The Board of Directors of Extendicare regularly reviews the various businesses it conducts to ensure that resources are deployed and activities are pursued in the best interests of its shareholders. On February 22, 2006, Extendicare announced that its Board of Directors had appointed a special committee of independent members of its Board of Directors to consider various structures and options that would provide value to shareholders, including a sale or reorganization of all or part of the Extendicare businesses. On May 31, 2006 Extendicare announced that its special committee had recommended, and the Board of Directors had authorized, the separation of ALC from Extendicare and the simultaneous conversion of Extendicare into an unincorporated open-ended real estate investment trust established under the laws of Ontario, pursuant to a plan of arrangement (the “Plan of
Arrangement”). The Board of Directors of Extendicare has determined that the separation of ALC from Extendicare and the conversion of Extendicare into an unincorporated open-ended real estate investment trust is in the best interests of Extendicare and its holders of Subordinate and Multiple Voting Shares, by providing opportunities and benefits to each company, including:
The Plan of Arrangement, which is subject to the approval of the holders of Extendicare’s Subordinate and Multiple Voting Shares and by the Ontario Superior Court of Justice (Commercial List), is described below.
Arrangement Agreement
Overview
The Arrangement Agreement will set forth the arrangement regarding the conversion of Extendicare Inc. into an unincorporated open-ended real estate investment trust established under the laws of Ontario and our separation from Extendicare. The Arrangement Agreement includes a Plan of Arrangement, which sets forth the steps to be taken by the parties to the Arrangement Agreement to complete the Exchange. Pursuant to the Arrangement Agreement, Extendicare will be obligated to apply to the Ontario Superior Court of Justice (Commercial List) for an Interim Order providing for a meeting of Extendicare’s shareholders so that the holders of Extendicare Subordinate and Multiple Voting Shares may vote on whether to approve the Plan of Arrangement and any other matters set forth in the Circular. The Plan of Arrangement requires the approval of two-thirds of the vote of holders of Extendicare’s Subordinate Voting Shares and Multiple Voting Shares, voting separately as a class in person or by proxy.
Extendicare is soliciting such proxies pursuant to the Circular and other proxy materials that it is distributing to its holders of Subordinate and Multiple Voting Shares (and not pursuant to this Information Statement). If the approval of the Plan of Arrangement is obtained from holders of Extendicare’s Subordinate and Multiple Voting Shares, and all other approvals required by the Interim Order are obtained, Extendicare will apply to the Ontario Superior Court of Justice (Commercial List) for a Final Order approving the Plan of Arrangement. Once the Final Order is obtained,
25
• The separation will allow the independent management of each of Extendicare and us to focus its attention and its company’s financial resources on its respective distinct business and challenges and to lead each
independent company to adopt strategies and pursue objectives that are appropriate to its respective business.
• As a U.S. based company listed on the NYSE, ALC will have the opportunity to attract more U.S. investors, which should lead to greater investor awareness and a more liquid market for its Class A common stock.
Extendicare Shares are currently primarily traded on the Toronto Stock Exchange, and may not have attracted a significant number of U.S. investors due to its lack of visibility in the United States and foreign exchange risk associated with Canadian operations.
• Through the split of Extendicare’s skilled nursing and assisted living businesses, investors should be in a better position to value the two independent companies and to better evaluate the performance of each company against their industry peers.
• ALC should have access to lower cost capital to fund acquisitions and growth.
Table of Contents
and provided that all of the conditions referred to below have been satisfied or waived, Extendicare will file Articles of Arrangement, and such other documents as may be required under the Canadian Business Corporations Act (the
“CBCA”), with the Director appointed under the CBCA to give effect to the Plan of Arrangement.
Plan of Arrangement
The Plan of Arrangement gives effect to the Exchange by providing for:
(1) the amendment of the articles of Extendicare to create an unlimited number of Extendicare Common Shares;
(2) the exchange of each Extendicare Subordinate Voting Share outstanding at the Effective Time (other than any such share in respect of which the registered holder has exercised dissent rights) by the holder thereof with Extendicare for (i) one Extendicare Common Share and (ii) one share of Class A common stock of ALC;
(3) the exchange of each Extendicare Multiple Voting Share outstanding at the Effective Time (other than any such share in respect of which the registered holder has exercised dissent rights) by the holder thereof with Extendicare for (i) 1.075 Extendicare Common Shares and (ii) one share of Class B common stock of ALC;
(4) the cancellation of all outstanding Extendicare Subordinate Voting Shares and Multiple Voting Shares; and
(5) the exchange of each Extendicare Common Share received pursuant to items (2) and (3) above for, ultimately, one unit of Extendicare REIT or, at the election of holders that are taxable Canadian residents, for one limited partnership unit of Extendicare Holding Partnership (which units of Extendicare Holding Partnership are exchangeable, subject to adjustment on the occurrence of certain specified events, at any time for units of Extendicare REIT on a 1:1 basis).
For purposes of this Information Statement, “taxable Canadian residents” means holders of Extendicare Common Shares that are not Excluded Shareholders. Excluded Shareholders, as more fully defined in the Circular, includes each of the following holders: (i) non-residents of Canada for purposes of the Canadian Income Tax Act, (ii) tax exempt shareholders, (iii) partnerships, (iv) holders that would acquire limited partnership units of
Extendicare Holding Partnership as a tax shelter investment or (v) holders in which an interest itself is a tax shelter investment.
Shareholders that validly exercise dissent rights in connection with the transactions described above will be entitled to receive the fair value of their Extendicare Shares and will not receive any shares of ALC pursuant to the Plan of Arrangement. After the completion of the Plan of Arrangement, Extendicare will not own any shares of our capital stock, except to the extent that Extendicare shareholders validly dissent to the Plan of Arrangement, and shares of ALC common stock that would have been exchanged with them will be owned by Extendicare after the completion of the Exchange.
After the completion of the Plan of Arrangement, Extendicare Subordinate Voting Shares will be delisted from the New York Stock Exchange and the Toronto Stock Exchange, and Extendicare Multiple Voting Shares will be delisted from the Toronto Stock Exchange. Units of Extendicare REIT are expected to be listed on the Toronto Stock Exchange only.
Conditions and Termination
In addition to the requirement for shareholder approval, court approval and other conditions customary for a transaction of this nature, completion of the Plan of Arrangement will be conditional on:
26
• all required consents and approvals being obtained and continuing in force without conditions or undertakings deemed unsatisfactory any party to the Arrangement Agreement;
• no orders being in force enjoining consummation of the transactions;
• no law being enacted which interferes or is inconsistent with the completion of the Arrangement;
Table of Contents
Each of the conditions can be waived at any time prior to the Effective Time by the applicable party in whose favor the condition exists.
By its terms, the Arrangement Agreement may be amended by the parties thereto or terminated without the approval of shareholders at any time prior to the Plan of Arrangement becoming effective pursuant to the provisions of the CBCA. In addition, the Arrangement Agreement will terminate if the transactions contemplated thereby have not occurred on or before December 31, 2006.
Manner of Effecting the Exchange
In order to effect the Exchange, Extendicare will deposit with the Exchange Agent all of the issued and
outstanding capital stock of ALC. Prior to such deposit, we will reclassify our common stock as required to effect the Exchange. The Circular will contain more detailed instructions for the surrender of Extendicare Subordinate and Multiple Voting Shares and other procedures related to the Exchange.
Dissent Rights
Registered holders of Extendicare Subordinate or Multiple Voting Shares that validly exercise dissent rights in connection with the transactions described above will be entitled to receive the fair value of their Extendicare Shares and will not receive any shares of ALC pursuant to the Plan of Arrangement. After the Plan of Arrangement is completed, each holder of Extendicare Subordinate or Multiple Voting Shares exercising his or her dissent rights will no longer have any rights as a shareholder of Extendicare with respect to his or her shares, except for the right to receive payment of the judicially-determined fair value of his or her shares pursuant to Canadian law, if the shareholder has validly perfected and not withdrawn such right.
Results of the Separation and Exchange
We are currently a wholly owned subsidiary of Extendicare. After the completion of the Plan of Arrangement, we will be a separate publicly-traded company. Immediately following the completion of the Plan of Arrangement, we expect to have approximately 56.2 million shares of our Class A common stock outstanding and approximately 11.8 million shares of our Class B common stock outstanding, based on the number of Subordinate and Multiple Voting Shares of Extendicare outstanding as of June 30, 2006 (excluding Subordinate Voting Shares of Extendicare that underlie approximately 1.6 million outstanding options). The actual number of ALC shares to be distributed in the Exchange will be determined on the completion date of the Plan of Arrangement and will reflect the exercise of any Extendicare options between the date the Arrangement Agreement is signed and its completion.
We and Extendicare will be parties to a number of agreements that will govern our separation from Extendicare and our future relationship. For a more detailed description of these agreements, see “Our Separation from and Relationship with Extendicare After the Exchange.”
27
• holders of Subordinate Voting Shares and Multiple Voting shares holding more than 1.0% of the issued and outstanding shares not having validly exercised dissent rights;
• holders of Subordinate Voting Shares and Multiple Voting Shares who immediately prior to the Effective Time are non-residents of Canada and who are to receive Extendicare REIT units not owning, immediately following closing of the Arrangement, in excess of 40% of all then outstanding units;
• the Registration Statement (of which this Information Statement Forms a part) being declared effective by the SEC;
• our obtaining conditional approval to list our Class A common stock on the NYSE and Extendicare REIT obtaining conditional approval to list its units on the Toronto Stock Exchange; and
• our entering into the separation agreement and tax allocation agreement.
Table of Contents