-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, OJpU9Vlxmd2YqVsbsEZX8FB6T8S9XP5YpUB6pgBVMqWaA+ZRaYUSmSSQB8cFqu1T D8I3/kRciWWsI1A47TAmmw== 0000950172-95-000089.txt : 19950615 0000950172-95-000089.hdr.sgml : 19950615 ACCESSION NUMBER: 0000950172-95-000089 CONFORMED SUBMISSION TYPE: PRRN14A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950320 SROS: NONE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: HILLHAVEN CORP CENTRAL INDEX KEY: 0000276477 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-NURSING & PERSONAL CARE FACILITIES [8050] IRS NUMBER: 911459952 STATE OF INCORPORATION: NV FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: PRRN14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10426 FILM NUMBER: 95521835 BUSINESS ADDRESS: STREET 1: 1148 BROADWAY PLZ CITY: TACOMA STATE: WA ZIP: 98402 BUSINESS PHONE: 2065724901 FORMER COMPANY: FORMER CONFORMED NAME: MERIT CORP DATE OF NAME CHANGE: 19600201 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL MEDICAL ENTERPRISES INC /NV/ CENTRAL INDEX KEY: 0000070318 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-GENERAL MEDICAL & SURGICAL HOSPITALS, NEC [8062] IRS NUMBER: 952557091 STATE OF INCORPORATION: NV FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: PRRN14A BUSINESS ADDRESS: STREET 1: P O BOX 4070 CITY: SANTA MONICA STATE: CA ZIP: 90404 BUSINESS PHONE: 3103158000 MAIL ADDRESS: STREET 1: P O BOX 4070 CITY: SANTA MONICA STATE: CA ZIP: 90404 PRRN14A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant ( ) Filed by a Party other than the Registrant (X) Check the appropriate box: (X) Preliminary Proxy Statement ( ) Definitive Proxy Statement ( ) Definitive Additional Materials ( ) Soliciting Materials Pursuant to SECTION 240.14a-11(c) or SECTION 240.14a-12 THE HILLHAVEN CORPORATION (Name of Registrant as specified in its Charter) NATIONAL MEDICAL ENTERPRISES, INC. NME PROPERTIES CORP. NME PROPERTY HOLDING CO., INC. NME PROPERTIES, INC. (Name of Person(s) Filing Proxy Statement) Payment of Filing Fee (Check the appropriate box): (X) $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2). ( ) $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). ( ) Fee computed on table below per Exchange Act Rules 14a- 6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:(1) (4) Proposed maximum aggregate value of transaction: ___________________ 1 Set forth the amount on which the filing fee is calculated and state how it was determined. (X) Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: $125 (2) Form, Schedule or Registration Statement No.: Schedule 14A Preliminary Proxy Statement (3) Filing Parties: National Medical Enterprises, Inc., NME Properties Corp., NME Property Holding Co., Inc. and NME Properties, Inc. (4) Date Filed: March 8, 1995 Preliminary Proxy Statement 1995 ANNUAL MEETING OF STOCKHOLDERS OF THE HILLHAVEN CORPORATION PROXY STATEMENT OF NATIONAL MEDICAL ENTERPRISES, INC. This Proxy Statement (the "Proxy Statement") and the enclosed BLUE proxy card are furnished in connection with the solicitation of proxies by National Medical Enterprises, Inc., a Nevada corporation ("NME"), NME Properties Corp., a Tennessee corporation and a wholly owned subsidiary of NME ("PropCorp"), NME Property Holding Co., Inc., a Delaware corporation and a wholly owned subsidiary of PropCorp ("Holding"), and NME Properties, Inc., a Delaware corporation and a wholly owned subsidiary of PropCorp and Holding ("PropInc"), for use at the 1995 Annual Meeting of Stockholders of The Hillhaven Corporation, a Nevada corporation (the "Company" or "Hillhaven"), and at any adjournments or postponements thereof (the "Annual Meeting"). At the Annual Meeting, you will be asked to consider and vote upon a non-binding resolution (the "Resolution") urging the Board of Directors of Hillhaven to take action to maximize the value of all shareholders' investment in the Company through the immediate sale or merger of the Company. As of the date of this Proxy Statement, Hillhaven has not announced the date, time or place of the Annual Meeting or set the date as of which shareholders of record will be entitled to vote at the Annual Meeting. According to the Company's filings with the Securities and Exchange Commission, as of March 6, 1995, there were 32,824,463 shares of common stock, par value $.75 per share, of the Company (the "Common Stock") issued and outstanding, each of which is entitled to one vote. As of such date, NME was the beneficial owner of 8,878,147 shares of Common Stock, or approximately 27% of the number of shares of Common Stock reported by the Company to be outstanding. On February 28, 1995, as set forth below under "Background," the Company announced an acquisition transaction in which the Company will issue 5,000,000 new shares of Common Stock, subject to a potential of up to 500,000 additional shares of Common Stock. Assuming the issuance of 5,500,000 new shares of Common Stock in such transaction, there would be 38,324,463 shares of Common Stock outstanding, and NME would be the beneficial owner of approximately 23.2% of the shares of Common Stock then outstanding. ____________________ This Proxy Statement and the BLUE proxy card are first being furnished to Hillhaven shareholders on or about March 22 , 1995. The principal executive office of Hillhaven is located at 1148 Broadway Plaza, Tacoma, Washington 98402. IMPORTANT At the Annual Meeting, NME is seeking shareholder approval of the Resolution. NME URGES YOU TO SIGN, DATE AND RETURN THE ENCLOSED BLUE PROXY CARD TO VOTE FOR THE APPROVAL OF THE RESOLUTION. A VOTE FOR THE RESOLUTION WILL HELP ENABLE YOU -- AS THE OWNERS OF HILLHAVEN -- TO SEND A MESSAGE TO THE HILLHAVEN BOARD OF DIRECTORS THAT YOU ARE IN FAVOR OF MAXIMIZING THE VALUE OF YOUR INVESTMENT IN HILLHAVEN THROUGH THE IMMEDIATE SALE OR MERGER OF THE COMPANY. NME URGES YOU NOT TO SIGN ANY PROXY CARD SENT TO YOU BY HILLHAVEN. IF YOU HAVE ALREADY DONE SO, YOU MAY REVOKE YOUR PROXY BY DELIVERING A WRITTEN NOTICE OF REVOCATION OR A LATER DATED PROXY FOR THE ANNUAL MEETING TO NME, C/O MACKENZIE PARTNERS, INC., 156 FIFTH AVENUE, NEW YORK, NEW YORK 10010, OR TO THE SECRETARY OF HILLHAVEN, OR BY VOTING IN PERSON AT THE ANNUAL MEETING. SEE "PROXY PROCEDURES" BELOW. BY SIGNING, DATING AND RETURNING THE ENCLOSED PROXY CARD, SHAREHOLDERS WILL BE GIVING UP THEIR RIGHT TO VOTE FOR THE ELECTION OF DIRECTORS AND ANY OTHER PROPOSALS TO BE BROUGHT BEFORE THE ANNUAL MEETING. PURPOSE OF THE SOLICITATION NME, the largest shareholder of Hillhaven, announced in December 1994 that it was reviewing its investment in Hillhaven. After discussions with the management of Hillhaven and certain third parties which expressed interest in Hillhaven and NME's investment in it, as well as a review with NME's financial advisor, NME determined that a business combination transaction involving Hillhaven would provide all shareholders with the best alternative to achieve maximum values, and so informed Hillhaven. As set forth below under "Background," in February 1995 Hillhaven rejected a merger proposal from Horizon Healthcare Corporation ("Horizon") that would provide $28 in value to Hillhaven shareholders for each share of Common Stock outstanding. A "Special Committee" of Hillhaven's Board of Directors, which included all of the members of the Board, including the members of Hillhaven's senior management who are also directors, but which excluded two directors who are current or former employees of NME, rejected Horizon's proposal, based in part upon the advice of Hillhaven's investment banker that the consideration to be received by Hillhaven's shareholders is inadequate from a financial point of view. The Special Committee concluded that it is in the best interests of Hillhaven, its shareholders, employees and customers that Hillhaven remain independent and continue to pursue its long-term business strategy. The Special Committee rejected Horizon's proposal without even discussing it with Horizon, even though Horizon had indicated its willingness to be flexible with respect to the terms of its proposal. On March 7, 1995, Horizon sent a letter to Hillhaven indicating that it was prepared to increase its offer to $31 in value per share of Common Stock. Horizon has indicated that its $31 in value per share offer will expire on March 21, 1995. NME is in favor of ANY proposal that will maximize the value of all shareholders' investment in Hillhaven, and believes that Hillhaven should engage in a process to maximize the value of all shareholders' investment in Hillhaven through the immediate sale or merger of Hillhaven. Accordingly, the Resolution urges the Board of Directors of Hillhaven to (i) instruct Hillhaven's existing investment banking firm to solicit offers to acquire Hillhaven by sale or merger, (ii) establish a committee of directors who are not employees of Hillhaven to review and negotiate any sale or merger proposal received and make a recommendation to the Board of Directors with respect to such proposal, and (iii) take all action necessary to effectuate such sale or merger (such as redeeming Hillhaven's Shareholder Rights Plan when appropriate and taking any necessary action under Nevada takeover statutes with respect to any proposal that maximizes values) and refrain from any action that would hinder or impede the effectuation of such sale or merger (such as initiating frivolous litigation). By signing and returning the accompanying BLUE proxy card in favor of the Resolution, you will be able to send a message to the Hillhaven Board of Directors. Although Hillhaven has not yet set the date for the Annual Meeting, NME may deliver signed BLUE proxy cards to the Board of Directors of Hillhaven from time to time in order that the Board might become fully aware of shareholder sentiment with respect to the subject matter of the Resolution. Your proxy is being solicited solely by NME and its wholly owned subsidiaries, PropCorp, Holding and PropInc, and not on behalf of any other person. NME supports ANY sale or merger proposal that maximizes the value of all shareholders' investment in Hillhaven. The $31 in value per share merger proposal from Horizon represents approximately a 49% premium to the New York Stock Exchange ("NYSE") closing price of the Common Stock of $20.75 on December 20, 1994, the day before the public announcement that Hillhaven and NME were in discussions with respect to the shares of Common Stock held by NME. The NYSE closing price of the Common Stock was $27.125 on March 17, 1995. If, like us, you believe that the value of your investment in Hillhaven can best be maximized through the immediate sale or merger of Hillhaven, we urge you to vote the accompanying BLUE proxy card FOR the Resolution. THE RESOLUTION At the Annual Meeting, NME intends to present the following Resolution for approval by Hillhaven shareholders: RESOLVED, that the shareholders of The Hillhaven Corporation (the "Company"), believing that the value of their investment in the Company can best be maximized through the immediate sale or merger of the Company, hereby urge the Board of Directors to proceed promptly to effect such sale or merger by: (1) instructing the Company's existing investment banking firm to solicit offers to acquire the Company by sale or merger; (2) establishing a committee of directors who are not officers of the Company to review and negotiate any sale or merger proposal received by the Company and to make a recommendation to the Board of Directors with respect to such proposal; and (3) taking all action necessary to effectuate such sale or merger and refraining from taking any action that would hinder or impede the effectuation of such sale or merger. The purpose of the Resolution is to give all Hillhaven shareholders the opportunity to send a message to the Hillhaven Board of Directors that they are in favor of maximizing the value of their investment in Hillhaven through the immediate sale or merger of Hillhaven. The refusal of the Board of Directors to even sit down and discuss a bona fide offer from Horizon is not in the interests of shareholders. IF YOU BELIEVE, AS DO WE, THAT THE ACTIONS OF THE HILLHAVEN BOARD OF DIRECTORS ARE CONTRARY TO THE BEST WAY TO ACHIEVE THE MAXIMUM VALUE OF YOUR INVESTMENT IN HILLHAVEN, THEN SEND A MESSAGE TO THE BOARD AND VOTE FOR THE RESOLUTION ON THE BLUE PROXY CARD. Adoption of the Resolution, which will not be binding on the Hillhaven Board of Directors, requires the affirmative vote of a majority of the shares of Common Stock represented in person or by proxy and entitled to vote on the matter, assuming the presence of a quorum at the Annual Meeting. With respect to abstentions, shares of Common Stock will be considered present at the Annual Meeting for a vote on the Resolution, but since they are not affirmative votes for the Resolution, they will have the same effect as votes against the Resolution. With respect to broker non-votes, shares of Common Stock will not be considered present at the Annual Meeting for purposes of voting on the Resolution. Consequently, broker non-votes will not be counted with respect to the Resolution, but they will have the practical effect of reducing the number of affirmative votes required to achieve a majority with respect to the Resolution by reducing the total number of shares of Common Stock from which the majority is calculated. The Resolution is not binding on the Hillhaven Board of Directors and, even if approved, will not have any effect unless the Board of Directors acts upon it. The Board of Directors is not required to effectuate the Resolution, even if approved by shareholders. If the Board of Directors proposes a sale or merger transaction, Hillhaven shareholders will have the opportunity to vote on such transaction in certain circumstances. The accompanying BLUE proxy card will be voted in accordance with your instructions on such card at the Annual Meeting. You may vote FOR the Resolution or vote against, or abstain from voting on, the Resolution by marking the proper box on the BLUE proxy card for the meeting. IF NO MARKING IS MADE, YOU WILL BE DEEMED TO HAVE GIVEN A DIRECTION TO VOTE THE SHARES REPRESENTED BY THE BLUE PROXY CARD FOR THE RESOLUTION. NME STRONGLY RECOMMENDS A VOTE FOR THE RESOLUTION. OTHER MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING NME anticipates that at the Annual Meeting shareholders will be asked to (i) elect two Class 3 directors, who will serve until the 1998 Annual Meeting, and (ii) ratify the selection of the Company's independent auditors. NME is not making any recommendation on these matters and is not soliciting your proxy on these matters. Except as set forth above, NME is not aware of any other proposals to be brought before the Annual Meeting. Should other proposals be brought before the Annual Meeting, the persons named on the BLUE proxy card will abstain from voting on such proposals unless such proposals adversely affect the interests of NME as determined by NME in its sole discretion, in which event such persons will vote on such proposals at their sole discretion. Such discretionary authority does not extend to any matter that NME knows, a reasonable time before the date of the Annual Meeting, is to be presented at the Annual Meeting. PROXY PROCEDURES IN ORDER FOR YOUR VIEWS ON THE ABOVE-DESCRIBED PROPOSAL TO BE REPRESENTED AT THE ANNUAL MEETING, PLEASE MARK, SIGN AND DATE THE ACCOMPANYING BLUE PROXY CARD AND RETURN SUCH CARD TO NME, C/O MACKENZIE PARTNERS, INC. IN THE ENCLOSED ENVELOPE IN TIME TO BE VOTED AT THE ANNUAL MEETING. Execution of the BLUE proxy card will not affect your right to attend the Annual Meeting and to vote in person. Any proxy may be revoked at any time prior to the Annual Meeting by delivering a written notice of revocation or a later dated proxy for the Annual Meeting to NME, c/o MacKenzie Partners, Inc. or to the Secretary of Hillhaven, or by voting in person at the Annual Meeting. ONLY YOUR LATEST DATED PROXY FOR THE ANNUAL MEETING WILL COUNT. Only holders of record as of the close of business on the record date will be entitled to vote at the Annual Meeting. If you are a shareholder of record on the record date, you will retain your voting rights for the Annual Meeting even if you sell such shares after the record date. ACCORDINGLY, IT IS IMPORTANT THAT YOU VOTE THE SHARES HELD BY YOU ON THE RECORD DATE, OR GRANT A PROXY TO VOTE SUCH SHARES ON THE BLUE PROXY CARD EVEN IF YOU SELL SUCH SHARES AFTER THE RECORD DATE. If any of your shares are held in the name of a brokerage firm, bank, bank nominee or other institution on the record date, only it can vote such shares and only upon receipt of your specific instructions. Accordingly, please contact the person responsible for your account and instruct that person to execute the BLUE proxy card. BACKGROUND On December 19, 1994, the Executive Committee of the Board of Directors of NME determined to review NME's investment in Hillhaven in light of NME's determination to focus its operations on its general hospital operations and the development of integrated healthcare delivery systems. In the course of reviewing its alternatives with respect to its investment in Hillhaven, NME had discussions with Hillhaven and third parties concerning possible courses of action. On January 12, 1995, Jeffrey Barbakow, Chairman of the Board of NME, informed Bruce Busby, Chairman of the Board of Hillhaven, that Horizon had expressed an interest in making a business combination proposal involving Hillhaven. Mr. Barbakow suggested that Horizon's chairman, Neal Elliott, speak directly to Mr. Busby. NME understands that Mr. Busby spoke to Mr. Elliott, assured Mr. Elliott that he would review any Horizon proposal with his directors, but asked Mr. Elliott not to put anything in writing. On January 12 , 1995, a special meeting of Hillhaven's Board of Directors was called for January 16, 1995, even though the directors already had a regularly scheduled meeting set for later that week. At the January 16 meeting, the Board of Directors took action to implement the funding of a purported grantor trust of Hillhaven established to fund certain employee benefit plans of Hillhaven. To fund the trust, Hillhaven issued 4,200,000 shares of Common Stock. The funding of the trust placed immediate voting rights to approximately 15% (on an undiluted basis) of Hillhaven's voting stock in the hands of employees, including members of senior management, even though such employees have not yet earned all of those shares under the terms of Hillhaven's various employee benefit plans. In addition, at the January 16 meeting the Board of Directors amended Hillhaven's Shareholder Rights Plan. On January 25, 1995, after entering into the letter agreement with NME described below, Horizon submitted a written business combination proposal to Hillhaven (the "Transaction"). In the Transaction, shareholders of Hillhaven would receive $28 in value of shares of common stock of a newly formed holding company ("Newco") for each outstanding share of Common Stock and shareholders of Horizon would receive one share of Newco common stock for each outstanding share of Horizon common stock. In addition, as part of the Transaction, each outstanding share of Hillhaven's Series C and Series D preferred stock would be redeemed at $1,000 per share in cash, plus any accrued and unpaid dividends, whether or not declared, to the date of redemption. In light of Hillhaven's actions and in order to provide the opportunity contained in the Transaction to Hillhaven and all of its shareholders, NME entered into a letter agreement with Horizon dated January 25, 1995 (the "Letter Agreement"). If prior to consummating a Transaction, but within 12 months of the date of the Letter Agreement, there is a merger, consolidation or other transaction with any party other than Horizon (an "Other Transaction") in which NME receives consideration for any of its shares of Common Stock equal to or greater than $27.50 per share, then Horizon shall be entitled to receive (and NME shall cause Horizon to receive) upon consummation of an Other Transaction an amount equal to the greater of (i) $5,000,000 or (ii) 50% of the consideration received by NME in excess of $29 per share of Common Stock. Horizon agreed in the Letter Agreement to actively pursue the Transaction in good faith. The Letter Agreement also provides that nothing therein shall be construed to impose any requirement or restriction on NME with respect to its right to acquire or dispose of any shares of Common Stock from or to any party, or to vote any shares of Common Stock, and all decisions with respect thereto shall be made by NME in its sole discretion. At a meeting held on February 5, 1995, a "Special Committee" of the Board of Directors of Hillhaven, which included all of the members of the Board, including the members of Hillhaven's senior management who are also directors, but which excluded two directors who are current or former employees of NME, was formed. At the February 5 meeting, the Special Committee rejected Horizon's proposal, based in part upon the advice of Hillhaven's investment banker that the consideration to be received by Hillhaven's shareholders is inadequate from a financial point of view. The Special Committee concluded that it is in the best interests of Hillhaven, its shareholders, employees and customers that Hillhaven remain independent and continue to pursue its long-term business strategy. On February 6, 1995, Hillhaven sued Horizon, seeking a declaratory judgment that, among other things, the business combination proposed by Horizon is prohibited under certain provisions of Nevada law. For additional information about this action, see the discussion under "Certain Litigation" below. On February 15, 1995, NME filed suit against Hillhaven and certain of its directors seeking declaratory and injunctive relief and damages. For additional information about this action, see the discussion under "Certain Litigation" below. On February 28, 1995, Hillhaven announced that it had agreed to acquire Nationwide Care, Inc. and certain related entities in exchange for the issuance of 5,000,000 new shares of Common Stock, subject to a potential adjustment of up to 500,000 additional shares of Common Stock if Hillhaven's average share price prior to closing is below $24. On March 7, 1995, PropCorp delivered a notice to Hillhaven of its intention to present the Resolution for shareholder approval at the Annual Meeting. On March 7, 1995, Horizon sent a letter to Hillhaven indicating that it was prepared to increase its offer to $31 in value per share of Common Stock. As part of the merger, each outstanding share of Hillhaven's Series C and Series D preferred stock would be redeemed at $900 per share in cash, plus any accrued and unpaid dividends, whether or not declared, to the date of redemption. Horizon has indicated that its $31 in value per share offer will expire on March 21, 1995. Horizon stated that it is prepared to meet with Horizon and its advisors to discuss the merger agreement and the strategic, operational and other benefits that could be realized through the combination of Hillhaven and Horizon. On March 17, 1995, Horizon said in a press release that it had sent Hillhaven information to provide further details of its proposal. Horizon also said that it had sent Hillhaven's investment bankers a financial analysis of the combined companies. Also on March 17, 1995, Guy Wyser-Pratte, president of Wyser-Pratt & Co. and a Hillhaven shareholder, announced that he will propose a nominee for election to Hillhaven's Board of Directors at the Annual Meeting. CERTAIN LITIGATION The Nevada Litigation. On January 31, 1995, a purported class of Hillhaven shareholders filed a complaint seeking declaratory and injunctive relief against Hillhaven and its individuals directors in the Nevada District Court for the County of Clark (the "First Nevada State Court Action") styled, Robert Grayson and Frederick Rand v. Bruce L. Busby, Christopher J. Marker, Maris Andersons, Walter F. Beran, Peter de Wetter, Dinah Nemeroff, Jack O. Vance, and Hillhaven Corporation. The Nevada State Court Action alleges, among other things, that the Hillhaven Board of Directors has breached its fiduciary duties to Hillhaven's shareholders: (1) by amending its Shareholder Rights Plan in the face of Horizon's offer to form a business combination with Hillhaven; and (2) by failing to negotiate the possible acquisition of Hillhaven. On February 23, 1995, the Service Employees International Union, a union allegedly representing 2,000 Hillhaven employees at approximately 40 Hillhaven nursing homes, and Joann Sforza, an individual allegedly employed by Hillhaven, moved to file a complaint in intervention in the First Nevada State Court Action. On February 27, 1995, Hillhaven, Bruce L. Busby and Christopher J. Marker filed their answers to the First Nevada State Court Action. On February 23, 1995, a second purported class of Hillhaven shareholders filed a "First Amended Class Action Complaint For Declaratory And Injunctive Relief" against Hillhaven in the Nevada District Court for the County of Clark, styled Anne Ross v. The Hillhaven Corporation, Bruce L. Busby, Christopher J. Marker, Walter F. Beran, Dinah Nemeroff and Jack O. Vance, (the "Second Nevada State Court Action"). This action reiterates and updates many of the claims made in the First Nevada State Court Action. On or about March 7, 1995, the plaintiffs in the First Nevada State Court Action and the Second Nevada State Court Action filed a motion to dismiss without prejudice in light of the complaint filed by the plaintiffs in California on March 2, 1995 (see "The California Litigation"). On March 15, 1995, the First Nevada Action and the Second Nevada Action were consolidated. The motion to dismiss both cases is scheduled to be heard on April 3, 1995. On February 6, 1995, Hillhaven filed a complaint against Horizon in the United States District Court for the District of Nevada styled The Hillhaven Corporation v. Horizon Healthcare Corporation, (the "Nevada District Court Action"). The Nevada District Court Action seeks a declaratory judgment that, among other things, the business combination that Horizon has proposed with Hillhaven is prohibited under the provisions of the Nevada Revised Statutes regarding Combinations With Interested Shareholders (NRS SECTIONSECTION 78.411 through 78.444). On February 27, 1995, Horizon answered this complaint and counterclaimed against Hillhaven for declaratory relief, injunctive relief and damages, alleging, among other things, that the Hillhaven Board of Directors has breached its fiduciary duties to Hillhaven's shareholders by: (1) taking improper entrenching actions to defeat the Horizon offer; (2) manipulating Hillhaven corporate machinery through entrenchment tactics designed to grant Hillhaven's management additional share voting power; and (3) breaching its duty of candor by disseminating a press release which contained false and misleading statements and material omissions concerning the Horizon offer and the process instituted by Hillhaven to review the Horizon offer. The California Litigation. On February 15, 1995, NME filed a complaint seeking declaratory and injunctive relief in the California Superior Court for the County of Los Angeles styled National Medical Enterprises, Inc. v. The Hillhaven Corporation, Bruce L. Busby, Christopher J. Marker and Does 1-25 (the "California Action"). The California Action alleges, among other things, that the named defendants have breached their fiduciary duties to NME and its fellow Hillhaven shareholders and interfered with NME's prospective economic advantage by undertaking a series of acts designed to: (1) entrench themselves; (2) dilute NME's equity interest in Hillhaven; and (3) deprive all of Hillhaven's shareholders the opportunity to consider the friendly acquisition proposal made by Horizon to Hillhaven. Hillhaven's response to the California Action is due March 20, 1995. On February 24, 1995, Hillhaven moved to stay the California Action. The Court has set a hearing for March 24 , 1995 on the motion. On March 7, 1995, the Service Employees International Union and Joann Sforza moved to file a complaint in intervention in the California Action. On or about March 2, 1995, a purported class action styled, Anne Ross, Robert Grayson, Frederick Rand and Victoria Shaev v. The Hillhaven Corporation, Bruce Busby, Christopher Marker, Walter Beran, Dinah Nemeroff, Jack Vance and Donald Burns, was filed in the California Superior Court for the County of Los Angeles. This action reiterates the claims made in the First Nevada State Court Action and the Second Nevada State Court Action. On or about March 9, 1995, this action was removed to the United States District Court for the Central District of California . SOLICITATION OF PROXIES Proxies may be solicited by mail, advertisement, telephone or facsimile and in person. Solicitations may be made by directors, officers, investor relations personnel and other employees of NME, none of whom will receive additional compensation for such solicitations. NME may request banks, brokerage houses and other custodians, nominees and fiduciaries to forward all of its solicitation materials to the beneficial owners of the shares of Common Stock they hold of record. NME will reimburse these record holders for customary clerical and mailing expenses incurred by them in forwarding these materials to their customers. NME has retained MacKenzie Partners, Inc. ("MacKenzie") for solicitation and advisory services in connection with these solicitations, for which MacKenzie has received $15,000 and is to receive an additional $35,000 after completion of the solicitations of proxies for the Annual Meeting, together with reimbursement for its reasonable out-of-pocket expenses. NME has also agreed to indemnify MacKenzie against certain liabilities and expenses, including liabilities and expenses under the Federal securities laws. MacKenzie will solicit proxies for the Annual Meeting from individuals, brokers, banks, bank nominees and other institutional holders. It is anticipated that MacKenzie will employ approximately 35 persons to solicit shareholders for the Annual Meeting. NME has engaged Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") to act as its financial advisor for a period of 24 months for an initial retainer of $250,000 pursuant to an engagement letter dated July 28, 1993, as amended. No specific arrangements have been made between DLJ and NME with respect to fees in connection with the solicitation of proxies from shareholders of Hillhaven and related matters. DLJ and NME anticipate, however, that any compensation will be usual and customary for similar transactions in which DLJ or other investment banks of national standing are involved. NME has agreed in the engagement letter that DLJ will be reimbursed from time to time for all reasonable out-of-pocket expenses (including the reasonable fees and expenses of counsel) incurred by DLJ and NME will indemnify DLJ and certain related persons against certain liabilities and expenses in connection with its engagement, including certain liabilities under the Federal securities laws. In connection with DLJ's engagement as financial advisor, NME anticipates that certain employees of DLJ may communicate in person, by telephone or otherwise with institutions, brokers or other persons who are shareholders of Hillhaven for the purpose of assisting in the solicitation of proxies for the Annual Meeting. DLJ has rendered various investment banking and other advisory services to NME and its affiliates in the past and is expected to continue to render such services, for which it has received and will continue to receive customary compensation. NME has been informed that DLJ is acting as financial advisor to Horizon in connection with its merger proposal to Hillhaven. NME understands that DLJ has established a screening process in connection with its engagement as financial advisor to each of NME and Horizon in regard to Hillhaven. NME has not been informed of the terms of DLJ's engagement as financial advisor to Horizon. The entire expense of soliciting proxies for the Annual Meeting is being borne by NME. NME will not seek reimbursement for such expenses from Hillhaven. Costs incidental to these solicitations of proxies include expenditures for printing, postage, legal and related expenses and are expected to be approximately $250,000. Total costs incurred to date in furtherance of or in connection with these solicitations of proxies are approximately $50,000. CERTAIN INFORMATION ABOUT HILLHAVEN Hillhaven is a Nevada corporation with its principal executive offices at 1148 Broadway Plaza, Tacoma, Washington 98402. The telephone number of Hillhaven is (206) 572-4901. Hillhaven is subject to the informational requirements of the Securities Exchange Act of 1943, as amended, and, in accordance therewith, files reports and other information with the Securities and Exchange Commission ("SEC"). Reports, proxy statements and other information filed by Hillhaven may be inspected and copied at the public reference facilities maintained by the SEC in Washington, D.C. at 450 Fifth Street, N.W., Room 1024, and at the following Regional Offices of the SEC: New York Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048; and Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the SEC at prescribed rates. Requests should be directed to the SEC's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. Such material may also be inspected at the library of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. A shareholder proposal to be presented at the 1996 annual meeting of shareholders of Hillhaven must be received at Hillhaven's principal executive offices not less than 120 calendar days in advance of the date Hillhaven's proxy statement is released to shareholders in connection with the Annual Meeting. INFORMATION ABOUT NME, PROPCORP, HOLDING AND PROPINC The principal business of NME is the operation of domestic and international general hospitals. The principal business of PropCorp is its investments in the healthcare industry. NME owns all of the outstanding stock of PropCorp. The principal business of Holding is its investments in the healthcare industry. PropCorp owns all of the outstanding stock of Holding. The principal business of PropInc is its investments in the healthcare industry. PropCorp and Holding own all of the outstanding stock of PropInc. The principal address of each of NME, PropCorp, Holding and PropInc (the "NME Entities") is 2700 Colorado Avenue, Santa Monica, California 90404. Certain information about the directors and executive officers of the NME Entities and certain employees and other representatives of the NME Entities who may also assist MacKenzie in soliciting proxies is set forth in the attached Schedule I. Schedule II sets forth certain information relating to securities owned by the NME Entities and their directors and executive officers, such employees and other representatives. Schedule III sets forth certain information, as made available in public documents, regarding shares of Common Stock held by Hillhaven's management. PLEASE INDICATE YOUR SUPPORT FOR THE RESOLUTION BY COMPLETING, SIGNING AND DATING THE ENCLOSED BLUE PROXY CARD AND RETURNING PROMPTLY TO NME, C/O MACKENZIE, IN THE ENCLOSED ENVELOPE. NO POSTAGE IS NECESSARY IF THE ENVELOPE IS MAILED IN THE UNITED STATES. NATIONAL MEDICAL ENTERPRISES, INC. NME PROPERTIES CORP. NME PROPERTY HOLDING CO., INC. NME PROPERTIES, INC. March , 1995 SCHEDULE I INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF NME, PROPCORP, HOLDING AND PROPINC AND CERTAIN EMPLOYEES AND OTHER REPRESENTATIVES OF NME, PROPCORP, HOLDING AND PROPINC The following table sets forth the name and the present principal occupation or employment, and the name, principal business and address of any corporation or other organization in which such employment is carried on, of the persons who may be deemed to be participants on behalf of National Medical Enterprises, Inc. ("NME"), NME Properties Corp. ("PropCorp"), NME Property Holding Co., Inc. ("Holding"), and NME Properties, Inc. ("PropInc"), including the executive officers and directors thereof, and certain employees and other representatives of NME, PropCorp, Holding and PropInc who may also solicit proxies from Hillhaven shareholders. Unless otherwise indicated, the principal business address of each director, executive officer, employee or representative is 2700 Colorado Avenue, Santa Monica, California 90404. Directors are indicated with a single asterisk. DIRECTORS AND EXECUTIVE OFFICERS OF NATIONAL MEDICAL ENTERPRISES, INC. Name and Principal Present Office or Other Business Address Principal Occupation or Employment Jeffrey C. Barbakow* Chairman of the Board and Chief Executive Officer Michael H. Focht, Sr.* President and Chief Operating Officer Maris Andersons Executive Vice President and Treasurer Scott M. Brown Senior Vice President, General Counsel and Secretary Raymond L. Mathiasen Senior Vice President and Chief Financial Officer Barry P. Schochet Executive Vice President and President - Hospital Division Bernice B. Bratter* Executive Director, Senior Health and Peer 2125 Arizona Counseling Santa Monica, California 90404 Maurice J. DeWald* Chairman and Chief Executive Officer, 19100 Von Karman Avenue, Verity Financial Group, Inc. Suite 350 Irvine, California 92715 Peter de Wetter* Executive Vice President until his retirement in May 1989 Edward Egbert, M.D.* Physician in private practice until his retirement in January 1994 Raymond A. Hay* Chairman and Chief Executive Officer, 5956 Sherry Lane, Suite 902 Aberdeen Associates Dallas, Texas 75225 Lester B. Korn* Chairman and Chief Executive Officer, 1800 Century Park East, Korn Tuttle Capital Group Suite 1100 Los Angeles, California 90067 James P. Livingston* Private Investor; Executive Vice President until his retirement in June 1986 Richard S. Schweiker* President, American Council of Life Insurance until his retirement in December 1994 DIRECTORS AND EXECUTIVE OFFICERS OF NME PROPERTIES CORP. Name and Principal Present Office or Other Business Address Principal Occupation or Employment Raymond L. Mathiasen President; Senior Vice President and Chief Financial Officer, NME Maris Andersons Senior Vice President and Treasurer; Executive Vice President and Treasurer, NME Scott M. Brown* Vice President and Secretary; Senior Vice President, General Counsel and Secretary, NME DIRECTORS AND EXECUTIVE OFFICERS OF NME PROPERTY HOLDING CO., INC. Name and Principal Present Office or Other Business Address Principal Occupation or Employment Raymond L. Mathiasen President; Senior Vice President and Chief Financial Officer, NME Maris Andersons Senior Vice President and Treasurer; Executive Vice President and Treasurer, NME Scott M. Brown* Vice President and Secretary; Senior Vice President, General Counsel and Secretary, NME DIRECTORS AND EXECUTIVE OFFICERS OF NME PROPERTIES, INC. Name and Principal Present Office or Other Business Address Principal Occupation or Employment Raymond L. Mathiasen President; Senior Vice President and Chief Financial Officer, NME Maris Andersons Senior Vice President and Treasurer; Executive Vice President and Treasurer, NME Scott M. Brown* Vice President and Secretary; Senior Vice President, General Counsel and Secretary, NME CERTAIN EMPLOYEES AND OTHER REPRESENTATIVES OF NME, PROPCORP, HOLDING AND PROPINC WHO MAY ALSO SOLICIT PROXIES Name and Principal Present Office or Other Business Address Principal Occupation or Employment Christi R. Sulzbach Senior Vice President, Public Affairs, NME Diana L. Takvam Vice President, Communications, NME Paul J. Russell Vice President, Investor Relations, NME David L. Dennis Managing Director, DLJ Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") 2121 Avenue of the Stars Los Angeles, California 90067 Lawrence N. Lavine Managing Director, DLJ Donaldson, Lufkin & Jenrette Securities Corporation 140 Broadway New York, New York 10005 Michael J. McCartney Associate, DLJ Donaldson, Lufkin & Jenrette Securities Corporation 2121 Avenue of the Stars Los Angeles, California 90067 SCHEDULE II SHARES HELD BY NME, PROPCORP, HOLDING AND PROPINC, THEIR DIRECTORS AND EXECUTIVE OFFICERS, CERTAIN EMPLOYEES AND OTHER REPRESENTATIVES OF NME, PROPCORP, HOLDING AND PROPINC The following entities own the shares of Common Stock indicated below: Percent of Shares of Outstanding Shares Name Common Stock Common Stock1 PropInc 2,877,947 8.8 Holding2 2,877,947 8.8 PropCorp2,3 8,878,147 27.0 NME4 8,878,147 27.0 PropCorp may be deemed to be the beneficial owner of the 35,000 shares of Series C Preferred Stock of Hillhaven and the 63,402 shares of Series D Preferred Stock of Hillhaven owned by it. PropCorp owns all of the outstanding shares of the Series C and Series D Preferred Stock of Hillhaven. _______________________ 1 Based upon 32,824,463 shares of Common Stock outstanding. 2 PropCorp and Holding, as the sole stockholders of PropInc, may be deemed, for the purposes of Rule 13d-3 under the Securities Act of 1934, as amended (the "Act"), to beneficially own indirectly the 2,877,947 shares of Common Stock owned by PropInc. 3 PropCorp may be deemed to be the beneficial owner of the 6,000,200 shares of Common Stock owned by it. PropCorp also may be deemed, for purposes of Rule 13d-3 under the Act, to beneficially own indirectly the 2,877,947 shares of Common Stock owned by PropInc, for an aggregate of 8,878,147 shares of Common Stock. 4 NME, as the sole stockholder of PropCorp, may be deemed, for purposes of Rule 13d-3 under the Act, to beneficially own indirectly the 2,877,947 shares of Common Stock owned by PropInc and the 6,000,200 shares of Common Stock owned by PropCorp, for an aggregate of 8,878,147 shares of Common Stock. The following directors or executive officers, employees or other representatives of NME, PropCorp, Holding and PropInc named in Schedule I own the securities of Hillhaven indicated below: Options Shares of to Purchase Percent of Name Common Stock Common Stock Common Stock1 Jeffrey C., Barbakow2 1,960 0 *3 Michael H. Focht, Sr. 0 0 * Maris Andersons 8,700 2,000 * Barry P. Schochet 0 0 * Raymond L. Mathiasen 10,500 0 * Scott M. Brown 0 0 * Bernice B. Bratter 0 0 * Maurice J. DeWald 0 0 * Peter de Wetter 5,000 10,000 * Edward Egbert 3,000 0 * Raymond A. Hay 40 0 * Lester B. Korn 6,000 8,000 * James P. Livingston 10,000 0 * Richard S. Schweiker 60 0 * Christi R. Sulzbach 0 0 * Paul J. Russell 2,400 0 * Diana N. Takvam 0 0 * David L. Dennis 2,000 0 * Lawrence N. Lavine 0 0 * Michael J. McCartney 0 0 * Directors and executive officers as a group 45,260 20,000 * __________________ 1 Assumes exercise of all options. Based upon 32,824,463 shares of Common Stock outstanding. 2 Mr. Barbakow holds 960 shares of Hillhaven stock directly, and 1,000 shares as the custodian for his children. 3 Less than one percent. In the ordinary course of its business, DLJ engages in securities trading and brokerage activities and may trade or otherwise effect transactions in debt or equity securities of Hillhaven for its own account and the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities. As of March 17, 1995, DLJ held a net long position of less than 1% of the shares of Common Stock outstanding. SCHEDULE III SHARES HELD BY HILLHAVEN'S MANAGEMENT Based upon Hillhaven's Proxy Statement dated August 24, 1994, as of August 8, 1994, the directors and executive officers of Hillhaven beneficially owned (within the meaning of the rules under Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), 1,359,755 shares of Hillhaven common stock (or approximately 4.90% of the shares reported as outstanding on such date). In addition, Hillhaven has issued 4,200,000 shares of Common Stock to a grantor trust established to fund certain employee benefit plans of Hillhaven. NME understands that Hillhaven employees, including members of Hillhaven's senior management, are beneficiaries of, and have certain voting and tender rights with respect to certain shares held by, such grantor trust. However, Hillhaven has not disclosed the number of shares which are held by such trust on behalf of members of Hillhaven senior management. To the knowledge of NME, PropCorp, Holding and PropInc, based on a review of documents on file as of March 6, 1995 with the Securities and Exchange Commission under the Exchange Act, NME, Wachovia Corporation and Wellington Management Company each beneficially owns 5% or more of the outstanding shares of Common Stock. Although NME, PropCorp, Holding and PropInc do not have any information that would indicate that any information contained in this Proxy Statement that has been taken from the Hillhaven Proxy Statement dated August 24, 1994 or any other document on file with the Securities and Exchange Commission is inaccurate or incomplete, NME, PropCorp, Holding and PropInc take no responsibility for the accuracy or completeness of such information. I M P O R T A N T Your proxy is important. No matter how many shares of Common Stock you own, please give NME your proxy FOR the Resolution by: SIGNING the enclosed BLUE proxy card, DATING the enclosed BLUE proxy card and MAILING the enclosed BLUE proxy card TODAY in the envelope provided (no postage is required if mailed in the United States). If you have already submitted a proxy to Hillhaven for the Annual Meeting, you may change your vote to a vote FOR the Resolution by signing, dating and returning the enclosed BLUE proxy card for the meeting, which must be dated after any proxy you may have submitted to Hillhaven. Only your latest dated proxy for the Annual Meeting will count at such meeting. If you have any questions, or require any additional information concerning this Proxy Statement, please contact MacKenzie Partners, Inc. at the addresses set forth below. IF ANY OF YOUR SHARES OF COMMON STOCK ARE HELD IN THE NAME OF A BROKERAGE FIRM, BANK, BANK NOMINEE OR OTHER INSTITUTION, ONLY IT CAN VOTE SUCH SHARES AND ONLY UPON RECEIPT OF YOUR SPECIFIC INSTRUCTIONS. ACCORDINGLY, PLEASE CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND INSTRUCT THAT PERSON TO EXECUTE THE BLUE PROXY CARD. MACKENZIE PARTNERS, INC. 156 FIFTH AVENUE NEW YORK, NEW YORK 10010 (212) 929-5500 (CALL COLLECT) OR CALL TOLL FREE (800) 322-2885 Preliminary Proxy Material THE HILLHAVEN CORPORATION THIS PROXY IS SOLICITED ON BEHALF OF NATIONAL MEDICAL ENTERPRISES, INC. The undersigned hereby appoints Jeffrey C. Barbakow and Scott M. Brown , or any one of them, each with full power of substitution, as the lawful proxies of the undersigned and hereby authorizes such persons to represent and to vote as designated below all shares of common stock of The Hillhaven Corporation which the undersigned would be entitled to vote if personally present at the 1995 Annual Meeting of Stockholders, and at any adjournments or postponements thereof on the item set forth below and on such other business as may properly come before the meeting. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER. IF NO DIRECTION IS GIVEN WHEN THE DULY AUTHORIZED PROXY IS RETURNED, SUCH SHARES WILL BE VOTED "FOR" IN ITEM 1. THE INDIVIDUALS NAMED ABOVE ARE AUTHORIZED TO VOTE IN THEIR DISCRETION ON ANY OTHER MATTERS THAT PROPERLY COME BEFORE THE MEETING. NATIONAL MEDICAL ENTERPRISES, INC. UNANIMOUSLY RECOMMENDS A VOTE "FOR" IN ITEM 1. Item 1. Proposal to adopt a resolution supporting the immediate sale or merger of The Hillhaven Corporation to maximize the value of all shareholders' investment therein ( ) FOR ( ) AGAINST ( ) ABSTAIN (To be signed on the reverse side) The undersigned hereby acknowledges receipt of the Proxy Statement of National Medical Enterprises, Inc. The undersigned hereby revokes any proxies heretofore given by the undersigned. BY SIGNING, DATING AND RETURNING THIS PROXY CARD, SHAREHOLDERS WILL BE GIVING UP THEIR RIGHT TO VOTE FOR THE ELECTION OF DIRECTORS AND ANY OTHER PROPOSAL TO BE BROUGHT BEFORE THE ANNUAL MEETING. THIS PROXY SHALL CONTINUE IN FORCE UNTIL AUGUST 31, 1996. Dated: ____________________, 1995 _____________________________________ Signature of Stockholder _____________________________________ Signature of Stockholder (if held jointly) Please mark, date and sign as your name appears to the left and return in the enclosed envelope. If acting as an executor, administrator, trustee, guardian, etc., you should so indicate when signing. If a corporation, please sign the full corporate name, by duly authorized officer. IMPORTANT PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE REPLY ENVELOPE PROVIDED -----END PRIVACY-ENHANCED MESSAGE-----