. -- 338 -- 159
----------- ------------ ----------- ------------
Total deferred tax assets.............................. 1,810 668 1,956 611
----------- ------------ ----------- ------------
Net deferred tax assets (liabilities)....................... $1,810 $(2,605) $1,956 $(7,511)
=========== ============ ============ ============
</TABLE>
A reconciliation of the provision for income taxes with the amount computed
using the federal statutory rate is as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1996 1997
------------ -----------
<S> <C> <C>
Federal rate............................................... 35.0% 34.0%
State taxes, net of federal tax benefit.................... 4.5 4.5
Tax credits................................................ (1.6) --
Other, net................................................. -- 24.8
---- ----
37.9% 63.3%
==== ====
</TABLE>
The increase in the effective tax rate was primarily due to certain
permanent differences between book income and taxable income. Total income tax
payments during fiscal years 1995, 1996 and 1997 were $4,876, $3,904 and $1,828,
respectively.
8. LEASES
The Company leases certain of its centers, equipment and its pharmacy space
under both noncancellable operating leases and capital leases. The leases
generally provide for payment of property taxes, insurance and repairs, and have
rent escalation clauses based upon the consumer price index or annual per bed
adjustments.
F-34
<PAGE>
8. LEASES (CONTINUED)
All capital leases contain purchase options, and the accompanying balance
sheet and following table have been prepared assuming such options will be
exercised (see Note 11). Some leases contain various renewal options and extend
up to the year 2030. Property and equipment includes the following amounts for
leases which have been capitalized:
<TABLE>
<CAPTION>
June 30, 1997
-----------------
<S> <C>
Land and land improvements........................... $ 1,400
Buildings and leasehold improvements................. 21,481
Furniture and equipment.............................. 2,405
-------
25,286
Less accumulated amortization.................... 2,070
-------
$23,216
=======
</TABLE>
The future minimum rental payments under noncancellable operating leases
and capital leases (including purchase options when expected to be exercised)
that have initial or remaining lease terms in excess of one year as of June 30,
1997 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Year Ending June 30, Leases Leases Total
- -------------------- --------------- ------------- ------------
<S> <C> <C> <C>
1998................................................................. $ 3,054 $ 3,321 $ 6,375
1999................................................................. 2,995 4,634 7,629
2000................................................................. 2,755 4,297 7,052
2001................................................................. 2,513 350 2,863
2002................................................................. 2,176 350 2,526
Thereafter........................................................... 7,827 3,525 11,352
------- ------- -------
Total minimum lease payments......................................... 21,320 16,477 37,797
Less amount representing interest.................................... -- 3,344 3,344
------- ------- -------
Present value of net minimum lease payments (capital lease amount
included in long-term debt--see Note 6)............................. $21,320 $13,133 $34,453
======= ======= =======
</TABLE>
9. CONTINGENCIES
The Company is subject to malpractice claims and other litigation arising
in the ordinary course of business. In the opinion of management, any liability
beyond amounts covered by insurance and the ultimate resolution of all pending
legal proceedings will not have a material adverse effect on the Company's
financial position or results of operations.
10. STOCK OPTION PLAN
Effective July 1, 1991, the Company adopted a stock option plan authorizing
the issuance of 250,000 shares of common stock. The plan was amended on December
9, 1994 and again on December 8, 1995 to increase the authorized shares to
1,400,000. Options may be granted to key employees and directors of the Company.
Options granted to employees may be either incentive stock options or
nonstatutory options. Only non-qualified options may be granted to non-employee
directors. Options granted to non-employee directors are granted automatically
pursuant to a formula grant provision contained in the plan. The option price
per share for incentive stock options shall not be less than 85% of the fair
market value at the date of the grant. The terms of each option and the
increments in which each is exercisable are determined by a committee
F-35
<PAGE>
10. STOCK OPTION PLAN (CONTINUED)
appointed by the Board of Directors. No option may be exercised after ten years
from the date of the grant and no option may be granted under the plan after
June 30, 2001.
The following summarizes activity in the stock option plan:
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------------------------
1995 1996 1997
------------------------ ------------------ --------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
-------------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Options at beginning of year.................. 256,000 $12.97 523,000 $16.79 948,500 $18.91
Changes during year:
Granted....................................... 284,500 $19.94 504,000 $21.15 112,000 $13.36
Exercised..................................... (15,700) $12.20 (13,500) $12.13 (3,200) $17.85
Canceled...................................... (1,800) $12.26 (65,000) $20.58 (26,800) $20.31
Options outstanding at end of year............ 523,000 $16.79 948,500 $18.91 1,030,500 $18.27
======= ======= =========
Options exercisable at end of year............ 58,100 $12.26 161,600 $14.97 352,300 $17.10
Options available for grant at end of year.... 57,700 418,700 333,500
</TABLE>
The weighted average fair value per share of options granted during the
year was $10.14 and $6.72 for fiscal years 1996 and 1997, respectively. The
exercise prices for options outstanding at June 30, 1997 ranged from $10.50 to
$22.50. The weighted average remaining contractual life of these options is
approximately eight years.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) which uses an intrinsic
value method and, because the exercise price of the Company's stock options
equals the market price of the underlying stock on the date of grant, results in
no compensation expense. However, pro forma information regarding net income and
earnings per share is required by Statement of Financial Accounting Standards
No. 123, "Accounting and Disclosure of Stock-Based Compensation" (SFAS 123),
and, in the following disclosure, has been determined as if the Company had
accounted for its stock options under the fair value method of SFAS 123. The
fair value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted average assumptions for
the years ended June 30, 1997 and 1996, respectively: risk-free interest rates
of 6.4% and 5.5%; dividend yields of zero percent for both years; volatility
factors of the expected market price of the Company's common stock of 48.4% and
46.8%; and a weighted average expected life of the options of five years.
Because the Company's stock options have characteristics significantly
different from those options used in the Black-Scholes option pricing model, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of the Company's
stock options.
F-36
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. STOCK OPTION PLAN (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effects of
providing pro forma disclosure are not likely to be representative of the
effects on reported net income for future years. The Company's pro forma
information follows for the years ended June 30, 1996 and 1997:
1996 1997
---- ----
Pro forma net income (loss).................. $6,914 $(543)
11. SUBSEQUENT EVENT
In September 1997, the Company exercised a purchase option in its lease of
a 111-bed skilled nursing care center in La Grange, Texas. The purchase option
price of $1,871 was financed by a draw on the Company's bank line of credit (see
Note 6).
12. UNAUDITED QUARTERLY INFORMATION
Following is a summary of unaudited quarterly results of operations from
the years ended June 30, 1996 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
----------------------------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net Revenues....................................... $41,270 $42,801 $45,232 $46,759 $176,062
Income before income taxes......................... 3,924 3,400 2,077 2,360 11,761
Net income......................................... 2,359 2,043 1,327 1,580 7,309
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
------------------------------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total
----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Revenues....................................... $48,907 $46,181 $52,012 $50,827 $197,927
Income (loss) before income taxes.................. 2,587 (1,734) 2,394 (3,059) 188
Net income (loss).................................. 1,565 (1,049) 1,448 (1,895) 69
</TABLE>
F-37
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
1997
--------------------
(Unaudited)
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................................ $ 1,702
Accounts receivable, less allowance for doubtful accounts of $2,474.................. 36,343
Supplies inventory, at cost.......................................................... 3,204
Other current assets................................................................. 15,569
--------
Total Current Assets............................................................ 56,818
Property and equipment, at cost:
Land and land improvements........................................................... 20,036
Buildings and leasehold improvements................................................. 175,078
Furniture and equipment.............................................................. 24,361
Construction in progress............................................................. 5,298
--------
224,773
Less accumulated depreciation and amortization....................................... 30,220
--------
194,553
Notes receivable, less allowance for doubtful accounts of $363............................ 6,842
Other assets.............................................................................. 9,207
--------
Total assets.................................................................... $267,420
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Payable to bank...................................................................... $ 2,985
Accounts payable..................................................................... 36,776
Employee compensation and benefits................................................... 4,622
Income taxes payable................................................................. 1,051
--------
Total current liabilities...................................................... 45,434
Long-term debt............................................................................ 129,754
Deferred income taxes..................................................................... 7,511
--------
Total liabilities............................................................... 182,699
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 2,000 authorized shares, none issued.................. --------
Common stock, no par value, 100,000 authorized shares; 6,776 and 6,813 issued and
outstanding, respectively........................................................... 52,020
Retained earnings.................................................................... 32,701
Total shareholders' equity...................................................... 84,721
--------
Total liabilities and shareholders' equity...................................... $267,420
========
</TABLE>
F-38
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-----------------
1996 1997
------- --------
<S> <C> <C>
NET REVENUES.................................................................. $95,088 $108,507
EXPENSES:
Salaries and benefits................................................... 43,386 47,742
Supplies................................................................ 10,381 10,261
Purchased services...................................................... 24,144 26,211
Provision for doubtful accounts......................................... 967 1,780
Other expenses.......................................................... 6,258 7,484
Rent.................................................................... 1,410 1,525
Depreciation and amortization........................................... 3,632 4,235
Interest (net of interest income, $371 in 1997 and $179 in
1996, respectively).................................................... 4,057 4,588
------- --------
94,235 103,826
------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES...................................... 853 4,681
Provision for income taxes.................................................... 337 1,849
------- --------
NET INCOME.................................................................... $ 516 $ 2,832
======= ========
</TABLE>
F-39
<PAGE>
SUMMIT CARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1996 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................................. $ 516 $ 2,832
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization....................................... 3,632 4,235
(Increase) in accounts receivable, net.............................. (5,027) (2,594)
(Increase) in supplies inventory........................................... (66) (514)
(Increase) in other current assets......................................... (1,602) (3,152)
Increase in accounts payable............................................... 6,805 7,190
(Decrease) increase in employee compensation and
benefits............................................................ 294 (1,255)
Increase (decrease) in income taxes payable................................ (989) 1,051
-------- --------
Total adjustments................................................... 3,047 4,961
-------- --------
Net cash provided by operating activities........................... 3,563 7,793
-------- --------
INVESTING ACTIVITIES:
Issuance of notes receivable............................................... (550) (2,281)
Principal payments of notes receivable..................................... 253 2,294
Additions to property and equipment........................................ (12,049) (6,706)
Property and equipment related to purchase of nursing center............... -- (4,209)
(Increase) in other assets................................................. (1,579) (470)
-------- --------
Net cash (used in) investing activities............................. (13,925) (11,372)
-------- --------
FINANCING ACTIVITIES:
(Decrease) in payable to bank.............................................. (1,229) (1,693)
Principal payment on long-term debt........................................ (8,435) (10,497)
Proceeds from long-term debt............................................... 19,000 13,000
Proceeds from exercise of stock options.................................... -- 477
-------- --------
Net cash provided by financing activities........................... 9,336 1,287
-------- --------
(Decrease) in cash and cash equivalents........................................... (1,026) (2,292)
Cash and cash equivalents at beginning of year.................................... 2,658 3,994
-------- --------
Cash and cash equivalents at end of the period.................................... $ 1,632 $ 1,702
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................................ $ 5,161 $ 5,015
Income taxes............................................................... 1,654 808
Non cash investing and financing activities:
Acquisition of nursing care center under capital lease.............. -- 5,799
Capital lease obligation............................................ -- (5,799)
</TABLE>
See accompanying notes.
F-40
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)
1. The unaudited financial information included herein, in the opinion of
management, reflects all adjustments (all of which are of a normal recurring
nature except for a special charge recorded in December 1996, see Note 5), which
are considered necessary to fairly state the Company's financial position, its
cash flows and the results of operations. These statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in conjunction
with the Company's annual report filed on Form 10-K for the year ended June 30,
1997. The interim financial information herein is not necessarily representative
of that to be expected for a full year.
2. Certain amounts have been reclassified to conform with fiscal 1998
presentations.
3. Other current assets consist of the following:
DECEMBER 31,
1997
----
Due from third-party payors................................... $ 4,743
Deferred tax assets........................................... 1,956
Notes receivable.............................................. 1,257
Prepaid expenses.............................................. 2,526
Income tax receivable......................................... 3,000
Other receivables............................................. 2,087
-------
$15,569
=======
4. In December 1996, the Company recorded a special charge of $4,000
against revenues ($2,420 against net income) as a result of adjustments proposed
by Medicare in connection with an audit of fiscal 1995 completed in the quarter
ended December 31, 1996, which would have an effect on revenues for that fiscal
year, fiscal 1996 and the six months ended December 31, 1996.
5. In July 1997, the Company opened its fifth assisted living center with
66 beds in Orange, California, at a total cost of construction of $3,924. In
September 1997, the Company exercised a purchase option in the amount of $1,871
in its lease of a 111-bed skilled nursing care center in La Grange, Texas. In
November 1997, the Company opened 47 additional beds at one of its two skilled
nursing care centers in Lubbock, Texas, at an approximate cost of construction
of $1,900. In December 1997, the Company acquired the assets of a 194 bed
skilled nursing care center in McAllen, Texas at an approximate cost of $10,058.
The Company's bank line of credit was used to finance the two construction
projects, the exercise of the purchase option and $4,259 of the acquisition cost
of the McAllen center. The balance of the McAllen acquisition cost of $5,799 was
financed with a capitalized lease obligation.
6. In December 1997, the Company amended its secured bank line of credit
by reducing the commitment from $40,000 to $33,000. One of the four lenders was
deleted from the credit agreement, and the revolving credit termination date was
extended one year to September 30, 1999. No other terms and conditions were
added, deleted or amended.
7. Recent Accounting Pronouncement: In June 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), which is effective for fiscal years ending after December 15,
1997. This Statement is not required to be applied to interim financial
statements in the initial year of its application. SFAS 131 establishes
standards for the way that public enterprises report information about operating
F-41
<PAGE>
SUMMIT CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
segments in annual financial statements. It also requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. Under existing accounting standards, the Company
has reported its operations as one line of business because substantially all of
its revenues have been derived from its skilled nursing care centers and
assisted living centers and closely related ancillary services. The Company is
presently evaluating the new standard in order to determine its effect, if any,
on the way the Company might report its operations in the future.
8. Subsequent Event: On February 6, 1998, the Company and Fountain View,
Inc., a privately-held skilled nursing care company based in Los Angeles,
California, entered into a definitive merger agreement for Fountain View to
acquire the Company. According to the terms of the merger agreement, the
Company's shareholders will receive $21.00 per share in cash for a total
purchase price of approximately $274 million, including the assumption of
approximately $130 million of the Company's debt.
On February 13, 1998, Fountain View commenced a cash tender offer for all
outstanding shares of the Company's stock at $21.00 per share. The tender offer
expired on March 25, 1998 and, following consummation of the tender offer on
March 27, 1998, subject to the terms and conditions contained in the merger
agreement, the Company will be merged with a subsidiary of Fountain View, and
each remaining outstanding share of the Company will be converted in the merger
into $21.00 in cash.
Fountain View has received a commitment from Heritage Fund II, L.P. for $82
million of the equity financing necessary to complete the transaction and a bank
financing commitment from Bank of Montreal covering an additional $250 million.
Completion of the tender offer and the merger are subject to customary
conditions to closing, including the receipt of any applicable regulatory
approvals and the expiration of any applicable regulatory waiting periods.
F-42
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Fountain View, Inc. and certain of the Registrants (Fountain View Holdings,
Inc., Locomotion Holdings, Inc. and Locomotion Therapy, Inc.) are Delaware
corporations. Section 145 of the Delaware General Corporation Law (the "DGCL")
grants a Delaware corporation the power to indemnify any director, officer,
employee or other agent if such person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. No
indemnification may be provided, however, for any person with respect to any
matter as to which he shall have been adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his action was in the best
interest of the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
With respect to indemnification of directors, Article Eight of the
Certificate of Incorporation of the Company states that the Company shall
indemnify and hold harmless any director, officer, employee or agent of the
Company from any expenses and liabilities that may be imposed upon or incurred
in connection with, or as a result of, any proceeding in which he or she may
become involved, by reason of the fact that he or she is or was such a director,
officer, employee, or agent, whether or not he or she is in such capacity at the
time such expenses and liabilities are imposed or incurred, to the fullest
extent permitted by the laws of the State of Delaware.
Certain of the Registrants (Summit Care Corporation, Summit Care
California, Inc., Summit Care Pharmacy, Inc., Summit Care Texas Equity, Inc.,
AIB Corp., Alexandria Convalescent Hospital, Inc., BIA Hotel Corp., Brier Oak
Convalescent, Inc., Elmcrest Convalescent Hospital, Fountainview Convalescent
Hospital, Fountain View Management, Inc., Rio Hondo Nursing Center, On-Track
Therapy Center, Inc., I.' NO, Inc. and Sycamore Park Convalescent Hospital) are
California corporations. The California General Corporation Law provides that a
corporation shall
have power to indemnify any person who was or is a party or is threatened to be
made a party to any proceeding (other than an action by or in the right of the
corporation to procure a judgment in its favor) by reason of the fact that the
person is or was an agent of the corporation, against expenses, judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with the proceeding if that person acted in good faith and in a
manner the person reasonably believed to be in the best interests of the
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe the conduct of the person was unlawful.
Certain of the Registrants (Summit Care Texas No. 2, Inc., Summit Care
Texas No. 3, Inc. and Summit Care Management Texas, Inc.) are Texas
corporations. Article 2.02-1 of the Texas Business Corporation Act provides that
a corporation may indemnify its officers, directors, employees and agents for
expenses and costs incurred in certain proceedings arising out of actions taken
in their official capacity only if such persons were acting in good faith and in
a manner reasonably believed to be in or not opposed to the best interests of
the corporation, except in relation to matters in which they have been found
liable (i) to the corporation, or (ii) on the basis that
II-1
<PAGE>
personal benefit was improperly received regardless of whether or not the
benefit resulted from action taken in their official capacity. In the case of
any criminal proceeding, such persons must also have had no reasonable cause to
believe such conduct was unlawful. Article 2.02-1 further provides that a
corporation shall indemnify its officers and directors against reasonable
expenses incurred in connection with proceedings arising out of actions taken in
their official capacity in which such persons have been wholly successful, on
the merits or otherwise, in the defense of such actions.
The Companies maintain insurance, the general effect of which is to provide
coverage for the Companies with respect to amounts that they may required to pay
officers and directors under the indemnity provisions described above and
coverage for officers and directors against certain liabilities, including
certain liabilities under the federal securities law.
Summit Care Texas, L.P. is a Texas limited partnership (the "Partnership").
Article 10.2 of its Articles of Limited Partnership provides that the
Partnership shall indemnify the General Partner against all judgments, penalties
(including excise and similar taxes), fines, amounts paid in settlement and
reasonable Expenses actually incurred by the General Partner in connection with
any Proceeding to which it was, is or is threatened to be named a defendant or
respondent, or in which it was or is a witness without being named a defendant
or respondent, by reason, in whole or in part, of it serving or having served,
as a General Partner if it is determined that the General Partner (a) acted in
good faith, (b) reasonably believed, in the case of conduct in its official
capacity, that its conduct was in the Partnership's best interests and, in all
other cases, that its conduct was at least not opposed to the Partnership's best
interests, and (c) in the case of any criminal proceeding, had no reasonable
cause to believe that its conduct was unlawful. No indemnification shall be made
under this Section 10.2 in respect of any judgment, penalty, fine, or amount
paid in settlement in connection with any Proceeding in which such General
Partner shall have been (x) found liable on the basis that personal benefit was
improperly received by it whether or not the benefit resulted form an action
taken in the General Partner's official capacity, or (y) found liable to the
Partnership. However, if the General Partner is found liable on the basis that
personal benefit was improperly received by it, or is found liable to the
Partnership, or the Limited Partner, the General Partner shall be entitled to
reasonable expenses actually incurred by it in connection with the Proceeding
unless it has been found liable for willful or intentional misconduct in the
performance of its duty to the Partnership or the Limited Partner. The
termination of any Proceeding by judgment, order, settlement or conviction, or
on a plea of nolo contendere or its equivalent, is not of itself determinative
that the General Partner did not meet the requirements set forth in clauses (a),
(b) or (c) in the first sentence of this Section 10.2. The General Partner shall
be deemed to have been found liable in respect of any claim, issue or matter
only after it shall have been so adjudged by a court of competent jurisdiction
after exhaustion of all appeals therefrom.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
1.1 Purchase Agreement dated as of April 16, 1998 by and among Fountain
View and the Initial Purchasers named therein relating to the 11 1/4%
Senior Subordinated Notes due 2008.
II-2
<PAGE>
3.1 Certificate of Incorporation of Fountain View.
3.1(a) Certificate of Amendment amending Certificate of Incorporation of
Fountain View filed March 27, 1998.
3.1(b) Certificate of Amendment amending Certificate of Incorporation of
Fountain View filed May 6, 1998.
3.2 By-laws of Fountain View.
3.3 Articles of Incorporation of Summit Care Corporation.
3.4 By-laws of Summit Care Corporation.
3.5 Articles of Incorporation of Summit Care-California, Inc.
3.6 By-laws of Summit Care-California, Inc.
3.7 Articles of Incorporation of Summit Care Pharmacy, Inc.
3.8 By-laws of Summit Care Pharmacy, Inc.
3.9 Omitted
3.10 Omitted
3.11 Articles of Incorporation of Summit Care Texas Equity, Inc.
3.12 By-laws of Summit Care Texas Equity, Inc.
3.13 Articles of Organization of Summit Care Texas, No. 2, Inc.
3.14 By-laws of Summit Care Texas, No. 2, Inc.
3.15 Articles of Organization of Summit Care Texas, No. 3, Inc.
3.16 By-laws of Summit Care Texas, No. 3, Inc.
3.17 Articles of Organization of Summit Care Texas Management, Inc.
3.18 By-laws of Summit Care Texas Management, Inc.
3.19 Certificate of Limited Partnership of Summit Care Texas, L.P.
3.20 Omitted
3.21 Certificate of Incorporation of Fountain View Holdings, Inc.
3.22 By-laws of Fountain View Holdings, Inc.
3.23 Articles of Incorporation of AIB Corp.
3.24 By-laws of AIB Corp.
3.25 Articles of Incorporation of Alexandria Convalescent Hospital, Inc.
II-3
<PAGE>
3.26 By-laws of Alexandria Convalescent Hospital, Inc.
3.27 Articles of Incorporation of BIA Hotel Corp.
3.28 By-laws of BIA Hotel Corp.
3.29 Articles of Incorporation of Brier Oak Convalescent, Inc.
3.30 By-laws of Brier Oak Convalescent, Inc.
3.31 Articles of Incorporation of Elmcrest Convalescent Hospital
3.32 By-laws of Elmcrest Convalescent Hospital
3.33 Articles of Incorporation of Fountainview Convalescent Hospital
3.34 By-laws of Fountainview Convalescent Hospital
3.35 Articles of Incorporation of Fountain View Management, Inc.
3.36 By-laws of Fountain View Management, Inc.
3.37 Articles of Incorporation of Rio Hondo Nursing Center
3.38 By-laws of Rio Hondo Nursing Center
3.39 Certificate of Incorporation of Locomotion Holdings, Inc.
3.40 By-laws of Locomotion Holdings, Inc.
3.41 Certificate of Incorporation of Locomotion Therapy, Inc.
3.42 By-laws of Locomotion Therapy, Inc.
3.43 Articles of Incorporation of On-Track Therapy Center, Inc.
3.44 By-laws of On-Track Therapy Center, Inc.
3.45 Articles of Incorporation of I.' NO, Inc.
3.46 By-laws of I.' NO, Inc.
3.47 Articles of Incorporation of Sycamore Park Convalescent Hospital
3.48 By-laws of Sycamore Park Convalescent Hospital
4.1 Indenture dated as of April 16, 1998 by and among Fountain View,
certain subsidiaries of Fountain View, and State Street Bank and Trust
Company of California, N.A., as trustee, for the 11 1/4% Senior
Subordinated Notes due 2008.
4.2 Form of the Company's 11 1/4% Senior Subordinated Notes due 2008 (see
Exhibit A-1 to Exhibit 4.1).
5.1 Opinion of Choate, Hall & Stewart.
5.2 Opinion of Brobeck, Phleger & Harrison LLP
II-4
<PAGE>
8.1 Opinion of Choate, Hall & Stewart (Tax)
10.1 Hancock Park Convalescent Hospital, Los Angeles, California, Lease
Agreement dated May 19, 1987 between La Brea Convalescent Investments,
and A.I.B. Corporation and Robert and Sheila Snukal; Consent,
Agreement, and Acknowledgment, dated July 30, 1997
10.2 Hancock Park Retirement Hotel, Los Angeles, California, Lease Agreement
dated May 19, 1987 between La Brea Convalescent Investments, and B.I.A.
Corporation and Robert and Sheila Snukal; Consent, Agreement, and
Acknowledgment dated July 30, 1997
10.3 Montebello Convalescent Hospital, Montebello, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Elmcrest Convalescent Hospital; First Amendment to Lease, dated March
27, 1998
10.4 Fountainview Convalescent Hospital, Los Angeles, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Fountainview Convalescent Hospital; First Amendment to Lease, dated
March 27, 1998
10.5 Rio Hondo Convalescent Hospital, Montebello, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and Rio
Hondo Nursing Center and Fountain View Holdings; First Amendment to
Lease, dated March 27, 1998
10.6 Sycamore Park Convalescent Hospital, Los Angeles, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Sycamore Park Convalescent Hospital; First Amendment to Lease, dated
March 27, 1998
10.7 Palmcrest Convalescent Home (now known as Palm Grove Convalescent
Center): Convalescent Hospital Lease, dated November 20, 1969, between
Palmcrest Associates, Ltd., and Century Convalescent Centers, as
amended by Lease of Convalescent Hospital Facility (as amended), dated
September 1, 1979, by which SHL and its appointed nominee Royalwood
Convalescent Hospital, Inc. (now Summit Care-California, Inc.) are
substituted as lessees.
10.8 Anaheim Care Center: Lease, dated June 1, 1995, between Sam Menlo,
Trustee of the Menlo Trust U/T/I 5/22/83 and Summit Care-California,
Inc., doing business as Anaheim Care Center.
10.9 Sharon Care Center: Lease, dated May 1, 1987, between Jozef Nabel and
Marie Gabrielle Nabel, as tenants in common, and Summit Care-
California, Inc.
II-5
<PAGE>
10.10 Royalwood Convalescent Hospital: Lease dated August 18, 1964, between
Jack H. Cramer and Walter Lee Brown (together, as lessors) and Albert
J. Allasandra, as amended by Amendment to Lease and Right of First
Refusal to Purchase, dated May 23, 1969, by which Alaric Corporation is
substituted as lessee, and as further amended by Amendment to Agreement
of Lease and Right of First Refusal, dated November 18, 1974, and as
further amended by Second Amendment to Agreement of Lease and Right of
First Refusal and Assignment of Lease, dated July 10, 1979, by which
National Accommodations, Inc. (now SHL) is substituted as lessee,
assigned to Summit Care Corporation by Assignment of Lease, dated March
9, 1992, between SHL and Summit Care Corporation.
10.11 Bay Crest Convalescent Hospital: Lease, dated March 1, 1980, between
South Bay Sanitarium and Convalescent Hospital and Garnet Convalescent
Hospital, Inc. (now Summit Care-California, Inc.), and Amendment to
Lease dated March 1, 1994.
10.12 Brier Oak Convalescent Center: Lease Agreement, dated February 18,
1985, between Bernard Bubman, Arnold Friedman, Irene Weiss and Sunset
Motel and Development Co. (collectively, as lessors), and Brier Oak
Convalescent, Inc.
10.13 Hemet Resident Hotel: Ground Lease dated June 25, 1980, between Genes,
Ltd., and SHL, assigned to Summit Care Corporation by Assignment of
Lease dated March 9, 1992, between SHL and Summit Care Corporation.
10.14 Seller Note for purchase of The Woodlands.
10.15 HUD Note for purchase of The Woodlands.
10.16 Phoenix Living Center Lease dated August 1, 1993, between Sierra Land
Group, Inc. and Summit Care Corporation; Sublease with Summit Health
Ltd., for Phoenix Living Center dated January 1994.
10.17 Real Estate Lien Note--$3,000,000 dated September 30, 1994 and Security
Agreement dated September 30, 1994.
10.18 Live Oak Nursing Center, George West, Texas Lease Agreement dated July
19, 1991; Assignment of Lease With Option to Purchase dated September
30, 1994 and Consent To Assignment Of Leasehold Estate of Live Oak
Nursing Center, George West, Texas dated August 15, 1994.
10.19 Guadalupe Valley Nursing Center, Sequin, Texas Lease Agreement dated
February 28, 1989; Assignment Of Lease With Option To Purchase dated
September 30, 1994 and Consent To Assignment Of leasehold Estate Of
Guadalupe Valley Nursing Center, Sequin, Texas dated August 15, 1994.
10.20 Omitted
10.21 Limited Liability Company Agreement of APS-Summit Care Pharmacy,
L.L.C., dated November 30, 1996.
10.22 Robert Crone-South Texas Health Care, Inc. Agreement of Purchase and
Sale of Assets of Briarcliff Nursing and Rehabilitation Center dated
November 24, 1997.
II-6
<PAGE>
10.23 Alexandria Convalescent Hospital, Los Angeles, California, Lease
Agreement dated November 2, 1992 between Alexandria Convalescent
Investments and Robert Snukal, Sheila Snukal, Manuel Padama and Clair
Padama; Consent, Agreement, and Acknowledgment, dated July 30, 1997
10.24 Lease Agreement for office space at 11900 Olympic Boulevard, Los
Angeles, California, dated February 1, 1995 between Douglas Emmett
Joint Venture and The Fountain View Management Group
10.25 Locomotion Therapy, Inc., Fresno, California, Lease Agreement, dated
December 18, 1996 between M.D. Bautista Developments and Locomotion
Therapy, Inc.
10.26 Elmcrest Convalescent Hospital, El Monte, California, Lease Agreement
dated November 15, 1977 between Convalescent Hospital Management
Corporation and Elmcrest Convalescent Center, Inc.; Assignment and
Assumption of Lease Agreement dated May 31, 1990; Consent to Assignment
and Agreement, dated July 30, 1997
10.27 Monument Hill Nursing Center, Flatonia, Texas, Lease Agreement dated
October 20, 1986; Bill of Sale and General Warranty Deed from Hobbs &
Curry Family Limited Partnership to Summit Care Corporation, dated
September 11, 1997
10.28 Comanche Trail Nursing Home, Big Spring, Texas, Lease Agreement, dated
April 10, 1990, between Lloyd G. Hobbs and Select Care Enterprises,
Inc. (assigned to Summit Care Corporation); Consent to Assignment of
Lease, dated April 10, 1990; Assignment of Lease with Option to
Purchase, dated December 1, 1994; Assignment and Assumption of Lease,
dated September 1, 1997
10.29 Woodland Convalescent Center, Reseda, California Lease Agreement, dated
February 1, 1995 between Uni-Cal Associates and Summit Care California,
Inc.
10.30 Agreement for Development and Operation of Skilled Nursing Facilities,
dated May 4, 1998, between Fountain View, Inc. and Baylor Health Care
System; Service Mark Sublicense Agreement, dated May 4, 1998, between
Fountain View, Inc. and Baylor Health Care System; Trademark License
Agreement, dated July 24, 1997, between Baylor University and Baylor
Health Care System
10.31 On Track Physical Therapy, Office Building Lease Agreement, Fresno,
California, dated January 31, 1997 between M.D. Bautista Developments
and On Track Physical Therapy, Inc.
10.32 Omitted
10.33 Omitted
10.34 Agreement and Plan of Merger Among Summit Care Corporation, Fountain
View, Inc., FV-SCC Acquisition Corporation and Heritage Fund II, L.P.,
dated February 6, 1998.
10.35 Summit Care Corporation Special Severance Pay Plan dated February 6,
1998.
II-7
<PAGE>
10.36 Investment Agreement dated as of March 27, 1998 among Fountain View and
certain investors.
10.37 Stockholders Agreement dated as of March 27, 1998 among Fountain View,
the existing stockholders of Fountain View and certain investors.
10.38 Registration Rights Agreement dated as of March 27, 1998 among Fountain
View, certain stockholders of Fountain View and certain investors.
10.39 Employment Agreement between Fountain View and Robert Snukal dated
March 27, 1998.
10.40 Employment Agreement between Fountain View and Sheila Snukal dated
March 27, 1998.
10.41 Employment Agreement between Fountain View and William Scott dated
March 27, 1998.
10.42 Promissory Note and Pledge Agreement dated April 16, 1998 issued by
William Scott to Fountain View relating to purchase of 20,000 Shares of
Series A Common Stock.
10.43 Supplemental Signature Page to Investment Agreement dated as of May 4,
1998 among Fountain View, Heritage Fund II, L.P., Baylor Health Care
System ("Baylor") and Buckner Foundation ("Buckner").
10.44 Amendment No. 1 to Stockholders Agreement dated as of May 4, 1998 among
Fountain View, Heritage, Baylor, Buckner and certain other parties.
10.45 Amendment No. 1 to Registration Rights Agreement dated as of May 4,
1998 among Fountain View, Heritage, Baylor, Buckner and certain other
parties.
10.46 Warrants to purchase Series C Common Stock of Fountain View issued by
Fountain View to Heritage, Baylor, Buckner and certain of Baylor's
brokers.
10.47 Credit Agreement Dated as of April 16, 1998 by and among Fountain View,
The Banks party thereto and the Bank of Montreal, as agent.
10.48 Guaranty Agreement Dated as of April 16, 1998 by and among Fountain
View, the Guarantors, the Banks party thereto and Bank of Montreal.
10.49 Pledge Agreement Dated as of April 16, 1998 by and among Fountain View,
the Guarantors, the Banks party thereto and Bank of Montreal.
10.50 Security Agreement Dated as of April 16, 1998 by and among Fountain
View, the Guarantors, the Banks party thereto and Bank of Montreal.
10.51 Form of Revolving Note.
10.52 Form of Term Note.
10.53 Amendment No. 1 to Credit Agreement dated as of April 16, 1998 by and
among Fountain View, The Banks party thereto and the Bank of Montreal,
as agent.
II-8
<PAGE>
12.1 Statement Re: Computation of Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Choate, Hall & Stewart (included as part of Exhibit 5.1).
23.3 Consent of Choate, Hall & Stewart (included as part of Exhibit 8.1).
23.4 Consent of Brobeck, Phleger & Harrison LLP (included as part of Exhibit
5.2).
24.1 Powers of Attorney.
25.1 Statement of eligibility of State Street Bank and Trust Company of
California, N.A., as trustee.
99.1 Letter of Transmittal with respect to the Exchange Offer.
99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer.
99.3 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
99.4 Letter Regarding Eligibility for use of Form S-4.
99.5 Report of Ernst & Young LLP on Schedule.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Account
ITEM 22. UNDERTAKINGS
(a) Each of the undersigned registrants hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended ("the Act"), may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
such Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or the registrant in the successful defense of
any action, suit paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, such Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) Each of the undersigned registrants hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being
II-9
<PAGE>
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
(c) Each of the undersigned registrants hereby undertakes:
(1) To file, during any period which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus and facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) of the
Securities Act of 1933 if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
II-10
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1.1 Purchase Agreement dated as of April 16, 1998 by and among Fountain
View and the Initial Purchasers named therein relating to the 11
1/4% Senior Subordinated Notes due 2008.*
3.1 Certificate of Incorporation of Fountain View.*
3.1(a) Certificate of Amendment amending Certificate of Incorporation of
Fountain View filed March 27, 1998.*
3.1(b) Certificate of Amendment amending Certificate of Incorporation of
Fountain View filed May 6, 1998.*
3.2 By-laws of Fountain View.*
3.3 Articles of Incorporation of Summit Care Corporation.*
3.4 By-laws of Summit Care Corporation.*
3.5 Articles of Incorporation of Summit Care-California, Inc.*
3.6 By-laws of Summit Care-California, Inc.*
3.7 Articles of Incorporation of Summit Care Pharmacy, Inc.*
3.8 By-laws of Summit Care Pharmacy, Inc.*
3.9 Omitted
3.10 Omitted
3.11 Articles of Incorporation of Summit Care Texas Equity, Inc.*
3.12 By-laws of Summit Care Texas Equity, Inc.*
3.13 Articles of Organization of Summit Care Texas, No. 2, Inc.*
3.14 By-laws of Summit Care Texas, No. 2, Inc.*
3.15 Articles of Organization of Summit Care Texas, No. 3, Inc.*
3.16 By-laws of Summit Care Texas, No. 3, Inc.*
3.17 Articles of Organization of Summit Care Texas Management, Inc.*
3.18 By-laws of Summit Care Texas Management, Inc.*
3.19 Certificate of Limited Partnership of Summit Care Texas, L.P.*
3.20 Omitted
3.21 Certificate of Incorporation of Fountain View Holdings, Inc.*
3.22 By-laws of Fountain View Holdings, Inc.*
II-11
<PAGE>
3.23 Articles of Incorporation of AIB Corp.*
3.24 By-laws of AIB Corp.*
3.25 Articles of Incorporation of Alexandria Convalescent Hospital, Inc.*
3.26 By-laws of Alexandria Convalescent Hospital, Inc.*
3.27 Articles of Incorporation of BIA Hotel Corp.*
3.28 By-laws of BIA Hotel Corp.*
3.29 Articles of Incorporation of Brier Oak Convalescent, Inc.*
3.30 By-laws of Brier Oak Convalescent, Inc.*
3.31 Articles of Incorporation of Elmcrest Convalescent Hospital*
3.32 By-laws of Elmcrest Convalescent Hospital*
3.33 Articles of Incorporation of Fountainview Convalescent Hospital*
3.34 By-laws of Fountainview Convalescent Hospital*
3.35 Articles of Incorporation of Fountain View Management, Inc.*
3.36 By-laws of Fountain View Management, Inc.*
3.37 Articles of Incorporation of Rio Hondo Nursing Center*
3.38 By-laws of Rio Hondo Nursing Center*
3.39 Certificate of Incorporation of Locomotion Holdings, Inc.*
3.40 By-laws of Locomotion Holdings, Inc.*
3.41 Certificate of Incorporation of Locomotion Therapy, Inc.*
3.42 By-laws of Locomotion Therapy, Inc.*
3.43 Articles of Incorporation of On-Track Therapy Center, Inc.*
3.44 By-laws of On-Track Therapy Center, Inc.*
3.45 Articles of Incorporation of I.' NO, Inc.*
3.46 By-laws of I.' NO, Inc.*
3.47 Articles of Incorporation of Sycamore Park Convalescent Hospital*
3.48 By-laws of Sycamore Park Convalescent Hospital*
4.1 Indenture dated as of April 16, 1998 by and among Fountain View,
certain subsidiaries of Fountain View, and State Street Bank and Trust
Company of California, N.A., as trustee, for the 11 1/4% Senior
Subordinated Notes due 2008.*
II-12
<PAGE>
4.2 Form of the Company's 11 1/4% Senior Subordinated Notes due 2008 (see
Exhibit A-1 to Exhibit 4.1).*
5.1 Opinion of Choate, Hall & Stewart.+
5.2 Opinion of Brobeck, Phleger & Harrison LLP.+
8.1 Opinion of Choate, Hall & Stewart (Tax).+
10.1 Hancock Park Convalescent Hospital, Los Angeles, California, Lease
Agreement dated May 19, 1987 between La Brea Convalescent Investments,
and A.I.B. Corporation and Robert and Sheila Snukal; Consent,
Agreement, and Acknowledgment, dated July 30, 1997*
10.2 Hancock Park Retirement Hotel, Los Angeles, California, Lease Agreement
dated May 19, 1987 between La Brea Convalescent Investments, and B.I.A.
Corporation and Robert and Sheila Snukal; Consent, Agreement, and
Acknowledgment dated July 30, 1997*
10.3 Montebello Convalescent Hospital, Montebello, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Elmcrest Convalescent Hospital; First Amendment to Lease, dated March
27, 1998*
10.4 Fountainview Convalescent Hospital, Los Angeles, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Fountainview Convalescent Hospital; First Amendment to Lease, dated
March 27, 1998*
10.5 Rio Hondo Convalescent Hospital, Montebello, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and Rio
Hondo Nursing Center and Fountain View Holdings; First Amendment to
Lease, dated March 27, 1998*
10.6 Sycamore Park Convalescent Hospital, Los Angeles, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Sycamore Park Convalescent Hospital; First Amendment to Lease, dated
March 27, 1998*
10.7 Palmcrest Convalescent Home (now known as Palm Grove Convalescent
Center): Convalescent Hospital Lease, dated November 20, 1969, between
Palmcrest Associates, Ltd., and Century Convalescent Centers, as
amended by Lease of Convalescent Hospital Facility (as amended), dated
September 1, 1979, by which SHL and its appointed nominee Royalwood
Convalescent Hospital, Inc. (now Summit Care-California, Inc.) are
substituted as lessees.*
10.8 Anaheim Care Center: Lease, dated June 1, 1995, between Sam Menlo,
Trustee of the Menlo Trust U/T/I 5/22/83 and Summit Care-California,
Inc., doing business as Anaheim Care Center.*
10.9 Sharon Care Center: Lease, dated May 1, 1987, between Jozef Nabel and
Marie Gabrielle Nabel, as tenants in common, and Summit Care-
California, Inc.*
II-13
<PAGE>
10.10 Royalwood Convalescent Hospital: Lease dated August 18, 1964, between
Jack H. Cramer and Walter Lee Brown (together, as lessors) and Albert
J. Allasandra, as amended by Amendment to Lease and Right of First
Refusal to Purchase, dated May 23, 1969, by which Alaric Corporation is
substituted as lessee, and as further amended by Amendment to Agreement
of Lease and Right of First Refusal, dated November 18, 1974, and as
further amended by Second Amendment to Agreement of Lease and Right of
First Refusal and Assignment of Lease, dated July 10, 1979, by which
National Accommodations, Inc. (now SHL) is substituted as lessee,
assigned to Summit Care Corporation by Assignment of Lease, dated March
9, 1992, between SHL and Summit Care Corporation.*
10.11 Bay Crest Convalescent Hospital: Lease, dated March 1, 1980, between
South Bay Sanitarium and Convalescent Hospital and Garnet Convalescent
Hospital, Inc. (now Summit Care-California, Inc.), and Amendment to
Lease dated March 1, 1994.*
10.12 Brier Oak Convalescent Center: Lease Agreement, dated February 18,
1985, between Bernard Bubman, Arnold Friedman, Irene Weiss and Sunset
Motel and Development Co. (collectively, as lessors), and Brier Oak
Convalescent, Inc.*
10.13 Hemet Resident Hotel: Ground Lease dated June 25, 1980, between Genes,
Ltd., and SHL, assigned to Summit Care Corporation by Assignment of
Lease dated March 9, 1992, between SHL and Summit Care Corporation.*
10.14 Seller Note for purchase of The Woodlands.*
10.15 HUD Note for purchase of The Woodlands.*
10.16 Phoenix Living Center Lease dated August 1, 1993, between Sierra Land
Group, Inc. and Summit Care Corporation; Sublease with Summit Health
Ltd., for Phoenix Living Center dated January 1994.*
10.17 Real Estate Lien Note--$3,000,000 dated September 30, 1994 and Security
Agreement dated September 30, 1994.*
10.18 Live Oak Nursing Center, George West, Texas Lease Agreement dated July
19, 1991; Assignment of Lease With Option to Purchase dated September
30, 1994 and Consent To Assignment Of Leasehold Estate of Live Oak
Nursing Center, George West, Texas dated August 15, 1994.*
10.19 Guadalupe Valley Nursing Center, Sequin, Texas Lease Agreement dated
February 28, 1989; Assignment Of Lease With Option To Purchase dated
September 30, 1994 and Consent To Assignment Of leasehold Estate Of
Guadalupe Valley Nursing Center, Sequin, Texas dated August 15, 1994.*
10.20 Omitted
10.21 Limited Liability Company Agreement of APS-Summit Care Pharmacy,
L.L.C., dated November 30, 1996.*
10.22 Robert Crone-South Texas Health Care, Inc. Agreement of Purchase and
Sale of Assets of Briarcliff Nursing and Rehabilitation Center dated
November 24, 1997.*
II-14
<PAGE>
10.23 Alexandria Convalescent Hospital, Los Angeles, California, Lease
Agreement dated November 2, 1992 between Alexandria Convalescent
Investments and Robert Snukal, Sheila Snukal, Manuel Padama and Clair
Padama; Consent, Agreement, and Acknowledgment, dated July 30, 1997*
10.24 Lease Agreement for office space at 11900 Olympic Boulevard, Los
Angeles, California, dated February 1, 1995 between Douglas Emmett
Joint Venture and The Fountain View Management Group*
10.25 Locomotion Therapy, Inc., Fresno, California, Lease Agreement, dated
December 18, 1996 between M.D. Bautista Developments and Locomotion
Therapy, Inc.*
10.26 Elmcrest Convalescent Hospital, El Monte, California, Lease Agreement
dated November 15, 1977 between Convalescent Hospital Management
Corporation and Elmcrest Convalescent Center, Inc.; Assignment and
Assumption of Lease Agreement dated May 31, 1990; Consent to Assignment
and Agreement, dated July 30, 1997*
10.27 Monument Hill Nursing Center, Flatonia, Texas, Lease Agreement dated
October 20, 1986; Bill of Sale and General Warranty Deed from Hobbs &
Curry Family Limited Partnership to Summit Care Corporation, dated
September 11, 1997*
10.28 Comanche Trail Nursing Home, Big Spring, Texas, Lease Agreement, dated
April 10, 1990, between Lloyd G. Hobbs and Select Care Enterprises,
Inc. (assigned to Summit Care Corporation); Consent to Assignment of
Lease, dated April 10, 1990; Assignment of Lease with Option to
Purchase, dated December 1, 1994; Assignment and Assumption of Lease,
dated September 1, 1997*
10.29 Woodland Convalescent Center, Reseda, California Lease Agreement, dated
February 1, 1995 between Uni-Cal Associates and Summit Care California,
Inc.*
10.30 Agreement for Development and Operation of Skilled Nursing Facilities,
dated May 4, 1998, between Fountain View, Inc. and Baylor Health Care
System; Service Mark Sublicense Agreement, dated May 4, 1998, between
Fountain View, Inc. and Baylor Health Care System; Trademark License
Agreement, dated July 24, 1997, between Baylor University and Baylor
Health Care System*
10.31 On Track Physical Therapy, Office Building Lease Agreement, Fresno,
California, dated January 31, 1997 between M.D. Bautista Developments
and On Track Physical Therapy, Inc.*
10.32 Omitted
10.33 Omitted
10.34 Agreement and Plan of Merger Among Summit Care Corporation, Fountain
View, Inc., FV-SCC Acquisition Corporation and Heritage Fund II, L.P.,
dated February 6, 1998.(1)
10.35 Summit Care Corporation Special Severance Pay Plan dated February 6,
1998.(1)
II-15
<PAGE>
10.36 Investment Agreement dated as of March 27, 1998 among Fountain View and
certain investors.*
10.37 Stockholders Agreement dated as of March 27, 1998 among Fountain View,
the existing stockholders of Fountain View and certain investors.*
10.38 Registration Rights Agreement dated as of March 27, 1998 among Fountain
View, certain stockholders of Fountain View and certain investors.*
10.39 Employment Agreement between Fountain View and Robert Snukal dated
March 27, 1998.*
10.40 Employment Agreement between Fountain View and Sheila Snukal dated
March 27, 1998.*
10.41 Employment Agreement between Fountain View and William Scott dated
March 27, 1998.*
10.42 Promissory Note and Pledge Agreement dated April 16, 1998 issued by
William Scott to Fountain View relating to purchase of 20,000 Shares of
Series A Common Stock.*
10.43 Supplemental Signature Page to Investment Agreement dated as of May 4,
1998 among Fountain View, Heritage Fund II, L.P., Baylor Health Care
System ("Baylor") and Buckner Foundation ("Buckner").*
10.44 Amendment No. 1 to Stockholders Agreement dated as of May 4, 1998 among
Fountain View, Heritage, Baylor, Buckner and certain other parties.*
10.45 Amendment No. 1 to Registration Rights Agreement dated as of May 4,
1998 among Fountain View, Heritage, Baylor, Buckner and certain other
parties.*
10.46 Warrants to purchase Series C Common Stock of Fountain View issued by
Fountain View to Heritage, Baylor, Buckner and certain of Baylor's
brokers.*
10.47 Credit Agreement Dated as of April 16, 1998 by and among Fountain View,
The Banks party thereto and the Bank of Montreal, as agent.*
10.48 Guaranty Agreement Dated as of April 16, 1998 by and among Fountain
View, the Guarantors, the Banks party thereto and Bank of Montreal.*
10.49 Pledge Agreement Dated as of April 16, 1998 by and among Fountain View,
the Guarantors, the Banks party thereto and Bank of Montreal.*
10.50 Security Agreement Dated as of April 16, 1998 by and among Fountain
View, the Guarantors, the Banks party thereto and Bank of Montreal.*
10.51 Form of Revolving Note.*
10.52 Form of Term Note.*
10.53 Amendment No. 1 to Credit Agreement dated as of April 16, 1998 by and
among Fountain View, The Banks party thereto and the Bank of Montreal,
as agent.(2)
II-16
<PAGE>
12.1 Statement Re: Computation of Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Choate, Hall & Stewart (included as part of Exhibit 5.1). +
23.3 Consent of Choate, Hall & Stewart (included as part of Exhibit 8.1). +
23.4 Consent of Brobeck, Phleger & Harrison LLP (included as part of Exhibit
5.2).+
24.1 Powers of Attorney (included on signature pages).
25.1 Statement of eligibility of State Street Bank and Trust Company of
California, N.A., as trustee.*
99.1 Letter of Transmittal with respect to the Exchange Offer.
99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer.
99.3 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
99.4 Letter Regarding Eligibility for use of Form S-4.
99.5 Report of Ernst & Young LLP on Schedule.
* Incorporated by reference to the Company's Registration Statement on Form
S-4 (File No. 333-57279), filed with the Commission on June 19, 1998, as
amended.
(1) Incorporated by reference to the Company's Schedule 14D-1 (File No. 005-
43590), filed with the Commission on February 13, 1998, as amended.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
filed with the Commission on November 16, 1998.
II-17
<PAGE>
Schedule II
FOUNTAIN VIEW, INC.
Valuation and Qualifying Account
<TABLE>
<CAPTION>
Additions
-------------------------
Balance at Charged Charged Balance at
Beginning to Cost and to Other End of
Description of Period Expenses Accounts Deductions Period
- ----------- ---------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful accounts....... $528,000 $427,000 -- $(229,000)(1) $ 726,000
======== ======== ======== ========== ==========
Year ended December 31, 1996
Allowance for doubtful accounts....... $726,000 $430,000 -- $(377,000)(1) $ 779,000
======== ======== ======== ========== ==========
Year ended December 31, 1997
Allowance for doubtful accounts....... $779,000 $395,000 -- $ (22,000)(1) $1,152,000
======== ======== ======== ========== ==========
</TABLE>
- ---------
(1) Deductions relate to uncollectible accounts written off.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Fountain View, Inc. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on February 9, 1999.
FOUNTAIN VIEW, INC.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Chief Financial Officer and February 8, 1999
- ----------------------------------------- Treasurer (Principal Financial
Paul Rathbun and Accounting Officer)
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Executive Vice President and February 9, 1999
- ----------------------------------------- Director
Sheila S. Snukal
/s/ Michel Reichert Director February 9, 1999
- -----------------------------------------
Michel Reichert
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael F. Gilligan Director February 9, 1999
- -----------------------------------------
Michael F. Gilligan
/s/ Peter Z. Hermann Director February 9, 1999
- -----------------------------------------
Peter Z. Hermann
/s/ Mark J. Jrolf Director February 9, 1999
- -----------------------------------------
Mark J. Jrolf
/s/ Boone Powell, Jr. Director February 9, 1999
- -----------------------------------------
Boone Powell, Jr.
</TABLE>
S-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care Corporation has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on February 9, 1999.
SUMMIT CARE CORPORATION
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care-California, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on February 9, 1999.
SUMMIT CARE-CALIFORNIA, INC.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care Pharmacy, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on February 9, 1999.
SUMMIT CARE PHARMACY, INC.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care Texas Equity, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on February 9, 1999.
SUMMIT CARE TEXAS EQUITY, INC.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care Texas No. 2, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on February 9, 1999.
SUMMIT CARE TEXAS NO. 2, INC.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care Texas No. , Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on February 9, 1999.
SUMMIT CARE TEXAS No. , INC.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care Management Texas, Inc. has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on February 9, 1999.
SUMMIT CARE MANAGEMENT TEXAS, INC.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Summit Care Texas, L.P. has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on February 9, 1999.
SUMMIT CARE TEXAS, L.P.
By: Summit Care Management Texas, Inc.
Its: General Partner
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director
Robert M. Snukal of Summit Care Management
Texas, Inc. (Principal
Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- ----------------------------------------- of Summit Care Management
William C. Scott Texas, Inc.
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- ----------------------------------------- of Summit Care Management
Sheila S. Snukal Texas, Inc.
</TABLE>
S-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Fountain View Holdings, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on February 9, 1999.
FOUNTAIN VIEW HOLDINGS, INC.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, AIB
Corp. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on February 9, 1999.
AIB CORP.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Alexandria Convalescent Hospital, Inc. has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on February 9,
1999.
ALEXANDRIA CONVALESCENT HOSPITAL, INC.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, BIA
Hotel Corp. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on February 9, 1999.
BIA HOTEL CORP.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Brier Oak Convalescent, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on February 9, 1999.
BRIER OAK CONVALESCENT, INC.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Elmcrest Convalescent Hospital has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on February 9, 1999.
ELMCREST CONVALESCENT HOSPITAL
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Fountainview Convalescent Hospital has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on February 9, 1999.
FOUNTAINVIEW CONVALESCENT HOSPITAL
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Fountain View Management, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on February 9, 1999.
FOUNTAIN VIEW MANAGEMENT, INC.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, Rio
Hondo Nursing Center has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on February 9, 1999.
RIO HONDO NURSING CENTER
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
M. Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power
to act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Locomotion Holdings, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on February 9, 1999.
LOCOMOTION HOLDINGS, INC.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert M.
Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power to
act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Locomotion Therapy, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on February 9, 1999.
LOCOMOTION THERAPY, INC.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert M.
Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power to
act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Keith Abrahams President and Director February 9, 1999
- -----------------------------------------
Keith Abrahams
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
On-Track Therapy Center has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on February 9, 1999.
ON-TRACK THERAPY CENTER
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert M.
Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power to
act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Keith Abrahams President and Director February 9, 1999
- -----------------------------------------
Keith Abrahams
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
I.'NO, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on February 9, 1999.
I.'NO, INC.
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert M.
Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power to
act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Sycamore Park Convalescent Hospital has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on February 9, 1999.
SYCAMORE PARK CONVALESCENT HOSPITAL
By: /s/ Robert M. Snukal
------------------------------------------
Robert M. Snukal
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert M.
Snukal, William C. Scott and Mark J. Jrolf, and each of them, with full power to
act without the other, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Snukal President, Chief Executive February 9, 1999
- ----------------------------------------- Officer and Director (Principal
Robert M. Snukal Executive Officer)
/s/ Paul Rathbun Treasurer (Principal Financial February 8, 1999
- ----------------------------------------- and Accounting Officer)
Paul Rathbun
/s/ William C. Scott Director and Chairman February 4, 1999
- -----------------------------------------
William C. Scott
/s/ Sheila S. Snukal Vice President and Director February 9, 1999
- -----------------------------------------
Sheila S. Snukal
</TABLE>
S-24
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER
- -------
DESCRIPTION
-----------
1.1 Purchase Agreement dated as of April 16, 1998 by and among Fountain View
and the Initial Purchasers named therein relating to the 11 1/4% Senior
Subordinated Notes due 2008.*
3.1 Certificate of Incorporation of Fountain View.*
3.1(a) Certificate of Amendment amending Certificate of Incorporation of
Fountain View filed March 27, 1998.*
3.1(b) Certificate of Amendment amending Certificate of Incorporation of
Fountain View filed May 6, 1998.*
3.2 By-laws of Fountain View.*
3.3 Articles of Incorporation of Summit Care Corporation.*
3.4 By-laws of Summit Care Corporation.*
3.5 Articles of Incorporation of Summit Care-California, Inc.*
3.6 By-laws of Summit Care-California, Inc.*
3.7 Articles of Incorporation of Summit Care Pharmacy, Inc.*
3.8 By-laws of Summit Care Pharmacy, Inc.*
3.9 Omitted
3.10 Omitted
3.11 Articles of Incorporation of Summit Care Texas Equity, Inc.*
3.12 By-laws of Summit Care Texas Equity, Inc.*
3.13 Articles of Organization of Summit Care Texas, No. 2, Inc.*
3.14 By-laws of Summit Care Texas, No. 2, Inc.*
3.15 Articles of Organization of Summit Care Texas, No. 3, Inc.*
3.16 By-laws of Summit Care Texas, No. 3, Inc.*
3.17 Articles of Organization of Summit Care Texas Management, Inc.*
3.18 By-laws of Summit Care Texas Management, Inc.*
3.19 Certificate of Limited Partnership of Summit Care Texas, L.P.*
3.20 Omitted
3.21 Certificate of Incorporation of Fountain View Holdings, Inc.*
3.22 By-laws of Fountain View Holdings, Inc.*
<PAGE>
3.23 Articles of Incorporation of AIB Corp.*
3.24 By-laws of AIB Corp.*
3.25 Articles of Incorporation of Alexandria Convalescent Hospital, Inc.*
3.26 By-laws of Alexandria Convalescent Hospital, Inc.*
3.27 Articles of Incorporation of BIA Hotel Corp.*
3.28 By-laws of BIA Hotel Corp.*
3.29 Articles of Incorporation of Brier Oak Convalescent, Inc.*
3.30 By-laws of Brier Oak Convalescent, Inc.*
3.31 Articles of Incorporation of Elmcrest Convalescent Hospital*
3.32 By-laws of Elmcrest Convalescent Hospital*
3.33 Articles of Incorporation of Fountainview Convalescent Hospital*
3.34 By-laws of Fountainview Convalescent Hospital*
3.35 Articles of Incorporation of Fountain View Management, Inc.*
3.36 By-laws of Fountain View Management, Inc.*
3.37 Articles of Incorporation of Rio Hondo Nursing Center*
3.38 By-laws of Rio Hondo Nursing Center*
3.39 Certificate of Incorporation of Locomotion Holdings, Inc.*
3.40 By-laws of Locomotion Holdings, Inc.*
3.41 Certificate of Incorporation of Locomotion Therapy, Inc.*
3.42 By-laws of Locomotion Therapy, Inc.*
3.43 Articles of Incorporation of On-Track Therapy Center, Inc.*
3.44 By-laws of On-Track Therapy Center, Inc.*
3.45 Articles of Incorporation of I.' NO, Inc.*
3.46 By-laws of I.' NO, Inc.*
3.47 Articles of Incorporation of Sycamore Park Convalescent Hospital*
3.48 By-laws of Sycamore Park Convalescent Hospital*
4.1 Indenture dated as of April 16, 1998 by and among Fountain View, certain
subsidiaries of Fountain View, and State Street Bank and Trust Company
of California, N.A., as trustee, for the 11 1/4% Senior Subordinated
Notes due 2008.*
<PAGE>
4.2 Form of the Company's 11 1/4% Senior Subordinated Notes due 2008 (see
Exhibit A-1 to Exhibit 4.1).*
5.1 Opinion of Choate, Hall & Stewart.+
5.2 Opinion of Brobeck, Phleger & Harrison LLP.+
8.1 Opinion of Choate, Hall & Stewart (Tax).+
10.1 Hancock Park Convalescent Hospital, Los Angeles, California, Lease
Agreement dated May 19, 1987 between La Brea Convalescent Investments,
and A.I.B. Corporation and Robert and Sheila Snukal; Consent, Agreement,
and Acknowledgment, dated July 30, 1997*
10.2 Hancock Park Retirement Hotel, Los Angeles, California, Lease Agreement
dated May 19, 1987 between La Brea Convalescent Investments, and B.I.A.
Corporation and Robert and Sheila Snukal; Consent, Agreement, and
Acknowledgment dated July 30, 1997*
10.3 Montebello Convalescent Hospital, Montebello, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Elmcrest Convalescent Hospital; First Amendment to Lease, dated March
27, 1998*
10.4 Fountainview Convalescent Hospital, Los Angeles, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Fountainview Convalescent Hospital; First Amendment to Lease, dated
March 27, 1998*
10.5 Rio Hondo Convalescent Hospital, Montebello, California, Lease Agreement
dated August 1, 1997 between Robert and Sheila Snukal and Rio Hondo
Nursing Center and Fountain View Holdings; First Amendment to Lease,
dated March 27, 1998*
10.6 Sycamore Park Convalescent Hospital, Los Angeles, California, Lease
Agreement dated August 1, 1997 between Robert and Sheila Snukal and
Sycamore Park Convalescent Hospital; First Amendment to Lease, dated
March 27, 1998*
10.7 Palmcrest Convalescent Home (now known as Palm Grove Convalescent
Center): Convalescent Hospital Lease, dated November 20, 1969, between
Palmcrest Associates, Ltd., and Century Convalescent Centers, as amended
by Lease of Convalescent Hospital Facility (as amended), dated September
1, 1979, by which SHL and its appointed nominee Royalwood Convalescent
Hospital, Inc. (now Summit Care-California, Inc.) are substituted as
lessees.*
10.8 Anaheim Care Center: Lease, dated June 1, 1995, between Sam Menlo,
Trustee of the Menlo Trust U/T/I 5/22/83 and Summit Care-California,
Inc., doing business as Anaheim Care Center.*
10.9 Sharon Care Center: Lease, dated May 1, 1987, between Jozef Nabel and
Marie Gabrielle Nabel, as tenants in common, and Summit Care-
California, Inc.*
<PAGE>
10.10 Royalwood Convalescent Hospital: Lease dated August 18, 1964, between
Jack H. Cramer and Walter Lee Brown (together, as lessors) and Albert J.
Allasandra, as amended by Amendment to Lease and Right of First Refusal
to Purchase, dated May 23, 1969, by which Alaric Corporation is
substituted as lessee, and as further amended by Amendment to Agreement
of Lease and Right of First Refusal, dated November 18, 1974, and as
further amended by Second Amendment to Agreement of Lease and Right of
First Refusal and Assignment of Lease, dated July 10, 1979, by which
National Accommodations, Inc. (now SHL) is substituted as lessee,
assigned to Summit Care Corporation by Assignment of Lease, dated March
9, 1992, between SHL and Summit Care Corporation.*
10.11 Bay Crest Convalescent Hospital: Lease, dated March 1, 1980, between
South Bay Sanitarium and Convalescent Hospital and Garnet Convalescent
Hospital, Inc. (now Summit Care-California, Inc.), and Amendment to
Lease dated March 1, 1994.*
10.12 Brier Oak Convalescent Center: Lease Agreement, dated February 18, 1985,
between Bernard Bubman, Arnold Friedman, Irene Weiss and Sunset Motel
and Development Co. (collectively, as lessors), and Brier Oak
Convalescent, Inc.*
10.13 Hemet Resident Hotel: Ground Lease dated June 25, 1980, between Genes,
Ltd., and SHL, assigned to Summit Care Corporation by Assignment of
Lease dated March 9, 1992, between SHL and Summit Care Corporation.*
10.14 Seller Note for purchase of The Woodlands.*
10.15 HUD Note for purchase of The Woodlands.*
10.16 Phoenix Living Center Lease dated August 1, 1993, between Sierra Land
Group, Inc. and Summit Care Corporation; Sublease with Summit Health
Ltd., for Phoenix Living Center dated January 1994.*
10.17 Real Estate Lien Note--$3,000,000 dated September 30, 1994 and Security
Agreement dated September 30, 1994.*
10.18 Live Oak Nursing Center, George West, Texas Lease Agreement dated July
19, 1991; Assignment of Lease With Option to Purchase dated September
30, 1994 and Consent To Assignment Of Leasehold Estate of Live Oak
Nursing Center, George West, Texas dated August 15, 1994.*
10.19 Guadalupe Valley Nursing Center, Sequin, Texas Lease Agreement dated
February 28, 1989; Assignment Of Lease With Option To Purchase dated
September 30, 1994 and Consent To Assignment Of leasehold Estate Of
Guadalupe Valley Nursing Center, Sequin, Texas dated August 15, 1994.*
10.20 Omitted
10.21 Limited Liability Company Agreement of APS-Summit Care Pharmacy, L.L.C.,
dated November 30, 1996.*
10.22 Robert Crone-South Texas Health Care, Inc. Agreement of Purchase and
Sale of Assets of Briarcliff Nursing and Rehabilitation Center dated
November 24, 1997.*
<PAGE>
10.23 Alexandria Convalescent Hospital, Los Angeles, California, Lease
Agreement dated November 2, 1992 between Alexandria Convalescent
Investments and Robert Snukal, Sheila Snukal, Manuel Padama and Clair
Padama; Consent, Agreement, and Acknowledgment, dated July 30, 1997*
10.24 Lease Agreement for office space at 11900 Olympic Boulevard, Los
Angeles, California, dated February 1, 1995 between Douglas Emmett Joint
Venture and The Fountain View Management Group*
10.25 Locomotion Therapy, Inc., Fresno, California, Lease Agreement, dated
December 18, 1996 between M.D. Bautista Developments and Locomotion
Therapy, Inc.*
10.26 Elmcrest Convalescent Hospital, El Monte, California, Lease Agreement
dated November 15, 1977 between Convalescent Hospital Management
Corporation and Elmcrest Convalescent Center, Inc.; Assignment and
Assumption of Lease Agreement dated May 31, 1990; Consent to Assignment
and Agreement, dated July 30, 1997*
10.27 Monument Hill Nursing Center, Flatonia, Texas, Lease Agreement dated
October 20, 1986; Bill of Sale and General Warranty Deed from Hobbs &
Curry Family Limited Partnership to Summit Care Corporation, dated
September 11, 1997*
10.28 Comanche Trail Nursing Home, Big Spring, Texas, Lease Agreement, dated
April 10, 1990, between Lloyd G. Hobbs and Select Care Enterprises, Inc.
(assigned to Summit Care Corporation); Consent to Assignment of Lease,
dated April 10, 1990; Assignment of Lease with Option to Purchase, dated
December 1, 1994; Assignment and Assumption of Lease, dated September 1,
1997*
10.29 Woodland Convalescent Center, Reseda, California Lease Agreement, dated
February 1, 1995 between Uni-Cal Associates and Summit Care California,
Inc.*
10.30 Agreement for Development and Operation of Skilled Nursing Facilities,
dated May 4, 1998, between Fountain View, Inc. and Baylor Health Care
System; Service Mark Sublicense Agreement, dated May 4, 1998, between
Fountain View, Inc. and Baylor Health Care System; Trademark License
Agreement, dated July 24, 1997, between Baylor University and Baylor
Health Care System*
10.31 On Track Physical Therapy, Office Building Lease Agreement, Fresno,
California, dated January 31, 1997 between M.D. Bautista Developments
and On Track Physical Therapy, Inc.*
10.32 Omitted
10.33 Omitted
10.34 Agreement and Plan of Merger Among Summit Care Corporation, Fountain
View, Inc., FV-SCC Acquisition Corporation and Heritage Fund II, L.P.,
dated February 6, 1998.(1)
10.35 Summit Care Corporation Special Severance Pay Plan dated February 6,
1998.(1)
<PAGE>
10.36 Investment Agreement dated as of March 27, 1998 among Fountain View and
certain investors.*
10.37 Stockholders Agreement dated as of March 27, 1998 among Fountain View,
the existing stockholders of Fountain View and certain investors.*
10.38 Registration Rights Agreement dated as of March 27, 1998 among Fountain
View, certain stockholders of Fountain View and certain investors.*
10.39 Employment Agreement between Fountain View and Robert Snukal dated March
27, 1998.*
10.40 Employment Agreement between Fountain View and Sheila Snukal dated March
27, 1998.*
10.41 Employment Agreement between Fountain View and William Scott dated March
27, 1998.*
10.42 Promissory Note and Pledge Agreement dated April 16, 1998 issued by
William Scott to Fountain View relating to purchase of 20,000 Shares of
Series A Common Stock.*
10.43 Supplemental Signature Page to Investment Agreement dated as of May 4,
1998 among Fountain View, Heritage Fund II, L.P., Baylor Health Care
System ("Baylor") and Buckner Foundation ("Buckner").*
10.44 Amendment No. 1 to Stockholders Agreement dated as of May 4, 1998 among
Fountain View, Heritage, Baylor, Buckner and certain other parties.*
10.45 Amendment No. 1 to Registration Rights Agreement dated as of May 4, 1998
among Fountain View, Heritage, Baylor, Buckner and certain other
parties.*
10.46 Warrants to purchase Series C Common Stock of Fountain View issued by
Fountain View to Heritage, Baylor, Buckner and certain of Baylor's
brokers.*
10.47 Credit Agreement Dated as of April 16, 1998 by and among Fountain View,
The Banks party thereto and the Bank of Montreal, as agent.*
10.48 Guaranty Agreement Dated as of April 16, 1998 by and among Fountain
View, the Guarantors, the Banks party thereto and Bank of Montreal.*
10.49 Pledge Agreement Dated as of April 16, 1998 by and among Fountain View,
the Guarantors, the Banks party thereto and Bank of Montreal.*
10.50 Security Agreement Dated as of April 16, 1998 by and among Fountain
View, the Guarantors, the Banks party thereto and Bank of Montreal.*
10.51 Form of Revolving Note.*
10.52 Form of Term Note.*
10.53 Amendment No. 1 to Credit Agreement dated as of April 16, 1998 by and
among Fountain View, The Banks party thereto and the Bank of Montreal,
as agent.(2)
<PAGE>
12.1 Statement Re: Computation of Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Choate, Hall & Stewart (included as part of Exhibit 5.1). +
23.3 Consent of Choate, Hall & Stewart (included as part of Exhibit 8.1). +
23.4 Consent of Brobeck, Phleger & Harrison LLP (included as part of Exhibit
5.2).+
24.1 Powers of Attorney (included on signature pages).
25.1 Statement of eligibility of State Street Bank and Trust Company of
California, N.A., as trustee.*
99.1 Letter of Transmittal with respect to the Exchange Offer.
99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer.
99.3 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
99.4 Letter Regarding Eligibility for use of Form S-4.
99.5 Report of Ernst & Young LLP on Schedule.
* Incorporated by reference to the Company's Registration Statement on Form
S-4 (File No. 333-57279), filed with the Commission on June 19, 1998, as
amended.
(1) Incorporated by reference to the Company's Schedule 14D-1 (File No. 005-
43590), filed with the Commission on February 13, 1998, as amended.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
filed with the Commission on November 16, 1998.
<PAGE>
EXHIBIT 12.1
FOUNTAIN VIEW, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------- NINE MONTHS ENDED
ACTUAL SEPTEMBER 30,
---------------------------------------------------------------- ----------------
PRO PRO
FORMA FORMA
1993 1994 1995 1996 1997 1997 1997 1998 1998
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes
and extraordinary item............. $2,510 $4,594 $2,640 $3,878 $5,563 $(7,276) $4,127 $ 2,036 $ 18
Fixed charges:
Interest expense................... 307 355 332 278 1,164 23,324 497 12,089 17,069
Portion of rent representing
interest.......................... 1,334 1,339 1,315 1,299 1,258 2,251 944 1,463 1,704
--------------------------------------------------------------------------------------------
Total fixed charges................. 1,641 1,694 1,647 1,577 2,422 25,575 1,441 13,552 18,773
--------------------------------------------------------------------------------------------
Income (loss) before income taxes,
extraordinary item and fixed
charges............................ $4,151 $6,288 $4,287 $5,455 $7,985 $18,299 $5,568 $15,588 $18,791
============================================================================================
Ratio of earnings to fixed charges.. 2.5 3.7 2.6 3.5 3.3 (1) 3.9 1.2 1.0
</TABLE>
- -----------
(1) Earnings were insufficient to cover proforma fixed charges by $7,276 for the
year ended December 31, 1997.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
-------------------------------
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 11, 1998, with respect to the consolidated
financial statements of Fountain View, Inc. for the three years ended
December 31, 1997 and the related financial statement schedules, and our report
dated August 22, 1997 with respect to the consolidated financial statements of
Summit Care Corporation for the three years ended June 30, 1997 included in the
Registration Statement (Form S-4 No. 33- ) and related Prospectus of Fountain
View, Inc. for the registration of $7,520,000 of 11 1/4% Senior Subordinated
Notes.
/s/ Ernst & Young LLP
Ernst & Young LLP
Los Angeles, California
February 9, 1999
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
11 1/4% SENIOR SUBORDINATED NOTES DUE 2008
OF
FOUNTAIN VIEW, INC.
PURSUANT TO
PROSPECTUS DATED FEBRUARY __, 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME ON __________, 1999, UNLESS THE EXCHANGE OFFER IS EXTENDED
BY THE COMPANY IN ITS SOLE DISCRETION. TENDERS OF 11 1/4% SENIOR
SUBORDINATED NOTES DUE 2008 MAY ONLY BE WITHDRAWN UNDER THE CIRCUMSTANCES
DESCRIBED IN THE PROSPECTUS AND HEREIN.
The Exchange Agent for the Exchange Offer Is:
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Overnight Courier: By Hand before 4:30 P.M.:
State Street Bank and Trust State Street Bank and Trust State Street Bank and Trust
Company of California, N.A. Company of California, N.A. Company of California, N.A.
c/o State Street Bank and Trust c/o State Street Bank and Trust c/o State Street Bank and Trust
Company Company Company
Two International Place Two International Place Two International Place
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Boston, Massachusetts 02110
Attention: Kellie Mullen Attention: Kellie Mullen Attention: Kellie Mullen
</TABLE>
By Facsimile: 617-664-5290
Confirm by Telephone to: Kellie Mullen 617-664-5587
PLEASE FOLLOW CAREFULLY THE INSTRUCTIONS HEREIN
<TABLE>
<CAPTION>
DESCRIPTION OF OUTSTANDING NOTES TENDERED
- -----------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF HOLDER(S)
(IF THE NAME AND ADDRESS SHOWN ARE NOT CURRENT PLEASE OUTSTANDING NOTES TENDERED
INDICATE ANY CHANGES NECESSARY)(1) (PLEASE FILL IN NUMBERS AND AMOUNTS AND
ATTACH ADDITIONAL LIST IF NECESSARY)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CERTIFICATE PRINCIPAL
NUMBER(S) (IF AMOUNT(S)
ENCLOSING OF OUTSTANDING
CERTIFICATES)(2) NOTES TENDERED(3)
- -----------------------------------------------------------------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
TOTAL
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE PROSPECTUS, DATED FEBRUARY __,
1999 (THE "PROSPECTUS"), OF FOUNTAIN VIEW, INC., A DELAWARE CORPORATION (THE
"COMPANY"), AND THIS LETTER OF TRANSMITTAL RELATING TO THE OFFER (THE
"EXCHANGE OFFER") OF THE COMPANY, UPON THE TERMS AND SUBJECT TO THE CONDITIONS
SET FORTH IN THE PROSPECTUS AND HEREIN AND THE INSTRUCTIONS HERETO, TO
EXCHANGE $1,000 PRINCIPAL AMOUNT OF ITS 11 1/4% SENIOR SUBORDINATED NOTES DUE
2008, SERIES B (THE "EXCHANGE NOTES") FOR EACH $1,000 PRINCIPAL AMOUNT OF ITS
OUTSTANDING 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008 (THE "OUTSTANDING
NOTES"), OF WHICH $120 MILLION AGGREGATE PRINCIPAL AMOUNT IS OUTSTANDING. THE
MINIMUM PERMITTED TENDER IS $1,000 PRINCIPAL AMOUNT OF OUTSTANDING NOTES, AND
ALL OTHER TENDERS MUST BE IN INTEGRAL MULTIPLES OF $1,000.
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION BY
FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The Exchange Offer will expire at 5:00 p.m., New York City time, on October
13, 1998 (the "Expiration Date"), unless extended by the Company in its sole
discretion, in which case the term Expiration Date shall mean the latest date
and time to which the Exchange Offer is extended.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES PURSUANT TO THE
EXCHANGE OFFER MUST VALIDLY TENDER THEIR OUTSTANDING NOTES TO THE EXCHANGE
AGENT PRIOR TO 5:00 P.M. ON THE EXPIRATION DATE.
This Letter of Transmittal should be used only to exchange the Outstanding
Notes, pursuant to the Exchange Offer as set forth in the Prospectus.
This Letter of Transmittal is to be used (a) if Outstanding Notes are to be
physically delivered to the Exchange Agent or (b) if delivery of Outstanding
Notes is to be made by book-entry transfer to the account maintained by the
Exchange Agent at The Depository Trust Company ("DTC" or the "Book-Entry
Transfer Facility") pursuant to the procedures set forth in the Prospectus
under the caption "The Exchange Offer-- Procedures for Tendering." Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
Holders whose Outstanding Notes are not available or who cannot deliver
their Outstanding Notes and all other documents required hereby to the
Exchange Agent by 5:00 p.m. on the Expiration Date nevertheless may tender
their Outstanding Notes in accordance with the guaranteed delivery procedures
set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed
Delivery Procedures." See Instruction 1.
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL THE SURRENDER OF
OUTSTANDING NOTES FOR EXCHANGE BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN
ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE EXCHANGE OFFER WOULD
NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION.
All capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Prospectus.
HOLDERS WHO WISH TO EXCHANGE THEIR OUTSTANDING NOTES MUST COMPLETE COLUMNS
(1) THROUGH (3) IN THE BOX ENTITLED "DESCRIPTION OF OUTSTANDING NOTES
TENDERED" ON THE PRIOR PAGE, COMPLETE THE BOX BELOW ENTITLED "METHOD OF
DELIVERY" AND SIGN WHERE INDICATED BELOW.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OUTSTANDING
NOTES TENDERED" AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE
TENDERED THE OUTSTANDING NOTES AND MADE CERTAIN REPRESENTATIONS DESCRIBED IN
THE PROSPECTUS AND HEREIN.
2
<PAGE>
METHOD OF DELIVERY
[_]CHECK HERE IF CERTIFICATE FOR TENDERED OUTSTANDING NOTES ARE ENCLOSED
HEREWITH.
[_]CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-
ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT
WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: ____________________________________________
Account Number: ___________________ Transaction Code Number: ____________
Principal Amount of Tendered Notes: _______________________________________
[_]CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE
AGENT AND COMPLETE THE FOLLOWING (SEE INSTRUCTIONS 1 AND 4):
Name(s) of Registered Holder(s): ________________________________________
Window Ticket Number (if any): __________________________________________
Date of Execution of Notice of Guaranteed Delivery: _____________________
Name of Eligible Institution which Guaranteed Delivery: _________________
IF DELIVERED BY THE BOOK-ENTRY TRANSFER FACILITY, PROVIDE THE FOLLOWING
INFORMATION:
[_]The Depository Trust Company
Account Number: _________________ Transaction Code Number: ____________
------------------------------------------------------------------------
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE TEN
ADDITIONAL COPIES OF THE PROSPECTUS AND COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
PLEASE NOTE: THE COMPANY HAS AGREED THAT, FOR A PERIOD OF DAYS AFTER THE
EXPIRATION DATE, IT WILL MAKE COPIES OF THE PROSPECTUS AVAILABLE TO ANY
PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION WITH RESALES OF THE
EXCHANGE NOTES.
Name: ___________________________________________________________________
Address: ________________________________________________________________
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
3
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of Outstanding
Notes indicated in the box entitled "Description of Outstanding Notes
Tendered." Subject to, and effective upon, the acceptance for exchange of the
Outstanding Notes tendered hereby, the undersigned hereby irrevocably sells,
assigns and transfers to or upon the order of the Company all right, title and
interest in and to such Outstanding Notes, and hereby irrevocably constitutes
and appoints the Exchange Agent the true and lawful agent and attorney-in-fact
of the undersigned (with full knowledge that said Exchange Agent also acts as
the agent of the Company and as Trustee under the Indenture governing the
Outstanding Notes and the Exchange Notes) with respect to such Outstanding
Notes, with full power of substitution (such power of attorney being deemed to
be an irrevocable power coupled with an interest) to (a) deliver certificates
representing such Outstanding Notes, and to deliver all accompanying evidences
of transfer and authenticity to or upon the order of the Company upon receipt
by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to
which the undersigned is entitled upon the acceptance by the Company of such
Outstanding Notes for exchange pursuant to the Exchange Offer, (b) receive all
benefits and otherwise to exercise all rights of beneficial ownership of such
Outstanding Notes, all in accordance with the terms of the Exchange Offer, and
(c) present such Outstanding Notes for transfer on the register for such
Outstanding Notes, and receive all benefits and otherwise exercise all rights
of beneficial ownership of such Notes, all in accordance with the terms of the
Exchange Offer.
The undersigned acknowledges that prior to this Exchange Offer, there has
been no public market for the Outstanding Notes or the Exchange Notes. If a
market for the Exchange Notes should develop, the Exchange Notes could trade
at a discount from their principal amount. The undersigned is aware that the
Company does not intend to list the Exchange Notes on a national securities
exchange and that there can be no assurance that an active market for the
Exchange Notes will develop.
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive
Exchange Notes, it represents that the Outstanding Notes to be exchanged for
Exchange Notes were acquired as a result of market-making activities or other
trading activities and it acknowledges that it will deliver a prospectus in
connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL TENDERS BE ACCEPTED FROM
OR ON BEHALF OF, HOLDERS OF THE OUTSTANDING NOTES IN ANY JURISDICTION IN WHICH
THE MAKING OF THE OFFER OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE LAWS OF SUCH JURISDICTION OR WOULD OTHERWISE NOT BE IN COMPLIANCE WITH ANY
PROVISION OF ANY APPLICABLE SECURITY LAW.
The undersigned represents that (a) it is not an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company or any of the Subsidiary
Guarantors (as defined in the Prospectus), (b) it is not engaged in, and does
not intend to engage in, and has no arrangement or understanding with any
person to participate in, a distribution of the Exchange Notes, and (c) it is
acquiring the Exchange Notes in the ordinary course of business. In addition,
the undersigned acknowledges that an person participating in the Exchange
Offer for the purpose of distributing the Exchange Notes must, in the absence
of an exemption therefrom, comply with the registration and prospectus deliver
requirements of the Securities Act in connection with a secondary resale of
the Exchange Notes and cannot rely on the position of the staff of the
Securities and Exchange Commission enunciated in no action letters and failure
to comply with such requirements in such instance could result in the
undersigned incurring liability under the Securities Act for which the
undersigned is not indemnified by the Company. The undersigned will, upon
request, execute and deliver any additional documents deemed by the Exchange
Agent or the Company to be necessary or desirable to complete the assignment,
transfer and purchase of the Notes tendered hereby.
The undersigned understands and acknowledges that the Company reserves the
right, in its sole discretion, the purchase or make offers for any Outstanding
Notes that remain outstanding subsequent to the Expiration Date or to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Outstanding Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers will
differ from the terms of the Exchange Offer.
4
<PAGE>
The undersigned hereby represents and warrants that (a) the undersigned
accepts the terms and conditions of the Exchange Offer, (b) the undersigned
has a net long position within the meaning of Rule 14e-4 under the Exchange
Act ("Rule 14e-4") equal to or greater than the principal amount of
Outstanding Notes tendered hereby, (c) the tender of such Outstanding Notes
complies with Rule 14e-4 (to the extent that Rule 14e-4 is applicable to such
exchange), (d) the undersigned has full power and authority to tender,
exchange, assign and transfer the Outstanding Notes tendered hereby, and (e)
when the same are accepted for exchange by the Company, the Company will
acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim or
right. The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the sale, assignment and transfer of the Outstanding
Notes tendered hereby.
The undersigned agrees that all authority conferred or agreed to be
conferred by this Letter of Transmittal and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. The undersigned also agrees that, except as
stated in the Prospectus, the Outstanding Notes tendered hereby cannot be
withdrawn.
The undersigned understands that tenders of the Outstanding Notes pursuant
to any one of the procedures described in the Prospectus under the caption
"The Exchange Offer--Procedures for Tendering Outstanding Notes" and in the
instructions hereto will constitute a binding agreement between the
undersigned and the Company in accordance with the terms and subject to the
conditions of the Exchange Offer.
The undersigned understands that by tendering Outstanding Notes pursuant to
one of the procedures described in the Prospectus and the instructions
thereto, the tendering holder will be deemed to have waived the right to
receive any payment in respect of interest on the Outstanding Notes accrued up
to the date of issuance of the Exchange Notes.
The undersigned recognizes that, under certain circumstances set forth in
the Prospectus, the Company may not be required to accept for exchange any of
the Outstanding Notes tendered. Outstanding Notes not accepted for exchange or
withdrawn will be returned to the undersigned at the address set forth below
unless otherwise indicated under "Special Delivery Instructions" below.
Unless otherwise indicated herein under the box entitled "Special Issuance
Instructions" below, Exchange Notes, and Outstanding Notes not validly
tendered or accepted for exchange, will be issued in the name of the
undersigned. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, Exchange Notes, and Outstanding Notes
not validly tendered or accepted for exchange, will be delivered to the
undersigned at the address shown below the signature of the undersigned. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" to transfer any Outstanding Notes from the
name of the registered holder thereof if the Company does not accept for
exchange any of the principal amount of such Outstanding Notes so tendered.
All questions as to the validity, form, eligibility (including time of
receipt), and withdrawal of the tendered Outstanding Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all
Outstanding Notes not properly tendered or any Outstanding Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company reserves the absolute right to reject any and all
Outstanding Notes not properly tendered or any Outstanding Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to particular Outstanding Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including
the instructions in this Letter of Transmittal) will be final and binding.
Unless waived, any defects or irregularities in connection with tenders of
Outstanding Notes must be cured within such time as the Company shall
determine. Neither the Company, the Exchange Agent nor any other person shall
be under any duty to give notification of defects or irregularities with
respect to tenders of Outstanding Notes, nor shall any of them incur any
liability for failure to give such notification. Tenders of Outstanding Notes
will not be deemed to have been made until such irregularities have been cured
or waived. Any Outstanding Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost to such holder by the Exchange
Agent to the tendering holders of Outstanding Notes, unless otherwise provided
in this Letter of Transmittal, as soon as practicable following the Expiration
Date.
5
<PAGE>
SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(Signature(s) of Tendering Shareholder(s))
Dated: , 1999
Must be signed by the registered holder(s) of the Outstanding Notes
exactly as their name(s) appear(s) on certificate(s) for the Outstanding
Notes or by person(s) with this Letter of Transmittal. If signature is by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of
a corporation, agent or other person acting in a fiduciary or
representative capacity, please provide the following information. See
Instruction 3.
Name(s): __________________________________________________________________
(Please Print)
Capacity (Full Title): ____________________________________________________
Address: __________________________________________________________________
---------------------------------------------------------------------------
(Zip Code)
Daytime Area Code and Telephone Number: ( )_____________________________
Tax Identification or Social Security Number: _____________________________
(COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
GUARANTEE OF SIGNATURE(S)
(If Required--see Instructions 1 and 5 of this Letter of Transmittal)
Authorized Signature: _____________________________________________________
Name: _____________________________________________________________________
(Please Print)
Title: ____________________________________________________________________
Name of Firm: _____________________________________________________________
Address: __________________________________________________________________
---------------------------------------------------------------------------
(Zip Code)
Area Code and Telephone Number: ___________________________________________
Dated: , 1999
6
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 6)
(SEE INSTRUCTIONS 3, 4, AND 6)
To be completed ONLY if certifi- To be completed ONLY if certifi-
cates for Outstanding Notes in a cates for Outstanding Notes in a
principal amount not exchanged principal amount not exchange
and/or certificates for Exchange and/or certificates for Exchange
Notes are to be issued in the name Notes are to be sent to someone
of someone other than the under- other than undersigned at an ad-
signed, or if Outstanding Notes dress other than that shown above.
are to be returned by credit to an
account maintained by the Book-En-
try Transfer Facility.
Deliver (check appropriate box)
[_]Exchange Notes to:
[_]Outstanding Notes to:
Issue (check appropriate box)
Name: _____________________________
[_]Exchange Notes to:
(PLEASE PRINT)
[_]Outstanding Notes to:
Address ___________________________
Name ______________________________ (ZIP CODE)
(PLEASE PRINT)
-----------------------------------
Address ___________________________ (TAXPAYER IDENTIFICATION OR
(ZIP CODE)
SOCIAL SECURITY NUMBER)
----------------------------------- (ALSO COMPLETE SUBSTITUTE FORM W-9
(TAXPAYER IDENTIFICATION OR BELOW)
SOCIAL SECURITY NUMBER)
(ALSO COMPLETE SUBSTITUTE FORM W-9
BELOW)
Credit unaccepted Outstanding
Notes tendered by book-entry
transfer to:
[_The]Depository Trust Company ac-
count set forth below:
___________________________________
(DTC Account Number)
7
<PAGE>
INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF
THE OFFER AND THE SOLICITATION
1. Delivery of this Letter of Transmittal and Certificates; Guaranteed
Delivery Procedures. To be effectively tendered pursuant to the Exchange
Offer, the Outstanding Notes, together with a properly completed Letter of
Transmittal (or facsimile thereof), duly executed by the registered holder
thereof, and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent at one of its addresses set forth on the
first page of this Letter of Transmittal. If the beneficial owner of any
Outstanding Notes is not the registered holder, then such person may validly
tender his or her Outstanding Notes only by obtaining and submitting to the
Exchange Agent a properly completed Letter of Transmittal from the registered
holder. OUTSTANDING NOTES SHOULD BE DELIVERED ONLY TO THE EXCHANGE AGENT AND
NOT TO THE COMPANY OR TO ANY OTHER PERSON.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND ALL OTHER REQUIRED DOCUMENTS
TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER.
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE
AGENT BY 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
If a holder desires to tender Outstanding Notes and such holder's
Outstanding Notes are not immediately available or time will not permit such
holder's Letter of Transmittal, Outstanding Notes or other required documents
to reach the Exchange Agent on or before the Expiration Date, such holder's
tender may be effected if:
(a) the tender is made through an Eligible Institution (as defined);
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Outstanding Notes,
the certificate number or numbers of such Outstanding Notes and the
principal amount of Outstanding Notes tendered, stating that the tender is
being made thereby, and guaranteeing that, within three business days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Outstanding Notes to be
tendered in proper form for transfer or a Book-Entry Confirmation, as the
case may be, and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing all
tendered Outstanding Notes in proper form for transfer and all other
documents required by this Letter of Transmittal are received by the
Exchange Agent within three business days after the Expiration Date.
2. Withdrawal of Tenders. Tendered Outstanding Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date, unless
previously accepted for exchange.
To be effective, a written or facsimile transmission notice of withdrawal
must (a) be received by the Exchange Agent at one of its addresses set forth
on the first page of this Letter of Transmittal prior to 5:00 p.m., New York
City time, on the Expiration Date, unless previously accepted for exchange,
(b) specify the name of the person who tendered the Outstanding Notes, (c)
contain the description of the Outstanding Notes to be withdrawn, the
certificate numbers shown on the particular certificate evidencing such
Outstanding Notes and the aggregate principal amount represented by such
Outstanding Notes and (d) be signed by the holder of such Outstanding Notes in
the same manner as the original signature appears on this Letter of
Transmittal (including any required signature guarantee) or be accompanied by
evidence sufficient to have the Trustee with respect to the Outstanding Notes
register the transfer of such Outstanding Notes into the name of the holder
withdrawing the tender. The signature(s) on the notice of withdrawal must be
guaranteed by an Eligible Institution unless such Outstanding Notes have been
tendered (a) by a registered holder of Outstanding Notes who has not completed
either the box entitled "Special Issuance Instructions" or the box entitled
"Special Delivery
8
<PAGE>
Instructions" on this Letter of Transmittal or (b) for the account of an
Eligible Institution. All questions as to the validity, form and eligibility
(including time of receipt) of such withdrawal notices shall be determined by
the company, whose determination shall be final and binding on all parties. If
the Outstanding Notes to be withdrawn have been delivered or otherwise
identified to the Exchange Agent, a signed notice of withdrawal is effective
immediately upon receipt by the Exchange Agent of a written or facsimile
transmission notice of withdrawal even if physical release is not yet
effected. In addition, such notice must specify, in the case of Outstanding
Notes tendered by delivery of certificates for such outstanding Notes, the
name of the registered holder (if different from that of the tendering holder)
to be credited with the withdrawn Outstanding Notes. Withdrawals may not be
rescinded, and any Outstanding Notes withdrawn will thereafter be deemed not
validly tendered for purposes of the Exchange Offer. However, properly
withdrawn Outstanding Notes may be retendered by following one of the
procedures described under "The Exchange Offer--Procedures for Tendering" in
the Prospectus at any time on or prior to the applicable Expiration Date.
3. Signatures on this Letter of Transmittal, Bond Powers and Endorsement;
Guarantee of Signatures. If this Letter of Transmittal is signed by the
registered holder(s) of the Outstanding Notes tendered hereby, the signature
must correspond exactly with the name(s) as written on the face of the
certificates without any change whatsoever.
If any Outstanding Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any Outstanding Notes tendered hereby are registered in different names
on several certificates, it will be necessary to complete, sign and submit as
many separate copies of this Letter of Transmittal as there are different
registrations of certificates.
When this Letter of Transmittal is signed by the registered holder or
holders specified herein and tendered hereby, no endorsements of certificates
or separate bond powers are required unless Exchange Notes are to be issued,
or certificates for any untendered principal amount of Outstanding Notes are
to be reissued, to a person other than the registered holder.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any certificate(s) specified herein, such
certificate(s) must be endorsed or accompanied by appropriate bond powers, in
either cased signed exactly as the name(s) of the registered holder(s)
appear(s) on the certificate(s).
If this Letter of Transmittal or a Notice of Guaranteed Delivery or any
certificates or bond powers are signed by trustees, executors, administrators,
guardians, attorney-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by the Company, evidence satisfactory to the
Company of their authority so to act must be submitted with this Letter of
Transmittal.
Except as described below, signatures on this Letter of Transmittal or a
notice of withdrawal, as the case may be, must be guaranteed by an Eligible
Institution, Signatures of this Letter of Transmittal or a notice of
withdrawal, as the case may be, need not be guaranteed if the Outstanding
Notes tendered pursuant hereto are tendered (a) by a registered holder of
Outstanding Notes who has not completed either the box "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" on this
Letter of Transmittal or (b) for the account of an Eligible Institution. In
the event that signatures on this Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a firm which is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.
or by a commercial bank or trust company having an office or correspondent in
the United States (each as "Eligible Institutions").
Endorsements on certificates for Outstanding Notes or signatures on bond
powers required by this Instruction 3 must be guaranteed by an Eligible
Institution.
9
<PAGE>
4. Special Issuance and Delivery Instructions. Tendering holders should
indicate in the applicable box the name and address to which certificates for
Exchange notes and/or substitute certificates evidencing Outstanding Notes for
the principal amounts not exchanged are to be issued or sent, if different
from the name and address of the person signing this Letter of Transmittal. In
the case of issuance in a different name, the employer identification or
social security number of the person named must also be indicated. If not such
instructions are given, any Outstanding Notes not exchanged will be returned
to the name and address of the person signing this Letter of Transmittal.
5. Tax Identification Number Withholding. Federal income tax law of the
United States requires that a holder of Outstanding Notes whose Outstanding
Notes are accepted for exchange provide the Company with the holder's correct
taxpayer identification number, which, in the case of a holder who is an
individual, is his or her social security number, or otherwise establish an
exemption from backup withholding. If the Company is not provided with the
correct taxpayer identification number, the exchanging holder of Outstanding
Notes may be subject to a $50 penalty imposed by the Internal Revenue Service
(the "IRS"). In addition, interest on the Exchange Notes acquired pursuant to
the Exchange Offer may be subject to backup withholding in an amount equal to
31% of any interest payment. If withholding occurs and results in an
overpayment of taxes, a refund may be obtained.
To prevent backup withholding, an exchanging holder of Outstanding Notes
must provide his correct taxpayer identification number by completing the
Substitute Form W-9 provided in this Letter of Transmittal, certifying that
the taxpayer identification number provided is correct (or that the exchanging
holder of Outstanding Notes is awaiting a taxpayer identification number) and
that either (a) the exchanging holder has not yet been notified by the IRS
that such holder is subject to backup withholding as a result of failure to
report all interest or dividends or (b) the IRS has notified the exchanging
holder that such holder is no longer subject to backup withholding.
Certain exchanging holders of Outstanding Notes (including, among others,
all corporations and certain foreign individuals) are not subject to these
backup withholding requirements. A foreign individual and other exempt holders
other than foreign individuals (e.g., corporations) should certify, in
accordance with the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9," to such exempt status on the
Substitute Form W-9 provided in this Letter of Transmittal. Foreign
individuals should complete and provide Form W-8 to indicate their foreign
status.
6. Transfer Taxes. Holders tendering pursuant to the Exchange Offer will not
be obligated to pay brokerage commissions or fees or to pay transfer taxes
with respect to their exchange under the Exchange Offer unless the box
entitled "Special Issuance Instructions" in this Letter of Transmittal has
been completed, or unless the Exchange Notes are to be issued to any person
other than the holder of the Outstanding Notes tendered for exchange. The
company will pay all other charges or expenses in connection with the Exchange
Offer. If holders tender Outstanding Notes for exchange and the Exchange Offer
is not consummated, certificates representing the Outstanding Notes will be
returned to the holders at the Company's expense.
Except as provided in this Instructions 6, it will not be necessary for
transfer tax stamps to be affixed to the certificate(s) specified in this
Letter of Transmittal.
7. Inadequate Space. If the space provided herein is inadequate, the
aggregate principal amount of the Outstanding Notes being tendered and the
certificate numbers (if available) should be listed on a separate schedule
attached hereto and separately signed by all parties required to sign this
Letter of Transmittal.
8. Partial Tenders. Tenders of Outstanding Notes will be accepted only in
integral multiples of $1,000. If tenders are to be made with respect to less
than the entire principal amount of any Outstanding Notes, fill in the
principal amount of Outstanding Notes which are tendered in column (3) in the
box on the cover entitled "Description of Outstanding Notes Tendered." In the
case of partial tenders, new certificates representing the
10
<PAGE>
Outstanding Notes in fully registered form for the remainder of the principal
amount of the Outstanding Notes will be sent to the person(s) as promptly as
practicable after the expiration or termination of the Exchange Offer.
9. Mutilated, Lost, Stolen or Destroyed Notes. Any holder whose Outstanding
Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated above for further instructions.
10. Request for Assistance or Additional Copies. Requests for assistance or
additional copies of the Prospectus or this Letter of Transmittal may be
obtained from the Exchange Agent at its telephone number set forth on the
first page.
11. No Conditional Tender. No alternative, conditional, irregular or
contingent tender of Notes on transmittal of this Letter of Transmittal will
be accepted.
11
<PAGE>
IMPORTANT TAX INFORMATION
PAYER'S NAME:
- --------------------------------------------------------------------------------
Part 1--PLEASE PROVIDE -----------------
YOUR TIN IN THE BOX AT Social Security
RIGHT AND CERTIFY BY SIGN- Number
ING AND DATING BELOW.
SUBSTITUTE
Form W-9 or
Department of -----------------
the Treasury Employer
Internal Identification Number
Revenue Service Part 2--Check the box if you are not subject to
backup withholding under the provisions of section
3406(a)(1)(c) of the internal revenue code because
(1) you are exempt from backup withholding, or (2)
you have not been notified that you are subject to
backup withholding as a result of failure to re-
port all interest or dividends or (3) the internal
revenue service has notified you that you are no
longer subject to backup withholding. [_]
-----------------------------------------------------
Payer's Request for Taxpayer Identification Number (TIN)
-----------------------------------------------------
CERTIFICATION--UNDER THE PENALTIES Part 3--
OF PERJURY, I CERTIFY THAT THE IN- Awaiting
FORMATION PROVIDED ON THIS FORM IS TIN [_]
TRUE, CORRECT, AND COMPLETE.
SIGNATURE _______________ DATE ______
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer
identification number has not been issued to me, and either (a) I
have mailed or delivered an application to receive a taxpayer
identification number to the appropriate Internal Revenue Service
Center or Social Security Administration Office or (b) I intend to
mail or deliver an application in the near future. I understand
that if I do not provide a taxpayer identification number to the
payer by the time of payment, 31% of all reportable payments made
to me will be withheld until I provide a number and that, if I do
not provide my taxpayer identification number within 60 days, such
retained amounts shall be remitted to the IRS as backup
withholding.
------------------------------- -------------------------------
Signature Date
12
<PAGE>
NOTICE OF GUARANTEED DELIVERY
TO TENDER FOR EXCHANGE
11 1/4% SENIOR SECURED NOTES DUE 2008, SERIES B
OF
FOUNTAIN VIEW, INC.
PURSUANT TO
PROSPECTUS DATED FEBRUARY __, 1999
This Notice of Guaranteed Delivery or a form substantially equivalent hereto
must be used to accept the offer (the "Exchange Offer") of Fountain View,
Inc., a Delaware corporation (the "Company"), to exchange $1,000 principal
amount of its 11 1/4% Senior Subordinated Notes due 2008, Series B for each
$1,000 principal amount of its outstanding 11 1/4% Senior Subordinated Notes
due 2008 (the "Outstanding Notes") if (a) certificates representing the
Outstanding Notes are not immediately available or (b) time will not permit
the Outstanding Notes and all other required documents to reach the Exchange
Agent on or prior to the Expiration Date. This form may be delivered by an
Eligible Institution (as defined) by mail or hand delivery, or transmitted via
facsimile, telegram or telex, to the Exchange Agent as set forth below. All
capitalized terms used herein but not defined herein shall have the meanings
ascribed to them in the Prospectus dated February __, 1999 (the "Prospectus").
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL THE SURRENDER OF
OUTSTANDING NOTES BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS OF OUTSTANDING
NOTES IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE EXCHANGE
OFFER WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON ________,
1999, UNLESS EXTENDED. TENDERS OF 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008
MAY ONLY BE WITHDRAWN UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS AND
THE LETTER OF TRANSMITTAL.
The Exchange Agent for the Exchange Offer Is:
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Overnight Courier: By Hand before 4:30 P.M.:
State Street Bank and Trust State Street Bank and Trust State Street Bank and Trust
Company of California, N.A. Company of California, N.A. Company of California, N.A.
c/o State Street Bank and Trust Company c/o State Street Bank and Trust Company c/o State Street Bank and Trust Company
Two International Place Two International Place Two International Place
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Boston, Massachusetts 02110
Attention: Kellie Mullen Attention: Kellie Mullen Attention: Kellie Mullen
</TABLE>
By Facsimile: 617-664-5290
Confirm by Telephone to: Kellie Mullen 617-664-5587
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR
TRANSMISSION VIA FACSIMILE, TELEGRAM OR TELEX, OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. if a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible
Institution" under the instructions thereto, such signature guarantee must
appear in the applicable space provided in the signature box on the Letter of
Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and subject
to the conditions set forth in the Prospectus, receipt of which is hereby
acknowledged, the principal amount of Outstanding Notes set forth below,
pursuant to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer--Guaranteed Delivery Procedures."
Subject to and effective upon acceptance for exchange of the Outstanding
Notes tendered herewith, the undersigned hereby sells, assigns and transfers
to or upon the order of the Company all right, title and interest in and to,
and any and all claims in respect of or arising or having arisen as a result
of the undersigned's status as a holder of, all Outstanding Notes tendered
hereby. In the event of a termination of the Exchange Offer, the Outstanding
Notes tendered pursuant thereto will be returned promptly to the tendering
Outstanding Note holder.
The undersigned hereby represents and warrants that the undersigned accepts
the terms and conditions of the Prospectus and the Letter of Transmittal, has
full power and authority to tender, sell, assign and transfer the Outstanding
Notes tendered hereby and that the Company will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The undersigned will, upon
request, execute and deliver any additional documents deemed by the Exchange
Agent or the Company to be necessary or desirable to complete the sale,
assignment and transfer of the Outstanding Notes tendered.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned
and every obligation of the undersigned under this Notice of Guaranteed
Delivery shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
<PAGE>
PLEASE SIGN AND COMPLETE
Signature(s) of Registered
Holder(s) or
Addresses:
Authorized Signatory: ---------------------------------
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
--------------------------------- Area Code and Telephone
Name(s) of Registered Holder(s) ---------------------------------
No.: ---------------------------------
---------------------------------
---------------------------------
If Outstanding Notes will be delivered by a book-entry transfer, provide
the following information:
Principal Amount of Outstanding Notes Tendered: ___________________________
Transaction Code No.: _____________________________________________________
Certificate No(s). of Outstanding Notes (if available): ___________________
Depository Account No.: ___________________________________________________
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Outstanding Notes exactly as their name(s) appear(s) on the
Outstanding Notes or by person(s) authorized to become registered
holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, guardian, attorney-in-
fact, officer of a corporation, executor, administrator, agent or other
representative, such person must provide the following information:
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): __________________________________________________________________
_____________________________________________________________________
Capacity: _________________________________________________________________
_____________________________________________________________________
Address(es): ______________________________________________________________
___________________________________________________________________
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the
United States (each, an "Eligible Institution"), hereby guarantees that,
within three business days from the date of this Notice of Guaranteed
Delivery, a properly completed and validly executed Letter of Transmittal
(or a facsimile thereof), together with Outstanding Notes tendered hereby
in proper form for transfer (or confirmation of the book-entry transfer of
such Outstanding Notes into the Exchange Agent's account at a Book-Entry
Transfer Facility) and all other required documents will be deposited by
the undersigned with the Exchange Agent at one of its addresses set forth
above.
Name of Firm: _____________________________________________________________
Authorized Signature: _____________________________________________________
Address: __________________________________________________________________
Name: _____________________________________________________________________
Title: ____________________________________________________________________
Area Code and Telephone No.: ______________________________________________
Date: _____________________________________________________________________
DO NOT SEND OUTSTANDING NOTES WITH THIS FORM. ACTUAL SURRENDER OF NOTES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND
VALIDLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery. A properly completed and duly executed copy of this Notice of
Guaranteed Delivery and any other documents required by this Notice of
Guaranteed Delivery must be received by the Exchange Agent at its address set
forth herein prior to the Expiration Date. The method of delivery is at the
election and sole risk of the holders and the delivery will be deemed made
only when actually received by the Exchange Agent. In all cases, sufficient
time should be allowed to assure timely delivery.
2. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of this document and/or the
Prospectus may be directed to the Exchange Agent at the address specified in
the Prospectus. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.-- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.
- ----------------------------------- -----------------------------------
<TABLE>
<CAPTION>
GIVE THE TAXPAYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ---------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, the first
individual on
the account(1)
3. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
4.a. The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also
trustee)
b. So-called trust account The actual
that is not a legal or owner(1)
valid trust under State
law
5. Sole proprietorship The owner(3)
9. A valid trust, estate, The legal entity
or pension trust (Do not furnish
the identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title.)(4)
- ---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GIVE THE TAXPAYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
<S> <C>
7. Corporate account The corporation
8. Religious, charitable, The organization
or educational
organization account
9. Partnership account The partnership
10. Association, club, or The organization
other tax-exempt
organization
11. A broker or registered The broker or
nominee nominee
12. Account with the The public
Department of entity
Agriculture in the
name of a public
entity (such as a
state or local
government, school
district, or prison)
that receives
agricultural program
payments
</TABLE>
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has an SSN, that person's number must
be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show your individual name. You may also enter your business or "doing
business as" name. You may use either your social security number or your
employer identification number.
(4) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name listed, the
number will be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
Note: Section references are to the Internal Revenue Code unless otherwise
noted.
Obtaining a Number
If you do not have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number
(for businesses and all other entities), at the local office of the Social
Security Administration or the Internal Revenue Service (the "IRS") and apply
for a number.
Payees and Payments Exempt from Backup Withholding
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempt except item (9). For broker transactions, payees listed in
items (1) through (13) and a person registered under the Investment Advisors
Act of 1940 who regularly acts as a broker are exempt. Payments subject to
reporting under sections 6041 and 6041A are generally exempt from backup
withholding only if made to payees described in items (1) through (7), except
a corporation (other than certain hospitals described in Regulations section
1.6041-3(c)) that provides medical and health care services or bills and
collects payments for such services is not exempt from backup withholding or
information reporting. Only payees described in items (1) through (5) are
exempt from backup withholding for barter exchange transactions and patronage
dividends.
(1) An organization exempt from tax under section 501(a), or an IRA, or a
custodial account under section 403(b)(7), if the account satisfies the
requirements of section 401(f)(2).
(2) The United States or any of its agencies or instrumentalities.
(3) A state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
(4) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(5) An international organization or any of its agencies or instrumentalities.
(6) A corporation.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the United
States, the District of Columbia or a possession of the United States.
(9) A futures commission merchant registered with the Commodity Futures
Trading Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the
Investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List.
(15) A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends that generally are exempt from
backup withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident alien partner.
. Payments of patronage dividends not paid in money.
. Payments made by certain foreign organizations.
. Section 404(k) payments made by an ESOP.
Payments of interest that generally are exempt from backup withholding include
the following:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payor.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments of mortgage interest to you.
Exempt payees described above should file substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NON-RESIDENT
ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A
COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Payments that are not subject to information reporting are also not subject
to backup withholding. For details, see sections 6041, 6041A, 6042, 6044,
6045, 6049, 6050A and 6050N and the regulations promulgated thereunder.
Privacy Act Notice.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payors
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish
a taxpayer identification number to a payer. Certain penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you
fail to furnish your correct taxpayer identification number to a requester,
you are subject to a penalty of $50 for each such failure unless your failure
is due to reasonable cause and not to willful neglect.
(2) Civil Penalty for False Information With Respect to Withholding.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
OFFER TO EXCHANGE
11 1/4% Senior Subordinated Notes Due 2008, Series B
For Any and All Outstanding
11 1/4% Senior Subordinated Notes Due 2008
of
FOUNTAIN VIEW, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON _________,
1999, UNLESS EXTENDED. TENDERS OF 11 1/4% SENIOR SECURED NOTES DUE 2008
MAY ONLY BE WITHDRAWN UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS
AND THE LETTER OF TRANSMITTAL.
February __, 1999
To Our Clients:
Enclosed for your consideration is the Prospectus dated February __, 1999
(the "Prospectus") and the related Letter of Transmittal and instructions
thereto (the "Letter of Transmittal") in connection with the offer (the
"Exchange Offer") of Fountain View, Inc., a Delaware corporation (the
"Company"), to exchange $1,000 principal amount of its 11 1/4% Senior
Subordinated Notes due 2008, Series B (the "Exchange Notes") for each $1,000
principal amount of its outstanding 11 1/4% Senior Subordinated Notes due 2008
(the "Outstanding Notes").
Consummation of the Exchange Offer is subject to certain conditions
described in the Prospectus. Capitalized terms used herein but not defined
shall have the meanings ascribed to them in the Prospectus.
WE ARE THE REGISTERED HOLDER OF OUTSTANDING NOTES HELD BY US FOR YOUR
ACCOUNT. A TENDER OF ANY SUCH OUTSTANDING NOTES CAN BE MADE ONLY BY US AS THE
REGISTERED HOLDER AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL
IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO
TENDER OUTSTANDING NOTES HELD BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish us to tender any
or all such Outstanding Notes held by us for your account pursuant to the
terms and conditions set forth in the Prospectus and the Letter of
Transmittal. We urge you to read carefully the Prospectus and the Letter of
Transmittal before instructing us to tender your Outstanding Notes.
Your instructions to us should be forwarded as promptly as possible in order
to permit us to tender Outstanding Notes on your behalf in accordance with the
provisions of the Exchange Offer. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON _________, 1999 (the "Expiration Date"), UNLESS
EXTENDED. Outstanding Notes tendered pursuant to the Exchange Offer may only
be withdrawn under the circumstances described in the Prospectus and the
Letter of Transmittal.
Your attention is directed to the following:
1. The Exchange Offer is for the entire aggregate principal amount of
Outstanding Notes.
2. Consummation of the Exchange Offer is conditioned upon the conditions
set forth in the Prospectus under the caption "The Exchange Offer--Certain
Conditions to the Exchange Offer."
3. Tendering holders may withdraw their tender at any time until the
Expiration Date.
<PAGE>
4. Any transfer taxes incident to the transfer of Outstanding Notes from
the tendering holder to the Company will be paid by the Company, except as
provided in the Prospectus and the instructions to the Letter of
Transmittal.
5. The Exchange Offer is not being made to (nor will the surrender of
Outstanding Notes for exchange be accepted from or on behalf of) holders of
Outstanding Notes in any jurisdiction in which the making or acceptance of
the Exchange Offer would not be in compliance with the laws of such
jurisdiction.
6. The acceptance for exchange of Outstanding Notes validly tendered and
not be validly withdrawn and the issuance of Exchange Notes will be made as
promptly as practicable after the Expiration Date. However, subject to
rules promulgated pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Company expressly reserves the right to
delay acceptance of any of the Outstanding Notes or to terminate the
Exchange Offer and not accept for purchase any Outstanding Notes not
theretofore accepted if any of the conditions set forth in the Prospectus
under the caption "Certain Conditions of the Exchange Offer" shall not have
been satisfied or waived by the Company.
7. The Company expressly reserves the right, in its sole discretion, (i)
to delay accepting any Outstanding Notes, (ii) to extend the Exchange
Offer, (iii) to amend the terms of the Exchange Offer or (iv) to terminate
the Exchange Offer. Any delay, extension, amendment or termination will be
followed as promptly as practicable by oral or written notice to the
Exchange Agent and the Company will mail to the registered holders an
announcement thereof, each prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Except as
otherwise provided in the Prospectus, withdrawal rights with respect to
Outstanding Notes tendered pursuant to the Exchange Offer will not be
extended or reinstated as a result of an extension or amendment of the
Exchange Offer.
8. Consummation of the Exchange Offer may have adverse consequences to
non-tendering Outstanding Note holders, including that the reduced amount
of Outstanding Notes as a result of the Exchange Offer may adversely affect
the trading market, liquidity and market price of the Outstanding Notes.
If you wish to have us tender any or all of the Outstanding Notes held by us
for your account, please so instruct us by completing, executing and returning
to us the instruction form that follows:
<PAGE>
INSTRUCTIONS REGARDING THE EXCHANGE OF
11 1/4% Senior Subordinated Notes Due 2008, Series B
For Any and All Outstanding
11 1/4% Senior Subordinated Notes Due 2008
of
FOUNTAIN VIEW, INC.
TO REGISTERED HOLDER AND/OR PARTICIPANTS OF
THE BOOK-ENTRY TRANSFER FACILITY
THE UNDERSIGNED ACKNOWLEDGE(S) RECEIPT OF YOUR LETTER AND THE ENCLOSED
DOCUMENTS REFERRED TO THEREIN RELATING TO THE EXCHANGE OFFER OF THE COMPANY.
THIS WILL INSTRUCT YOU TO TENDER THE PRINCIPAL AMOUNT OF OUTSTANDING NOTES
INDICATED BELOW HELD BY YOU FOR THE ACCOUNT OF THE UNDERSIGNED PURSUANT TO THE
TERMS OF AND CONDITIONS SET FORTH IN THE PROSPECTUS AND THE LETTER OF
TRANSMITTAL.
Box 1 [_] Please tender the Outstanding Notes held by you for my account,
as indicated below.
Box 2 [_] Please do not tender any Outstanding Notes held by you for my
account.
The aggregate face amount of the Notes held by you for the account of the
undersigned is [fill in amount]: $ of the 11 1/4% Senior Subordinated
Notes due 2008.
With respect to the Exchange Offer, the undersigned hereby instructs you
[check appropriate box]:
[_]To TENDER the following Notes held by you for the account of the
undersigned [insert principal amount of notes to be tendered if any]:
$ .
[_]NOT TO TENDER any Notes held by you for the account of the undersigned.
Date: , 1998 ____________________________________
____________________________________
Signature(s)
Principal Amount of Outstanding Notes to be Tendered: $ * (must be in the
principal amount of $1,000 or an integral multiple thereof)
____________________________________
____________________________________ ____________________________________
Please print name(s) here Taxpayer Identification or Social
Security Number
____________________________________
____________________________________
____________________________________
Area code and Telephone Number ____________________________________
My Account Number with You
<PAGE>
* UNLESS OTHERWISE INDICATED, SIGNATURE(S) HEREON BY BENEFICIAL OWNER(S)
SHALL CONSTITUTE AN INSTRUCTION TO THE NOMINEE TO TENDER ALL OUTSTANDING
NOTES OF SUCH BENEFICIAL OWNER(S).
If the undersigned instructs you to tender the Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in
the Letter of Transmittal that are to be made with respect to the undersigned
as a beneficial owner, including but not limited to the representations that
(i) the undersigned's principal residence is in the state of [fill in state]
, (ii) the undersigned is acquiring the Exchange Notes in the ordinary
course of business of the undersigned, (iii) the undersigned is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate in the distribution of the
Exchange Notes, (iv) the undersigned acknowledges that any person
participating in the Exchange Offer for the purpose of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "Act"), in
connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the Staff of the Securities
and Exchange Commission set forth in noaction letters that are discussed in
the section of the Prospectus entitled "Plan of Distribution," and (v) the
undersigned is not an "affiliate," as defined in Rule 405 under the Act, of
the Company; (b) to agree, on behalf of the undersigned, as set forth in the
Letter of Transmittal; and (c) to take such other action as necessary under
the Prospectus or the Letter of Transmittal to effect the valid tender of such
Notes.
[_]Check this box if the Beneficial Owner of the Notes is a Participating
Broker-Dealer and such Participating Broker-Dealer acquired the Notes
for its own account as a result of market-making activities or other
trading activities. IF THIS BOX IS CHECKED, PLEASE SEND A COPY OF THESE
INSTRUCTIONS TO ROBERT M. SNUKAL, CHIEF EXECUTIVE OFFICER OF THE
COMPANY, VIA FACSIMILE: (310) 571-0365.
<PAGE>
OFFER TO EXCHANGE
11 1/4% Senior Subordinated Notes Due 2008, Series B
For Any and All Outstanding
11 1/4% Senior Subordinated Notes Due 2008
of
FOUNTAIN VIEW, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON _________,
1999, UNLESS EXTENDED. TENDERS OF 11 1/4% SENIOR SUBORDINATED NOTES
DUE 2008 MAY ONLY BE WITHDRAWN UNDER THE CIRCUMSTANCES DESCRIBED IN THE
PROSPECTUS AND THE LETTER OF TRANSMITTAL.
To Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees:
We have been appointed by Fountain View, Inc., a Delaware corporation (the
"Company"), to act as the Exchange Agent in connection with the offer (the
"Exchange Offer") of the Company to exchange $1,000 principal amount of its 11
1/4% Senior Subordinated Notes due 2008, Series B for each $1,000 principal
amount of its 11 1/4% Senior Subordinated Notes due 2008 (the "Outstanding
Notes"), upon the terms and subject to the conditions set forth in the
Prospectus dated February __, 1999 (the "Prospectus") and in the related
Letter of Transmittal and the instructions thereto (the "Letter of
Transmittal").
Enclosed herewith are copies of the following documents:
1. The Prospectus;
2. The Letter of Transmittal for your use and for the information of your
clients, together with guidelines of the Internal Revenue Service for
Certification of Taxpayer Identification Number on Substitute Form W-9
providing information relating to backup federal income tax withholding;
3. Notice of Guaranteed Delivery to be used to accept the Exchange Offer
if the Notes and all other required documents cannot be delivered to the
Exchange Agent on or prior to the Expiration Date (as defined);
4. A form of letter which may be sent to your clients for whose account
you hold the Notes in your name or in the name of a nominee, with space
provided for obtaining such clients' instructions with regard to the
Exchange Offer; and
5. A return envelope addressed to the Exchange Agent.
PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME ON ___________, 1999 (THE "EXPIRATION DATE"), UNLESS EXTENDED. WE URGE YOU
TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE.
The Company will not pay any fees or commission to any broker or dealer or
other person (other than to the Exchange Agent) for soliciting tenders of the
Notes pursuant to the Exchange Offer. You will be reimbursed for customary
mailing and handling expenses incurred by you in forwarding the enclosed
materials to your clients.
Additional copies of the enclosed materials may be obtained by contacting
the Exchange Agent as provided in the enclosed Letter of Transmittal.
Very truly yours,
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON, THE AGENT OF THE COMPANY OR THE EXCHANGE AGENT OR
AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF ANY OF THEM WITH RESPECT TO THE EXCHANGE OFFER NOT
CONTAINED IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
<PAGE>
FOUNTAIN VIEW, INC.
11900 WEST OLIMPIC BOULEVARD, SUITE 680
LOS ANGELES, CA 90064
February 9, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Form S-4 Registration Statement relating to the offer to exchange up to
$7,520,000 of 11 1/4% Senior Subordinated Notes (the "Exchange Notes") due
2008, Series B of Fountain View, Inc., which have been registered under
the Securities Act of 1933, as amended, for any and all of its outstanding
11 1/4% Senior Subordinated Notes due 2008
Dear Sir or Madam:
In connection with our above-captioned Registration Statement, Fountain
View, Inc. hereby represents that:
1. It is registering the Exchange Notes exchange offer registered thereby in
reliance on the Staff's position set forth in Exxon Capital Holding Corp.,
SEC No-Action Letter (April 13, 1989), Morgan Stanley & Co., Inc., SEC No-
Action Letter (June 2, 1993) and Sherman & Sterling, SEC No-Action Letter
(July 2,1993).
2. It has not entered into any arrangement or understanding with any person
to distribute the Exchange Notes to be received in the exchange offer and,
to the best of its information and belief, each person participating in
the exchange offer is acquiring the Exchange Notes in its ordinary course
of business and has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes to be received in
the exchange offer;
3. It will make each person participating in the exchange offer aware that is
such person is participating in the exchange offer for the purpose of
distributing the Exchange Notes to be acquired in the exchange offer, such
person (i) cannot rely on the staff position enunciated in Exxon Capital
or interpretive letters to similar effect and (ii) must comply with
registration and prospectus delivery requirements of the Securities Act of
1933 in connection with a secondary resale transaction.
4. It acknowledges that such a secondary resale transaction by such person
participating in the exchange offer for the purpose of distributing the
Exchange Notes should be covered by an effective registration statement
containing the selling security holder information required by Item 507 of
Regulation S-K; and
<PAGE>
5. The preliminary prospectus included in the above-referenced
registration statement contains and the final prospectus included therein
will contain disclosures making persons participating in the exchange
offer aware of the limitations and obligations applicable to broker-
dealers who participate in the exchange offer.
Very truly yours,
Fountain View, Inc.
By: /s/ Robert M. Snukal
-------------------------------------
Robert M. Snukal
President and Chief Executive Officer
2
<PAGE>
EXHIBIT 99.5
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Fountain View, Inc. as
of December 31, 1997 and 1996, and the related consolidated statements of
income, shareholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1997, (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule listed in item 21(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this schedule based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 11, 1998
