SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[ X ] Definitive Information Statement
Meadowbrook Rehabilitation Group, Inc.
(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ X ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
Not Applicable
2) Aggregate number of securities to which transaction applies:
Not Applicable
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
The filing fee is based on the maximum purchase price of
$1,500,000.
4) Proposed maximum aggregate value of transaction:
$1,500,000
5) Total fee paid:
$300
[ X ] Fee paid previously with preliminary materials.
[ ] 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:
-----------------------------------------------------
2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------
3) Filing Party:
-----------------------------------------------------
4) Date Filed:
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MEADOWBROOK
REHABILITATION GROUP, INC.
2200 Powell Street
Suite 800
Emeryville, California 94608
--------------------
INFORMATION STATEMENT
AND
NOTICE OF CORPORATE ACTION
WITHOUT A MEETING
--------------------
This Information Statement and Notice of Corporate Action Without a Meeting
is being sent on or about June 30, 1997 to stockholders of record of Meadowbrook
Rehabilitation Group, Inc. (the "Company") on June 18, 1997 to advise them that
the Company's majority stockholder has approved by written consent the sale (the
"Sale Transaction") of the business and assets of its subsidiary, Meadowbrook
Neurocare-Kansas City, Inc. (the "Subsidiary"), to NewCare Health Corporation
pursuant to an Asset Purchase Agreement, dated as of June 18, 1997 (the
"Purchase Agreement"). The Sale Transaction had previously been approved by the
Company's Board of Directors.
The sale of the business and assets of the Company's Subsidiary may
constitute a sale of "substantially all" of the Company's assets which is
subject to the approval of a majority of the total voting power of the Company
under the General Corporation Law of the State of Delaware. Such approval was
obtained by virtue of a written consent executed on June 18, 1997 by Harvey Wm.
Glasser, M.D., the holder of approximately 87% of the Company's total voting
power, and accordingly the Company will not seek the approval or consent of
other stockholders with respect to the Sale Transaction.
We Are Not Asking You for a Proxy and You Are Requested Not To Send Us a Proxy.
BACKGROUND OF THE SALE TRANSACTION
The action of the Company's Board of Directors to approve the Sale
Transaction was based on the Board's ongoing analysis of the Company's strategic
alternatives and the operations and properties of Meadowbrook Hospital of
Kansas, the sole assets of the Subsidiary (the "Hospital"). The Hospital,
located in Gardner, Kansas, is licensed as a specialty hospital. At the
Hospital, the Subsidiary provides acute rehabilitation services (63 available
beds) and subacute rehabilitation services (21 available beds). The Hospital is
leased from Dr. Glasser under a lease expiring on July 1, 2001, subject to
renewal options. The monthly lease rate is $30,500, plus 2.5% of net revenue in
excess of $300,000.
In reaching its decision to enter into the Sale Transaction, the Company's
Board of Directors gave significant consideration to a number of factors,
including, among others, the following:
o The Subsidiary's net operating revenues have fallen substantially,
from approximately $6.9 million in fiscal 1994 to approximately $3.7
million for the first nine months of fiscal 1997 (approximately $5.0
million annualized). The decrease in net operating revenues has
primarily resulted from a significant reduction in revenue per patient
day, which were in excess of $580 in fiscal 1995, and approximately
$505 in the most recent nine months. The Company believes that the
decrease in revenue per patient day reflects a change in service mix
(with more subacute rather than acute patients), the effects of
increased managed care penetration in the market and reduced Medicare
reimbursement.
o While net revenues have fallen, the Subsidiary has been unable to
reduce its expenses commensurately as a result of rising labor costs.
The Hospital has suffered a net operating loss of approximately
$218,000 in the nine months ended March 31, 1997, and is projecting a
net loss of almost $300,000 for the fiscal year ending June 30, 1997.
In the past nine months, the Company has sold its postacute rehabilitation
operations in Illinois, its outpatient rehabilitation clinics in Alaska and,
most recently, its subacute, postacute and neurobehavioral rehabilitation
operations and related assets in Georgia. The Board of Directors is continuing
to evaluate possible opportunities to sell the Company's outpatient
rehabilitation clinics in Florida and Colorado. The Company also owns a home
health agency operating in Colorado and Kansas.
The Board of Directors has not made any determination concerning the
application of the proceeds from the Sale Transaction. Dr. Glasser has indicated
his view that the Company should consider the acquisition, by purchase or
merger, of non-healthcare businesses and the Company is in the process of
evaluating certain potential opportunities, although no decisions have been made
in this regard.
THE PURCHASE AGREEMENT
The Purchase Agreement provides for the sale to NewCare Health Corporation
(the "Purchaser") of the business and assets of its Subsidiary for $1.5 million
in cash, less an amount equal to the aggregate dollar amount of accrued vacation
pay of the Subsidiary's employees and one-half of the aggregate dollar amount of
their accrued sick leave as of the closing, the total of which is estimated to
be approximately $90,000. The Purchase Agreement contemplates that the
Subsidiary will not assign the Subsidiary's accounts receivable and that the
Purchaser will not assume the Subsidiary's accounts payable and accrued
liabilities as of the closing date. The excess of accounts receivable over
accounts payable and accrued liabilities at closing is expected to be in the
range of $1.2 million, although the actual amount may vary and the net proceeds
ultimately received by the Subsidiary will depend on the Subsidiary's success in
collecting such accounts receivable. The closing is expected to occur in late
July, 1997.
The Purchase Agreement contains various representations and warranties,
certain of which are qualified as to materiality. The Subsidiary represents and
warrants to the Purchaser with respect to the following matters, among others:
(i) the organization and good standing of the Subsidiary; (ii) the authority of
the Subsidiary and the absence of conflicts with laws or other agreements; (iii)
the financial statements of the Subsidiary; (iv) taxes; (v) employee benefit
plans; (vi) the Subsidiary's compliance with laws (including requirements for
participation in the Medicare program and the absence of any violation of the
Medicare fraud regulations) and possession of necessary licenses; (vii) the
absence of certain adverse changes during the Subsidiary's current fiscal year;
(viii) the Subsidiary's contracts; and (ix) insurance coverage. The Purchaser
represents and warrants with respect to authority, the absence of legal or
contractual conflicts, and the absence of certain litigation, and acknowledges
that the assets are being sold on an "As Is, Where Is" basis. The
representations and warranties in the Purchase Agreement survive for 18 months
after the closing and each party to the Purchase Agreement agrees to indemnify
the other for breach of representations and warranties if the damages therefrom
exceed $25,000.
Each party's obligation to close under the Purchase Agreement is subject to
fulfillment or waiver of standard closing conditions, including the accuracy of
representations and warranties, compliance with covenants, absence of litigation
and, in the case of Purchaser, the concurrent closing of the Purchaser's
acquisition of the real property leased by the Subsidiary from Dr. Glasser, the
Company's majority stockholder. See "Interests of the Majority Stockholder in
the Sale Transaction" below.
The Purchase Agreement may be terminated prior to closing by either party
in the event of the other party's material breach or if the closing has not
occurred on or before July 31, 1997.
To the Company's knowledge, there are no current or past relationships
between the Company or its affiliates and the Purchaser or its affiliates, other
than in connection with the Real Estate Transaction (as defined below).
The foregoing description of the Purchase Agreement is a summary and is
qualified in its entirety by the full text thereof, a copy of which will be
filed by the Company with the Securities and Exchange Commission.
INTERESTS OF THE MAJORITY STOCKHOLDER IN THE SALE TRANSACTION
Concurrently with the execution of the Purchase Agreement by the parties
thereto, the Purchaser and Dr. Glasser entered into an Agreement of Sale, dated
as of June 18, 1997 (the "Real Estate Purchase Agreement"), with respect to the
sale to the Purchaser (the "Real Estate Transaction") of the real property,
including the Hospital, that currently is leased by the Subsidiary from Dr.
Glasser. Pursuant to the Real Estate Purchase Agreement, the Purchaser will pay
Dr. Glasser $3.5 million for such real property and the closing of such sale
shall occur simultaneously with the closing under the Purchase Agreement.
As a result of the relationship between the Sale Transaction and the Real
Estate Transaction, the approval of the Sale Transaction by the Board of
Directors of the Company was made subject to a determination by a special
committee of the Board consisting of the Company's two non-employee directors,
Robert Rush and John P. McCracken (the "Committee"), that the consideration to
be received by the Subsidiary in the Sale Transaction is fair to the Company.
The Committee proceeded to consider the fair value of the Subsidiary. Among
other things, the Committee analyzed the Subsidiary's historical financial
results relative to the operating performance of certain publicly traded
companies with operations similar to, although much larger than, the
Subsidiary's operations. The Committee considered the results of previous
attempts to obtain bids for the Subsidiary. The Committee also considered
financial forecasts prepared by management in connection with the Company's
budgeting process and management's views with respect to the current outlook for
the Subsidiary's operations. The Committee also obtained an appraisal of the
real property from Valuation Counselors, a real estate valuation firm, which
supported the price to be paid to Dr. Glasser in the Real Estate Transaction.
The Committee met on May 30, 1997 to consider the Sale Transaction and,
after deliberation, unanimously determined that the consideration to be received
by the Subsidiary in the Sale Transaction is fair to the Company.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth the unaudited Pro Forma Condensed
Consolidated Balance Sheet of the Company as of March 31, 1997, and the
unaudited Pro Forma Condensed Consolidated Statements of Income of the Company
for the twelve months ended June 30, 1996 and the nine months ended March 31,
1997. The Pro Forma Condensed Consolidated Statements of Income include
adjustments related to the sale of Meadowbrook Rehabilitation Group of Georgia,
Inc., which was consummated on March 31, 1997, while the unaudited Pro Forma
Condensed Consolidated Balance Sheet as of March 31, 1997 reflects such sale.
The unaudited Pro Forma Condensed Consolidated Balance Sheet, shown below, was
prepared assuming that the Company's disposition of the Subsidiary took place on
March 31, 1997. The unaudited Pro Forma Condensed Consolidated Statements of
Income for the twelve months ended June 30, 1996 and the nine months ended March
31, 1997 were prepared assuming that the disposition of the Subsidiary and the
disposition of Meadowbrook Rehabilitation Group of Georgia, Inc. took place as
of the beginning of each respective period.
The unaudited Pro Forma Condensed Consolidated financial information
furnished herein reflects all adjustments for the twelve months ended June 30,
1996 and the nine months ended March 31, 1997, respectively, consisting only of
normal recurring adjustments which, in the opinion of management, are necessary
to fairly state the Company's financial position and the results of its
operations for the periods presented.
The unaudited pro forma financial information does not purport to present
the consolidated financial position and consolidated results of operations of
the Company had the Company's disposition of the assets and business of the
Subsidiary and the disposition of Meadowbrook Rehabilitation Group of Georgia,
Inc. actually occurred on the dates indicated; nor does it purport to be
indicative of results that will be attained in the future.
The pro forma financial information should be read in conjunction with the
Company's historical Consolidated Financial Statements and Notes thereto
contained in the Company's Form 10-K for the fiscal year ended June 30, 1996 and
the Company's Form 8-K dated March 31, 1997 with respect to the Company's sale
of Meadowbrook Rehabilitation Group of Georgia, Inc.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of March 31, 1997
--------------------------------------------------------------------------
Kansas Pro Forma Adjustments
---------------------------------
Actual Debit Credit Ref Pro Forma
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CURRENT ASSETS
Cash and cash equivalents $ 3,639,993 1,500,000 (A) $ 5,139,993
Net patient accounts receivable 5,122,109 5,122,109
Due from intermediaries 9,630 9,630
Prepaid expenses and other assets 1,198,336 2,410 (A) 1,195,926
------------ ------------
Total current assets 9,970,068 11,467,658
------------ ------------
PROPERTY AND EQUIPMENT, (net) 1,188,669 208,148 (A) 980,521
GOODWILL AND INTANGIBLE ASSETS 1,820,472 1,820,472
------------ ------------
TOTAL ASSETS $ 12,979,209 $ 14,268,651
============ ============
CURRENT LIABILITIES 3,550,872 146,000 (A) 3,696,872
LONG-TERM LIABILITIES 380,956 380,956
------------ ------------
Total Liabilities 3,931,828 4,077,828
------------ ------------
MINORITY INTEREST 0 0
STOCKHOLDERS' EQUITY
Common stock 19,302 19,302
Paid-in capital 17,908,122 17,908,122
Retained deficit (8,880,043) 1,143,442 (A) (7,736,601)
------------ ------------
Total stockholders' equity 9,047,381 10,190,823
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 12,979,209 $ 1,500,000 $ 1,500,000 $ 14,268,651
============ ============ ============ ============
<FN>
Footnotes on page 6.
</FN>
PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
Year Ended June 30, 1996
------------------------------------------------------------------------------------------
Georgia Pro Forma Kansas Pro Forma
Adjustments Adjustments
------------------------------ -------------------------
Actual Debit Credit Ref Debit Credit Ref Pro Forma
------------------------------------------------------------------------------------------
OPERATING REVENUES:
Net patient revenues $23,622,560 $6,068,071 $184,000(E,F) $6,331,254 (B) $11,407,235
------------- --------------
Net operating revenues 23,622,560 11,407,235
------------- --------------
OPERATING EXPENSES:
Salaries and employee benefits 15,189,173 4,204,456(C,E) 3,387,295(B,C) 7,597,422
Other operating expenses 9,108,509 1,847,827(C,E) 2,255,209(B,C) 5,005,473
------------- --------------
Total operating expenses 24,297,682 12,602,895
------------- --------------
Loss from operations (675,122) (1,195,660)
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OTHER (INCOME) EXPENSE:
Gain on sale of assets 0 0
Interest income (113,834) 65,000(D) 75,000(D) (253,834)
------------- --------------
Net other income (113,834) (253,834)
------------- --------------
Loss before income taxes (561,288) (941,826)
INCOME TAX PROVISION (BENEFIT) 0 0
------------- --------------
NET LOSS BEFORE MINORITY
INTEREST (561,288) (941,826)
------------- --------------
MINORITY INTEREST 29,016 29,016
------------- ------------ ------------ ------------ ----------- --------------
NET LOSS $(590,304) $6,068,071 $6,301,283 $6,331,254 $5,717,504 $(970,842)
============= ============ ============ ============ =========== ==============
NET LOSS PER SHARE (primary and
fully diluted) ($0.31) ($0.50)
============= ==============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
1,930,244 1,930,244
============= ==============
<FN>
Footnotes on page 6.
</FN>
PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
Nine Months Ended March 31, 1997
-----------------------------------------------------------------------------------
Georgia Pro Forma Kansas Pro Forma
Adjustments Adjustments
------------------------ -------------------------
Actual Debit Credit Ref Debit Credit Ref Pro Forma
-----------------------------------------------------------------------------------
OPERATING REVENUES:
Net patient revenues $17,013,035 $4,856,216 $138,000(E,F) $3,738,745 (B) $8,556,074
------------- ------------
Net operating revenues 17,013,035 8,556,074
------------- ------------
OPERATING EXPENSES:
Salaries and employee benefits 11,926,130 3,371,655(C,E) 2,552,610(B,C) 6,001,865
Other operating expenses 6,668,417 1,291,786(C,E) 1,577,938(B,C) 3,798,693
------------- ------------
Total operating expenses 18,594,547 9,800,558
------------- ------------
Loss from operations (1,581,512) (1,244,484)
------------- ------------
OTHER (INCOME) EXPENSE:
Gain on sale of assets (530,942) (530,942)
Interest income (38,184) 48,750(D) 56,250(D) (143,184)
------------- ------------
Net other income (569,126) (674,126)
------------- ------------
Loss before income taxes (1,012,386) (570,358)
------------
INCOME TAX PROVISION (BENEFIT) 0 0
------------- ------------
NET LOSS BEFORE MINORITY
INTEREST (1,012,386) (570,358)
------------- ------------
MINORITY INTEREST 26,660 26,660
------------- ----------- ----------- ------------ ------------ ------------
NET LOSS $(1,039,046) $4,856,216 $4,850,191 $3,738,745 $4,186,798 $(597,018)
============= =========== =========== ============ ============ ============
NET LOSS PER SHARE (primary and
fully diluted) ($0.54) ($0.31)
============= ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
1,930,349 1,930,349
============= ============
<FN>
- --------------------------------------------------------------------------------
(A) To record the sale of the business and assets of Meadowbrook
Neurocare-Kansas City, Inc.
(B) Elimination of all operating revenue and expenses for Meadowbrook
Neurocare-Kansas City, Inc.
(C) Estimated reduction of corporate office salaries and wages and
operating expenses.
(D) Estimated increase in interest income due to higher cash balances.
(E) Elimination of all operating revenue and expenses for Meadowbrook
Rehabilitation Group of Georgia, Inc.
(F) Estimated increase in revenue due to increased Medicare reimbursement
based on higher overall Medicare utilization.
</FN>
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Class A Common Stock and Class B Common Stock as of
June 25, 1997, by (i) each of the Company's directors and executive officers,
(ii) all executive officers and directors of the Company as a group, and (iii)
each person known to the Company who beneficially owns more than 5% of the
outstanding shares of either class of the Company's Common Stock.
Class A Common Stock Class B Common Stock
---------------------------- ---------------------------
Percentage Beneficially
Owned of Total Votes
Number of Number of Entitled to be Cast by
Shares of Shares Holders of Common Stock
Directors, Executive Officers Beneficially Percentage of Beneficially Percentage Voting as a Single
and 5% Stockholders Owned (1) Class(2) Owned (1) of Class Class (2)
---------------------------------- --------------- --------------- --------------- ------------- -------------------------
Harvey Wm. Glasser, M.D. (3)... 26,261(4) 2.2% 773,000 100.0% 86.7%
Robert Rush.................... 10,000(5) .8% -- -- 0.1%
John P. McCracken.............. -- -- -- -- --
James F. Murphy................ 30,417(5) 2.5% -- -- 0.3%
Anita Macke.................... 41,667(6) 3.4% -- -- 0.5%
Heartland Advisors, Inc. (7)... 542,626 44.6% -- -- 6.1%
All executive officers and
directors as a group (five
persons)....................... 108,345(8) 8.9% 773,000 100.0% 87.6%
<FN>
(1) To the Company's knowledge, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property
laws where applicable and the information contained in the footnotes
to this table.
(2) Percentages are calculated with respect to a holder of stock options
exercisable on or prior to September 1, 1997 as if such holder had
exercised such options. Shares deemed issued to a holder of stock
options pursuant to the preceding sentence are not included in the
percentage calculation with respect to any other stockholder.
(3) Dr. Glasser's address is 2200 Powell Street, Suite 800, Emeryville, CA
94608.
(4) Excludes 19,635 shares held in irrevocable trusts for the benefit of
Dr. Glasser's adult children. Dr. Glasser does not act as a trustee of
any of the trusts. Dr. Glasser disclaims beneficial ownership of such
shares.
(5) All shares subject to stock options exercisable on or before September
1, 1997.
(6) Includes 19,167 shares subject to stock options exercisable on or
before September 1, 1997.
(7) Information based on Schedule 13G dated February 12, 1997. Heartland
Advisors' address is 790 North Milwaukee Street, Milwaukee, Wisconsin
53202.
(8) Excludes shares excluded in note (4) above and includes shares
included in notes (5) and (6) above.
</FN>
By Order of the Board of Directors
/s/ Harvey Wm. Glasser, M.D.
President and Chief Executive Officer
Dated: June 30, 1997.