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Filed Pursuant To Rule 424(b)(3)
Registration No. 333-60108
PROSPECTUS
MANOR CARE, INC.
Offer to Exchange All Our Outstanding
8% Senior Notes due 2008
$200,000,000 aggregate principal amount
In Exchange for 8% Senior Notes Due 2008
Which Have Been Registered Under the Securities Act of 1933
We are offering to exchange all of our outstanding 8% Senior Notes due 2008,
which we refer to as old notes, for our registered 8% Senior Notes due 2008,
which we refer to as new notes. We refer to the old notes and new notes
collectively as the notes. We issued the old notes on March 8, 2001. The terms
of the new notes are identical to the terms of the old notes except that we
registered the new notes under the Securities Act of 1933.
*PLEASE CONSIDER THE FOLLOWING:
- YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS BEGINNING ON PAGE 19 OF THIS
PROSPECTUS.
- Our offer to exchange old notes for new notes will be open until 5:00 p.m.,
New York City time, on June 21, 2001, unless we extend the offer.
- You should also carefully review the procedures for tendering the old notes
beginning on page 10 of this prospectus.
- If you fail to tender your old notes, you will continue to hold unregistered
securities and your ability to transfer them could be adversely affected.
- No public market currently exists for the notes. We do not intend to list the
new notes on any securities exchange and, therefore we do not anticipate that
an active public market will develop.
INFORMATION ABOUT THE NOTES:
- The notes will mature on March 1, 2008.
- Interest will accrue from March 8, 2001.
- We will pay interest on the notes semi-annually on March 1 and September 1 of
each year beginning September 1, 2001, at the rate of 8% per year.
- We may redeem some or all of the notes at any time. The redemption price is
described beginning on page 13.
- The notes will be guaranteed on a senior unsecured basis by Manor Care of
America, Inc., our wholly-owned subsidiary, and all of our subsidiaries that
have guaranteed, or will in the future guarantee, obligations under the
$150,000,000 principal amount of 7 1/2% Senior Notes Due 2006 issued by Manor
Care of America, Inc.
- These guarantees will be senior obligations of our subsidiary guarantors. If
we fail to make payments on the notes, our subsidiary guarantors must make
them instead.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS MAY 23, 2001
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IN MAKING YOUR INVESTMENT DECISION, YOU SHOULD RELY ONLY ON THE
INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANY OTHER
PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH
DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT.
EACH BROKER-DEALER THAT RECEIVES NEW NOTES FOR ITS OWN ACCOUNT IN
CONNECTION WITH THE EXCHANGE OFFER MUST ACKNOWLEDGE THAT IT WILL DELIVER A
PROSPECTUS IF IT RESELLS THOSE NEW NOTES. THE TRANSMITTAL LETTER STATES THAT BY
SO ACKNOWLEDGING 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. THIS PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME,
MAY BE USED BY A BROKER-DEALER IN CONNECTION WITH RESALES OF NEW NOTES RECEIVED
IN EXCHANGE FOR OLD NOTES ACQUIRED BY THE BROKER-DEALER AS A RESULT OF
MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES. WE HAVE AGREED THAT, FOR A
PERIOD ENDING ON THE EARLIER OF:
- 180 DAYS AFTER THE DATE OF THIS PROSPECTUS; AND
- THE DATE ON WHICH A BROKER-DEALER IS NO LONGER REQUIRED TO DELIVER A
PROSPECTUS IN CONNECTION WITH MARKET-MAKING OR OTHER TRADING
ACTIVITIES,
WE WILL MAKE THIS PROSPECTUS AVAILABLE TO ANY BROKER-DEALER FOR USE IN
CONNECTION WITH ANY SUCH RESALE. SEE "PLAN OF DISTRIBUTION."
TABLE OF CONTENTS
Page
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Where You Can Find More Information...........................................2
Documents Incorporated By Reference...........................................2
Forward Looking Statements....................................................3
Prospectus Summary............................................................5
Risk Factors .................................................................19
Use of Proceeds...............................................................28
Capitalization................................................................29
Selected Historical Consolidated Financial Data...............................30
Certain Relationships and Related Transactions................................32
The Exchange Offer............................................................32
The New Notes.................................................................41
Description of Other Debt.....................................................54
United States Federal Income Tax Considerations...............................55
Plan of Distribution..........................................................55
Legal Matters.................................................................56
Experts.......................................................................56
Glossary......................................................................56
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements, and other
documents with the Securities and Exchange Commission under the Securities
Exchange Act of 1934. Our SEC filings are available to the public at the SEC's
website at http://www.sec.gov. You may also read and copy any document we file
at the following SEC public reference rooms:
Judiciary Plaza, Room 1024 Citicorp Center, Suite 1400 7 World Trade Center
450 Fifth Street, N.W. 500 West Madison Street Suite 1300
Washington, D.C. 20549 Chicago, Illinois 60621 New York, New York 10048
You may obtain information regarding the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330.
In addition, because our common stock is listed on the New York Stock
Exchange, you may read our reports, proxy statements, and other documents at the
offices of the New York Stock Exchange at 20 Broad Street, New York, New York
10005.
This prospectus is part of a registration statement on Form S-4 we have
filed with the SEC under the Securities Act of 1933, as amended. This prospectus
does not contain all of the information set forth in the registration statement.
For further information about us and the notes, you should refer to the
registration statement. In this prospectus we summarize material provisions of
contracts and other documents to which we refer you. Since this prospectus may
not contain all of the information that you may find important, you should
review the full text of these documents. We have filed these documents as
exhibits to our registration statement.
This prospectus incorporates important business and financial information
about us that is not included in or delivered with this prospectus. This
information is available without charge to you upon written or oral request. If
you would like a copy of any of this information, please submit your request to
Manor Care, Inc., 333 N. Summit Street, Toledo, Ohio 43604-2617, Attention:
Legal Department, or call (419) 252-5500 and ask to speak to someone in our
legal department. IN ADDITION, TO OBTAIN TIMELY DELIVERY OF ANY INFORMATION YOU
REQUEST, YOU MUST SUBMIT YOUR REQUEST NO LATER THAN JUNE 14, 2001, WHICH IS
FIVE BUSINESS DAYS BEFORE THE DATE THE EXCHANGE OFFER EXPIRES.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" certain documents, which
means that we can disclose important information to you by referring you to
those documents. The information in the documents incorporated by reference is
considered to be part of this prospectus, and information in documents that we
file later with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we will make with the SEC under Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act:
- Our annual report on Form 10-K/A for the fiscal year ended December
31, 2000;
- Our quarterly report on Form 10-Q for the three months ended March
31, 2001; and
- Our proxy statement for the annual stockholders' meeting to be held
May 8, 2001, which we filed with the SEC on April 5, 2001.
We will provide to you, at no charge, a copy of the documents we
incorporate by reference in this prospectus. To request a copy of any or all of
these documents, you should write or telephone us at the following address and
telephone number: Manor Care, Inc., 333 N. Summit Street, Toledo, Ohio,
43604-2617, Attention: Legal Department. Our telephone number is: (419)
252-5500.
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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. We identify forward-looking statements in this prospectus by
using words or phrases such as "anticipate," "believe," "estimate," "expect,"
"intend," "may be," "objective," "plan," "predict," "project," and "will be" and
similar words or phrases, or the negative of those words or phrases.
These forward-looking statements are subject to numerous assumptions,
risks and uncertainties. Factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by us in those statements include, among
others, the following:
- our existing and future debt that may affect our ability to obtain
financing in the future or to comply with current debt covenants;
- integration of acquired businesses;
- changes in Medicare, Medicaid and certain private payors'
reimbursement levels;
- existing government regulations and changes in, or the failure to
comply with, governmental regulations;
- changes in, or the failure to comply with, regulations governing the
transmission and privacy of health information;
- state regulation of the construction or expansion of health care
providers;
- legislative proposals for health care reform;
- competition;
- the ability to attract and retain qualified personnel;
- the failure to comply with occupational health and safety
regulations;
- changes in the treatment of interest deductions on certain policy
loans related to corporate-owned life insurance;
- changes in current trends in the cost and volume of general and
professional liability claims;
- the ability to enter into managed care provider arrangements on
acceptable terms;
- litigation;
- a reduction in cash reserves and shareholders' equity upon our
repurchase of our stock; and
- an increase in senior debt or reduction in cash flow upon our
purchase or sale of assets.
- other factors discussed under the heading "Risk Factors" and in
filings with the Securities and Exchange Commission.
Although we believe the expectations reflected in our forward-looking
statements are based upon reasonable assumptions, we can give no assurance that
we will attain these expectations or that any deviations will
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not be material. Except as otherwise required by the federal securities laws, we
disclaim any obligations or undertaking to publicly release any updates or
revisions to any forward-looking statement contained in this prospectus to
reflect any change in our expectations with regard to these statements or any
change in events, conditions or circumstances on which any such statement is
based.
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INDUSTRY AND MARKET DATA
In this prospectus we rely on and refer to information and statistics
regarding the health care industry and our market share in the sectors in which
we compete. We obtained this information and statistics from various third-party
sources, discussions with our customers and our own internal estimates. We
believe that these sources and estimates are reliable, but we have not
independently verified them and cannot guarantee their accuracy or completeness.
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PROSPECTUS SUMMARY
This summary highlights the information contained elsewhere in or
incorporated by reference into this prospectus. Because this is only a summary,
it does not contain all of the information that may be important to you. For a
more complete understanding of this offering, we encourage you to read this
entire prospectus and the documents to which we refer you. You should read the
following summary together with the more detailed information and consolidated
financial statements and the notes to those statements included elsewhere in or
incorporated by reference into this prospectus.
In this prospectus, "Company," "Manor Care," "we," "our," and "us" refer
to Manor Care, Inc. With respect to the descriptions of our business contained
in this prospectus, such terms refer to Manor Care, Inc. and our subsidiaries.
SUMMARY
COMPANY OVERVIEW
We are a leading provider of long-term health care with one of the largest
networks of skilled nursing and assisted living facilities in the United States.
We own or operate over 350 high-quality long-term care centers in 32 states,
with approximately 46,000 beds. We generated approximately 86% of our total
revenues for the year ended December 31, 2000 from skilled nursing and assisted
living services. We derived the balance of our revenues from a broad range of
ancillary health care services, including subacute medical and rehabilitation
care, rehabilitation therapy and home health and hospice care. We provide these
services through many of our long-term care facilities and through 87 outpatient
rehabilitation clinics, an acute care hospital and 78 home health care offices
in 18 states. We enjoy a favorable quality mix of revenue with approximately 67%
of our long-term care and rehabilitation revenues for the year ended December
31, 2000 generated from private-pay and Medicare sources. We operate primarily
under the respected "ManorCare," "Heartland" and "Arden Courts" names. Our
common stock trades on the New York Stock Exchange under the symbol "HCR." For
the year ended December 31, 2000, we generated revenues of $2.4 billion and
EBITDA -- which represents income from continuing operations before other income
or expenses, income taxes, minority interest, depreciation and amortization, and
unusual or nonrecurring expenses -- of $297.1 million. We discuss EBITDA on page
16 of this prospectus, and you should consider our cautions on that page about
how we calculate EBITDA.
INDUSTRY OVERVIEW
The Health Care Financing Administration, which we refer to as HCFA,
estimated total U.S. health care spending to grow at an annual average rate of
6.6% in 2001 and 6.5% from 2001 through 2008. By these estimates, health care
expenditures will account for approximately $2.2 trillion, or 16.2%, of the
total U.S. gross domestic product, by 2008. The nursing home care segment of the
U.S. health care industry encompasses a broad range of health care services
provided in skilled nursing facilities, including traditional skilled nursing
care and specialty medical services. HCFA estimated total revenues generated by
the nursing home industry in 2000 at $94.1 billion and indicated that these
revenues have grown at a compound annual growth rate of 4.5% from 1995 to 2000.
According to Managed Care Digest, the long-term care industry consisted of
approximately 15,130 skilled nursing facilities and 1,707,234 nursing home beds
at December 31, 1999. According to the United States Census Bureau, there are
approximately 34.9 million people over the age of 65 in the United States. The
Census Bureau expects this number to grow by 54% to 53.7 million by 2020. The
fastest growing segment of the population is comprised of people over the age of
85. There are approximately 4.3 million people 85 years of age or older today
and growth rates for this segment are expected to average 2.2% per year from
2000 through 2020. We believe that demand for long-term care will continue to
grow due to longer average life expectancy, the growing segment of the U.S.
population over 85 years of age, and cost-containment efforts by payors to
encourage shorter stays in acute care facilities. HCFA projects the overall
nursing home care industry to grow at an average annual rate of 6.1% from 2000
to 2008.
Throughout the 1990s, there were numerous initiatives on the federal and
state levels to achieve comprehensive reforms affecting the payment for, and
availability of, health care services. Aspects of these initiatives included
changes in reimbursement regulations by HCFA and enhanced pressure to contain
health care
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costs by Medicare, Medicaid and other payors. The Balanced Budget Act, passed in
1997, was designed to reduce and control the rate of increase in Medicare
spending for services by various providers. Specifically, the Balanced Budget
Act eliminated the previous "cost-based" reimbursement system and implemented a
prospective payment system that reimburses nursing home providers based on
health care services required by various categories of patients. The Balanced
Budget Act reduced Medicare reimbursement more than Congress or the industry
expected and created an extremely difficult operating environment for many
long-term care and other health care providers.
As a result, Congress passed the Medicare, Medicaid and SCHIP Balanced
Budget Refinement Act of 1999, which restored a portion of the lost
reimbursement resulting from the Balanced Budget Act. The Balanced Budget Act
required that for each year within the phase-in period, the Medicare program
would reimburse a facility at rates that combined a facility-specific base rate
with a federal rate. After the phase-in period, a facility would be reimbursed
based upon the full federal rates. Through this 1999 legislation, skilled
nursing facilities received a 20% reimbursement increase for 15 service
categories beginning in April 2000 and a 4% across-the-board increase for both
fiscal 2001 and 2002. Moreover, this 1999 legislation gave skilled nursing
facilities the option to waive the prospective payment system transition period
and elect to receive 100% of the federal daily rate.
Additionally, Congress passed the Medicare, Medicaid and SCHIP Benefits
Improvement and Protection Act of 2000, which restored an additional $1.6
billion to the nursing home industry over a five-year period. Many of the key
long-term care provisions of this legislation became effective on April 1, 2001.
As a result of the positive trends in the reimbursement environment over the
past two years, we believe the operating environment for the long-term care
industry is more positive than it has been for several years.
We believe we are well positioned to take advantage of these favorable
demographic and industry reimbursement trends. We expect these positive market
conditions will provide significant growth opportunities for our business.
COMPETITIVE STRENGTHS
Leading Provider of Health Care Services. Since opening our first
long-term care facility more than 30 years ago, we have developed a reputation
for being one of the leading long-term health care providers in the industry. We
are one of the largest long-term care providers in the country, generating over
$2.0 billion in annual revenue. We believe our network of highly functional
facilities, experienced management team, high-quality services and conservative
fiscal management are competitive strengths which have established a strong
foundation for our status as one of the leading long term health care providers.
Established Network of Modern, Highly Functional Facilities. We currently
own 94% of our long-term care facilities and, over the past three years, we have
spent over $400.0 million on new construction, renovations and improvements in
our operations and support systems, excluding divested facilities. We believe
our assets are among the highest quality in the industry and have enabled us to
introduce more specialized services, such as subacute medical and rehabilitation
care, which has led to greater revenue growth and cash flow. These facilities
have enhanced our ability to increase the percentage of attractive private-pay
and Medicare patients. These patients accounted for 67% of our long-term care
and rehabilitation revenues for the year ended December 31, 2000.
Experienced Management Team. The members of our senior management team,
led by our President and CEO Paul A. Ormond, have an average of over 20 years in
the health care industry. Under Mr. Ormond's leadership, our management team has
successfully established Manor Care as a leading operator in health care. Mr.
Ormond has successfully led our company through difficult periods of industry
and regulatory change. In addition to managing the successful 1998 merger of
Health Care and Retirement Corporation and the former Manor Care, Inc., the
current management team has completed over 40 acquisitions.
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Breadth of Health Care Services. With over 54,000 employees, we provide a
variety of health care services, including:
- skilled nursing centers providing 24-hour nursing supervision, seven
days a week;
- subacute medical and rehabilitation services, which shorten hospital
stays and offer a lower cost alternative for those recovering from
major surgery or illness;
- assisted living facilities for those desiring to live independently
with assistance for the general activities of daily living;
- Alzheimer's care where we are a leader in providing care for those
suffering from Alzheimer's disease and other forms of dementia;
- comprehensive home health services including nursing care,
rehabilitation, personal care and homemaking services;
- hospice services offering palliative care, end-of-life planning and
psychosocial support to the terminally ill and their families; and
- outpatient rehabilitation, including physical, occupational and
speech therapy in selected markets throughout the country.
Our continuing investment in specialty services gives us the opportunity
to offer services to higher acuity patients in areas such as chronic disease
management, wound treatment and oncology. We support our commitment to
delivering high quality care to our residents by developing strong clinical
programs which include thorough training for our employees, comprehensive
policies, procedures and protocols and an extensive support organization.
Conservative Fiscal Management. We believe we have performed well over the
past several years, a period in which the health care industry underwent
significant transformation as a result of governmental legislation aimed at
reducing Medicare spending. A significant reason for our strong performance
during this period was our conservative fiscal management, which is demonstrated
by our:
- diversified revenue sources;
- tight cost controls;
- strong balance sheet with a debt to capital ratio below 50%;
- measured growth without an emphasis on large acquisitions; and
- investment grade debt rating by Standard and Poor's, the only such
rating in our industry.
BUSINESS STRATEGY
Focus on Margin Improvement. In addition to capitalizing on planned
reimbursement rate increases, we will continue to pursue numerous opportunities
and initiatives to improve our margins and profitability. These initiatives
include improving our occupancy rates, which will enhance our ability to
increase our operating efficiency by better leveraging our infrastructure and
fixed costs. We also intend to improve our quality mix and revenue per patient
by continuing to focus on private pay patients and growing our population of
attractive Medicare rehabilitation patients. In addition, we will continue to
focus on managing our labor costs and increasing our labor efficiency,
particularly by reducing our use of temporary labor and agency staffing
services.
Increase Cash Flow Growth from Existing Assets. We believe we can grow
revenue and operating cash flow by improving our use of existing assets. We plan
to pursue this initiative by expanding our offering of services and
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by reducing our use of outsourced services to provide care for higher complexity
patients. This will allow us to capture additional revenue and cash flow per
patient. We believe we will be able to pursue this strategy with minimal
additional capital expenditures.
Construction and Acquisition of New Facilities. We expect to selectively
construct and acquire individual skilled nursing, assisted living and other
facilities that complement our existing business. We will focus on acquiring and
constructing facilities in existing markets that offer attractive demographics
and enable us to achieve operating synergies. For example, during 1999 and 2000
we began construction of 16 new facilities, 11 of which opened by December 31,
2000. As these facilities increase occupancy during their start-up phase, they
should provide us with the margin improvement and earnings growth characteristic
of mature facilities. In addition, we believe difficult operating conditions in
the industry over the past several years provide opportunities for us to acquire
selective strategic facilities at attractive prices.
Vertical Integration and Service Expansion. Our strategy is to expand
services such as home health care, hospice care and outpatient therapy, which
extend our coverage along the continuum of health care services and allow us to
capture a greater share of health care expenditures in our key markets. For
example, our recent acquisition of In Home Health provided us with a core base
of 39 home health offices in 15 states and $99.1 million in additional revenues
in 2000. We intend to integrate In Home Health's product offerings into our core
business and grow our home care and hospice operations.
Provider Networks and Joint Ventures. In addition to other growth
initiatives, we expect to focus on further expanding our provider networks by
establishing new relationships with physicians, hospitals and other health care
organizations within our existing markets. We will also evaluate and expect to
enter into joint ventures that will allow us to develop new business lines and
enter new markets. We anticipate that these joint ventures will allow us to
leverage the expertise and market knowledge of our partners and minimize the
capital costs to develop and grow these businesses.
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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
Old notes........................................ On March 8, 2001 we completed a private offering of the
old notes, which consist of $200,000,000 aggregate
principal amount of 8% Senior Notes due 2008. In
connection with the initial sale of the old notes, we
entered into a registration rights agreement in which we
agreed, among other things, to deliver this prospectus
to you and to complete an exchange offer.
The exchange offer............................... We are offering to issue up to $200,000,000 aggregate
principal amount of our 8% Senior Notes due 2008, which
have been registered under the Securities Act, in
exchange for an equal aggregate principal amount of our
outstanding unregistered notes. The terms of the new
notes are identical in all material respects to the
terms of the old notes, except that the registration
rights and related liquidation damages provisions and
the transfer restrictions that apply to the old notes,
do not apply to the new notes.
You may tender old notes only in $1,000 increments.
Subject to the satisfaction or waiver of specified
conditions, we will exchange the new notes for all old
notes that are validly tendered and not withdrawn before
the exchange offer expires. We discuss these conditions
in "The Exchange Offer--Terms of the Exchange Offer." We
will cause the exchange to be effected promptly after
the exchange offer expires.
Resale of the new notes.......................... We believe that the new notes issued in the exchange
offer may be offered for sale, resold or otherwise
transferred by you, without compliance with the
registration and prospectus delivery requirements of the
Securities Act, if you:
- acquire the new notes in the ordinary course of your
business;
- are not engaging in and do not intend to engage in a
distribution of the new notes;
- do not have an arrangement or understanding with any
person to participate in a distribution of the new
notes;
- are not an affiliate of ours within the meaning of
Rule 405 under the Securities Act; and
- are not a broker-dealer that acquired the old notes
directly from us.
If any of these conditions is not satisfied and you
transfer any new notes without delivering a proper
prospectus or without qualifying for an exemption from
registration, you may incur liability under the
Securities Act. In addition, if you are a broker-dealer
seeking to receive new notes for your own account in
exchange for old notes that you acquired as a result of
market-making or other trading activities, you must
acknowledge that you will deliver this prospectus in
connection with any offer to resell, or any resale or
other
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transfer of the new notes that you receive in the
exchange offer. See "Plan of Distribution."
Expiration date.................................. The exchange offer will expire at 5:00 p.m., New York
City time, on June 21, 2001, unless we extend it.
Withdrawal....................................... You may withdraw the tender of your old notes at any
time before the exchange offer expires. We will return
to you any of your old notes that we do not accept for
exchange for any reason, without expense to you,
promptly after the exchange offer expires or terminates.
Interest on the new notes and the old notes...... The new notes will bear interest at the rate of 8% per
year beginning March 8, 2001. This interest will be
payable semi-annually on each March 1 and September 1,
with the first payment on September 1, 2001. We will not
pay interest on the old notes after we accept them for
exchange. See "The New Notes."
Conditions to the exchange offer................. The exchange offer is subject to various conditions. We
reserve the right to terminate or amend the exchange
offer at any time before the expiration date if various
specified events occur. The exchange offer is not
conditioned upon any minimum principal amount of
outstanding old notes being tendered. See "The Exchange
Offer--Conditions of the Exchange Offer."
Procedures for tendering old notes............... If you wish to tender your old notes, you must cause the
following to be transmitted to and received by the
exchange agent no later than 5:00 p.m., New York City
time, on the expiration date:
- a confirmation of the book-entry transfer of the
tendered old notes into the exchange agent's account
at The Depository Trust Company;
- a properly completed and duly executed transmittal
letter in the form accompanying this prospectus, with
any required signature guarantees, or, at your option
in the case of a book entry tender, an agent's message
in lieu of the transmittal letter; and
- any other documents required by the transmittal
letter.
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Guaranteed delivery procedures................... If you wish to tender your old notes and you cannot
cause the old notes or any other required documents to
be transmitted to and received by the exchange agent
before 5:00 p.m., New York City time, on the expiration
date, you may tender your old notes according to the
guaranteed delivery procedures described in this
prospectus under the heading "The Exchange
Offer--Guaranteed Delivery Procedures."
Special procedures for beneficial owners......... If you are the beneficial owner of old notes that are
registered in the name of your broker, dealer,
commercial bank, trust company or other nominee and you
wish to participate in the exchange offer, you should
promptly contact the person in whose name your
outstanding old notes are registered and instruct that
person to tender your old notes on your behalf. See "The
Exchange Offer--Procedures for Tendering."
Representations of tendering holders............. By tendering old notes pursuant to the exchange offer,
you will, in addition to other customary
representations, represent to us that you:
- are acquiring the new notes in the ordinary course of
business;
- are not engaging in a distribution of the new notes;
- have no arrangement or understanding with any person
to participate in a distribution of the new notes;
- are not an affiliate of ours, or if you are an
affiliate, you will comply with the registration and
prospectus delivery requirements of the Securities
Act; and
- are not a broker-dealer tendering old notes acquired
directly from us.
Acceptance of old notes and delivery
of new notes..................................... Subject to the satisfaction or waiver of the conditions
to the exchange offer, we will accept for exchange any
and all old notes that are properly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the
expiration date. We will cause the exchange to be
effected promptly after the exchange offer expires.
Exchange agent................................... National City Bank is serving as exchange agent for the
exchange offer.
Federal income tax considerations................ The exchange of old notes for new notes pursuant to the
exchange offer will not be a taxable event for United
States federal income tax purposes. See "United States
Federal Income Tax Considerations."
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Consequences of failing to exchange your
old notes........................................ The exchange offer satisfies our obligations and your
rights under the registration rights agreement. After
the exchange offer is completed, you will not be
entitled to any registration rights with respect to your
old notes.
Therefore, if you do not exchange your old notes, you
will not be able to reoffer, resell or otherwise dispose
of your old notes unless:
- you comply with the registration and prospectus
delivery requirements of the Securities Act; or
- you qualify for an exemption from the Securities Act
registration requirements.
Appraisal or dissenters' rights.................. You will have no appraisal or dissenters' rights in
connection with the exchange offer.
Use of proceeds.................................. We will not receive any proceeds from the issuance of new
notes pursuant to the exchange offer. We will pay all
expenses incident to the exchange offer.
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SUMMARY OF THE TERMS OF THE NEW NOTES
The terms of the new notes will be identical in all material respects to
the terms of the old notes, except that the registration rights and related
liquidated damages provisions, and the transfer restrictions that apply to the
old notes do not apply to the new notes. The new notes will evidence the same
debt as the old notes. The new notes and the old notes will be governed by the
same indenture.
The following summary contains basic information about the new notes and
is not intended to be complete. It does not contain all the information that may
be important to you. For a more complete understanding of the new notes, please
refer to the section of this prospectus entitled "The New Notes." For purposes
of the description of the notes included in this prospectus, references to the
"Company," "Issuer," "us," "we" and "our" refer only to Manor Care, Inc. and do
not include our subsidiaries.
Issuer........................................... Manor Care, Inc.
Securities....................................... $200,000,000 in principal amount of 8% Senior Notes due
2008.
Maturity......................................... March 1, 2008
Interest payment dates........................... March 1 and September 1 of each year, commencing
September 1, 2001.
Optional redemption.............................. The new notes will be redeemable, at our option, in
whole at any time or in part from time to time, at a
redemption price equal to the greater of:
1. 100% of their principal amount plus accrued
but unpaid interest to the date of
redemption, or
2. (a) the sum of the present values of the
remaining scheduled payments of
principal and interest thereon from the
date of redemption to the date of
maturity, except for currently accrued
but unpaid interest, discounted to the
date of redemption, on a semi-annual
basis, at the treasury rate plus 50
basis points,
plus
(b) accrued but unpaid interest to the date
of redemption.
When we refer to the treasury rate, we mean the treasury
rate at the time of redemption for treasury notes with a
maturity comparable to the remaining term of the notes,
determined as described in "The New Notes."
Change of control................................ Upon a change of control that is accompanied by a
ratings decline, you may require us to repurchase your
notes, in whole or in part, at a purchase price equal to
101% of the principal amount of your notes plus accrued
but unpaid interest to the purchase date.
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Guarantees; Elimination; Reinstatement........... The new notes will be guaranteed by Manor Care of
America, Inc., our wholly-owned subsidiary, and each of
our existing and future subsidiaries that guarantee the
obligations of Manor Care of America, Inc. under its
$150.0 million principal amount of 7-1/2% Senior Notes
due 2006. The guarantees are unsecured senior debt of
our subsidiary guarantors. If the obligations of any
subsidiary guarantor under the 7-1/2% Senior Notes due
2006 or our senior credit facilities terminate, that
subsidiary guarantor will also be released from its
obligations under its Subsidiary Guarantee. If an
existing or future subsidiary of ours guarantees any of
our debt, then that subsidiary will guarantee our debt
under the new notes.
Ranking.......................................... The notes will rank equally in right of payment with all
our existing and future unsecured senior debt and are
senior in right of payment to all our future
subordinated debt. The indenture does not limit the
amount of debt that we or our subsidiaries may incur.
The guarantees will rank equally in right of payment
with the existing and future unsecured senior debt of
our subsidiary guarantors and will be senior in right of
payment to the future subordinated debt of our
subsidiary guarantors. The notes and the guarantees will
effectively rank junior to any secured debt of ours or
our subsidiary guarantors, to the extent of the assets
securing that debt. If the guarantees of the notes are
eliminated, the notes will be structurally junior to all
liabilities of our subsidiaries.
Covenants........................................ We will issue the notes under an indenture with National
City Bank, as trustee. The indenture, among other
things, restricts our ability to:
- incur or permit to exist liens;
- engage in transactions with our affiliates;
- enter into sale and lease-back transactions; and
- merge or consolidate with or into other companies.
Use of proceeds.................................. We will not receive any proceeds from the exchange
offer. For a description of the use of proceeds from the
offering of the old notes, see "Use of Proceeds."
Form of the new notes............................ The new notes will be represented by one or more
permanent global securities in registered form deposited
with National City Bank, as custodian, for the benefit
of The Depository Trust Company. You will not receive
notes in registered form unless one of the events set
forth under the heading "Book-Entry, Delivery and Form"
occurs. Instead, beneficial interests in the new notes
will be shown on, and transfers of these interests will
be effected only through, records maintained in
book-entry form by The Depository Trust Company for its
participants.
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Transfer restrictions; Absence of a public market
for the notes.................................... There has been no public market for the old notes, and
we do not anticipate that an active market for the new
notes will develop. We do not intend to apply to list
the new notes on any securities exchange or to include
them in any automated quotation system. We cannot make
any assurances regarding the liquidity of the market for
the new notes, your ability to sell your new notes or
the price at which you may sell your new notes. See
"Plan of Distribution."
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary of our consolidated financial information for the
years ended December 31, 1998, 1999 and 2000 on an actual basis and, for the
year ended December 31, 2000, on an adjusted basis to give effect to the
offering of the old notes and the use of proceeds from that offering, should be
read in conjunction with "Selected Historical Consolidated Financial Data"
beginning on page 30 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and our consolidated financial statements
and related notes contained elsewhere in our annual report on form 10-K/A for
the fiscal year ended December 31, 2000, which we incorporate by reference into
this prospectus. See "Documents Incorporated by Reference."
In our consolidated financial information, EBITDA represents income from
continuing operations before other income (expenses), income taxes, minority
interest, depreciation and amortization, and unusual or non-recurring expenses.
We have included certain information concerning EBITDA because management
believes EBITDA is generally accepted as providing useful information about a
company's ability to service and incur debt. You should not consider EBITDA,
however, in isolation or as a substitute for net income, cash flows or other
consolidated income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of our profitability or
liquidity. We have calculated EBITDA for the periods presented as follows:
ADJUSTED
1998 1999 2000 2000
---- ---- ---- ----
(IN THOUSANDS)
Income from continuing operations before other
income (expenses), income taxes, and
minority interest........................ $ 11 $218,755 $139,085 $139,085
Depreciation and amortization............... 119,223 114,601 121,208 121,208
Unusual or Non-recurring items:
Provision for restructuring charge, merger
expenses, asset impairment and other
related charges........................ 278,261 14,787
Expenses related to general and professional
liability reserve...................... 33,618 33,618
Expenses related to terminated Company
buy-out transaction.................... 3,175 3,175
-------- -------- -------- --------
EBITDA...................................... $397,495 $348,143 $297,086 $297,086
======== ======== ======== ========
For a complete discussion of the charges set forth in "Provision for
restructuring charge, merger expenses, asset impairment and other related
charges," see the "Management's Discussion and Analysis of Financial Conditions
and Results of Operations," incorporated by reference into this prospectus.
In the above table, "Expenses related to general and professional
liability reserve" represents the amount of general and professional liability
expense related to a change in estimate for claims originating in policy years
1994 through 1999. See "Risk Factors" for a discussion of the cost of general
and professional liability claims.
In the above table, the entry, "Expenses related to terminated Company
buy-out transaction," represents transaction costs related to our exploring
various strategic alternatives, including a possible sale of Manor Care. We
terminated these efforts in May 2000.
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ADJUSTED
1998 1999 2000 2000
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
RESULTS OF OPERATIONS
Revenues.................................... $2,209,087 $2,135,345 $2,380,578 $2,380,578
Income from continuing operations before
other income (expenses), income taxes,
and minority interest.................. 11 218,755 139,085 139,085
Income (loss) from continuing operations.... (46,162) (55,158) 39,055 38,435
OTHER FINANCIAL DATA
EBITDA...................................... $ 397,495 $ 348,143 $ 297,086 $ 297,086
Interest expense(1)......................... 46,587 54,082 60,733 61,767
Capital expenditures........................ 327,600 186,900 149,300 149,300
Ratio of EBITDA to interest
expense................................ 8.5x 6.4x 4.9x 4.8x
Ratio of total debt to EBITDA............... 2.3x 2.5x 2.7x 2.7x
Ratio of earnings to fixed charges(2)....... 1.7x 1.7x
BALANCE SHEET DATA
Total assets................................ $2,722,727 $2,289,777 $2,358,468 $2,358,468
Total debt.................................. 929,727 873,119 804,533 808,033
Total shareholders' equity.................. 1,199,168 980,037 1,012,729 1,012,109
SKILLED NURSING AND ASSISTED LIVING
SEGMENT DATA
Number of facilities........................ 360 346 354 354
Number of beds.............................. 47,138 45,715 46,020 46,020
-----------------
(1) We have adjusted the interest expense for adjusted 2000 to include
interest expense incurred from the old notes issued at a coupon rate of 8%
and the annual amortization of the related financing costs, and to exclude
interest expense that was incurred in 2000 on the portion of our revolving
credit agreement borrowings that we repaid with the net proceeds of the
issue of old notes.
(2) We do not show a ratio result for 1998 and 1999 because earnings were
insufficient to cover fixed charges by $38.6 million and $108.8 million,
respectively.
Earnings in the ratio of earnings to fixed charges represent our income
from continuing operations before taxes and minority interest that have
been adjusted to exclude:
- the effect of any fixed charges that reduced such earnings;
and
- the undistributed income or losses of affiliates accounted for
by the equity method, except for losses of an equity method
affiliate whose debt we guaranteed.
We have not included any of the adjustments for unusual and non-recurring
items in this calculation that were reflected in the calculation of
EBITDA.
Our fixed charges include interest expense, whether or not classified as
such in our earnings statement, as well as the portion of rental expense
that we estimated to represent the interest portion (approximately 40%).
Interest expense includes capitalized interest, interest on guaranteed
debt of an equity method affiliate that is incurring losses, and interest
on our loans against the cash surrender value of corporate-owned life
insurance.
In the adjusted 2000 calculation, we adjusted both earnings before taxes
and fixed charges to reflect the change in interest expense described in
footnote (1).
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GENERAL
Manor Care, Inc. is incorporated in Delaware. Our principal executive
offices are located at 333 North Summit Street, Toledo, Ohio 43604-2617. Our
telephone number is (419) 252-5500.
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RISK FACTORS
Our business, operations and financial condition are subject to various
risks. We describe some of these risks below, and you should take these risks
into account in deciding whether to participate in the exchange offer proposed
in this prospectus. This section does not describe all risks applicable to us,
our industry or our business, and we intend it only as a summary of certain
material factors.
YOU MAY BE ADVERSELY AFFECTED IF YOU DO NOT EXCHANGE YOUR NOTES.
If you do not exchange your old notes for new notes pursuant to the
exchange offer, you will continue to be subject to the transfer restrictions on
your old notes. You will have no further registrations rights. The transfer
restrictions on your old notes arise because we issued the old notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, you may only offer or sell the old notes if they are registered under
the Securities Act and applicable state securities laws, or offered and sold
pursuant to an exemption from those requirements. We do not intend to register
the old notes under the Securities Act. In addition, if you exchange your old
notes in the exchange offer for the purpose of participating in a distribution
of the new notes, you may be deemed to have received restricted securities. In
those circumstances, you will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. To the extent old notes are tendered and accepted in the
exchange offer, the trading market, if any, for the old notes would be adversely
affected. See "The Exchange Offer -- Consequences of Failure to Exchange Old
Notes."
THERE IS NO PUBLIC MARKET FOR THE NEW NOTES, SO YOU MAY BE UNABLE TO SELL THEM.
We will not list the new notes on any securities exchange. These new
notes are new securities for which there is currently no market. The notes may
trade at a discount from their initial offering price, depending upon prevailing
interest rates, the market for similar securities, our performance and other
factors. We have been advised by the initial purchasers that they intend to make
a market in the new notes, as well as the old notes, as permitted by applicable
laws and regulations. However, they are not obligated to do so and their market
making activities may be limited during our exchange offer. Therefore, we cannot
assure you that an active market for the new notes will develop.
IF A MARKET DEVELOPS FOR THE NEW NOTES, THE NOTES MIGHT TRADE AT VOLATILE
PRICES.
If a market develops for the new notes, the notes might trade at prices
higher or lower than their initial public offering price. The trading price
would depend on many factors, such as prevailing interest rates, the market for
similar securities, general economic conditions and our financial condition,
performance and prospects.
YOU MUST TENDER THE OLD NOTES IN ACCORDANCE WITH PROPER PROCEDURES IN ORDER TO
ENSURE THE EXCHANGE WILL OCCUR.
We will only exchange old notes for new notes if you follow the proper
procedures, as detailed in this prospectus. We will issue the new notes in
exchange for the old notes if the exchange agent receives the old notes or a
book-entry confirmation, a properly completed and executed transmittal letter,
or an agent's message, and all other required documentation in a timely manner.
If you want to tender your old notes in exchange for new notes, you should allow
sufficient time to ensure timely delivery. Neither we nor the exchange agent is
under any duty to give you notification of defects or irregularities with
respect to tenders of old notes for exchange. In addition, if you are an
affiliate of ours or you tender the old notes in the exchange offer in order to
participate in a distribution of the new notes, you will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. For additional information, please
refer to the sections entitled "The Exchange Offer" and "Plan of Distribution."
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OUR DEBT COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND MAKE IT MORE DIFFICULT
FOR US TO FULFILL OUR OBLIGATIONS UNDER THE NOTES.
At December 31, 2000, our total consolidated indebtedness was
approximately $804.5 million, or approximately $808.0 million after giving
effect to the offering of the old notes and use of proceeds. We may also borrow
more debt under our existing revolving credit facilities or otherwise. The
indenture does not limit the amount of debt that we or our subsidiaries may
incur.
Our debt could have important consequences to you. For example, it
could:
- make it more difficult for us to satisfy our obligations with
respect to the notes;
- increase our vulnerability to general adverse economic and
industry conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to debt payments, thereby reducing the availability of
our cash flow to fund acquisitions, working capital, capital
expenditures and other general corporate purposes;
- limit, along with the financial and other restrictive covenants in
our debt, our ability to borrow a significant amount of additional
funds;
- limit, along with the financial and other restrictive covenants in
our debt, our flexibility to plan for, or react to, changes in our
business and the industry in which we operate; and
- place us at a competitive disadvantage compared to our competitors
that have less debt.
THE EXPECTED SALE OF THE FACILITIES IN OUR JOINT VENTURE WITH ALTERRA MAY NOT
YIELD PROCEEDS SUFFICIENT TO PAY THE JOINT VENTURE'S DEBT.
We entered into a development joint venture with Alterra Healthcare
Corporation, which we refer to as Alterra, where each party has a 50% interest.
Together, we jointly and severally guaranteed a $57.0 million line of credit
with an adjusted maturity date of June 29, 2001. The development joint venture
is the 10% owner and managing owner or partner in the various project companies
and partnerships which are entitled to borrow under the credit agreement. We and
Alterra are undertaking efforts to sell the facilities using the proceeds of the
sale to repay the debt. Although we do not presently anticipate any loss to be
associated with the guarantee of related debt, we cannot assure you that the
proceeds of the sales of each of these facilities will exceed the amount of
guaranteed debt related to each such facility, and we could be liable for a
portion or all of any excess guaranteed debt.
OUR BUSINESS IS CONDUCTED THROUGH OUR SUBSIDIARIES.
We conduct operations through our subsidiaries. As a result, we depend
on dividends, loans or advances, or payments from our subsidiaries to satisfy
our financial obligations and make payments to our investors. The ability of our
subsidiaries to pay dividends and make other payments to us is restricted by,
among other things, applicable corporate and other laws and regulations. This
ability may be further restricted in the future by, agreements to which our
subsidiaries may be a party. Although the notes are guaranteed by the subsidiary
guarantors, each guarantee is subordinated to all secured debt of the relevant
subsidiary guarantor.
NOT ALL OF OUR SUBSIDIARIES ARE GUARANTORS AND ASSETS OF NON-GUARANTOR
SUBSIDIARIES MAY NOT BE AVAILABLE TO MAKE PAYMENTS ON THE NOTES.
Our existing and future subsidiaries that do not guarantee the
obligations of Manor Care of America, Inc., or MCA, under its $150.0 million
principal amount of 7-1/2% Senior Notes Due 2006, will also not guarantee the
notes. Only we and the subsidiary guarantors must make payments on the notes. As
a result, no payments are required to be made from assets of subsidiaries that
do not guarantee the notes unless these subsidiaries transfer those assets, by
dividend or otherwise, to us or a subsidiary guarantor. In the event of a
bankruptcy, liquidation or reorganization of
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any of the non-guarantor subsidiaries, holders of their debt, including their
trade creditors, will generally be entitled to payment of their claims from the
assets of those subsidiaries before any assets are made available for
distribution to us. For the year ended December 31, 2000, our non-guarantor
subsidiaries with respect to the notes represented less than 3% of our revenues,
assets, income from continuing operations and EBITDA.
OUR SUBSIDIARY GUARANTEES MAY BE RELEASED IN THE FUTURE IF CERTAIN EVENTS OCCUR.
Each subsidiary guarantor that is released from its obligations under
MCA's notes that are due in 2006 or any related guarantees and from its
guarantee under our senior credit facilities and any guarantee with respect to
the credit facilities will also be released as a guarantor under the notes. Upon
such release, the notes will effectively rank junior to all liabilities of that
subsidiary, whether or not those liabilities are secured or unsecured.
ALTHOUGH WE REFER TO YOUR NOTES AS SENIOR NOTES, AND THE SUBSIDIARY GUARANTEES
ARE SENIOR OBLIGATIONS OF OUR SUBSIDIARIES, EACH WILL BE EFFECTIVELY
SUBORDINATED TO OUR SECURED DEBT AND ANY SECURED LIABILITIES OF OUR
SUBSIDIARIES.
The notes will effectively rank junior to any of our secured debt or
any secured debt of our subsidiaries, to the extent of the assets securing that
debt. In the event of bankruptcy, liquidation, reorganization or other winding
up of Manor Care, our assets that secure secured debt will be available to pay
obligations on the notes only after that secured debt has been repaid in full
from these assets. We advise you that there may not be sufficient assets
remaining to pay amounts due on any or all the notes then outstanding. The
guarantees of the notes will similarly effectively rank junior to any secured
debt of the applicable subsidiary, to the extent of the assets securing that
debt. Our subsidiaries had $41.4 million of secured debt as of December 31,
2000.
A CHANGE IN CONTROL MAY ADVERSELY AFFECT US OR THE NOTES.
Our senior credit facilities provide that certain change of control
events with respect to us will constitute a default. In addition, future debt we
incur may limit our ability to repurchase the notes upon a change of control or
require us to offer to redeem that future debt upon a change of control.
Moreover, if you or other investors in our notes exercise the repurchase right
for a change of control, it may cause a default under that debt, even if the
change of control itself does not cause a default, due to the financial effect
of such a purchase on us. Finally, if a change of control event occurs, we
cannot assure you that we will have enough funds to repurchase all the notes.
Furthermore, the change in control provisions may in certain
circumstances make more difficult or discourage a takeover of Manor Care and the
removal of incumbent management.
OUR BUSINESS AND FINANCIAL RESULTS DEPEND ON OUR ABILITY TO GENERATE SUFFICIENT
CASH FLOWS TO SERVICE OUR DEBT OR REFINANCE OUR DEBT ON COMMERCIALLY REASONABLE
TERMS.
Our ability to make payments on and to refinance our debt and to fund
planned expenditures depends on our ability to generate cash flow in the future.
This, to some extent, is subject to general economic, financial, competitive,
legislative and regulatory factors and other factors that are beyond our
control. In addition, our ability to borrow funds under our credit agreements
will depend on our satisfying various covenants. These covenants, among other
things:
- limit our ability and the ability of our subsidiaries to borrow
and to place liens on our assets or their assets;
- require us to comply with a debt to capitalization ratio test,
fixed charge coverage ratio test and leverage ratio test;
- limit our ability to merge with other parties or sell all or
substantially all of our assets;
- limit our and our subsidiaries' ability to acquire and dispose of
assets; and
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- limit our ability to pay dividends and redeem capital stock.
Our inability to generate sufficient cash flow to service our debt or
refinance our debt on commercially reasonable terms would have a material
adverse effect on our business and results of operations.
We cannot assure you that our business will generate cash flows from
operations or that future borrowings will be available to us under our credit
facilities in an amount sufficient to enable us to pay our debt or to fund our
other liquidity needs.
REFINANCING OUR EXISTING DEBT COULD HAVE ADVERSE EFFECTS.
Our five year credit agreement terminates on September 24, 2003. Our
364 day credit agreement terminates on September 21, 2001. MCA's notes mature in
2006. We cannot assure you that we will be able to refinance these borrowing
arrangements, or any other outstanding debt, on commercially reasonable terms or
at all. Refinancing our borrowing arrangements could result in:
- an increase in the interest rate over the rate we currently pay;
- additional or more restrictive covenants than those outlined
above; and
- our granting of a security interest in collateral.
WE MAY MAKE ACQUISITIONS THAT COULD SUBJECT US TO A NUMBER OF OPERATING RISKS.
We anticipate that we may continue to make acquisitions of, investments
in, and strategic alliances with complementary businesses to enable us to add
services for our core customer base and for adjacent markets, and to expand each
of our businesses geographically. However, implementing this strategy entails a
number of risks, including:
- inaccurate assessment of undisclosed liabilities;
- entry into markets in which we may have limited or no experience;
- diversion of management's attention from our core business;
- difficulties in assimilating the operations of an acquired
business or in realizing projected efficiencies and cost savings;
and
- increase in our debt and a limitation in our ability to access
additional capital when needed.
Some changes may be necessary to integrate the acquired businesses into
our operations, to assimilate many new employees and to implement reporting,
monitoring, compliance and forecasting procedures. We may also have difficulty
obtaining anticipated revenue synergies or cost reductions in many acquisitions.
WE DEPEND UPON REIMBURSEMENT BY THIRD-PARTY PAYORS.
We derive substantially all of our long-term care and rehabilitation
revenues from private and governmental third-party payors. In 2000, we derived
approximately 24% of our revenues from Medicare, 33% from Medicaid and
approximately 43% from commercial insurers, managed care plans, workers'
compensation payors and other private pay revenue sources. There are increasing
pressures from many payors to control health care costs and to reduce or limit
increases in reimbursement rates for medical services. Governmental payment
programs are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative or executive orders and government funding
restrictions, all of which may materially increase or decrease the rate of
program payments to us for our services. In the recent past, we have experienced
a decrease in revenues primarily attributable to declines in government
reimbursement as a result of the Balanced Budget Act of 1997. Although certain
rate reductions
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resulting from the Balanced Budget Act are being mitigated by the Balanced
Budget Refinement Act of 1999 and will be mitigated by the Benefits Improvement
Protection Act of 2000, the Balanced Budget Act significantly changed the method
of payment under the Medicare and Medicaid programs for our services. We cannot
assure you that payments from governmental or private payors will remain at
levels comparable to present levels or will, in the future, be sufficient to
cover the costs allocable to patients eligible for reimbursement pursuant to
these programs. Our financial condition and results of operations may be
affected by the reimbursement process, which in the health care industry is
complex and can involve lengthy delays between the time that we recognize
revenue and the time that the reimbursement amounts are settled.
We are subject to periodic audits by the Medicare and Medicaid
programs, and the paying agencies for these programs have various rights and
remedies against us if they assert that we have overcharged the programs or
failed to comply with program requirements. These payment agencies could seek to
require us to repay any overcharges or amounts billed in violations of program
requirements, or could make deductions from future amounts due to us. We could
also be subject to fines, criminal penalties or program exclusions. Private pay
sources also reserve rights to conduct audits and make monetary adjustments.
IF WE FAIL TO COMPLY WITH EXTENSIVE LAWS AND GOVERNMENT REGULATIONS, WE COULD
SUFFER PENALTIES OR BE REQUIRED TO MAKE SIGNIFICANT CHANGES TO OUR OPERATIONS.
The health care industry, including our company, is required to comply
with extensive and complex laws and regulations at the federal, state and local
government levels relating to, among other things:
- licensure and certification;
- adequacy and quality of health care services;
- qualifications of health care and support personnel;
- quality of medical equipment;
- confidentiality, maintenance and security issues associated with
medical records;
- relationships with physicians and other referral sources;
- operating policies and procedures;
- addition of facilities and services; and
- billing for services.
Many of these laws and regulations are expansive, and we do not always
have the benefit of significant regulatory or judicial interpretation of these
laws and regulations. In addition, certain regulatory developments, such as
revisions in the building code requirements for assisted living and skilled
nursing facilities, mandatory increases in scope and quality of care to be
offered to residents and revisions in licensing and certification standards,
could have a material adverse effect on us. In the future, different
interpretations or enforcement of these laws and regulations could subject our
current or past practices to allegations of impropriety or illegality or could
require us to make changes in our facilities, equipment, personnel, services,
capital expenditure programs and operating expenses.
If we fail to comply with applicable laws and regulations, we could be
subjected to liabilities, including criminal penalties, civil penalties,
including the loss of our licenses to operate one or more of our facilities, and
exclusion of one or more of our facilities from participation in the Medicare,
Medicaid and other federal and state health care programs.
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Both federal and state government agencies have heightened and
coordinated civil and criminal enforcement efforts as part of numerous ongoing
investigations of health care companies and, in particular, skilled nursing
facilities and home health agencies. These investigations relate to a wide
variety of topics, including:
- cost reporting and billing practices;
- quality of care;
- financial relationships with referral sources; and
- medical necessity of services provided.
In addition, the Office of the Inspector General of the U.S. Department of
Health and Human Services and the Department of Justice have, from time to time,
established national enforcement initiatives that focus on specific billing
practices or other suspected areas of abuse. Like others in the health care
industry, we receive requests for information from governmental agencies in
connection with their regulatory or investigational authority.
Moreover, health care providers are also subject to the federal False
Claims Act amendments which in 1986 made it easier for private parties to bring
"qui tam" whistleblower lawsuits -- actions brought under a statute that allows
a private person to sue for a penalty, part of which the government or some
specified public institution will receive -- against companies. Some states have
adopted similar state whistleblower and false claims provisions.
WE ARE REQUIRED TO COMPLY WITH LAWS GOVERNING THE TRANSMISSION AND PRIVACY OF
HEALTH INFORMATION.
The Health Insurance Portability and Accountability Act of 1996,
requires us to comply with standards for the exchange of health information
within our company and with third parties, such as payors, business associates,
and patients. These include standards for common health care transactions, such
as claims information, plan eligibility, payment information and the use of
electronic signatures; unique identifiers for providers, employers, health plans
and individuals; security; privacy; and enforcement. To date, the Department of
Health and Human Services has released two standards, one governing health care
transactions and the second relating to the privacy of individually identifiable
health information. Rules governing the security of health information have been
proposed but not finalized. We generally have two years from the effective date
of these standards to comply. Therefore, we have to comply by October 2002 for
the transaction standards, and by April 14, 2003 for the privacy standards.
While the government intended this legislation to reduce administrative expenses
and burdens for the health care industry, the law may require significant and
costly changes for us. If we fail to comply with these standards, we could be
subject to criminal penalties and civil sanctions.
STATE EFFORTS TO REGULATE THE CONSTRUCTION OR EXPANSION OF HEALTH CARE PROVIDERS
COULD IMPAIR OUR ABILITY TO EXPAND OUR OPERATIONS.
Some states require health care providers, including skilled nursing
facilities, home health agencies, hospices and assisted living facilities, to
obtain prior approval, known as a certificate of need, for:
- the purchase, construction or expansion of health care facilities;
- capital expenditures exceeding a prescribed amount; or
- changes in services or bed capacity.
To the extent that we require a certificate of need or other similar
approvals to expand our operations, either by acquiring facilities or expanding
or providing new services or other changes, our expansion could be adversely
affected by the failure or inability to obtain the necessary approvals, changes
in the standards applicable to those approvals, and possible delays and expenses
associated with obtaining those approvals. We cannot assure you that we will be
able to obtain certificate of need approval for all future projects requiring
that approval.
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IF CERTAIN OF OUR OPERATIONS ARE FOUND NOT TO QUALIFY FOR AN EXCEPTION UNDER
MEDICARE'S RELATED PARTY RULE, WE MAY BE REQUIRED TO RETURN PAYMENTS WE RECEIVED
IN THE PAST.
Before the Medicare program implemented the prospective payment system
for skilled nursing facilities, it limited certain allowable costs for items and
services provided by companies that are associated or affiliated with a Medicare
provider or have control of, or are controlled by, a Medicare provider. Many
state Medicaid programs have adopted the same rule in determining costs that
will be included in the payment rates. Unless a provider qualifies for the
exception to the related party rule, the Medicare program will only reimburse
the provider for the cost incurred by the related party in providing products or
services, rather than the related party's charge. An organization can qualify
for the exception to the related party rule by meeting the following criteria:
- the entities are bona fide separate organizations;
- a substantial part of the supplying organization's business
activity is conducted with non-related organizations and there is
an open, competitive market for the services or products;
- the services or products are commonly obtained by a provider from
other organizations and are not a basic element of patient care
ordinarily furnished directly to patients by the providers; and
- the charge to the provider is in line with the charge for these
services and products in the open market and no more than the
charge made under comparable circumstances to others.
The Medicare program has taken the position that one of our subsidiaries
providing rehabilitation management services is a related party and that certain
fees paid to this entity should be adjusted based upon the related party rule.
We are in the process of appealing the Medicare program's decision to adjust
these fees. We believe that, to the extent the Medicare program considers this
subsidiary or any other subsidiary of ours to be a related party for purposes of
this rule, the operations of each subsidiary would qualify for the exception to
the related party rule. However, we cannot assure you that the interpretation
and application of the related party rule and its exception by governmental
authorities will result in Manor Care qualifying for the exception. The
application of the Medicare related party rule could adversely affect allowable
payments to our skilled nursing facilities for pre-July 1, 1998, cost reports.
HEALTH CARE REFORM LEGISLATION MAY AFFECT OUR BUSINESS.
In recent years, there have been numerous initiatives on the federal
and state levels for comprehensive reforms affecting the payment for and
availability of health care services. Aspects of certain of these health care
initiatives, such as reductions in funding of the Medicare and Medicaid
programs; potential changes in reimbursement regulations by the Health Care
Financing Administration; enhanced pressure to contain health care costs by
Medicare, Medicaid and other payors; and greater state flexibility and
additional operational requirements in the administration of Medicaid, could
adversely affect us. We cannot predict the ultimate content, timing or effect of
any health care reform legislation, nor can we estimate the impact of potential
legislation on us. This impact may be material to our financial condition or our
results of operations.
WE FACE NATIONAL, REGIONAL AND LOCAL COMPETITION.
Our nursing facilities compete primarily on a local and regional basis
with many long-term care providers, some of whom may own as few as a single
nursing center. Our ability to compete successfully varies from location to
location and depends on a number of factors, which include:
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- the number of competing centers in the local market;
- the types of services available;
- quality of care;
- reputation, age and appearance of each center; and
- the cost of care in each locality.
In general, we seek to compete in each market by establishing a reputation
within the local community for quality and caring health services, attractive
and comfortable facilities, and providing specialized health care.
We also compete with a variety of other companies in providing assisted
living services, rehabilitation therapy services and home health care services.
Given the relatively low barriers to entry and continuing health care cost
containment pressures in the assisted living industry, we expect that the
assisted living industry will become increasingly competitive in the future.
Increased competition in the future could limit our ability to attract and
retain residents, to maintain or increase resident service fees, or to expand
our business.
LABOR COSTS MAY INCREASE WITH A POTENTIAL SHORTAGE OF QUALIFIED PERSONNEL.
A shortage of nurses or other trained personnel and general
inflationary pressures have required us to enhance our wage and benefits
packages in order to compete for qualified personnel. Although we do not
currently have a staffing shortage in all markets where we operate, in certain
markets with shortages of health care workers we have used high priced temporary
help to supplement staffing levels. If a shortage of nurses or other health care
workers occurred in all geographic areas in which we operate, it could adversely
affect our ability to attract and retain qualified personnel and could further
increase our operating costs.
OUR OPERATIONS ARE SUBJECT TO OCCUPATIONAL HEALTH AND SAFETY REGULATIONS.
We are subject to a wide variety of federal, state and local
occupational health and safety laws and regulations. Among the types of
regulatory requirements faced by health care providers such as us are:
- air and water quality control requirements;
- occupational health and safety requirements, such as standards
regarding blood-borne pathogens;
- waste management requirements;
- specific regulatory requirements applicable to asbestos;
- polychlorinated biphenyls and radioactive substances; and
- requirements for providing notice to employees and members of the
public about hazardous materials and wastes.
THE COST OF GENERAL AND PROFESSIONAL LIABILITY CLAIMS MAY INCREASE.
General and professional liability claims for the long-term care
industry, especially in the state of Florida, have become increasingly expensive
and unpredictable due to substantial increases in both the number and size of
patient care claims. Industry sources report that the average cost of a claim in
Florida in 1999 was two and one-half times higher than in the rest of the
country and three times higher in 2000. Industry providers in the state of
Florida experienced three times the number of claims in 1999 and four times the
number of claims in 2000 compared to the national average. We and other affected
providers are actively pursuing legislative and regulatory changes that include
tort reform. However, we cannot assure you that legislative changes will be
made, or that any such change
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will have a positive impact on the current trend. If patient care claims
continue to increase in number and size, our future financial condition and
operating results may be adversely affected.
WE MAY NOT BE ALLOWED TO DEDUCT INTEREST ON CERTAIN POLICY LOANS RELATED TO
CORPORATE-OWNED LIFE INSURANCE.
Legislation phased out interest deductions on certain policy loans
related to corporate-owned life insurance, also known as COLI, as of January 1,
1999. We have recorded a cumulative reduction to income tax expense of
approximately $34.0 million resulting from these interest deductions for tax
periods prior to 1999. While the Internal Revenue Service has not asserted any
claim challenging our COLI interest expense deductions, the IRS has challenged
other taxpayers' COLI interest deductions and has prevailed in certain lower
court decisions. Although we intend to defend vigorously our right to deduct the
entire amount of these interest payments, were the IRS to challenge these
deductions, we cannot assure you that we would ultimately be able to deduct
these amounts. If we owed additional taxes, we could have to pay additional
interest and possibly penalties.
WE ARE SUBJECT TO MATERIAL LITIGATION.
We are, and may in the future be, subject to litigation that, if
determined adversely to us, could have a material adverse effect on our business
or financial condition. In addition, some of the companies and businesses we
have acquired have been subject to similar litigation. We cannot assure you that
pending or future litigation, whether or not described in this prospectus, will
not have a material adverse effect on our financial condition or our results of
operations.
A COURT COULD VOID THE SUBSIDIARIES' GUARANTEES AND REQUIRE YOU TO RETURN
PAYMENTS RECEIVED FROM US OR OUR SUBSIDIARY GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor if, among
other things, the guarantor:
- issued the guarantee to delay, hinder or defraud present or future
creditors; or
- received less than reasonably equivalent value or fair
consideration for the incurrence of such guarantee, and at the
time it issued the guarantee.
These provisions apply if the guarantor, at the time it issued the guarantee:
- was insolvent or rendered insolvent by reason of incurring the
debt evidenced by the guarantee; or
- was engaged or about to engage in a business or transaction for
which the guarantor's remaining unencumbered assets constituted
unreasonably small capital to carry on its business; or
- intended to incur, or believed that it would incur, debts beyond
its ability to pay the debts as they mature.
In addition, you could be required to return any payment by that
guarantor pursuant to its guarantee, or you could be required to pay amounts you
received from the guarantor to a fund for the benefit of the creditors of the
guarantor.
The measures of insolvency for purposes of these fraudulent transfer
laws will vary depending upon the law applied in any proceeding to determine
whether a fraudulent transfer has occurred. Generally, however, a guarantor
would be considered insolvent if, at the time it incurred the debt:
- the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all of its assets;
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- the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature; or
- it could not pay its debts as they become due.
Other creditors of a subsidiary guarantor, or a receiver or
debtor-in-possession, might also claim that, since the guarantee was incurred
for our benefit and only indirectly for the benefit of the subsidiary guarantor,
the applicable guarantor incurred the obligations for less than fair
consideration.
We cannot be sure of the standards that a court would use to determine
whether or not the subsidiary guarantors were solvent at the relevant time.
Regardless of the standard that the court uses, we cannot assure you that any
guarantee would not be voided or subordinated to the applicable subsidiary
guarantor's other debt.
WE MAY REPURCHASE OUR STOCK AND REDUCE CASH RESERVES AND SHAREHOLDERS' EQUITY
THAT IS AVAILABLE TO REPAY THE NOTES.
We have in the past repurchased, and expect to continue to repurchase,
our stock in the open market or in privately negotiated transactions. We may
purchase this stock with cash or other assets of Manor Care. These purchases may
be significant. Any purchase would reduce cash and shareholders' equity that is
available to pay these notes.
WE MAY PURCHASE ASSETS, WHICH MAY INCREASE SENIOR DEBT, OR SELL ASSETS, WHICH
MAY REDUCE CASH FLOW.
We frequently purchase and sell assets. Purchases may reduce cash or
increase senior debt. We also sell assets which may reduce our cash flow as
earnings from sold operations are no longer available.
The remainder of this prospectus uses some capitalized terms. We have
defined these terms in a glossary beginning on page 56.
USE OF PROCEEDS
We intend the exchange offer to satisfy our obligations under the
registration rights agreement that we entered into in connection with the
private offering of the old notes. We will not receive any cash proceeds from
the issuance of the new notes pursuant to the exchange offer. Old notes
surrendered in exchange for the new notes will be retired and canceled and
cannot be reissued. As a result, the issuance of the new notes will not result
in any increase or decrease in our indebtedness. We have agreed to bear the
expenses of the exchange offer. No underwriter is being used in connection with
the exchange offer.
The net proceeds from the issuance and sale of the old notes was
approximately $196.5 million. We used all of the net proceeds from the sale of
the old notes to repay all borrowings outstanding under an existing $200.0
million 364 day revolving credit facility, also known as the 364 Day Agreement,
with a balance of $130.0 million at January 31, 2001, and a portion of the
borrowings outstanding under the existing $500.0 million five year revolving
credit facility, also known as the Five Year Agreement, which would represent
approximately $66.5 million of the $460.0 million outstanding at January 31,
2001 Repayments of borrowings under the revolving credit facilities did not
reduce the amount of commitments under such facilities, and to the extent future
borrowings do not violate certain financial ratio tests under the credit
facilities they may be used for future borrowings.
Our 364 Day Agreement matures September 21, 2001. Loans under the
amended 364 Day Agreement bear interest at variable rates that reflect, at our
election, either the agent bank's base lending rate or an increment over
Eurodollar indices of .500% to 1.275%, depending on the quarterly performance of
a key ratio. In addition, the 364 Day Agreement provides for a fee on the total
amount of the facility, ranging from .125% to .225%, depending on the
performance of the same ratio.
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Loans under our Five Year Agreement, which matures September 24, 2003,
bear interest at variable rates that reflect, at our election, the agent bank's
base lending rate, rates offered by any of the participating banks under bid
procedures or an increment over Eurodollar indices of .150% to .500%, depending
on the quarterly performance of a key ratio. The Five Year Agreement also
provides for a fee on the total amount of the facility, ranging from .125% to
.250%, depending on the performance of the same key ratio.
Whenever the aggregate utilization of both credit facilities exceeds
$350.0 million, our lenders charge an additional fee of .050% on loans due under
the Five Year Agreement and charge an additional fee ranging from .100% to .125%
on loans under the 364 Day Agreement, based on the performance of a key ratio.
The average interest rate on loans under the Five Year and 364 Day Agreements
was 7.480% at December 31, 2000, excluding the fee on the total facility.
CAPITALIZATION
The following table sets forth our audited consolidated capitalization
as of December 31, 2000 on an actual basis and an as adjusted basis to give
effect to the offering of the old notes and the application of the proceeds from
that offering. See "Use of Proceeds."
This table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Selected
Historical Consolidated Financial Data" and our consolidated financial
statements and related notes contained elsewhere in or incorporated by reference
into this prospectus.
AS OF DECEMBER 31, 2000
ACTUAL ADJUSTED
------ --------
(DOLLARS IN THOUSANDS)
Total debt (including current portion of long-term debt):
Five year $500.0 million credit agreement(1) ............... $ 452,000 $ 410,500
364 day $200.0 million credit agreement(1) ................. 155,000
7-1/2% senior notes due 2006(2) ............................ 149,675 149,675
8% senior notes due 2008 ................................... 200,000
Mortgages and other notes .................................. 42,456 42,456
Capital lease obligations .................................. 5,402 5,402
----------- -----------
Total debt ........................................... $ 804,533 $ 808,033
=========== ===========
Shareholders' equity
Preferred stock, $.01 par value, 5 million shares authorized
Common stock, $.01 par value, 300 million shares authorized,
111 million shares issued ............................ $ 1,110 $ 1,110
Capital in excess of par value ............................. 335,609 335,609
Retained earnings(3) ....................................... 837,123 836,503
Treasury stock, at cost, 8.4 million shares ................ (161,113) (161,113)
----------- -----------
Total shareholders' equity ........................... $ 1,012,729 $ 1,012,109
----------- -----------
Total capitalization ............................................. $ 1,817,262 $ 1,820,142
=========== ===========
----------
(1) Actual amounts outstanding under the five year and 364 day agreements
on January 31, 2001 were $460.0 million and $130.0 million,
respectively.
(2) Net of unamortized discount of $325,000.
(3) Retained earnings has been adjusted to include the after-tax effect of
pro forma interest expense and annual amortization of financing costs.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
We provide you with our selected consolidated historical information
and other operating data for the fiscal years ended December 31, 2000, 1999,
1998, 1997 and 1996 in the following table. Ernst & Young LLP, acting as
independent auditors, audited this historical information and data. We prepared
this consolidated selected financial information using our consolidated
financial statements for the five years ended December 31, 2000. When you read
this selected historical consolidated financial and other data, it is important
that you read along with it the historical financial statements and related
notes in our consolidated financial statements, as well as the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section incorporated by reference into this prospectus.
FIVE-YEAR FINANCIAL HISTORY 2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(In thousands, except per share and other data)
Results of Operations
Revenues ............................................... $ 2,380,578 $ 2,135,345 $ 2,209,087 $ 2,228,534 $ 2,022,710
Expenses:
Operating ........................................... 2,016,258 1,697,459 1,715,575 1,760,923 1,598,826
General and administrative .......................... 104,027 89,743 96,017 99,881 100,971
Depreciation and amortization ....................... 121,208 114,601 119,223 112,723 99,165
Provision for restructuring charge, merger expenses,
asset impairment and other related charges ....... 14,787 278,261 26,300
----------- ----------- ----------- ----------- -----------
2,241,493 1,916,590 2,209,076 1,973,527 1,825,262
----------- ----------- ----------- ----------- -----------
Income from continuing operations before other income
(expenses), income taxes, and minority interest ..... 139,085 218,755 11 255,007 197,448
Other income (expenses):
Interest expense .................................... (60,733) (54,082) (46,587) (56,805) (47,799)
Impairment of investments ........................... (20,000) (274,120)
Equity in earnings of affiliated companies .......... 812 1,729 5,376 2,806 1,500
Other income ........................................ 2,505 5,322 16,635 23,289 11,353
Interest income from advances to discontinued
lodging segment .................................. 16,058 20,314
----------- ----------- ----------- ----------- -----------
Total other expenses, net .......................... (77,416) (321,151) (24,576) (14,652) (14,632)
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations before
income taxes and minority interest ................ 61,669 (102,396) (24,565) 240,355 182,816
Income taxes (benefit) ................................. 21,489 (47,238) 21,597 85,064 64,177
Minority interest income ............................... 1,125
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations ............... $ 39,055 $ (55,158) $ (46,162) $ 155,291 $ 118,639
=========== =========== =========== =========== ===========
Earnings per share -
Income (loss) from continuing operations:
Basic ............................................... $ 0.38 $ (0.51) $ (.42) $ 1.44 $ 1.10
Diluted ............................................. $ 0.38 $ (0.51) $ (.42) $ 1.40 $ 1.06
Manor Care of America, Inc. dividends per share ........ $ 0.04 $ 0.09 $ 0.09
Financial Position
Total assets ........................................... $ 2,358,468 $ 2,289,777 $ 2,722,727 $ 2,568,368 $ 2,382,038
Long-term debt ......................................... 644,054 687,502 693,180 751,281 731,346
Shareholders' equity ................................... 1,012,729 980,037 1,199,168 1,163,029 994,690
Other Data (Unaudited)
Number of skilled nursing and assisted living facilities 354 346 360 335 323
The financial results represent the combined results of Health Care and
Retirement Corporation, or HCR, and Manor Care of America, Inc., or MCA, for all
periods presented. For 1998 and forward, the financial information was based on
a year ended December 31. For 1997 and 1996, HCR's financial information for the
years ended December 31, 1997 and 1996 was
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combined with MCA's financial information for the 12 months ended November 30,
1997 and 1996, respectively, due to different fiscal year ends.
We changed our method of accounting for our investment in In Home
Health, Inc., or IHHI, over the past five years due to changes in ownership or
control. See Note 1 to our consolidated financial statements incorporated by
reference into this prospectus for further discussion. We consolidated IHHI's
financial results in 2000, 1997 and 1996 and recorded them under the equity
method in 1999 and 1998. IHHI's results are not included on the individual line
items when recording under the equity method. For a consistent trend of revenues
and operating expenses, you must add the amounts above with IHHI's revenues of
$84.3 million for 1999 and $87.7 million for 1998 and IHHI's operating expenses
of $72.2 million for 1999 and $83.7 million for 1998.
On November 1, 1996, MCA completed the spin-off of its lodging segment,
and the financial results above reflect this segment as a discontinued operation
in 1996. MCA recorded interest income related to cash advances provided to the
discontinued lodging segment for the acquisition and renovation of lodging
assets.
RATIO OF EARNINGS TO FIXED CHARGES
We present in the following table our historical and pro forma ratios
of earnings to fixed charges for the years 2000, 1999, 1998, 1997 and 1996, each
ended December 31:
ADJUSTED
2000 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
Ratio........ 1.7x 1.7x 3.4x 3.1x
No fixed charge coverage ratio result for 1998 and 1999 because
earnings are insufficient to cover fixed charges by $38.6 million and $108.8
million, respectively.
Earnings in the ratio of earnings to fixed charges represent our income
from continuing operations before taxes and minority interest that have been
adjusted to exclude (i) the effect of any fixed charges that reduced those
earnings and (ii) the undistributed income or losses of affiliates accounted for
by the equity method, except for losses of an equity method affiliate whose debt
we guarantee.
Fixed charges include interest expense, whether or not classified as
such in the earnings statement, as well as the portion of rental expense that is
estimated to represent the interest portion -- approximately 40%. Interest
expense includes capitalized interest, interest on guaranteed debt of an equity
method affiliate that is incurring losses, and interest on our loans against the
cash surrender value of corporate-owned life insurance.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2000, National City Corporation and some of its subsidiaries
provided commercial banking, private banking and trust services to us and to
some of our officers. Mr. Ormond is a director, and Mr. Siefers is an executive
officer, of National City Corporation and both served in these capacities during
2000. The trustee with respect to the indenture is wholly-owned by National City
Corporation. In addition, we and Mr. Bainum, Jr. have entered into a
non-competition agreement which prohibited Mr. Bainum, Jr. from engaging in
certain competitive activity as described in the agreement until June 9, 2001.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We sold the old notes to the initial purchasers in a private offering
on March 8, 2001. These initial purchasers resold the old notes to qualified
institutional buyers under Rule 144A and outside the United States pursuant to
Regulation S under the Securities Act. As of the date of this prospectus, $200.0
million aggregate principal amount of old notes are outstanding. In connection
with the private offering of the old notes, we and our subsidiary guarantors
entered into an exchange and registration rights agreement in which we and our
subsidiary guarantors agreed to file a registration statement with the
Securities and Exchange Commission relating to an offer to exchange the old
notes and the guarantees under the Securities Act for new notes and guarantees.
We have filed the exchange and registration rights agreement as an
exhibit to the registration statement.
EFFECT OF THE EXCHANGE OFFER
We believe that you may offer for resale, resell or otherwise transfer
any new notes issued to you in the exchange offer without further registration
under the Securities Act or delivery of a prospectus if you:
- are acquiring the new notes in the ordinary course of your
business;
- are not participating, do not intend to participate and have no
arrangement or understanding with any person to participate, in a
distribution of the new notes;
- are not an affiliate of ours as defined in Rule 405 under the
Securities Act; and
- are not a broker-dealer who acquired old notes from us.
If you do not satisfy these criteria:
- you will not be able to rely on the interpretations of the staff
of the SEC in connection with any offer for resale, resale or
other transfer of new notes; and
- you must comply with the registration and prospectus delivery
requirements of the Securities Act, or have an exemption available
to you, in connection with any offer for resale, resale or other
transfer of the new notes.
Each broker-dealer that receives new notes for its own account in
exchange for old notes it acquired as a result of market-making or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus in connection with any resale of its new notes. This will
not be an admission by the broker-dealer that it is an underwriter within the
meaning of the Securities Act. See "Plan of Distribution."
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TERMS OF THE EXCHANGE OFFER
- We will accept all old notes validly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on the expiration date of
the exchange offer.
- You should read "--Expiration Date; Extensions; Amendments" below
for an explanation of how the expiration date may be amended.
- We will issue and deliver $1,000 principal amount of new notes in
exchange for each $1,000 principal amount of outstanding old notes
accepted in the exchange offer. Holders may exchange some or all
of their old notes in minimum denominations of $1,000 and integral
multiples of $1,000 in excess of $1000.
- By tendering old notes in exchange for new notes and by signing
the transmittal letter -- or delivering an agent's message in lieu
of the transmittal letter, you will be representing that, among
other things:
(1) any new notes to be received by you will be acquired in
the ordinary course of your business;
(2) you are not engaged in, and do not intend to engage in,
and you have no arrangement or understanding with any person
to participate in, a distribution of the new notes;
(3) you acknowledge and agree that any person who is a
broker-dealer or is participating in the exchange offer for
the purpose of distributing the new notes must comply with the
registration and prospectus delivery requirements of the
Securities Act;
(4) you are not an affiliate of ours within the meaning of
Rule 405 under the Securities Act.
- The terms of the new notes are identical in all material respects
to the terms of the old notes, except that the registration rights
and related liquidated damages provisions, and the transfer
restrictions that apply to the old notes do not apply to the new
notes. The new notes will evidence the same debt as the old notes
and will be entitled to the benefits of the indenture governing
the old notes.
- We are sending this prospectus and the transmittal letter to all
registered holders of old notes as of the close of business on
May 23, 2001.
- We are not conditioning the exchange offer upon the tender of any
minimum amount of old notes.
- The exchange offer is subject to the condition that the exchange
offer not violate applicable law, rules or regulations or
applicable interpretations of the staff of the SEC. See
"--Conditions of the Exchange Offer."
- We may accept tendered old notes by giving oral or written notice
to the exchange agent. We must promptly confirm oral notice in
writing. The exchange agent will act as your agent for the purpose
of receiving the new notes from us and delivering them to you.
- You will not be required to pay brokerage commissions or fees or,
subject to the instructions in the transmittal letter, transfer
taxes with respect to the exchange of old notes. We will pay all
charges and expenses in connection with the exchange offer, other
than taxes specified under "--Transfer Taxes."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time, on,
June 21, 2001, unless we, in our sole discretion, extend it. We may extend
the exchange offer at any time and from time to time by giving oral or written
notice to the exchange agent and by publicly announcing the extension before
9:00 a.m., New York City time, on the next business day after the previously
scheduled expiration date. We must promptly confirm oral notice in writing. We
may also accept all properly tendered old notes as of the expiration date and
extend the expiration date in respect of the remaining outstanding old notes. We
may, in our sole discretion:
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- amend the terms of the exchange offer in any manner;
- delay acceptance of, or refuse to accept, any old notes not
previously accepted;
- extend the exchange offer; or
- terminate the exchange offer.
We will give prompt notice of any amendment to the registered holders
of the old notes. If we materially amend the exchange offer, we will promptly
disclose the amendment in a manner reasonably calculated to inform you of the
amendment and we will extend the exchange offer to the extent required by law.
PROCEDURES FOR TENDERING
Only a holder of old notes may tender them in the exchange offer. For
purposes of the exchange offer, the term "holder" or "registered holder"
includes any participant in The Depository Trust Company whose name appears on a
security position listing as a holder of old notes.
To tender in the exchange offer, you must cause the following to be
transmitted to and received by the exchange agent no later than 5:00 p.m., New
York City time, on the expiration date:
- a confirmation of the book-entry transfer of the tendered old
notes into the exchange agent's account at The Depository Trust
Company;
- a properly completed and duly executed transmittal letter in the
form accompanying this prospectus, with any required signature
guarantees, or, at the option of the tendering holder in the case
of a book-entry tender, an agent's message in lieu of the
transmittal letter; and
- any other documents required by the transmittal letter.
If you wish to tender your old notes and you cannot cause the old notes
or any other required documents to be transmitted to and received by the
exchange agent before 5:00 p.m., New York City time, on the expiration date, you
may tender your old notes according to the guaranteed delivery procedures
described in this section under the heading "--Guaranteed Delivery Procedures."
If you beneficially own old notes that are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and you wish to
participate in the exchange offer, you should promptly contact the person
through which you beneficially own your old notes and instruct that person to
tender your old notes on your behalf. See "Instructions Forming Part of the
Terms and Conditions of the Exchange Offer" included with the transmittal
letter. If you wish to tender on your own behalf, you must, before completing
and executing the transmittal letter and delivering your old notes, either make
appropriate arrangements to register ownership of the old notes in your name or
obtain a properly completed bond power from the registered holder. The transfer
of registered ownership may take considerable time.
The tender by a holder of old notes will constitute an agreement
between the holder, us and the exchange agent in accordance with the terms and
subject to the conditions specified in this prospectus and in the transmittal
letter. If a holder tenders less than all the old notes held, the holder should
fill in the amount of old notes being tendered in the appropriate box on the
transmittal letter. The exchange agent will deem the entire amount of old notes
delivered to it to have been tendered unless the holder has indicated otherwise.
The method of delivery of the transmittal letter and all other required
documents to the exchange agent is at your election and risk. Instead of
delivery by mail, we recommend that you use an overnight or hand delivery
service. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE DELIVERY TO
THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. DO NOT SEND YOUR TRANSMITTAL
LETTER OR OTHER REQUIRED DOCUMENTS TO US.
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SIGNATURE REQUIREMENTS AND SIGNATURE GUARANTEE
You must arrange for an "eligible institution" to guarantee your
signature on the transmittal letter or a notice of withdrawal, unless the old
notes are tendered:
- by the registered holder of the old notes; or
- for the account of an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act.
The following are "eligible institutions:"
- a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc.; or
- a commercial bank or trust company having an office or
correspondent in the United States; or
- an eligible guarantor institution.
If a transmittal letter is signed by a person other than the registered
holder of any old notes listed in the transmittal letter, the old notes must be
endorsed or accompanied by a properly completed bond power and signed by the
registered holder as the registered holder's name appears on the old notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, sign or endorse any required documents, they should so indicate when
signing, and unless waived by us, submit evidence satisfactory to us of their
authority to so act with the transmittal letter.
BOOK-ENTRY TRANSFER
The exchange agent will make a request promptly after the date of this
prospectus to establish an account for the old notes. Once the exchange agent
establishes the account, any financial institution that is a participant in The
Depository Trust Company's system may make book-entry delivery of old notes by
causing The Depository Trust Company to transfer them into the exchange agent's
account for the old notes. However, the exchange agent will only exchange the
old notes so tendered after it confirms their book-entry transfer into the
exchange agent's account, and receives an agent's message and any other
documents required by the transmittal letter in a timely manner.
The term "agent's message" means a message, transmitted by The
Depository Trust Company to, and received by, the exchange agent and forming
part of the confirmation of a book-entry transfer, which states that:
- The Depository Trust Company has received an express
acknowledgment from a participant tendering old notes stating the
aggregate principal amount of old notes that have been tendered by
such participant;
- the participant has received the transmittal letter and agrees to
be bound by its terms; and
- we may enforce this agreement against the participant.
Although you may deliver old notes through The Depository Trust Company
into the exchange agent's account at The Depository Trust Company, you must
provide the exchange agent a completed and executed transmittal letter with any
required signature guarantee -- or an agent's message in lieu thereof -- and all
other required documents before the expiration date. If you comply with the
guaranteed delivery procedures described below, you must provide the transmittal
letter -- or an agent's message in lieu thereof -- to the exchange agent within
the time period provided. DELIVERY OF DOCUMENTS TO THE DEPOSITORY TRUST COMPANY
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
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GUARANTEED DELIVERY PROCEDURES
If you wish to tender your old notes and (1) you cannot deliver the
transmittal letter or any other required documents to the exchange agent before
the expiration date or (2) you cannot complete the procedure for book-entry
transfer on a timely basis, you may instead effect a tender if:
- you make the tender through an eligible guarantor institution;
- before the expiration date, the exchange agent receives from the
eligible guarantor institution,
(a) a properly completed and duly executed notice of
guaranteed delivery, by facsimile transmittal, mail or hand
delivery, specifying the name and address of the holder and
the principal amount of the old notes tendered, stating that
the tender is being made, and guaranteeing that, within three
New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery, the old notes
being tendered,
(b) a properly completed and duly executed transmittal letter
or a confirmation of a book-entry transfer into the exchange
agent's account at The Depository Trust Company and
(c) an agent's message and any other documents required by the
transmittal letter,
will be deposited by the eligible guarantor institution with the
exchange agent; and
- the exchange agent receives the old notes and transmittal letter
or confirmation of a book-entry transfer into its account at The
Depository Trust Company and an agent's message and all other
documents required by the transmittal letter within three New York
Stock Exchange trading days after the date of execution of the
notice of guaranteed delivery.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw
tendered old notes at any time before 5:00 p.m., New York City time, on the
expiration date. To do so, you must provide the exchange agent with a written or
facsimile transmission notice of withdrawal before 5:00 p.m., New York City
time, on the expiration date. Any notice of withdrawal must:
- identify the old notes to be withdrawn, including the principal
amount of the old notes and the name and number of the account at
The Depository Trust Company to be credited; and
- be signed by you in the same manner as the original signature on
your transmittal letter, including any required signature
guarantee, or be accompanied by transfer documents sufficient to
permit the registrar to register the transfer of the withdrawn old
notes into your name.
Our determination shall be final and binding on all parties. We will
not deem any old notes so withdrawn to be validly tendered for purposes of the
exchange offer and will not issue new notes with respect to them unless the
holder of these old notes validly retenders them. You may retender withdrawn old
notes by following one of the procedures described above under "--Procedures for
Tendering" at any time before the expiration date.
DETERMINATION OF VALIDITY
We will determine all questions as to the validity, form,
eligibility -- including time of receipt -- acceptance and withdrawal of the
tendered old notes, and will interpret the terms and conditions of the exchange
offer -- including any instructions in the transmittal letter -- in our sole
discretion. Our determination will be final and binding. We may reject any and
all old notes that are not properly tendered or any old notes that, in the
opinion of our counsel, we cannot lawfully accept. We also may waive any
irregularities or conditions of tender as to particular old notes. Unless we
waive them, you must cure any defects or irregularities in your tender of old
notes within such time as we shall determine.
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Although we intend to notify tendering holders of defects or
irregularities with respect to tenders of old notes, neither we nor anyone else
has any duty to do so. Neither we nor anyone else will incur any liability for
failing to notify you of these defects or irregularities. Your old notes will
not be deemed tendered until you have cured or we have waived any
irregularities. As soon as practicable following the expiration date, the
exchange agent will return any old notes that we reject due to improper tender
or otherwise unless you cured all defects or irregularities or we waive them.
We reserve the right in our sole discretion:
- to purchase or make offers for any old notes that remain
outstanding after the expiration date;
- to terminate the exchange offer, as set forth in "--Conditions of
the Exchange Offer;" and
- to the extent permitted by applicable law, to purchase old notes
in the open market, in privately negotiated transactions or
otherwise.
The terms of any of these purchases or offers may differ from the terms
of the exchange offer.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or to issue new notes for, any old notes, and
we may terminate or amend the exchange offer as provided in this prospectus
before we accept old notes, if the exchange offer violates applicable law, rules
or regulations or an applicable interpretation of the staff of the SEC.
If we reasonably determine that we cannot lawfully complete the
exchange offer we may:
- refuse to accept any old notes and return all tendered old notes
to the tendering holders; or
- extend the exchange offer and retain all old notes tendered before
the expiration of the exchange offer, subject, however, to the
rights of holders to withdraw such old notes. See "--Withdrawal of
Tenders."
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange
offer, we will accept, promptly after the expiration date, all old notes that
have been validly tendered and not withdrawn, and will issue the applicable new
notes in exchange for such old notes promptly after our acceptance of such old
notes. For purposes of the exchange offer, we will be deemed to have accepted
validly tendered old notes for exchange when, as, and if we have given written
notice of such acceptance to the exchange agent.
For each old note accepted for exchange, the holder of the old note
will receive a new note having a principal amount equal to that of the
surrendered old note. The new notes will bear interest from the most recent date
to which interest has been paid on the old notes or, if no interest has been
paid on the old notes, from March 8, 2001. Accordingly, registered holders of
new notes on the relevant record date for the first interest payment date
following the completion of the exchange offer will receive interest accruing
from the most recent date to which interest has been paid or, if no interest has
been paid, from March 8, 2001. Old notes accepted for exchange will cease to
accrue interest from and after the date we accept them for exchange. You will
not receive any payment for accrued interest on the old notes otherwise payable
on any interest payment date if the record date occurs on or after date on which
we accept the old notes for exchange and you will be deemed to have waived your
rights to receive the accrued interest on the old notes.
If we do not accept any tendered old notes for any reason or if you
submit old notes for a greater principal amount than you desire to exchange, we
will return the unaccepted or non-exchanged old notes at our expense or, if the
old notes were tendered by book-entry transfer, the exchange agent will credit
the non-exchanged old notes to an
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account maintained with the book-entry transfer facility. In either case, these
old notes will be returned promptly after the expiration or termination of the
exchange offer.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the terms of the exchange and registration rights
agreement, we agreed to use our best efforts to complete the exchange offer and
issue the new notes in exchange for the old notes. The following description is
a summary of the material provisions of the exchange and registration rights
agreement. It does not restate that agreement in its entirety. We urge you to
read the exchange and registration rights agreement.
If
- we are not permitted to effect the exchange offer as contemplated
by this prospectus because of any change in law or applicable
interpretations of the law by the staff of the Securities and
Exchange Commission; or
- for any other reason we do not consummate the exchange offer
within 150 days after we issued the old notes; or
- we do not exchange any old notes validly tendered pursuant to the
exchange offer for new notes within 10 days after we accepted them
in the exchange offer; or
- any initial purchaser so requests with respect to old notes held
by the initial purchasers that are not eligible to be exchanged
for new notes in the exchange offer; or
- any applicable law or interpretation does not permit any holder of
old notes to participate in the exchange offer; or
- any holder of old notes that participates in the exchange offer
does not receive freely transferable new notes in exchange for
tendered old notes,
then we will use our reasonable best efforts to file with the Securities and
Exchange Commission as promptly as practicable, but in no event more than 20
business days after so required or requested, a shelf registration statement to
cover resales of Transfer Restricted Securities by those holders who provide the
information required for the shelf registration statement.
We will use our commercially reasonable efforts to have the exchange
offer registration statement or, if applicable, the shelf registration statement
declared effective by the Securities and Exchange Commission as promptly as
practicable after it is filed. Unless the exchange offer would not be permitted
by policy of the Securities and Exchange Commission, we will commence the
exchange offer and will use our reasonable best efforts to consummate the
exchange offer as promptly as practicable, but in any event before 150 days
after the date we issued the old notes. If applicable, we will use our
reasonable best efforts to keep the shelf registration statement effective for a
period ending on the earlier of two years after the date we issued the old notes
or the date all Transfer Restricted Securities become eligible for resale
without volume restrictions under Rule 144 under the Securities Act.
The occurrence of any of the following events is a registration
default:
- the shelf registration statement is not filed with the SEC on or
before the 20th business day after it is requested or required to
be filed; or
- the exchange offer registration statement is not declared
effective within 120 days after the date we issued the old notes
or the shelf registration statement is not declared effective
within 90 days after the shelf filing date; or
- the exchange offer is not consummated on or before 150 days after
the date we issued the old notes; or
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- the shelf registration statement is declared effective within 90
days after the shelf filing date but thereafter ceases to be
effective, at any time that we and our subsidiary guarantors are
obligated to maintain its effectiveness, without being succeeded
within 30 days by an additional registration statement filed and
declared effective.
If a registration default occurs, we and our subsidiary guarantors will be
obligated to pay additional interest to each holder of Transfer Restricted
Securities, during the period of one or more registration defaults, in an amount
equal to $0.05 per week per $1,000 principal amount of the old notes
constituting Transfer Restricted Securities held by the holder until the
applicable registration statement is filed, the exchange offer registration
statement is declared effective and the exchange offer is consummated, or the
shelf registration statement is declared effective or again becomes effective,
as the case may be. This rate will be increased by an additional $0.05 per week
per $1,000 principal amount of the old notes for each 90 day period that any
additional interest described in this paragraph continues to accrue. However,
the rate for additional interest will not exceed $0.15 per week per $1,000
principal amount of old notes. All accrued additional interest will be paid to
holders in the same manner as interest payments on the old notes on semi-annual
payment dates that correspond to interest payment dates for the old notes.
Additional interest only accrues during a registration default.
The exchange and registration rights agreement also provides that we
will:
- make available, for a period of 180 days after the consummation of
the exchange offer, a prospectus meeting the requirements of the
Securities Act to any broker-dealer for use in connection with any
resale of any new notes; and
- pay all expenses incident to the exchange offer, including the
expense of one counsel to the holders of the old notes, and will
indemnify certain holders of the old notes, including any
broker-dealer, against some liabilities, including liabilities
under the Securities Act.
A broker-dealer that delivers a prospectus to purchasers in connection with
resales of the new notes will be subject to civil liability provisions under the
Securities Act and will be bound by the provisions of the exchange and
registration rights agreement, including indemnification rights and obligations.
You will be required to deliver information to be used in connection
with the shelf registration statement in order to have your old notes included
in the shelf registration statement and benefit from the provisions regarding
additional interest set forth in the preceding paragraphs. If you sell old notes
pursuant to the shelf registration statement you generally will be required to
be named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers. You will also be subject to civil liability provisions
under the Securities Act in connection with these sales and will be bound by the
provisions of the exchange and registration rights agreement that apply to you,
including indemnification obligations.
EXCHANGE AGENT
We have appointed National City Bank as the exchange agent for the
exchange offer. National City Bank also acts as trustee under the indenture. You
should send all executed transmittal letters to the exchange agent and direct
all communications with the exchange agent, including requests for assistance or
for additional copies of this prospectus or of the transmittal letters as
follows:
NATIONAL CITY BANK, EXCHANGE AGENT
By Mail: National City Bank
P.O. Box 92301
Cleveland, Ohio 44193-0900
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By Hand: National City Bank
Corporate Trust Operations
3rd Floor - North Annex
4100 West 150th Street
Cleveland, Ohio 44135-1385
New York Drop: National City Bank
Mellon Securities Trust Company
120 Broadway
13th Floor
New York, NY 10271
By Facsimile for Eligible Institutions: (216) 575-9326
Facsimile Confirmation: (216) 575-9613
For Information: (800) 622-6757
IF YOU DELIVER THE TRANSMITTAL LETTER TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMIT INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, YOUR DELIVERY OR INSTRUCTIONS WILL NOT BE EFFECTIVE.
FEES AND EXPENSES
We will bear all expenses of the exchange offer. We are making the
principal solicitation pursuant to the exchange offer by mail. Our officers and
employees and our affiliates may also make solicitations in person, by
telegraph, telephone or facsimile transmission.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We will, however, pay the exchange
agent reasonable and customary fees for its services and will reimburse its
reasonable out-of-pocket costs and expenses and will indemnify the exchange
agent for all losses and claims incurred by it as a result of the exchange
offer. We may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this prospectus, letters of transmittal and related documents to the
beneficial owners of the old notes and in handling or forwarding tenders for
exchange.
TRANSFER TAXES
We will pay any transfer taxes applicable to the exchange of old notes
pursuant to the exchange offer. If, however, a transfer tax is imposed for any
reason other than the exchange of old notes pursuant to the exchange offer, then
the amount of any of these transfer taxes -- whether imposed on you or any other
person -- will be payable by you.
For example, you will pay transfer taxes, if:
- new notes for principal amounts not tendered, or accepted for
exchange are to be registered or issued in the name of any person
other than the registered holder of the old notes tendered; or
- tendered old notes are registered in the name of any person other
than the person signing the transmittal letter.
If you do not submit satisfactory evidence of payment of taxes for
which you are liable or exemption from them with your transmittal letter, we
will bill you for the amount of these transfer taxes directly.
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ACCOUNTING TREATMENT
We will record the new notes at the same carrying value as the old
notes, which is the principal amount as reflected in our accounting records on
the date of the exchange. Accordingly, we will not recognize any gain or loss
for accounting purposes. We will capitalize the expenses of the exchange offer
for accounting purposes. We will classify these expenses as prepaid expenses and
include them in other assets on our balance sheet. We will amortize these
expenses on a straight line basis over the life of the new notes.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
If you do not exchange your old notes for new notes pursuant to the
exchange offer, you will continue to be subject to the transfer restrictions of
your old notes. The old notes were originally issued in a transaction exempt
from registration under the Securities Act, and may be offered, sold, pledged,
or otherwise transferred only:
- in the United States to a person whom the seller reasonably
believes is a qualified institutional buyer as defined in Rule
144A under the Securities Act; or
- outside the United States in an offshore transaction in accordance
with Rule 904 under the Securities Act; or
- pursuant to an exemption from registration under the Securities
Act provided by Rule 144, if available; or
- pursuant to an effective registration statement under the
Securities Act.
The offer, sale, pledge or other transfer of old notes must also be
made in accordance with any applicable securities laws of any state of the
United States, and the seller must notify any purchaser of the old notes of the
restrictions on transfer described above. We do not currently anticipate that we
will register the old notes under the Securities Act.
APPRAISAL OR DISSENTERS' RIGHTS
You will not have appraisal or dissenters' rights in connection with
the exchange offer.
THE NEW NOTES
We will issue the new notes under an existing indenture dated as of
March 8, 2001 between ourselves and National City Bank, as trustee. The terms of
the notes include those expressly set forth in the indenture and those made part
of the indenture by reference to the Trust Indenture Act of 1939.
The following describes some general terms and provisions of the new
notes, which are identical in all material respects to the terms of the old
notes, except that the registration rights and related liquidated damages
provisions, and the transfer restrictions that apply to the old notes, do not
apply to the new notes. The new notes will be a separate series of securities
under the indenture.
This description of new notes is intended to be a useful overview of
the material provisions of the notes and the indenture. Since this description
is only a summary, you should refer to the indenture for a complete description
of our obligations and your rights.
For purposes of this description, references to "Manor Care," "we,"
"our," and "us" refer only to Manor Care, Inc. and not to our subsidiaries. For
the purposes of this section, the term "notes" will refer to the new notes.
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GENERAL
THE NOTES
The notes:
- are our general unsecured, senior obligations;
- are limited to an aggregate principal amount of $200.0 million;
- mature on March 1, 2008;
- will be issued in denominations of $1,000 and integral multiples
of $1,000;
- will be represented by one or more registered notes in global
form, but in certain limited circumstances may be represented by
notes in definitive form. See "Book-Entry, Delivery and Form"; and
- rank equally in right of payment to any of our future unsecured
senior debt.
INTEREST
Interest on the notes will compound semi-annually and:
- accrue at the rate of 8% per year;
- accrue from March 8, 2001, or the most recent interest payment
date on which interest has been paid;
- be payable in cash semi-annually in arrears on March 1 and
September 1, with the first payment on September 1, 2001;
- be payable to the holders of record on the February 15 and August
15 immediately preceding the related interest payment dates; and
- be computed on the basis of a 360-day year comprised of twelve
30-day months.
PAYMENTS ON THE NOTES; PAYING AGENT AND REGISTRAR
We will pay principal of, premium, if any, and interest on the notes at
the office or agency designated by us in the Borough of Manhattan, The City of
New York, except that we may, at our option, pay interest on the notes by check
mailed to holders of the notes at their registered address as it appears in the
registrar's books. We have initially designated National City Bank as our paying
agent and registrar and its agency in New York, New York as a place where notes
may be presented for payment or for registration of transfer. We may, however,
change the paying agent or registrar without prior notice you, and we may act as
paying agent or registrar.
We will pay principal of, premium, if any, and interest on, notes in
global form registered in the name of or held by The Depository Trust Company or
its nominee in immediately available funds to The Depository Trust Company or
its nominee, as the case may be, as the registered holder of the global notes.
TRANSFER AND EXCHANGE
You may transfer or exchange the notes at the office of the registrar
in accordance with the indenture. The registrar and the trustee may require you,
among other things, to furnish appropriate endorsements and transfer documents.
No service charge will be imposed by us, the trustee or the registrar to
register, transfer or exchange the notes, but we may require you to pay a sum
sufficient to cover any transfer tax or other similar governmental charge
required by law or permitted by the indenture. We are not required to transfer
or exchange any note selected for
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redemption. Also, we are not required to register any transfer or exchange of
any note for a period of 15 days before the notes are selected for redemption.
GENERAL
The registered holder of a note will be treated as the owner of it for
all purposes.
We do not intend to list the notes on a national securities exchange.
The indenture does not limit the amount of debt that we or our
subsidiaries may issue under the indenture or otherwise. MCA has issued, and is
permitted to continue to issue, additional series of debt securities under the
other indentures to which it is a party, including the indenture, dated as of
June 4, 1996, between MCA and Wilmington Trust Company, as trustee.
Other than restrictions described under "--Change of Control" and in
"--Limitations on Liens," "--Limitations on Sale and Lease-Back Transactions"
and "--Consolidation, Merger and Sale of Assets" under "--Covenants" below, the
indenture does not contain any covenants or other provisions designed protect
you if we enter a highly leveraged transaction or if our credit rating or the
rating of the notes declines as the result of a takeover, recapitalization,
highly leveraged transaction or similar restructuring involving us that could
adversely affect you.
OPTIONAL REDEMPTION
We may redeem the notes, at our option, in whole at any time or in part
from time to time, on at least 30 days, but not more than 60 days' prior notice
mailed to the registered address of each holder of notes to be so redeemed, at a
redemption price equal to the greater of
(1) 100% of their principal amount plus accrued but unpaid
interest to the date of redemption, or
(2)(a) the sum of the present values of the remaining scheduled
payments of principal and interest thereon from the date of
redemption to the date of maturity, except for currently
accrued but unpaid interest, discounted to the date of
redemption, on a semiannual basis, assuming a 360-day year
consisting of twelve 30-day months, at the Treasury Rate, plus
50 basis points, plus
(b) accrued but unpaid interest to the date of redemption.
We are not required to make mandatory redemption payments or sinking
fund payments for the notes.
CHANGE OF CONTROL
If a Change of Control occurs and is accompanied by a Rating Decline
(together, a "Change of Control Triggering Event"), you will have the right to
require us to offer to repurchase all or any part of your notes at a purchase
price in cash equal to 101% of the principal amount of the notes plus accrued
and unpaid interest, if any, to the date of purchase, subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date. We will only redeem notes in a amount of $1,000
or an integral multiple of $1,000.
Within 30 days following any Change of Control Triggering Event, we
will mail a notice (the "Change of Control Offer") to each registered holder
with a copy to the trustee stating:
(1) that a Change of Control Triggering Event has
occurred and that you have the right to require us to
purchase your notes at a purchase price in cash equal
to 101% of the principal amount of your notes plus
accrued and unpaid interest, if any, to the date of
purchase, subject to the right of holders of record
on a record date to receive interest on the relevant
interest payment date (the "Change of Control
Payment");
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(2) the repurchase date, which will be no earlier than 30
days nor later than 60 days from the date we mail the
notice (the "Change of Control Payment Date"); and
(3) the procedures determined by us, consistent with the
indenture, that you must follow to have your notes
repurchased.
On the Change of Control Payment Date, we will, to the extent lawful:
(1) accept for payment all notes or portions of notes in
integral multiples of $1,000 properly tendered under
the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the
Change of Control Payment for all notes or portions
of notes 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 of notes being purchased by us.
The paying agent will promptly mail to each holder of notes so tendered
the Change of Control Payment for the 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 of $1,000.
If the Change of Control Payment Date is on or after an interest record
date and on or before the related interest payment date, any accrued and unpaid
interest, will be paid to the person in whose name a note is registered at the
close of business on such record date, and no additional interest will be
payable to holders who tender pursuant to the Change of Control Offer.
The Change of Control provisions described above will apply whether or
not any other provisions of the indenture apply. Except as described above for a
Change of Control Triggering Event, the indenture does not contain provisions
that permit you to require that we repurchase or redeem the notes in the event
of a takeover, recapitalization or similar transaction.
Before mailing a Change of Control Offer, and as a condition to that
mailing:
- the requisite holders of each issue of Debt issued under an
indenture or other agreement that may be violated by the payment
will have consented to the Change of Control Offer and waived any
event of default, caused by the Change of Control Triggering Event
or
- we will repay all outstanding Debt issued under an indenture or
other agreement that may be violated by a payment to the holders
of notes under a Change of Control Offer or we must offer to repay
all such Debt, and make payment to the holders of such Debt that
accept such offer and obtain waivers of any event of default from
the remaining holders of such Debt.
We covenant to effect this repayment or obtain these consents and waivers within
30 days after any Change of Control Triggering Event. It will be a default under
the indenture if we fail to comply with this covenant within 30 days after we
received written notice from the trustee or the holders of at least 25% in
principal amount of the notes. A default under the indenture will result in a
default under the Senior Credit Agreement.
We will not be required to make a Change of Control Offer upon a Change
of Control Triggering Event 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 and purchases all notes validly tendered and not
withdrawn under the Change of Control Offer.
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We will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
that apply to the repurchase of notes pursuant to this covenant. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of the indenture, we will comply with the applicable securities laws
and regulations and will not be deemed to have breached our obligations
described in the indenture by virtue of the conflict.
Our ability to repurchase notes pursuant to a Change of Control Offer
may be limited by a number of factors. Some of the events that constitute a
Change of Control Triggering Event would also constitute a default under the
Senior Credit Agreement. In addition, certain events that may constitute a
change of control and cause a default under the Senior Credit Agreement may not
constitute a Change of Control Triggering Event under the indenture. Our future
Debt and that of our subsidiaries may also prohibit certain events that would
constitute a Change of Control or require such Debt to be repurchased upon a
Change of Control. Moreover, the exercise by the holders of their right to
require us to repurchase the notes could cause a default under such Debt, even
if the Change of Control Triggering Event itself does not, due to the financial
effect of such repurchase on us. Finally, our ability to pay cash to the holders
upon a repurchase may be limited by our then existing financial resources. We
cannot assure you that sufficient funds will be available when necessary to make
any required repurchases.
Even if sufficient funds were otherwise available, the terms of the
Senior Credit Agreement will and future Debt may prohibit us from prepaying
notes before their scheduled maturity. Consequently, if we cannot prepay the
Bank Debt and any other Debt containing similar restrictions or obtain requisite
consents, as described above, we will be unable to fulfill our repurchase
obligations you exercise your repurchase rights following a Change of Control
Triggering Event. This will result in a default under the indenture, which may
in turn result in a default under the Senior Credit Agreement.
The Change of Control provisions described above may deter certain
mergers, tender offers and other takeover attempts involving us by increasing
the capital required for these transactions. The definition of "Change of
Control" includes a disposition of all or substantially all of our property and
assets and those of our subsidiaries taken as a whole to any person. Although
there is a limited body of case law interpreting the phrase "substantially all,"
there is no precise established definition of the phrase under applicable law.
Accordingly, we may not know with certainty whether a particular
transaction would involve a disposition of "all or substantially all" of our and
our subsidiaries, property or assets. As a result, it may be unclear as to
whether a Change of Control Triggering Event has occurred and whether you may
require us to make an offer to repurchase the notes as described above.
RANKING
- The notes will be our general unsecured obligations that rank
senior in right of payment to all existing and future Debt that is
expressly subordinated in right of payment to the notes.
- The notes will rank equally in right of payment with all of our
existing and future liabilities that are not so subordinated.
- The notes will effectively rank junior to any of our secured
indebtedness or our Subsidiary Guarantors, to the extent of the
assets securing such indebtedness.
In the event of bankruptcy, liquidation, reorganization or other
winding up of Manor Care, our assets that secure secured Debt will be available
to pay obligations on the notes only after all Debt under the secured Debt has
been repaid in full from those assets. We advise you that there may not be
sufficient assets remaining to pay amounts due on any or all the notes then
outstanding. The guarantees of the notes will have a similar ranking with
respect to secured and unsecured senior Debt of the Subsidiary Guarantors as the
notes do with respect to our secured and unsecured senior Debt as well as with
respect to any unsecured obligations expressly subordinated in right of payment
to the guarantees.
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As of December 31, 2000, on a pro forma basis after giving effect to
the issuance of the old notes and the application of the estimated net proceeds
from the old notes, we and our subsidiaries would have had approximately $808.0
million of total indebtedness. Of this pro forma amount, $410.5 million would
have been incurred by us under the Five Year and 364 Day Agreements. Those
borrowed amounts have been guaranteed by most of our subsidiaries. The notes
will be guaranteed by all of our subsidiaries, except for certain subsidiaries
that, as of December 31, 2000, in the aggregate represented less than 3% of our
consolidated revenues, assets, income from continuing operations and EBITDA. MCA
is also a party to the Five Year and 364 Day Agreements. Although MCA currently
has no loans outstanding under the credit agreements, it has guaranteed our
borrowings under the credit agreements and is therefore liable for any of our
outstanding obligations under the credit agreements. On a pro forma basis after
giving effect to the issuance of the old notes, as of January 31, 2001, we and
MCA would have had additional borrowing capacity under the credit agreements of
$278.1 million, after giving effect to $28.4 million of outstanding letters of
credit.
In addition, MCA issued the 2006 Notes, which senior notes have been
guaranteed by us and each of our subsidiaries that have guaranteed borrowings
under the credit agreements. In addition to the guarantees of debt under the
credit agreements and the 2006 Notes, our subsidiaries had additional debt of
$47.9 million as of December 31, 2000, consisting of industrial revenue bonds,
mortgages and other liabilities. Each Subsidiary Guarantee of the notes will be
effectively subordinated to all secured Debt of the relevant Subsidiary
Guarantor to the extent of the value of the assets securing that Debt our
Subsidiary Guarantors had $41.4 million of secured debt as of December 31, 2000.
The ability of our subsidiaries to pay dividends and make other payments to us
is also restricted by, among other things, applicable corporate and other laws
and regulations, as well as agreements to which our subsidiaries may become a
party. We may not be able to comply with the provision of the notes that
provides that upon a Change of Control you may require us to repurchase all or a
portion of the notes.
SUBSIDIARY GUARANTEES
The Subsidiary Guarantors will, jointly and severally, unconditionally
guarantee our obligations under the notes. Each Subsidiary Guarantee will rank
equally in right of payment with all existing and future liabilities of
Subsidiary Guarantors that are not subordinated. Each Subsidiary Guarantee will
effectively rank junior to any secured debt of its respective Subsidiary
Guarantor to the extent of the value of the assets securing that debt.
The obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee will be limited as necessary to prevent that Subsidiary Guarantee from
constituting a fraudulent conveyance or fraudulent transfer under applicable
law.
If we sell or dispose of a Subsidiary Guarantor, whether by merger,
consolidation, the sale of its capital stock or the sale of all or substantially
all of its assets, other than by lease, and whether or not the Subsidiary
Guarantor is the surviving corporation in such transaction -- to a Person which
is not us or a subsidiary of us, then
- for Subsidiary Guarantors other than MCA, each such Subsidiary
Guarantor will be released from obligations under its Subsidiary
Guarantee if all the obligations of such Subsidiary Guarantor
under the Senior Credit Agreement, the 2006 Notes and related
documentation terminate upon consummation of such transaction and
- with respect to MCA, MCA will be released from its obligations
under its Subsidiary Guarantee if we and our remaining
subsidiaries are not liable with respect to any Debt of MCA.
If a Subsidiary Guarantor or MCA, as the case may be, is released from
obligations under its Subsidiary Guarantee, the notes will be effectively
subordinated to all liabilities of that subsidiary, whether or not those
liabilities are secured or unsecured.
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COVENANTS
LIMITATION ON LIENS
Except as provided below, we will not, and will not permit our
subsidiaries to, create, Incur or assume any Lien on any property or assets of
ours or any of our subsidiaries in order to secure any Debt of ours or any of
our subsidiaries, without effectively providing that the notes -- together with,
if we shall so determine, any other Debt that is not subordinated to the notes
-- will be secured equally and ratably with, or prior to, that Debt, so long as
that Debt will be so secured. This covenant will not apply to:
(1) any Lien if, after giving effect to those Liens, the aggregate
amount of all our Debt and the Debt of our subsidiaries
secured by Liens existing at the time, excluding any Debt
secured by Liens permitted to be incurred by clauses (2)
through (17) below, would not exceed our Applicable Percentage
of the Consolidated Net Assets;
(2) any Lien if we or our subsidiaries use an amount of cash equal
to the net proceeds of the Debt secured by the Lien within 12
months of the creation, incurrence or assumption of the Lien
to (a) acquire additional property -- or assets, or to make
investments in Persons who, after giving effect to those
investments, will become subsidiaries -- or (b) make an offer
to purchase the notes at 100% of the principal amount of the
notes plus accrued interest, if any, to the date of purchase;
(3) Liens on our property or assets or any subsidiary existing on
March 8, 2001 and Liens created, incurred or assumed after
March 8, 2001 on our property or assets or any subsidiary that
were subject to a Liens on our property or assets or any
subsidiary existing on March 8, 2001;
(4) Liens on property or assets of any Person existing at the time
the Person becomes a subsidiary or merges into or consolidates
with us or a subsidiary;
(5) Liens on property or assets existing at the we or any
subsidiary acquire the property or assets;
(6) Liens to secure the financing of the acquisition,
construction, alteration or improvement of property or assets
of ours or any subsidiary, or of any Person who, after giving
effect to such financing, will become a subsidiary, provided
that
- we or our subsidiaries create the Liens not later
than 18 months after we acquire the property or
assets; or
- we or our subsidiaries create the Liens no later than
we complete construction, alteration or improvement
of the property or assets, or commence commercial
operation of the property or assets, which ever is
later.
(7) Liens in favor of us or any subsidiary;
(8) Liens in favor of or required by federal, state or local
governmental authorities, including any department or
instrumentality of one of these authorities;
(9) Liens on property or assets of, or on any shares of stock or
other equity interest in, a Foreign Subsidiary to secure Debt
of a Foreign Subsidiary or a Non-Recourse Subsidiary to secure
Non-Recourse Debt;
(10) Liens to secure Debt of joint ventures in which we or a
subsidiary has an interest, to the extent those Liens are on
property or assets of or equity interests in those joint
ventures;
(11) Liens on current assets to secure Debt incurred for working
capital purposes, provided that the Debt matures no later than
18 months from the date we incur the Liens;
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(12) Liens on receivables in connection with Receivables
Securitizations;
(13) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums
not overdue or being contested in good faith by appropriate
proceedings and for which we will have set aside adequate
reserves on our books;
(14) Liens incurred in the ordinary course of business in
connection with workmen's compensation, unemployment insurance
or other forms of governmental insurance or benefits, or to
secure performance of bids, tenders, trade contracts other
than for Debt, statutory obligations, leases and contracts
other than for Debt, entered into in the ordinary course of
business or to secure obligations on surety or appeal bonds or
performance bonds;
(15) easements, restrictions and other minor defects of title that
are not, in the aggregate, material and that do not,
individually or in the aggregate, have a materially adverse
effect;
(16) leases or subleases granted to others that do not interfere in
any material respect with our business or any subsidiary's
business and any interest or title of a lessor under any lease
permitted under the indenture; and
(17) any extension, renewal or replacement as a whole or in part,
of any Lien referred to in the foregoing clauses (1) to (16),
provided, however, that:
- the extension, renewal or replacement Lien will be
limited to all or a part of the same property or
assets that secured the Lien being extended, renewed
or replaced and
- (a) the principal amount of the Debt secured by such
extended, renewed or replaced Lien, does not exceed
the principal amount of Debt that was secured by the
Lien being extended, renewed or replaced, or (b) if
the Debt provides for an amount less than the
principal amount thereof to be due and payable upon a
declaration of acceleration thereof, the lesser
amount secured by such extended, renewed or replaced
Lien, does not exceed the lesser amount that was
secured by the Lien being extended, renewed or
replaced.
LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS
We will not, and will not permit any subsidiary to, enter into any
arrangement with any Person to lease any property or assets from any Person, if
we or our subsidiaries have sold or transferred or will sell or transfer the
applicable property to that Person, unless:
(1) the arrangement involves a lease for a term, including renewal
rights, of not more than 36 months,
(2) the arrangement involves a lease of property within 18 months
from the acquisition or, in the case of the construction,
alteration or improvement of property, the later of the
completion of the construction, alteration or improvement of
such property or the commencement of commercial operation of
the property, or
(3) the arrangement involves leases between or among us and a
subsidiary or subsidiaries, or
(4) we or the subsidiary would, at the time of entering into a
Sale and Lease-Back Transaction, be entitled to Incur Debt
secured by a Lien on the property or asset to be leased in an
amount at least equal to the Attributable Debt in respect of
the transaction without equally and ratably securing the notes
pursuant to the provisions described under "--Limitations on
Liens" above, or
(5) the proceeds of the sale of the property or assets to be
leased are at least equal to their fair value -- the fair
value of such proceeds, if other than in cash, to be
determined by our chief financial or
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accounting officer -- and we or our subsidiaries apply an
amount in cash equal to the net proceeds, within 12 months of
the effective date of such transaction, to
(a) acquire additional property or assets, or to make
investments in entities that after giving effect to
the investment will become subsidiaries,
(b) to retire Debt that is equal in right of payment with
the notes -- provided that in connection with any
such retirement, any related loan commitment or the
like shall be reduced in an amount equal to the
principal amount so retired -- or
(c) offer to purchase the notes at 100% of the in
principal amount, plus accrued interest, if any, to
the date of purchase.
LIMITATION ON AFFILIATE TRANSACTIONS
Neither we nor any of our subsidiaries will enter into an Affiliate
Transaction having a value, or for consideration having a value, in excess of
$20,000,000 individually or in the aggregate, unless our board of directors
determines that the terms of the Affiliate Transaction are no less favorable to
us or such subsidiary than those that might be obtained at the time of the
Affiliate Transaction from Persons who are not Affiliates. The restrictions of
this "Limitation on Affiliate Transactions" covenant do not apply to the payment
of reasonable and customary fees to our directors or the directors of a
subsidiary who are not employees, the payment of compensation to our officers or
a subsidiary and any transaction between or among us and any of our
subsidiaries.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We will not consolidate with or merge with or into, or convey, transfer
or lease all or substantially all of its properties and assets to, another
Person, unless:
- the resulting, surviving or transferee Person, if not us, is a
Person organized and existing under the laws of the United
States of America, any state thereof or the District of
Columbia, and such entity, if not us, expressly assumes by
supplemental indenture all our obligations under the notes and
the indenture; and
- immediately after giving effect to the transaction, no default
has occurred and is continuing under the indenture. Upon any
such consolidation, merger or transfer, the resulting,
surviving or transferee Person shall succeed to, and may
exercise each of our rights and powers under the indenture.
If, upon any consolidation or merger of us with or into any other
corporation, or upon any sale, conveyance or lease of all or substantially all
of our property and assets to any other corporation, any of our property or the
property of any subsidiary would become subject to any Lien, we will first
secure the notes equally and ratably with any other of our obligations or any
subsidiary's obligations then entitled to be secured by a direct Lien on all
such property prior to all Liens other than any Liens previously existing on the
property.
FUTURE SUBSIDIARY GUARANTORS
After March 8, 2001, we will cause each new subsidiary created or
acquired by us or one or more of our subsidiaries to execute and deliver to the
trustee a Subsidiary Guarantee to unconditionally guarantee, on a joint and
several basis, the full and prompt payment of the principal of, premium, if any,
and interest on the notes on a senior basis. This provision will not apply to
subsidiaries that do no guarantee the 2006 Notes. (a) A Subsidiary Guarantee
from any subsidiary, other than MCA so long as all or any portion of the 2006
Notes shall remain outstanding will be released when the subsidiary is released
from any liability under ( -- ) the indenture relating to the 2006 Notes or any
related guarantee or similar obligation and (y) any Senior Credit Agreement and
any guarantee or similar obligation in respect of that Senior Credit Agreement
and (b) MCA shall be released from its obligations under its Subsidiary
Guarantee upon the repayment in full of the 2006 Notes -- so long as no default
or event of default shall
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have occurred as a consequence of the repayment and the release of MCA from any
obligation it may have in respect of the Senior Credit Agreement and any
guarantee or similar obligation in respect of the Senior Credit Agreement;
provided that the release of a Subsidiary Guarantor will not occur in the event
that Subsidiary Guarantor is required to deliver a Guarantee in accordance with
the paragraph below and then will only be released in accordance with the
paragraph below.
We will not permit any subsidiary to guarantee the payment of our Debt
unless:
(1) the subsidiary simultaneously executes and delivers a
supplemental indenture to the indenture providing for a
Guarantee of payment of the notes by the subsidiary;
(2) the subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights
against us or any subsidiary as a result of any payment by the
subsidiary under its Guarantee; and
(3) the subsidiary delivers to the trustee an opinion of counsel
to the effect that (a) the Guarantee of the notes has been
duly executed and authorized and (b) the Guarantee of the
notes constitutes a valid, binding and enforceable obligation
of the subsidiary; however, the enforceability of the
Guarantee may be limited by bankruptcy, insolvency or similar
laws, including, without limitation, all laws relating to
fraudulent transfers, and except insofar as enforcement
thereof is subject to general principles of equity; provided
that such Subsidiary Guarantee shall be released upon the
release of such subsidiary from liability in respect of our
Guarantees of Debt; and, provided, further, that any release
of a Subsidiary Guarantee under the preceding proviso will not
impair the rights of the holders to receive Subsidiary
Guarantees of the notes in accordance with this paragraph in
the event our future Debt is Guaranteed by the subsidiary.
FINANCIAL STATEMENTS
So long as we are not subject to Section 13 or 15(d) of the Exchange
Act, we will file with the trustee the following:
- within 120 days after the end of each fiscal year, our balance
sheet as of the end of such fiscal year and the preceding
fiscal year and our statements of income, shareholders' equity
and cash flows for such fiscal year and the two preceding
fiscal years, all audited by an independent public accounting
firm of recognized national standing and accompanied by a
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" with respect to these financial
statements; and
- within 60 days after the end of each of the first three fiscal
quarters of each fiscal year, our balance sheet as of the end
of such fiscal quarter and as of the end of the preceding
fiscal year and the statements of income for such fiscal
quarter, and the corresponding quarter in the preceding fiscal
year, and the statements of income and cash flows for the then
elapsed portion of such fiscal year and the corresponding
period in the preceding fiscal year, accompanied by a
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" with respect to these financial
statements.
EVENTS OF DEFAULT
Each of the following is an Event of Default:
(1) default in any payment of interest, or additional
interest as required by the exchange and registration
rights agreement, on any note when due and payable
and the default continues for a period of 30 days;
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(2) default in the payment of principal of or premium, if
any, on any note when due and payable at its Stated
Maturity, upon optional redemption, upon required
repurchase, upon declaration or otherwise;
(3) our failure to comply with our obligations under
"Covenants -- Consolidation, Merger and Sale of
Assets";
(4) our failure for 30 days after written notice from the
trustee or the holders of at least 25% in principal
amount of the notes then outstanding has been
received to comply with any of our obligations
described under "--Change of Control" above or under
"--Covenants" above, other than a failure to comply
with "--Covenants -- Consolidation, Merger and Sale
of Assets" which is covered by clause (3);
(5) our failure for 60 days after written notice from the
trustee or the holders of at least 25% in principal
amount of the notes then outstanding has been
received to comply with any of our other agreements
contained in the notes or indenture;
(6) default by us or any subsidiary in the payment of the
principal or interest on any mortgage, agreement or
other instrument under which there may be
outstanding, or by which there may be secured or
evidenced any of our and/or our subsidiaries' Debt
for money borrowed, other than Non-Recourse Debt of a
Non-Recourse Subsidiary, in excess of $20.0 million
in the aggregate, whether the Debt exists now or will
be created on a later date, resulting in the Debt
becoming or being declared due and payable, and the
acceleration will not have been rescinded or annulled
within 10 days after written notice of the
acceleration has been received by us or our
subsidiary;
(7) certain events of bankruptcy, insolvency or
reorganization of Manor Care; or
(8) a final judgment for the payment of $20.0 million or
more rendered against us or any subsidiary, which
judgment is not fully covered by insurance or not
discharged or stayed within 90 days after (a) the
date on which the right to appeal the judgment has
expired if no appeal has commenced, or (b) the date
on which all rights to appeal have been extinguished.
If an Event of Default occurs and is continuing, the trustee by notice
to us, or the holders of at least 25% in principal amount of the outstanding
notes by notice to us and the trustee, may, and the trustee at the request of
such holders will, declare 100% of the principal of, premium, if any, and
accrued and unpaid interest, if any, on all the notes to be due and payable.
Upon such a declaration, principal, premium and accrued and unpaid interest will
be due and payable immediately.
The holders of a majority in principal amount of the outstanding notes
may waive all past defaults, except with respect to nonpayment of principal,
premium or interest, and rescind any such acceleration with respect to the notes
and its consequences if (1) rescission would not conflict with any judgment or
decree of a court of competent jurisdiction and (2) all existing Events of
Default, other than the nonpayment of the principal of, premium, if any, and
interest on the notes that have become due solely by such declaration of
acceleration, have been cured or waived. Subject to the provisions of the
indenture relating to the duties of the trustee, if an Event of Default occurs
and is continuing, the trustee will be under no obligation to exercise any of
the rights or powers under the indenture at the request or direction of any of
the holders unless the holders have offered to the trustee reasonable indemnity
or security against any loss, liability or expense.
Except to enforce the right to receive payment of principal, premium,
if any, or interest when due, no holder may pursue any remedy with respect to
the indenture or the notes unless:
(1) the holder has previously given the trustee notice
that an Event of Default is continuing;
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(2) holders of at least 25% in principal amount of the
outstanding notes have requested the trustee to
pursue the remedy;
(3) the holders have offered the trustee reasonable
security or indemnity against any loss, liability or
expense;
(4) the trustee has not complied with the request within
60 days after receiving the request and the offer of
security or indemnity; and
(5) the holders of a majority in principal amount of the
outstanding notes have not given the trustee a
direction that, in the opinion of the trustee, is
inconsistent with that request within such 60-day
period.
Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding notes may direct the time, method and place of
conducting any proceeding for any remedy available to the trustee or of
exercising any trust or power conferred on the trustee. If an Event of Default
has occurred and is continuing, the trustee will be required in the exercise of
its powers to use the degree of care that a prudent Person would use in the
conduct of its own affairs. The trustee, however, may refuse to follow any
direction that conflicts with law or the indenture or that the trustee
determines is unduly prejudicial to the rights of any other holder or that would
involve the trustee in personal liability. Before taking any action under the
indenture, the trustee will be entitled to indemnification satisfactory to it in
its sole discretion against all losses and expenses caused by taking or not
taking such action.
If a default occurs and is continuing and is known to the trustee, the
trustee must mail to each holder notice of the default within 90 days after it
occurs. Except in the case of a default in the payment of principal of, premium,
if any, or interest on any note, the trustee may withhold notice if and so long
as a committee of trust officers of the trustee in good faith determines that
withholding notice is in the interests of the holders. In addition, we are
required to deliver to the trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers of the certificate know of
any default that occurred during the previous year. We also are required to
deliver to the trustee, within 30 days after the occurrence of any default,
written notice of any events that would constitute certain defaults, their
status and what action we are taking or proposes to take in respect of them.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, we may amend the indenture or the notes
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,
subject to certain exceptions, the holders of a majority in principal amount of
the notes then outstanding may waive any past default or compliance with any
provisions, including, without limitation, by consents obtained in connection
with a purchase of, or tender offer or exchange offer for, notes. However, we
may not amend this indenture or the notes without the consent of each holder of
an outstanding note affected to among other things:
(1) reduce the amount of notes whose holders must consent
to an amendment;
(2) reduce the stated rate of or extend the stated time
for payment of interest on any note;
(3) reduce the principal of or extend the Stated Maturity
of any note;
(4) reduce the premium payable upon the redemption or
repurchase of any note or change the time at which
any note may be redeemed or repurchased as described
above under "--Optional Redemption," "--Change of
Control" or any similar provision, whether through an
amendment or waiver of provisions in the covenants,
definitions or otherwise;
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(5) make any note payable in money other than that stated
in the note or, other than in accordance with the
provisions of the indenture, eliminate any existing
guarantees of the notes;
(6) impair the right of any holder to receive payment of,
premium, if any, principal of and interest on such
holder's notes on or after the due dates for payment
or to institute suit to enforce any payment on or
with respect to such holder's notes; or
(7) make any change in the amendment provisions that
require each holder's consent or in the waiver
provisions.
Without the consent of any holder, we and the trustee may amend the
indenture to:
(1) cure any ambiguity, omission, defect or
inconsistency;
(2) provide for the assumption by a successor
corporation, partnership, trust or limited liability
company of our obligations under the indenture;
(3) provide for uncertificated notes in addition to or in
place of certificated notes, provided that the
uncertificated notes are issued in registered form
for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated notes are
described in Section 163(f) (2) (b) of the Code;
(4) add guarantees with respect to the notes;
(5) secure the notes;
(6) add to our covenants for the benefit of the holders
or surrender any right or power conferred upon us;
(7) make any change that does not materially adversely
affect the rights of any holder; or
(8) comply with any requirement of the Commission in
connection with the qualification of the indenture
under the Trust Indenture Act.
The consent of the holders is not necessary under the indenture to
approve the particular form of any proposed amendment. It is sufficient if the
consent approves the substance of the proposed amendment. After an amendment
under the indenture becomes effective, we are required to mail to the holders a
notice briefly describing the amendment. However, if we fail to give such notice
to all the holders, or the notice has any defect, the amendment will still be
valid.
DEFEASANCE
We at any time may terminate all of our obligations under the notes and
the indenture, except for certain obligations, including those respecting the
defeasance trust and obligations to register the transfer or exchange of the
notes, to replace mutilated, destroyed, lost or stolen notes and to maintain a
registrar and paying agent for the notes. This is known as legal defeasance.
We at any time may terminate our obligations under the covenants
described under "--Covenants," other than those described under
"--Consolidation, Merger and Sale of Assets", the operation of the cross-default
upon a payment default, cross acceleration provisions and the judgment default
provision described under "--Events of Default" above. This is know as covenant
defeasance.
We may exercise our legal defeasance option even if we previously
exercised our covenant defeasance option. If we exercise our legal defeasance
option, you may not accelerate payment of the notes because of an Event
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of Default. If we exercise our covenant defeasance option, you may not
accelerate payment of the notes because of an Event of Default specified in
clause (4), (5), (6) or (8) under "--Events of Default" above.
In order to exercise either defeasance option, we must irrevocably
deposit in a defeasance trust with the trustee money or U.S. Government
Securities for the payment of principal, premium, if any, and interest on the
notes to redemption or maturity, as the case may be, and must comply with other
conditions, including delivering to the trustee an opinion of counsel, subject
to customary exceptions and exclusions, to the effect that you will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if we had not made the deposit and defeasance had not occurred. For legal
defeasance only, the opinion of counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable federal income tax law.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Manor
Care, as such, shall have any liability for our obligations under the notes or
the indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. By accepting a note you waive and release all
such liability. The waiver and release are part of the consideration for
issuance of the notes. This waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the SEC that such a
waiver is against public policy.
CONCERNING THE TRUSTEE
National City Bank is the trustee under the indenture and has been
appointed by us as registrar and paying agent with regard to the notes. Mr.
Ormond is a director, and Mr. Siefers is an executive officer, of National City
Corporation. The trustee is wholly-owned by National City Corporation. See
"Certain Relationships and Related Transactions."
GOVERNING LAW
The indenture and the notes will be governed by, and construed in
accordance with, the laws of the State of New York.
DESCRIPTION OF OTHER DEBT
We established the Five Year Agreement and 364 Day Agreement to provide
additional credit capacity for future developments and to provide credit back-up
for the issuance of commercial paper. The credit agreements contain various
covenants, restrictions and events of default. Among other things, these
provisions require us to maintain certain financial ratios and impose limits on
our and our subsidiaries' ability to incur debt, create liens and declare
dividends, repurchase stock, dispose of assets and make acquisitions. At January
31, 2001, outstanding borrowings of both companies aggregated $460.0 million
under the Five Year Agreement and $130.0 million under the 364 Day Agreement --
a total of $590.0 million. Most of our subsidiaries guaranteed the borrowed
amounts under the Five Year Agreement and 364 Day Agreement.
We amended the 364 Day Agreement, which matured September 22, 2000, to
now mature September 21, 2001. Loans under the amended 364 Day Agreement bear
interest at variable rates that reflect, at our election, either the agent
bank's base lending rate or an increment over Eurodollar indices of .500% to
1.275%, depending on the quarterly performance of a key ratio. In addition, the
364 Day Agreement provides for a fee on the total amount of the facility,
ranging from .125% to .225%, depending on the performance of the same ratio.
Loans under the Five Year Agreement, which mature September 24, 2003,
bear interest at variable rates that reflect, at our election, the agent bank's
base lending rate, rates offered by any of the participating banks under bid
procedures or an increment over Eurodollar indices of .150% to .500%, depending
on the quarterly performance of a
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key ratio. In addition to direct borrowings, we may use the Five Year Agreement
to support the issuance of up to $100.0 million of letters of credit. The Five
Year Agreement also provides for a fee on the total amount of the facility,
ranging from .125% to .250%, depending on the performance of the same key ratio.
Whenever our aggregate use of both credit facilities exceeds $350.0
million, our lenders charge an additional fee of .050% on loans due under the
Five Year Agreement and charge an additional fee ranging from .100% to .125% on
loans under the 364 Day Agreement, based on the performance of a key ratio. The
average interest rate on loans under the Five Year and 364 Day Agreements was
7.480% at December 31, 2000, excluding the fee on the total facility. At
December 31, 2000, after consideration of usage for letters of credit, the
remaining credit availability under the combined agreements totaled $66.7
million.
In June 1996, MCA issued the 2006 Notes. These notes are redeemable at
the option of MCA at any time at a price equal to the greater of (a) the
principal amount or (b) the sum of the present values of the remaining scheduled
payments of principal and interest, discounted with an applicable treasury rate
plus 15 basis points, plus accrued interest to the date of the redemption. We
used the proceeds of the offering to repay borrowings under MCA's prior credit
facility. The 2006 Notes contain covenants limiting, among other things, the
ability to incur liens, enter into sale and leaseback transactions, and engage
in affiliate transactions by us, MCA and the subsidiary guarantors. The 2006
Notes are guaranteed by us and each of the subsidiaries that have guaranteed
borrowings under the credit agreements.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material federal income tax
considerations relevant to the exchange of old notes for new notes pursuant to
the exchange offer. This discussion is based upon the Internal Revenue Code of
1986, as amended, Treasury regulations, Internal Revenue Service rulings and
pronouncements, and judicial decisions now in effect, all of which are subject
to change at any time by legislative, judicial or administrative action. Any
such changes may be applied retroactively in a manner that could adversely
affect your notes. We have not and will not seek any rulings from the Internal
Revenue Service with respect to the matters discussed below. We cannot assure
you that the Internal Revenue Service will not take positions concerning tax
consequences of the exchange offer which are different from those discussed
below. This discussion does not consider the effect any applicable foreign,
state, local or other tax laws or estate or gift tax considerations. This
discussion also does not address the federal income tax consequences to holders
subject to special treatment under the federal income tax laws, such as dealers
in securities or foreign currency, tax-exempt entities, banks, thrifts,
insurance companies, persons that hold the notes as part of a straddle, hedge or
conversion transaction, persons that have a functional currency other than the
United States dollar, and investors in pass-through entities.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO YOU OF EXCHANGING OLD NOTES FOR NEW NOTES PURSUANT TO THE
EXCHANGE OFFER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS.
The exchange of old notes for new notes pursuant to the exchange offer
will not constitute a taxable exchange for federal income tax purposes. You will
have a tax basis in the new notes equal to its tax basis in the old notes
exchanged therefor and your holding period for the new notes will include its
holding period for the old notes exchanged therefor. Accordingly, the exchange
should have no material federal income tax consequences to you.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in
connection with the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such new notes. This prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of new notes received in exchange for
old notes where the old notes were acquired as a result of market-making
activities or other trading activities. We have agreed that for a period ending
on the earlier of
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(1) 180 days after the date of this prospectus and
(2) the date on which a broker-dealer is no longer required to
deliver a prospectus in connection with market- making or
other trading activities,
we will make available and provide promptly upon reasonable request this
prospectus, in a form meeting the requirements of the Securities Act, to any
broker-dealer for use in connection with any such resale.
We will receive no proceeds in connection with the exchange offer.
Exchange notes received by broker-dealers for their own account in 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 new notes or a combination of these methods of resale, at market
prices prevailing at the time of resale, at prices related to the prevailing
market prices or negotiated prices.
A resale may be made directly to purchasers or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from the broker-dealer and/or the purchasers of new notes. Any broker-dealer
that resells new notes that it received for its own account in the exchange
offer and any broker or dealer that participates in a distribution of the new
notes may be an underwriter within the meaning of the Securities Act, and any
profit on the resale of exchange notes and any commissions or concessions
received by these persons may be underwriting compensation under the Securities
Act. The transmittal letter states that by acknowledging that it will deliver,
and by delivering, a prospectus, a broker-dealer will not be considered to admit
that it is an underwriter.
We have agreed to pay all expenses incident to our performance of, or
compliance with, the exchange and registration rights agreement and will
indemnify the holders of Transfer Restricted Securities, including any
broker-dealers, and certain parties related to such holders, against certain
liabilities including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the new notes will be passed upon for us by Latham &
Watkins, Chicago, Illinois, and certain other matters will be passed on for us
by R. Jeffrey Bixler, our Vice President, General Counsel and Secretary.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our annual report on form 10-K/A
for the year ended December 31, 2000, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedule are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
GLOSSARY
"364 DAY AGREEMENT" means the our $200 million dollar 364 day revolving
credit facility.
"2006 NOTES" means MCA's $150.0 million principal amount of 7-1/2%
Senior Notes Due 2006.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such specified Person. For the purposes of this definition, "control," when
used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing;
provided, however, that the existence of a management contract by us or an
Affiliate of ours to manage another entity shall not be deemed to be control.
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"AFFILIATE TRANSACTION" means the sale, lease, transfer or otherwise
disposition of any of our or our subsidiaries' properties or assets to or
purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guaranty with, or for the benefit of, an
Affiliate of ours, other than a subsidiary.
"APPLICABLE PERCENTAGE" means
(1) 15%, if the aggregate principal amount of notes and debt
securities issued by us under other indentures or fiscal
agency agreements or other similar instruments then
outstanding exceeds $100,000,000,
(2) 20%, if the aggregate principal amount of such notes and
securities then outstanding exceeds $50,000,000 but is less
than or equal to $100,000,000, or
(3) 25%, if the aggregate principal amount of such notes and
securities outstanding is less than or equal to $50,000,000.
"ATTRIBUTABLE DEBT" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the present value, discounted at the
interest rate borne by the notes, compounded semi-annually, of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in the Sale and Lease-Back Transaction, including any period for
which such lease has been extended.
"BANK DEBT" means any and all amounts, whether outstanding on March 8,
2001 or incurred after March 8, 2001, payable by us under or in respect of the
Senior Credit Agreement and any related notes, collateral documents, letters of
credit and guarantees and any Interest Rate Agreement entered into in connection
with the Senior Credit Agreement, including principal, premium, if any,
interest, fees, charges, expenses, reimbursement obligations, guarantees and all
other amounts payable thereunder or in respect thereof. Interest includes any
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to us at the rate specified therein whether or not a
claim for post filing interest is allowed in such proceedings.
"CAPITALIZED LEASE OBLIGATIONS" means an obligation that is required to
be classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of the obligation represented
by that obligation will be the capitalized amount of the obligation at the time
any determination of the obligations is to be made as determined in accordance
with GAAP, and the Stated Maturity of the obligation will be the date of the
last payment of rent or any other amount due under such lease prior to the first
date the lease may be terminated without penalty.
"CHANGE OF CONTROL" means:
(1) any "person" or "group" of related persons is or
becomes the beneficial owner, directly or indirectly,
of more than 50% of the total voting power of our
Voting Stock, or our successor by merger,
consolidation or purchase of all or substantially all
of our assets. For the purposes of this clause, we
refer to a "person" or "group" as such terms are used
in Sections 13(d) and 14(d) of the Exchange Act. A
"beneficial owner" is defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that such person
or group shall be deemed to have "beneficial
ownership" of all shares that any such person or
group has the right to acquire, whether such right is
exercisable immediately or only after the passage of
time. In addition, such person or group shall be
deemed to beneficially own any of our Voting Stock
held by a parent entity, if such person or group
"beneficially owns", directly or indirectly, more
than 50% of the voting power of the Voting Stock of
such parent entity; or
(2) the first day on which a majority of the members of
our board of directors are not Continuing Directors;
or
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(3) 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 our
assets and our subsidiaries taken as a whole to any
"person" as the term is used in Sections 13(d) and
14(d) of the Exchange Act; or
(4) the adoption by our stockholders of a plan or
proposal for our liquidation or dissolution.
"CHANGE OF CONTROL OFFER" means a notice for us stating that you will
have the right to require us to repurchase all or any party of your notes at a
purchase price in cash equal to 101% of the principal amount to your notes plus
accrued and unpaid interest, if any, to the date of purchase, subject to the
right of the holders of record on a record date to receive interest on the
relevant interest pay date.
"CHANGE OF CONTROL PAYMENT" means a cash equal to 101% of the principal
amount to your notes plus accrued and unpaid interest, if any, to the date of
purchase, subject to the right of the holders of record on a record date to
receive interest on the relevant interest pay date.
"CHANGE OF CONTROL PAYMENT DATE" means the repurchase date, which will
be no earlier than 30 days no later than 60 days from the date we mail the
Change of Control Offer.
"CHANGE OF CONTROL TRIGGERING EVENT" means a Change of Control
accompanied by a Rating Decline.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPARABLE TREASURY ISSUE" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the notes to be redeemed that would be used, at the time
of selection and in accordance with customary financial practice, to price new
issues of corporate debt securities of comparable maturity to the remaining term
of the notes.
"COMPARABLE TREASURY PRICE" means, with for any redemption date, the
average of the bid and asked prices for the Comparable Treasury Issue --
expressed in each case as a percentage of its principal amount -- on the third
business day preceding such redemption date,
(1) as set forth in the daily statistical release, or any
successor release, published by the Federal Reserve
Bank of New York or published on the website of the
Federal Reserve Bank of New York at
http://www.ny.frb.org and designated "Composite 3:30
p.m. Quotations for the U.S. Government Securities"
or
(2) if such release, or any successor release, is not
published or does not contain such prices on such
business day, the average of the Reference Treasury
Dealer Quotations for such redemption date.
"CONTINUING DIRECTORS" means, as of any date of determination, any
member of our board of directors who:
(1) was a member of the board of directors on the date of
the indenture; or
(2) was nominated for election or elected to the board of
directors with the approval of a majority of the
Continuing Directors who were members of such Board
at the time of the nomination or election.
"CONSOLIDATED NET ASSETS" means, with respect to any Person as of any
date of determination, the total assets of such Person and its subsidiaries on a
consolidated basis less current liabilities of such Person and its subsidiaries
on a consolidated basis as of such date, all determined in accordance with GAAP.
"DEBT" means, for any Person on any date of determination; without
duplication:
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(1) the principal of and premium, if any, in respect of
debt of the Person for borrowed money;
(2) the principal of and premium, if any, in respect of
obligations of the Person evidenced by bonds,
debentures, notes or other similar instruments;
(3) the principal component of all obligations of the
Person in respect of letters of credit, bankers'
acceptances or other similar instruments. The
principal components include reimbursement
obligations except to the extent such reimbursement
obligation relates to a trade payable and such
obligation is satisfied within 30 days of incurrence;
(4) the principal component of all obligations of such
Person, except trade payables, to pay the deferred
and unpaid purchase price of property, which purchase
price is due more than six months after the date of
placing the property in service or taking delivery
and title to the property;
(5) Capitalized Lease Obligations and all Attributable
Debt of the Person; and
(6) the principal component of Debt of other Persons to
the extent Guaranteed by the Person.
The amount of Debt of any Person at any date will be the outstanding
balance at the date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"EBITDA" means income from continuing operations before other income
(expenses), income taxes, minority interest, depreciation and amortization, and
unusual or non-recurring expenses.
"FIVE YEAR AGREEMENT" means our $500 million five year revolving credit
facility.
"FOREIGN SUBSIDIARY" means any subsidiary of Manor Care that is
incorporated or organized in a jurisdiction outside the United States and any
subsidiary of such a subsidiary.
"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 may be approved by a significant segment of the accounting
profession as in effect from time to time.
"GUARANTEE" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay, or advance or supply funds to
purchase or pay the Debt of the other Person, whether
arising by virtue of partnership arrangements, or by
agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise;
or
(2) entered into to assure in any other manner the
obligee of such Debt of the payment or to protect the
obligee against loss in respect in whole or in part
of the Debt.
provided, however, that the term "Guarantee" will not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"INCUR" means issue, create, assume, Guarantee, incur or otherwise
become liable for; and the terms "incurred" and "incurrence" have meanings
correlative to the foregoing.
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"INDEPENDENT INVESTMENT BANKER" means the Reference Treasury Dealer
appointed by the trustee after consultation with us.
"INTEREST RATE AGREEMENT" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"LIEN" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind; including any conditional sale or other title retention
agreement or lease in the nature of conditional sale or title retention
agreement.
"MCA" means Manor Care of America, Inc., a Delaware corporation and a
wholly owned subsidiary of Manor Care, or any of its successors and assigns.
"MOODY'S" means Moody's Investors Service, Inc. or, if Moody's
Investors Service, Inc. shall cease rating debt securities having a maturity at
original issuance of at least one year and such ratings business shall have been
transferred to a successor Person, the successor Person; provided, however, that
if there is no successor Person, then "Moody's" will mean any other national
recognized rating agency, other than S&P, that rates debt securities having a
maturity at original issuance of at least one year that we designate.
"NON-RECOURSE DEBT" means Debt or that portion of Debt:
(1) as to which neither we nor our subsidiaries, other than a
Non-Recourse Subsidiary:
(a) provides credit support; including any undertaking,
agreement or instrument which would constitute Debt;
(b) is directly or indirectly liable; or
(c) constitute the lender; and
(2) for which a default, including any rights which the holders of
the debt may have to take enforcement action against a
Non-Recourse Subsidiary, would not permit (upon notice, lapse
of time or both) any holder of our or our subsidiaries' other
Debt, including any Non-Recourse Subsidiary, to declare a
default on such other Debt or cause a payment thereof to be
accelerated or payable prior to its Stated Maturity.
"NON-RECOURSE SUBSIDIARY" means a subsidiary which (1) has not acquired
any assets, other than cash, directly or indirectly from us or any subsidiary,
(2) only owns assets acquired after March 8, 2001 or assets acquired prior to
the date such entity becomes a subsidiary and (3) has no Debt other than
Non-Recourse Debt.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company, government or any agency or political subdivision hereof or
any other entity.
"PREFERRED STOCK", as applied to the capital stock of any corporation,
means capital stock of any class or classes, however designated, which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of the corporation,
over shares of capital stock of any other class of the corporation.
"PRIMARY TREASURY DEALER" means a primary U.S. Government securities
dealer in The City of New York.
"RATING AGENCIES" mean Moody's and S&P.
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"RATING DATE" means the earlier of the date of public notice of (1) a
Change of Control or (2) our intention to effect a Change of Control.
"RATING DECLINE" shall be deemed to have occurred if, no later than 90
days after the Rating Date -- which period shall be extended so long as the
rating of the notes is under publicly announced consideration for possible
downgrade by either of the Rating Agencies -- either of the Rating Agencies
assigns a rating to the notes that is lower than the applicable rating of the
notes on the Rating Date. A downgrade within rating categories, as well as
between rating categories, will be considered a Rating Decline.
"RECEIVABLES SECURITIZATION" means a public or private transfer of or
creation of an interest in receivables in the ordinary course of our and our
subsidiaries' business and by which we or any subsidiary directly or indirectly
securitize a pool of receivables, including but not limited to any such
transaction involving the sale of or creation of an interest in specified
receivables to a special purpose entity.
"REFERENCE TREASURY DEALER" means JPMorgan, a division of Chase
Securities Inc. and its successors; provided, however, that if JPMorgan ceases
to be a primary U.S. government securities dealer in New York City (a Primary
Treasury Dealer), we will substitute another Primary Treasury Dealer.
"REFERENCE TREASURY DEALER QUOTATIONS" means, for each Reference
Treasury Dealer and any redemption date, the average, as determined by the
trustee, of the bid and asked prices for the Comparable Treasury Issue --
expressed in each case as a percentage of its principal amount -- quoted in
writing to the trustee by the Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding the redemption date.
"SALE AND LEASE-BACK TRANSACTION" means any arrangement with any Person
providing for the leasing by us or our subsidiaries of any property or assets,
other than any arrangement involving:
- a lease for a term, including renewal rights, of not more than
36 months;
- a lease of property within 18 months from the acquisition or
in the case of construction, alteration or improvement of
property, the later of the completion of the construction,
alteration or improvement of such property; or
- leases between or among us and a subsidiary or subsidiaries,
which property or asset has been or is to be sold or transferred by us or our
subsidiary to such Person.
"S&P" means Standard & Poor's Ratings Service or, if Standard & Poor's
Ratings Service shall cease rating debt securities having a maturity at original
issuance of at least one year and such ratings business shall have been
transferred to a successor Person, such successor Person; provided, however,
that if there is no successor Person, then "S&P" shall mean any other national
recognized rating agency, other than Moody's, that rates debt securities having
a maturity at original issuance of at least one year and that we have
designated.
"SENIOR CREDIT AGREEMENT" means, with respect to Manor Care, one or
more debt facilities or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans 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, and
whether or not with the original administrative agent and lenders or another
administrative agent or agents or other lenders and whether provided under the
original Credit Agreement or any other credit or other agreement or indenture.
Our debt facilities include, without limitation:
(1) the Credit Agreement, dated as of September 25, 1998, among
the Company, Manor Care of America, Inc., Bank of America,
N.A., as Administrative Agent, and the lenders parties thereto
from time to time, as amended by the First Amendment to Five
Year Credit Agreement, dated as of February 9, 2000, and by
the Second Amendment to Five Year Credit Agreement, dated as
of September 22, 2000, and as may be further amended or
modified from time to time; and
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(2) the Credit Agreement, dated as of September 25, 1998, among
Manor Care, MCA, Bank of America, N.A., as Administrative
Agent, and the lenders parties thereto from time to time, as
amended by the First Amendment to 364 Day Credit Agreement,
dated as of September 24, 1999, and by the Second Amendment to
364 Day Credit Agreement, dated as of February 9, 2000, and by
the Third Amendment to 364 Day Credit Agreement, dated as of
September 22, 2000, and as may be further amended or modified
from time to time.
"STATED MATURITY" means, for any security, the date specified in the
security as the fixed date on which the payment of principal of such security is
due and payable, including pursuant to any mandatory redemption provision, but
shall not include any contingent obligations to repay, redeem or repurchase any
such principal before the date originally scheduled for payment.
"SUBSIDIARY GUARANTEE" means, individually, any guarantee of payment of
the notes by a Subsidiary Guarantor pursuant to the terms of the indenture and
any supplemental indenture, and, collectively, all such guarantees. Each such
Subsidiary Guarantee will be in the form prescribed by the indenture.
"SUBSIDIARY GUARANTOR" means MCA, each of our subsidiaries, other than
a subsidiary that does not guarantee obligations under the 2006 Notes, in
existence on March 8, 2001, and any subsidiary that is required to guarantee the
notes under the terms of the indenture.
"TRANSFER RESTRICTED SECURITIES" means each old note, until the
earliest to occur of:
- the date on which that old note has been exchanged for a
freely transferable new note in the exchange offer;
- the date on which that old note has been effectively
registered under the Securities Act and disposed of in
accordance with the shelf registration statement; or
- the date on which that old note is distributed to the public
pursuant to Rule 144 under the Securities Act or may be sold
under Rule 144(k) under the Securities Act.
"TREASURY RATE" means, for any redemption date, the rate per year equal
to the semiannual equivalent yield to maturity of the Comparable Treasury Issue,
assuming a price for the Comparable Treasury Issue, expressed as a percentage of
its principal amount, equal to the Comparable Treasury Price for the redemption
date.
"U.S. GOVERNMENT SECURITIES" means securities that are:
(a) direct obligations of the United States of America for the
timely payment of which its full faith and credit is pledged;
or
(b) obligations of a Person controlled or supervised by and acting
as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United
States of America.
In either case, they are not callable or redeemable at the option of the issuer
of the securities, and will also include a depository receipt issued by a bank,
as defined in Section 3(a)(2) of the Securities Act, as custodian with respect
to any such U.S. Government Securities or a specific payment of principal of or
interest on any such U.S. Government Securities held by such custodian for the
account of the holder of such depository receipt; provided that, except as
required by law, such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Securities or the specific
payment of principal of or interest on the U.S. Government Securities evidenced
by such depository receipt.
"VOTING STOCK" of a corporation means all classes of capital stock of
the corporation then outstanding and normally entitled to vote in the election
of directors.
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