<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(z))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
HOME HEALTH CORPORATION OF AMERICA, INC.
................................................................................
(Name of Registrant as Specified In Its Charter)
................................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[_] No fee required.
[X] 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:
Common Stock, no par value.
(2) Aggregate number of securities to which transaction applies:
A maximum of 2,822,000 shares of the Registrant's Common Stock is
issuable in the transaction.
(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.):
$24,319,326.38, aggregate underlying value of transaction based upon
the market value of the securities to be received by the Registrant
and computed in accordance with Rule 0-11(a)(4) and Rule 0-11(c)(i).
(4) Proposed maximum aggregate value of transaction:
$24,319,326.38
(5) Total fee paid:
$4,863.87
[_] Fee paid previously with preliminary materials.
[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:
$7,369.49
(2) Form, Schedule or Registration Statement No.:
Restrictive statement of Form S-4 (File No. 333-39847)
(3) Filing Party:
Home Health Corporation of America, Inc.
(4) Date Filed:
November 7, 1997
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC.
2200 RENAISSANCE BOULEVARD, SUITE 300
KING OF PRUSSIA, PA 19406
(610) 272-1717
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders (the
"HHCA Annual Meeting") of Home Health Corporation of America, Inc. ("HHCA"), to
be held on [ ], at [_______] a.m., local time at the
[Adams Mark Hotel, City Line Avenue and Monument Road, Philadelphia,
Pennsylvania], and any adjournments or postponements thereof. This Proxy
Statement and accompanying proxy card are first being mailed to shareholders on
or about [ ].
At the HHCA Annual Meeting you will be asked (i) to consider and act upon a
proposal to approve and adopt the Amended and Restated Agreement and Plan of
Merger, dated as of September 26, 1997 (the "Merger Agreement"), among U.S.
HomeCare Corporation, a New York corporation ("USHO"), HHCA and HHCA Acquisition
Corporation, Inc., a Delaware corporation and a wholly owned subsidiary of HHCA
("Subsidiary"), and to approve the merger (the "Merger") of Subsidiary with and
into USHO pursuant to the Merger Agreement; (ii) to elect one Class B director
to hold office for a term of three years and until his successor is duly elected
and qualified; (iii) to consider and act upon a proposal to approve amendments
to HHCA's 1995 Employee and Consultant Equity Plan (the "Plan"); and (iv) vote
on adjournment of the HHCA Annual Meeting, if necessary, to permit further
solicitation of proxies in the event there are not sufficient votes at the time
of the HHCA Annual Meeting to constitute a quorum or to approve the Merger.
Subject to reduction under certain circumstances, holders of shares of
common stock, par value $.01 per share, of USHO (the "USHO Common Stock") and
shares of $35.00 6% Convertible Preferred Stock, par value $1.00 per share, of
USHO (the "USHO Preferred Stock") will receive in the Merger in exchange for
their USHO shares an aggregate maximum of between (i) 2,622,000 shares of common
stock, no par value per share, of HHCA (the "HHCA Common Stock") if the average
of the last reported sale prices of HHCA Common Stock on Nasdaq for the ten
business days ending three business days before the special meeting in lieu of
the annual meeting of shareholders of USHO (the "HHCA Average Share Price") is
$13.36 or more, and (ii) 2,822,000 shares if the HHCA Average Share Price is
$9.50 or less.
THE BOARD OF DIRECTORS OF HHCA HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT AND THE AMENDMENTS TO THE PLAN, AND UNANIMOUSLY RECOMMENDS THAT
THE SHAREHOLDERS OF HHCA VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND FOR APPROVAL OF THE AMENDMENTS TO THE PLAN.
You are urged to read carefully the accompanying Proxy Statement for more
detailed information concerning the Merger Agreement and the proposed amendments
to the Plan.
Whether or not you plan to attend the HHCA Annual Meeting in person, please
complete, sign and date the accompanying proxy card and return it in the
enclosed prepaid envelope. You may revoke your Proxy in the manner described in
the accompanying Proxy Statement at any time before it has been voted at the
HHCA Annual Meeting. If you attend the HHCA Annual Meeting in person, you may
vote your shares personally on all matters even if you have previously returned
a proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely,
Bruce J. Colburn
Chief Financial Officer and Secretary
[ ]
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC.
2200 RENAISSANCE BOULEVARD, SUITE 300
KING OF PRUSSIA, PA 19406
_______________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD [ ]
_______________________
To the Shareholders of Home Health Corporation of America, Inc.:
Notice is hereby given that the 1997 Annual Meeting of Shareholders of Home
Health Corporation of America, Inc. ("HHCA") will be held at [ ] a.m., local
time on [ ], at the [Adams Mark Hotel, City Line Avenue and Monument Road,
Philadelphia, Pennsylvania] to:
1. Consider and act upon a proposal to approve and adopt the Amended and
Restated Agreement and Plan of Merger, dated as of September 26, 1997,
among HHCA, HHCA Acquisition Corporation, Inc., a Delaware corporation
and wholly-owned subsidiary of HHCA ("Subsidiary"), and U.S. HomeCare
Corporation, a New York corporation ("USHO"), and to approve the
merger (the "Merger") of Subsidiary with and into USHO.
2. Elect one Class B director to hold office for a term of three years
and until his successor is duly elected and qualified;
3. Consider and act upon a proposal to approve amendments to HHCA's 1995
Employee and Consultant Equity Plan;
4. Vote on adjournment of the HHCA Annual Meeting, if necessary, to
permit further solicitation of proxies in the event there are not
sufficient votes at the time of the HHCA Annual Meeting to constitute
a quorum or to approve the Merger; and
5. Transact such other business as may properly come before the HHCA
Annual Meeting.
Only shareholders of record at the close of business on [ ], are
entitled to notice of, and to vote at, the Annual Meeting or any adjournment or
postponement thereof.
If the Annual Meeting is adjourned for one or more periods aggregating at
least 15 days because of the absence of a quorum, those shareholders entitled to
vote who attend the reconvened Annual Meeting, if less than a quorum as
determined under applicable law, shall nevertheless constitute a quorum for the
purpose of acting upon any matter set forth in this Notice of Annual Meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE HHCA ANNUAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE HHCA ANNUAL MEETING IN PERSON, YOU ARE
URGED TO MARK, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD. A SELF-
ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE; NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES.
By Order of the Board of Directors
Bruce J. Colburn
Chief Financial Officer and Secretary
King of Prussia, Pennsylvania
[ ]
<PAGE>
PRELIMINARY COPIES
CONFIDENTIAL, FOR USE OF COMMISSION ONLY
________________________________________________________________________________
HOME HEALTH CORPORATION OF AMERICA, INC.
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON _________________
________________________________________________________________________________
This Proxy Statement is being furnished to shareholders of Home Health
Corporation of America, Inc., a Pennsylvania corporation ("HHCA") in connection
with the solicitation of proxies by the board of directors of HHCA for use at
its annual meeting of shareholders (including any adjournments or postponements
thereof) (the "HHCA Annual Meeting") which is to be held at [the Adams Mark
Hotel, City Line Avenue and Monument Road, Philadelphia, Pennsylvania], on
[ ], at [____] a.m., local time. At the HHCA Annual Meeting, shareholders
of HHCA will (i) consider and act upon a proposal to approve and adopt the
Amended and Restated Agreement and Plan of Merger, dated as of September 26,
1997 (the "Merger Agreement"), among U.S. HomeCare Corporation, a New York
corporation ("USHO"), HHCA, and HHCA Acquisition Corporation, Inc., a Delaware
corporation and wholly owned subsidiary of HHCA ("Subsidiary"), and to approve
the merger ("Merger") of Subsidiary with and into USHO pursuant to the Merger
Agreement; (ii) elect one Class B director to hold office for a term of three
years and until his successor is duly elected and qualified; (iii) consider and
act on a proposal to approve amendments to the Plan; (iv) vote on adjournment of
the HHCA Annual Meeting, if necessary, to permit further solicitation of proxies
in the event there are not sufficient votes at the time of the HHCA Annual
Meeting to constitute a quorum or to approve the Merger; and (v) transact such
other business as may properly come before the meeting.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
SUMMARY....................................................................... 1
The Companies............................................................ 1
The HHCA Annual Meeting.................................................. 1
The Merger............................................................... 3
Election of Director..................................................... 7
Amendments to the Plan................................................... 8
THE HHCA ANNUAL MEETING....................................................... 9
General.................................................................. 9
Proposals to be Presented at HHCA Annual Meeting......................... 9
Voting Rights............................................................ 9
Proxies.................................................................. 10
Solicitation of Proxies by HHCA.......................................... 10
THE PROPOSED MERGER AND RELATED MATTERS....................................... 12
The Merger............................................................... 12
Aggregate Number of Shares Issuable in the Merger........................ 12
Conversion of USHO Common Stock.......................................... 12
Conversion of USHO Preferred Stock....................................... 13
Examples of Merger Consideration at Various HHCA Average Share Prices.... 13
Treatment of Stock Options and Warrants.................................. 15
Background of the Merger................................................. 15
HHCA's Reasons for the Merger; HHCA's Recommendation of the Board of
Directors............................................................... 19
Opinion of HHCA Financial Advisor........................................ 20
Effective Time of the Merger............................................. 23
Exchange Procedure....................................................... 23
Representations and Warranties........................................... 24
Conditions to the Merger................................................. 24
Covenants................................................................ 25
Termination.............................................................. 27
Expenses................................................................. 27
Modification............................................................. 28
Interests of Certain Persons in the Merger............................... 28
Certain Federal Income Tax Consequences.................................. 29
Regulatory Approvals..................................................... 29
Resales of HHCA Common Stock............................................. 30
Accounting Treatment..................................................... 30
Operations and Management of USHO After the Merger....................... 31
SELECTED FINANCIAL INFORMATION................................................ 32
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS......................... 36
DESCRIPTION OF USHO........................................................... 42
DESCRIPTION OF HHCA........................................................... 42
DESCRIPTION OF SUBSIDIARY..................................................... 42
ELECTION OF DIRECTOR.......................................................... 43
Shareholder Nominations.................................................. 44
Board of Directors, Committees and Attendance at Meetings................ 45
Director Compensation.................................................... 45
Security Ownership of Certain Beneficial Owners and Management........... 46
Executive Compensation................................................... 48
Certain Relationships and Related Transactions........................... 54
Stock Performance Graph.................................................. 55
</TABLE>
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<TABLE>
<S> <C>
APPROVAL OF AMENDMENTS TO THE
HOME HEALTH CORPORATION OF AMERICA, INC.
1995 EMPLOYEE AND CONSULTANT EQUITY PLAN...................................... 56
Background............................................................... 56
Purpose of the Plan...................................................... 56
Awards................................................................... 56
Eligibility and Administration........................................... 57
Aggregate Number of Shares and Adjustment................................ 58
No Shareholder Rights Regarding Awards................................... 58
Termination of Service; Death............................................ 58
Transfer Restrictions Under the Plan; Conditions of Issuance............. 59
Exercise of Awards....................................................... 59
Regulatory Requirements.................................................. 59
Payment of Shares........................................................ 59
Determination of Fair Market Value....................................... 60
Options.................................................................. 60
Outside Director's Options............................................... 60
Stock Appreciation Rights................................................ 61
Restricted Stock......................................................... 61
Unrestricted Stock....................................................... 62
Deferred Stock........................................................... 62
Performance Awards....................................................... 62
Loans and Supplemental Grants............................................ 62
Applicability of ERISA................................................... 62
Tax Withholding.......................................................... 62
Amendment or Termination................................................. 63
Federal Income Tax Consequences.......................................... 63
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE....................... 66
SHAREHOLDER PROPOSALS......................................................... 66
APPOINTMENT OF AUDITORS....................................................... 66
OTHER MATTERS................................................................. 66
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE............................. 66
ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-K................................... 69
</TABLE>
APPENDIX "A" - Amended and Restated Agreement and Plan of Merger
APPENDIX "B" - Opinion of Hambrecht & Quist
APPENDIX "C" - Home Health Corporation of America, Inc.
Amended and Restated 1995 Employee and Consultant Equity Plan
(ii)
<PAGE>
________________________________________________________________________________
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. This summary is included to assist the shareholders of
HHCA in their review of this Proxy Statement and is qualified in its entirety by
reference to the more detailed information appearing elsewhere in this Proxy
Statement, including the Appendices hereto. Shareholders are urged to read this
Proxy Statement and its Appendices before voting on the matters discussed
herein.
__________________________
THE COMPANIES
Home Health Corporation of America, Inc. HHCA is a leading provider of
comprehensive home health care services and products, delivering nursing and
related patient services, respiratory therapy, infusion therapy and durable
medical equipment. HHCA operates 61 branch locations in Florida, Pennsylvania,
Delaware, New Jersey, Maryland, Massachusetts, New Hampshire, Texas, Illinois
and Maine. HHCA provides a "one-stop-shop" of cost effective, comprehensive
home health care services and products. HHCA operates regional "Coordinated
Care Centers" which serve as focal points for managed care organizations,
hospitals, physicians, discharge planners and other health care providers to
efficiently arrange for HHCA services and products.
At June 30, 1997, HHCA had consolidated assets of approximately $153.3
million and consolidated shareholders' equity of approximately $50.6 million and
employed approximately 3,100 full- and part-time persons. See "Description of
HHCA."
HHCA was incorporated under the laws of Pennsylvania in December 1982. Its
principal executive offices are located at 2200 Renaissance Boulevard, Suite
300, King of Prussia, Pennsylvania, 19406, and its telephone number is (610)
272-1717.
U.S. HomeCare Corporation. USHO is a regional provider of paraprofessional
and professional home health care services, including nursing care, personal
care, and other specialized therapies. USHO is headquartered in Hartford,
Connecticut and has operations in New York (Westchester County, metropolitan New
York City, Long Island and upstate New York) as well as Connecticut and
Pennsylvania. USHO has designed specialized programs for patients with
particular diseases such as cancer, AIDS and Alzheimer's disease, and for
particular classes of patients such as the developmentally disabled and hospice
patients.
At June 30, 1997, USHO had consolidated assets of approximately $12.7
million and consolidated shareholders' deficit of approximately $4.8 million and
employed approximately 3,200 full- and part-time persons. See "Description of
USHO."
USHO was incorporated under the laws of New York in April 1986. Its
principal executive offices are located at Two Hartford Square West, Hartford,
Connecticut, 06106, and its telephone number is (860) 278-7242.
HHCA Acquisition Corporation, Inc. Subsidiary is a direct, wholly owned
subsidiary of HHCA and has not engaged in any business activity unrelated to the
Merger. The principal executive offices of Subsidiary are located at 2200
Renaissance Boulevard, Suite 300, King of Prussia, Pennsylvania, 19406, and its
telephone number is (610) 272-1717. See "Description of Subsidiary."
THE HHCA ANNUAL MEETING
Date, Place and Time of HHCA Annual Meeting. This Proxy Statement is being
furnished to the shareholders of HHCA in connection with the solicitation of
proxies by the board of directors of HHCA for use at the HHCA Annual Meeting
which will be held at [the Adams Mark Hotel, City Line Avenue and
________________________________________________________________________________
<PAGE>
________________________________________________________________________________
Monument Road, Philadelphia, Pennsylvania,] on [ ], at [____] a.m.,
local time, and any adjournments or postponements thereof. This Proxy Statement
and related materials are first being mailed to shareholders of HHCA on or about
[_________________].
Purpose of HHCA Annual Meeting. At the HHCA Annual Meeting, the
shareholders of HHCA are being asked to: (i) consider and act upon a proposal to
approve and adopt the Merger Agreement and approve the Merger; (ii) elect one
Class B director to hold office for a term of three years and until his
successor is duly elected and qualified; (iii) consider and act on a proposal to
approve amendments to HHCA's 1995 Employee and Consultant Equity Plan (the
"Plan"); (iv) vote on adjournment of the HHCA Annual Meeting, if necessary, to
permit further solicitation of proxies in the event there are not sufficient
votes at the time of the HHCA Annual Meeting to constitute a quorum or to
approve the Merger; and (v) conduct such other business as may properly come
before the HHCA Annual Meeting.
Shares Entitled to Vote and Shares Outstanding. Only holders of record of
common stock, no par value per share, of HHCA (the "HHCA Common Stock") at the
close of business on [___________________] (the "Record Date") will be entitled
to notice of and to vote at the HHCA Annual Meeting.
Holders of record of HHCA Common Stock on the Record Date are entitled to
one vote per share on any matter that may properly come before the HHCA Annual
Meeting. At the close of business on the Record Date, there were
[___________________] shares of HHCA Common Stock outstanding. The presence,
either in person or by proxy, of the holders of record of a majority of the
shares of HHCA Common Stock outstanding as of the Record Date is necessary to
constitute a quorum at the HHCA Annual Meeting. All shares of the HHCA Common
Stock present in person or represented by proxy and entitled to vote at the HHCA
Annual Meeting, no matter how they are voted or whether they abstain from
voting, will be counted in determining the presence of a quorum. If the HHCA
Annual Meeting is adjourned because of the absence of a quorum, those
shareholders entitled to vote who attend the adjourned meeting, although
constituting less than a quorum as provided herein, shall nevertheless
constitute a quorum for the purpose of electing directors. If the HHCA Annual
Meeting is adjourned for one or more periods aggregating at least 15 days
because of the absence of a quorum, those shareholders entitled to vote who
attend the reconvened HHCA Annual Meeting, if less than a quorum as determined
under applicable law, shall nevertheless constitute a quorum for the purpose of
acting upon any matter set forth in the Notice of Annual Meeting.
Vote Required by HHCA Shareholders. The election of the Class B director
will be determined by a plurality vote and the nominee receiving the most "for"
votes will be elected. Approval of all other matters to be voted on at the HHCA
Annual Meeting, including the proposal to approve the Merger Agreement and
approve the Merger and the proposal to approve the amendments to the Plan, will
require the affirmative vote, either in person or by proxy, of a majority of the
shares cast on each such proposal. Under the Pennsylvania Business Corporation
Law, an abstention, withholding of authority to vote or broker non-vote will not
have the same legal effect as an "against" vote and will not be counted in
determining whether the proposal has received the required shareholder vote.
The directors and officers of HHCA beneficially own shares of HHCA Common
Stock (including those shares as to which they have shared voting power)
representing an aggregate of approximately [ ]% of the votes which all
holders of HHCA Common Stock are entitled to cast at the HHCA Annual Meeting.
Proxies. A form of Proxy for use by HHCA shareholders in connection with
the HHCA Annual Meeting is enclosed. Each properly executed and returned Proxy
will be voted at the HHCA Annual Meeting in accordance with the instructions
thereon. If no instructions are given, such Proxy will be voted FOR the proposal
to approve and adopt the Merger Agreement and approve the Merger, FOR the
election of the nominee for director hereinafter named, FOR the proposal to
consider and approve amendments to the Plan, and FOR adjournment of the HHCA
Annual Meeting, if necessary, to permit further solicitation of proxies
________________________________________________________________________________
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________________________________________________________________________________
in the event there are not sufficient votes at the time of the HHCA Annual
Meeting to constitute a quorum to approve the Merger.
Any shareholder of HHCA giving a Proxy may revoke it at any time before it
is exercised by, among other methods, giving written notice of such revocation
to the Secretary of HHCA prior to its exercise. The presence at the HHCA Annual
Meeting of any HHCA shareholder who has given a Proxy will not revoke the Proxy
unless the shareholder withdraws the Proxy and votes in person.
Solicitation of Proxies. In addition to solicitation by mail, directors,
officers and employees of HHCA may solicit proxies from the shareholders of HHCA
personally or by telephone, telegraph or facsimile. Upon request, HHCA will pay
the reasonable expenses incurred by record holders of the HHCA Common Stock who
are brokers, dealers, banks or voting trustees, or their nominees, for mailing
proxy material and annual shareholder reports to the beneficial owners of the
shares they hold of record. The expense of the proxy solicitation will be borne
by HHCA. See "The HHCA Annual Meeting."
THE MERGER
The Merger. On the date the Merger is consummated, Subsidiary will be
merged with and into USHO which will be the surviving corporation and a wholly
owned subsidiary of HHCA.
Conversion of Securities. Subject to reduction under certain circumstances,
holders of USHO Common Stock and USHO Preferred Stock will receive in the Merger
in exchange for their USHO shares an aggregate maximum of between (i) 2,622,000
shares of HHCA Common Stock if the average of the last reported sale prices of
HHCA Common Stock on Nasdaq for the ten business days ending three business days
before the USHO Special Meeting (the "HHCA Average Share Price") is $13.36 or
more, and (ii) 2,822,000 shares if the HHCA Average Share Price is $9.50 or
less.
Pursuant to the Merger Agreement, as of the Effective Time, each issued and
outstanding share of USHO Common Stock (other than shares held in the treasury
of USHO or shares held by shareholders of USHO who have asserted dissenters'
rights pursuant to the New York Business Corporation Law ("NYBCL") will be
converted into the right to receive a number of shares of HHCA Common Stock to
be determined as of the Effective Time by multiplying each share of USHO Common
Stock by a conversion ratio to be determined as of the Effective Time by
calculation of one of five alternative formulas set forth in Section 2.1 of the
Merger Agreement.
Pursuant to the Merger Agreement, as of the Effective Time, each issued and
outstanding share of USHO Preferred Stock (other than any shares held by
shareholders of USHO who have asserted dissenters' rights pursuant to the NYBCL)
will be converted into the right to receive the greater of (i) the number of
shares of HHCA Common Stock, which, based on the HHCA Average Share Price, is
equal in value to $35.00, plus any dividends declared or accrued but unpaid on
such share of USHO Preferred Stock at the Effective Time, or (ii) the number of
shares of HHCA Common Stock that would be issuable if such share of USHO
Preferred Stock had been converted into USHO Common Stock immediately prior to
the Effective Time pursuant to the terms of USHO's Certificate of Incorporation.
Based upon certain assumptions set forth in "The Proposed Merger and
Related Matters-- Conversion of USHO Common Stock," and "--Conversion of USHO
Preferred Stock," if the HHCA Average Share Price is $10.63 (the last reported
sale price of HHCA Common Stock on the Nasdaq National Market ("Nasdaq") on
November 5, 1997), each share of USHO Common Stock will be converted into .1375
shares of HHCA Common Stock and each share of USHO Preferred Stock will be
converted into 3.29 shares of HHCA Common Stock (based on a conversion ratio of
21.77 shares of USHO Common Stock for each share of USHO Preferred Stock).
________________________________________________________________________________
-3-
<PAGE>
________________________________________________________________________________
See "The Proposed Merger and Related Matters--Aggregate Number of Shares
Issuable in the Merger," "--Conversion of USHO Common Stock," "--Conversion of
USHO Preferred Stock" and "--Examples of Merger Consideration at Various HHCA
Average Share Prices."
Treatment of Stock Options and Warrants. Each option to purchase USHO
Common Stock issued to employees and consultants of USHO pursuant to USHO's 1995
Stock Option/Stock Issuance Plan (as amended February 15, 1996) (the "Option
Plan"), and each warrant to purchase USHO Common Stock outstanding at the
Effective Time will remain outstanding after the Effective Time and will be
assumed by HHCA. See "The Proposed Merger and Related Matters--Treatment of
Stock Options and Warrants."
Exchange Procedure. HHCA and USHO have designated [__________] to act as
the exchange agent to receive the stock certificates of USHO shareholders and to
exchange such certificates for HHCA Common Stock and any cash payable in lieu of
issuance of fractional shares. See "The Proposed Merger and Related Matters--
Exchange Procedure."
Recommendation of the Board of Directors of HHCA and Reasons for the
Merger. The HHCA board of directors believes that the terms of the Merger are
fair to, and in the best interests of, HHCA and its shareholders. Accordingly,
HHCA's board of directors has unanimously approved and adopted the Merger
Agreement and approved the Merger and unanimously recommends a vote FOR approval
and adoption of the Merger Agreement and approval of the Merger by the
shareholders of HHCA. See "The Proposed Merger and Related Matters--HHCA's
Reasons for the Merger; HHCA's Recommendation of the Board of Directors."
In its deliberations with respect to the Merger, the HHCA board of
directors reviewed and consulted with management of HHCA and the financial and
legal advisors of HHCA concerning a number of factors relevant to the Merger.
See "The Proposed Merger and Related Matters--HHCA's Reasons for the Merger;
HHCA's Recommendation of the Board of Directors."
Opinion of HHCA Financial Advisor. In making its recommendation with
respect to the Merger, the board of directors of HHCA considered, among other
things, the written opinion, dated as of September 26, 1997, of Hambrecht &
Quist LLC ("H&Q"), to the effect that, as of such date and based upon and
subject to the assumptions, limitations and qualifications set forth therein,
the proposed Merger was fair to HHCA shareholders from a financial point of
view. The full text of this written opinion of Hambrecht & Quist is attached as
Appendix "B" hereto. HHCA shareholders are urged to read the opinion carefully
in its entirety. See "The Proposed Merger and Related Matters--Opinion of HHCA
Financial Advisor."
Effective Time. The Merger will become effective upon the filing of a
Certificate of Merger as required under the NYBCL and the Delaware General
Corporation Law (the "DGCL"), or at such later time as is agreed by the parties
and specified in the Certificate of Merger. The Merger Agreement requires that
the filing be made no later than two business days after the satisfaction or
waiver of the various conditions to the Merger set forth in the Merger
Agreement, or at such other time as may be agreed by USHO and HHCA. See "The
Proposed Merger and Related Matters--Effective Time of the Merger."
Conditions to the Merger. The obligations of the parties to the Merger
Agreement are subject to the satisfaction of a number of conditions, including
the approval of the Merger by the shareholders of USHO and HHCA and compliance
with certain other terms and conditions. See "The Proposed Merger and Related
Matters--Conditions to the Merger."
________________________________________________________________________________
-4-
<PAGE>
________________________________________________________________________________
Termination. The Merger Agreements may be terminated under certain
circumstances at any time prior to the Effective Time, either before or after
the approval of the shareholders of USHO and HHCA. See "The Proposed Merger and
Related Matters--Termination."
Expenses. The Merger Agreement generally provides that each party thereto
will bear its own expenses, provided that USHO and HHCA will share equally
certain expenses related to the preparation and filing of the registration
statement relating to the issuance of HHCA Common Stock in the Merger. See "The
Proposed Merger and Related Matters--Expenses." However, upon termination of the
Merger Agreement under certain circumstances, one party may be required to bear
the expenses of the other party. Furthermore, to the extent that Merger related
expenses incurred by USHO exceed $1,500,000, then the aggregate number of shares
of HHCA Common Stock issuable in the Merger will be reduced. See "The Proposed
Merger and Related Matters--Aggregate Number of Shares Issuable in the Merger"
and "--Expenses."
Interests of Certain Persons in the Merger. Certain directors and officers
of USHO have certain interests in the Merger that are in addition to their
interests solely as shareholders of USHO. See "The Proposed Merger and Related
Matters--Interests of Certain Persons in the Merger."
Certain Federal Income Tax Consequences. The Merger is intended to be a
tax-free reorganization so that no gain or loss would be recognized by HHCA or
USHO and no gain or loss would be recognized by USHO shareholders with respect
to the exchange of their shares of USHO Common Stock or USHO Preferred Stock for
shares of HHCA Common Stock, except in respect of cash received for fractional
shares. Consummation of the Merger is conditioned upon an opinion of HHCA
counsel, dated the Effective Time of the Merger, being delivered to the effect
that the Merger will constitute a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
See "The Proposed Merger and Related Matters--Certain Federal Income Tax
Consequences."
Regulatory Approvals. USHO and HHCA intend to file pre-merger notification
forms with the Federal Trade Commission ("FTC") and the Department of Justice
under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended (the
"HSR Act"), and the required waiting period will terminate 30 days after the
filing date unless terminated at an earlier date pursuant to USHO's and HHCA's
request for an early termination of the waiting period. HHCA has also filed an
application with the New York State Department of Health for approval of the
proposed change of control of USHO's New York home health care operations. No
other material federal or state regulatory approvals must be obtained in order
to consummate the Merger. See "The Proposed Merger and Related Matters--
Regulatory Approvals."
Accounting Treatment. The Merger is intended to qualify as a pooling of
interests for accounting and financial reporting purposes. Consummation of the
Merger is conditioned upon the Merger qualifying as a pooling of interests
transaction under generally accepted accounting principles. See "The Proposed
Merger and Related Matters--Accounting Treatment" and "--Conditions to the
Merger."
Operations and Management of USHO After the Merger. Following the Effective
Time, USHO will be a wholly owned subsidiary of HHCA, and all of USHO's
subsidiaries and affiliates will be indirect subsidiaries and affiliates of
HHCA. HHCA will continue its operations as prior to the Merger and will continue
to be managed by the same board of directors and executive officers. After the
Effective Time USHO will be managed by a board of directors and executive
officers selected by HHCA. See "The Proposal Merger and Related Matters--
Operations and Management of USHO After the Merger."
________________________________________________________________________________
-5-
<PAGE>
________________________________________________________________________________
Comparative Per Share Data. The following table presents HHCA historical,
USHO historical and equivalent pro forma and HHCA and USHO pro forma combined
per share data after giving effect to the Merger using the pooling of interests
method of accounting, assuming the Merger had been effective during all periods
presented. The equivalent pro forma data for USHO is calculated by multiplying
the pro forma combined per share data by .1375, the conversion ratio which on
the basis of certain assumptions would be utilized to convert at the Effective
Time each share of USHO Common Stock into shares of HHCA Common Stock if the
HHCA Average Share Price is $10.63 (the last reported sale price of HHCA Common
Stock on Nasdaq on November 5, 1997). See "The Proposed Merger and Related
Matters--Conversion of USHO Common Stock" and "--Conversion of USHO Preferred
Stock." The pro forma data does not purport to be indicative of the results of
future operations or the results that would have occurred had the Merger been
consummated at the beginning of the periods presented. The information set forth
below should be read in conjunction with the financial statements and notes
thereto of HHCA and USHO incorporated herein by reference and the Unaudited Pro
Forma Consolidated Financial Statements included elsewhere in this Proxy
Statement. Neither HHCA nor USHO paid any cash dividends during the periods
presented.
<TABLE>
<CAPTION>
USHO
---------------------------
HHCA Equivalent Pro Forma
Historical Historical(1) Pro Forma Combined
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Book value (deficit) per share of common stock
outstanding at June 30, 1997............................ $ 5.83 $ (0.50) $ 0.60 $ 4.36
Net income (loss) per share from continuing operations
before extraordinary item and cumulative effect
of change in accounting principle:
1997..................................................... 0.32 (0.57) (0.04) (0.26)
1996..................................................... 0.36 (0.32) -- (0.03)
1995..................................................... 0.17 (2.22) (0.52) (3.78)
</TABLE>
_____________
(1) As restated to conform to HHCA's fiscal year which ends on June 30. USHO's
historical book deficit per share as of December 31, 1996 was $0.80. USHO's
historical net loss per share from continuing operations for the years ended
December 31, 1996, 1995 and 1994 was $2.68, $0.22 and $3.25, respectively.
________________________________________________________________________________
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<PAGE>
________________________________________________________________________________
Comparative Market Data. HHCA Common Stock is traded on Nasdaq under the
symbol "HHCA." USHO Common Stock is traded on the OTC Bulletin Board under the
symbol "USHO." Set forth below are the closing sale price per share of HHCA
Common Stock and the average of the bid and asked prices of USHO Common Stock as
reported on Nasdaq and on the OTC Bulletin Board, respectively, and the
equivalent closing price per share of USHO Common Stock, on September 26, 1997,
the last business day preceding public announcement of the Merger, and November
5, 1997.
<TABLE>
<CAPTION>
Closing Price Per Average of Bid and Equivalent Closing Price
Share of HHCA Asked Prices of Per Share of USHO
Date Common Stock USHO Common Stock Common Stock (1)
- ----------------------- -------------------- -------------------- -------------------------
<S> <C> <C> <C>
September 26, 1997..... $12.63 $1.52 $1.74
November 5, 1997....... 10.63 1.13 1.46
</TABLE>
(1) USHO equivalent closing price per share has been calculated by multiplying
the market price of HHCA Common Stock by .1375, the conversion ratio which
on the basis of certain assumptions would be utilized to convert at the
Effective Time each share of USHO Common Stock into shares of HHCA Common
Stock if the HHCA Average Share Price is $10.63 (the last reported sale
price of HHCA Common Stock on Nasdaq on November 5, 1997). At such HHCA
Average Share Price, the conversion ratio which would be utilized to
convert each share of USHO Common Stock underlying the USHO Preferred Stock
into HHCA Common Stock would be .1513, assuming each share of USHO
Preferred Stock is convertible into 21.77 shares of USHO Common Stock. At a
conversion ratio of .1513, the equivalent HHCA Closing Price per share of
USHO Common Stock on September 26, 1997 would be $1.74 and the equivalent
HHCA Closing Price per share on November 5, 1997 would be $1.61. See "The
Proposed Merger and Related Matters --Conversion of USHO Common Stock" and
"--Conversion of USHO Preferred Stock" and "--Examples of Merger
Consideration at Various HHCA Average Share Prices."
Holders of HHCA shares are advised to obtain current market quotations for
HHCA Common Stock and USHO Common Stock. No assurance can be given as to the
market price of HHCA Common Stock at the Effective Time or at any other time.
ELECTION OF DIRECTOR
At the HHCA Annual Meeting shareholders will elect one Class B director to
serve for a term of three years and until his successor is elected and
qualified. The board of directors has nominated G. Michael Bellenghi to serve as
the Class B director. See "Election of Director."
________________________________________________________________________________
-7-
<PAGE>
AMENDMENTS TO THE PLAN
HHCA's board of directors has approved amending the Plan to increase the
aggregate number of shares which may be issued under the Plan by 750,000 shares,
from 600,000 shares to 1,350,000 shares. The amendment to the Plan is subject
to approval by the shareholders of HHCA. The affirmative vote, either in person
or by proxy, of a majority of shares cast on the proposal, is required to
approve the amendment to the Plan. The Board of Directors of HHCA unanimously
recommends that shareholders vote FOR approval of the amendment to the Plan
because it believes that the amendment to the Plan will advance the interest of
HHCA and its shareholders by strengthening the ability of HHCA and its
subsidiary corporations to attract, retain and motivate their respective
officers, directors, employees and consultants. See "Approval of Amendments to
the Home Health Corporation of America, Inc. 1995 Employee and Consultant Equity
Plan."
-8-
<PAGE>
THE HHCA ANNUAL MEETING
GENERAL
This Proxy Statement is being furnished to the shareholders of HHCA, in
connection with the solicitation of proxies by the board of directors of HHCA
for use at the HHCA Annual Meeting to be held at [the Adams Mark Hotel, City
Line Avenue and Monument Road, Philadelphia, Pennsylvania,] on [ ], at
[________] a.m., local time, and any adjournments or postponements thereof.
All information contained in this Proxy Statement with respect to USHO has
been supplied by USHO, and all information with respect to HHCA has been
supplied by HHCA.
This Proxy Statement, the attached Notice and the enclosed Proxy are first
being mailed to shareholders HHCA on or about[_________].
PROPOSALS TO BE PRESENTED AT HHCA ANNUAL MEETING
At the HHCA Annual Meeting, shareholders of HHCA will be asked:
1. To consider and act upon a proposal to approve and adopt the Merger
Agreement and to approve the Merger; and
2. To elect one Class B director to hold office for a term of three years
and until his successor is duly elected and qualified; and
3. To consider and act upon a proposal to approve amendments to the Plan;
and
4. To vote on adjournment of the HHCA Annual Meeting, if necessary, to
permit further solicitation of proxies in the event there are not sufficient
votes at the time of the HHCA Annual Meeting to constitute a quorum or to
approve the Merger; and
5. To consider and act upon such other business as may properly be
brought before the HHCA Annual Meeting or any adjournments or postponements
thereof.
VOTING RIGHTS
Only holders of record of HHCA Common Stock on the Record Date will be
entitled to notice of and to vote at the HHCA Annual Meeting.
Holders of record of HHCA Common Stock on the Record Date are entitled to
one vote per share on any matter that may properly come before the HHCA Annual
Meeting. At the close of business on the Record Date, there were [ ]
shares of HHCA Common Stock outstanding. The presence, either in person or by
proxy, of the holders of record of a majority of the shares of HHCA Common Stock
outstanding as of the Record Date is necessary to constitute a quorum at the
HHCA Annual Meeting. All shares of the HHCA Common Stock present in person or
represented by proxy and entitled to vote at the HHCA Annual Meeting, no matter
how they are voted or whether they abstain from voting, will be counted in
determining the presence of a quorum. If the HHCA Annual Meeting is adjourned
because of the absence of a quorum, those HHCA shareholders entitled to vote who
attend the adjourned meeting, although constituting less than
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<PAGE>
a quorum as provided herein, shall nevertheless constitute a quorum for the
purpose of electing directors. If the HHCA Annual Meeting is adjourned for one
or more periods aggregating at least 15 days because of the absence of a quorum,
those shareholders entitled to vote who attend the reconvened HHCA Annual
Meeting, if less than a quorum as determined under applicable law, shall
nevertheless constitute a quorum for the purpose of acting upon any matter set
forth in the Notice of Annual Meeting.
At the HHCA Annual Meeting, the election of the Class B director will be
determined by a plurality vote and the nominee receiving the most "for" votes
will be elected. Unless directed otherwise, the persons named in the enclosed
Proxy intend to vote such Proxy "for" the election of the listed nominee or, in
the event of inability of the nominee to serve for any reason, for the election
of such other person as the board of directors may designate to fill the
vacancy. The board has no reason to believe that the nominee will not be a
candidate or will be unable to serve. Approval of all other matters to be voted
on at the HHCA Annual Meeting, including the proposal to approve the Merger
Agreement and approve the Merger and the proposal to approve the amendments to
the Plan, will require the affirmative vote, either in person or by proxy, of a
majority of the shares cast on the proposal. Under the Pennsylvania Business
Corporation Law, an abstention, withholding of authority to vote or broker non-
vote will not have the same legal effect as an "against" vote and will not be
counted in determining whether the proposal has received the required
shareholder vote.
The directors and executive officers of HHCA beneficially own 600,812
shares of HHCA Common Stock (including those shares as to which they have shared
voting power) representing an aggregate of approximately 6.5% of the votes which
all holders of HHCA Common Stock are entitled to cast at the HHCA Annual
Meeting.
PROXIES
A form of Proxy for use by HHCA shareholders in connection with the HHCA
Annual Meeting is enclosed. Each properly executed and returned Proxy will be
voted at the HHCA Annual Meeting in accordance with the instructions thereon.
If no instructions are given, such Proxy will be voted FOR the proposal to
approve and adopt the Merger Agreement and approve the Merger, FOR the election
of the nominee for director hereinafter named, FOR the proposal to consider and
approve amendments to the Plan, and FOR adjournment of the HHCA Annual Meeting,
if necessary, to permit further solicitation of proxies in the event there are
not sufficient votes at the time of the HHCA Annual Meeting to constitute a
quorum to approve the Merger.
The board of directors of HHCA knows of no matters, other than the
proposals described in this Proxy Statement, that will be presented for
consideration at the HHCA Annual Meeting. However, if other matters properly
come before the HHCA Annual Meeting, it is intended that the persons designated
as proxies will vote upon such matters in accordance with their best judgment.
Any shareholder of HHCA giving a Proxy may revoke it at any time before it
is exercised by, among other methods, giving written notice of such revocation
to the Secretary of HHCA prior to its exercise. The presence at the HHCA Annual
Meeting of any shareholder who has given a Proxy will not revoke the Proxy
unless the shareholder withdraws the Proxy and votes in person.
SOLICITATION OF PROXIES BY HHCA
In addition to solicitation by mail, directors, officers and employees of
HHCA may solicit proxies from the shareholders of HHCA personally or by
telephone, telegraph or facsimile. Upon request, HHCA
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<PAGE>
will pay the reasonable expenses incurred by record holders of the HHCA Common
Stock who are brokers, dealers, banks or voting trustees, or their nominees, for
mailing proxy material and annual shareholder reports to the beneficial owners
of the shares they hold of record. The expense of the proxy solicitation will be
borne by HHCA.
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<PAGE>
THE PROPOSED MERGER AND RELATED MATTERS
The description of the terms and conditions of the Merger and of the Merger
Agreement included in this Proxy Statement are qualified in their entirety by
reference to the Amended and Restated Agreement and Plan of Merger, a copy of
which is attached hereto as Appendix "A" and is incorporated herein by
reference. SHAREHOLDERS ARE URGED TO REVIEW CAREFULLY THE MERGER AGREEMENT.
THE MERGER
Subject to the terms and conditions of the Merger Agreement, at the
Effective Time, Subsidiary will be merged with and into USHO in accordance with
the relevant provisions of the NYBCL and the DGCL. At such time, the separate
existence of Subsidiary will cease, and USHO shall continue as the surviving
corporation, which will be a wholly-owned subsidiary of HHCA. The Certificate
of Incorporation and Bylaws of USHO, as amended at the Effective Time pursuant
to the request of HHCA, will become the Certificate of Incorporation and Bylaws
of the surviving corporation from and after the Effective Time and until
thereafter amended in accordance with applicable law. At the Effective Time,
all properties and assets of every kind held by USHO and Subsidiary will become
the properties and assets of the surviving corporation, which will become liable
for all of the debts, liabilities, and other obligations of USHO and Subsidiary.
AGGREGATE NUMBER OF SHARES ISSUABLE IN THE MERGER
Holders of outstanding shares of USHO Common Stock and USHO Preferred Stock
will receive in the Merger in exchange for their USHO shares an aggregate
maximum of between 2,622,000 shares of HHCA Common Stock if the HHCA Average
Share Price is $13.36 or more, and 2,822,000 shares if the HHCA Average Share
Price is $9.50 or less. If the HHCA Average Share Price is between $9.50 and
$13.36 the aggregate maximum number of shares of HHCA Common Stock issuable in
the Merger will increase from 2,622,000 shares to 2,822,000 shares in the same
proportion that the HHCA Average Share Price increases from $9.50 to $13.36.
The actual number of shares of HHCA Common Stock issuable in the Merger could be
less than the maximum number of such shares to the extent that (i) USHO incurs
expenses relating to the Merger in excess of $1,500,000, or (ii) at the
Effective Time HHCA assumes the obligations of USHO with respect to outstanding
options or warrants which have an exercise price less than the value of the
consideration per share of USHO Common Stock to be received in the Merger (to be
determined by multiplying the HHCA Average Share Price by the conversion ratio
utilized to determine the Merger consideration issuable to holders of USHO
Common Stock). The actual number of shares issuable in the Merger and the
conversion ratios to be utilized to determine the number of shares of HHCA
Common Stock issuable in the Merger in exchange for each share of USHO Common
Stock will be determined on the basis of the formulas set forth in Section 2.1
of the Merger Agreement. See "-- Conversion of USHO Common Stock," "--
Expenses" and "-- Treatment of Stock Options and Warrants."
CONVERSION OF USHO COMMON STOCK
Pursuant to the Merger Agreement, as of the Effective Time, each issued and
outstanding share of USHO Common Stock (other than shares held in the treasury
of USHO or shares held by shareholders of USHO who have asserted dissenters'
rights pursuant to the NYBCL) will be converted into the right to receive a
number of shares of HHCA Common Stock to be determined as of the Effective Time
by multiplying each share of USHO Common Stock by a conversion ratio to be
determined as of the Effective Time by calculation of one of five alternative
formulas set forth in Section 2.1 of the Merger Agreement.
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<PAGE>
Pursuant to these formulas the actual conversion ratio as of the Effective
Time will be dependent upon (a) the HHCA Average Share Price, (b) whether USHO
incurs expenses relating to the Merger in excess of $1,500,000, and (c) the
capitalization of USHO as of the Effective Time based on the following factors:
(i) the aggregate number of shares of USHO Common Stock issuable upon the
exercise of certain outstanding options and warrants and the exercise prices of
such options and warrants, (ii) the aggregate number of shares of USHO Common
Stock issued and outstanding, and (iii) the aggregate number of shares of USHO
Common Stock issuable upon the conversion of all issued and outstanding shares
of USHO Preferred Stock.
Assuming that (i) USHO does not incur merger-related expenses in excess of
$1,500,000, (ii) no change occurs between the date of this Proxy Statement and
the Effective Time in the capitalization of USHO based on the factors noted
above, and (iii) the HHCA Average Share Price is $10.63 (last reported sale
price of HHCA Common Stock on Nasdaq on November 5, 1997), each share of USHO
Common Stock will be converted in the Merger into .1375 shares of HHCA Common
Stock.
CONVERSION OF USHO PREFERRED STOCK
Pursuant to the Merger Agreement, as of the Effective Time, each issued and
outstanding share of USHO Preferred Stock (other than any shares held by
shareholders of USHO who have asserted dissenters' rights pursuant to the NYBCL)
will be converted into the right to receive the greater of (i) the number of
shares of HHCA Common Stock which, based on the HHCA Average Share Price, is
equal in value to $35.00, plus any dividends declared or accrued but unpaid on
such share of USHO Preferred Stock at the Effective Time, or (ii) the number of
shares of HHCA Common Stock that would be issuable in the Merger if such share
of USHO Preferred Stock had been converted into USHO Common Stock immediately
prior to the Effective Time pursuant to the terms of USHO's Certificate of
Incorporation.
The determination of the actual number of shares of HHCA Common Stock into
which each share of USHO Preferred Stock will be converted in the Merger will
depend upon the factors described above under "Conversion of USHO Common Stock,"
and the amount as of the Effective Time of any dividends declared or accrued but
unpaid on the USHO Preferred Stock. Based on the assumptions set forth under
"Conversion of USHO Common Stock" and assuming there are no declared or accrued
but unpaid dividends on the USHO Preferred Stock as of the Effective Time, if
the HHCA Average Share Price is $10.63 (the last reported sale price of HHCA
Common Stock on Nasdaq on November 5, 1997), each share of USHO Preferred Stock
will be converted into 3.29 shares of HHCA Common Stock (based on a conversion
ratio of 21.77 shares of USHO Common Stock for each share of USHO Preferred
Stock).
EXAMPLES OF MERGER CONSIDERATION AT VARIOUS HHCA AVERAGE SHARE PRICES
The following table illustrates, on the basis of the assumptions set forth
under "--Conversion of USHO Common Stock" and "--Conversion of USHO Preferred
Stock" above and at various HHCA Average Share Prices, a range of conversion
ratios at which each share of USHO Common Stock and USHO Preferred Stock would
be exchanged for HHCA Common Stock and the maximum aggregate shares of HHCA
Common Stock that would be issuable in the Merger:
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<PAGE>
<TABLE>
<CAPTION>
CONVERSION CONVERSION RATIO PER SHARE AGGREGATE MAXIMUM
RATIO PER SHARE OF USHO COMMON STOCK CONVERSION RATIO SHARES OF HHCA
HHCA AVERAGE OF USHO UNDERLYING EACH SHARE OF PER SHARE OF USHO COMMON STOCK ISSUABLE
SHARE PRICE COMMON STOCK USHO PREFERRED STOCK PREFERRED STOCK IN THE MERGER
- ------------ ---------------- ------------------------ ------------------- ---------------------
<S> <C> <C> <C> <C>
$9.00 0.1284 0.1787 3.8889 2,822,000
9.25 0.1308 0.1738 3.7838 2,822,000
9.50 0.1331 0.1692 3.6842 2,822,000
9.75 0.1342 0.1649 3.5897 2,809,000
10.00 0.1353 0.1608 3.5000 2,796,000
10.25 0.1362 0.1569 3.4146 2,783,000
10.50 0.1371 0.1531 3.3333 2,770,000
10.75 0.1378 0.1496 3.2558 2,757,000
11.00 0.1385 0.1462 3.1818 2,744,000
11.25 0.1391 0.1429 3.1111 2,731,000
11.50* 0.1397 0.1398 3.0435 2,718,000
11.75 0.1389 0.1389 3.0232 2,705,000
12.00 0.1380 0.1380 3.0050 2,692,000
12.25 0.1372 0.1372 2.9870 2,679,000
12.50 0.1364 0.1364 2.9692 2,666,000
12.75 0.1356 0.1356 2.9516 2,653,000
13.00 0.1348 0.1348 2.9341 2,640,000
13.25 0.1340 0.1340 2.9166 2,622,000
13.35 0.1337 0.1337 2.9096 2,622,000
13.50 0.1336 0.1336 2.9073 2,622,000
13.75 0.1334 0.1334 2.9034 2,622,000
14.00 0.1332 0.1332 2.8997 2,622,000
</TABLE>
_____________
*Based on the assumptions under "--Conversion of USHO Common Stock" and "--
Conversion of USHO Preferred Stock," if the HHCA Average Share Price is less
than $11.51, the consideration to be received by the holders of USHO Common
Stock on a per share basis will be less than the consideration to be received by
the holders of USHO Preferred Stock for each share of USHO Common Stock
underlying the USHO Preferred Stock.
Shareholders are cautioned that the actual conversion ratios at the
Effective Time could differ from the conversion ratios illustrated in the above
table if the facts as of the Effective Time differ in any respect from the
assumptions on which the illustrations in the table are based.
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<PAGE>
TREATMENT OF STOCK OPTIONS AND WARRANTS
Pursuant to the Merger Agreement, each option to purchase USHO Common Stock
issued to employees and consultants of USHO pursuant to the Option Plan, whether
vested or unvested (each an "Employee Stock Option"), and each warrant to
purchase USHO Common Stock that is outstanding at the Effective Time will remain
outstanding after the Effective Time and will be assumed by HHCA. Each Employee
Stock Option and warrant assumed by HHCA will be exercisable upon the same terms
and conditions as the option or warrant is exercisable prior to the Effective
Time, except that (i) the number of shares of HHCA Common Stock subject to each
Employee Stock Option or warrant will be determined by multiplying the number of
shares of USHO Common Stock subject to the Employee Stock Option or warrant
immediately prior to the Effective Time by the conversion ratio utilized to
determine the number of shares of HHCA Common Stock issuable in the Merger in
exchange for each share of USHO Common Stock and rounding to the nearest whole
share, and (ii) the exercise price of such Employee Stock Option or warrant will
be equal to the exercise price of such option or warrant as of the date of the
Merger Agreement divided by such Conversion Ratio and rounded up to the nearest
whole cent.
BACKGROUND OF THE MERGER
As part of its strategic plans in the rapidly consolidating home health
care market, HHCA has actively pursued growth through acquisitions to
supplement internal growth, enter new geographic markets, add product or service
lines, and/or accomplish regulatory objectives. Due to the regional and product
concentration of USHO's business and its increasing financial and operational
difficulties over several years, USHO continually considered opportunities for
consolidation as well. Accordingly, both companies have maintained periodic,
informal dialogues with other industry participants, including each other. In
particular, during the past two years, USHO has had periodic meetings and
discussions concerning various purchase, sale and merger possibilities with
various companies, including HHCA.
On August 1, 1996, USHO's financial advisor, Sanders Morris Mundy Inc.
("SMM") received from Hambrecht & Quist ("H&Q"), as advisors to HHCA, an
unsolicited written proposal to discuss the acquisition of USHO in a stock-for-
stock merger at a valuation substantially below USHO's market capitalization.
In mid-August, a representative of SMM conveyed to H&Q, on behalf of USHO, that
the valuation was wholly inadequate. No further discussion regarding the
proposal took place.
By September 1996, USHO's board of directors had determined that USHO's
cash position, the level of operating expenses and the losses stemming from its
infusion therapy operations required immediate action. As a result, the USHO
board of directors made two key decisions at its September 19, 1996 meeting.
The first was to discontinue its infusion therapy operations effective September
30, 1996 and to seek a buyer for that business if one could be found. Secondly,
they agreed to engage one or more turnaround specialists to assist HHCA in a
program to reduce costs, improve operations and achieve positive cash flow and
profitability. Shortly thereafter, the USHO board of directors obtained the
resignations of its Chief Executive Officer and Chief Financial Officer and
asked its Chairman to serve as interim Chief Executive Officer and President.
Significant financial improvements were achieved from these initiatives during
September, October and November.
At a USHO board of directors' meeting on December 12, 1996, the directors
discussed at length the operations, financial condition and management of HHCA
and forces affecting the home health care industry. The USHO board of directors
determined that it would be prudent to explore potential strategic combinations
in an effort to maximize shareholder value. On December 19, 1996, USHO engaged
Dillon
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<PAGE>
Read to act as its financial advisor to assist USHO in identifying and
evaluating potential acquirors, and to manage a process to select and negotiate
a transaction with potential acquirors.
During late December 1996 and January 1997, USHO and SBC Warburg Dillion
Read ("Dillon Read") conducted a review process relating to USHO, agreed upon a
list of candidates to contact and prepared an informational memorandum on USHO
which included unaudited fourth quarter financial results and was distributed
once such results were finalized. Before this information could be distributed
in the formal process established through Dillon Read, on January 22, 1997, USHO
received from H&Q, on behalf of HHCA, a second unsolicited merger proposal.
USHO did not respond to this proposal, considering it to be an effort by HHCA to
dissuade USHO from commencing a broad solicitation of interest.
On January 31, 1997, Dillon Read began contacting a number of potential
acquirors, including HHCA, to determine their interest in a business combination
with USHO. Information regarding USHO and the proposed structure and basic
terms for a transaction was communicated by Dillon Read to several of these
companies. Preliminary business and financial due diligence was conducted on
USHO by several interested parties, other than HHCA, during the month of March
1997.
During the week of April 1, 1997, Bruce Feldman, Chairman, President and
Chief Executive Officer of HHCA, and Fred Nicholas, Chief Operating Officer of
HHCA, as well as advisors from H&Q, met with the representatives from USHO and
Dillon Read at USHO's corporate offices. At such meeting, USHO updated HHCA on
its operations and financial condition and discussed possible cost savings to be
realized by potential acquirors. At such meeting, HHCA did not commit to or
indicate any specific level of interest.
On April 14, 1997, Dillon Read, acting on behalf of USHO, provided HHCA
and other interested parties additional materials and requested a "best and
final proposal" to acquire USHO. HHCA responded affirmatively to such request
and performed further due diligence on USHO.
During the last half of April 1997, USHO received and evaluated acquisition
proposals from certain parties, including a proposal received from HHCA on April
25, 1997. During May 1997, Dillon Read engaged in numerous discussions with
these parties in order to confirm and clarify their interest and the terms and
conditions on which they would engage in a business combination.
On May 14, 1997, at a regularly scheduled USHO board of directors' meeting,
Dillon Read updated the USHO directors on its efforts to date to identify and
solicit interest from third parties and the offers under discussion.
On May 27, 1997, having performed only preliminary financial due diligence
on HHCA and having identified HHCA as a primary candidate, Jay Huffard, Chairman
and Interim CEO of USHO, and its financial, legal and other advisors, met with
Bruce Feldman, Fred Nicholas and Bruce Colburn, Chief Financial Officer of HHCA,
and their financial advisors, to conduct follow-up due diligence on the
financial condition and operations of HHCA and the proposed transaction
structure. On May 28, 1997, the parties and their financial advisors commenced
negotiations, based on the April 14, 1997 HHCA proposal, to agree upon the
material terms of a business combination between USHO and HHCA.
On June 2, 1997, USHO and HHCA entered into (i) a nonbinding letter of
intent including a fixed number of shares of HHCA Common Stock to be issued in
exchange for all outstanding shares, options and warrants of USHO, and (ii) a
"no shop" agreement whereby USHO agreed not to enter into discussions with any
third party with respect to a business combination through June 23, 1997.
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On June 3, 1997, HHCA entered into an engagement letter with H&Q relating
to the services to be performed by H&Q as HHCA's financial advisor in connection
with the proposed transaction and the compensation to be paid by HHCA for such
services.
The parties and their financial and legal advisors entered into extensive
negotiations and further due diligence during June 1997 with the intent of
executing a merger agreement on or before June 23, 1997 (the expiration of the
"no shop" agreement). On June 16, 1997, representatives of USHO and HHCA, and
their legal and financial advisors, met at the offices of HHCA's legal counsel
in Philadelphia, Pennsylvania to negotiate the terms of the Merger Agreement,
including the consideration to be paid, the treatment of outstanding options and
warrants, the payment of break-up fees and the payment of USHO's expenses in
connection with the transaction. They also discussed at length how to eliminate
conditions to consummation of the transaction, such as approval of HHCA's banks,
and the time necessary to obtain final New York State regulatory approval.
Representatives of USHO and HHCA and their financial advisors also met on
June 19, 1997 to negotiate further the mechanism for determining the number of
shares of HHCA Common Stock to be issued in the Merger.
The "no shop" provision terminated on June 23, 1997 without an agreement
being reached. USHO continued to negotiate with HHCA and commenced discussions
with third parties as well. Negotiations with HHCA continued into July 1997,
particularly with regard to whether the approval by HHCA's banks and New York
regulatory approval would be conditions to closing the Merger. In an effort to
minimize "outs" from an agreement once signed, and to avoid potentially
extensive delays in closing the transaction resulting from the New York
regulatory process, USHO would not agree to either such contingency. HHCA
entered into discussions with its banks, both to obtain their approval to the
proposed Merger and to obtain an increased line of credit necessary to operate
the combined company with adequate capital. HHCA also initiated discussions
with the New York State Department of Health regarding the process involved in
obtaining its approval for the proposed Merger. During the first half of July,
HHCA engaged in preliminary discussions with its banks and regulatory advisors.
During July 1997, USHO and its advisors proposed a share "collar" to limit
the downside risk of the proposed transaction to USHO shareholders if HHCA's
stock price should rise.
On July 17, 1997, at a special meeting of the USHO board of directors,
given the delays in the HHCA negotiation and USHO's need to address long-term
business issues, the directors ratified management's decision to take
appropriate actions to operate USHO on a stand-alone basis, including
refinancing USHO's credit lines and the hiring of a new president and chief
operating officer. USHO's management informed HHCA of the board's decision to
move forward on a stand-alone basis but stated that USHO would entertain a later
proposal from HHCA if no bank and New York regulatory contingencies were
included.
On July 18, 1997 USHO and HHCA discussed a share "collar" resulting in a
transaction structure in which no more than 2,822,000 shares of HHCA Common
Stock and no less than 2,622,000 shares of HHCA Common Stock would be issued as
Merger consideration.
On July 22, 1997, representatives of HHCA and legal advisors to both HHCA
and USHO met with representatives of the Bureau of Home Health Care Services of
the New York State Department of Health to determine the process for New York
approval of the transaction and to determine whether the process,
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which generally can take nine months to a year or more, could be accelerated.
Following that meeting, on July 31, 1997, the New York State Department of
Health confirmed in writing to HHCA certain advice regarding the regulatory
process in New York and the effects of proceeding with a merger prior to such
approval. Based upon this letter and HHCA's prior discussions with the
Department of Health, HHCA and USHO determined that the consummation of the
proposed Merger need not be conditioned upon the prior receipt of regulatory
approval from New York.
Negotiations accelerated again in early September in anticipation of HHCA's
banks' formal approval of the Merger and of an expanded line of credit in mid-
September. On September 19, 1997, HHCA's lenders approved the proposed
transaction and an increased line of credit, and HHCA informed USHO of this
approval. The parties continued to negotiate the terms of the Merger Agreement
and complete their due diligence efforts.
On September 22, 1997, a meeting of the board of directors of HHCA was held
to review the proposed Merger Agreement and the transactions contemplated
thereby, including the proposed consideration to be paid to USHO shareholders.
At that meeting, HHCA's management updated the HHCA board of directors regarding
the status of negotiations with USHO and the results of their due diligence
investigation. H&Q presented its financial analysis of the proposed Merger and
indicated that it expected to be in a position to deliver to HHCA's board of
directors its opinion as to the fairness, from a financial point of view, of the
consideration to be paid by HHCA in the Merger. After extensive discussion, the
HHCA board of directors authorized HHCA's officers to execute the proposed
Merger Agreement and to take all necessary actions to consummate the Merger,
subject to the receipt of a written opinion from H&Q that the proposed
transaction was fair from a financial point of view to the holders of HHCA
Common Stock.
On September 23, 1997, the USHO board of directors held a special meeting
to review the proposed Merger Agreement and the transactions contemplated
thereby, including the proposed consideration to be paid to USHO shareholders.
At that meeting, USHO senior management and representatives of its financial and
legal advisors reported on the key elements of the proposed transaction,
including the background of, and costs associated with, the transaction;
operational, financial, legal and regulatory due diligence conducted by USHO
management and its advisors; the proposed consideration to be paid to USHO
shareholders; financial and valuation analyses of the transaction; the
ramifications of a "pooling of interests" transaction; the tax consequences of
the transaction; details of proposed break-up fees; the terms of the proposed
Merger Agreement; USHO's strategic alternatives; and the other matters described
below under "USHO's Reasons for the Merger; Recommendation of USHO's Board of
Directors." The board of directors also discussed the adequacy of HHCA's
financial resources to support its expanded operations, including the proposed
Merger. Dillon Read indicated that it was in a position to deliver to USHO's
board of directors its opinion as to the fairness of the transaction, from a
financial point of view, to the holders of USHO Common Stock.
After extensive discussion, the USHO board of directors authorized USHO's
officers to execute the proposed Merger Agreement and to take all necessary
actions to consummate the proposed Merger, subject to the receipt of a written
opinion from Dillon Read that the proposed transaction was fair, from a
financial point of view, to the holders of USHO Common Stock. Dillon Read
delivered its opinion on September 23, 1997.
The Merger Agreement was signed after the close of business on Friday,
September 26, 1997, and a press release announcing the Merger was issued prior
to the opening of trading on Nasdaq, on Monday, September 29, 1997.
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HHCA'S REASONS FOR THE MERGER; HHCA'S RECOMMENDATION OF THE BOARD OF DIRECTORS
Prior to the HHCA board of directors unanimously reaching its decision to
approve the Merger Agreement and the transactions necessary to consummate the
Merger, the HHCA board of directors had received information from management of
HHCA, its legal counsel, accountants, financial advisors and others regarding
various aspects of USHO. Based on this information and a description of the
terms of the Merger Agreement the HHCA board of directors determined that the
terms of the Merger Agreement and the transactions contemplated thereby are fair
to, and in the best interests of, HHCA and its shareholders, approved the Merger
Agreement and authorized the taking of all actions necessary, appropriate and
advisable in order to consummate the Merger. THE HHCA BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF HHCA VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
In reaching its conclusion to enter into the Merger Agreement and to
recommend that the shareholders of HHCA vote FOR the approval and adoption of
the Merger Agreement and the transactions contemplated thereby, the HHCA board
of directors considered a number of factors, including, without limitation, the
following:
(i) The consideration to be paid to the shareholders of USHO (including
the range of the maximum number of shares of HHCA Common Stock issuable in the
Merger).
(ii) That the Merger would provide shareholders of USHO the opportunity
to receive merger consideration that represents a premium over the price at
which USHO Common Stock was trading in recent months.
(iii) The opinion of H&Q to the effect that, as of the date of its opinion
and based upon and subject to certain matters stated therein, the Merger was
fair to HHCA's Shareholders from a financial point of view.
(iv) The historical and pro forma information concerning the financial
performance and condition, business operations and prospects of each of HHCA and
USHO as separate entities and on a pro forma combined basis.
(v) The changing health care environment and the increasing emphasis on
cost containment, including Medicare cost reimbursement reductions.
(vi) The return to profitability of USHO's business operations.
(vii) That the Merger was expected to be treated as a "tax-free
reorganization" for federal income tax purposes.
(viii) The likelihood that the Merger will be consummated.
(ix) That HHCA shareholders will have the opportunity to vote on whether
to approve and adopt the Merger Agreement.
In view of the wide variety of factors considered the HHCA board of
directors in connection with its evaluation of the terms of the Proposed Merger,
the HHCA board did not find it practicable to, and did
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not, quantify or otherwise attempt to assign relative weights to the specific
factors considered in determining to approve the Merger.
OPINION OF HHCA FINANCIAL ADVISOR
HHCA engaged H&Q to act as its financial advisor in connection with the
proposed Merger of Subsidiary with and into USHO and to render an opinion as to
the fairness from a financial point of view to HHCA of the consideration to be
paid by HHCA in connection with the Merger. H&Q rendered its oral opinion,
subsequently confirmed in writing, on September 26, 1997, to HHCA's board of
directors that, as of such date, the consideration to be paid by HHCA pursuant
to the Merger Agreement is fair to HHCA from a financial point of view. A COPY
OF H&Q'S OPINION DATED SEPTEMBER 26, 1997, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED, THE SCOPE AND LIMITATION OF THE REVIEW UNDERTAKEN AND
THE PROCEDURES FOLLOWED BY H&Q IS ATTACHED AS APPENDIX "B" TO THE PROXY
STATEMENT. HHCA SHAREHOLDERS ARE ADVISED TO READ THE OPINION IN ITS ENTIRETY.
Shareholders should note that the opinion was written for the information of the
board of directors in connection with their evaluation of the Merger. No
limitations were placed on H&Q by the board of directors of HHCA with respect to
the investigation made or the procedures followed in preparing and rendering its
opinion.
In its review of the Merger, and in arriving at its opinion, H&Q, among
other things: (i) reviewed the publicly available consolidated financial
statements of HHCA for recent years and interim periods to date and certain
other relevant financial and operating data of HHCA made available to H&Q from
published sources and from the internal records of HHCA; (ii) reviewed certain
internal financial and operating information, including projections, relating to
HHCA provided by the management of HHCA; (iii) discussed with certain members of
the management of HHCA the business, financial condition and prospects of HHCA;
(iv) reviewed the publicly available financial statements of USHO for recent
years and interim periods to date and certain other relevant financial and
operating data of USHO made available to H&Q from published sources and from the
internal records of USHO; (v) reviewed certain internal financial and operating
information, including certain projections, relating to USHO prepared by the
management of USHO; (vi) discussed with certain members of the management of
USHO the business, financial condition and prospects of USHO; (vii) reviewed the
recent reported prices and trading activity for HHCA's and USHO's Common Stock
and compared such information and certain financial information of HHCA and USHO
with similar information for certain other companies engaged in businesses H&Q
considered comparable to those of HHCA and USHO; (viii) reviewed the financial
terms, to the extent publicly available, of certain comparable merger and
acquisition transactions; (ix) reviewed the Merger Agreement; (x) discussed the
tax and accounting treatment of the Merger with HHCA and HHCA's accountants; and
(xi) performed such other analysis and examinations and considered such other
information, financial studies, analysis and investigations and financial,
economic and market data H&Q deemed relevant.
H&Q did not independently verify any of the information concerning HHCA or
USHO considered in connection with its review of the Merger and, for purposes of
its opinion, H&Q assumed and relied upon the accuracy and completeness of all
such information distributed by both parties. In connection with its opinion,
H&Q did not prepare or obtain any independent evaluation or appraisal of any of
the assets or liabilities of HHCA or USHO, nor did it conduct a physical
inspection of the properties and facilities of HHCA or USHO. H&Q also assumed
that neither HHCA nor USHO was a party to any pending transactions, including
external financings, recapitalizations or merger discussions, other than the
Merger, certain potential strategic partnerships disclosed to H&Q and those in
the ordinary course of conducting their respective businesses. For purposes of
its opinion, H&Q assumed that the Merger will qualify as a tax-free
reorganization under the Internal Revenue Code for the shareholders of HHCA and
that the Merger will be
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accounted for as a pooling of interests. H&Q's opinion is necessarily based upon
market, economic, financial and other conditions as they exist and can be
evaluated as of the date of the opinion and any subsequent change in such
conditions would require a reevaluation of such opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the H&Q analysis set forth below does not purport to be a complete
description of the presentation by H&Q to HHCA's board of directors. In arriving
at its opinion, H&Q did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, H&Q
believes that its analysis and the summary set forth below must be considered as
a whole and that selecting portions of its analysis, without considering all
analysis, or of the following summary, without considering all factors and
analysis, could create an incomplete view of the processes underlying the
analysis set forth in the H&Q presentation to the HHCA board of directors and
its opinion. In performing its analysis, H&Q made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of HHCA and USHO. The
analyses performed by H&Q (and summarized below) are not necessarily indicative
of actual values or actual future results, which may be significantly more or
less favorable than suggested by such analyses. Additionally, analysis relating
to the values of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be acquired.
The following is a brief summary of certain financial analysis performed by
H&Q in connection with providing its written opinion to HHCA's board of
directors on September 26, 1997:
Contribution Analysis. H&Q analyzed the contribution of HHCA and USHO to
certain financial statement categories of the pro forma combined company,
including revenue, earnings before interest, taxes, depreciation and
amortization ("EBITDA"), and pre-tax income. This contribution analysis was then
compared to the pro forma ownership percentage of HHCA and USHO shareholders of
the pro forma combined company. H&Q examined the expected contributions to the
combined company's pro forma revenues, pro forma EBITDA and pro forma pre-tax
income by HHCA for fiscal 1998 (i.e., the four quarters ending June 30, 1998),
derived from HHCA's internal projections, as well as published Wall Street
estimates, and by USHO for the same period, derived from estimates provided by
USHO, USHO's financial advisors and HHCA. H&Q observed that HHCA shareholders
are expected to own approximately 77% of the combined company equity at the
close of the Merger, and the USHO shareholders are expected to own approximately
23% of the combined company equity at the close of the Merger. In fiscal 1998,
it is estimated that HHCA and USHO will contribute approximately 78% and 22%,
respectively, of the combined pro forma revenues; approximately 78% and 22%,
respectively, of the combined pro forma EBITDA; and approximately 74% and 26%,
respectively, of the combined pro forma pre-tax income.
Pro Forma Analysis. H&Q analyzed the pro forma impact of the proposed
merger on HHCA's earnings per share ("EPS"), using published Wall Street
estimates and internal estimates of EPS for HHCA in fiscal 1998. The analysis
indicated that EPS of the pro forma combined company in fiscal 1998 would be
higher than for HHCA as a stand-alone company in both cases. The actual results
and savings achieved by the combined company resulting from the Merger may vary
from the projected results and such variations may be material.
Premium Analysis. H&Q compared the implied price per share of the offer
based on a signing and an assumed announcement of September 26, 1997 to the last
sale price of USHO Common Stock on both September 25, 1997 and August 28, 1997
(the twentieth trading day preceding the announcement of the
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proposed merger) to similar premiums for certain home healthcare transactions
announced since January 1, 1995. H&Q analyzed five such public company to public
company home healthcare transactions. H&Q observed that the average one-day
premium and the twenty trading day premium paid in the selected five public
company to public company home healthcare transactions was 24% and 37%,
respectively. This compared with the proposed merger in which the one-day
premium offered was 21% and the twenty trading day premium offered was 50%.
Analysis of Publicly Traded Comparable Companies. H&Q compared selected
historical and projected financial information of USHO to publicly traded
companies H&Q deemed to be comparable to USHO. Such data and ratios included
market value, market value to historical net income and price per share to
projected EPS. H&Q also examined the ratio of enterprise value (market value
plus debt less cash) to revenue, earnings before interest and taxes ("EBIT") and
EBITDA. All multiples were based on closing stock prices on September 25, 1997.
All forecasted data for such comparable companies were based on publicly
available, independent estimates by selected investment banking firms. Companies
used as comparables included selected home healthcare companies such as American
HomePatient Inc., Apria Healthcare Group Inc., Healthcor Holdings Inc.,
Housecall Medical Resources Inc., Integrated Health Services Inc., Subsidiary
Services Inc., Lincare Holdings Inc., Olsten Corp., Pediatric Services of
America Inc., Staff Builders Inc. and Transworld Home Healthcare Inc. The
foregoing multiples, including the multiples of HHCA and USHO were applied to
annualized historical financial results of USHO for the six-month period ended
June 30, 1997, as well as to projected financial results of USHO derived from
projections provided by USHO and its financial advisors. H&Q determined that the
average multiple of the last-twelve-months revenues for these companies
(excluding high and low) was 1.1x. H&Q determined that, for the expected results
for calendar year 1997, the average multiple of earnings for these companies
(excluding high and low) was 15.0x. Based on the analysis of publicly traded
comparable companies, USHO's implied equity value ranged from approximately $49
million to approximately $92 million. This compared with an implied equity value
of $31 million of USHO in the Merger, based on the average ten day closing price
of HHCA Common Stock three days before the signing of the Merger Agreement and
the assumption of approximately $14 million in debt.
Analysis of Selected Merger and Acquisition Transactions. H&Q compared the
proposed merger with selected comparable merger and acquisition transactions.
This analysis included 11 comparable home healthcare transactions. In examining
these transactions, H&Q analyzed certain income statement and balance sheet
parameters of USHO relative to the consideration offered. Multiples analyzed
included consideration offered to historical revenue, to historical cash flow
from operations, to historical earnings before depreciation, interest and taxes,
to historical earnings before interest and taxes, to historical net cash flow
from operations, to historical income and to historical book value. Selected
transactions analyzed include RoTech Medical Corp./Integrated Health Services
Inc. (Pending), Allied Medicare Ltd./Transworld Healthcare Inc., Omnicare
PLC/Transworld Healthcare Inc., Healthfirst Inc./Housecall Medical Resources
Inc., Health Management Inc./Counsel Corp., Quantum Health Resources Inc./Olsten
Corp., First American Healthcare of Georgia Inc./Integrated Health Services
Inc., Premier Medical Services Inc./ Pediatric Services of America Inc., In Home
Health Inc./Manor Care Inc., ConPharma Home Healthcare Inc./American HomePatient
Inc., and Abbey Healthcare Group Inc./Homedco Group Inc. The consideration
offered in the foregoing transactions was an average multiple (excluding high
and low) of 1.4 times revenue, 9.8 times EBITDA, 16.7 times earnings before
interest and taxes and 32.6 times net income. Based on the analysis of selected
merger and acquisition transactions, USHO's implied equity value ranged from
approximately $59 million to $113 million. This compared with an implied equity
value of $31 million of USHO in the Merger, based on the average ten day closing
price of HHCA Common Stock three days before the signing of the Merger Agreement
and the assumption of approximately $14 million in debt.
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No company or transaction used in the above analysis is identical to HHCA
or USHO or the Merger. Accordingly, an analysis of the results of the foregoing
is not mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading values of the
companies or company to which they are compared.
The foregoing description of H&Q's opinion is qualified in its entirety by
reference to the full text of such opinion which is attached as Appendix "B" to
this Proxy Statement.
H&Q, as part of its investment banking services, is regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, corporate restructurings, strategic alliances, negotiated
underwriting, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. H&Q is familiar with
HHCA, having acted as managing underwriter of its initial public offering in
November 1995. In the ordinary course of business, H&Q acts as a market maker
and broker in the publicly traded securities of HHCA and receives customary
compensation in connection therewith, and also provides research coverage for
HHCA. In the ordinary course of business, H&Q actively trades in the equity
securities of HHCA for its own account and for the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities.
Pursuant to an engagement letter dated June 3, 1997, HHCA has agreed to pay
H&Q a fee in connection with its services as financial advisor to the board of
directors and the rendering of a fairness opinion. The fee in the amount of
$250,000 with respect to the delivery of a fairness opinion is owed upon the
delivery of such opinion, and will be netted against, and thus will reduce, any
further fees payable by HHCA to H&Q under the engagement letter. The fee in the
amount of $750,000 with respect to financial advisory services is owed upon the
closing of the Merger and is not dependent upon the value of the transaction.
HHCA also has agreed to reimburse H&Q for its reasonable out-of-pocket expenses
and to indemnify H&Q against certain liabilities, including liabilities under
the federal securities laws or relating to or arising out of H&Q's engagement as
financial advisor.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a Certificate of Merger
as required under the NYBCL and the DGCL, or at such later time as is agreed by
the parties and specified in the Certificate of Merger. The Merger Agreement
requires the filing of the Certificate of Merger to be made no later than two
business days after the satisfaction or waiver of the various conditions to the
Merger set forth in the Merger Agreement or at such other time as may be agreed
by USHO and HHCA. There can be, however, no assurance as to whether or when the
Merger will occur. See "--Conditions to the Merger" and "-- Regulatory
Approvals."
The Merger Agreement provides that, if the Merger is not consummated on or
before February 28, 1998, the Merger Agreement may be terminated by either party
(provided such party is not in breach). See "-- Termination" and "--
Modification."
EXCHANGE PROCEDURE
USHO and HHCA have designated [__________________] to act as Exchange
Agent. Promptly after the Effective Time, each record holder of USHO Common
Stock and USHO Preferred Stock will receive a letter of transmittal and
instructions for use in effecting the surrender of such certificates for
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exchange. Upon surrender to the Exchange Agent of such certificates, based upon
the procedures set forth in the Merger Agreement, the Exchange Agent will
exchange such certificates for shares of HHCA Common Stock and pay to any record
holder receiving HHCA Common Stock any payment due for a fractional share of
HHCA Common Stock. No interest will be paid or accrued on the amounts payable
upon surrender of stock certificates.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, each of HHCA's and USHO's: (i)
organization and similar corporate matters; (ii) authorization, execution,
delivery, performance and enforceability of the Merger Agreement; (iii) capital
structure and the ownership of their respective subsidiaries; (iv) other
material investment interests; (v) conflicts under certificates of incorporation
or bylaws or comparable organizational documents, required consents and
approvals, and breaches of material contracts; (vi) compliance with material
laws and regulations; (vii) documents filed by each of HHCA and USHO with the
Commission and the accuracy of information contained therein; (viii) absence of
certain material changes; (ix) litigation; (x) payment of taxes; (xi) employee
benefit plans; (xii) absence of actions preventing the accounting for the Merger
as a pooling of interests; (xiv) the use of brokers in arranging the Merger; and
(xv) third-party payment contracts.
CONDITIONS TO THE MERGER
In addition to the approval and adoption of the Merger Agreement by the
shareholders of HHCA and USHO, the obligations of HHCA, Subsidiary and USHO are
subject to the satisfaction or, where permitted, waiver of certain conditions,
including among others: (a) the effectiveness with the Commission of the
registration statement covering the HHCA Common Stock to be issued in the Merger
and no proceeding for a stop order suspending the effectiveness of such
registration having been initiated by the Commission; (b) no statute, rule,
order, decree or regulation shall have been enacted or promulgated by any
governmental entity which prohibits the consummation of the Merger; (c) no order
or injunction shall be in effect which precludes or restrains the consummation
of the Merger; (d) any applicable waiting period under the HSR Act shall have
expired or been terminated; (e) HHCA, Subsidiary and USHO shall have received a
written opinion of counsel to HHCA dated as of the closing date to the effect
that (i) the Merger will qualify as a reorganization under Section 368(a) of the
Code and HHCA, Subsidiary and USHO will constitute parties to such
reorganization and Merger Agreement, and (ii) the receipt of HHCA Common Stock
by the shareholders of USHO in accordance with the Merger Agreement shall be
nontaxable to such shareholders; (f) the transactions contemplated by the
Merger Agreement shall be accounted for in the consolidated financial statements
of HHCA and its subsidiaries as a pooling of interests; and (g) HHCA shall have
listed with Nasdaq the HHCA Common Stock to be issued in connection with the
Merger.
The obligation of USHO to consummate the Merger are also subject to certain
additional conditions, including among others that: (a) the representations and
warranties of HHCA and Subsidiary contained in the Merger Agreement are correct
in all material respects at and as of the closing date; (b) HHCA and Subsidiary
have performed or complied in all material respects with all agreements,
conditions and covenants required by the Merger Agreement to be performed or
complied with by them on or before the Effective Time; (c) HHCA has satisfied
USHO that, immediately prior to the Effective Time, HHCA will contribute
sufficient funds to USHO for USHO to repay in full certain of its obligations;
(d) USHO has received an opinion, dated the closing date, from counsel to HHCA
with respect to certain matters; (e) no action, suit or proceeding against USHO,
HHCA or Subsidiary, relating to any transaction contemplated by the Merger
Agreement has been threatened or instituted or is continuing which individually
or in the aggregate would
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reasonably be expected to have a material adverse effect on USHO or HHCA; (f) no
material adverse change has occurred in the condition (financial or otherwise),
results of operations, business, properties, prospects, assets or liabilities of
HHCA and its subsidiaries taken as a whole.
The obligations of HHCA and Subsidiary to consummate the Merger are also
subject to certain additional conditions, including among others that: (a) the
representations and warranties of USHO and Subsidiary contained in the Merger
Agreement are true and correct in all material respects on and as of the closing
date; (b) USHO has performed or complied in all material respects with all
agreements, conditions and covenants required by the Merger Agreement to be
performed or complied by it on or before the closing date; (c) no material
adverse change has occurred in the condition (financial or otherwise), results
of operations, business, properties, prospects, assets or liabilities of USHO
and its subsidiaries taken as a whole; (d) the aggregate number of shares of
USHO Common Stock and USHO Preferred Stock held by USHO shareholders who assert
dissenters and appraisal rights pursuant to the NYBCL does not equal or exceed
five percent (5%) of the number of shares of USHO Common Stock outstanding on a
fully diluted basis immediately prior to the Effective Time; (e) no action, suit
or proceeding against USHO, HHCA or Subsidiary relating to any transactions
contemplated by the Merger Agreement has been threatened or instituted or is
continuing which individually or in the aggregate could reasonably be expected
to have a material adverse effect on HHCA or USHO; (f) HHCA has received an
opinion, dated as of the closing date, from counsel to USHO with respect to
certain matters; and (g) all necessary regulatory approvals, licenses and
permits required to consummate the Merger have been obtained and all statutory
waiting periods in respect thereof have expired.
COVENANTS
USHO has agreed that, among other things, prior to the Effective Time,
except as agreed in writing by HHCA or as otherwise contemplated by the Merger
Agreement, it will continue to conduct its business and that of its subsidiaries
in the usual and ordinary course consistent with past practices and will use its
reasonable commercial efforts to preserve intact its business organization and
will maintain its existing relationships with customers and others having
business relations with USHO. USHO further has agreed that until the Effective
Time, except as agreed in writing by HHCA or as otherwise contemplated by the
Merger Agreement, it will not do any of the following, among other things: (a)
amend its or any subsidiary's Certificate of Incorporation or Bylaws; (b)
declare, set aside or pay any dividend or other distribution with respect to
USHO's capital stock or that of its subsidiaries, except for dividends payable
in USHO Common Stock on outstanding shares of USHO Preferred Stock; (c) acquire
any of USHO's capital stock (or rights of any kind to acquire any share of
capital stock) or that of its subsidiaries; (d) issue or dispose of or encumber
any of its or its subsidiaries' equity securities, other than shares of USHO
Common Stock issued upon the exercise of certain options and warrants
outstanding on the date of the Merger Agreement and other than shares of USHO
Common Stock issued to directors pursuant to the Director Stock Fee Program of
the Option Plan provided that any such shares are issued on or before the
closing date; (e) split, combine or reclassify the outstanding capital stock of
USHO or of its subsidiaries; or (f) amend or otherwise modify the terms of any
rights, warrants or options with respect to USHO's or its subsidiaries' capital
stock.
In addition, USHO has agreed, among other things, that prior to the
Effective Time, unless HHCA agrees in writing or otherwise is required or
permitted by the Merger Agreement, neither it or any of its subsidiaries will:
(i) acquire or dispose of any assets, either by purchase, merger, consolidation,
sale of shares in any of its subsidiaries or otherwise, except in the ordinary
course of business; (ii) transfer, lease, license, sell, mortgage, pledge,
dispose of, or encumber any assets, except in the ordinary course of business;
(iii) increase any compensation payable or to become payable by USHO or any of
its subsidiaries to any of
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<PAGE>
its officers, directors, key employees or consultants; (iv) adopt any new, or
except as contemplated by the Merger Agreement, amend or otherwise increase, or
accelerate the payment or vesting of the amounts payable or to become payable
under any existing employee benefit plan, agreement or arrangement; (v) enter
into or amend any employment or severance or consulting agreement with or,
except in accordance with the existing policies of USHO or as required by
applicable law, grant any severance or termination pay to any officer, director
or employee of USHO or any of its subsidiaries; (vi) enter into any collective
bargaining agreement; (vii) modify or terminate any of its material contracts or
waive, release or assign any material rights or claims; (viii) incur or assume
or modify any indebtedness; (ix) guarantee the obligations of any other person,
other than immaterial amounts in the ordinary course of business consistent with
past practice and other than for any subsidiary; (x) make any loans, advances or
capital contributions to, or investments in (unless required by law) any other
person (other than to wholly-owned subsidiaries of USHO); (xi) enter into any
material commitment or transaction; (xii) change any of the accounting methods,
practices or policies used by it unless required by generally accepted
accounting principles; (xiii) make any new capital expenditures in excess of
$50,000 in the aggregate; or (xiv) make any tax election (unless required by
law) or settle any income tax liability.
HHCA and USHO each have agreed to use all reasonable efforts to cause the
Merger to qualify, and to not take, and to use all reasonable efforts to prevent
any affiliate from taking, any actions which could prevent the Merger from
qualifying as a reorganization within the provisions of Section 368(a) of the
Code.
Both HHCA and USHO have agreed (i) to cooperate in the prompt preparation
and filing of certain documents under federal and state securities laws and with
applicable government entities (ii) to use all reasonable efforts to obtain and
deliver to each other certain letters from "affiliates," as such term is defined
under Rule 145 of the Securities Act and (iii) to indemnify each other in
certain circumstances.
HHCA has agreed to file after the closing date a registration statement on
Form S-8 covering the HHCA Common Stock issuable pursuant to Employee Stock
Options assumed by HHCA and to list the HHCA Common Stock to be issued in the
Merger on Nasdaq.
Nonsolicitation. USHO has agreed that as of September 26, 1997 it and its
representatives shall cease any ongoing negotiations with third parties who
desire to acquire a substantial amount of assets of USHO or any of its
subsidiaries or over 20% of any class of equity securities of USHO or its
subsidiaries (a "Takeover Proposal"). Furthermore, USHO has agreed not to
permit its officers, directors, employees or other representatives to solicit or
encourage or furnish information in connection with a Takeover Proposal or
participate in any discussions regarding a Takeover Proposal. However, if at
any time prior to the Effective Time, the board of directors of USHO determines
in good faith, after receiving advice from outside legal counsel, that failure
to solicit or negotiate any Takeover Proposal would reasonably be expected to
cause the USHO board of directors to violate its fiduciary duties to USHO's
shareholders under applicable law, USHO may, in response to an unsolicited
Takeover Proposal, furnish information with respect to USHO to any person
pursuant to a confidentiality agreement and participate in negotiations
regarding such Takeover Proposal.
USHO has further agreed that its board of directors will not withdraw or
modify, in a manner adverse to HHCA, its approval of the Merger Agreement or the
Merger, approve or recommend any Takeover Proposal, or cause USHO to enter into
any agreement with respect to any Takeover Proposal. Notwithstanding the
foregoing, if prior to the Effective Time the board of directors of USHO
determines in good faith, after receiving advice from outside legal counsel,
that failure to do so would reasonably be expected to cause the board of
directors to violate its fiduciary duties, the board of directors may withdraw
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<PAGE>
or modify its approval or recommendation of the Merger Agreement and the Merger,
approve or recommend any bona fide Takeover Proposal to acquire more than 50% of
USHO Common Stock or all or substantially all the assets of HHCA and its
subsidiaries taken as a whole on terms which the board of directors of USHO
determines to be more favorable to USHO's shareholders than the Merger (a
"Superior Proposal") or cause USHO to enter into an agreement with respect to a
Superior Proposal, but only after written notice to HHCA.
TERMINATION
The Merger Agreement provides that the Merger Agreement may be terminated
and the Merger abandoned (either before or after approvals or authorizations by
the shareholders of USHO) at any time prior to the Effective Time: (a) by mutual
written consent of the boards of directors of both HHCA and USHO; (b) by either
HHCA or USHO if any governmental entity shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or otherwise
prohibiting consummation of the Merger and such order, decree or ruling or other
action shall have become final and nonappealable; (c) by either HHCA or USHO if
the Merger shall not have been consummated by February 28, 1998 and such party's
failure to perform any of its obligations under this Agreement has not been the
cause of, or resulted in, the failure of the Merger to occur on or before such
date; (d) by HHCA or Subsidiary if USHO breaches any representation, warranty,
covenant or other agreement contained in the Merger Agreement, which breach
cannot be or has not been cured within thirty (30) days after the giving of
written notice to USHO and which, individually or in the aggregate, has had or
could reasonably be expected to have, a material adverse effect on USHO; (e) by
USHO if Subsidiary or HHCA breaches any representation, warranty, covenant or
other agreement contained in the Merger Agreement, which breach cannot be or has
not been cured within thirty (30) days after the giving of written notice to
HHCA or Subsidiary, as applicable, and which individually or in the aggregate,
has had or could reasonably be expected to have a material adverse effect on
HHCA; (f) by HHCA or Subsidiary if USHO's board of directors shall have
withdrawn, modified or amended in any respect its recommendation of the Merger
or shall have approved or recommended a Superior Proposal, or shall have entered
into an agreement with a third party with respect to any Takeover Proposal or
Superior Proposal, or the board of directors of USHO or any committee thereof
shall have resolved to take any of the foregoing actions; or (g) by USHO in
connection with entering into an agreement for a Superior Proposal.
EXPENSES
The Merger Agreement provides that, except as provided below, if the Merger
is not consummated, for any reason whatsoever, each party is required to pay its
own expenses, except that certain printing costs would be shared equally by HHCA
and USHO. If the Merger Agreement is terminated by HHCA or Subsidiary because
USHO's board of directors has modified its recommendation of the Merger,
approved a Superior Proposal, or entered into an agreement relating to a
Takeover Proposal or a Superior Proposal, or if prior to such termination USHO
breaches the covenants against solicitation contained in the Merger Agreement,
then USHO is required to pay to HHCA $1,000,000 on the date which is the
earlier to occur of (i) the date on which USHO consummates a transaction which
is the subject of a Superior Proposal or a Takeover Proposal, or (ii) the date
which is six months after the Merger Agreement is terminated. If the Merger
Agreement is terminated or the Merger is not consummated as a result of the
failure by USHO to obtain its shareholders' approval, then USHO is required to
pay to HHCA an amount equal to HHCA's expenses. If the Merger Agreement is
terminated or the Merger is not consummated as a result of the failure of
Deloitte & Touche to deliver the opinion required by the Merger Agreement or a
determination by the Commission that the Merger does not qualify to be accounted
for in the consolidated financial statements of HHCA and its subsidiaries as a
pooling transaction and such failure or determination is attributable to matters
relating to USHO, then USHO is required to pay to HHCA an amount equal to HHCA's
expenses. If the Merger Agreement is terminated or the Merger is not
consummated as a result of the failure by HHCA
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<PAGE>
to obtain its shareholders' approval, then HHCA is required to pay to USHO an
amount equal to USHO's expenses. If the Merger Agreement is terminated or the
Merger is not consummated as a result of the failure of Coopers & Lybrand to
deliver the opinion required by the Merger Agreement or a determination by the
Commission that the Merger does not qualify to be accounted for in the
consolidated financial statements of HHCA and its subsidiaries as a pooling
transaction and such failure or determination is attributable to matters
relating to HHCA, then HHCA is required to pay to USHO an amount equal to USHO's
expenses. If expenses incurred by USHO in connection with the Merger, including
the aggregate premium cost to maintain USHO's existing officers' and directors'
liability insurance ("D&O Insurance") for three years after the Effective Time,
exceed $1,500,000, the aggregate number of shares of HHCA Common Stock issuable
in the Merger will be reduced. See "-- Aggregate Number of Shares Issuable in
the Merger."
MODIFICATION
The Merger Agreement may be amended by HHCA, Subsidiary and USHO
(including, without limitation, any extension of the February 28, 1998 outside
date for completion of the Merger, or amendments with respect to the structure
of the Merger), by action taken by or on behalf of their respective boards of
directors, at any time before or after approval of the Merger Agreement by the
shareholders of USHO, provided, however, that after approval by USHO's
shareholders no amendment may be made that reduces the amount or changes the
form of the consideration to be delivered to such party's shareholders as
contemplated by the Merger Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and officers of USHO have interests in the Merger in
addition to their interests solely as shareholders of USHO, as described below.
Indemnification. Under the Merger Agreement, HHCA has agreed that all
rights to indemnification existing in favor of directors, officers or employees
of USHO as provided in the USHO Certificate of Incorporation or USHO Bylaws,
with respect to matters occurring through the Effective Time, shall survive the
Merger and shall continue in full force and effect for a period of three years
from the Effective Time. For a period of three years after the Effective Time,
to the fullest extent permitted by law, HHCA guarantees USHO's performance of
its obligations described in the prior sentence. If HHCA or any of its
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, in such case, proper provision shall be
made so that the successors and assigns of HHCA assume the obligations set forth
above.
In addition, the Merger Agreement provides that HHCA shall maintain
directors' and officers' liability insurance ("D&O Insurance") equivalent to
USHO's current D&O Insurance for a period of three years after the Effective
Time; provided, that HHCA may substitute policies of substantially equivalent
coverage and amounts containing terms no less favorable to such former directors
or officers. In the event the existing D&O Insurance expires, is terminated or
canceled during such period, HHCA will use all reasonable efforts to obtain
substantially similar D&O Insurance; but in no event will HHCA be required to
pay aggregate premiums for insurance in excess of the amount included in
Expenses.
Employment Arrangements. Pursuant to the terms of a letter agreement
entered into by USHO and Clifford G. Johnson, Chief Financial Officer of USHO,
in the event USHO terminates Mr. Johnson's services for any reason other than
"just cause" within 18 months following a transaction in which a majority of the
outstanding shares of USHO Common Stock are exchanged for securities of another
entity, Mr. Johnson is
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<PAGE>
entitled to receive, as severance, an amount equal to 50% of his then annual
salary, paid bi-weekly in equal installments over six months.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned upon there being delivered an
opinion of Blank Rome Comisky & McCauley, counsel to HHCA, that for federal
income tax purposes, under current law, assuming that the Merger and related
transactions will take place as described in the Merger Agreement, among other
things, the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and HHCA and USHO will each be a party to the
reorganization within the meaning of Section 368(b) of the Code. In that case,
in the opinion of Blank Rome Comisky & McCauley, no gain or loss will be
recognized by HHCA or USHO in the Merger.
The above discussion is based on currently existing provisions of the Code,
Treasury Regulations thereunder, administrative rulings and court decisions.
All of the foregoing are subject to change and any such change can affect the
continuing validity of this discussion.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and Antitrust Division of the
Department of Justice (the "Antitrust Division"), and specified waiting period
requirements have been satisfied. USHO and HHCA intend to file premerger
notification forms with the FTC and the Antitrust Division.
The waiting period under the HSR Act for USHO and HHCA will terminate 30
days after the filing date unless the period is terminated at an earlier date
pursuant to USHO's and HHCA's request for early termination of the waiting
period. If USHO or HHCA receives a request for additional information from the
FTC or the Antitrust Division prior to the expiration of the waiting period, the
period will terminate 20 days after USHO and HHCA have substantially complied
with the request.
At any time before or after the Effective Time, the Department of Justice,
the FTC or a private person or entity could seek under the antitrust laws, among
other things, to enjoin the Merger or to cause USHO to divest itself, in whole
or in part, of its businesses. There can be no assurance that a challenge to
the Merger will not be made or that, if such a challenge is made, USHO will
prevail. The obligations of USHO and HHCA to consummate the Merger are subject
to the condition that there be no temporary restraining order, preliminary or
permanent injunction or other order by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the Merger.
Each party has agreed to use reasonable efforts to have any such injunction or
order lifted. See "-- Conditions to the Merger" and "-- Termination."
Under the health care laws and regulations of the State of New York, HHCA
must obtain the approval of the Public Health Council of the State of New York
(the "Public Health Council") in connection with the proposed Merger and the
related change in control of the home health agencies operated by USHO in New
York. On September 30, 1997, HHCA filed an application with the Public Health
Council seeking such approval. It is not anticipated, however, that the review
process will be completed and such approval obtained prior to the consummation
of the Merger. The failure to obtain the required approval from the Public
Health Council could have a material adverse effect on HHCA's business,
financial condition or results of operations.
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<PAGE>
RESALES OF HHCA COMMON STOCK
HHCA Common Stock to be issued in the Merger has been registered under the
Securities Act, and will be freely transferable, except for shares thereof
issued to persons, including directors and executive officers of USHO, who may
be deemed to be "Affiliates" of USHO, as such term is defined in Rule 145 under
the Securities Act. "Affiliates" are generally defined as persons who control,
are controlled by, or are under common control with USHO at the time of the
Merger (generally, directors, certain executive officers and major
shareholders). Affiliates of USHO may not sell their shares of HHCA Common Stock
acquired in connection with the Merger, except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with Rule 145 or another applicable exemption from the registration
requirements of Securities Act. In general, under Rule 145, for one year
following the Effective Time, an Affiliate (together with certain related
persons) would be entitled to sell shares of HHCA Common Stock acquired in
connection with the Merger only through unsolicited "brokers' transactions" or
in transactions directly with a "market maker," as such terms are defined in
Rule 144 under the Securities Act. Additionally, during such one-year period the
number of shares to be sold by an Affiliate (together with certain related
persons and certain persons acting in concert) within any three-month period for
purposes of Rule 145 may not exceed the greater of (i) 1% of the outstanding
shares of HHCA Common Stock or (ii) the average weekly trading volume of HHCA
Common Stock during the four calendar weeks preceding such sale. The resale
provisions of Rule 145 will remain available to Affiliates only if HHCA remains
current with its information filings with the Commission under the Exchange Act.
One year after the Effective Time, an Affiliate will be able to sell such HHCA
Common Stock without such manner of sale and volume limitations if HHCA is
current with its Exchange Act information filings and such Affiliate is not then
an Affiliate of HHCA. Two years after the Effective Time, an Affiliate of USHO
who is not then an Affiliate of HHCA will be able to sell such shares of HHCA
Common Stock without any restrictions so long as such Affiliate has not been an
Affiliate of HHCA for at least three months prior thereto.
It is a condition to the consummation of the Merger that HHCA shall have
obtained from Affiliates of USHO a written undertaking to the effect (i) that no
sale, transfer or other disposition of HHCA Common Stock will be made of any
shares of HHCA Common Stock received in the Merger except in compliance with the
provisions of Rule 145 under the Securities Act and (ii) that no sale, transfer
or other disposition of HHCA Common Stock will be made within 30 days prior to
the Effective Time or thereafter until publication of financial results that
include at least 30 days of post-merger combined operations of USHO and HHCA.
See "-- Covenants" and "-- Accounting Treatment." This Proxy Statement does not
cover resales of HHCA Common Stock received by any person who may be deemed an
Affiliate of USHO.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Consummation of the Merger is conditioned
upon the Merger qualifying as a pooling of interests transaction under generally
accepted accounting principles. See "-- Covenants." Under the pooling of
interests accounting method, (i) the recorded historical cost basis of the
assets and liabilities of USHO will be carried forward to the operations of HHCA
after the Effective Time of the Merger, generally at their recorded amounts and
(ii) financial statements of HHCA issued subsequent to the consummation of the
Merger will be restated to include the combined financial position, results of
operations and cash flows for USHO and HHCA for all periods presented therein.
Under guidelines published by the Commission, the sale or other disposition of
USHO Common Stock by an Affiliate of USHO within 30 days prior to the Effective
Time or the sale or other disposition of USHO Common Stock thereafter prior to
the publication of financial results that include at least 30 days of post-
merger combined operations of USHO and HHCA could preclude
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<PAGE>
pooling of interests accounting treatment of the Merger. See "--Accounting
Treatment" and "--Resale of HHCA's Common Stock."
OPERATIONS AND MANAGEMENT OF USHO AFTER THE MERGER.
Following the Effective Time, USHO will be a wholly-owned subsidiary of
HHCA, and all of USHO's subsidiaries and affiliates will be indirect
subsidiaries and affiliates of HHCA. HHCA will continue its operations as prior
to the Merger and will continue to be managed by the same board of directors and
executive officers. After the Effective Time USHO will be managed by a board of
directors and executive officers selected by HHCA.
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<PAGE>
SELECTED FINANCIAL INFORMATION
USHO
The following selected consolidated financial information has been derived
from the historical consolidated financial statements of USHO. This information
should be read in conjunction with USHO's consolidated financial statements and
notes thereto, and other financial information incorporated by reference into
this Proxy Statement.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- ----------
1992 1993 1994 1995 1996 1997
------- -------- -------- ---------- --------------- ----------
(in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA: (1)
Net revenues...................................... $58,992 $62,637 $ 56,351 $56,450 $ 56,483 $ 27,730
Operating costs and expenses......................
Patient care................................... 34,203 42,016 38,295 37,605 39,213 16,715
General and administrative..................... 16,099 25,436 27,382 18,607 19,016 7,827
Depreciation and amortization.................. 1,688 5,166 4,875 2,208 1,943 729
Interest....................................... - 1,398 1,423 870 1,092 468
Restructuring and other nonrecurring charges... - - 7,650 - 3,619 -
Provision for litigation settlement (2)........ - - 2,000 - - -
------ ------- -------- ------- ------- ---------
Total operating costs and expenses................ 51,990 74,016 81,625 59,290 64,883 25,739
------ ------- -------- ------- ------- ---------
Income (loss) from continuing operations before
income taxes.................................... 7,002 (11,379) (25,274) (2,840) (8,400) 1,991
Provision (benefit) for income taxes........... 3,170 (3,606) (219) 154 150 75
------ ------- -------- ------- ------- ---------
Income (loss) from continuing operations.......... 3,832 (7,773) (25,055) (2,994) (8,550) 1,916
Discontinued operations, net of tax:
Income (loss) from IV therapy business........... 268 637 (1,710) 1,196 (1,464) -
Loss on disposal of IV therapy business.......... - - - - (13,779) -
------ ------- -------- ------- ------- ---------
Net income (loss)................................. $4,100 $(7,136) $(26,765) $(1,798) $(23,793) $ 1,916
====== ======= ======== ======= ======== =========
Net income (loss) per common and common
equivalent share from continuing operations(3). 0.48 $(0.94) $(3.04) $(0.37) $(0.96) $ 0.17
====== ======= ======== ======= ======== =========
Net income (loss) per common and common
equivalent share (3)........................... $0.51 $(0.87) $(3.25) $(0.22) $(2.68) $0.17
====== ======= ======== ======= ======== =========
Weighted average common and common
equivalent shares outstanding (3)................ 8,020 8,244 8,247 8,180 8,868 11,409
====== ======= ======== ======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------------------ ----------
1992 1993 1994 1995 1996 1997
-------- ------- --------- -------- -------- ----------
(in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit) (4).....................$25,145 $19,338 $ (6,547) $ 8,186 $ (3,511) $ (7,628)
Total assets...................................... 67,710 64,662 43,681 38,441 15,545 12,698
Long-term debt and capital lease obligations, less
current portion (4)............................. 11,495 17,561 9,282 12,524 7,983 -
Total shareholders' equity (deficit).............. 40,544 33,408 8,593 15,915 (7,055) (4,760)
</TABLE>
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___________________
(1) On October 31, 1996 (effective October 1, 1996), USHO completed the sale of
certain assets (not including accounts receivable) of its infusion therapy
("IV") business. For all periods reported, the IV therapy business has been
treated as a discontinued operation. Additionally, the manner of
presentation of certain other amounts in USHO's consolidated statement of
operations has been reformatted for all periods presented to HHCA's basis
of presentation for comparative purposes.
(2) Represents the portion of the settlement of a class action suit paid by
USHO.
(3) Net income (loss) per common and common equivalent share and weighted
average common and common equivalent shares outstanding for 1992 through
1996 were calculated without respect to common stock equivalents for these
periods as the effect of their inclusion in the calculation of net loss per
common and common equivalent share is anti-dilutive or the results were
identical. The fully diluted net income per common and common equivalent
share and weighted average common and common equivalent shares outstanding
for the six months ended June 30, 1997 were $0.10 and 18,692 shares,
respectively, after giving effect to common stock equivalents.
(4) As of June 30, 1997, approximately $7.9 million of long-term debt due
January 2, 1998 was classified as currently payable. Such amount is
expected to be refinanced on a long-term basis by HHCA in connection with
the Merger. See "Unaudited Pro Forma Consolidated Financial Statements."
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HHCA
The following selected consolidated financial information has been derived
from the historical consolidated financial statements of HHCA. This information
should be read in conjunction with HHCA's consolidated financial statements and
notes thereto, and other financial information incorporated by reference into
this Proxy Statement. The selected pro forma consolidated financial information
presents the combined results of operations and balance sheets of HHCA and USHO
as of and for the fiscal year ended June 30, 1997. This pro forma information
should be read in conjunction with the Unaudited Pro Forma Consolidated
Financial Statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------
PRO FORMA
YEAR
ENDED
JUNE 30,
1993 1994 1995 1996 1997 1997 (1)
------- ------- -------- ------- -------- ----------
(in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues.................................. $42,177 $46,706 $64,149 $95,878 $150,232 $204,767
Operating costs and expenses:
Patient care............................... 18,205 21,761 32,378 46,212 71,818 107,760
General and administrative................. 19,732 21,272 26,245 36,100 54,254 70,085
Provision for doubtful accounts............. 1,268 1,316 1,727 3,464 8,431 9,136
Depreciation............................... 491 450 553 899 1,524 2,323
Amortization............................... 286 148 244 1,021 2,346 3,192
Interest, net.............................. 471 802 1,451 1,579 3,849 5,824
Merger, restructuring and
other nonrecurring charges............... - - - 913 3,009 6,628
------- --------- --------- --------- ----------- -----------
Total operating costs and expenses............ 40,453 45,749 62,598 90,188 145,231 204,948
------- --------- --------- --------- ----------- -----------
Income (loss) from operations................. 1,724 957 1,551 5,690 5,001 (181)
Provision for income taxes................. 830 646 793 2,396 2,187 2,355
------- --------- --------- --------- ----------- -----------
Income (loss) before extraordinary item
and change in accounting..................... 894 311 758 3,294 2,814 (2,536)
Extraordinary item......................... - - - 1,161 - -
------- --------- --------- --------- ----------- -----------
Income (loss) before change in accounting..... 894 311 758 2,133 2,814 (2,536)
Change in accounting....................... - 244 - - - -
------- --------- --------- --------- ----------- -----------
Net income (loss) $ 894 $ 555 $ 758 $ 2,133 $ 2,814 $ (2,536)
======= ========= ========= ========= =========== ===========
Net income (loss) available to common and
common equivalent shareholders (2)........... $ 766 $ 456 $ 635 $ 1,229 $ 2,808 $ (2,542)
======= ========= ========= ========= =========== ===========
Net income (loss) per common and common
equivalent share............................. $0.22 $0.13 $0.17 $ 0.18 $ 0.32 ($0.26)
======= ========= ========= ========= =========== =========
Weighted average common and common
equivalent shares outstanding................ 3,550 3,572 3,676 6,653 8,673 9,926
======= ========= ========= ========= =========== =========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
---------------------------------------------- ---------
JUNE 30,
1993 1994 1995 1996 1997 1997(3)
------ ------- -------- -------- -------- ----------
(in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................. $ 9,491 $11,201 $12,059 $20,346 $ 43,204 $ 30,576
Total assets.................................... 17,731 20,745 34,572 69,975 153,263 165,961
Long-term debt and capital lease
obligations, less current portion............ 2,921 7,664 14,264 16,287 78,793 78,793
Redeemable stock................................ 2,931 2,991 3,555 1,744 - -
Total shareholders' equity...................... $ 2,740 $ 3,275 $ 4,938 $37,648 $ 50,572 $ 33,812
</TABLE>
_____________________
(1) Gives effect to the Merger as if it occurred as of July 1, 1996. See
"Unaudited Pro Forma Consolidated Financial Statements."
(2) Net income available to common and common equivalent shareholders is
reduced by dividends on preferred stock for all fiscal years presented and
the write-off of a discount on preferred stock of approximately $787,000 in
fiscal 1996 in connection with bridge financing related to an acquisition.
(3) Gives effect to the Merger as if it occurred on June 30, 1997. See
"Unaudited Pro Forma Consolidated Financial Statements."
-35-
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements are
presented assuming the Merger has been consummated and accounted for as a
pooling of interests. The pro forma consolidated data is based on the separate
historical consolidated financial statements of HHCA and USHO giving effect to
the transactions on the basis of the assumptions and adjustments outlined in the
accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements.
The Unaudited Pro Forma Consolidated Statements of Operations for the years
ended June 30, 1995, 1996 and 1997 reflect the consolidated operations of HHCA
and USHO as if the Merger had occurred as of July 1, 1994. The Unaudited Pro
Forma Consolidated Balance Sheets at June 30, 1997 reflect the accounts of HHCA
and USHO as if the Merger had occurred on June 30, 1997.
The Unaudited Pro Forma Consolidated Financial Statements do not purport to
represent what the actual results of operations or financial condition of HHCA
would have been had the Merger occurred as of such dates, or to project HHCA's
results of operations or financial condition for any period or date, nor does it
give effect to any matters other than those described in the notes thereto. The
Unaudited Pro Forma Consolidated Financial Statements and notes thereto should
be read in conjunction with the separate audited consolidated financial
statements of HHCA and USHO incorporated by reference in this Proxy Statement.
-36-
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HHCA (1) USHO (2) ADJUSTMENTS COMBINED
---------- --------- ------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 464 $ 317 $ - $ 781
Accounts receivable, net.............................. 56,410 7,103 - 63,513
Inventories, net...................................... 3,262 - - 3,262
Prepaid expenses and other............................ 2,018 1,324 - 3,342
Income taxes receivable............................... 593 - - 593
Deferred income taxes................................. 1,973 - - 1,973
---------- --------- ------------- ----------
Total current assets............................. 64,720 8,744 - 73,464
Property and equipment, net.............................. 18,261 992 - 19,253
Goodwill, net............................................ 68,202 1,539 - 69,741
Other assets, net........................................ 2,080 1,423 - 3,503
---------- --------- ------------- ----------
Total assets..................................... $153,263 $ 12,698 $ - $165,961
========== ========= ============= ==========
LIABILITIES
Current liabilities:
Current maturities of long-term debt.................. $ 6,263 $ 7,864 (3) $ - $ 14,127
Accounts payable...................................... 5,705 2,571 - 8,276
Accrued salaries...................................... 4,788 1,788 - 6,576
Other accrued expenses................................ 4,760 2,162 - 6,922
Reserve for restructuring and other
nonrecurring charges................................. - 1,987 2,500 (4) 4,487
---------- --------- ------------- ----------
Total current liabilities........................ 21,516 16,372 2,500 40,388
Long-term debt, net...................................... 78,793 - - 78,793
Other non-current liabilities 1,109 1,086 - 2,195
Deferred income taxes.................................... 1,273 - - 1,273
---------- --------- ------------- ----------
Total liabilities................................ 102,691 17,458 2,500 122,649
STOCKHOLDER'S EQUITY (DEFICIT)
Common Stock, $0.01 par value............................ - 100 (100) (5) -
Common stock, no par value............................... 43,927 - 45,724 (5) 89,651
Preferred stock.......................................... - 328 (328) (5) -
Additional paid-in capital............................... - 45,296 (45,296) (5) -
Retained earnings (deficit).............................. 6,645 (50,484) (2,500) (4) (46,339)
---------- --------- ------------- ----------
Total shareholders' equity (deficit)............. 50,572 (4,760) (2,500) 43,312
---------- --------- ------------- ----------
Total liabilities and shareholders'
equity (deficit)................................ $153,263 $ 12,698 $ - $165,961
========== ========= ============= ==========
</TABLE>
See notes to Unaudited Pro Forma Consolidated Financial Statements.
-37-
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statements of Operations
for the year ended June 30, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
HHCA USHO(6) Adjustments Combined
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
Net revenues............................................... $150,232 $54,535 $ - $204,767
Operating costs and expenses:
Patient care............................................ 71,818 35,942 - 107,760
General and administrative.............................. 54,254 16,809 (978) (7) 70,085
Provision for doubtful accounts......................... 8,431 705 - 9,136
Depreciation............................................ 1,524 799 - 2,323
Amortization............................................ 2,346 846 - 3,192
Interest, net........................................... 3,849 997 978 (7) 5,824
Merger, restructuring and other nonrecurring charges...... 3,009 3,619 - (8) 6,628
-------- ------- ----------- --------
Total operating costs and expenses..................... 145,231 59,717 - 204,948
-------- ------- ----------- --------
Income (loss) before income taxes.......................... 5,001 (5,182) - (181)
Provision for income taxes................................. 2,187 168 - 2,355
-------- ------- ----------- --------
Income (loss) from continuing operations................... $ 2,814 $(5,350) $ - $ (2,536)
======== ======= =========== ========
Per share data:
Income (loss) from continuing operations available to
common shareholders..................................... $ 2,808 $ (2,542)
======== ========
Earnings (loss) per share from continuing operations....... $0.32 $(0.26)
======== ========
Weighted average common and common equivalent
shares outstanding...................................... 8,673 9.926 (9)
======== ========
</TABLE>
See notes to Unaudited Pro Forma Consolidated Financial Statements.
-38-
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statements of Operations
for the year ended June 30, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
HHCA USHO (7) ADJUSTMENTS COMBINED
------- -------- ----------- --------
<S> <C> <C> <C> <C>
Net revenues............................................... $95,878 $ 55,607 $ - $151,485
Operating costs and expenses:
Patient care............................................ 46,212 36,144 - 82,356
General and administrative.............................. 36,100 17,499 (1,235) (7) 52,364
Provision for doubtful accounts......................... 3,464 1,146 - 4,610
Depreciation............................................ 899 957 - 1,856
Amortization............................................ 1,021 1,114 - 2,135
Interest, net........................................... 1,579 1,163 1,235 (7) 3,977
Bridge financing........................................ 913 - - 913
------- -------- ----------- --------
Total operating costs and expenses.................... 90,188 58,023 - 148,211
------- -------- ----------- --------
Income (loss) before income taxes.......................... 5,690 (2,416) - 3,274
Provision for income taxes................................. 2,396 211 - 2,607
------- -------- ----------- --------
Income (loss) from continuing operations................... $ 3,294 ($2,627) $ - $ 667
======= ======== =========== ========
Per share data:
Income (loss) from continuing operations available
to common shareholders.................................. $2,390 $ (237)
======= ========
Earnings (loss) per share from continuing operations....... $0.36 $(0.03)
======= ========
Weighted average common and common equivalent
shares outstanding...................................... 6,653 7,786 (9)
======= ========
</TABLE>
See notes to Unaudited Pro Forma Consolidated Financial Statements.
-39-
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statements of Operations
for the year ended June 30, 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
HHCA USHO (6) Adjustments Combined
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Net revenues............................................. $64,149 $ 54,585 $ - $118,734
Operating costs and expenses:
Patient care.......................................... 32,378 36,139 - 68,517
General and administrative............................ 26,245 23,823 (1,260) (7) 48,808
Provision for doubtful accounts....................... 1,727 1,229 - 2,956
Depreciation.......................................... 553 1,238 - 1,791
Amortization.......................................... 244 1,181 - 1,425
Interest, net......................................... 1,451 1,338 1,260 (7) 4,049
Restructuring charges................................. - 7,650 - 7,650
-------- -------- ----------- --------
Total operating costs and expenses............... 62,598 72,598 - 135,196
-------- -------- ----------- --------
Income (loss) before income taxes........................ 1,551 (18,013) - (16,462)
Provision for income taxes............................... 793 171 - 964
-------- -------- ----------- --------
Income (loss) from continuing operations................. $ 758 $(18,184) $ - $(17,426)
======== ======== =========== ========
Per share data:
Income (loss) from continuing operations available
to common shareholders................................ $ 635 $(17,549)
======== ========
Earnings (loss) per share from continuing
operations............................................ $0.17 $ (3.78)
======== ========
Weighted average common and common
equivalent shares outstanding........................ 3,676 4,645 (9)
======== ========
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
-40-
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA CONSOLIDATED BALANCE SHEETS
(1) Represents HHCA's consolidated balance sheet at June 30, 1997.
(2) Represents the unaudited consolidated balance sheet of USHO at June 30,
1997.
(3) In connection with the Merger, HHCA is required to refinance USHO's bank
debt outstanding on the Effective Time. Such debt is expected to be
refinanced on a long-term basis by HHCA; however, it is classified as a
current liability in the pro forma balance sheet as it is due on January 2,
1998.
(4) Represents estimated Merger costs resulting from the proposed transaction,
net of income tax.
(5) Reflects the assumed conversion of USHO Preferred Stock and USHO Common
Stock into shares of HHCA Common Stock.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(6) Represents the unaudited consolidated results of operations of USHO,
grouped for comparative purposes to a twelve month fiscal period ended
June 30 for all periods presented. The proposed Merger was accounted for
as a pooling of interests in the pro forma consolidated statements of
operations.
(7) To conform accounting presentation, service fees recorded by USHO
associated with certain financing activities were reclassified to
interest expense.
(8) Estimated transaction costs resulting from this proposed Merger of
approximately $2.5 million, net of income tax, have not been reflected.
(9) Reflects 1.4 million, 1.3 million and 1.2 million shares of HHCA Common
Stock assumed issued in fiscal 1997, 1996 and 1995, respectively, in
connection with the conversion of USHO Common Stock into shares of HHCA
Common Stock, assuming a conversion ratio of .1375 based upon an assumed
HHCA share price of $10.63, as if the Merger occurred as of July 1, 1994.
Additional shares of HHCA Common Stock issuable upon conversion of USHO
Preferred Stock would have been 1.0 million for each of the periods
presented, assuming a $10.63 HHCA share price. These shares, as well as
shares issuable upon exercise of common stock equivalents (aggregating
approximately 288,000 for fiscal 1997 assuming a conversion ratio of
.1375) are not included in the calculation of pro forma loss per share as
they are antidilutive. The conversion ratio is subject to many variables
and will change. See "The Proposed Merger and Related Matters--
Conversion of USHO Common Stock" and "--Conversion of USHO Preferred
Stock."
-41-
<PAGE>
DESCRIPTION OF USHO
USHO is a regional provider of paraprofessional and professional home
health care services, including nursing care, personal care and other
specialized therapies. USHO is headquartered in Hartford, Connecticut and has
operations in New York (Westchester County, metropolitan New York City, Long
Island and upstate New York) as well as Connecticut and Pennsylvania. USHO works
with physicians, social service agencies, health care institutions, and patients
to identify home care services that are appropriate for the patient's diagnosis
and required to implement the physician's plan of treatment. USHO addresses the
needs of its patients by coordinating therapies, products, equipment and support
services with the appropriate nursing care. To further its emphasis on a
diagnosis-centered approach, USHO has designed specialized programs for patients
with particular diseases such as cancer, AIDS and Alzheimer's disease, and for
particular classes of patients such as the developmentally disabled and hospice
patients.
At June 30, 1997, USHO had consolidated assets of approximately $12.7
million and consolidated shareholders' deficit of approximately $4.8 million and
employed approximately 3,200 persons.
USHO's offices are located at Two Hartford Square West, Hartford,
Connecticut 06106, and its telephone number at that address is (860) 278-7242.
Additional information concerning USHO is included in documents
previously filed by USHO with the Commission and which are incorporated by
reference in this Proxy Statement. See "Available Information and Incorporation
of Documents by Reference."
DESCRIPTION OF HHCA
HHCA is a leading provider of comprehensive home health care services
and products, delivering nursing and related patient services, respiratory
therapy, infusion therapy and durable medical equipment. HHCA currently
operates 61 branch locations in Florida, Pennsylvania, Delaware, New Jersey,
Maryland, Massachusetts, New Hampshire, Texas, Illinois and Maine. HHCA
provides a "one-stop-shop" of cost effective, comprehensive home health care
services and products. HHCA operates regional "Coordinated Care Centers" which
serve as focal points for managed care organizations, hospitals, physicians,
discharge planners and other health care providers to efficiently arrange HHCA
services and products.
At June 30, 1997, HHCA had consolidated assets of approximately $153.5
million and consolidated shareholders' equity of approximately $50.6 million and
employed approximately 3,100 full- and part-time persons.
HHCA's offices are located at 2200 Renaissance Boulevard, Suite 300,
King of Prussia, Pennsylvania 19406, and its telephone number at that address is
(610) 272-1717.
Additional information concerning HHCA is included in documents
previously filed by HHCA with the Commission and which are incorporated by
reference in this Proxy Statement. See "Available Information and Incorporation
of Documents by Reference."
DESCRIPTION OF SUBSIDIARY
Subsidiary is a direct, wholly-owned subsidiary of HHCA and has not
engaged in any business activity unrelated to the Merger. The principal
executive offices of the Subsidiary are located at 2200 Renaissance Boulevard,
Suite 300, King of Prussia, Pennsylvania, 19406, and its telephone number at
that address is (610) 272-1717.
-42-
<PAGE>
ELECTION OF DIRECTOR
HHCA's Bylaws provide that the board of directors shall consist of not
fewer than three nor more than nine directors, with the exact number to be fixed
by the board of directors. The board of directors has fixed the number of
directors at four. Pursuant to the Bylaws of HHCA, the directors are divided
into three classes, which is required to be as nearly equal in number as
possible. One class of directors is to be elected annually for a term of three
years. The board of directors is currently comprised of two classes (Class A
and Class B) of one director each and one class (Class C) of two directors.
At the HHCA Annual Meeting shareholders will elect one Class B
director to serve for a term of three years and until his successor is elected
and qualified. Unless directed otherwise, the persons named in the enclosed
Proxy intend to vote such Proxy "for" the election of the listed nominee or, in
the event of inability of the nominee to serve for any reason, for the election
of such other person as the board of directors may designate to fill the
vacancy. The board has no reason to believe that the nominee will not be a
candidate or will be unable to serve.
The board of directors has nominated G. Michael Bellenghi to serve as
the Class B director. Mr. Bellenghi currently serves as a director. The
nominee has consented to being named in the Proxy Statement and to serve if
elected. The following table sets forth information, as of the Record Date,
concerning HHCA's directors and nominee for election to the board of directors:
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE POSITION SINCE EXPIRES
- --------------------- ------- -------------------------- --------- --------
<S> <C> <C> <C> <C>
Bruce J. Feldman /(1)/ 48 Chairman of the Board, President 1982 1998
and Chief Executive Officer
G. Michael Bellenghi /(1)/(2)/(3)/ 49 Director 1994 1997
Harvey Machaver /(1)/(2)/ 72 Director 1985 1998
Joseph F. Trustey /(2)/ 35 Director 1995 1999
</TABLE>
__________________________
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Nominee for Director.
The following information about HHCA's directors and nominee for
director is based, in part, upon information supplied by such persons.
Bruce J. Feldman, the founder of HHCA, has served as President, Chief
Executive Officer and Chairman of HHCA since it was founded in December 1982.
Prior to founding HHCA, Mr. Feldman owned a Medicare-certified home health
agency, which became a subsidiary of HHCA in 1982.
G. Michael Bellenghi has been a director of HHCA since October 1994.
Since 1990, he has been the Chief Executive Officer of Paragon Management Group,
Inc., a health care consulting company located in Malvern, Pennsylvania. He is
also the Chairman and Chief Executive Officer of Recordex Services, Inc., a
medical records retrieval company located in Malvern, Pennsylvania. Mr.
Bellenghi also serves as a director
-43-
<PAGE>
of F.Y.I. Incorporated, the parent company of Recordex Services, Inc., a company
with a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934.
Harvey Machaver has been a director of HHCA since December 1985.
Since 1990, Mr. Machaver has been President of Scopus Evaluation Services, a
health care consulting firm located in New York, New York. Mr. Machaver is a
fellow of the American College of Health Care Executives and a fellow of the New
York Academy of Medicine.
Joseph F. Trustey has been a director of HHCA since April 1995. From
1992 to the present, Mr. Trustey has been employed by Summit Partners, L.P., a
venture capital firm, and currently serves as a general partner of that firm.
From 1990 to 1992, Mr. Trustey was employed as a strategy consultant with the
consulting firm of Bain & Company, Inc. Mr. Trustey is a director of Suburban
Ostomy Supply Co., Inc., a company with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
SHAREHOLDER NOMINATIONS
Pursuant to HHCA's Bylaws, no shareholder is permitted to nominate a
candidate for election as a director unless the shareholder is present in person
at the annual meeting and provides, in writing, to the Secretary of HHCA (a)
information about the candidate that is equivalent to the information concerning
the candidates nominated by the board of directors that was contained in HHCA's
proxy statement for the immediately preceding meeting at which directors were
elected if HHCA distributed a proxy statement to its shareholders in connection
with such election of directors, or (b) if HHCA did not distribute a proxy
statement, the following information about such candidate: (i) name, age,
business and residence address of such candidate; (ii) any position, office or
arrangement held with HHCA by such candidate and a description thereof; (iii) a
description of any arrangement between the candidate and any other person(s)
(naming such person(s)) pursuant to which he was nominated as a director; (iv)
the candidate's principal occupation for the five years prior to the election;
(v) the number of shares of HHCA's stock beneficially owned by the candidate;
(vi) a description of any commercial transaction or series of transactions
involving the candidate in which HHCA (or any of its affiliates) has a direct or
indirect material interest in the transaction, including the amount of the
transaction and the amount of the candidate's interest in the transaction; and
(vii) evidence of the consent of such candidate to serve as a director if
elected. The Bylaws also require that the nominating shareholder provide HHCA
with the following information: (a) the name and address as they appear on
HHCA's stock transfer books of such nominating shareholder and of the beneficial
owners (if any) of HHCA's capital stock registered in such shareholder's name
and name and address of other shareholders known by the nominating shareholder
to be supporting such candidate; (b) the class and number of shares of HHCA's
capital stock which are held of record, beneficially owned or represented by
proxy by such nominating shareholder and any other shareholders known to such
nominating shareholder to be supporting such candidate as of the record date for
the annual meeting in question (if such the shareholders of HHCA have then been
given notice of such date) and as of the date of the nominating shareholder's
notice. This information is required to be provided in writing at least four
(4) months prior to the annual meeting of shareholders.
If the board of directors or a designated committee thereof determines
that any shareholder nomination was not timely made in accordance with the terms
of the Bylaws or that the information provided by the nominating shareholder
does not satisfy the informational requirements of the Bylaws in any material
respect, then such nomination will not be considered at the annual meeting in
question. If neither the board of directors nor such committee makes such a
determination as to the nominating shareholder's compliance with the Bylaws, the
judge(s) of election for the annual meeting, or if same have not been appointed
pursuant
-44-
<PAGE>
in accordance with the Bylaws, the Chairman will so declare at the annual
meeting and ballots will be provided for use at the meeting with respect to such
candidate.
BOARD OF DIRECTORS, COMMITTEES AND ATTENDANCE AT MEETINGS
The board of directors of HHCA held four meetings during fiscal 1997.
Each director attended 75% or more of the meetings of the board and committees
of he was a member during fiscal 1997.
The board of directors of HHCA has appointed a Compensation Committee
to review and make recommendations to the board of directors regarding the
salaries, bonuses and other forms of compensation for executive officers of HHCA
and to administer various compensation and benefit plans. During fiscal 1997,
the Compensation Committee held two meetings.
The board of directors also has appointed an Audit Committee to, among
other things, review HHCA's accounting practices, internal accounting controls
and financial results and to oversee the engagement of HHCA's independent
auditors. The Audit Committee held one meeting during fiscal 1997.
The board of directors has not appointed a standing Nominating
Committee.
DIRECTOR COMPENSATION
Directors' Fees. Each director of HHCA who is not also an officer or
employee of HHCA receives a fee of $1,000 for each meeting of the board of
directors or any committee of the board of directors attended.
Consulting Arrangements. HHCA has a consulting arrangement with
Scopus Evaluation Services, of which Mr. Machaver is the principal stockholder.
In fiscal 1996, 1995 and 1994, HHCA paid consulting fees of approximately
$44,000, $40,000 and $40,000, respectively, to Scopus Evaluation Services.
Stock Options. Under the Plan, each non-employee director was granted
on November 13, 1995 an option to purchase 10,000 shares of Common Stock at an
exercise price of $7.50 (the "Directors' Options"). The Directors Options are
currently exercisable.
-45-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 1, 1997, certain
information with respect to the beneficial ownership of the Common Stock (i) by
each person who is known by HHCA to be the beneficial owner of more than 5% of
the Common Stock, (ii) by each director of HHCA, (iii) by each executive officer
of HHCA named in the Summary Compensation Table and (iv) by all directors and
executive officers of HHCA as a group. Except as otherwise indicated, all
information is as of the Record Date and the beneficial owners of the Common
Stock listed below have sole investment and voting power with respect to such
shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED /(2)/
-------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER/(1)/ NUMBER PERCENT
- ---------------------------------------------------- ---------- ------------
<S> <C> <C>
Bruce J. Feldman /(3)/.............................................. 1,015,853 11.0%
Fred J. Nicholas/(4)/............................................... 109,333 1.2%
Bruce J. Colburn/(5)/............................................... 18,166 *
Joseph Sterensis.................................................... 40,000 *
Joseph Grilli/(6)/.................................................. 18,333 *
Joseph J. Trustey/(7)/.............................................. 10,000 *
G. Michael Bellenghi/(7)/........................................... 10,000 *
Harvey Machaver/(8)/................................................ 36,591 *
Wasatch Advisors, Inc./(9)/......................................... 868,975 9.4%
RCM Capital Management, L.L.C. /(10)/............................... 920,000 9.9%
Wellington Management Co., L.L.P. /(11)/............................ 800,800 8.7%
All Directors and Executive
Officers as a group (15 persons)/(12)/........................... 1,272,298 13.8%
</TABLE>
_____________________
Denotes less than 1.0%
(1) Except as otherwise shown, the address of each person listed above is in
care of HHCA, 2200 Renaissance Boulevard, Suite 300, King of Prussia, PA
19406.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and includes voting
or investment power with respect to the shares. Shares of HHCA Common
Stock subject to securities exercisable within 60 days following October 1,
1997, are deemed outstanding for computing the share ownership and
percentage ownership of the person holding such securities, but are not
deemed outstanding for computing the percentage of any other person.
(3) Includes 95,238 shares of HHCA Common Stock held by HHCA's Profit Sharing
Plan, of which Mr. Feldman is sole voting trustee, 381,250 shares of HHCA
Common Stock which may be acquired upon the exercise of stock options, and
5,000 shares of HHCA Common Stock which may be acquired upon the exercise
of warrants.
(4) Includes 108,333 shares of HHCA Common Stock which may be acquired upon the
exercise of options.
-46-
<PAGE>
(5) Includes 16,666 shares of HHCA Common Stock which may be acquired upon the
exercise of options.
(6) Includes 8,333 shares of HHCA Common Stock which may be acquired upon the
exercise of options.
(7) Represents shares of HHCA Common Stock which may be acquired upon the
exercise of options.
(8) Consists of 20,000 shares of HHCA Common Stock which may be acquired upon
the exercise of warrants, 10,000 shares of HHCA Common Stock which may be
acquired upon the exercise of options and 6,591 shares held jointly with
Mr. Machaver's spouse.
(9) The shares of HHCA Common Stock are owned by a variety of investment
advisory clients of Wasatch Advisors, Inc. ("Wasatch"), which clients
receive dividends with respect to and proceeds from the sale of such
shares. No such client is known to beneficially own more than 5% of the
HHCA Common Stock. Wasatch has sole dispositive and voting power with
respect to all 868,975 of the shares of HHCA Common Stock. The information
set forth herein with respect to the beneficial ownership of the HHCA
Common Stock is as of December 31, 1996 and is derived from a Schedule 13-
G, dated August 25, 1997, filed by Wasatch with the Commission. The
address of such beneficial owner is 68 S. Main Street, Suite 400, Salt Lake
City, UT 84101.
(10) The shares of HHCA Common Stock are owned by a variety of investment
advisory clients of RCM Capital Management, L.L.C. ("RCM"), which clients
receive dividends with respect to and proceeds from the sale of such
shares. No such client is known to beneficially own more than 5% of the
HHCA Common Stock. RCM has sole dispositive power with respect to all
920,000 of the shares of HHCA Common Stock and sole voting power with
respect to 820,000 of the shares of HHCA Common Stock. The information set
forth herein with respect to the beneficial ownership of the HHCA Common
Stock is as of October 1, 1997 and is derived from a information supplied
to HHCA by RCM. The address of such beneficial owner is 4 Embaracadero
Center, Suite 3000, San Francisco, CA 94111.
(11) The shares of HHCA Common Stock are owned by a variety of investment
advisory clients of Wellington Management Company ("Wellington"), which
clients receive dividends with respect to and proceeds from the sale of
such shares. No such client is known to beneficially own more than 5% of
the HHCA Common Stock. Wellington has shared dispositive power with
respect to all 800,800 of the shares of HHCA Common Stock and shared voting
power with respect to 335,000 of the shares of HHCA Common Stock. The
information set forth herein with respect to the beneficial ownership of
the HHCA Common Stock is as of June 30, 1997 and is derived from
information supplied to HHCA by Wellington. The address of such beneficial
owner is 75 State Street, Boston, MA 02109.
(12) Includes 25,000 shares of HHCA Common Stock which may be acquired upon the
exercise of warrants and 551,248 shares of HHCA Common Stock which may be
acquired upon the exercise of options.
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<PAGE>
EXECUTIVE COMPENSATION
Compensation Committee Report
The Compensation Committee of HHCA's board of directors establishes
HHCA's general compensation policies, compensation plans and specific
compensation levels of HHCA's most highly compensated executive officers, and
reviews the design, administration and effectiveness of compensation programs
for other key executives. The Compensation Committee's executive compensation
policies are designed to provide competitive levels of compensation, integrate
pay with HHCA's annual and long-term performance goals, reward above-average
corporate performance, recognize individual initiative and achievements, and
assist HHCA in attracting and retaining qualified executives.
HHCA's executive officer compensation program is comprised of base
salary, annual cash incentive compensation, long term incentive compensation in
the form of stock options and various benefits generally available to full-time
employees of HHCA, including participating in group medical and life insurance
plans. HHCA seeks to be competitive with Compensation programs offered by
companies of a similar size within the health care industry based on formal and
informal surveys conducted by HHCA.
Decisions with respect to the compensation of Bruce Feldman, the
Chairman, President and Chief Executive Officer of HHCA, Fred Nicholas, Chief
Operating Officer of HHCA and Bruce J. Colburn, Chief Financial Officer of HHCA
for fiscal 1997 were made by the Compensation Committee. Decisions with respect
to the compensation of all other executive officers of HHCA are made by Mr.
Bruce Feldman within the guidelines established by the Compensation Committee.
Base Salary. Prior to the beginning of each fiscal year, financial
and other goals are established for HHCA. Each executive officer is responsible
for accomplishing the goals pertaining to his area of responsibility. At the
end of each fiscal year, a performance review takes place with each executive
officer to measure performance against those objectives. Base salary decisions
are made based on the results of the performance review as well as other
considerations such as the executive officer's level of responsibility, years of
service with HHCA and professional background.
Annual Incentive Compensation. For fiscal 1997 HHCA established a
performance based bonus plan which awarded to executive officers bonus
compensation up to 10% of base salary if certain financial goals were achieved.
Information concerning bonus compensation paid to certain executive officers
with respect to fiscal 1997 is set forth in the Summary Compensation Table.
Stock Options. HHCA uses its Plan as a long-term incentive plan for
executive officers and lay employees. The objectives of the Plan with respect
to executive officers are to align the long-term interests of executive officers
and shareholders by creating a direct link between executive compensation and
shareholder return and to enable executives to develop and maintain a
significant long-term equity interest in HHCA. The Plan authorizes the
Compensation Committee to award stock options to officers and key employees.
Stock options granted to executive officers are based upon the level and degree
of responsibility of the positions they hold. In general under the Plan,
options are granted with an exercise price equal to the fair market value of the
HHCA Common Stock on the date of grant and are exercisable according to a
vesting schedule determined by the Compensation Committee at the time of grant.
In fiscal 1997, the Compensation Committee granted options to purchase an
aggregate of 348,833 shares of HHCA Common Stock under the Plan. Information
concerning the option grants to certain executive officers is set forth in the
Summary Compensation Table.
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<PAGE>
Determination of Compensation of Chief Executive Officer. The
Compensation Committee based Mr. Feldman's compensation for fiscal 1997 in part
on a survey of compensation paid to the chief executive officers of companies
comparable to HHCA. The Compensation Committee also considered Mr. Feldman's
role in developing acquisition opportunities for HHCA, the achievement by HHCA
of certain financial goals and the performance of the HHCA Common Stock.
Policy with Respect to Section 162(m) of the Internal Revenue Code.
Generally, Section 162(m) of the Internal Revenue Code of 1986, and the
regulations promulgated thereunder (collectively, "Section 162(m)"), denies a
deduction to any publicly held corporation, such as HHCA, for certain
compensation exceeding $1,000,000 paid during a taxable year to the chief
executive officer and the four other highest paid executive officers, excluding,
among other things, certain performance-based compensation. Where appropriate,
the Compensation Committee has taken action to reduce the impact of this
provision. For example, the Compensation Committee intends that the Employee
and Consultant Equity Plan qualify for the performance-based exclusion. The
Compensation Committee continually evaluates to what extent Section 162(m) will
apply to its other compensation programs.
THE COMPENSATION COMMITTEE
Harvey Machaver, Chairman
G. Michael Bellenghi
Joseph F. Trustey
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<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the
compensation paid to the Chief Executive Officer and each of the four other most
highly compensated executive officers of HHCA for services rendered in all
capacities to HHCA for fiscal 1997, 1996 and 1995 (collectively the "named
executive officers"):
<TABLE>
<CAPTION>
Annual Long Term
Compensation/(1)/ Compensation
----------------- --------------
Securities
Name and Fiscal Underlying All Other
Principal Position Year Salary Bonus Options Compensation
- ----------------------------- ------ ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Bruce J. Feldman, 1997 $300,000 $ - 100,000 33,792/(2)/
President and Chief 1996 254,000 43,600 75,000 33,792/(2)/
Executive Officer 1995 244,869 25,000 - 58,573/(3)/
Fred J. Nicholas 1997 165,000 - 50,000 -
Chief Operating Officer, 1996 155,000 15,500 50,000 -
Corporate 1995 127,728 14,000 5,000 14,000/(4)/
Bruce J. Colburn 1997 150,000 - 150,000 -
Chief Financial Officer (5) 1996 30,850 - - -
Joseph Sterensis 1997 140,000 - 20,000 -
Area Vice President, 1996 92,035 33,333 - -
Florida Region (6)
Joseph J. Grilli 1997 125,000 - 15,000 -
Area Vice President, 1996 110,000 11,000 10,000 -
Northeast Region 1995 108,769 10,500 5,000 10,500/(4)/
</TABLE>
__________________
(1) Does not include the value of perquisites provided to certain executive
officers which in the aggregate did not exceed the lesser of $50,000 or 10%
of such officer's salary and bonus.
(2) Consists of $15,460 of premiums on a split-dollar life insurance policy and
$18,324 relating to indebtedness to HHCA that was forgiven upon the
attainment of certain operating results.
(3) Consists of $25,000 contributed to HHCA's pension and profit sharing plan,
$15,000 of premiums on a split-dollar life insurance policy and $18,573
relating to indebtedness to HHCA that was forgiven upon the attainment of
certain operating results.
(4) Represents contributions to HHCA's pension and profit sharing plan.
(5) Mr. Colburn became Chief Financial Officer in April 1996.
(6) Mr. Sterensis started with HHCA in October 1995 as the Director of
Operations for HHCA's product locations in the Tampa, Florida area. He
became Area Vice President, Florida Region, in April 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning stock options
granted during fiscal 1997 to the named executive officers. The following table
also sets forth the potential realizable value over the term of the options (the
period from grant date to the expiration date), based on assumed rates of stock
appreciation of 5% and 10%, compounded annually. These amounts do not represent
HHCA's estimate of future stock price. Actual realizable values, if any, of
stock options will depend on the future performance of HHCA's common stock.
-50-
<PAGE>
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
-------------------------------------------------------------- ----------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- ------------------------- ------------- --------------- ------------ ------------ ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Bruce J. Feldman...... 100,000 28.7% $11.00 7/15/06 $691,784 $1,753,117
Fred S. Nicholas...... 50,000 14.3% 10.00 7/15/06 314,447 796,871
Bruce Colburn......... 150,000 43.0% 9.00 4/8/06 849,008 2,151,552
Joseph Sterensis...... 20,000 5.7% 8.94 5/1/07 112,446 284,961
Joseph J. Grilli...... 15,000 4.3% 10.00 7/15/06 94,334 239,061
</TABLE>
____________________________
(1) Represents the difference between the market value of HHCA's common stock
for which the option may be exercised, assuming that the market value of
the common stock appreciates in value from the date of grant to the end of
the option term at annualized rates of 5% and 10%, respectively, and the
exercise price of the option. The rates of appreciation used in this table
are prescribed by regulations of the Securities and Exchange Commission and
are not intended to forecast future appreciation of the market value of the
common stock.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information concerning the exercise
of stock options during fiscal 1997 and the number and value of unexercised
options held at the end of fiscal 1997 by the named executive officers.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Option at
Option at Year-end Year-End/(2)/
-------------------------------- --------------------------------
Shares
Acquired on Value
Name Exercise Realized/(1)/ Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ------------- -------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Bruce J. Feldman........ - 156,250 18,750 $112,500 $37,500
Fred J. Nicholas........ 8,333 $93,746 77,083 24,584 41,667 35,003
Bruce Colburn........... - - 16,666 133,334 8,333 6,667
Joseph Sterensis........ - - - 20,000 - 11,200
Joseph J. Grilli........ 5,000 56,250 6,666 23,334 34,997 27,504
</TABLE>
_____________________
(1) Calculated by determining the difference between the last reported sales
price of the common stock underlying the exercised Options on the date of
exercise and the exercise price.
(2) Calculated by determining the difference between the last reported sales
price of the common stock underlying the Options on June 30, 1997 and the
exercise price for those Options where the exercise price of the Options
exceeded the last reported sales price of the common stock.
EMPLOYMENT AGREEMENTS
Bruce J. Feldman. On September 1, 1995, HHCA entered into an employment
agreement with Bruce J. Feldman, President and Chief Executive Officer of HHCA,
for an initial term of three years, subject to automatic annual extensions of
one year on August 31, 1996 and each anniversary thereafter. Pursuant to the
terms of Mr. Feldman's employment agreement, Mr. Feldman is entitled to receive
(i) an annual base salary of $284,000, or such higher amount as the Compensation
Committee may determine (the "Base Salary"), (ii) an annual cash bonus based on
HHCA's achievement of specified levels of net income as determined by the
Compensation Committee and (iii) a deferred annuity program of $15,000 per year
and other benefits at least equivalent to those provided to HHCA's other
executive officers. The Base Salary will be reviewed by the Compensation
Committee on not less than an annual basis. Pursuant to the employment
agreement, Mr. Feldman is also entitled to receive a car allowance of $9,000 per
year and received a non-qualified stock option grant to purchase 100,000 shares
of HHCA Common Stock at a per share exercise price of $11.00. Of the shares
subject to this option, 50% vested immediately upon grant and the remaining 50%
vested on June 30, 1997, upon achievement by Mr. Feldman of specified criteria
contained in the option grant.
Mr. Feldman=s employment agreement may be terminated by HHCA with or
without cause, which is defined to include, among other things, the material
breach of the employment agreement by Mr. Feldman, gross negligence in the
performance of his duties, conviction of a felony or commission of a material
act of dishonesty or breach of trust with respect to HHCA. The employment
agreement may also be terminated by Mr. Feldman for good reason, which includes,
among other things, the demotion or removal of Mr. Feldman, a material
diminishment of his responsibilities, a reduction in his Base Salary, failure to
be re-elected to the Board or upon a change in control of HHCA. In the event of
termination for good reason (including HHCA's
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<PAGE>
failure to renew the term of the employment agreement) by Mr. Feldman, or
without cause by HHCA, Mr. Feldman will be entitled to receive, among other
things, regular payments of his Base Salary for three years and have any
unvested stock options and awards accelerate and become fully exercisable. In
the event of termination by HHCA for cause or for any other reason, Mr. Feldman
will be entitled to receive any unpaid salary and benefits through the date of
termination. Under the employment agreement, Mr. Feldman is prohibited from
disclosing confidential information during and after the term of the agreement.
In addition, Mr. Feldman is prohibited from soliciting employees or customers of
HHCA or engaging or participating in any business which competes with HHCA
within a 100-mile radius of any of HHCA's branch offices while he is employed by
HHCA and for one year thereafter or, in the event of termination by Mr. Feldman
for good reason (including HHCA's failure to renew the term of the employment
agreement) or by HHCA without cause, for three years thereafter.
Fred J. Nicholas. HHCA entered into an employment agreement, dated as of
January 1, 1995, with Fred J. Nicholas, Chief Operating Officer of HHCA, for a
term of three and one-half years. Pursuant to the terms of Mr. Nicholas=s
employment agreement, Mr. Nicholas is entitled to receive (i) a base salary of
at least $140,000 per year, (ii) incentive compensation as determined by the
Compensation Committee and (iii) other benefits similar to those provided to
HHCA's other officers. Mr. Nicholas=s employment agreement may be terminated
with or without cause by either party. In the event of termination by HHCA
without cause, Mr. Nicholas will be entitled, under certain circumstances, to
continue to receive regular payments of his base salary for a period of six
months after the date of his termination. In all other cases, in the event that
Mr. Nicholas=s employment agreement is terminated, he is entitled to receive
unpaid salary and benefits earned up to the date of termination. In the event
that Mr. Nicholas=s employment is terminated for any reason other than without
cause by HHCA, he is prohibited from competing with HHCA for a period of two
years after such termination.
Bruce J. Colburn. On May 1, 1997, HHCA entered into an employment
agreement with Bruce J. Colburn, Chief Financial Officer of HHCA, for a term of
three years. Pursuant to the terms of Mr. Colburn=s employment agreement, Mr.
Colburn is entitled to receive (i) a current annual base salary of $175,000,
subject to an increase to $200,000 upon HHCA's achievement of annual net
revenues, as defined, of $300 million (the "Base Salary"), (ii) an annual cash
bonus based on HHCA's achievement of specified goals as determined by the
Compensation Committee and (iii) other benefits similar to those provided to
HHCA's other officers. The Base Salary will be reviewed by the Compensation
Committee on not less than an annual basis. Pursuant to the employment
agreement, Mr. Colburn received a non-qualified stock option grant to purchase
150,000 shares of HHCA Common Stock at a per share exercise price of $9.00. The
shares subject to this option vest over a five-year period beginning April 8,
1996, and fully vest upon the occurrence of certain events including a change of
control, as defined.
Mr. Colburn=s employment agreement may be terminated by HHCA with or
without cause, as defined by the agreement. The employment agreement may also
be terminated by Mr. Colburn upon HHCA's uncured failure to comply with material
provisions of the employment agreement ("Compliance Failure"). In the event of
termination without cause or for Compliance Failure, Mr. Colburn is entitled to
receive regular payments of his Base Salary for a period of twelve months. In
the event of termination in connection with a change in control, Mr. Colburn is
entitled to receive regular payments of his Base Salary through the greater of
the end of his contract period or twelve months. In the event of termination by
HHCA for any other reason, Mr. Colburn will be entitled to receive any unpaid
Base Salary and benefits through the date of termination. Under the employment
agreement, Mr. Colburn is prohibited from disclosing confidential information
during and after the term of the agreement and for one year thereafter is
prohibited from soliciting employees or customers of HHCA or engaging or
participating in any business which materially competes with HHCA within any
geographical area in which HHCA engages in business.
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<PAGE>
Joseph J. Grilli. HHCA entered into an employment agreement, dated as of
July 1, 1996, with Joseph J. Grilli, Vice President, Mid-Atlantic Region, for a
term of three years. Pursuant to the terms of Mr. Grilli=s employment
agreement, Mr. Grilli is entitled to receive (i) a base salary of $125,000 per
year, (ii) incentive compensation as determined by the Board of Directors, and
(iii) other benefits similar to those provided to HHCA's other officers. Mr.
Grilli=s employment agreement may be terminated with or without cause by either
party. In the event of termination by HHCA without cause, Mr. Grilli will be
entitled, under certain circumstances, to continue to receive regular payments
of his base salary for a period of 12 months after the date of his termination.
In all other cases, in the event that Mr. Grilli's employment agreement is
terminated, he is entitled to receive unpaid salary and benefits earned up to
the date of termination. In the event Mr. Grilli's employment is terminated for
any reason other than without cause by HHCA, he is prohibited from competing
with HHCA for a period of one year.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 30, 1992, HHCA loaned the principal sum of approximately $95,000 to
Bruce J. Feldman, its President and Chief Executive Officer. The loan matured
on June 30, 1997 and was payable annually with interest at the rate of 8% per
annum until paid in full. This note was forgiven in its entirety over a five-
year period through June 30, 1997 as a result of HHCA achieving certain annual
performance criteria.
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<PAGE>
STOCK PERFORMANCE GRAPH
The graph which follows shows the cumulative total return on HHCA Common
Stock since November 8, 1995, the date the HHCA Common Stock began trading on
the Nasdaq National Market, compared with the cumulative total return of
companies on the Nasdaq National Market (U.S. Companies) and shares of all
healthcare institutions tracked by Standard and Poors ("S&P Health Care").
Cumulative total return on the HHCA Common Stock or the index equals the total
increase in value since November 8, 1995, assuming reinvestment of all HHCA
Common Stock. The graph assumes that $100 was invested on November 8, 1995 in
HHCA Common Stock and in each of the indexes.
--------------------------
STOCK PRICE PERFORMANCE
--------------------------
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
November 8, 1995 June 30, 1996 June 30, 1997
---------------- ------------- -------------
<S> <C> <C> <C>
HHCA $100 $181 $127
Nasdaq National Market (U.S.) 100 114 139
S&P Health Care 100 119 182
</TABLE>
-55-
<PAGE>
APPROVAL OF AMENDMENTS TO THE
HOME HEALTH CORPORATION OF AMERICA, INC.
1995 EMPLOYEE AND CONSULTANT EQUITY PLAN
BACKGROUND
In September 1995, HHCA's shareholders approved the Plan, which replaced
the amended and restated 1985 Incentive Compensation Plan. The Plan provides for
the granting of options, among other awards, to purchase shares of HHCA's Common
Stock to officers, directors, employees and consultants of HHCA or its
subsidiaries. Options may be issued under the Plan which qualify as "incentive
stock options" as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), as well as options that do not qualify as incentive
stock options (Anon-qualified options"). The Plan provides that up to 600,000
shares of HHCA's Common Stock may be issued under the Plan. HHCA has granted
options exercisable for all of the shares available for issuance under the Plan.
HHCA's board of directors has approved amending the Plan to increase the
aggregate number of shares which may be issued under the Plan by 750,000 shares,
from 600,000 shares to 1,350,000 shares. The amendment to the Plan is subject
to approval by the shareholders of HHCA. The affirmative vote, either in person
or by proxy, of a majority of shares cast on the proposal is required to approve
the amendment to the Plan. The Board of Directors of HHCA unanimously
recommends that shareholders vote FOR approval of the amendment to the Plan
because it believes that the amendment to the Plan will advance the interest of
HHCA and its shareholders by strengthening the ability of HHCA and its
subsidiary corporations to attract, retain and motivate their respective
officers, directors, employees and consultants.
Set forth below is a summary of the provisions of the Plan as amended by
the Board of Directors. This summary is qualified in its entirety by the
detailed provisions of the Plan, as amended, set forth as Appendix "C" to this
Proxy Statement.
PURPOSE OF THE PLAN
The purpose of the Plan is to promote the long term success of HHCA and its
subsidiaries by encouraging employees and consultants to focus on critical long
range objectives, attracting and retaining employees and consultants with
exceptional qualifications, and linking employees and consultants directly to
stockholder interests through the granting of awards under the Plan. The Board
of Directors believes that stock options are an important aid in attracting,
retaining and compensating, officers, directors, employees and consultants of
the respective Boards of HHCA and its subsidiary corporations.
AWARDS
The following types of awards or any combination of the following types of
awards may be granted under the Plan: (i) "Options" (both incentive stock
options and non-qualified options) to acquire HHCA Common Stock; (ii) "Stock
Appreciation Rights" which entitle the grantee to receive an amount in cash,
HHCA Common Stock, or a combination of cash and HHCA Common Stock, determined in
whole or in part by reference to appreciation in HHCA Common Stock value; (iii)
"Restricted Stock Awards," which entitle the grantee to acquire shares of HHCA
Common Stock which generally may not be transferred; (iv) "Unrestricted Stock
Awards," which entitle the grantee to acquire shares of HHCA Common Stock for a
purchase price; (v) "Deferred Stock Awards" which award HHCA Common Stock to be
delivered in the future; (vi) "Performance Awards," which entitle the grantee to
receive, without payment, an award following the attainment of performance goals
established by the committee administering the Plan; (vii) "Loans" either
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<PAGE>
in connection with the purchase of HHCA Common Stock pursuant to an award under
the Plan or the payment of any federal, state or local income tax with respect
to income recognized as a result of an award under the Plan; and (viii)
"Supplemental Grants," which are cash awards in connection with an award under
the Plan.
The following table sets forth the number of options granted pursuant to
the Plan to each of the persons and groups of persons set forth in the table:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS GRANTED UNDER
NAME AND POSITION THE PLAN
- --------------------------------------------------------------------------- ---------------------
<S> <C>
Bruce J. Feldman, President and Chief Executive Officer and
Chairman of the Board................................................... 175,000
Fred S. Nicholas, Chief Operating Officer.................................. 101,667
Bruce J. Colburn, Chief Financial Officer.................................. 150,000
Joseph Sterensis, Area Vice President, Florida Region...................... 20,000
Joseph J. Grilli, Area Vice President, Northeast Region.................... 25,000
All Executive Officers..................................................... 546,667
All Directors who are not executive officers............................... 30,000
Nominee for reelection as Director......................................... 10,000
All employees, including officers who are not executive officers........... 35,000
- --------------------------------------------------------------------------- --------------------
</TABLE>
ELIGIBILITY AND ADMINISTRATION
Employees of HHCA or any of its subsidiaries and all persons performing
advisory or other services for HHCA or any of its subsidiaries ("Consultants")
are eligible to receive awards under the Plan. Members of the Board of
Directors of HHCA who are not employees of HHCA or any of its subsidiaries are
eligible to receive awards of non-qualified stock options only. As of June 30,
1997, HHCA and its subsidiaries had approximately 3,100 employees.
The Plan is administered by a committee (the "Committee") consisting of two
or more directors of HHCA, each of whom is a "Non-Employee Director" within the
meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Committee has the full authority to, among
other things: (1) select the participants to whom awards under the Plan may be
granted, (2) determine the type, number, vesting requirements and other terms
and conditions of awards under the Plan, (3) waive compliance by a participant
with any obligation, (4) prescribe the form of instrument evidencing each award
under the Plan, (5) amend or cancel any award under the Plan (except, without
the consent of a holder or if authorized by the award under the Plan, such
amendment or cancellation as would adversely effect the rights of a holder), (6)
interpret and construe the Plan, (7) implement and amend rules and regulations
to administer the Plan, and (8) make all other determinations necessary or
advisable for the administration of the Plan. The Committee may delegate to
HHCA's Chief Executive Officer the authority to grant awards
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<PAGE>
under the Plan to participants who are not officers or directors of HHCA.
Members of the Committee and the HHCA Board of Directors are entitled to
indemnification for costs, liabilities or expenses incurred in connection with
their actions or the failure to take action under the Plan.
The granting of an award under the Plan is entirely within the discretion
of the Committee and no employee or consultant has any implied right to
participate in the Plan. In determining whether to make an award under the
Plan, the Committee considers the positions and responsibilities of the employee
or consultant, their past performance and contribution to HHCA's growth and
expansion, the value of their services to HHCA, the difficulty of finding
qualified replacements, and such other factors as the Committee deems pertinent.
AGGREGATE NUMBER OF SHARES AND ADJUSTMENT
The aggregate number of shares of HHCA Common Stock for which awards may be
granted under the Plan is 1,350,000. Among other things, the aggregate number
of shares issuable under the Plan, the number of shares issuable under each
outstanding award under the Plan and the exercise price under each outstanding
award under the Plan are subject to adjustment as deemed appropriate by the
Committee to reflect a subdivision of the outstanding shares of HHCA Common
Stock declaration of a stock dividend, declaration of a dividend payable in a
form other than the HHCA Common Stock in an amount that has a material effect
upon the price of the HHCA Common Stock, a combination of the outstanding HHCA
Common Stock, a recapitalization, spinoff, stock split or other similar
occurrence. The number of shares and the exercise price under the outstanding
awards under the Plan may also be adjusted for material changes in accounting
practices or principles, mergers, consolidations, acquisitions or dispositions
of stock or any other event determined by the Committee as it deems appropriate
to avoid distortion in the operation of the Plan, except that no such adjustment
may be made with respect to any Incentive Option if it would constitute a
modification, extension or renewal of the Incentive Option within Section 425(h)
of the Code. In the event of a merger or other reorganization, outstanding
awards under the Plan will be subject to the terms of the agreement of merger or
reorganization which may provide for assumption thereof by the surviving
corporation or its parent. No fractional shares will be issued under the Plan.
NO SHAREHOLDER RIGHTS REGARDING AWARDS
Except for certain rights associated with Restricted Stock (see "Restricted
Stock" below), no award under the Plan confers on any participant any of the
rights of a shareholder of HHCA unless and until shares of HHCA Common Stock are
duly issued or transferred to the participant in accordance with the terms of
the award under the Plan.
TERMINATION OF SERVICE; DEATH
Upon termination of employment or the consulting, service or other
relationship of a participant by reason of death or permanent disability (as
determined by the Committee) (a "Status Change"), all Options and Stock
Appreciation Rights held by the participant, to the extent then exercisable,
will continue to be exercisable by the participant's heirs, executor,
administrator or other legal representative for a period of one year (but in no
event later than the expiration date) after which time the Option or Stock
Appreciation Rights will terminate. All Options and Stock Appreciation Rights
held by a participant at the time of a Status Change by reason of death or
permanent disability which are not exercisable will terminate. All Restricted
Stock held by a participant at the time of termination of employment or the
consulting, service or other relationship by reason of death or disability will
become free of all restrictions and conditions. Payments or benefits pursuant
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<PAGE>
to a Deferred Stock Award, Performance Award or Supplemental Grant to which a
participant was not irrevocably entitled at such time will be forfeited and such
award will be canceled.
Upon termination of employment or the consulting, service or other
relationship of a participant by reason other than death or permanent
disability, all Options and Stock Appreciation Rights held by a participant at
such time, to the extent exercisable, will continue to be exercisable for a
period of three months (but in no event later than the expiration date).
Thereafter, all such Options and Stock Appreciation Rights will terminate. All
Options and Stock Appreciation Rights held by a participant at the time of a
Status Change by reason other than death or permanent disability which are not
exercisable will terminate. All Restricted Stock held by a participant at the
time of a Status Change or by reason other than death or permanent disability
will become free of restrictions and conditions unless such termination was for
Cause (as defined in the Plan), in which event such Restricted Stock will be
transferred to HHCA. Payments or benefits under a Deferred Stock Award,
Performance Award or Supplemental Grant to which a participant was not
irrevocably entitled at the time of such termination of employment will be
forfeited.
TRANSFER RESTRICTIONS UNDER THE PLAN; CONDITIONS OF ISSUANCE
No right or interest of a participant in any award under the Plan or under
the Plan may be assigned or transferred by a participant otherwise than by will
or pursuant to the laws of descent and distribution.
EXERCISE OF AWARDS
Awards under the Plan are not exercisable until at least six months after
the date of grant.
REGULATORY REQUIREMENTS
HHCA is not required to deliver any shares until, in the opinion of Company
counsel, all applicable federal, state and foreign laws and regulations have
been complied with, including registration under the Securities Act of 1933.
PAYMENT OF SHARES
Except for Incentive Options, with respect to which payment may be made
only as provided in the Stock Option Agreement, the exercise price of shares
issued upon exercise of an award under the Plan may be made in cash, certified
check, bank draft or money order, or, at the discretion of the Committee, HHCA
Common Stock which has been owned by the participant for more than six months
(which will be valued at their fair market value on the date of purchase), full-
recourse promissory note, delivery of an irrevocable direction to a broker to
sell HHCA Common Stock and deliver the proceeds to HHCA, pledge of stock or
other means approved by the Committee.
Under the terms of the Plan, the Board of Directors could interpret the
provision of the Plan which allows payment of the option price in shares of HHCA
Common Stock to permit the "pyramiding" of shares in successive, simultaneous
exercises. As a result, a participant could initially exercise an award under
the Plan in part, acquiring a small number of shares of Common Stock and
immediately thereafter effect further exercises of the award, using the shares
of HHCA Common Stock acquired upon earlier exercises to pay for an increasingly
greater number of shares received on each successive exercise. This procedure
could permit participant to pay the exercise price by using a single share of
HHCA Common Stock or a small number of shares of HHCA Common Stock and to
acquire a number of shares of HHCA Common Stock having an
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aggregate fair market value equal to the excess of (a) the fair market value of
all shares to which the award relates over (b) the aggregate exercise price
under the award.
DETERMINATION OF FAIR MARKET VALUE
For purposes of determining the fair market value of HHCA Common Stock
under the Plan, the fair market value of HHCA Common Stock on any particular day
means the closing price of a share of HHCA's Common Stock on a stock exchange on
which such shares are then traded, or the last transaction price quoted on the
Nasdaq National Market System, or, if the common stock is traded on the over-
the-counter but is not classified as a national market issue, then the closing
bid price as quoted on the Nasdaq System, or, if none of the foregoing is
applicable, a price determined by the Committee.
OPTIONS
The Committee is authorized to grant to participants awards consisting of
Options evidenced by a Stock Option Agreement exercisable for such number of
shares of HHCA Common Stock as the Committee shall determine. Each Stock Option
Agreement shall specify, among other things: (i) whether the option is an
Incentive Option or Non-Qualified Option; (ii) the number of shares subject to
the option (subject to adjustment as described above); (iii) the exercise price
per share (provided, however, that the exercise price of Incentive Options shall
not be less than the fair market value of a share of HHCA Common Stock on the
date of grant of such Incentive Option or 110% in the case of an employee who at
the time of grant is deemed to own stock possessing more than ten percent (10%)
of the total combined voting power of all classes of HHCA Common Stock (a "Ten
Percent Shareholder"); (iv) the date when all or part of the Option becomes
exercisable; (v) the term of each Option (provided, however, that the term of
each Incentive Option shall not exceed a period of ten years from the date of
grant or five years in the case of a Ten Percent Shareholder); (vi) and the
method by which the exercise price may be paid.
No Option granted under the Plan is transferable other than by will or by
the laws of descent and distribution. No Option may be assigned, pledged, or
hypothecated.
Except as described above, an Option may be exercised during the lifetime
of an optionee only by such person or his legal guardian or representative in
the event of mental incapacity.
Within the limitations of the Plan, the Committee may modify, extend, grant
replacement options, waive compliance with obligations or waive conditions or
provisions of an Option. Notwithstanding the foregoing, no modification may
materially adversely affect an optionee's rights, and certain limitations exist
with respect to modification of Incentive Options.
OUTSIDE DIRECTOR'S OPTIONS
Upon the consummation of HHCA's initial public offering in November 1995,
members of the Board of Directors who were not employees of HHCA ("Outside
Directors") received a one-time grant of a Non-Qualified Option to purchase
10,000 shares of HHCA Common Stock at an exercise price of $7.50. Thereafter,
when an Outside Director first becomes a member of HHCA's Board of Directors,
such Outside Director automatically receives a one-time grant of a Non-Qualified
Option to purchase 10,000 shares of Common Stock with an exercise price equal to
the fair market value of the HHCA Common Stock on the date of grant. Non-
Qualified Options granted to Directors become exercisable six months after the
grant date and are 50% vested as of the grant date, 75% vested one year after
the date of grant and 100% vested two years after the date of grant. All Non-
Qualified Options granted to Outside Directors under the Plan become
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exercisable in full in the event of termination of such Outside Directors'
service because of death, total and permanent disability or voluntary retirement
at or after age 65. Non-Qualified Options granted to Outside Directors terminate
on the earlier of (i) the fifth anniversary of the date of grant; (ii) three
months after termination of service for reason other than death or total and
permanent disability or (iii) six months after termination of service because of
death or total and permanent disability.
STOCK APPRECIATION RIGHTS
The Committee is authorized to grant awards consisting of Stock
Appreciation Rights to participants on the following terms and conditions.
Each Stock Appreciation Right, in general, entitles a participant to
receive, with respect to each share of HHCA Common Stock as to which the right
is exercised, the excess of (i) the shares' fair market value on the date of
exercise, over (ii) the fair market value on the date of the grant. The
Committee determines (A) the time or times at which a Stock Appreciation Right
may be exercised in whole or in part; (B) the method of exercise, settlement,
and form of consideration payable in settlement; (C) the method by which HHCA
Common Stock will be delivered or deemed to be delivered; and (D) whether or not
a Stock Appreciation Right shall be in tandem with any other award.
The Committee may provide at the time of grant for adjustments in the
amount to be received upon exercise of the Stock Appreciation Right based upon
rules established by the Committee to take into account the relative performance
of HHCA Common Stock. The Committee may also grant Stock Appreciation Rights
which entitle the holder to receive upon a Change in Control (as defined in the
Plan) an amount equal to the difference in value of the HHCA Common Stock during
a period preceding the Change in Control and the fair market value of the HHCA
Common Stock on the date of grant.
Stock Appreciation Rights may be granted either alone or in tandem with
Options granted under the Plan. A Stock Appreciation Right granted in tandem
with a Non-Qualified Option may be granted either at or after the time the
Option is granted, whereas a Stock Appreciation Right granted in tandem with
Incentive Options may be granted only at the time the Option is granted.
Stock Appreciation Rights granted in tandem with Options are exercisable
only at such time and to the extent that the related Option is exercisable and
in accordance with procedures for exercise of the related Option. Stock
Appreciation Rights granted in tandem with Options terminate upon the
termination or exercise of the related Option (unless the Stock Appreciation
Right is for less than the full number of shares subject to the Option), are
transferable only with the related Option and, with respect to Stock
Appreciation Rights granted in tandem with an Incentive Option, may be exercised
only when the market price of the HHCA Common Stock exceeds the exercise price
of such Option. Options with respect to which a Stock Appreciation Right has
been granted in tandem terminate upon exercise of the Stock Appreciation Right.
Stock Appreciation Rights not granted in tandem with an Option become
exercisable at such times and upon such terms and conditions as specified by the
Committee. Exercise of such Stock Appreciation Right's must be in writing
delivered to HHCA.
RESTRICTED STOCK
The Committee is authorized to grant awards consisting of Restricted Stock,
which are subject to restrictions the Committee may impose. A participant who
is granted a Restricted Stock Award has no rights with respect to such award
unless the participant accepts the award by written instrument delivered to HHCA
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accompanied by payment in full of the purchase price, if any. Except to the
extent restricted under the terms of the Plan, a participant granted Restricted
Stock has all of the rights of a shareholder including, without limitation, the
right to vote Restricted Stock or the right to receive dividends thereon. Unless
the Committee determines otherwise, certificates representing shares of
Restricted Stock remain in the possession of HHCA until the restrictions have
lapsed. Except as otherwise provided, if a participant's employment or
relationship as a consultant terminates for any reason, such Restricted Stock
must be offered to HHCA for purchase for the amount paid (or forfeited if no
cash was paid). Restrictions lapse at such time and upon such conditions as
determined by the Committee.
UNRESTRICTED STOCK
The Committee may approve the sale of shares of HHCA Common Stock without
restrictions for any price not less than par value.
DEFERRED STOCK
The Committee is authorized to grant awards consisting of Deferred Stock
which generally confer upon the participant the right to receive delivery of the
shares at such time, and on such terms and conditions specified by the
Committee.
PERFORMANCE AWARDS
The Committee is authorized to grant to participants Performance Awards
based upon attainment of goals set by the Committee.
LOANS AND SUPPLEMENTAL GRANTS
In connection with any award under the Plan, the Committee may, in its sole
discretion, make Loans and Supplemental Grants and determine their terms and
conditions. Supplemental Grants may not exceed the amount of any federal, state
or local income tax for which a participant may be liable with respect to an
award, plus an additional amount intended to make the participant whole on an
after-tax basis.
APPLICABILITY OF ERISA
The Plan is not qualified under Section 401(a) of the Code, and is not
subject to the requirements of the Employee Retirement Income Security Act of
1974 ("ERISA").
TAX WITHHOLDING
The recipient of an award is required to make arrangements satisfactory to
HHCA for the satisfaction of any tax withholding obligations that arise by
reason of receipt or vesting of payment or property. HHCA is not required to
issue any HHCA Common Stock or make any cash payment until such obligation is
satisfied. The Committee may permit a recipient to satisfy withholding
obligations by having HHCA withhold shares or surrendering a portion of HHCA
Common Stock previously issued, which will be valued at fair market value on the
date when taxes would otherwise be withheld in cash, subject to such
restrictions as HHCA may determine including restrictions under the Exchange Act
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AMENDMENT OR TERMINATION
Under the Plan, the Board of Directors of HHCA may, at any time and for any
reason, amend or terminate the Plan, except that the provisions relating to
Outside Directors may not be amended more than once in any six month period. An
amendment of the Plan is subject to approval of HHCA's shareholders only to the
extent required by applicable law. The termination or amendment of the Plan
will not affect any awards previously granted.
FEDERAL INCOME TAX CONSEQUENCES
The following information is not intended to be a complete discussion of
the federal income tax consequences of participation in the Plans and is
qualified in its entirety by references to the Code, and the regulations adopted
pursuant thereto. The provisions of the Code described in this section include
current tax law only and do not reflect any proposals to revise current tax law.
Each participant who acquires shares of HHCA Common Stock under the Plan should
consult his or her own tax advisor with respect to his or her individual tax
position and the effect of any legislative revisions on such position.
The federal income tax consequences applicable to officers, directors, and
other persons subject to potential liability under Section 16(b) of the Exchange
Act may be different than the federal income tax consequences applicable to
persons who are not subject to Section 16(b). The federal income tax
consequences to such persons are described below with respect to awards made if
and after shareholder approval is obtained, as set forth hereunder. However,
such description is not intended to be complete and persons subject to Section
16(b) should consult their own tax advisors for more specific information, and
particularly as it relates to awards made prior to the date of such shareholder
approval.
Incentive Stock Options. Generally, under the Code, an optionee will not
realize taxable income by reason of the grant or exercise of an Incentive Stock
Option (see, however, discussion of alternative minimum tax below) granted
pursuant to the Plan. If an optionee exercises an Incentive Stock Option and
does not dispose of the shares until the later of (i) two years from the date
the option was granted and (ii) one year from the date of exercise, the entire
gain, if any, realized upon disposition of such shares will be taxable to the
optionee as long-term capital gain, and HHCA will not be entitled to any
deduction. The reduced rate of tax (20%) on certain net capital gains added to
the Code by the Taxpayer Relief Act of 1997 requires a holding period of more
than 18 months. If an optionee disposes of the shares within the period of two
years from the date of grant or one year from the date of exercise (a
"disqualifying disposition"), the optionee generally will realize ordinary
income in the year of disposition and HHCA will receive a corresponding
deduction, in an amount equal to the excess of (i) the lesser of (a) the amount,
if any, realized on the disposition and (b) the fair market value of the shares
on the date the option was exercised over (ii) the option price. Any additional
gain realized on the disposition will be long-term or short-term capital gain
and any loss will be long-term or short-term capital loss. The optionee will be
considered to have disposed of a share if he sells, exchanges, makes a gift of
or transfers legal title to the share (except transfers, among others, by
pledge, on death or to a spouse). If the disposition is by sale or exchange,
the optionee's tax basis will equal the amount paid for the share plus any
ordinary income realized as a result of the disqualifying disposition.
The exercise of an Incentive Stock Option may subject the optionee to the
alternative minimum tax. The amount by which the fair market value of the
shares purchased at the time of the exercise exceeds the option exercise price
is an adjustment for purposes of computing the so-called alternative minimum
tax. In the event of a disqualifying disposition of the shares in the same
taxable year as exercise of the Incentive Stock Option, no adjustment is then
required for purposes of the alternative minimum tax, but regular income tax, as
described above, may result from such disqualifying disposition. Effective
January 1, 1994, the
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Revenue Reconciliation Act of 1994 replaced the 24% alternative minimum tax rate
on individuals with a two-tier alternative minimum tax rate having an initial
rate of 26% and a second-tier rate of 28% on alternative minimum taxable income
over $175,000.
An optionee who surrenders shares as payment of the exercise price of his
Incentive Stock Option generally will not recognize gain or loss on his
surrender of such shares. The surrender of shares previously acquired upon
exercise of an Incentive Stock Option in payment of the exercise price of
another Incentive Stock Option, is, however, a "disposition" of such stock. If
the incentive stock option holding period requirements described above have not
been satisfied with respect to such stock, such disposition will be a
disqualifying disposition that may cause the optionee to recognize ordinary
income as discussed above.
Under the Code, all of the shares received by an optionee upon exercise of
an Incentive Stock Option by surrendering shares will be subject to the
incentive stock option holding period requirements. Of those shares, a number
of shares (the "exchange Shares") equal to the number of shares surrendered by
the optionee will have the same tax basis for capital gains purposes (increased
by any ordinary income recognized as a result of a disqualifying disposition of
the surrendered shares if they were incentive stock option shares) and the same
capital gains holding period as the shares surrendered. For purposes of
determining ordinary income upon a subsequent disqualifying disposition of the
Exchange Shares, the amount paid for such shares will be deemed to be the fair
market value of the shares surrendered. The balance of the shares received by
the optionee will have a tax basis (and a deemed purchase price) of zero and a
capital gains holding period beginning on the date of exercise. The Incentive
Stock Option holding period for all shares will be the same as if the option had
been exercised for cash.
Non-Qualified Stock Options. Generally, there will be no federal income
tax consequences to either the optionee or HHCA on the grant of Non-Qualified
Stock Options pursuant to the Plan. On the exercise of a Non-Qualified Stock
Option, the optionee has taxable ordinary income equal to the excess of the
fair market value of the shares acquired on the exercise date over the option
price of the shares. HHCA will be entitled to a federal income tax deduction
(subject to the limitations contained in Section 162(m)) in an amount equal to
such excess, provided that HHCA complies with applicable reporting rules.
Upon the sale of stock acquired by exercise of a Non-Qualified Stock
Option, optionees will realize long-term or short-term capital gain or loss
depending upon their holding period for such stock. Under current law, net
capital gains (net long term capital gain less net short term capital loss) is
subject to a maximum rate of 28%. The reduced rate of tax on certain net
capital gains added to the Code by the Taxpayer Relief Act of 1997 requires a
holding period of more than 18 months. Capital losses are deductible only to the
extent of capital gains for the year plus $3,000 for individuals.
An optionee who surrenders shares in payment of the exercise price of a
Non-Qualified Stock Option will not recognize gain or loss with respect to the
shares so delivered unless such shares were acquired pursuant to the exercise of
an Incentive Stock Option and the delivery of such shares is a disqualifying
disposition. See "Incentive Stock Options." The optionee will recognize
ordinary income on the exercise of the Non-Qualified Stock Option as described
above. Of the shares received in such an exchange, that number of shares equal
to the number of shares surrendered have the same tax basis and capital gains
holding period as the shares surrendered. The balance of shares received will
have a tax basis equal to their fair market value on the date of exercise and
the capital gains holding period will begin on the date of exercise.
Stock Appreciation Rights ("SARs"). A participant who is awarded a SAR
will not have taxable income upon the grant of such SAR and HHCA will not be
entitled to a tax deduction by reason of such grant. Upon the exercise of a
SAR, a participant will recognize fully taxable ordinary income equal to the
amount
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of cash and the fair market value of any shares received. HHCA may generally
claim a deduction at that time equal to the amount recognized as ordinary income
by the participant.
Restricted Stock. Unless an election is made as described below, a
participant who is awarded Restricted Stock will not recognize any taxable
income as of the date such award is granted. At such time or times as shares of
Restricted Stock become transferable or not subject to a substantial risk of
forfeiture, a participant will recognize ordinary income in an amount equal to
the fair market value of such shares of Common Stock, without regard to any
applicable restrictions on resale. To the extent dividends are paid on shares
of Restricted Stock prior to their becoming transferable or not subject to a
substantial risk of forfeiture, such dividend payments will be treated as
additional compensation and not as dividend income.
Within thirty (30) days after receipt of an award of Restricted Stock, a
participant may elect to include in taxable income an amount equal to the fair
market value of the shares subject to the award at the time of receipt
determined without regard to any applicable restrictions on resale. In such
event, any subsequent appreciation in the value of such shares will not be
taxable as compensation to a participant upon the vesting of shares subject to
the award. However, if shares subject to the award are forfeited subsequent to
such an election, a participant will not be entitled to a tax deduction. An
election may not be revoked without the consent of the Internal Revenue Service.
Compensation income received in respect of a Restricted Stock Award will
constitute ordinary income. For purposes of determining the amount of taxable
gain or loss upon a subsequent distribution of shares issued pursuant to such an
award, the amount recognized as compensation income to a participant will be
treated as the cost basis for such shares. Shares must be held for more than
one year after vesting (or in the event of an election as described above, after
receipt of Restricted Stock) to qualify generally for long-term capital gain
treatment, and more than eighteen (18) months) to be eligible for the reduced
rate of tax (20%) adopted by the Taxpayer Relief Act of 1997 for certain long-
term capital gains. HHCA will be entitled to a deduction in the year of vesting
(or if a participant makes the election described above, in the year in which
the award is granted) in an amount equal to the compensation income recognized
by a participant.
Deferred Stock. On such dates shares are delivered to participants upon
the expiration of the deferral period specified for Deferred Stock under the
applicable award, a participant will recognize taxable compensation income in an
amount equal to the fair market value of shares delivered as of such date. HHCA
will be entitled to a deduction in the year during which shares are delivered
pursuant to a Deferred Stock Award in an amount equal to the compensation income
recognized by a participant.
Limitation on HHCA's Deduction. In general, HHCA is entitled to a
deduction in such amount and at such time as ordinary income is recognized by a
participant under the Plans. Section 162(m) of the Code will generally limit to
$1,000,000 HHCA's federal income tax deduction for compensation paid in any year
to each of its Chief Executive Officer and its four highest paid executive
officers, to the extent that such compensation is not performance based.
Compensation under the Plan will not qualify as performance based compensation
and therefore may be subject to the $1,000,000 limitation on deduction.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires HHCA's
directors and executive officers, and persons who beneficially own more than ten
percent of HHCA's common stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of HHCA. Officers, directors and
greater than ten-percent shareholders are required by regulation of the
Securities and Exchange Commission to furnish HHCA with copies of all Section
16(a) forms they file.
To HHCA's knowledge, based solely on a review of the copies of such reports
furnished to HHCA during or with respect to HHCA's most recent fiscal year and
written representations that no other reports were required, all Section 16(a)
filing requirements applicable to HHCA's officers, directors and greater than
ten-percent beneficial owners were complied with during fiscal 1997, except that
during fiscal 1997, Bruce J. Colburn failed to timely file one report of a
change in ownership of equity securities of HHCA with respect to one
transaction.
SHAREHOLDER PROPOSALS
Shareholder proposals for the 1998 Annual Meeting of Shareholders must be
submitted to HHCA by [ ] to receive consideration for inclusion in
HHCA's Proxy Statement.
APPOINTMENT OF AUDITORS
The board of directors has appointed Coopers & Lybrand L.L.P., independent
accountants, to serve as HHCA's independent auditors for the year ending June
30, 1998. A representative of Coopers & Lybrand, L.L.P. is expected to be
present at the HHCA Annual Meeting and to be available to respond to appropriate
questions. The representative will have the opportunity to make a statement if
they so desire.
OTHER MATTERS
HHCA is not presently aware of any matters (other than procedural matters)
which will be brought before the HHCA Annual Meeting which are not reflected in
the attached Notice of the Meeting. The enclosed Proxy confers discretionary
authority to vote with respect to any and all of the following matters that may
come before the HHCA Annual Meeting: (i) matters which HHCA does not know, a
reasonable time before the proxy solicitation, are to be presented at the HHCA
Annual Meeting; (ii) approval of the minutes of a prior meeting of shareholders,
if such approval does not amount to ratification of the action taken at the
meeting; (iii) the election of any person to any office for which a bona fide
nominee named in this Proxy Statement is unable to serve or for good cause will
not serve; (iv) any proposal omitted from this Proxy Statement and the form of
proxy pursuant to Rules 14a-8 or 14a-9 under the Securities Exchange Act of
1934; and (v) matters incident to the conduct of the HHCA Annual Meeting. In
connection with such matters, the persons named in the enclosed Proxy will vote
in accordance with their best judgment.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. Copies of such reports, proxy
statements and other information filed by HHCA, other than exhibits to such
documents unless such exhibits are specifically incorporated herein by
reference, are available without charge, upon written or oral request, from the
secretary of HHCA, 2200 Renaissance Boulevard, Suite 300, King of Prussia,
Pennsylvania, 19406, Telephone (610) 272-1717. Copies of such
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reports, proxy statements and other information filed by USHO, other than
exhibits to such documents unless such exhibits are specifically incorporated
herein by reference, are available without charge, upon written or oral request,
from the secretary of USHO, Two Hartford Square West, Hartford, Connecticut
06106, Telephone (860) 278-7242.
In order to ensure timely delivery of the documents, any request should be
made at least five days prior to the HHCA Annual Meeting.
The following documents filed by HHCA (Commission File No. 0-26938) are
incorporated by reference in this Proxy Statement:
4. HHCA's Annual Report on Form 10-K/A for the fiscal year ended June 30,
1997.
5. HHCA's Current Report on Form 8-K filed October 7, 1997 (relating to
the proposed Merger).
6. The description of HHCA's capital stock contained in HHCA's
Registration Statement on Form 8-A filed dated October 5, 1995.
The following documents filed by USHO (Commission File No. 0-19240) are
incorporated by reference in this Proxy Statement:
1. USHO's Annual Report on Form 10-K for the year ended December 31,
1996;
2. USHO's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997 and June 30, 1997; and
3. USHO's Current Report on Form 8-K filed October 7, 1997 (relating to
the proposed Merger).
This Proxy Statement is accompanied by a copy of USHO's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 and a copy of USHO's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997.
All documents filed by HHCA pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Proxy Statement and prior to the HHCA
Annual Meeting, or any adjournment thereof, shall be deemed to be incorporated
by reference into this Proxy Statement and to be made a part hereof from the
date of the filing of such documents. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for the purpose hereof to the extent that a statement contained herein (or in
any other subsequently filed document which also is incorporated by reference
herein) modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed to constitute a part hereof, except as so
modified or superseded.
All information contained in this Proxy Statement or incorporated herein by
reference with respect to HHCA was supplied by HHCA, and all information
contained in this Proxy Statement or incorporated herein by reference with
respect to USHO was supplied by USHO. Although neither HHCA nor USHO has actual
knowledge that would indicate that any statements or information (including
financial statements) relating to the other party contained or incorporated by
reference herein are inaccurate or incomplete, neither
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HHCA nor USHO warrants the accuracy or completeness of such statements or
information as they relate to the other party.
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ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-K
This Proxy Statement is accompanied by HHCA's Annual Report to Shareholders
for fiscal 1997.
EACH PERSON SOLICITED HEREUNDER CAN OBTAIN A COPY OF HHCA'S ANNUAL REPORT
ON FORM 10-K FOR FISCAL 1997 AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, WITHOUT CHARGE EXCEPT FOR EXHIBITS TO THE REPORT, BY SENDING A
WRITTEN REQUEST TO:
HOME HEALTH CORPORATION OF AMERICA, INC.
2200 Renaissance Boulevard
Suite 300
King of Prussia, PA 19406
Attention: Tina Labant
By Order of the Board of Directors
Bruce J. Colburn
Chief Financial Officer and Secretary
King of Prussia, Pennsylvania
[ ]
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Appendix A
Amended and Restated Agreement and Plan of Merger
among
Home Health Corporation of America, Inc.
HHCA Acquisition Corporation, Inc.
and
U.S. HomeCare Corporation
September 26, 1997
<PAGE>
TABLE OF CONTENTS
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ARTICLE I
THE MERGER..............................................................................2
Section 1.1 The Merger.................................................................2
Section 1.2 Closing and Effective Time. ..............................................2
Section 1.3 Directors and Officers of the Surviving Corporation........................3
Section 1.4 Certificate of Incorporation...............................................3
Section 1.5 Bylaws.....................................................................3
Section 1.6 Effect of the Merger.......................................................3
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES......................................3
Section 2.1 Merger Consideration; Conversion and Cancellation of Securities............3
Section 2.2 Payment for Company Common Stock and Company Preferred
Stock; Surrender of Certificates...........................................7
Section 2.3 Stock Transfer Books. ....................................................10
Section 2.4 Dissenting Company Common Stock and Company Preferred Stock...............10
Section 2.5 Option Plans..............................................................10
Section 2.6 Warrants..................................................................11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................12
Section 3.1 Organization..............................................................12
Section 3.2 Capitalization............................................................13
Section 3.3 Authorization; Validity of Agreement; Necessary Action....................14
Section 3.4 Consents and Approvals; No Violations.....................................15
Section 3.5 SEC Reports and Financial Statements......................................15
Section 3.6 Absence of Certain Changes................................................16
Section 3.7 No Undisclosed Liabilities................................................17
Section 3.8 Litigation................................................................18
Section 3.9 No Default; Compliance with Applicable Laws...............................18
Section 3.10 Intellectual Property.....................................................19
Section 3.11 Taxes.....................................................................19
Section 3.12 Tax Matters; Pooling......................................................22
Section 3.13 Affiliates................................................................23
Section 3.14 Certificate of Incorporation and Bylaws...................................23
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Section 3.15 Properties................................................................23
Section 3.16 Employee Benefit Plans....................................................24
Section 3.17 Labor Matters.............................................................25
Section 3.18 Brokers...................................................................26
Section 3.19 Environmental Matters.....................................................26
Section 3.20 Insurance.................................................................30
Section 3.21 State Takeover Statutes...................................................30
Section 3.22 Contracts and Commitments.................................................30
Section 3.23 Interests of Officers and Directors.......................................32
Section 3.24 Questionable Payments.....................................................32
Section 3.25 Opinion of Financial Advisor..............................................32
Section 3.26 Information Supplied......................................................33
Section 3.27 Vote Required.............................................................33
Section 3.28 Third-Party Payment Contracts.............................................33
Section 3.29 Third-Party Payment Filings...............................................34
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
ACQUIROR AND ACQUISITION SUBSIDIARY....................................................34
Section 4.1 Organization..............................................................34
Section 4.2 Capitalization............................................................35
Section 4.3 Authorization; Validity of Agreement; Necessary Action....................36
Section 4.4 Consents and Approvals; No Violations.....................................37
Section 4.5 SEC Reports and Financial Statements......................................37
Section 4.6 Absence of Certain Changes................................................38
Section 4.7 No Undisclosed Liabilities................................................39
Section 4.8 Litigation................................................................39
Section 4.9 No Default; Compliance with Applicable Laws...............................39
Section 4.10 Taxes.....................................................................40
Section 4.11 Tax Matters; Pooling......................................................42
Section 4.12 Affiliates................................................................42
Section 4.13 Certificate of Incorporation and Bylaws...................................42
Section 4.14 Brokers...................................................................43
Section 4.15 Opinion of Financial Advisor..............................................43
Section 4.16 Information Supplied......................................................43
Section 4.17 Employee Benefit Plans....................................................43
Section 4.18 Questionable Payments.....................................................45
Section 4.19 Third-Party Payment Contracts.............................................45
Section 4.20 Third-Party Payment Filings...............................................46
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE V
<S> <C>
COVENANTS..............................................................................46
Section 5.1 Interim Operations of the Company.........................................46
Section 5.2 Access; Confidentiality...................................................48
Section 5.3 Additional Agreements.....................................................49
Section 5.4 Consents and Approvals; HSR Act...........................................49
Section 5.5 Meeting of Shareholders...................................................50
Section 5.6 Registration Statement; Proxy Statements..................................50
Section 5.7 No Solicitation...........................................................52
Section 5.8 Affiliates; Pooling; Tax Treatment........................................53
Section 5.9 Publicity.................................................................54
Section 5.10 Notification of Certain Matters...........................................54
Section 5.11 Comfort Letter............................................................55
Section 5.12 Pooling Opinion...........................................................56
Section 5.13 Form S-8..................................................................56
Section 5.14 Listing of Additional Shares..............................................56
Section 5.15 Reservation of Acquiror Common Stock......................................56
Section 5.16 Indemnification...........................................................56
Section 5.17 Payment of Company Obligations............................................57
Section 5.18 Delivery of Expenses Information..........................................57
ARTICLE VI
CONDITIONS.............................................................................57
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger................57
Section 6.2 Additional Conditions to Obligations of the Company.......................58
Section 6.3 Additional Conditions to Obligations of Acquiror and
Acquisition Subsidiary....................................................60
ARTICLE VII
TERMINATION AND AMENDMENT..............................................................61
Section 7.1 Termination...............................................................61
Section 7.2 Effect of Termination.....................................................62
ARTICLE VIII
MISCELLANEOUS..........................................................................62
Section 8.1 Fees and Expenses.........................................................62
Section 8.2 Amendment and Modification................................................64
Section 8.3 Nonsurvival of Representations and Warranties.............................64
Section 8.4 Notices...................................................................64
</TABLE>
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<TABLE>
<S> <C>
Section 8.5 Interpretation............................................................65
Section 8.6 Counterparts..............................................................65
Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership.................................................................66
Section 8.8 Severability..............................................................66
Section 8.9 Governing Law.............................................................66
Section 8.10 Assignment................................................................66
Section 8.11 Definition................................................................66
</TABLE>
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<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of
September 26, 1997, by and among Home Health Corporation of America, Inc., a
Pennsylvania corporation (the "Acquiror"), HHCA Acquisition Corporation, Inc. a
Delaware corporation and a wholly-owned subsidiary of Acquiror ("Acquisition
Subsidiary"), and U.S. HomeCare Corporation, a New York corporation (the
"Company").
RECITALS:
WHEREAS, Acquiror, Company and Acquisition Subsidiary entered into a
certain Agreement and Plan of Merger dated as of September 26, 1997;
WHEREAS, Acquiror, Company and Acquisition Subsidiary desire to amend
and restate as of September 26, 1997 the Agreement and Plan of Merger in its
entirety to more accurately reflect their intents as of Such time with respect
to certain provisions of the Agreement and Plan of Merger;
WHEREAS, upon and subject to the terms and conditions of this
Agreement, Acquisition Subsidiary will merge with and into the Company (the
"Merger") and the Company will become a wholly-owned subsidiary of Acquiror;
WHEREAS, the Board of Directors of the Company has determined that the
Merger and the other transactions contemplated by this Agreement are fair to and
in the best interests of the Company and its shareholders and has approved and
adopted this Agreement and the transactions contemplated hereby, and recommended
approval and adoption of this Agreement by the shareholders of the Company;
WHEREAS, the Board of Directors of Acquiror has determined that the
Merger and the other transactions contemplated by this Agreement are consistent
with and in furtherance of the long-term business strategy of Acquiror and is
fair to and in the best interests of Acquiror and its shareholders and has
approved and adopted this Agreement and the transactions contemplated hereby,
and recommended approval and adoption of this Agreement by the shareholders of
Acquiror;
WHEREAS, for federal income tax purposes, it is intended that the
Merger qualify as a reorganization under the provisions of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Merger is intended to be treated as a "pooling of
interests" pursuant to APB Opinion No. 16 for financial accounting purposes;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company, Acquiror and Acquisition Subsidiary hereby amend and
restate the Agreement and Plan of Merger in its entirety and agree as follows:
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ARTICLE I
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.2), the Company and
Acquisition Subsidiary shall consummate a merger pursuant to which Acquisition
Subsidiary shall be merged with and into the Company in accordance with the
relevant provisions of the New York Business Corporation Law ("NYBCL") and the
Delaware General Corporation Law ("DGCL"), the separate corporate existence of
Acquisition Subsidiary (except as may be continued by operation of law) shall
cease, and the Company shall continue as the surviving corporation in the Merger
(the Company is sometimes referred to as the "Surviving Corporation").
Notwithstanding the foregoing, at the election of Acquiror, Acquiror may
substitute for Acquisition Subsidiary any direct or indirect wholly-owned
subsidiary of Acquiror as a party to the Merger. To the extent that Acquiror
exercises its election to substitute a direct or indirect wholly-owned
subsidiary of Acquiror as a party to the Merger then the parties hereto shall
promptly enter into an amendment to this Agreement necessary or desirable to
implement such election, without any need for approval, authorization or
adoption by the Board of Directors or shareholders of the Company.
Section 1.2 Closing and Effective Time. The closing of the Merger (the
"Closing") shall take place (i) at 10:00 a.m., local time, on a date to be
specified by the parties, which shall be no later than the second business day
after satisfaction or, if permissible, waiver of all of the conditions set forth
in Article VI hereof, at the offices of Blank Rome Comisky & McCauley, One Logan
Square, Philadelphia, Pennsylvania, or (ii) at such other time and place as
Acquiror and the Company shall agree (the "Closing Date"). Immediately after
completion of the Closing, the parties shall cause the Merger to be consummated
by filing a certificate of merger or other appropriate documents (in any such
case, the "Certificate of Merger") executed in accordance with the relevant
provisions of the NYBCL and the DGCL and shall make all other filings or
recordings required under the NYBCL and the DGCL. The Merger shall become
effective at the time when the Certificate of Merger has been duly filed with
the Delaware Secretary of State and by the Department of State of the State of
New York, or such time as is agreed upon by the parties and specified in the
Certificate of Merger, and such time is hereinafter referred to as the
"Effective Time."
Section 1.3 Directors and Officers of the Surviving Corporation. The
directors and officers of Acquisition Subsidiary at the Effective Time shall be
the initial directors and officers, respectively, of the Surviving Corporation.
Section 1.4 Certificate of Incorporation. On and after the Effective
Time, the Certificate of Incorporation of Company in effect immediately prior to
the Effective Time, with such changes
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as may be desired by Acquiror, shall be the Certificate of Incorporation of the
Surviving Corporation until amended in accordance with applicable law.
Section 1.5 Bylaws. On and after the Effective Time, the bylaws of the
Company in effect immediately prior to the Effective Time, with such changes as
may be desired by Acquiror, shall be the bylaws of the Surviving Corporation
until amended in accordance with applicable law.
Section 1.6 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the NYBCL and
DGCL, including, without limitation, Section 906 of the NYBCL. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time all
the property, rights, privileges, powers and franchises of the Company and
Acquisition Subsidiary shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Acquisition Subsidiary shall become
the debts, liabilities and duties of the Surviving Corporation.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.1 Merger Consideration; Conversion and Cancellation of
Securities. At the Effective Time, by virtue of the Merger and without any
action on the part of the Acquiror, the Acquisition Subsidiary, the Company or
the holders of any of the Company's securities:
(a) Conversion of Company Common Stock. Each issued and outstanding
share of common stock, par value $.01 per share, of the Company ("Company Common
Stock") (other than Company Common Stock to be canceled in accordance with
Section 2.1(c) and any shares of Company Common Stock which are held by
shareholders who shall have duly asserted appraisal or dissenters rights
pursuant to the NYBCL ("Dissenting Shareholders")) shall by virtue of the Merger
and without any action on the part of the holder thereof, be automatically
converted into the right to receive, upon surrender of the certificate formerly
representing such share of Company Common Stock in the manner provided in
Section 2.2 (the "Common Stock Certificate"), such number of shares of common
stock, no par value, of the Acquiror ("Acquiror Common Stock") determined by
multiplying such share of Company Common Stock by the conversion ratio CR\\1\\
determined by calculation of the following formula (with each variable in such
formula and as otherwise used in this Agreement having the meanings set forth
below).
<TABLE>
<S> <C>
CR\\1\\ = ASP * X - PPE + (.15AL + DO + EO + CP\\1\\ * W\\1\\ + CP\\2\\ * W\\2\\ + CP\\3\\ * W\\3\\)
------------------------------------------------------------------------------------------
ASP(CS + PSC + AL + DO + EO + W\\1\\ + W\\2\\ + W\\3\\)
</TABLE>
provided, however, if the result of CR1 multiplied by ASP is less than CP\\3\\,
each share of Company Common Stock shall not be converted on the basis of the
foregoing, but, rather, each share of
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Company Common Stock shall, by virtue of the Merger and without any action on
the part of the holder thereof, be automatically converted into the right to
receive, upon surrender of the Common Stock Certificate, such number of shares
of Acquiror Common Stock determined by multiplying such share of Company Common
Stock by the conversion ratio CR\\2\\, determined by calculation of the
following formula (with each variable in such formula and as otherwise used in
this Agreement having the meanings set forth below):
<TABLE>
<S> <C>
CR\\2\\ = ASP * X - PPE + (.15AL + DO + EO + CP\\1\\ * W\\1\\ + CP\\2\\ * W\\2\\)
-----------------------------------------------------------------------
ASP(CS + PSC + AL + DO + EO + W\\1\\ + W\\2\\)
</TABLE>
provided, however, if the result of CR\\2\\ (as determined above) multiplied by
ASP is less than CP\\1\\, each share of Company Common Stock shall not be
converted on the basis of the foregoing, but, rather, each share of Company
Common Stock shall, by virtue of the Merger and without any action on the part
of the holder thereof, be automatically converted into the right to receive,
upon surrender of the Common Stock Certificate, such number of shares of
Acquiror Common Stock determined by multiplying such share of Company Common
Stock by the conversion ratio CR\\3\\ determined by calculation of the following
formula (with each variable in such formula and as otherwise used in this
Agreement having the meanings set forth below):
CR\\3\\ = ASP * X - PPE + (.15AL + DO + EO + CP\\2\\ * W\\2\\ - PSV)
----------------------------------------------------------
ASP(CS + AL + DO + EO + W\\2\\)
provided, however, if the result of CR\\3\\ (as determined above) multiplied by
ASP is less than CP\\2\\, each share of Company Common Stock shall not be
converted on the basis of the foregoing, but, rather each share of the Company
Common Stock shall, by virtue of the Merger and without any action on the part
of the holder thereof, be automatically converted into the right to receive,
upon surrender of the Common Stock Certificate, such number of shares of
Acquiror Common Stock determined by multiplying such share of Company Common
Stock by the conversion ratio CR\\4\\, determined by calculation of the
following formula (with each variable in such formula and as otherwise used in
this Agreement having the meanings set forth below):
CR\\4\\ = ASP * X - PPE + (.15AL + DO + EO - PSV)
---------------------------------------
ASP(CS + AL + DO + EO)
provided, however, further, if the result of CR\\4\\ (as determined above)
multiplied by ASP is less than $1.00, each share of Company Common Stock shall
not be converted on the basis of the foregoing, but, rather, each share of
Company Common Stock shall, by virtue of the Merger and without any action on
the part of the holder thereof, be automatically converted into the right to
receive, upon surrender of the Common Stock Certificate, such number of shares
of Acquiror Common Stock determined by multiplying such share of Company Common
Stock by the conversion ratio CR\\5\\ determined by calculation of the following
formula (with each variable in such formula and as otherwise used in this
Agreement having the meanings set forth below):
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CR\\5\\ = ASP * X - PPE + (.15AL - PSV)
-----------------------------
ASP(CS + AL)
The variables used in the foregoing formulas and otherwise in this Agreement
shall have the following meanings:
"PSC" shall mean the aggregate number of shares of Company Common Stock that
Company would be required to issue in accordance with the terms of the Company's
Certificate of Incorporation upon the conversion to Company Common Stock of the
Company Preferred Stock issued and outstanding immediately prior to the
Effective Time.
"PSV" shall mean $35.00 multiplied by the number of shares of Company Preferred
Stock issued and outstanding immediately prior to the Effective Time.
"X" shall equal 2,822,000 if ASP is less than or equal to P\\LC\\, or 2,622,000
if ASP is greater than or equal to P\\UC\\. Otherwise, "X" shall mean:
(ASP - P\\LC\\) * (2,722,000 - 2,822,000) + 2,822,000
-----------------------
SP - P\\LC\\
"PPE" shall mean the amount, if any, obtained by subtracting $1,500,000 from the
Expenses (as defined in Section 8.1(h) and reflected in the statement delivered
pursuant to Section 5.18) and subtracting from the result so obtained the lesser
of (i) $175,000, or (ii) one-half of the amount, if any, of such Expenses which
exceed $1,500,000.
"ASP" shall mean the average of the last reported sale prices of a share of
Acquiror Common Stock as reported by the Nasdaq Stock Market for the ten
business days ending three business days before the Company Shareholders Meeting
(as defined in Section 5.5(a)).
"SP" shall mean $11.43.
"CP\\1\\" shall mean the Exercise Price (as defined in the Stock Purchase
Warrants issued by the Company to Sanders Morris Mundy Inc. on February 1, 1995
and February 8, 1995) in effect immediately prior to the Effective Time.
"CP\\2\\" shall mean the Exercise Price (as defined in the Stock Purchase
Warrants issued by the Company on March 25, 1997) in effect immediately prior to
the Effective Time.
"CP\\3\\" shall mean $1.75.
"CS" shall mean the aggregate number of shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time.
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"AL" shall mean the aggregate number of options to purchase Company Common Stock
outstanding as of the Closing Date which were granted by the Company pursuant to
the terms of Consulting Agreements dated October 2, 1996.
"DO" shall mean the aggregate number of shares of Common Stock issuable upon
exercise of the Director Stock Options (as defined in Section 2.5(b)) which have
an exercise price of $1.00.
"EO" shall mean the aggregate number of shares of Common Stock issuable upon
exercise of the Employee Stock Options (as defined in Section 2.5(a)) which have
an exercise price of $1.00.
"W\\1\\" shall mean the aggregate number of shares of Common Stock issuable upon
exercise of the warrants listed under the heading "1995 Other Warrants" on
Schedule 2.6.
"W\\2\\" shall mean the aggregate number of shares of Common Stock issuable upon
exercise of warrants listed under the heading "1997 Warrants" on Schedule 2.6.
"W\\3\\" shall mean the aggregate number of shares of Common Stock issuable upon
the exercise of the warrants listed under the heading "1995 Preferred Warrants"
on Schedule 2.6.
"P\\LC\\" shall mean $9.50.
"P\\UC\\" shall mean SP + (SP - P\\LC\\).
"CR" shall mean CR\\1\\, CR\\2\\, CR\\3\\, CR\\4\\ or CR\\5\\, whichever is the
result utilized at the Effective Time pursuant to Section 2.1 to calculate the
number of shares of Acquiror Common Stock to be distributed to the holders of
Company Common Stock.
All such shares of Company Common Stock and Company Preferred Stock, when so
converted, shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a Common Stock
Certificate representing any such shares of Company Common Stock shall cease to
have any rights with respect thereto, except the right to receive the shares of
Acquiror Common Stock therefor upon the surrender of such Common Stock
Certificate in accordance with Section 2.2, or, in the case of Dissenting
Shareholders, the right, if any, to receive payment from the Surviving
Corporation of the fair value of such shares of Company Common Stock, as
applicable, as determined in accordance with the NYBCL. No fractional shares of
Acquiror Common Stock shall be issued and, in lieu thereof, a cash payment shall
be made pursuant to Section 2.2(e) of this Agreement.
(b) Conversion of Company Preferred Stock. Each issued and outstanding
share of Company Preferred Stock (other than any shares of Company Preferred
Stock which are held by shareholders who shall have duly asserted appraisal or
dissenters rights pursuant to the NYBCL
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<PAGE>
("Dissenting Shareholders")) shall by virtue of the Merger and without any
action on the part of the holder thereof, be automatically converted into the
right to receive, upon surrender of the certificate formerly representing such
share of Company Preferred Stock in the manner provided in Section 2.2 (the
"Preferred Stock Certificate"), the greater of (i) the number of shares of
Company Common Stock which, based on the ASP, is equal in value to $35.00, plus
any dividends declared or accrued but unpaid on such share of Company Preferred
Stock, or (ii) the number of shares of HHCA Common Stock that would be issuable
in the Merger if such shares of Company Preferred Stock had been converted into
Company Common Stock immediately prior to the Effective Time pursuant to the
terms of the Certificate of Amendment of the Certificate of Incorporation of the
Company dated January 31, 1995. All such shares of Company Preferred Stock, when
so converted, shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a Preferred Stock
Certificate representing any such shares of Company Preferred Stock shall cease
to have any rights with respect thereto, except the right to receive the
Liquidation Preference to which such shares are entitled upon the surrender of
such Preferred Stock Certificate in accordance with Section 2.2, or, in the case
of Dissenting Shareholders, the right, if any, to receive payment from the
Surviving Corporation of the fair value of such shares of Company Preferred
Stock, as applicable, as determined in accordance with the NYBCL. No fractional
shares of Acquiror Common Stock shall be issued and, in lieu thereof, a cash
payment shall be made pursuant to Section 2.2(e) of this Agreement.
(c) Cancellation of Treasury Stock. All shares of Company Common Stock
that are owned by the Company or any subsidiary of the Company shall be canceled
and retired and shall cease to exist and no consideration shall be delivered in
exchange therefor.
(d) Acquisition Subsidiary Capital Stock. Each issued and outstanding
share of capital stock of Acquisition Subsidiary shall be converted into and
become one fully paid and nonassessable share of common stock of the Surviving
Corporation.
Section 2.2 Payment for Company Common Stock and Company Preferred
Stock; Surrender of Certificates.
(a) Exchange Fund. Promptly after the Effective Time, Acquiror shall
deposit, or cause to be deposited, with a bank or trust company mutually
agreeable to the parties to this Agreement (the "Exchange Agent"), for the
benefit of the former holders of Company Common Stock and Company Preferred
Stock, for exchange in accordance with this Article II, through the Exchange
Agent, (i) certificates evidencing the number of shares of Acquiror Common Stock
issuable pursuant to Section 2.1(a) and 2.1(b), and (ii) cash in an amount equal
to the aggregate amount required to be paid in lieu of fractional interests of
Acquiror Common Stock pursuant to Section 2.2(e). The certificates and cash
deposited with the Exchange Agent in accordance with this subsection 2.2(a) are
hereinafter referred to as the "Exchange Fund." The Exchange Agent shall,
pursuant to irrevocable instructions, deliver Acquiror Common Stock and/or cash,
as described above, in exchange for surrendered certificates evidencing Company
Common Stock and Company Preferred Stock pursuant to the terms of this Agreement
out of the Exchange Fund.
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(b) Letter of Transmittal. As soon as practicable after the Effective
Time, Acquiror will send to each record holder of Company Common Stock and
Company Preferred Stock at the Effective Time a letter of transmittal and other
appropriate materials for use in surrendering Common Stock Certificates and
Preferred Stock Certificates to the Exchange Agent.
(c) Payment Procedures. Promptly after the Effective Time, the Exchange
Agent shall distribute to each former holder of Company Common Stock and Company
Preferred Stock, upon surrender to the Exchange Agent of one or more Common
Stock Certificates and Preferred Stock Certificates for cancellation together
with a duly executed and properly completed letter of transmittal, the shares of
Acquiror Common Stock in accordance with the provisions of Section 2.1(a) and
2.1(b). If payment is to be made to a person other than the person in whose name
a Common Stock Certificate or Preferred Stock Certificate surrendered is
registered, it shall be a condition of payment that such Common Stock
Certificate or Preferred Stock Certificate so surrendered shall be properly
endorsed, with signatures guaranteed, or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of such Common Stock Certificate or Preferred Stock Certificate
surrendered, or such person shall establish to the satisfaction of Acquiror that
such tax has been paid or is not applicable. No interest shall be paid on any
consideration payable in the Merger to former holders of Company Common Stock or
Company Preferred Stock.
(d) Distributions with Respect to Unexchanged Shares of Acquiror Common
Stock. No dividends or other distributions declared or made after the Effective
Time with respect to Acquiror Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Common Stock
Certificate or Preferred Stock Certificate with respect to the shares of
Acquiror Common Stock evidenced thereby and no consideration shall be paid to
any such holder, until the holder of such Common Stock Certificate or Preferred
Stock Certificate shall surrender such Common Stock Certificate or Preferred
Stock Certificate. If any holder of Company Common Stock and Company Preferred
Stock shall be unable to surrender such holder's Common Stock Certificate or
Preferred Stock Certificate because such Common Stock Certificate or Preferred
Stock Certificate has been lost or destroyed, such holder may deliver in lieu
thereof an affidavit and indemnity bond in form and substance and with surety
reasonably satisfactory to Acquiror.
(e) No Fractional Shares.
(i) No fractional shares of the Acquiror Common Stock shall be
issued as a result of the Merger. In lieu of the issuance of
fractional shares, cash adjustments will be paid to the
former holder of Company Common Stock and Company Preferred
Stock in respect of any fraction of a share of Acquiror
Common Stock which would otherwise be issuable under this
Agreement. Such cash adjustment shall be equal to an amount
determined by multiplying such fraction by the ASP.
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<PAGE>
(ii) As soon as practicable after the determination of the amount
of cash, if any, to be paid to former holders of Company
Common Stock and Company Preferred Stock with respect to any
fractional share interests of Acquiror Common Stock, the
Exchange Agent shall promptly pay such amounts to such former
holders of Company Common Stock and Company Preferred Stock
subject to and in accordance with the terms of this Section
2.2. Acquiror will make available to the Exchange Agent the
cash necessary for this purpose.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains unclaimed by the former holders of the Company Common Stock and Company
Preferred Stock for six months after the Effective Time shall be delivered to
Acquiror, upon demand, and any former holders of Company Common Stock and
Company Preferred Stock who have not theretofore complied with this Article II
shall thereafter look only to Acquiror for the consideration to which they are
entitled, without any interest thereon.
(g) Withholding. Acquiror (or any affiliate thereof) shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any former holder of Company Common Stock and Company Preferred
Stock such amounts as Acquiror (or any affiliate thereof) is required to deduct
and withhold with respect to the making of such payment under the Code, or any
other provisions of federal, state, local or foreign tax law. To the extent that
amounts are so withheld by Acquiror, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the former holder of the
Company Common Stock and Company Preferred Stock in respect of which such
deduction and withholding was made by Acquiror.
(h) Effect of Escheat Laws. Neither the Exchange Agent, Acquiror,
Surviving Corporation nor the Company shall be liable to any holder of shares of
Company Common Stock or Company Preferred Stock for any consideration delivered
to a public official pursuant to any applicable abandoned property escheat or
similar law.
Section 2.3 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock or Company Preferred
Stock thereafter on the records of the Company.
Section 2.4 Dissenting Company Common Stock and Company Preferred
Stock. Notwithstanding any other provision of this Agreement to the contrary,
shares of Company Common Stock or Company Preferred Stock held by a holder who
has not voted such Company Common Stock or Company Preferred Stock in favor of
the authorization, approval and adoption of this Agreement and the Merger or
consented thereto in writing and with respect to which dissenters' rights shall
have been demanded and perfected in accordance with Sections 623 and 910 of the
NYBCL (the "Dissenting Company Stock") and as of the Effective Time not
withdrawn shall not be converted into the right to receive the consideration
payable pursuant to Section 2.1(a) or 2.1(b) at or after the Effective Time, but
such Company Common Stock and Company Preferred Stock
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<PAGE>
shall become the right to receive such consideration as may be determined to be
due to holders of Dissenting Company Stock pursuant to the laws of the State of
New York unless and until the holder of such Dissenting Company Stock withdraws
his or her demand for such appraisal or becomes ineligible for such appraisal.
If a holder of Dissenting Company Stock shall withdraw his or her demand for
such appraisal or shall become ineligible for such appraisal (through failure to
perfect or otherwise), then, as of the Effective Time or the occurrence of such
event, whichever last occurs, such holder's Dissenting Company Stock shall
automatically be converted into and represent the right to receive the
consideration payable pursuant to Section 2.1(a) or 2.1(b), without interest, as
provided in Section 2.1(a) and 2.1(b). The Company shall give Acquiror (i)
prompt notice of any demands for appraisal of Company Common Stock or Company
Preferred Stock received by the Acquiror and (ii) the opportunity to participate
in and direct all negotiations and proceedings with respect to any such demands.
The Company shall not, without the prior written consent of Acquiror, make any
payment with respect to, or settle, offer to settle or otherwise negotiate, any
such demands.
Section 2.5 Option Plans.
(a) Each outstanding option to purchase Company Common Stock issued to
employees and consultants of the Company pursuant to the Company's 1995 Stock
Option/Stock Issuance Plan (as amended February 15, 1996) (the "Option Plan")
(and not including options granted to certain consultants under certain
Consulting Agreements dated October 2, 1996, as amended, which were not granted
under the Option Plan), whether vested or unvested (each an "Employee Stock
Option"), which is not exercised on or before the Closing Date shall remain
outstanding after the Effective Time and shall be assumed by Acquiror. The
parties intend that Acquiror's assumption of the Employee Stock Options shall be
treated as "assuming a stock option in a transaction to which Section 424(a)
applies" within the meaning of Section 424 of the Code and this subsection (a)
shall be interpreted and applied consistent with such intent. Each Employee
Stock Option assumed by Acquiror shall be exercisable upon the same terms and
conditions as under the Option Plan and applicable option agreement issued
thereunder, except that (i) such Employee Stock Option shall be exercisable for
that number of shares of Acquiror's Common Stock equal to CR (as defined in
Section 2.1) multiplied by the number of shares of Company Common Stock for
which such Employee Stock Option was exercisable and rounded to the nearest
whole share with fractions of 0.5 or greater rounded up and fractions of less
than 0.5 rounded down, and (ii) the exercise price of such Employee Stock Option
shall be equal to the exercise price of such option as of the date hereof
divided by CR and rounded up to the nearest whole cent. No fractional shares of
Company Common Stock shall be issued upon exercise of any Employee Stock Option,
and any and all fractional shares shall be canceled.
(b) Except for such options which by their terms terminate at the
Effective Time, each outstanding option to purchase Company Common Stock issued
to a non-employee director pursuant to the Option Plan (a "Director Stock
Option"), whether vested or unvested, which is not exercised on or before the
Closing Date, shall remain outstanding after the Effective Time and shall be
assumed by Acquiror. Each Director Stock Option assumed by Acquiror shall be
exercisable upon the same terms and conditions as under the Option Plan and the
applicable option agreement issued
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thereunder, except that (i) such Director Stock Option shall be exercisable for
that number of shares of Acquiror's Common Stock equal to CR multiplied by the
number of shares of Company Common Stock for which such Director Stock Option
was exercisable and rounded to the nearest whole share with fractions of 0.5 or
greater rounded up and fractions of less than 0.5 rounded down, and (ii) the
exercise price of such Director Stock Option shall be equal to the exercise
price of such Director Stock Option as of the date hereof divided by CR and
rounded up to the nearest whole cent.
(c) As soon as practicable after the Effective Time, Acquiror shall
deliver to the holders of Employee Stock Options and Director Stock Options
appropriate notices setting forth such holders' rights pursuant to the Option
Plan and the agreements evidencing the grants of such Employee Stock Options and
Director Stock Options shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 2.5 after giving effect to
the Merger).
Section 2.6 Warrants.
(a) Each outstanding warrant to purchase Company Common Stock issued to
the warrantholders listed on Schedule 2.6 of the Company Disclosure Schedule (as
defined in Section 3.1(a) below) (collectively, the "Warrants") shall remain
outstanding after the Effective Time. As of the Effective Time, the Acquiror
shall assume the obligation to deliver to the holder of each Warrant such shares
of stock, securities, cash or property as such holder shall be entitled to
purchase in accordance with the provisions of such holder's Warrant which set
forth the effect on the Warrant of the Merger.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Acquiror and Acquisition
Subsidiary as follows:
Section 3.1 Organization.
(a) Except as set forth in Section 3.1 of the Company Disclosure
Schedule (as defined below), each of the Company and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite power and
authority and any necessary governmental authority to own, operate and lease its
properties and to carry on its business as it is now being conducted, and,
except as set forth in Section 3.1 of the Company Disclosure Schedule (as
defined below), is duly qualified as a foreign corporation to do business, and
is in good standing, in each jurisdiction where the character of
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its owned, operated or leased properties or the nature of its activities makes
such qualification necessary, other than where the failure to be so duly
qualified and in good standing could not reasonably be expected to have a
Company Material Adverse Effect (as defined below in Section 3.1(b)). A true and
complete list of all the Company's subsidiaries, together with the jurisdiction
of incorporation of each subsidiary, the percentage of each subsidiary's
outstanding capital stock owned by the Company or another subsidiary and an
indication of whether each such subsidiary of the Company is a subsidiary of the
Company that would constitute a "Significant Subsidiary" of the Company within
the meaning of Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission ("SEC"), is set forth in Section 3.1 of the Company Disclosure
Schedule delivered to Acquiror and Acquisition Subsidiary on or before the date
hereof (the "Company Disclosure Schedule").
(b) The term "Company Material Adverse Effect," as used in this
Agreement, means any change or effect (including but not limited to any action
taken, or law enacted, enforced, interpreted, or deemed applicable to the
Company or any of its subsidiaries, by any Governmental Entity (as defined in
Section 3.4)) that, individually or when taken together with all other changes
or effects, would be materially adverse to the condition (financial or
otherwise), results of operations, business, properties (including intangible
properties), prospects, assets or liabilities of the Company and its
subsidiaries taken as a whole.
Section 3.2 Capitalization.
(a) Capitalization. The authorized capital stock of the Company
consists of 40,000,000 shares of common stock, par value $.01 per share, and
5,000,000 shares of preferred stock, par value $1.00 per share, of which 100,000
shares of such preferred stock have been designated 6% Convertible Preferred
Stock and 328,569 shares of such preferred stock have been designated $35.00 6%
Convertible Preferred Stock. As of the date hereof, (i) 10,398,243 shares of
Company Common Stock were issued and outstanding, (ii) no shares of the 6%
Convertible Preferred Stock were issued and outstanding, (iii) 328,569 shares of
Company Preferred Stock were issued and outstanding, (iv) no shares of Company
Common Stock were held in the treasury of the Company, (v) 7,152,308 shares of
Company Common Stock were reserved for issuance upon conversion of the Company
Preferred Stock; (vi) 1,160,500 shares of Company Common Stock were reserved for
issuance upon exercise of outstanding options under the Option Plan, (vii)
1,730,000 shares of Company Common Stock were reserved for issuance pursuant to
options granted to certain consultants, as more fully described in Section 3.2
of the Company Disclosure Schedule, and (viii) 3,120,600 shares of Company
Common Stock were reserved for issuance under outstanding warrants exercisable
for the purchase of Company Common Stock, as more fully described in Section 3.2
of the Company Disclosure Schedule (the "Warrants"). Section 3.2 of the Company
Disclosure Schedule sets forth a true and correct list as of the date hereof of
all holders of options or warrants to purchase Company Common Stock, the number
of such options or warrants outstanding as of such date, and the exercise price
per option or warrant. The Company has
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delivered to Acquiror complete and correct copies of the Option Plan, Warrants
and all forms of stock options issued pursuant to the Option Plan or otherwise,
including all amendments thereto. All of the outstanding shares of Company
Common Stock and Company Preferred Stock have been duly authorized and validly
issued and are fully paid and nonassessable and have not been issued in
violation of (nor are any of the authorized shares of capital stock of, or other
equity interests in the Company or any of its wholly-owned subsidiaries subject
to) any preemptive or similar rights created by statute, the Certificate of
Incorporation or Bylaws (or the equivalent organizational documents) of the
Company or of its subsidiaries, or any agreement to which the Company or any of
its subsidiaries is bound, and, except as set forth in Section 3.2 of the
Company Disclosure Schedule, all such issued shares or the equity interests
owned by the Company or a subsidiary of the Company are owned free and clear of
all security interests, liens, claims, pledges, agreements, limitations on the
Company's or such subsidiaries' voting rights, charges or other encumbrances.
Except as set forth in Section 3.2 of the Company Disclosure Schedule, there are
no options, warrants or other rights, convertible debt, agreements, arrangements
or commitments of any character obligating the Company or any of its
subsidiaries to issue or sell any shares of capital stock of or other equity
interests in the Company or any of its subsidiaries. Except as set forth in
Section 3.2 of the Company Disclosure Schedule, the Company is not obligated to
redeem, repurchase or otherwise reacquire any of its capital stock or other
securities. No bonds, indentures, notes or other indebtedness of the Company
having the right to vote (or convertible into or exercisable for securities
having the right to vote) on any matters on which shareholders may vote is
issued or outstanding.
(b) Except as set forth in Section 3.2 of the Company Disclosure
Schedule, all of the outstanding shares of the capital stock of each subsidiary
of the Company are beneficially owned by the Company, directly or indirectly,
and all such shares have been duly authorized, validly issued and are fully paid
and nonassessable. There are no existing options, calls or commitments of any
character relating to the issued or unissued capital stock or other securities
of any subsidiary. Except as set forth in Section 3.2 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries owns, directly or
indirectly, or have a right to acquire an equity interest in any corporation,
limited liability company, partnership, joint venture or other business
association or entity.
(c) Except as set forth in Section 3.2 of the Company Disclosure
Schedule, there are no obligations, contingent or otherwise, of the Company, or
any of its subsidiaries (other than advances to subsidiaries in the ordinary
course of business) to provide funds to, or make any investment in (in the form
of a loan, capital contribution or otherwise), or provide any guarantee with
respect to the obligations of, any subsidiary of the Company or any other Person
(as defined in Section 8.11). Except (q) as set forth in Section 3.2 of the
Company Disclosure Schedule, (r) for any agreements, arrangements or commitments
between the Company and its subsidiaries or between such subsidiaries, there are
no agreements, arrangements or commitments of any character (contingent or
otherwise) pursuant to which any Person is or may be entitled to receive
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any payment based on the revenues or earnings, or calculated in accordance
therewith, of the Company or any of its subsidiaries. There are no voting
trusts, proxies or other agreements or understandings to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound with respect to the voting of any shares of capital stock
or other equity interests of the Company or of any of its subsidiaries.
Section 3.3 Authorization; Validity of Agreement; Necessary Action. The
Company has all requisite corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby (subject
to the approval and adoption of this Agreement by the shareholders of the
Company as set forth in Section 5.5(a)). The execution, delivery and performance
by Company of this Agreement, and the consummation of the Merger and of the
other transactions contemplated hereby, have been duly authorized by the Board
of Directors of Company and no other corporate action on the part of Company is
necessary to authorize the execution and delivery by Company of this Agreement
and the consummation of the transactions contemplated hereby (subject to the
approval and adoption of this Agreement by the shareholders of the Company as
set forth in Section 5.5(a)). This Agreement has been duly executed and
delivered by Company and, assuming due and valid authorization, execution and
delivery hereof by the Acquiror and the Acquisition Subsidiary, is a valid and
binding obligation of Company, enforceable against Company in accordance with
its terms.
Section 3.4 Consents and Approvals; No Violations. Except for the
filings or the consents, authorizations or approvals under the agreements set
forth in Section 3.4 of the Company Disclosure Schedule and the filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Exchange Act of 1934 (the
"Exchange Act"), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), state securities or blue sky laws, the New York Public
Health Law (the "Public Health Law") and federal and other state laws and
regulations governing the acquisition or operation of a home health care
provider and the filing and recordation of a certificate of merger under the
NYBCL or the DGCL, neither the execution, delivery or performance of this
Agreement by the Company nor the consummation by the Company of the transactions
contemplated hereby nor compliance by the Company with any of the provisions
hereof will (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or the bylaws of the Company or of any of its
subsidiaries, (ii) require any filing with, or permit, authorization, consent or
approval of, any court, arbitration tribunal, administrative agency or
commission or other governmental or other regulatory authority or agency,
domestic or foreign (a "Governmental Entity"), on the part of the Company or any
subsidiary, (iii) require the consent of any Person under, result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which any of them or any of their properties
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or assets may be bound, the lack of which consent, or which violation, breach or
default, individually or in the aggregate, could reasonably be expected to have
a Company Material Adverse Effect, or (iv) conflict with or violate any federal,
state, foreign or local law, statute, ordinance, rule, regulation, order, writ,
injunction or decree applicable to the Company, any of its subsidiaries or any
of their properties or assets.
Section 3.5 SEC Reports and Financial Statements.
(a) The Company has timely filed (i) with the SEC, and has delivered or
made available to Acquiror, true and complete copies of, all forms, reports,
schedules, statements and other documents required to be filed by it since
January 1, 1994 under the Securities Act or the Exchange Act, including, without
limitation (i) all Annual Reports on Form 10-K, (ii) all Quarterly Reports on
Form 10-Q, (iii) all proxy statements relating to meetings of shareholders
(whether annual or special), (iv) all Current Reports on Form 8-K, and (v) all
other reports, schedules, registration statements or other documents
(collectively, the "Company SEC Documents"). Except as set forth in Section 3.5
of the Company Disclosure Schedule, the Company SEC Documents were prepared in
accordance with the Securities Act or the Exchange Act, as the case may be,
including without limitation the applicable accounting requirements thereunder
and the published rules and regulations of the SEC with respect thereto, (ii)
the Company SEC Documents when filed, did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of the Company's
subsidiaries is required to file any statements or reports with the SEC pursuant
to Sections 13(a) or 15(d) of the Exchange Act.
(b) Except as set forth in Section 3.5 of the Company Disclosure
Schedule, the consolidated financial statements (including the related notes
thereto) of the Company included in the Company SEC Documents, have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position and the consolidated results of operations and
cash flows (and changes in financial position, if any) of the Company and its
consolidated subsidiaries as of the respective dates and for the respective
periods thereof, except that the unaudited interim quarterly financial
statements were or are subject to normal and recurring year-end adjustments
which were or are not expected to be material in amount. Except as set forth in
Section 3.5 of the Company Disclosure Schedule, the Company is not aware of any
facts or circumstances which would require the Company to amend or restate any
of the Company SEC Documents, including without limitation the financial
information included therein.
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Section 3.6 Absence of Certain Changes. Since January 1, 1997, except
as contemplated in this Agreement and set forth in Section 3.6 of the Company
Disclosure Schedule, there has not been:
(a) any Company Material Adverse Effect;
(b) any damage, destruction or loss with respect to any of the assets
of the Company or any of its subsidiaries that, if not covered by insurance, has
caused or could be expected to cause the Company to incur an expense, cost or
loss of $50,000 or more;
(c) any issuance of any capital stock by the Company or any of its
subsidiaries, or any adjustment to the conversion price of the Company Preferred
Stock, or any adjustment to the exercise price under any option or warrant
issued by the Company, or any redemption or other acquisition of capital stock
by the Company or any of its subsidiaries or any declaration or payment of any
dividend or other distribution in cash, stock or property with respect to
capital stock;
(d) any stock split, reverse stock split, combination, reclassification
or other similar action with respect to capital stock;
(e) other than as contemplated by this Agreement, any entry into any
agreement, commitment or transaction (including, without limitation, any
borrowing or capital expenditure) which requires the payment of more than
$50,000 on an annual basis or which cannot be terminated upon notice of 30 days
or less;
(f) any transfer of, or rights granted under, any licenses, agreements,
patents, trademarks, trade names or copyrights;
(g) any mortgage, pledge, security interest or imposition of lien or
other encumbrance on any asset of the Company or any of its subsidiaries which,
individually or in the aggregate with all assets encumbered since January 1,
1997, has a book value of at least $50,000;
(h) any change by the Company in accounting principles or methods
except insofar as may have been required by a change in generally accepted
accounting principles and disclosed in the Company SEC Documents; or
(i) any increase in the benefits under, or the establishment or
amendment of, any bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, performance awards (including, without limitation,
the granting of stock appreciation rights or restricted stock awards), stock
purchase or other employee benefit plan, or any increase in the compensation
payable or to become payable to any of the directors or officers of the Company
or
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the employees of the Company or its subsidiaries as a group, except for (A)
increase in salaries or wages payable or to become payable in the ordinary
course of business and consistent with past practice, or (B) the granting of
stock options in the ordinary course of business to employees of the Company or
its subsidiaries who are not directors or executive officers of the Company.
Except as set forth in Section 3.6 of the Company Disclosure Schedule,
since January 1, 1997 the Company and its subsidiaries have conducted their
business only in the ordinary course and in a manner consistent with past
practice and have not made any material change in the conduct of the
business or operations of the Company and its subsidiaries taken as a whole.
Except as set forth in Section 3.6 of the Company Disclosure Schedule, no Person
has or will have the right to receive any severance, bonus, other payment,
increase or change in benefits or vesting of stock options, shares or other
benefits as a result of any of the transactions contemplated by this Agreement.
Section 3.7 No Undisclosed Liabilities. Except as set forth in Section
3.7 of the Company Disclosure Schedule, and except as reflected or reserved
against in the consolidated financial statements contained in the Company SEC
Documents, the Company and its subsidiaries have no liabilities of any nature
(whether accrued, absolute, contingent or otherwise), except those liabilities
incurred in the ordinary course of business which could not, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse Effect.
Section 3.8 Litigation. Except as disclosed in the Company SEC
Documents or in Section 3.8 of the Company Disclosure Schedule, there is no
suit, claim, action, arbitration, proceeding or investigation pending before any
Governmental Entity or, to the knowledge of the Company, threatened against the
Company or any of its subsidiaries. Except as disclosed in the Company SEC
Documents or in Section 3.8 of the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries is subject to any outstanding order,
including, without limitation, cease-and-desist or other orders, writ,
injunction, decree, settlement agreement or other similar written agreement
with, or, to the knowledge of the Company, continuing investigation by, any
Governmental Entity.
Section 3.9 No Default; Compliance with Applicable Laws. Except as
disclosed in Section 3.9 of the Company Disclosure Schedule, the business of the
Company and each of its subsidiaries is not being conducted in default or
violation of any term, condition or provision of (i) its respective Certificate
of Incorporation or bylaws, (ii) any agreement to which the Company or its
subsidiaries is a party or (iii) any federal, state, local or foreign statute,
law, ordinance, rule, regulation, judgment, decree, order, concession, grant,
franchise, permit or license or other governmental authorization or approval
applicable to the Company or any of its subsidiaries, excluding from the
foregoing clauses (ii) and (iii), defaults or violations which could not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. Section 3.9 of the Company Disclosure Schedule sets
forth a true, complete and accurate
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description of all reports delivered to the Company or its counsel or agents
with respect to the Company or any of the Company's subsidiaries made by
federal, state and local governmental agencies or authorities for the past five
years, together with a description of all recommendations of actions taken by,
submission of information to, fines and penalties imposed by, all such
governmental agencies and authorities. Except as disclosed in Section 3.9 of the
Company Disclosure Schedule, as of the date of this Agreement, no investigation
or review by any Governmental Entity or other entity with respect to the Company
or any of its subsidiaries is pending or, to the knowledge of the Company,
threatened, nor has any Governmental Entity or other entity indicated an
intention to conduct the same. Each of the Company and its subsidiaries has in
effect all Federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights ("Company Permits") necessary for it to own, lease or operate its
properties and assets and to carry on its business as now conducted, and there
has occurred no default under any such Company Permit, except for the absence of
Company Permits and for defaults under Company Permits which absence or
defaults, individually or in the aggregate, could not reasonably be expected to
have a Company Material Adverse Effect. The Company has timely filed all forms,
reports, statements and other documents required to be filed by the Company with
any Governmental Entities other than the SEC, including, without limitation,
health regulatory authorities (collectively, "Company Reports") except to the
extent that any failure to file such Company Reports has not and will not result
in a Company Material Adverse Effect. Except as set forth in Section 3.9 of the
Company Disclosure Schedule, the Company Reports were prepared in all material
respects in accordance with the requirements of applicable law.
Section 3.10 Intellectual Property.
(a) Section 3.10 of the Company Disclosure Schedule sets forth all
patents, trademarks, copyrights, service marks and trade names owned or used by
the Company and its subsidiaries relating to the business of the Company and its
subsidiaries, all applications for any of the foregoing, and all permits, grants
and licenses or other rights running to or from Company relating to any of the
foregoing (the "Intellectual Property Rights"), and there are no other patents,
trademarks, copyrights, service marks, and trade names that are material to the
business of the Company. To the Company's knowledge: (i) with respect to
trademarks or service marks material to the business of the Company and its
subsidiaries as presently conducted (and only in such jurisdictions where such
trademarks or service marks are material to the business of the Company and its
subsidiaries as presently conducted), all renewals of the registrations set
forth in Section 3.10 of the Company Disclosure Schedule for such trademarks or
service marks have been appropriately filed; (ii) Company has exercised its best
efforts to ensure compliance with all registration requirements, and has paid
all necessary government fees; and (iii) the trademark or service marks
registrations material to the business of the Company as presently conducted are
valid with respect to the products or services that are covered by the
registrations. The trademarks
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and service marks of Company that are material to the business of the Company
are identified on Section 3.10 of the Company Disclosure Schedule by means of an
asterisk.
(b) Except as set forth on Section 3.10 of the Company Disclosure
Schedule, no Intellectual Property Rights or any other such right is subject to
any security interest or outstanding order, judgment, decree, stipulation or
agreement restricting the use or licensing thereof. During the three years
preceding the date hereof, neither the Company nor any subsidiary has been sued
or charged in writing with or been a defendant in any claim, suit, action or
proceeding which involves a claim of infringement of any Intellectual Property
Rights; and the Company has no knowledge of any basis for any charge or claim of
any infringement by the Company of any Intellectual Property Rights.
Section 3.11 Taxes.
(a) For purposes of this Section 3.11 and other provisions of this
Agreement relating to Taxes, the following definitions shall apply:
(i) The term "taxes" shall mean all taxes, however denominated,
including any interest, penalties or other additions to tax that may
become payable in respect thereof, (A) imposed by any federal,
territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall
include, without limiting the generality of the foregoing, all income
or profits taxes (including but not limited to, federal income taxes
and state income taxes), payroll and employee withholding taxes,
unemployment insurance, social security taxes, sales and use taxes, ad
valorem taxes, excise taxes, franchise taxes, gross receipts taxes,
business license taxes, occupation taxes, real and personal property
taxes, stamp taxes, environmental taxes, transfer taxes, workers'
compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar
nature to any of the foregoing, which are required to be paid, withheld
or collected, (B) any liability for the payment of amounts referred to
in (A) as a result of being a member of any affiliated, consolidated,
combined or unitary group, or (C) any liability for amounts referred to
in (A) or (B) as a result of any obligations to indemnify another
Person.
(ii) The term "returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns
relating to, or required to be filed in connection with, any Taxes,
including information returns or reports with respect to backup
withholding and other payments to third parties.
(b) Except as set forth in Section 3.11 of the Company Disclosure
Schedule, and except as could not, either individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect, (i) all
Returns required to be filed by or on behalf of the Company and
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each of its subsidiaries have been duly filed on a timely basis and such Returns
are true, complete and correct, (ii) all Taxes shown to be payable on such
Returns or on subsequent assessments with respect thereto, and all payments of
estimated Taxes required to be made by or on behalf of the Company and each of
its subsidiaries under Section 6655 of the Code or comparable provisions of
state, local or foreign law, have been paid in full on a timely basis or have
been accrued on the Financial Statements, and no other Taxes are payable by the
Company or any of its subsidiaries with respect to items or periods covered by
such Returns (whether or not shown on or reportable on such Returns) or with
respect to any period prior to the date of this Agreement, (iii) the Company and
each of its subsidiaries has withheld and paid over all Taxes required to have
been withheld and paid over, and complied with all information reporting and
backup withholding requirements, including maintenance of required records with
respect thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party, (iv) there are no liens
on any of the assets of the Company or any of its subsidiaries with respect to
Taxes, other than liens for Taxes not yet due and payable or for Taxes that the
Company or such subsidiary is contesting in good faith through appropriate
proceedings and for which appropriate reserves have been established, (v) the
amount of the Company's and its subsidiaries' liability for unpaid Taxes
(whether actual or contingent) for all periods through the date of the Financial
Statements does not, in the aggregate, exceed the amount of the current
liability accruals for Taxes reflected on the Financial Statements, and the
Financial Statements properly accrue in accordance with GAAP all liabilities for
Taxes payable after the date of the Financial Statements attributable to
transactions and events occurring prior to such date, and (vi) no liability for
Taxes of the Company or any of its subsidiaries has been incurred (or prior to
Closing will be incurred) since such date other than in the ordinary course of
business.
(c) Except as set forth in Section 3.11(c) of the Company Disclosure
Schedule, the Company has made available to Acquiror true and complete copies of
(i) relevant portions of income tax audit reports, statements of deficiencies,
closing or other agreements received by or on behalf of the Company or any of
its subsidiaries relating to Taxes, and (ii) all federal and state income or
franchise tax returns and state sales and use tax Returns for or including the
Company or any of its subsidiaries for the periods ended on and after December
31, 1994, 1995 and 1996, excluding from the foregoing such returns with respect
to Taxes the nonpayment of which, individually or in the aggregate, could not
reasonably be expected to cause a Company Material Adverse Effect. Neither the
Company nor any of its subsidiaries does business in or derives income from any
state other than states for which Returns have been duly filed and made
available to Acquiror.
(d) Except as disclosed in Section 3.11(d) of the Company Disclosure
Schedule, (i) the Returns of or including the Company and its subsidiaries have
never been audited by a government or taxing authority, nor is any such audit in
process, threatened or, to the Company's knowledge, pending (either in writing
or verbally, formally or informally), (ii) no deficiencies exist or have been
asserted (either in writing or verbally, formally or informally) or are expected
to be asserted,
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with respect to Taxes of the Company or any of its subsidiaries, and neither the
Company nor any such subsidiary has received notice (either in writing or
verbally, formally or informally) nor expects to receive notice that it has not
filed a Return or paid Taxes required to be filed or paid, (iii) neither the
Company nor any of its subsidiaries is a party to any action or proceeding for
assessment or collection of Taxes, nor has such event been asserted or
threatened (either in writing or verbally, formally or informally) against the
Company, any of its subsidiaries, or any of their assets, and (iv) no waiver or
extension of any statute of limitations is in effect with respect to Taxes or
Returns of the Company or its subsidiaries, [excluding from the foregoing any
such audit, threat of audit, deficiency, proposed deficiency, action, proceeding
for assessment or collection, waiver or extension with respect to which the
amount in controversy is less than $50,000.
(e) Neither the Company nor any subsidiary has entered into any
compensatory agreements with respect to the performance of services which
payment thereunder would result in a nondeductible expense to the Company or
such subsidiary pursuant to Section 280G of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of the Code.
(f) Neither Company nor any of its subsidiaries has made an election
under Section 341(f) of the Code.
(g) For federal income tax purposes, as of the Closing Date the
consolidated net operating loss carryforwards ("NOLs") of the Company and its
subsidiaries for tax years through 1996 carrying forward to 1997 will be not
less than $35,000,000, and prior to the Closing Date the ability to use such
NOLs will not be subject to any limitation under Section 382 of the Code or the
consolidated return regulations under Section 1502 of the Code.
Section 3.12 Tax Matters; Pooling.
(a) Neither Company nor, to the knowledge of Company, any of its
affiliates has taken or agreed to take any action that would prevent the Merger
from (a) constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code or (b) being treated for financial accounting
purposes as a "pooling of interests" pursuant to APB Opinion No. 16 in
accordance with generally accepted accounting principles and the rules,
regulations and interpretations of the SEC (a "Pooling Transaction").
(b) To the best knowledge of the Company, there is no plan or intention
by any shareholder of the Company who owns five percent or more of the Company
Common Stock, nor any plan or intention on the part of any other shareholder of
Company Common Stock, to sell, exchange or otherwise dispose of a number of
shares of Acquiror Common Stock to be received in the Merger that would reduce
the Company Shareholders' ownership of Acquiror Common Stock to a number of
shares having a value, as of the Effective Time, of less than 50 percent of
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the value of all of the Company Common Stock and Company Preferred Stock
(including shares of Company Common Stock exchanged for cash in lieu of
fractional shares of Acquiror Common Stock) outstanding immediately prior to the
Effective Time.
(c) Following the Merger, Company will hold at least 90 percent of the
fair market value of its net assets and at least 70 percent of the fair market
value of its gross assets held immediately prior to the Merger. For purposes of
this representation, amounts used by Company to pay Merger expenses and all
redemptions and distributions (except for regular, normal dividends) made by
Company will be included as assets of Company immediately prior to the Merger.
(d) There is no intercorporate indebtedness existing between the
Company and Acquiror or between the Company and Acquisition Subsidiary that was
issued, acquired or will be settled at a discount.
(e) The Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(f) The Company is not under the jurisdiction of a court in a title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(g) On the Closing Date, the fair market value of the assets of the
Company will exceed the sum of its liabilities, plus the liabilities to which
the assets are subject.
Section 3.13 Affiliates. Section 3.13 of the Company Disclosure
Schedule identifies all Persons who, to the knowledge of the Company, may be
deemed to be affiliates of the Company under Rule 145 of the Securities Act,
including, without limitation, all directors and executive officers of the
Company.
Section 3.14 Certificate of Incorporation and Bylaws. The Company has
heretofore furnished to Acquiror a complete and correct copy of the Certificate
of Incorporation and the bylaws or equivalent organizational documents, each as
amended to the date hereof, of the Company and made available to Acquiror such
documents with respect to all subsidiaries. Such Certificate of Incorporation,
bylaws and equivalent organizational documents are in full force and effect.
Neither the Company nor any of its subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or bylaws or equivalent
organizational documents.
Section 3.15 Properties.
(a) Except as disclosed in Section 3.15 to the Company Disclosure
Schedule, the Company and its subsidiaries have good and marketable title, or
valid leasehold rights in the case
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of leased property, to all real property and all personal property purported to
be owned or leased by them, free and clear of all liens, security interests,
claims, encumbrances and charges, excluding (i) immaterial liens for fees,
taxes, levies, imposts, duties or governmental charges of any kind which are not
yet delinquent or are being contested in good faith by appropriate proceedings
which suspend the collection thereof, (ii) immaterial liens for mechanics,
materialmen, laborers, employees, suppliers or other liens arising by operation
of law for sums which are not yet delinquent or are being contested in good
faith by appropriate proceedings, (iii) purchase money liens on office, computer
and related equipment and supplies incurred in the ordinary course of business,
and (iv) liens or defects in title or leasehold rights. All buildings, and all
fixtures, equipment and other property and assets held under leases or
sub-leases by the Company or any of its subsidiaries are held under valid
instruments enforceable in accordance with their respective terms. Substantially
all of the Company's and its subsidiaries' equipment in regular use has been
reasonably maintained and is in serviceable condition, reasonable wear and tear
excepted.
(b) Except as set forth in Section 3.15 (b) of the Company Disclosure
Schedule, consummation of the Merger will not result in any breach of or
constitute a default (or an event with which notice or lapse of time or both
would constitute a default) under, or give to others any rights of termination
or cancellation of, or require the consent of others under, any lease in which
the Company or any of its subsidiaries is a lessee.
Section 3.16 Employee Benefit Plans. The Company has disclosed in
Section 3.16 of the Company Disclosure Schedule a list of all employee welfare
benefit plans (as defined in Section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), employee pension benefit plans (as
defined in Section 3(2) of ERISA) and all other bonus, stock option, stock
purchase, benefit, profit sharing, savings, retirement, disability, insurance,
incentive, deferred compensation and other similar fringe or employee benefit
plans, programs or arrangements for the benefit of, or relating to, any employee
of, or independent contractor or consultant to, the Company or any of its
subsidiaries (together, the "Employee Plans"). The Company has made available to
Acquiror true and complete copies of all Employee Plans, as in effect, together
with all amendments thereto which will become effective at a later date, as well
as the latest Internal Revenue Service determination letters obtained with
respect to any Employee Plan qualified under Section 401(a) or 501(a) of the
Code. Also with respect to each Employee Plan, true and complete copies of the
(i) three most recent annual actuarial valuation reports, if any, (ii) three
last filed Forms 5500 together with Schedule A or B thereto or both, (iii) most
recent summary plan descriptions (as defined in ERISA), if any, and all
modifications thereto communicated to employees, and (iv) three most recent
annual or periodic accounting of related plan assets, if any, have been, or will
be, made available to Acquiror and are, or will be, correct in all material
respects. Except as disclosed in Section 3.16 of the Company Disclosure
Schedule, all of the foregoing are legal, valid, binding, in full force and
effect and there are no material defaults thereunder, and no rights of the
Company or any of the Company's subsidiaries with
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respect to any Employee Plan intended to qualify under Section 401(a) of the
Code will be impaired by the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby. Neither
the Company nor any of its subsidiaries nor any of their respective directors,
officers, employees or agents, nor, to the knowledge of the Company and its
subsidiaries, any "party in interest" or "disqualified person", as such terms
are defined in Section 3 of ERISA and Section 4975 of the Code has, with respect
to any Employee Plan, engaged in or been a party to any "prohibited
transaction", as such term is defined in Section 4975 of the Code or Section 406
of ERISA, which could result in the imposition of either a material penalty
assessed pursuant to Section 502(i) of ERISA or a material tax imposed by
Section 4975 of the Code, in each case applicable to the Company, any of its
subsidiaries or any Employee Plan. Except as disclosed in Section 3.16 of the
Company Disclosure Schedule, all Employee Plans are in compliance in all
material respects with the currently applicable requirements prescribed by all
statutes, orders, or governmental rules or regulations currently in effect with
respect to such Employee Plans, including, but not limited to, ERISA and the
Code and, to the knowledge of the Company, there are no pending or threatened
claims, lawsuits or arbitrations (other than routine claims for benefits) which
have been asserted or instituted against the Company, any of its subsidiaries,
any Employee Plan or the assets of any trust for any Employee Plan. Except as
disclosed in Section 3.16 of the Company Disclosure Schedule, each Employee Plan
which is a group health plan (within the meaning of Section 5000(b)(i) of the
Code) complies in all material respects with and has been maintained and
operated in material compliance with each of the requirements of Section 162(k)
of the Code as in effect for years beginning prior to 1989, Section 4980B of the
Code for years beginning after December 31, 1988 and Part 6 of Subtitle B of
Title I of ERISA. Each Employee Plan intended to qualify under Section 401(a) of
the Code does so qualify as to form in all material respects, and the trusts
created thereunder are as to form exempt from tax under the provisions of
Section 501(a) of the Code. All contributions or payments required to be made or
accrued before the Effective Time under the terms of any Employee Plan will have
been made or accrued by the Company or by its subsidiaries, as applicable, by
the Effective Time. No Employee Plan subject to Section 412 of the Code has
incurred any "accumulated funding deficiency" (as defined in ERISA), whether or
not waived. Neither the Company nor any of its subsidiaries has incurred or
reasonably expects to incur any liability to the Pension Benefit Guaranty
Corporation with respect to any Employee Plan. Neither the Company nor any of
its subsidiaries has incurred or reasonably expects to incur any withdrawal
liability with respect to any "multiemployer plan" (as defined in Section 3(37)
of ERISA). There have been no changes in the operation or interpretation of any
of the Employee Plans since the most recent annual report or actual report which
would have any material effect on the cost of operating or maintaining such
Employee Plans. Except as disclosed in Section 3.16 of the Company's Disclosure
Schedule, no event has occurred or will occur which will result in liability to
the Company in connection with any Employee Plan established, maintained, or
contributed to (currently or previously) by Company or by any other entity
which, together with Company, constitute elements of either (i) a controlled
group of corporations (within the meaning of Section 414(b) of the Code), (ii) a
group of trades or businesses under common control (within
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the meaning of Sections 414(c) of the Code or 4001 of ERISA), (iii) an
affiliated service group (within the meaning of Section 414(m) of the Code), or
(iv) another arrangement covered by Section 414(o) of the Code.
Section 3.17 Labor Matters.
(a) Section 3.17 of the Company Disclosure Schedule sets forth a list
of all employees and officers of the Company and its subsidiaries whose
individual base compensation is in excess of $50,000 and their respective
positions with the Company or one or more of its subsidiaries.
(b) Except as set forth in Section 3.17 of the Company Disclosure
Schedule (i) neither the Company nor any of its subsidiaries is a party to any
outstanding employment agreements or contracts with directors, officers,
employees or consultants that are not terminable at will, or that provide for
the payment of any bonus or commission; (ii) neither the Company nor any of its
subsidiaries is a party to any agreement, policy or practice that requires it to
pay termination or severance pay to salaried, non-exempt or hourly employees
(other than as required by law); (iii) neither the Company nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or its
subsidiaries, nor does the Company or any of its subsidiaries know of any
activities or proceedings of any labor union to organize any such employees.
(c) Except as set forth in Section 3.17 of the Company Disclosure
Schedule: (i) the Company and all of its subsidiaries are in compliance in all
material respects with all applicable laws relating to employment and employment
practices, wages, hours, and terms and conditions of employment; (ii) there is
no unfair labor practice charge or complaint pending before the National Labor
Relations Board ("NLRB"); (iii) there is no labor strike, material slowdown or
material work stoppage or lockout actually pending or, to the Company's
knowledge, threatened against or affecting the Company or any of its
subsidiaries, and neither the Company nor any of its subsidiaries has
experienced any strike, material slowdown or material work stoppage or lockout
since January 1, 1995; (iv) there is no representation, claim or petition
pending before the NLRB and no question concerning representation exists
relating to the employees of the Company or any of its subsidiaries; (v) there
are no charges with respect to or relating to the Company or any of its
subsidiaries pending before the Equal Employment Opportunity Commission or any
state, local or foreign agency responsible for the prevention of unlawful
employment practices; (vi) neither the Company nor any of its subsidiaries has
formal notice from any Federal, state, local or foreign agency responsible for
the enforcement of labor or employment laws of an intention to conduct an
investigation of the Company or any of its subsidiaries and no such
investigation is in progress.
Section 3.18 Brokers. Except as set forth in Section 3.18 of the
Company Disclosure Schedule, no broker, finder or investment banker is entitled
to any brokerage, finder's or other
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fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company. The
Company has heretofore furnished to Acquirer true and complete information
concerning the financial arrangements pursuant to which the firms disclosed in
Section 3.18 of the Company Disclosure Schedule would be entitled to any payment
as a result of the transactions contemplated hereunder.
Section 3.19 Environmental Matters
(a) The operations of the Company and its former and present
subsidiaries have complied and are in compliance in all material respects with
all applicable federal, state and local environmental laws, statutes and
regulations.
(b) The operations of the Company and its former and present
subsidiaries have not been and are not now the subject of any past, pending or,
to the knowledge of the Company, threatened claim or judicial or administrative
proceeding alleging the violation of, or any liability under, any federal, state
or local environmental law, statute or regulation.
(c) The operations of the Company and its former and present
subsidiaries have not been and are not now the subject of any past, pending or,
to the knowledge of the Company, threatened federal, state or other
investigation pursuant to which the Company or any subsidiary has been asked for
information or ordered, directed or requested to respond in any way to a release
or threatened release of any hazardous or toxic waste or substance into the
environment.
(d) Neither the Company nor any of its former or present subsidiaries
has filed or been required to file any notice under federal or state law (i)
indicating past or present treatment, storage or disposal requiring a Part B
permit or designation of "interim status" as defined under 40 C.F.R. Parts 260-
270 or any state or local equivalent, of a hazardous or toxic waste or substance
or (ii) reporting a spill or release of a hazardous or toxic waste or substance
into the environment.
(e) Neither the Company nor any of its former or present subsidiaries
has released, or threatened the release of any hazardous or toxic waste or
substance into the environment, except where such release or releases could not,
individually or in the aggregate, give rise to liabilities which could have a
Company Material Adverse Effect.
(f) Except as set forth in Section 3.19 of the Company Disclosure
Schedule, none of the operations of the Company or any former or present
subsidiary involve or have involved the generation, transportation, treatment or
disposal of hazardous waste as defined under any applicable federal, state and
local environmental laws, statutes and regulations.
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(g) No lien in favor of any governmental authority for (i) any
liability under federal, state or local environmental laws, statutes or
regulations, or (ii) damages arising from or costs incurred by such governmental
authority in response to a release or threatened release of a hazardous or toxic
waste or substance into the environment has been filed or attached to any
premises now or previously leased, operated or occupied by the Company or any
former or present subsidiary.
(h) All permits, licenses, certificates, approvals and other
authorizations (hereinafter collectively "permits") necessary for the conduct of
the business of the Company and its subsidiaries under any applicable Federal,
state and local environmental laws, statutes and regulations have been obtained
by the Company and any subsidiary. All such permits are valid and in full force
and effect. Each of the Company and its subsidiaries has complied and is in
compliance in all material respects with all covenants and conditions of any
permits and no circumstances exist which could cause any permit to be revoked,
modified or rendered non-renewable upon the payment of the ordinary permit fee
or, to the Company's knowledge, which could impose upon the Company, any of the
Company's subsidiaries or the Surviving Corporation the obligation to obtain any
additional permits for such activities, absent a change in operations other than
the transactions contemplated by this Agreement.
(i) Except as set forth in Section 3.19 of the Company Disclosure
Schedule, no hazardous or toxic waste or substance has been or is currently
manufactured, refined, treated, discharged, disposed of, deposited or otherwise
released or threatened to be released in, on, about, under or from any premises
leased, operated or occupied by the Company or any of its former or present
subsidiaries except for concentrations or quantities that occur naturally on the
premises or that are present in construction materials, office equipment or
other office furnishings used in the existing improvements on said premises and
normal quantities of those hazardous or toxic wastes or substances customarily
used in the conduct of general administrative and executive office activities
all of which have been handled in compliance with applicable federal, state and
local environmental laws, statutes and regulations.
(j) Except as set forth in Section 3.19 of the Company Disclosure
Schedule, no hazardous or toxic waste or substance has been or is currently
stored, used, generated, transported, handled or otherwise present in on or
about any premises leased, operated or occupied by the Company or any of its
former or present subsidiaries except for concentrations or quantities that
occur naturally on the premises or that are present in construction materials,
office equipment or other office furnishings used in the existing improvements
on said premises and normal quantities of those hazardous or toxic wastes or
substances customarily used in the conduct of general administrative and
executive office activities all of which have been handled in compliance with
applicable federal, state and local environmental laws, statutes and
regulations.
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(k) Except as set forth in Section 3.19 of the Company Disclosure
Schedule, neither the Company nor any former or present subsidiary has exposed
any persons to, or received notice of any claim of injury or damage due to
exposure of any person to, hazardous or toxic wastes or substances stored, used,
or controlled by the Company or any former or present subsidiary.
(l) Except as set forth in Section 3.19 of the Company Disclosure
Schedule, no hazardous or toxic wastes or substances are present on any property
leased, operated or occupied by the Company or any former or present subsidiary
which could give rise to liabilities which individually or in the aggregate
could result in a Company Material Adverse Effect.
(m) No claim, complaint, demand, order, investigation or administrative
proceeding has been brought or is currently pending against the Company or any
former or present subsidiary relating to any alleged liability of the Company or
any former or present subsidiary with respect to the release, threatened release
or presence of hazardous or toxic wastes or substances or as to the
investigation or removal or remediation of hazardous or toxic wastes or
substances.
(n) Except as set forth in Section 3.19 of the Company Disclosure
Schedule, neither the Company nor any former or present subsidiary owns or has
owned any real property.
As used herein "Federal, State and local environmental laws, statutes
or regulations" means any and all applicable laws, including common law, rules,
regulations, orders, permits, treaties, statutes and codes promulgated by any
local, state, federal or international governmental authority or agency which
pertains to health, safety or the environment, including without limitation the
prohibition, regulation or control of any hazardous materials or the
transportation, storage, transfer, recycling, use, treatment, manufacture,
investigation, removal, remediation, release, sale or distribution of hazardous
materials including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601 ET SEQ.), the
Hazardous Material Transportation Act (49 U.S.C. Section 1801 ET SEQ.), the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901 ET SEQ.), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 ET SEQ.), the Clean
Air Act (42 U.S.C. Section 7401 ET SEQ.), the Toxic Substances Control Act, as
amended (15 U.S.C. Section 2601 ET SEQ.), as these laws, statutes or regulations
have been amended or supplemented to date and any analogous state or local
statutes and the regulations promulgated to date pursuant thereto.
As used herein, "Hazardous or toxic waste or substance" means any
substances which are regulated by or form the basis of liability under any
federal, state and local environmental laws, statutes or regulations because
they are radioactive, toxic, hazardous or harmful or because they contain
radioactive, toxic or hazardous substances, including, without limitation: (a)
friable asbestos, (b) oil and petroleum products, (c) explosives, (d)
radioactive substances, pollutants or wastes, (e) urea formaldehyde-containing
building materials, (f) polychlorinated biphenyls, (g) radon gas, and (h)
ultrahazardous or toxic substances, pollutants, contaminants or wastes.
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(o) The Company and its subsidiaries have made available to Acquiror
copies of any and all applications, correspondence, affidavits, reports, forms,
maps, plans or studies, including drafts thereof, whether or not provided to or
received from any governmental or approving agencies and their representatives
relating to environmental, health (occupational or otherwise) and safety
matters. These documents, reports and studies shall include, but not be limited
to, any environmental engineering studies, any cleanup plans, any tests or
testing performed on any premises leased, operated or occupied by the Company
and any of its former or present subsidiaries, including, but not limited to
radon tests, underground or aboveground storage tank fitness testing, asbestos
surveys, Phase I and Phase II environmental property assessments, and copies of
reports issued by any governmental agency regarding the said premises or any
property which may have been affected by the operations of the Company and its
former or present subsidiaries.
(p) There are no underground or aboveground storage tanks (whether or
not currently in use) on or under any premises leased, operated, occupied or
owned at any time by the Company and any of its former or present subsidiaries
and no underground storage tank previously located on said premises has been
removed therefrom.
(q) None of any premises leased, operated, occupied or owned at any
time by the Company and any of its former or present subsidiaries is or has ever
been listed in the United States Environmental Protection Agency's National
Priorities List or in any other list, schedule, log, inventory or record,
however defined, maintained by any governmental agency with respect to sites
where hazardous or toxic wastes or substances have or may have been disposed of
or where there is, has been or may be a release or threat of a release of any
hazardous or toxic wastes or substances.
Section 3.20 Insurance. Section 3.20 of the Company Disclosure
Schedule sets forth a true and complete list of all insurance policies in force
at the date hereof, with respect to the assets, properties or operations of each
of the Company and its subsidiaries, together with a summary description of the
premiums currently paid thereon, the hazards insured against and the dollar
amount of coverage (indicating deductibles, if any). True and complete copies of
all such insurance policies have been made available to Acquiror by the Company.
Such policies will not be terminated as a result of the Merger and will be
effective as policies of the Surviving Corporation, subject to payment of
applicable premiums. Such policies also are in full force and effect with
reputable insurers in such amounts and insure against such losses and risks
(including product liability) as are adequate to protect the properties and
businesses of each of the Company and its subsidiaries. All such insurance is of
like character and amount as is carried by like businesses similarly situated.
Section 3.21 State Takeover Statutes. The Board of Directors of the
Company has approved the Merger and this Agreement (and the transactions
contemplated hereby), and such
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approval is sufficient to render inapplicable to the Merger, this Agreement and
the transactions contemplated hereby Section 912 of the NYBCL. No other
"business combination," "fair price," "moratorium," "control share acquisition,"
or other anti-takeover statute or similar statute or regulations, applies or
purports to apply to the Merger, this Agreement or any of the transactions
contemplated hereby.
Section 3.22 Contracts and Commitments.
(a) Except as disclosed in Section 3.22 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party or subject
to:
(i) any plan, contract or arrangement which requires
aggregate payments by the Company or any of its subsidiaries, written
or oral, providing for bonuses, pensions, deferred compensation,
severance pay or benefits, retirement payments, profit-sharing, or the
like;
(ii) any joint marketing, joint development or joint venture
contract or arrangement or any other agreement which has involved or is
expected to involve a sharing of profits with other Persons;
(iii) any lease for real or personal property;
(iv) any agreement, contract, mortgage, indenture, lease,
instrument, license, franchise, permit, concession, arrangement,
commitment or authorization which may be, by its terms, terminated or
breached by reason of the execution of this Agreement, the Merger, or
the consummation of the transactions contemplated hereby or thereby;
(v) except for trade indebtedness incurred in the ordinary course
of business, any instrument evidencing or related in any way to
indebtedness incurred in the acquisition of companies or other entities
or indebtedness in for borrowed money by way of direct loan, sale of
debt securities, purchase money obligation, conditional sale,
guarantee, indemnification or otherwise;
(vi) any contract containing covenants purporting to limit the
Company's freedom or that of any of its subsidiaries to solicit
customers or employees or to compete in any line of business or in any
geographic area or with any third party;
(vii) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $50,000;
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(viii) any contracts with customers, referral sources, or third
party payors, and any other contracts with independent suppliers,
contractors or manufacturers which require an annual payment of
$50,000 or more;
(ix) any sales agency, licensing, representative, provider,
managed care or distributorship contracts; or
(x) any agreement providing for the Company's indemnification of
any third party;
(xi) any other agreement, contract or commitment which is
material to the Company and its subsidiaries taken as a whole.
(b) Except as disclosed in Section 3.22 of the Company Disclosure
Schedule, each agreement, contract, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, arrangement, license and commitment
listed in Section 3.22 of the Company Disclosure Schedule is valid and binding
on the Company or its subsidiaries, as applicable and assuming due and valid
authorization, execution and delivery by all other parties, and is in full force
and effect, and neither the Company nor any of its subsidiaries, nor to the
knowledge of the Company, any other party thereto, has breached any material
provision of, or is in material default under the terms of, any such agreement,
contract, mortgage, indenture, plan, lease, instrument, permit, concession,
franchise, arrangement, license or commitment.
(c) There is no agreement, judgment, injunction, order or decree
binding upon the Company or any of its subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any material current business practice of the Company or its subsidiaries, any
acquisition of material property by the Company or its subsidiaries or the
conduct of business by the Company or its subsidiaries as currently conducted or
as proposed to be conducted by the Company or its subsidiaries.
(d) Each agreement or arrangement under which the Company or any of its
subsidiaries will incur legal, accounting or financial advisor expenses as a
result of the transactions contemplated by this Agreement, and the maximum
liability of the Company or any such subsidiary under each such agreement or
arrangement, is described in Section 3.22 of the Company Disclosure Schedule.
Section 3.23 Interests of Officers and Directors. Except as disclosed
in Section 3.23 of the Company Disclosure Schedule, to the Company's knowledge,
no officer or director of the Company has had, either directly or indirectly, a
material interest in: (i) any Person which purchases from or sells, licenses or
furnishes to the Company or any of its subsidiaries any goods, property rights
or services; (ii) any contract or agreement to which the Company or any of its
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subsidiaries is a party or by which it may be bound or affected; or (iii) any
property, real or personal, tangible or intangible, used in or pertaining to its
business or that of its subsidiaries.
Section 3.24 Questionable Payments. Neither the Company nor any of its
subsidiaries nor to its knowledge any director, officer, agent or other employee
of the Company or any of its subsidiaries has: (i) made any payments or provided
services or other favors in the United States of America or in any foreign
country in order to obtain preferential treatment or consideration by any
Governmental Entity with respect to any aspect of the business of the Company or
any of its subsidiaries; or (ii) made any political contributions which would
not be lawful under the laws of the United States or the foreign country in
which such payments were made. Neither the Company nor any of its subsidiaries
nor to its knowledge any director, officer, agent or other employee of the
Company or any of its subsidiaries has been the subject of any inquiry or
investigation by any Governmental Entity in connection with payments or benefits
or other favors to or for the benefit of any governmental or armed services
official, agent, representative or employee with respect to any aspect of the
business of the Company or its subsidiaries or with respect to any political
contribution.
Section 3.25 Opinion of Financial Advisor. Dillon, Read & Co. Inc. has
rendered to the Board of Directors of the Company a written opinion dated as of
September 23, 1997, a copy of which has been provided to Acquiror, to the effect
that the consideration to be received by the shareholders of the Company
pursuant to the Merger is fair to such shareholders from a financial point of
view. Such opinion was delivered orally to the Company's Board of Directors not
later than the time that consummation of the transactions contemplated hereby
was authorized, approved and adopted by the Company's Board of Directors, and
was delivered in writing to the Company's Board of Directors prior to the
execution of this Agreement.
Section 3.26 Information Supplied. None of the information supplied or
to be supplied by the Company for inclusion or incorporation by reference in (i)
the registration statement on Form S-4 to be filed by Acquiror with the SEC in
connection with the issuance of shares of Acquiror Common Stock in the Merger
(the "S-4") will, at the time the S-4 is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the Company
Proxy Statement (as hereinafter defined) will, at the date of mailing to
shareholders and at the time of the shareholders' meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. All
documents that the Company is responsible for filing with any Governmental
Entity in connection with the transactions contemplated hereby will comply as to
form in all material respects with the provisions of applicable law, including
applicable provisions of the Securities Act, the Exchange Act and the rules and
regulations thereunder. Notwithstanding the foregoing, the Company makes no
representation, warranty or covenant with respect to any information supplied by
Acquiror or
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Acquisition Subsidiary which is contained in any of the foregoing documents.
Without limiting any of the representations and warranties contained herein, no
representation or warranty to the Acquiror by the Company and no information
contained in the Company Disclosure Schedule or any document incorporated
therein by reference contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained
therein, in light of the circumstances in which such statements are or will be
made, not misleading.
Section 3.27 Vote Required. The only votes of the holders of any
capital stock of the Company necessary to approve the Merger are the affirmative
votes of the holders of two-thirds of the outstanding shares of Company Common
Stock and Company Preferred Stock voting together as a class.
Section 3.28 Third-Party Payment Contracts. Section 3.28 of the
Company Disclosure Schedule sets forth a true and correct list of each agreement
between the Company and any third party payor to whom the Company or its
subsidiaries provides services or from which it receives payment. To the
knowledge of the Company, no action is pending to suspend, limit, terminate or
revoke the status of Company or any subsidiary as a participating provider to
any such payor, and neither Company nor any subsidiary of the Company has been
provided notice by any such third party payor of its intention to suspend,
limit, terminate, revoke, or fail to renew any contractual arrangement with
Company or any subsidiary of the Company as a participating provider of services
in whole or in material part. Except as set forth on Section 3.28 of Company
Disclosure Schedule, Company has not conducted and is not conducting any
business with any Person who for purposes of any third party payor to which
Company is a participating provider may be deemed to be a related person of
Company.
Section 3.29 Third-Party Payment Filings. Company and each subsidiary
of Company has filed on a timely basis all claims, cost reports or annual
filings required to be filed to secure payment under the Medicare and Medicaid
Programs. Company is not aware of any pattern of the nature and type of claims
made which would call into question the medical necessity of any services which
are the basis of such claims, and all services provided by Company or its
subsidiaries have been provided pursuant to valid physician orders. Except as
set forth on Section 3.29 of the Company Disclosure Schedule, the Company or its
subsidiaries has filed all Medicare cost reports through December 31, 1996 and
has received settlements for all amounts billed Medicare. The liability for
amounts due to Medicare reflected on the balance sheet included in the
consolidated financial statements (including the related notes thereto) of the
Company included in the Company SEC Documents is adequate to cover all amounts
due to Medicare.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
ACQUIROR AND ACQUISITION SUBSIDIARY
Acquiror and Acquisition Subsidiary represent and warrant to the
Company as follows:
Section 4.1 Organization.
(a) Each of the Acquiror and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite power and authority and
any necessary governmental authority to own, operate and lease its properties
and to carry on its business as it is now being conducted, and, except as set
forth in Section 4.1 of the Acquiror Disclosure Schedule (as defined below), is
duly qualified as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of its owned, operated or leased
properties or the nature of its activities makes such qualification necessary,
other than where the failure to be so duly qualified and in good standing could
not reasonably be expected to have a Acquiror Material Adverse Effect (as
defined below in Section 4.1(b)). A true and complete list of all the Acquiror's
subsidiaries, together with the jurisdiction of incorporation of each
subsidiary, the percentage of each subsidiary's outstanding capital stock owned
by the Acquiror or another subsidiary and an indication of whether each such
subsidiary of the Acquiror is a subsidiary of the Acquiror that would constitute
a "Significant Subsidiary" of the Acquiror within the meaning of Rule 1-02 of
Regulation S-X of the SEC, is set forth in Section 4.1 of the Acquiror
Disclosure Schedule delivered to Company on or before the date hereof (the
"Acquiror Disclosure Schedule").
(b) The term "Acquiror Material Adverse Effect," as used in this
Agreement, means any change or effect (including, but not limited to, any action
taken, or law enacted, enforced, interpreted, or deemed applicable to the
Acquiror or any of its subsidiaries, by any Governmental Entity) that,
individually or when taken together with all other changes or effects, would be
materially adverse to the condition (financial or otherwise), results of
operations, business, properties (including intangible properties), prospects,
assets or liabilities of the Acquiror and its subsidiaries taken as a whole.
Section 4.2 Capitalization.
(a) Capitalization. The authorized capital stock of the Acquiror
consists of 20,000,000 shares of common stock, no par value, and 10,000,000
shares of preferred stock, no par value. As of June 30, 1997, (i) 9,217,981
shares of Acquiror Common Stock were issued and outstanding, and (ii) no shares
of preferred stock were issued and outstanding. Acquirer has delivered to the
Company complete and correct copies of its 1995 Employee and Consultant Equity
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Plan ("Stock Option Plan"). All of the outstanding shares of Acquiror Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable and have not been issued in violation of (nor are any of the
authorized shares of capital stock of, or other equity interests in the Acquiror
or any of its wholly-owned subsidiaries subject to) any preemptive or similar
rights created by statute, the Certificate of Incorporation or Bylaws (or the
equivalent organizational documents) of the Acquiror or of its subsidiaries, or
any agreement to which the Acquiror or any of its subsidiaries is bound, and,
except as set forth in Section 4.2 of the Acquiror Disclosure Schedule, all such
issued shares or the equity interests owned by the Acquiror or a subsidiary of
the Acquiror are owned free and clear of all security interests, liens, claims,
pledges, agreements, limitations on the Acquiror's or such subsidiaries' voting
rights, charges or other encumbrances. Except as set forth in Section 4.2 of the
Acquiror Disclosure Schedule, there are no options, warrants or other rights,
convertible debt, agreements, arrangements or commitments of any character
obligating the Acquiror or any of its subsidiaries to issue or sell any shares
of capital stock of or other equity interests in the Acquiror or any of its
subsidiaries. Except as set forth in Section 4.2 of the Acquiror Disclosure
Schedule, the Acquiror is not obligated to redeem, repurchase or otherwise
reacquire any of its capital stock or other securities. Except as set forth in
Section 4.2 of the Acquiror Disclosure Schedule, no bonds, indentures, notes or
other indebtedness of the Acquiror having the right to vote (or convertible into
or exercisable for securities having the right to vote) on any matters on which
shareholders may vote is issued or outstanding.
(b) Except as set forth in Section 4.2 of the Acquiror Disclosure
Schedule, all of the outstanding shares of the capital stock of each subsidiary
of the Acquiror are beneficially owned by the Acquiror, directly or indirectly,
and all such shares have been duly authorized, validly issued and are fully paid
and nonassessable. There are no existing options, calls or commitments of any
character relating to the issued or unissued capital stock or other securities
of any subsidiary. Except as set forth in Section 4.2 of the Acquiror Disclosure
Schedule, neither the Acquiror nor any of its subsidiaries owns, directly or
indirectly, or have a right to acquire an equity interest in any corporation,
limited liability company, partnership, joint venture or other business
association or entity.
(c) Except as set forth in Section 4.2 of the Acquiror Disclosure
Schedule, there are no obligations, contingent or otherwise, of the Acquiror, or
any of its subsidiaries (other than advances to subsidiaries in the ordinary
course of business) to provide funds to, or make any investment in (in the form
of a loan, capital contribution or otherwise), or provide any guarantee with
respect to the obligations of, any subsidiary of the Acquiror or any other
Person. Except (i) as set forth in Section 4.2 of the Acquiror Disclosure
Schedule, neither the Acquiror nor any of its subsidiaries (x) directly or
indirectly owns, (y) has agreed to purchase or otherwise acquire or (z) holds
any interest convertible into or exchangeable or exercisable for the capital
stock or other equity interest of any corporation, limited liability company,
partnership, joint venture or other business association or entity. Except (q)
as set forth in Section 4.2 of the Acquiror Disclosure
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Schedule, (r) for any agreements, arrangements or commitments between the
Acquiror and its subsidiaries or between such subsidiaries, there are no
agreements, arrangements or commitments of any character (contingent or
otherwise) pursuant to which any Person is or may be entitled to receive any
payment based on the revenues or earnings, or calculated in accordance
therewith, of the Acquiror or any of its subsidiaries. There are no voting
trusts, proxies or other agreements or understandings to which the Acquiror or
any of its subsidiaries is a party or by which the Acquiror or any of its
subsidiaries is bound with respect to the voting of any shares of capital stock
or other equity interests of the Acquiror or any of its subsidiaries.
Section 4.3 Authorization; Validity of Agreement; Necessary Action.
Each of the Acquiror and Acquisition Subsidiary has all requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby (subject to the approval and adoption of this
Agreement by the shareholders of the Acquiror as set forth in Section 5.5(b)).
The execution, delivery and performance by each of the Acquiror and Acquisition
Subsidiary of this Agreement, and the consummation of the Merger and of the
other transactions contemplated hereby, have been duly authorized by the Board
of Directors of Acquiror and Acquisition Subsidiary and no other corporate
action on the part of Acquiror and Acquisition Subsidiary is necessary to
authorize the execution and delivery by Acquiror and Acquisition Subsidiary of
this Agreement and the consummation of the transactions contemplated hereby
(subject to the approval and adoption of this Agreement by the shareholders of
the Acquiror as set forth in Section 5.5(b)). This Agreement has been duly
executed and delivered by Acquiror and Acquisition Subsidiary and, assuming due
and valid authorization, execution and delivery hereof by the Acquiror and
Acquisition Subsidiary, is a valid and binding obligation of Acquiror and
Acquisition Subsidiary, enforceable against Acquiror and Acquisition Subsidiary
in accordance with its terms.
Section 4.4 Consents and Approvals; No Violations. Except for the
filings or the consents, authorizations or approvals under the agreements set
forth in Section 4.4 of the Acquiror Disclosure Schedule and the filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the HSR Act, state
securities or blue sky laws, the Public Health Law and, federal and other state
laws and regulations governing the acquisition or operation of a home health
care provider and the filing and recordation of a certificate of merger under
the NYBCL or the DGCL, neither the execution, delivery or performance of this
Agreement by the Acquiror and Acquisition Subsidiary nor the consummation by the
Acquiror and Acquisition Subsidiary of the transactions contemplated hereby nor
compliance by the Acquiror and Acquisition Subsidiary with any of the provisions
hereof will (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or the bylaws of the Acquiror and Acquisition
Subsidiary or of any of Acquiror's subsidiaries, (ii) require any filing with,
or permit, authorization, consent or approval of a Governmental Entity, on the
part of the Acquiror or any subsidiary, (iii) require the consent of any Person
under, result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a
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default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which the Acquiror or any of its subsidiaries is a
party or by which any of them or any of their properties or assets may be bound,
the lack of which consent, or which violation, breach or default, individually
or in the aggregate, could reasonably be expected to have an Acquiror Material
Adverse Effect, or (iv) conflict with or violate any federal, state, foreign or
local law, statute, ordinance, rule, regulation, order, writ, injunction or
decree applicable to the Acquiror, any of its subsidiaries or any of their
properties or assets.
Section 4.5 SEC Reports and Financial Statements.
(a) The Acquiror has timely filed (i) with the SEC, and has
delivered or made available to Company, true and complete copies of, all forms,
reports, schedules, statements and other documents required to be filed by it
since November 8, 1995 under the Securities Act or the Exchange Act, including,
without limitation (i) all Annual Reports on Form 10-K, (ii) all Quarterly
Reports on Form 10-Q, (iii) all proxy statements relating to meetings of
shareholders (whether annual or special), (iv) all Current Reports on Form 8-K,
and (v) all other reports, schedules, registration statements or other documents
(collectively, the "Acquiror SEC Documents"); and (ii) all forms, reports,
statements and other documents required to be filed with any other Governmental
Entities, including, without limitation, health regulatory authorities (all such
forms, reports, statements and other documents in clauses (i) and (ii) of this
Section 4.5(a) being referred to herein collectively as the "Acquiror Reports").
Except as set forth in Section 4.5 of the Acquiror Disclosure Schedule, (i) the
Acquiror Reports were prepared in accordance with the requirements of applicable
law (including, with respect to the Acquiror SEC Documents, the Securities Act
or the Exchange Act, as the case may be, including without limitation the
applicable accounting requirements thereunder and the published rules and
regulations of the SEC with respect thereto), (ii) the Acquiror SEC Documents
when filed, did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. None of the Acquiror's subsidiaries is required to
file any statements or reports with the SEC pursuant to Sections 13(a) or 15(d)
of the Exchange Act.
(b) Except as set forth in Section 4.5 of the Acquiror Disclosure
Schedule, the consolidated financial statements (including the related notes
thereto) of the Acquiror included in the Acquiror SEC Documents, have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position and the consolidated results of operations and
cash flows (and changes in financial position, if any) of the Acquiror and its
consolidated subsidiaries as of the respective dates and for the respective
periods thereof, except that the unaudited interim quarterly financial
statements were
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or are subject to normal and recurring year-end adjustments which were or are
not expected to be material in amount. Except as set forth in Section 4.5 of the
Acquiror Disclosure Schedule, the Acquiror is not aware of any facts or
circumstances which would require the Acquiror to amend or restate any of the
Acquiror SEC Documents, including without limitation the financial information
included therein.
Section 4.6 Absence of Certain Changes. Since January 1, 1997, except
as contemplated in this Agreement and set forth in Section 4.6 of the Acquiror
Disclosure Schedule, there has not been:
(a) any Acquiror Material Adverse Effect;
(b) any damage, destruction or loss with respect to any of the
assets of the Acquiror or any of its subsidiaries that, if not covered by
insurance, would constitute a Acquiror Material Adverse Effect;
(c) any redemption or other acquisition of capital stock by the
Acquiror or any of its subsidiaries or any declaration or payment of any
dividend or other distribution in cash, stock or property with respect to
capital stock;
(d) any stock split, reverse stock split, combination,
reclassification or other similar action with respect to capital stock;
(e) any entry into any material agreement, commitment or
transaction (including, without limitation, any borrowing or capital
expenditure) other than in the ordinary course of business or as contemplated by
this Agreement;
(f) any transfer of, or rights granted under, any licenses,
agreements, patents, trademarks, trade names or copyrights;
(g) any mortgage, pledge, security interest or imposition of lien or
other encumbrance on any material asset of the Acquiror or any of its
subsidiaries; or
(h) any change by the Acquiror in accounting principles or methods
except insofar as may have been required by a change in generally accepted
accounting principles and disclosed in the Acquiror SEC Documents.
Except as set forth in Section 4.6 of the Acquiror Disclosure Schedule,
since January 1, 1997 the Acquiror and its subsidiaries have conducted their
business only in the ordinary course and in a manner consistent with past
practice and have not made any material change in the conduct of the business or
operations of the Acquiror and its subsidiaries taken as a whole.
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Section 4.7 No Undisclosed Liabilities. Except as set forth in Section
4.7 of the Acquiror Disclosure Schedule, and except as reflected or reserved
against in the consolidated financial statements contained in the Acquiror SEC
Documents, the Acquiror and its subsidiaries have no liabilities of any nature
(whether accrued, absolute, contingent or otherwise), except those liabilities
incurred in the ordinary course of business which could not, individually or in
the aggregate, reasonably be expected to have an Acquiror Material Adverse
Effect.
Section 4.8 Litigation. Except as disclosed in the Acquiror SEC
Documents or in Section 4.8 of the Acquiror Disclosure Schedule, there is no
suit, claim, action, suit, arbitration, proceeding or investigation pending
before any Governmental Entity or, to the knowledge of the Acquiror, threatened
against the Acquiror or any of its subsidiaries. Except as disclosed in the
Acquiror SEC Documents or in Section 4.8 of the Acquiror Disclosure Schedule,
neither the Acquiror nor any of its subsidiaries is subject to any outstanding
order, writ, injunction, decree, settlement agreement or other similar written
agreement with, or, to the knowledge of the Acquiror, continuing investigation
by, any Governmental Entity, or any judgment, order, writ, injunction, decree or
award of any Government Entity or arbitrator, including, without limitation,
cease-and-desist or other orders.
Section 4.9 No Default; Compliance with Applicable Laws. Except as
disclosed in Section 4.9 of the Acquiror Disclosure Schedule, the business of
the Acquiror and each of its subsidiaries is not being conducted in default or
violation of any term, condition or provision of (i) its respective Certificate
of Incorporation or bylaws, (ii) any agreement to which the Acquiror or its
subsidiaries is a party or (iii) any federal, state, local or foreign statute,
law, ordinance, rule, regulation, judgment, decree, order, concession, grant,
franchise, permit or license or other governmental authorization or approval
applicable to the Acquiror or any of its subsidiaries, excluding from the
foregoing clauses (ii) and (iii), defaults or violations which could not,
individually or in the aggregate, reasonably be expected to have a Acquiror
Material Adverse Effect. Section 4.9 of the Acquiror Disclosure Schedule sets
forth a true, complete and accurate description of all reports delivered to
Acquiror or its counsel or agents with respect to Acquiror or any of Acquiror's
subsidiaries made by federal, state and local governmental agencies or
authorities for the past five years, together with a description of all
recommendations of actions taken by, submission of information to, fines and
penalties imposed by, all such governmental agencies and authorities. Except as
disclosed in Section 4.9 of the Acquiror Disclosure Schedule, as of the date of
this Agreement, no investigation or review by any Governmental Entity or other
entity with respect to the Acquiror or any of its subsidiaries is pending or, to
the knowledge of the Acquiror, threatened, nor has any Governmental Entity or
other entity indicated an intention to conduct the same. Each of the Acquiror
and its subsidiaries has in effect all Federal, state, local and foreign
governmental approvals, authorizations, certificates, filings, franchises,
licenses, notices, permits and rights ("Acquiror Permits") necessary for it to
own, lease or operate its properties and assets and to carry on its business as
now conducted, and there has occurred no default under any such Acquiror Permit,
except for the absence of Acquiror Permits and for
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defaults under Acquiror Permits which absence or defaults, individually or in
the aggregate, could not reasonably be expected to have a Acquiror Material
Adverse Effect.
Section 4.10 Taxes.
(a) Except as set forth in Section 4.10 of the Acquiror Disclosure
Schedule, and except as could not, either individually or in the aggregate,
reasonably be expected to have an Acquiror Material Adverse Effect, (i) all
Returns required to be filed by or on behalf of the Acquiror and each of its
subsidiaries have been duly filed on a timely basis and such Returns are true,
complete and correct, (ii) all Taxes shown to be payable on such Returns or on
subsequent assessments with respect thereto, and all payments of estimated Taxes
required to be made by or on behalf of the Acquiror and each of its subsidiaries
under Section 6655 of the Code or comparable provisions of state, local or
foreign law, have been paid in full on a timely basis or have been accrued on
the Financial Statements, and no other Taxes are payable by the Acquiror or any
of its subsidiaries with respect to items or periods covered by such Returns
(whether or not shown on or reportable on such Returns) or with respect to any
period prior to the date of this Agreement, (iii) the Acquiror and each of its
subsidiaries has withheld and paid over all Taxes required to have been withheld
and paid over, and complied with all information reporting and backup
withholding requirements, including maintenance of required records with respect
thereto, in connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party, (iv) there are no liens on any of
the assets of the Acquiror or any of its subsidiaries with respect to Taxes,
other than liens for Taxes not yet due and payable or for Taxes that the
Acquiror or such subsidiary is contesting in good faith through appropriate
proceedings and for which appropriate reserves have been established, (v) the
amount of the Acquiror's and its subsidiaries' liability for unpaid Taxes
(whether actual or contingent) for all periods through the date of the Financial
Statements does not, in the aggregate, exceed the amount of the current
liability accruals for Taxes reflected on the Financial Statements, and the
Financial Statements properly accrue in accordance with GAAP all liabilities for
Taxes payable after the date of the Financial Statements attributable to
transactions and events occurring prior to such date, and (vi) no liability for
Taxes of the Acquiror or any of its subsidiaries has been incurred (or prior to
Closing will be incurred) since such date other than in the ordinary course of
business.
(b) Except as set forth in Section 4.10(b) of the Acquiror
Disclosure Schedule, the Acquiror has made available to Company true and
complete copies of (i) relevant portions of income tax audit reports, statements
of deficiencies, closing or other agreements received by or on behalf of the
Acquiror or any of its subsidiaries relating to Taxes, and (ii) all federal and
state income or franchise tax returns and state sales and use tax Returns for or
including the Acquiror or any of its subsidiaries for the periods ended on and
after December 31, 1994, 1995 and 1996, excluding from the foregoing such
returns with respect to Taxes the nonpayment of which, individually or in the
aggregate, could not reasonably be expected to cause an Acquiror Material
Adverse Effect. Neither the Acquiror nor any of its subsidiaries does business
in or derives income
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from any state other than states for which Returns have been duly filed and made
available to Company.
(c) Except as disclosed in Section 4.10(c) of the Acquiror
Disclosure Schedule, (i) the Returns of or including the Acquiror and its
subsidiaries have never been audited by a government or taxing authority, nor is
any such audit in process, threatened or, to the Acquiror's knowledge, pending
(either in writing or verbally, formally or informally), (ii) no deficiencies
exist or have been asserted (either in writing or verbally, formally or
informally) or are expected to be asserted, with respect to Taxes of the
Acquiror or any of its subsidiaries, and neither the Acquiror nor any such
subsidiary has received notice (either in writing or verbally, formally or
informally) nor expects to receive notice that it has not filed a Return or paid
Taxes required to be filed or paid, (iii) neither the Acquiror nor any of its
subsidiaries is a party to any action or proceeding for assessment or collection
of Taxes, nor has such event been asserted or threatened (either in writing or
verbally, formally or informally) against the Acquiror, any of its subsidiaries,
or any of their assets, and (iv) no waiver or extension of any statute of
limitations is in effect with respect to Taxes or Returns of the Acquiror or its
subsidiaries, excluding from the foregoing any such audit, threat of audit,
deficiency, proposed deficiency, action, proceeding for assessment or
collection, waiver or extension with respect to which the amount in controversy
is less than $50,000.
(d) Neither the Acquiror nor any subsidiary has entered into any
compensatory agreements with respect to the performance of services which
payment thereunder would result in a nondeductible expense to the Acquiror or
such subsidiary pursuant to Section 280G of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of the Code.
(e) Neither Acquiror nor any of its subsidiaries has made an
election under Section 341(f) of the Code.
Section 4.11 Tax Matters; Pooling.
(a) Neither Acquiror nor, to the knowledge of Acquiror, any of its
affiliates has taken or agreed to take any action that would prevent the Merger
from (a) constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code or (b) being treated for financial accounting
purposes as a Pooling Transaction. Acquiror does not own, nor has it owned
during the past five years, any shares of Company Common Stock. There is no
intercorporate indebtedness existing between the Acquiror and the Company or
between Acquisition Subsidiary and the Company that was issued, acquired or will
be settled at a discount.
(b) Acquiror has no plan or intention following the Merger to: (i)
reacquire any of its stock issued in the transaction; (ii) liquidate the
Company; (iii) merge the Company with or into another corporation; (iv) sell or
otherwise dispose of stock of the Company; or (v) cause the
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Company to sell or otherwise dispose of any of its assets other than in the
ordinary course of business.
(c) Acquisition Subsidiary will have no liabilities that will be
assumed by the Company, and will not transfer to the Company any assets subject
to liabilities.
(d) Following the Merger, the Company will continue its historic
business or use a significant part of its historic business assets in a
business.
(e) Neither Acquiror nor Acquisition Subsidiary is an investment
company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
Section 4.12 Affiliates. Section 4.12 of the Acquiror Disclosure
Schedule identifies all Persons who, to the knowledge of the Acquiror, may be
deemed to be affiliates of the Acquiror under Rule 145 of the Securities Act,
including, without limitation, all directors and executive officers of the
Acquiror.
Section 4.13 Certificate of Incorporation and Bylaws. The Acquiror has
heretofore furnished to Company a complete and correct copy of the certificate
of incorporation and the bylaws or equivalent organizational documents, each as
amended to the date hereof, of the Acquiror and made available to Acquisition
Subsidiary such documents with respect to all subsidiaries. Such certificate of
incorporation, bylaws and equivalent organizational documents are in full force
and effect. Neither the Acquiror nor any of its subsidiaries is in violation of
any of the provisions of its certificate of incorporation or bylaws or
equivalent organizational documents.
Section 4.14 Brokers. Except as set forth in Section 4.14 of the
Acquiror Disclosure Schedule, no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by and
on behalf of the Acquiror. The Acquiror has heretofore furnished to Company true
and complete information concerning the financial arrangements pursuant to which
the firms disclosed in Section 4.14 of the Acquiror Disclosure Schedule would be
entitled to any payment as a result of the transactions contemplated hereunder.
Section 4.15 Opinion of Financial Advisor. Hambrecht & Quist has
rendered to the Board of Directors of the Acquiror a written opinion dated as of
September 26, 1997, a copy of which has been provided to Acquiror, to the effect
that the consideration to be paid by the Acquiror pursuant to the Merger is fair
to the shareholders of Acquiror from a financial point of view. Such opinion was
delivered orally to the Acquiror's Board of Directors not later than the time
that consummation of the transactions contemplated hereby was authorized,
approved and adopted by
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the Acquiror's Board of Directors, and was delivered in writing to the
Acquiror's Board of Directors prior to the execution of this Agreement.
Section 4.16 Information Supplied. None of the information supplied or
to be supplied by the Acquiror for inclusion or incorporation by reference in
(i) the registration statement on Form S-4 to be filed by Acquiror with the SEC
in connection with the issuance of shares of Acquiror Common Stock in the Merger
(the "S-4") will, at the time the S-4 is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the
Acquiror Proxy Statement (as hereinafter defined) will, at the date of mailing
to shareholders and at the time of the shareholders' meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
misleading. All documents that the Acquiror is responsible for filing with any
Governmental Entity in connection with the transactions contemplated hereby will
comply as to form in all material respects with the provisions of applicable
law, including applicable provisions of the Securities Act, the Exchange Act and
the rules and regulations thereunder. Without limiting any of the
representations and warranties contained herein, no representation or warranty
to the Company by the Acquiror and no information contained in the Acquiror
Disclosure Schedule or any document incorporated therein by reference contains
any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained therein, in light of the
circumstances in which such statements are or will be made, not misleading.
Section 4.17. Employee Benefit Plans. Acquiror has disclosed in Section
4.17 of the Acquiror Disclosure Schedule a list of all employee welfare benefit
plans (as defined in Section 3(1) of ERISA), employee pension benefit plans (as
defined in Section 3(2) of ERISA) and all other bonus, stock option, stock
purchase, benefit, profit sharing, savings, retirement, disability, insurance,
incentive, deferred compensation and other similar fringe or employee benefit
plans, programs or arrangements for the benefit of, or relating to, any employee
of, or independent contractor or consultant to, Acquiror or any of its
subsidiaries (together, the "Employee Plans"). Acquiror has made available to
Company true and complete copies of all Employee Plans, as in effect, together
with all amendments thereto which will become effective at a later date, as well
as the latest Internal Revenue Service determination letters obtained with
respect to any Employee Plan qualified under Section 401(a) or 501(a) of the
Code. Also with respect to each Employee Plan, true and complete copies of the
(i) three most recent annual actuarial valuation reports, if any, (ii) three
last filed Forms 5500 together with Schedule A or B thereto or both, (iii)
summary plan descriptions (as defined in ERISA), if any, and all modifications
thereto communicated to employees, and (iv) three most recent annual or periodic
accounting of related plan assets, if any, have been, or will be, made available
to Acquisition Subsidiary and are, or will be, correct in all material respects.
All of the foregoing are legal, valid, binding, in full force and effect and
there are no material defaults thereunder, and no rights of Acquiror or any of
Acquiror's subsidiaries with respect to any Employee Plan intended to qualify
under Section 401(a) of the Code will be
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impaired by the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby. Neither Acquiror nor any
of its subsidiaries nor any of their respective directors, officers, employees
or agents, nor, to the knowledge of Acquiror and its subsidiaries, any "party in
interest" or "disqualified person", as such terms are defined in Section 3 of
ERISA and Section 4975 of the Code has, with respect to any Employee Plan,
engaged in or been a party to any "prohibited transaction", as such term is
defined in Section 4975 of the Code or Section 406 of ERISA, which could result
in the imposition of either a material penalty assessed pursuant to Section
502(i) of ERISA or a material tax imposed by Section 4975 of the Code, in each
case applicable to Acquiror, any of its subsidiaries or any Employee Plan. All
Employee Plans are in compliance in all material respects with the currently
applicable requirements prescribed by all statutes, orders, or governmental
rules or regulations currently in effect with respect to such Employee Plans,
including, but not limited to, ERISA and the Code and, to the knowledge of
Acquiror, there are no pending or threatened claims, lawsuits or arbitrations
(other than routine claims for benefits) which have been asserted or instituted
against Acquiror, any of its subsidiaries, any Employee Plan or the assets of
any trust for any Employee Plan. Each Employee Plan which is a group health plan
(within the meaning of Section 5000(b)(i) of the Code) complies in all material
respects with and has been maintained and operated in material compliance with
each of the requirements of Section 162(k) of the Code as in effect for years
beginning prior to 1989, Section 4980B of the Code for years beginning after
December 31, 1988 and Part 6 of Subtitle B of Title I of ERISA. Each Employee
Plan intended to qualify under Section 401(a) of the Code does so qualify as to
form, and the trusts created thereunder are exempt from tax under the provisions
of Section 501(a) of the Code. All contributions or payments required to be made
or accrued before the Effective Time under the terms of any Employee Plan will
have been made or accrued by Acquiror or by its subsidiaries, as applicable, by
the Effective Time. No Employee Plan subject to Section 412 of the Code has
incurred any "accumulated funding deficiency" (as defined in ERISA), whether or
not waived. Neither Acquiror nor any of its subsidiaries has incurred or
reasonably expects to incur any liability to the Pension Benefit Guaranty
Corporation with respect to any Employee Plan. Neither Acquiror nor any of its
subsidiaries has incurred or reasonably expects to incur any withdrawal
liability with respect to any "multiemployer plan" (as defined in Section 3(37)
of ERISA). There have been no changes in the operation or interpretation of any
of the Employee Plans since the most recent annual report or actual report which
would have any material effect on the cost of operating or maintaining such
Employee Plans. Except as disclosed in Section 4.17 of the Acquiror's Disclosure
Schedule, no event has occurred or will occur which will result in material
liability to the Acquiror in connection with any Employee Plan established,
maintained, or contributed to (currently or previously) by Acquiror or by any
other entity which, together with Acquiror, constitute elements of either (i) a
controlled group of corporations (within the meaning of Section 414(b) of the
Code), (ii) a group of trades or businesses under common control (within the
meaning of Sections 414(c) of the Code or 4001 of ERISA), (iii) an affiliated
service group (within the meaning of Section 414(m) of the Code), or (iv)
another arrangement covered by Section 414(o) of the Code.
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Section 4.18 Questionable Payments. Neither Acquiror nor any of its
subsidiaries nor to its knowledge any director, officer, agent or other employee
of Acquiror or any of its subsidiaries has: (i) made any payments or provided
services or other favors in the United States of America or in any foreign
country in order to obtain preferential treatment or consideration by any
Governmental Entity with respect to any aspect of the business of Acquiror or
any of its subsidiaries; or (ii) made any political contributions which would
not be lawful under the laws of the United States or the foreign country in
which such payments were made. Neither Acquiror nor any of its subsidiaries nor
to its knowledge any director, officer, agent or other employee of Acquiror or
any of its subsidiaries has been the subject of any inquiry or investigation by
any Governmental Entity in connection with payments or benefits or other favors
to or for the benefit of any governmental or armed services official, agent,
representative or employee with respect to any aspect of the business of
Acquiror or its subsidiaries or with respect to any political contribution.
Section 4.19 Third-Party Payment Contracts. Section 4.19 of the
Acquiror Disclosure Schedule sets forth a true and correct list of each
agreement between Acquiror and any third party payor to whom Acquiror or its
subsidiaries provides services or from which it receives payment. To the
knowledge of Acquiror, no action is pending to suspend, limit, terminate or
revoke the status of Acquiror or any subsidiary as a participating provider to
any such payor, and neither Acquiror nor any subsidiary of Acquiror has been
provided notice by any such third party payor of its intention to suspend,
limit, terminate, revoke, or fail to renew any contractual arrangement with
Acquiror or any subsidiary of Acquiror as a participating provider of services
in whole or in material part. Except as set forth on Section 4.19 of the
Acquiror Disclosure Schedule, Acquiror has not conducted and is not conducting
any business with any Person who for purposes of any third party payor to which
Acquiror is a participating provider may be deemed to be a related person of
Acquiror.
Section 4.20 Third-Party Payment Filings. Acquiror and each subsidiary
of Acquiror has filed on a timely basis all claims, cost reports or annual
filings required to be filed to secure payment under the Medicare and Medicaid
Programs. Acquiror is not aware of any pattern of the nature and type of claims
made which would call into question the medical necessity of any services which
are the basis of such claims, and all services provided by Acquiror or its
subsidiaries have been provided pursuant to valid physician orders. Acquiror or
its subsidiaries has filed all Medicare cost reports through December 31, 1996
and has received settlements for all amounts billed Medicare except as set forth
on Section 4.20 of the Acquiror Disclosure Schedule. The liability for amounts
due to Medicare reflected on the balance sheet included in the Financial
Statements is adequate to cover all amounts due to Medicare.
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ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. The Company covenants and
agrees that, except (i) as expressly contemplated by this Agreement, (ii) as set
forth in Section 5.1 of the Company Disclosure Schedule or (iii) as agreed in
writing by Acquiror, after the execution and delivery of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time:
(a) the business of the Company and its subsidiaries shall be
conducted only in the ordinary and usual course and, to the extent consistent
therewith, each of the Company and its subsidiaries shall use its reasonable
commercial efforts to preserve its business organization intact, maintain its
existing relations with customers, suppliers, employees, creditors and business
partners and maintain and keep its properties and assets in as good repair and
condition as at present, ordinary wear and tear excepted;
(b) the Company shall not, directly or indirectly, amend its or any
of its subsidiaries' Certificate of Incorporation or bylaws or similar
organizational documents;
(c) the Company shall not, and it shall not permit its
subsidiaries to: (i)(A) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to the Company's
capital stock or that of its subsidiaries, except for dividends payable in
Company Common Stock on Company Preferred Stock, or (B) redeem, purchase or
otherwise acquire directly or indirectly any of the Company's capital stock (or
options, warrants, calls, commitments or rights of any kind to acquire any
shares of capital stock) or that of its subsidiaries; (ii) issue, sell, pledge,
dispose of or encumber any shares of, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any kind
to acquire any shares of, capital stock of any class of the Company or its
subsidiaries, other than shares of Company Common Stock issued upon the exercise
of options and warrants outstanding on the date hereof and described in Section
3.2 of the Company Disclosure Schedule and other than shares of Company Common
Stock issued to directors pursuant to the Director Stock Fee Program of the
Option Plan provided that any such shares are issued on or before the Closing
Date; (iii) split, combine or reclassify the outstanding capital stock of the
Company or of its subsidiaries; or (iv) amend or otherwise modify the terms of
any rights, warrants or options with respect to the Company's or its
subsidiaries capital stock;
(d) except in the ordinary course of business, the Company shall
not, and it shall not permit its subsidiaries to, acquire or agree to acquire,
or dispose of or agree to dispose of, any assets, either by purchase, merger,
consolidation, sale of shares in any of its subsidiaries or otherwise;
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(e) except in the ordinary course of business, the Company shall
not, and it shall not permit its subsidiaries to, transfer, lease, license,
sell, mortgage, pledge, dispose of, or encumber any assets;
(f) neither the Company nor its subsidiaries shall: (i) grant any
increase in the compensation payable or to become payable by the Company or any
of its subsidiaries to any of its officers, directors, key employees or
consultants; or (ii)(A) adopt any new, or (B) except as contemplated by Section
2.5, amend or otherwise increase, or accelerate the payment or vesting of the
amounts payable or to become payable under any existing, bonus, incentive
compensation, deferred compensation, severance, profit sharing, stock option,
stock purchase, insurance, pension, retirement or other employee benefit plan,
agreement or arrangement; or (iii) enter into or modify or amend any employment
or severance or consulting agreement with or, except in accordance with the
existing policies of the Company set forth in Section 5.1 of the Company
Disclosure Schedule or as required by applicable law, grant any severance or
termination pay to any officer, director or employee of the Company or any of
its subsidiaries; or (iv) enter into any collective bargaining agreement;
(g) neither the Company nor any of its subsidiaries shall modify,
amend or, without Acquiror's prior written consent, terminate any of its
contracts set forth on Section 3.22 of the Company Disclosure Schedule or waive,
release or assign any material rights or claims;
(h) neither the Company nor any of its subsidiaries shall: (i)
incur or assume any indebtedness; (ii) modify any indebtedness or other
liability; (iii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other Person, other than immaterial amounts in the ordinary course of
business consistent with past practice and other than for any subsidiary; (iv)
make any loans, advances or capital contributions to, or investments in (unless
required by law) any other Person (other than to wholly-owned subsidiaries of
the Company); or change any of its methods of reporting income or deductions for
federal income tax purposes from those employed in the preparation of the
federal income tax returns for the year ended December 31, 1996 or (v) enter
into any material commitment or transaction;
(i) neither the Company nor any of its subsidiaries shall change any
of the accounting methods, practices or policies used by it unless required by
GAAP;
(j) the Company shall not, and it shall not permit its subsidiaries
to, make or agree to make any new capital expenditures in excess of $50,000 in
the aggregate;
(k) the Company shall not, and it shall not permit its subsidiaries
to, make any tax election (unless required by law) or settle or compromise any
income tax liability; and
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(l) enter into any arrangement, agreement or contract with any
third party (other than customers in the ordinary course of business) that
provides for an exclusive arrangement with that third party;
(m) no action with respect to the Company's Employee Stock
Ownership Plan, including but not limited to the actions described on Section
3.16 of the Company's Disclosure Schedule, shall be taken by or on behalf of the
Company without the prior written consent of Acquiror, and with respect to any
such action, the Company shall fully cooperate with Acquiror, including but not
limited to providing Acquiror with such information and materials as Acquiror
shall reasonably request;
(n) no action shall be taken by or on behalf of the Company in
connection with the New York sales tax matters described on Section 3.11 of the
Company's Disclosure Schedule without the prior written consent of Acquiror, and
with respect to any such action, the Company shall fully cooperate with
Acquiror, including but not limited to providing Acquiror with such information
and materials as Acquiror shall reasonably request;
(o) neither the Company nor any of its subsidiaries will enter into
an agreement, contract, commitment or arrangement to do any of the foregoing, or
to authorize, recommend, propose or announce an intention to do any of the
foregoing.
Section 5.2 Access; Confidentiality.
(a) The Company shall (and shall cause each of its subsidiaries to)
(a) afford to the officers, employees, accountants, consultants, counsel, agents
and other representatives of Acquiror, reasonable access to and the right to
inspect and observe, during normal business hours during the period prior to the
Effective Time, the Company's and its subsidiaries' personnel, accountants,
representatives, properties, books, contracts, insurance policies, commitments
and records, offices, plants and other facilities, (b) make available promptly
to Acquiror (i) a copy of each report, schedule, registration statement and
other document filed or received by the Company's and its subsidiaries during
such period pursuant to the requirements of federal securities laws and (ii) all
other information concerning the business, properties and personnel (including,
without limitation, insurance policies) of the Company's and its subsidiaries as
Acquiror may reasonably request. Acquiror will treat any such information in
accordance with the provisions of the letter agreement dated May 22, 1995
between the Company and Acquiror (the "Confidentiality Agreement"). No
investigation conducted by Acquiror shall impact any representation or warranty
given by the Company to Acquiror hereunder.
(b) The Acquiror shall (and shall cause each of its subsidiaries
to) (a) afford to the officers, employees, accountants, consultants, counsel,
agents and other representatives of Company, reasonable access to and the right
to inspect and observe, during normal business hours
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during the period prior to the Effective Time, the Acquiror's and its
subsidiaries' personnel, accountants, representatives, properties, books,
contracts, insurance policies, commitments and records, offices, plants and
other facilities, (b) make available promptly to Company (i) a copy of each
report, schedule, registration statement and other document filed or received by
the Acquiror's and its subsidiaries during such period pursuant to the
requirements of federal securities laws and (ii) all other information
concerning the business, properties and personnel (including, without
limitation, insurance policies) of the Acquiror's and its subsidiaries as
Company may reasonably request. Company will treat any such information in
accordance with the provisions of the letter agreement dated May 22, 1995
between the Company and Acquiror (the "Confidentiality Agreement"). No
investigation conducted by Company shall impact any representation or warranty
given by the Acquiror to Company hereunder.
Section 5.3 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto shall use all reasonable commercial
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations, or to remove any injunctions or other impediments or delays, legal
or otherwise, to consummate and make effective the Merger and the other
transactions contemplated by this Agreement. The Company also will pay all
premiums or other payments required to be made with respect to the insurance
policies set forth in Section 3.20 of the Company Disclosure Schedule, and shall
renew any such policy if any such policy will otherwise terminate prior to the
Effective Time.
Section 5.4 Consents and Approvals; HSR Act. Except as set forth in
Sections 3.4 and 4.4 of the Company Disclosure Schedule and Acquiror Disclosure
Schedule, respectively, each of the Company, Acquiror and Acquisition Subsidiary
will take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on it with respect to this Agreement and the
transactions contemplated hereby (which actions shall include, without
limitation, furnishing all information required under the HSR Act and in
connection with approvals of or filings with any other Governmental Entity) and
will promptly cooperate with and furnish information to each other in connection
with any such requirements imposed upon any of them or any of their subsidiaries
in connection with this and the transactions contemplated hereby. Except as set
forth in Sections 3.4 and 4.4 of the Company Disclosure Schedule and Acquiror
Disclosure Schedule, respectively, each of the Company, Acquiror and Acquisition
Subsidiary will, and will cause its subsidiaries to, take all reasonable actions
necessary to obtain (and will cooperate with each other in obtaining) any
consent, authorization, order or approval of, or any exemption by, any
Governmental Entity or other public or private third party required to be
obtained or made by Acquiror, Acquisition Subsidiary, the Company or any of
their subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement. Each party shall promptly inform the
other party of any communication with, and any proposed understanding,
undertaking, or agreement with, any Governmental Entity regarding any such
filings or any such transaction.
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Section 5.5 Meeting of Shareholders.
(a) The Company shall, promptly after the date of this Agreement,
take all actions necessary in accordance with NYBCL and its Certificate of
Incorporation and Bylaws to convene a special meeting of the Company's
shareholders to act on this Agreement (the "Company Shareholders Meeting"), and
the Company shall consult with Acquiror in connection therewith. Unless its
Board of Directors in the good faith exercise of its fiduciary duties, after
receiving advice from outside legal counsel, determines not to recommend, or to
withdraw its recommendation, that such matters be approved by the Company's
shareholders, the Company shall use all reasonable efforts to solicit from
shareholders of the Company proxies in favor of the approval and adoption of
this Agreement and to secure the vote or consent of shareholders required by
NYBCL and its Certificate of Incorporation and Bylaws to approve and adopt this
Agreement.
(b) Acquiror shall, promptly after the date of this Agreement,
take all actions necessary in accordance with the requirements of the By-laws of
the National Association of Securities Dealers, Inc. ("NASD"), Pennsylvania
Business Corporation Law of 1988 ("PCBL") and its Certificate of Incorporation
and Bylaws to convene a special meeting of Acquiror's shareholders to act on
this Agreement (the "Acquiror Shareholders Meeting"), and Acquiror shall consult
with the Company in connection therewith. Acquiror shall use all reasonable
efforts to solicit from shareholders of Acquiror proxies in favor of the
approval and adoption of this Agreement and to secure the vote or consent of
shareholders required by the NASD, PBCL, and its Certificate of Incorporation
and Bylaws to approve and adopt this Agreement.
Section 5.6 Registration Statement; Proxy Statements.
(a) As promptly as practicable after the execution of this
Agreement, the Acquiror shall prepare and file with the SEC a registration
statement on Form S-4 (such registration statement, together with any amendments
thereof or supplements thereto, being the "Registration Statement"), containing
(i) a proxy statement/prospectus for shareholders of the Company (the "Company
Proxy Statement/Prospectus") in connection with the registration under the
Securities Act of the offer, sale and delivery of Acquiror Common Stock to be
issued in the Merger and the solicitation by the Company of proxies from its
shareholders for approval of the Merger and (ii) a proxy statement for
shareholders of Acquiror (the "Acquiror Proxy Statement") in connection with the
solicitation by the Acquiror of proxies from its shareholders for approval of
the Merger and the other transactions contemplated by this Agreement. Each of
the Acquiror and the Company will use all reasonable efforts to have or cause
the Registration Statement to become effective as promptly as practicable, and
shall take any action required to be taken under any applicable federal or state
securities laws in connection with the issuance of shares of Acquiror Common
Stock in the Merger. Each of the Acquiror and the Company shall furnish all
information concerning it and the holders of its capital stock as the other may
reasonably request in connection with such
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actions. As promptly as practicable after the Registration Statement shall have
become effective, the Company shall mail the Company Proxy Statement/Prospectus
to its shareholders entitled to notice of and to vote at the Company Shareholder
Meeting and Acquiror shall mail the Acquiror Proxy Statement to its shareholders
entitled to notice of and to vote at the Acquiror Shareholder Meeting. The
Company Proxy Statement shall, to the extent consistent with their fiduciary
duties, include the recommendation of the Company's Board of Directors in favor
of the Merger. The Acquiror Proxy Statement shall include the recommendation of
the Acquiror's Board of Directors in favor of the Merger.
(b) The information supplied by the Company for inclusion in the
Registration Statement shall not, at the time the Registration Statement is
declared effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The information supplied by the
Company for inclusion in (i) the Company Proxy Statement/Prospectus to be sent
to the shareholders of the Company in connection with the Company Shareholders
Meeting shall not, at the date the Company Proxy Statement/Prospectus (or any
supplement thereto) is first mailed to shareholders, at the time of the Company
Shareholders Meeting or at the Effective Time and (ii) the Acquiror Proxy
Statement to be sent to the shareholders of Acquiror in connection with the
Acquiror Shareholders Meeting shall not, at the date the Acquiror Proxy
Statement (or any supplement thereto), is first mailed to shareholders at the
time of the Acquiror Shareholders Meeting or at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading. If at
any time prior to the Company Shareholders Meeting any event or circumstance
relating to the Company or any of its affiliates, or its or their respective
officers or directors, should be discovered by the Company that should be set
forth in an amendment to the Registration Statement or a supplement to the
Company Proxy Statement/Prospectus or Acquiror Proxy Statement, the Company
shall promptly inform Acquiror. All documents that the Company is responsible
for filing with the SEC in connection with the transactions contemplated herein
shall comply as to form in all material respects with the applicable
requirements of the Securities Act and the rules and regulations thereunder and
the Exchange Act and the rules and regulations thereunder.
(c) The information supplied by the Acquiror for inclusion in the
Registration Statement shall not, at the time the Registration Statement is
declared effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The information supplied by the
Acquiror for inclusion in (i) the Company Proxy Statement/Prospectus to be sent
to the shareholders of the Company in connection with the Company Shareholders
Meeting shall not, at the date the Company Proxy Statement/Prospectus (or any
supplement thereto) is first mailed to shareholders, at the time of the Company
Shareholders Meeting or at the Effective Time and (ii) the Acquiror Proxy
Statement to be sent to the shareholders of Acquiror in connection with the
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Acquiror Shareholders Meeting shall not, at the date the Acquiror Proxy
Statement (or supplement thereto) is first mailed to shareholders, at the time
of the Acquiror Shareholders Meeting or at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading. If at
any time prior to the Acquiror Shareholders Meeting any event or circumstance
relating to Acquiror or any of its affiliates, or to their respective officers
or directors, should be discovered by Acquiror that should be set forth in an
amendment to the Registration Statement or a supplement to the Company Proxy
Statement/Prospectus or Acquiror Proxy Statement, Acquiror shall promptly inform
the Company. All documents that the Acquiror is responsible for filing with the
SEC in connection with the transactions contemplated hereby shall comply as to
form in all material respects with the applicable requirements of the Securities
Act and the rules and regulations thereunder and the Exchange Act and the rules
and regulations thereunder.
Section 5.7 No Solicitation.
(a) The Company and its officers, directors, employees,
representatives and agents shall immediately and as of the date hereof cease any
discussions or negotiations with any parties that may be ongoing with respect to
a Takeover Proposal (as hereinafter defined). The Company shall not authorize or
permit any of its officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative retained by it
or any of its subsidiaries to (i) solicit, initiate or encourage (including by
way of furnishing information), or take any other action to facilitate, any
inquiries or the making of any proposal which constitutes, or may reasonably be
expected to lead to, any Takeover Proposal or (ii) participate in any
discussions or negotiations regarding any Takeover Proposal; provided, however,
that, if at any time prior to the Effective Time, the Board of Directors of the
Company determines in good faith, after receiving advice from outside legal
counsel, that failure to do so would reasonably be expected to cause the Board
of Directors to violate its fiduciary duties to the Company's shareholders under
applicable law, the Company may, in response to an unsolicited Takeover
Proposal, (x) furnish information with respect to the Company to any Person
pursuant to a confidentiality agreement and (y) participate in negotiations
regarding such Takeover Proposal. For purposes of this Agreement, "Takeover
Proposal" means any inquiry, proposal or offer from any Person relating to any
direct or indirect acquisition or purchase of a substantial amount of assets of
the Company or any of its subsidiaries or of over 20% of any class of equity
securities of the Company or any of its subsidiaries, any tender offer or
exchange offer that if consummated would result in any Person beneficially
owning 20% or more of any class of equity securities of the Company or any of
its subsidiaries, or any merger, consolidation, business combination, sale of
substantially all the assets, recapitalization, liquidation, dissolution or
similar transaction involving the Company or any of its subsidiaries, other than
the transactions contemplated by this Agreement.
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(b) Except as set forth in this Section 5.7, neither the Board of
Directors of the Company nor any committee thereof shall (x) withdraw or modify,
or propose to withdraw or modify, in a manner adverse to Acquiror, the approval
or recommendation by such Board of Directors or such committee of this Agreement
or the Merger, (y) approve or recommend, or propose to approve or recommend, any
Takeover Proposal or (z) cause the Company to enter into any agreement with
respect to any Takeover Proposal. Notwithstanding the foregoing, in the event
that prior to the Effective Time the Board of Directors of the Company
determines in good faith, after receiving advice from outside legal counsel,
that failure to do so would reasonably be expected to cause the Board of
Directors to violate its fiduciary duties to the Company's shareholders under
applicable law, the Board of Directors of the Company may withdraw or modify its
approval or recommendation of this Agreement and the Merger, approve or
recommend a Superior Proposal (as defined below) or cause the Company to enter
into an agreement with respect to a Superior Proposal, but in each case only at
a time that is after the second business day following Acquiror's receipt of
written notice (a "Notice of Superior Proposal") advising Acquiror that the
Board of Directors of the Company has received a Superior Proposal, specifying
the material terms and conditions of such Superior Proposal and identifying the
Person making such Superior Proposal. For purposes of this Agreement, a
"Superior Proposal" means any bona fide Takeover Proposal to acquire, directly
or indirectly, for consideration consisting of cash and/or securities, more than
50% of the Company Common Stock then outstanding or all or substantially all the
assets of the Company and its subsidiaries taken as a whole and otherwise on
terms which the Board of Directors of the Company determines in its good faith
judgment (after consulting with a financial advisor of nationally recognized
reputation) to be more favorable to the Company's shareholders than the Merger.
Section 5.8 Affiliates; Pooling; Tax Treatment.
(a) The Company shall use all reasonable efforts to obtain and
deliver to Acquiror an executed letter agreement, substantially in the form of
Exhibit A hereto, from (i) each person identified as an affiliate of the Company
in Section 3.13 of the Company Disclosure Schedule by October 30, 1997, (ii) any
person who may be deemed to have become an affiliate of the Company after the
date of this Agreement and on or prior to the Closing Date as soon as
practicable after such person attains such status and (iii) any person whose
agreement thereto may be deemed reasonably necessary by Acquiror to sustain the
Merger's status as a Pooling Transaction on or prior to the Closing Date.
(b) Acquiror shall use all reasonable efforts to obtain an
executed letter agreement, substantially in the form of Exhibit B hereto, from
(i) each person identified as an affiliate of Acquiror in Section 4.12 of
Acquiror Disclosure Schedule by October 30, 1997, (ii) any person who may be
deemed to have become an affiliate of Acquiror after the date of this Agreement
and on or prior to the Closing Date as soon as practicable after such person
attains such status and (iii)
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any person whose agreement thereto may be deemed reasonably necessary by
Acquiror to sustain the Merger's status as a Pooling Transaction on or prior to
the Closing Date.
(c) The Acquiror shall not be required to maintain the
effectiveness of the Registration Statement for the purpose of resale by
shareholders of Acquiror who may be affiliates of the Company or Acquiror
pursuant to Rule 145 under the Securities Act.
(d) Each party hereto shall use all reasonable efforts to cause
the Merger to qualify, and shall not take, and shall use all reasonable efforts
to prevent any affiliate of such party from taking, any actions which could
prevent the Merger from qualifying, as a reorganization under the provisions of
Section 368(a) of the Code.
Section 5.9 Publicity. Each party's initial press release with respect
to the execution of this Agreement has been previously approved by the other
parties. Following such initial press releases, so long as this Agreement is in
effect, neither the Company, Acquiror nor any of their respective affiliates
shall issue or cause the publication of any press release or other public
announcement with respect to the Merger, this Agreement or the other
transactions between the parties contemplated hereby without the prior
consultation of the other party, except as may be required by law or by any
listing agreement with a national securities exchange or trading market.
Section 5.10 Notification of Certain Matters.
(a) The Company shall give prompt notice to Acquiror and
Acquisition Subsidiary, and Acquiror and Acquisition Subsidiary shall give
prompt notice to the Company, of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Closing Date and (ii) any failure of the
Company, Acquiror or Acquisition Subsidiary, as the case may be, to comply with
or satisfy in all material respects any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.10 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice. The Company
also shall give prompt notice to Acquiror, and Acquiror or Acquisition
Subsidiary shall give prompt notice to the Company, of:
(i) any notice or other communication from any Person
alleging that the consent of such person is or may be required in
connection with the transactions contemplated by this Agreement (unless
the requirement for such consent is set forth in Section 3.4 of the
Company Disclosure Schedule or Section 4.4 of the Acquiror Disclosure
Schedule);
(ii) any notice or other communication from any Governmental
Entity in connection with the transactions contemplated by this
Agreement;
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(iii) any actions, suits, claims, investigations or
proceedings commenced or, to its knowledge, threatened against,
relating to or involving or otherwise affecting it or any of its
subsidiaries or which relate to the consummation of the transactions
contemplated by this Agreement; and
(iv) any occurrence of any event having, or which could
reasonably be expected to have, a Company Material Adverse Effect or
Acquiror Material Adverse Effect.
Section 5.11 Comfort Letter.
(a) The Company shall use all reasonable efforts to cause Deloitte
& Touche to deliver a letter dated as of the date of the Company Proxy
Statement/Prospectus, and addressed to the Company and its Board of Directors
and Acquiror and its Board of Directors, in form and substance reasonably
satisfactory to Acquiror and customary in scope and substance for agreed upon
procedures letters delivered by independent public accountants in connection
with registration statements and proxy statements similar to the Registration
Statement and the Company Proxy Statement/Prospectus.
(b) Acquiror shall use all reasonable efforts to cause Coopers &
Lybrand to deliver a letter dated as of the date of the Acquiror Proxy
Statement, and addressed to Acquiror and its Board of Directors and the Company
and its Board of Directors, in form and substance reasonably satisfactory to the
Company and customary in scope and substance for agreed upon procedures letters
delivered by independent public accountants in connection with registration
statements and proxy statements similar to the Registration Statement and the
Acquiror Proxy Statement.
Section 5.12 Pooling Opinion. The Company shall use all reasonable
efforts to cause Deloitte & Touche to deliver to Company a written opinion which
can be relied upon by Coopers & Lybrand with respect to such matters relating to
the Company as are required by Coopers & Lybrand to form an opinion that the
transactions contemplated by this Agreement, including the Merger, when effected
in accordance with the terms thereof, shall be accounted for in the Consolidated
Financial Statements of Acquiror and its subsidiaries as a Pooling Transaction.
The Company shall use all reasonable efforts to cause Deloitte & Touche to
provide at its request to Coopers & Lybrand all work papers and documentation
that support the conclusions in its opinion with respect to the Pooling
Transaction.
Section 5.13 Form S-8. Acquiror agrees to file, no later than 60 days
after the Closing Date, a registration statement on Form S-8 covering the shares
of Acquiror Common Stock issuable pursuant to outstanding options under the
Option Plan assumed by Acquiror. The Company shall cooperate with and assist
Acquiror in the preparation of such registration statement.
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Section 5.14 Listing of Additional Shares. At least 15 days prior to the
Closing Date, Acquiror shall file with the Nasdaq National Market a Notification
Form for Listing of Additional Shares with respect to the Acquiror Common Stock
to be issued in the Merger.
Section 5.15 Reservation of Acquiror Common Stock. The Acquiror shall
reserve from its authorized but unissued shares of Acquiror Common Stock that
number of shares of Acquiror Common Stock issuable upon exercise of the Employee
Stock Options, Director Stock Options and Warrants assumed by Acquiror.
Section 5.16 Indemnification.
(a) Notwithstanding Section 8.7 hereof, Acquiror agrees that all
rights to indemnification existing in favor of directors, officers or employees
of the Company as provided in the Company's Certificate of Incorporation or By-
Laws, with respect to matters occurring through the Effective Time, shall
survive the Merger and shall continue in full force and effect for a period of
three years from the Effective Time. Effective upon the Effective Time, to the
fullest extent permitted by law, Acquiror hereby guarantees the Company's and
the Surviving Corporation's performance of the Company's and the Surviving
Corporation's obligations described in the prior sentence for a period of three
years after the Effective Time. If Acquiror, the Surviving Corporation or any of
either of its successors or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (ii) transfers all or substantially all of
its properties and assets to any person, then and in each such case, proper
provision shall be made so that the successors and assigns of Acquiror and the
Surviving Corporation assume the obligations set forth in this Section 5.16.
(b) Acquiror or the Surviving Corporation shall maintain the
Company's existing officer's and directors' liability insurance ("D&O
Insurance") for a period of three (3) years after the Effective Time; provided,
that Acquiror may substitute therefor policies of substantially equivalent
coverage and amounts containing terms no less favorable to such former directors
or officers; provided, further, if the existing D&O Insurance expires, is
terminated or canceled during such period, Acquiror or the Surviving Corporation
will use all reasonable efforts to obtain substantially similar D&O Insurance;
provided, further, however, that in no event shall the Acquiror or the Surviving
Corporation be required to pay aggregate premiums for insurance under this
Section 5.16(b) in excess of the amount of the premiums reflected on the
schedule delivered pursuant to Section 5.18; and provided, further, that if the
Acquiror or the Surviving Corporation is unable to obtain the amount of
insurance required by this Section 5.16(b) for the amount of the premiums on
such schedule, Acquiror or the Surviving Corporation shall obtain as much
insurance as can be obtained for the premiums set forth on such schedule.
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Section 5.17 Payment of Company Obligations.
Immediately prior to the Effective Time and provided that all
conditions to Acquiror's obligation to effect the Merger set forth in Sections
6.1 and 6.3 have been satisfied or waived, Acquiror shall contribute sufficient
funds to the Company, and the Company shall utilize such funds, for the
repayment in full of the obligations of the Company listed in Section 6.2(c).
Section 5.18 Delivery of Expenses Information.
Not less than three business days prior to the date of the
Company Shareholders Meeting, Company shall deliver to Acquiror a statement
setting forth a detailed itemization of the Expenses of the Company, including
the Company's good faith estimate of additional out-of-pocket expenses to be
incurred by the Company in connection with the Merger through the Effective
Time. The sum of such Expenses and good faith estimate shall be the Expenses
which are utilized in the calculation of PPE pursuant to Section 2.1.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction on or prior to the Effective Time of each of the following
conditions, any and all of which may be waived in whole or in part by the
Company, Acquiror or Acquisition Subsidiary, as the case may be, to the extent
permitted by applicable law:
(a) Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the Securities
Act. No stop order suspending the effectiveness of the Registration Statement
shall have been initiated by the SEC.
(b) Shareholder Approval. This Agreement shall have been approved
and adopted by the requisite vote of the shareholders of the Company and the
shareholders of Acquiror;
(c) Statutes. No statute, rule, order, decree or regulation shall
have been enacted or promulgated by any Governmental Entity which prohibits the
consummation of the Merger;
(d) Injunctions. Except as set forth in Sections 3.4 and 4.3 of
the Company Disclosure Schedule and the Acquiror Disclosure Schedule,
respectively, there shall be no order or injunction of a court or other
governmental authority of competent jurisdiction in effect precluding,
restraining, enjoining or prohibiting consummation of the Merger;
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(e) HSR Act. Any applicable waiting period under the HSR Act
relating to the Merger shall have expired or been terminated;
(f) Tax Opinion. Acquiror and the Company shall have received from
Blank Rome Comisky & McCauley a written opinion dated as of the Closing Date to
the effect that (a) the Merger, when effected in accordance with this Agreement,
will qualify as a reorganization under Section 368 (a) of the Code and Acquiror,
Acquisition Subsidiary and the Company will constitute parties to such
reorganization, and (b) the receipt of Acquiror Common Stock by the shareholders
of the Company in accordance with this Agreement shall be nontaxable to such
shareholders; and
(g) Pooling Opinion. Acquiror shall have received from Coopers &
Lybrand a written opinion dated the Closing Date to the effect that the
transactions contemplated by this Agreement, including the Merger, when effected
in accordance with the terms thereof, shall be accounted for in the consolidated
financial statements of Acquiror and its subsidiaries as a Pooling Transaction,
and a copy of such opinion shall have been delivered to the Company.
(h) Listing of Additional Shares. The filing with the Nasdaq
National Market of a Notification Form for Listing of Additional Shares with
respect to the shares of Acquiror Common Stock issuable upon conversion of the
Company Common Stock in the Merger and upon exercise of the options under the
Plan assumed by Acquiror shall have been made.
Section 6.2 Additional Conditions to Obligations of the Company. The
obligation of the Company to effect the Merger is also subject to the
fulfillment of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Acquiror and Acquisition Subsidiary contained in this Agreement
shall be true and correct in all material respects on the date hereof and shall
also be true and correct in all material respects on and as of the Closing Date,
with the same force and effect as if made on and as of the Closing Date. The
Company shall have received a certificate of the President and Chief Financial
Officer of the Acquiror, dated the Closing Date, to this effect;
(b) Agreements, Conditions and Covenants. Acquiror and Acquisition
Subsidiary shall have performed or complied in all material respects with all
agreements, conditions and covenants required by this Agreement to be performed
or complied with by them on or before the Effective Time. The Company shall have
received a certificate of the President and Chief Financial Officer of the
Company, dated the Closing Date, to this effect;
(c) Payment of Company Obligations. The Acquiror shall have
satisfied the Company that, immediately prior to the Effective Time, Acquiror
will contribute sufficient funds to the Company for the Company to repay in full
the obligations of the Company under the following agreements:
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(i) the Amended and Restated Credit Agreement, dated as of
October 6, 1995, as further amended, among the Company and its subsidiaries, the
Chase Manhattan Bank, N.A., as Agent, and the banks signatories thereto;
(ii) the Credit Agreement, dated as of October 6, 1995, as
amended, among the Company and its subsidiaries and Fleet Bank, National
Association;
(iii) the Receivables Purchase and Servicing Agreement, dated
as of November 5, 1993, as amended, by and among the Company and its
subsidiaries (including U.S. HomeCare Funding Corporation) and The Chase
Manhattan Bank, N.A.; and
(iv) the Settlement Agreement, dated as of November 27, 1996,
between the Company and Edward J. Abel, Abel Health Management Services, Inc.
and Home Infusion Pharmaceutical Services, Inc.
(d) Opinion. Company shall have received an opinion dated as of
the Closing Date from Blank Rome Comisky & McCauley, counsel to the Acquiror and
Acquisition Subsidiary, that the Acquiror Common Stock to be issued in the
Merger has been duly authorized and validly issued in accordance with the
requirements of the Pennsylvania Business Corporation Law and is fully paid and
non-assessable; and
(e) No Litigation. After the date hereof, there shall not be
threatened, or instituted and continuing, any action, suit or proceeding against
the Company, Acquiror or Acquisition Subsidiary, by any Governmental Entity or
any other Person or Persons, directly or indirectly relating to the Merger or
any other transactions contemplated by this Agreement which individually or in
the aggregate could reasonably be expected to have a Company Material Adverse
Effect or Acquiror Material Adverse Effect.
(f) Acquiror Material Adverse Effect. There shall not have occurred
an Acquiror Material Adverse Effect.
Section 6.3 Additional Conditions to Obligations of Acquiror and
Acquisition Subsidiary. The obligations of Acquiror and Acquisition Subsidiary
to effect the Merger are also subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on the date hereof and shall also be true and correct
in all material respects on and as of the Closing Date, with the same force and
effect as if made on and as of the Closing Date. The Acquiror shall have
received a certificate of the Interim President and Chief Financial Officer of
the Company, dated the Closing Date, to this effect;
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(b) Agreements, Conditions and Covenants. The Company shall have
performed or complied in all material respects with all agreements, conditions
and covenants required by this Agreement to be performed or complied with by it
on or before the Closing Date. The Acquiror shall have received a certificate of
the Interim President and Chief Financial Officer of the Company, dated the
Closing Date, to this effect;
(c) Company Material Adverse Effect. There shall not have occurred a
Company Material Adverse Effect.
(d) Dissenting Company Stock. The aggregate number of shares of
Company Common Stock and Company Preferred Stock held by Dissenting Shareholders
shall not be equal to or exceed five percent (5%) of the number of shares of
Company Common Stock outstanding on a fully diluted basis immediately prior to
the Effective Time;
(e) No Litigation. After the date hereof there shall not be
threatened, or instituted and continuing, any action, suit or proceeding against
the Company, Acquiror or Acquisition Subsidiary, by any Governmental Entity or
any other Person or Persons, directly or indirectly relating to the Merger or
any other transactions contemplated by this Agreement which individually or in
the aggregate could reasonably be expected to have a Company Material Adverse
Effect or Acquiror Material Adverse Effect;
(f) Opinion. Acquiror shall have received an opinion dated as of
the Closing Date from Brobeck, Phleger & Harrison LLP, counsel to the Company,
that the Merger has been approved by the requisite shareholder action in
accordance with the requirements of New York law and the Certificate of
Incorporation of the Company and that after the Effective Time no shareholder of
the Company shall have any rights under Section G-4(h) of the Company's
Certificate of Amendment of the Certificate of Incorporation dated January 31,
1995; and
(g) Regulatory Approvals. All necessary regulatory approvals,
licenses and permits required to consummate the Merger shall have been obtained
and all statutory waiting periods in respect thereof shall have expired and none
of such approvals contain conditions that would constitute a Company Material
Adverse Effect or an Acquiror Material Adverse Effect.
(h) Notwithstanding anything to the contrary contained in this
Section 6.3, if the conditions to Acquiror's and Acquisition Subsidiary's
obligations to effect the Merger set forth in Sections 6.3(a), 6.3(b) and 6.3(c)
are otherwise satisfied or waived, and no Company Material Adverse Effect has
occurred, the occurrence of a default under the terms of the agreements listed
in Section 6.2(c)(i), 6.2(c)(ii) or 6.2(c)(iii) solely as a result of the
failure of the Company to repay its obligations under such agreements on or
after January 2, 1998 shall not be an event the effect of which is to cause any
of such conditions to be deemed not to have been satisfied and shall not, alone,
be deemed to constitute a Material Adverse Effect.
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ARTICLE VII
TERMINATION AND AMENDMENT
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the terms of
this Agreement by the shareholders of the Company:
(a) by mutual written consent of the Boards of Directors of Acquiror
and the Company;
(b) except as set forth in Sections 3.4 and 4.4 of the Company
Disclosure Schedule and the Acquiror Disclosure Schedule, respectively, by
either Acquiror or the Company if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting consummation of the Merger and such order,
decree or ruling or other action shall have become final and nonappealable;
(c) by either Acquiror or the Company, if the Merger shall not
have been consummated by February 28, 1998; provided, however, that the right to
terminate this Agreement pursuant to this Section 7.1(c) shall not be available
to any party whose failure (or the failure of the affiliates of which) to
perform any of its obligations under this Agreement has been the cause of, or
resulted in, the failure of the Merger to occur on or before such date;
(d) by Acquiror or Acquisition Subsidiary, in the event of a
breach by the Company of any representation, warranty, covenant or other
agreement contained in this Agreement which cannot be or has not been cured
within thirty (30) days after the giving of written notice to the Company and
which, individually or in the aggregate, has had or could reasonably be expected
to have, a Company Material Adverse Effect;
(e) by the Company, in the event of a breach by Acquisition
Subsidiary or Acquiror of any representation, warranty, covenant or other
agreement contained in this Agreement, which cannot be or has not been cured
within thirty (30) days after the giving of written notice to Acquiror or
Acquisition Subsidiary, as applicable, and which individually or in the
aggregate, has had or could reasonably be expected to have an Acquiror Material
Adverse Effect;
(f) by Acquiror or Acquisition Subsidiary, if the Company's Board
of Directors shall have withdrawn, modified or amended in any respect its
recommendation of the Merger or shall have approved or recommended a Superior
Proposal, or shall have entered into an agreement with a third party with
respect to any Takeover Proposal or Superior Proposal, or the Board of Directors
of the Company or any committee thereof shall have resolved to take any of the
foregoing actions; or
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(g) by the Company, in connection with entering into an agreement
for a Superior Proposal in accordance with Section 5.7, provided it has complied
with all provisions thereof, including the notice provisions therein.
Section 7.2 Effect of Termination. In the event of a termination of this
Agreement by either the Company or Acquiror as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Acquiror, Acquisition Subsidiary or the Company or
their respective officers or directors, except the provisions of Section 5.2
with respect to confidentiality, Section 8.1 and this Section 7.2 shall continue
in full force and effect; provided, however, that nothing herein shall relieve
any party for liability for any breach hereof.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses.
(a) Except as provided below in this Section 8.1, all fees and
Expenses (as defined in Section 8.1(h)) incurred in connection with the Merger,
this Agreement and the transactions contemplated by this Agreement shall be paid
by the party incurring such fees or Expenses, whether or not the Merger is
consummated; provided, however, that the Expenses related to printing, the
Registration Statement, the Company Proxy statement, Prospectus and the Acquiror
Proxy Statement shall be borne one-half by each of the Company and the Acquiror.
(b) If this Agreement is terminated by Acquiror pursuant to
Section 7.1(f) or by Company pursuant to Section 7.1(g), or prior to any
termination of this Agreement pursuant to Section 7.1(f) or Section 7.1(g), the
Company breaches the provisions of Section 5.7 of this Agreement, then the
Company shall pay, or cause to be paid in same day funds to Acquiror $1,000,000
on the date which is the earlier to occur of (i) the date on which the Company
consummates a transaction which is the subject of a Superior Proposal or a
Takeover Proposal, or (ii) the date which is six months after the Agreement is
terminated by Acquiror pursuant to Section 7.1(f) or by Company pursuant to
Section 7.1(g).
(c) If this Agreement is terminated or the Merger is not
consummated as a result of the failure by the Company to obtain the approval of
the transactions contemplated by this Agreement by Company's shareholders and
Acquiror has satisfied all of the conditions to Company's obligations to
consummate the Merger hereunder which can be satisfied by Acquiror, then Company
shall pay, or cause to be paid, in same day funds to Acquiror upon demand and
delivery to Company of supporting documentation therefor, an amount equal to
Acquiror's Expenses.
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(d) Company shall use all reasonable efforts to cause each Person
providing services to the Company in connection with the Merger, including
counsel, accountants, investment bankers, experts and any other consultants to
deliver to the Company on or before the Closing Date such Person's invoice for
such services provided to Company.
(e) If this Agreement is terminated or the Merger is not consummated
as a result of the failure of Deloitte & Touche to deliver the opinion described
in Section 5.12 or a determination by the SEC that the Merger does not qualify
to be accounted for in the Consolidated Financial Statements of Acquiror and its
subsidiaries as a Pooling Transaction and such failure or determination is
attributable to matters, facts or circumstances relating to or transactions
engaged in by Company, then the Company shall pay, or cause to be paid, in same
day funds to Acquiror upon demand and delivering to the Company supporting
documentation therefor an amount equal to Acquiror's Expenses; provided,
however, no payment by Company of Acquiror's Expenses shall be required to be
made if such failure or determination results from changes effected after the
date hereof in the requirements relating to Pooling Transactions.
(f) If this Agreement is terminated or the Merger is not consummated
as a result of the failure of Coopers & Lybrand to deliver the opinion described
in Section 6.1(g) or a determination by the SEC that the Merger does not qualify
to be accounted for in the Consolidated Financial Statements of Acquiror and its
Subsidiaries as a Pooling Transaction and such failure or determination is
attributable to matters, facts or circumstances relating to or transactions
engaged in by Acquiror, then Acquiror shall pay, or cause to be paid, in same
day funds to Company upon demand and delivering to the Acquiror supporting
documentation therefor an amount equal to Company's Expenses; provided, however,
no payment by Acquiror of Company's Expenses shall be required to be made if
such failure or determination results from changes effected after the date
hereof in requirements relating to Pooling Transactions.
(g) If this Agreement is terminated or the Merger is not consummated
as a result of the failure by Acquiror to obtain the approval of the
transactions contemplated by this Agreement by Acquiror's shareholders and the
Company has satisfied all of the conditions to Acquiror's obligations to
consummate the Merger hereunder which can be satisfied by the Company, then
Acquiror shall pay, or cause to be paid, in same day funds to the Company upon
demand and delivery to Acquiror of supporting documentation therefor, an amount
equal to the Company's Expenses.
(h) "Expenses" as used in this Agreement shall include all
reasonable out-of-pocket expenses (including all reasonable fees and expenses of
counsel, accountants, investment bankers (including the fees and expenses
pursuant to the agreements set forth in Section 3.18 to the Company Disclosure
Schedule), experts and consultants to a party hereto and its affiliates)
incurred by a party or on its behalf in connection with or related to the
authorization, preparation, negotiation, execution and performance of this
Agreement, the preparation, printing, filing and mailing of the Registration
Statement, the Company Proxy Statement/Prospectus and the Acquiror
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Proxy Statement, the solicitation of shareholder approvals and all other matters
related to the consummation of the transactions contemplated hereby. "Expenses"
shall also include the payment disclosed in Section 5.1 of the Company
Disclosure Schedule and the aggregate premium cost of the D&O Insurance to be
provided by or for the Company under Section 5.16.
Section 8.2 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the shareholders of the Company contemplated
hereby, by written agreement of the parties hereto, at any time prior to the
Closing Date with respect to any of the terms contained herein; provided,
however, that after the approval of this Agreement by the shareholders of the
Company, no such amendment, modification or supplement shall reduce the amount
or change the form of the Merger Consideration.
Section 8.3 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time.
Section 8.4 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon receipt, and shall be given
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Acquiror or Acquisition Subsidiary, to:
Home Health Corporation of America, Inc.
2200 Renaissance Blvd.
Suite 300
King of Prussia, PA 19406
Attention: Bruce Feldman, President
with copies to:
Blank Rome Comisky & McCauley
One Logan Square
Philadelphia, PA 19103
Attention: Sol Genauer, Esq.
A-69
<PAGE>
(b) if to the Company, to:
U.S. HomeCare Corporation
Two Hartford Square West
Hartford, CT 06130
Attention: Chief Financial Officer
with copies to:
Brobeck, Phleger & Harrison LLP
1633 Broadway
New York, NY 10019
Attention: Ellen B. Corenswet
Section 8.5 Interpretation. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation". As used in this Agreement, the term "affiliate(s)" shall have the
meaning set forth in Rule 12b-2 of the Exchange Act. As used in this Agreement,
a "subsidiary" of any entity shall mean all corporations or other entities in
which such entity owns a majority of the issued and outstanding capital stock or
equity or similar interests.
Section 8.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement and the Confidentiality Agreement (including the
documents and the instruments referred to herein and therein): (a) constitute
the entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) nothing expressed or implied in this Agreement is intended or will be
construed to confer upon or give to any Person, firm or corporation other than
the parties hereto any rights or remedies under or by reason of this Agreement
or any transaction contemplated hereby.
Section 8.8 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
A-70
<PAGE>
Section 8.9 Governing Law. This Agreement and the legal relations
between the parties hereto will be governed by and construed in accordance with
the laws of the State of Pennsylvania, without giving effect to the choice of
law principles thereof; provided, however, that the law governing the fiduciary
duties of each party hereto and their respective boards of directors and the law
governing any other matters of internal corporate governance of any of Acquiror,
Acquisition Subsidiary or the Company shall be the law of their respective
jurisdictions of incorporation.
Section 8.10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Acquisition Subsidiary may assign, in
its sole discretion, any or all of its rights, interests and obligations
hereunder to Acquiror or to any direct or indirect wholly owned subsidiary of
Acquiror. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
Section 8.11 Definition. As used herein, the term "Person" means an
individual, corporation, partnership, association, trust, limited liability
company, unincorporated organization, other entity or group (as defined in
Section 13(d) of the Exchange Act).
A-71
<PAGE>
IN WITNESS WHEREOF, Acquiror, Acquisition Subsidiary and the Company
have caused this Amended and Restated Agreement and Plan of Merger to be signed
by their respective officers thereunto duly authorized as of the date first
written above.
HOME HEALTH CORPORATION OF AMERICA
By: /s/ Bruce Feldman
---------------------------------------
Name: Bruce Feldman
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
HHCA ACQUISITION CORPORATION, INC.
By: /s/ Bruce Feldman
---------------------------------------
Name: Bruce Feldman
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
U.S. HOMECARE CORPORATION
By: /s/ Jay C. Huffard
---------------------------------------
Name: Jay C. Huffard
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
EXECUTION COPY
A-72
<PAGE>
SCHEDULE 2.6
OUTSTANDING WARRANTS TO PURCHASE
COMMON STOCK OF U.S. HOMECARE CORPORATION
<TABLE>
<CAPTION>
AMOUNT OF
SHARES OF
COMMON
STOCK DATE
ISSUABLE EXERCISE OF
WARRANT NUMBER WARRANT HOLDER UPON EXERCISE PRICE ISSUANCE
- ----------------------------- ------------------------------ ------------- -------- --------
<S> <C> <C> <C> <C>
THE 1995 PREFERRED
WARRANTS
- ------------------
WA-1 Prima Management Corporation 37,499 1.75 2/1/95
WA-2 IGI Holdings, Inc. 6,249 1.75 2/1/95
WA-3 MAK International Investment 6,249 1.75 2/1/95
Company Limited
WA-4 William T. McCaffrey 2,499 1.75 2/1/95
WA-5 Dennis P. Lynch 14,000 1.75 2/1/95
WA-6 ABDM Partners 12,500 1.75 2/1/95
WA-7 Mansour I.Y. Badr 5,000 1.75 2/1/95
WA-8 Hermann Merkin 5,000 1.75 2/1/95
WA-9 Frederick C. Lane 3,750 1.75 2/1/95
WA-10 W. Wallace McDowell, Jr. 2,501 1.75 2/1/95
WA-11 Don A. Sanders 2,501 1.75 2/1/95
WA-12 G. Robert O'Brien 1,250 1.75 2/1/95
WA-13 Chris C. Reidel 999 1.75 2/1/95
THE 1995 OTHER WARRANTS/1/
- -----------------------------
WA-14 Sanders Morris Mundy Inc. 418,330.5 1.60786 2/1/95
WA-15 Sanders Morris Mundy Inc. 56,668.5 1.60786 2/8/95
WA-16 The Chase Manhattan Bank, N.A. 462,571 1.60786 10/6/95
WA-18 Creditanstalt Bankverein 353,731 1.60786 10/6/95
THE 1997 WARRANTS/1/
- -----------------------------
WA-19 The Chase Manhattan Bank 50,433 1.59690 3/25/97
WA-20 Creditanstalt Bankverein 38,567 1.59690 3/25/97
</TABLE>
/1/Does not include (A) as a 1995 Other Warrant,Warrant No. WA-17 issued to
Connecticut Development Authority ("CDA") on October 6, 1995 to purchase
816,302 shares of the Company's Common Stock at an exercise price of
$1.60786 per share and (B) as a 1997 Warrant, Warrant No. WA-21 issued to
CDA on March 25, 1997 to purchase 735,000 shares of the Company's Common
Stock at an exercise price of $1.59690 per share (collectively, the "CDA
Warrants"). The CDA Warrants shall be included in this Schedule 2.6 and
shall be assumed by Acquiror in accordance with Section 2.6 of the Merger
Agreement only in the event a default occurs under the terms of the
agreements listed in Section 6.2 (c)(i), 6.2(c)(ii) or 6.2(c)(iii) of the
Merger Agreement solely as a result of the failure of the Company to repay
its obligations under such agreements on or after January 2, 1998 and the
conditions to Acquiror's and Acquisition Subsidiary's obligations to effect
the Merger set forth in Section 6.3(a), 6.3(b) and 6.3(c) of the Merger
Agreement are otherwise satisfied or waived.
A-73
<PAGE>
APPENDIX "B"
HAMBRECHT & QUIST LLC
ONE BUSH STREET
SAN FRANCISCO, CA 94104
(415) 576-3300
September 26, 1997
Confidential
- ------------
The Board of Directors
Home Health Corporation of America, Inc.
2200 Renaissance Blvd.
Suite 300
King of Prussia, PA 19406
Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
Home Health Corporation of America, Inc. (AHHCA@ or the ACompany@) of the
consideration to be paid by HHCA in connection with the proposed acquisition by
HHCA of the common stock, common stock equivalents and preferred stock of U.S.
Homecare Corporation (AUSHO@) (the AProposed Transaction@) under the terms of
the Amended and Restated Agreement and Plan of Merger, dated as of September 26,
1997, among HHCA, HHCA Acquisition Subsidiary and USHO and the related Exhibits
and Schedules thereto (the AAgreement@). We understand that the Agreement
provides, among other things, that at the Effective Time (as defined in the
Agreement) HHCA shall issue between 2,622,000 shares and 2,822,000 shares of
HHCA common stock (the AHHCA Common Stock@) (the AMerger Consideration@) for all
outstanding shares of common stock and common stock equivalents (including
shares of common stock issuable pursuant to conversion of outstanding preferred
stock) of USHO other than those shares held by holders, if any, of USHO common
stock or preferred stock who have perfected appraisal or dissenter rights. For
purposes of this opinion, we have assumed that the Proposed Transaction will
qualify as a tax-free reorganization under Section 368 of the United States
Internal Revenue Code and shall be accounted for as a pooling-of-interests.
Hambrecht & Quist LLC (AHambrecht & Quist@), as part of its investment banking
services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructuring, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as a financial advisor to the board of
directors of HHCA in connection with the Proposed Transaction, and we will
receive a fee for our services, which include the rendering of this opinion.
B-1
<PAGE>
In the past, we have provided investment banking and other financial advisory
services to HHCA and have received fees for rendering these services. In
particular, Hambrecht & Quist acted as lead managing underwriter in HHCA=s
initial public offering in November, 1995. In the ordinary course of business,
Hambrecht & Quist acts as a market maker and broker in the publicly traded
securities of HHCA and receives customary compensation in connection therewith,
and also provides research coverage for HHCA. In the ordinary course of
business, Hambrecht & Quist actively trades in the equity securities of HHCA for
its own account and for the accounts of its customers and, accordingly, may at
any time hold a long or short position in such securities. Hambrecht & Quist
may in the future provide additional investment banking or other financial
advisory services to HHCA.
In connection with our review of the Proposed Transaction, and in arriving at
our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements of
HHCA for recent years and interim periods to date and certain other
relevant financial and operating data of HHCA made available to use
from published sources and from the internal records of HHCA;
(ii) reviewed certain internal financial and operating information,
including certain projections, relating to HHCA provided by the
management of HHCA;
(iii) discussed the business, financial condition and prospects of HHCA
with certain of its officers;
(iv) reviewed the publicly available consolidated financial statement of
USHO for recent years and interim periods to date and certain other
relevant financial and operating data of USHO made available to us
from published sources and from the internal records of USHO;
(v) reviewed certain internal financial and operating information,
including certain projections, relating to USHO provided by the
management of USHO;
(vi) discussed the business, financial condition and prospects of USHO
with certain of its officers;
(vii) reviewed the recent reported prices and trading activity for the
common stocks of HHCA and USHO and compared such information and
certain financial information for HHCA and USHO with similar
information for certain other companies engaged in businesses we
consider comparable;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(ix) reviewed the Agreement;
(x) discussed the accounting treatment of the Proposed Transaction with
HHCA and HHCA=s accountants; and
B-2
<PAGE>
(xi) performed such other analyses and examination and considered such
other information, financial studies, analyses and investigations
and financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning HHCA or USHO considered in
connection with our review of the Proposed Transaction, and we have not assumed
any responsibility for independent verification of such information. We have
not undertaken any independent valuation or appraisal of any of the assets or
liabilities of HHCA or USHO, nor have we conducted a physical inspection of the
properties and facilities of either company. With respect to the financial
forecasts and projections of HHCA and USHO made available to us and used in our
analysis, we have assumed that they reflect the best currently available
estimates and management judgments of the expected future financial performance
of HHCA and USHO, respectively. For purposes of this Opinion, we have assumed
that neither HHCA nor USHO is a party to any pending transactions, including
external financings, recapitalizations or material merger discussions, other
than the Proposed Transaction and those activities undertaken in the ordinary
course of conducting their respective businesses. Our opinion is necessarily
based upon market, economic, financial and other conditions as they exist and
can be evaluated as of the date of this letter, and any change in such
conditions would require a re-evaluation of this opinion. We express no opinion
as to the price at which HHCA Common Stock will trade subsequent to the
Effective Time (as defined in the Agreement).
It is understood that this letter is for the information of the board of
directors in connection with their evaluation of the Proposed Transaction and
may not be used for any other purpose without our prior written consent;
provided, however, that this letter may be reproduced in full in the Proxy
Statement relating to the Proposed Transaction. This letter does not constitute
a recommendation to any stockholder as to how such stockholder should vote on
the Proposed Transaction.
Based upon, and subject to, the foregoing and after considering such other
matters, as we deem relevant, we are of the opinion as of the date hereof the
consideration to be paid by HHCA in the Proposed Transaction is fair to HHCA
from a financial point of view. We express no opinion as to the fairness of the
Proposed Transaction from a financial point of view to USHO or any of its
affiliates.
Very truly yours,
HAMBRECHT & QUIST LLC
By: /s/ David G. Golden
------------------------
David G. Golden
Managing Director
B-3
<PAGE>
APPENDIX "C"
HOME HEALTH CORPORATION OF AMERICA, INC.
AMENDED AND RESTATED
1995 EMPLOYEE AND CONSULTANT EQUITY PLAN
----------------------------------------
ARTICLE I. BACKGROUND.
--------- ----------
1.1 Establishment of the Plan. The Company hereby establishes this Plan
-------------------------
known as the "1995 Employee and Consultant Equity Plan". Under this Plan,
Options (ISOs, NSO or both), Stock Appreciation Rights, Restricted, Unrestricted
and Deferred Stock Awards, Performance Awards, Loans, Supplemental Grants, or
any combination thereof may be awarded.
1.2 Purpose. The purpose of this Plan is to promote the long term success
-------
of the Company and its Subsidiaries by (i) encouraging Employees and Consultants
to focus on critical long range objectives, (ii) attracting and retaining
Employees and Consultants with exceptional qualifications and (iii) linking
Employees and Consultants directly to stockholder interests through the granting
of Awards.
ARTICLE II. DEFINITIONS.
---------- -----------
2.1 "Award" shall mean an Option, Stock Appreciation Right, Restricted,
-----
Unrestricted or Deferred Stock Award, Performance Award, Loan, Supplemental
Grant, or any combination thereof made under this Plan.
2.2 "Board" shall mean the Company's Board of Directors, as constituted
-----
from time to time.
2.3 "Change in Control" means: (i) the occurrence of an event that would,
-----------------
if known to the Company's management, be required to be reported by the Company
under Item 1(a) of Form 8-K pursuant to the Exchange Act; or (ii) the
acquisition or receipt, in any manner, by any person (as defined for purposes of
the Exchange Act) or any group of persons acting in concert, of direct or
indirect beneficial ownership (as defined for purposes of the Exchange Act) of
50% or more of the combined voting securities ordinarily having the right to
vote for the election of directors of the Company; or (iii) a change in the
constituency of the Board with the result that individuals (the "Incumbent
Directors") who are members of the Board on the Effective Date cease for any
reason to constitute at least a majority of the Board, provided that any
individual who is elected to the Board after the Effective Date and whose
nomination for election was unanimously approved by the Incumbent Directors
shall be considered an Incumbent Director beginning on the date of his or her
election to the Board; or (iv) the sale, exchange or other disposition of all or
a significant portion of the Company's business or assets, or the execution by
the Company of a binding agreement providing for such a transaction; unless in
any such case, at least a majority of the Incumbent Directors determine, prior
to the occurrence of such Change of Control, that no Change of Control has or
will have occurred.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended from
----
time to time, and the regulations thereunder.
2.5 "Committee" shall mean a committee which consists of members of the
---------
Board and which has been designated by the Board to have the general
responsibility for the administration of this Plan.
2.6 "Common Shares" shall mean the Common Stock, no par value per share of
-------------
the Company.
C-1
<PAGE>
2.7 "Company" shall mean Home Health Corporation of America, Inc., a
-------
Pennsylvania corporation.
2.8 "Consultant" shall mean any person performing advisory or other
----------
services for the Company or any of its Subsidiaries.
2.9 "Deferred Stock Award" shall mean an award of Common Shares to be
--------------------
delivered to the Participant in the future.
2.10 "Effective Date" shall mean the date upon which the Company's
--------------
contemplated initial public offering is consummated.
2.11 "Employees" shall mean common law employees of the Company or any of
---------
its Subsidiaries.
2.12 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, and all rules and regulations promulgated thereunder.
2.13 "Exercise Price" shall mean the amount for which one Common Share may
--------------
be purchased upon exercise of an Award.
2.14 "Fair Market Value" shall mean the market price of the Common Shares,
-----------------
determined by the Committee as follows:
(a) If the Common Shares were traded over-the-counter on the date in
question but were not classified as a national market issue,
then the Fair Market Value shall be equal to the closing bid
price quoted by the NASDAQ system for such date;
(b) If the Common Shares were traded over-the-counter on the date in
question and were classified as a national market issue, then
the Fair Market Value shall be equal to the last-transaction
price quoted by the NASDAQ system for such date;
(c) If the Common Shares were traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite transactions
report for such date; and
(d) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith
on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on prices reported in the Eastern Edition of the Wall Street Journal.
-------------------
Such determination shall be conclusive and binding on all persons.
2.15 "ISO" shall mean an incentive stock option described in Section
---
422(b) of the Code.
2.16 "Loans" shall mean a loan to a Participant either in connection with
-----
the purchase of Common Shares under an Award or the payment of any federal,
state or local income tax with respect to income recognized as a result of the
Award.
C-2
<PAGE>
2.17 "NSO" shall mean a stock option not described in Sections 422 or 423
---
of the Code.
2.18 "Option" shall mean an ISO or NSO granted under this Plan and
------
entitling the holder to purchase one Common Share.
2.19 "Optionee" shall mean an individual or estate who holds an Option.
--------
2.20 "Outside Director" shall mean a member of the Board who is not a
----------------
common-law employee of the Company or of a Subsidiary.
2.21 "Participants" shall mean those Employees and Consultants who, in the
------------
opinion of the Committee, are in a position to make a significant contribution
to the success of the Company and who receive Awards under this Plan.
2.22 "Plan" shall mean this Home Health Corporation of America, Inc. 1995
----
Employee and Consultant Equity Plan, as it may be amended from time to time.
2.23 "Performance Award" shall mean an Award entitling the Participant to
-----------------
receive, without payment, an Award or Awards following the attainment of such
performance goals as the Committee may determine.
2.24 "Restricted Stock Award" shall mean an Award entitling the
----------------------
Participant to acquire, for a purchase price not less than par value, Common
Shares which except as otherwise specifically provided by this Plan or the
Award, may not be sold, assigned, exchanged, pledged, gifted or otherwise
disposed of, or transferred.
2.25 "Stock Appreciation Right" shall mean an Award entitling the
------------------------
Participant to receive an amount in cash, Common Shares or a combination
thereof, determined in whole or in part by reference to appreciation in Common
Share value.
2.26 "Stock Option Agreement" shall mean the agreement among the Company
----------------------
and an Optionee which contains the terms, conditions and restrictions pertaining
to the Optionee's Option.
2.27 "Status Change" shall mean termination of employment of a Participant
-------------
who is an Employee or the termination of the consulting, service or other
relationship of a Participant who is not an Employee.
2.28 "Subsidiary" shall mean any present or future corporation which is a
----------
"subsidiary corporation" of the Company as defined in Code Section 424.
2.29 "Ten Percent Shareholder" shall mean any Employee who at the time of
-----------------------
grant owns directly or is deemed to own by reason of attribution set forth in
Section 425(d) of the Code, stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or any of its
Subsidiaries.
2.30 "Unrestricted Stock Award" shall mean an Award entitling the
------------------------
Participant to acquire Common Shares for a purchase price of not less than par
value.
2.31 "Supplemental Grant" shall mean a cash award to a Participant in
------------------
connection with an Award.
C-3
<PAGE>
ARTICLE III. ADMINISTRATION.
----------- --------------
3.1 Administration By Committee. The Plan shall be administered by the
---------------------------
Committee, unless the Board, in its discretion, shall determine otherwise. In
the event that at any time the Board decides to administer this Plan, all
references herein to the Committee shall be deemed to be references to the
Board. The Committee shall have plenary authority in its sole discretion not
inconsistent with the express provisions of this Plan to (a) select the
Participants who are to receive Awards under this Plan, (b) determine the type,
number, vesting requirements and other terms and conditions of such Awards, (c)
prescribe and amend the form or forms of instruments evidencing Awards and any
other instruments required under this Plan, (d) waive compliance by a
Participant with any obligations to be performed by the Participant under an
Award, (e) amend or cancel an Award in whole or in part (except that the
Committee may not, without the consent of the holder of such Award, unless
specifically authorized by the terms of an Award, take any action under this
clause with respect to such Award if such action would adversely affect the
rights of such holder), (f) interpret and construe any and all provisions of
this Plan, (g) implement and amend rules and regulations for administering this
Plan, and (h) make all other determinations necessary or advisable for
administering this Plan. The Committee's determination concerning the foregoing
matters shall be conclusive and binding upon all persons. The Committee may
delegate to the Company's Chief Executive Officer the authority to grant Awards
to Participants who are not officers or directors of the Company.
3.2 Committee Composition. The Committee shall consist of two or more
---------------------
members appointed by the Board. A majority of the members of the Committee
shall constitute a quorum, and all determinations by the Committee under this
Plan may be made without notice or meeting of the Committee signed by a majority
of the Committee members. Each member of the Committee shall be a ANon-Employee
Director@ within the meaning of Rule 16b-3 under the Exchange Act.
3.3 Indemnification. Each person who is or who shall be a member of the
---------------
Committee or the Board is hereby indemnified and held harmless by the Company,
to the fullest extent permitted by law, from and against any cost, liability or
expense (including reasonable attorneys' fees) imposed or incurred in connection
with such person's, the Committee's or the Board's, as may be applicable, taking
or failing to take any action under this Plan, excluding such person's wilful
misconduct. Each such person, the Committee and the Board may rely on
information furnished in connection with this Plan's administration by any
appropriate person or persons.
3.4 No Implied Right to Participate. The granting of an Award under this
-------------------------------
Plan shall be entirely within the discretion of the Committee. Nothing
contained in this Plan shall be construed to give any Employee or Consultant any
right to participate in this Plan.
ARTICLE IV. SHARES AVAILABLE FOR GRANT.
---------- --------------------------
4.1 Basic Limitation. Any Common Shares issued pursuant to this Plan may
----------------
be authorized but unissued shares or treasury shares. The aggregate number of
Common Shares for which Awards may be granted under this Plan shall not exceed
One Million Three Hundred Fifty Thousand (1,350,000) shares. The limitation set
forth in this Section 4.1 shall be adjusted pursuant to Article V.
4.2 Additional Shares. If any Awards are forfeited or terminated for any
-----------------
reason prior to being exercised, then the Common Shares subject to such Awards
shall again become available for issuance under this Plan.
4.3 Fractional Shares. No fractional Common Shares shall be delivered
-----------------
under this Plan.
C-4
<PAGE>
ARTICLE V. PROTECTION AGAINST DILUTION.
--------- ---------------------------
5.1 Common Share Adjustments. In the event of a subdivision of the
------------------------
outstanding Common Shares, a declaration of a dividend payable in Common Shares,
a declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares, a combination
or consolidation of the outstanding Common Shares (by reclassification or
otherwise), a recapitalization, a spinoff, a stock split or other similar
occurrence, the Committee may make appropriate adjustments in one or more of (a)
the number of Common Shares available for future Awards under Article IV, (b)
the number of Options to be granted to Outside Directors under Section 6.2, (c)
the number of Common Shares covered by each outstanding Award or (d) the
Exercise Price under each outstanding Award. Except as provided in this Article
V, a Participant shall have no rights by reason of any issuance by the Company
of stock of any class or securities convertible into stock of any class, any
subdivision or consolidation of shares of stock of any class, the payment of any
stock dividend or any other increase or decrease in the number of shares of
stock of any class.
5.2 Other Adjustments. In the event that the Company is a party to a
-----------------
merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or reorganization. Subject to Article XII, such agreement
may provide, without limitation, for the assumption of outstanding Awards by the
surviving corporation or its parent, for their continuation by the Company (if
the Company is a surviving corporation), for accelerated vesting or for
settlement in cash. The Committee may also adjust the number of Common Shares
subject to outstanding Awards, the Exercise Price of the outstanding Awards and
the terms of the outstanding Awards, to take into consideration material changes
in accounting practices or principles, consolidations or mergers, acquisitions
or dispositions of stock or property or any other event if it is determined by
the Committee that such adjustment is appropriate to avoid distortion in the
operation of this Plan, provided that no such adjustment shall be made in the
case of an ISO if it would constitute a modification, extension or renewal of
the ISO within the meaning of Section 425(h) of the Code.
ARTICLE VI. ELIGIBILITY.
---------- -----------
6.1 General Rules. Only Employees and Consultants shall be eligible to
-------------
receive Awards by the Committee. In determining whether to make an Award, the
Committee shall consider the positions and responsibilities of the Employee or
Consultant, their past performance and contributions to the Company's growth and
expansion, the value of their services to the Company, the difficulty of finding
qualified replacements, and such other factors as the Committee deems pertinent
in its sole discretion. Outside Directors shall only be eligible for the grant
of the Awards described in Section 6.2.
6.2 Outside Directors. Notwithstanding any provision of this Plan to the
-----------------
contrary, the participation of Outside Directors in this Plan shall be subject
to the following restrictions:
(a) Outside Directors shall not be eligible to receive Awards except
for the NSOs described in this Section 6.2.
(b) On the later of (i) the Effective Date, or (ii) the date when an
Outside Director first becomes a member of the Board, such Outside Director
shall receive a one-time grant of an NSO covering 10,000 Common Shares (subject
to adjustment under Article 5). Such NSO shall become exercisable six months
after the date of grant and shall vest as follows:
C-5
<PAGE>
PERCENT VESTED DATE OF VESTING
-------------- ---------------
50% Date of grant
75% One year after date of grant
100% Two years after date of grant
(c) All NSOs granted to an Outside Director under this Section 6.2
shall also become exercisable in full in the event of the termination of such
Outside Director's service because of death, total and permanent disability or
voluntary retirement at or after age 65.
(d) The Exercise Price under all NSOs granted to an Outside Director
under this Section 6.2 shall be equal to the Fair Market Value of a Common Share
on the date of grant, payable in one of the forms described in Article VIII. For
purposes of the initial NSOs to be issued pursuant to this Section 6.2, the
Exercise Price shall be the initial public offering price.
(e) All NSOs granted to an Outside Director under this Section 6.2
shall terminate on the earliest of (i) the 5th anniversary of the date of grant,
(ii) a date not more than three months after the termination of such Outside
Director's service for any reason other than death or total and permanent
disability or (iii) a date not more than six months after the termination of
such Outside Director's service because of death or total and permanent
disability.
6.3 Ten Percent Shareholders. An Employee who is a Ten Percent
------------------------
Shareholder shall not be eligible for the grant of an ISO unless the
requirements set forth in Code Section 422(c)(6) are satisfied.
ARTICLE VII. OPTIONS.
----------- -------
7.1 Stock Option Agreement. Each grant of an Option under this Plan shall
----------------------
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of this Plan and may be
subject to any other terms that are not inconsistent with this Plan. The Stock
Option Agreement shall specify whether the Option is an ISO or NSO. The
provisions of the various Stock Option Agreements entered into under this Plan
need not be identical.
7.2 Options Nontransferable. No Option granted under this Plan shall be
-----------------------
transferrable by the Optionee other than by will, by a beneficiary designation
executed by the Optionee and delivered to the Company or by the laws of descent
and distribution. Subject to Article XII, an Option may be exercised during the
lifetime of the Optionee only by him or her or by his or her legal guardian or
representative, in the event that the Optionee has become mentally
incapacitated. No Option or interest therein may be transferred, assigned,
pledged or hypothecated by the Optionee whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
7.3 Number of Shares. Each Stock Option Agreement shall specify the
----------------
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article V.
7.4 Exercise Price. Each Stock Option Agreement shall specify the
--------------
Exercise Price. The Exercise Price under (i) an ISO shall not be less than 100%
(110% in the case of an ISO granted to a Ten Percent Shareholder) of the Fair
Market Value of a Common Share on the date of grant and (ii) any Option shall
not be less than the par value per share of the Common Shares purchasable under
such Option.
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7.5 Exercisability and Term. Each Stock Option Agreement shall specify
-----------------------
the date when all or any installment of the Option is to become exercisable.
The Stock Option Agreement shall also specify the term of the Option; provided
that the term of an ISO shall in no event exceed ten years (five years in the
case of an ISO granted to a Ten Percent Shareholder) from the date of grant.
Subject to Article XII, a Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's employment, service or death. In the
case of an Option not immediately exercisable in full, the Committee may at any
time accelerate the time at which all or any part of the Option may be
exercised.
7.6 Modification of Options. Within the limitations of this Plan, the
-----------------------
Committee shall have the authority, both generally and in particular instances,
to (i) modify, extend or assume outstanding Options, (ii) accept the
cancellation of outstanding Options (whether granted by the Company or by
another issuer) in return for the grant of new Options for the same or a
different number of shares and at the same or a different exercise price, (iii)
waive compliance by an Optionee with any obligation to be performed by the
Optionee under an Option, and (vi) waive any condition or provision in an
Option.
7.7 Limitations on Modifications of Options. The foregoing
---------------------------------------
notwithstanding, no modification of an Option shall (i) alter or impair, in any
material respect, an Optionee's rights under an Option, without such Optionee's
consent, or, (ii) in the case of an ISO, (w) increase the total number of Common
Shares covered by the Option, except pursuant to Article V, (y) extend the term
of the Option to more than ten years (five years, in the case of an ISO granted
to a Ten Percent Shareholder), (z) reduce the Exercise Price per share (except
pursuant to Article V) or otherwise result in a modification, extension or
renewal (within the meaning of Section 425(h) of the Code) of the Option.
7.8 Replacement Options. The Committee may grant Options under this Plan
-------------------
in substitution for options held by employees of another corporation who
concurrently become employees of the Company or a Subsidiary as a result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Committee may direct that
the replacement Options be granted on such terms and conditions that the
Committee considers appropriate in the circumstances.
ARTICLE VIII. STOCK APPRECIATION RIGHTS.
------------ -------------------------
8.1 General. The Committee may Award Stock Appreciation Rights. In
-------
general, a Stock Appreciation Right entitles the Participant to receive, with
respect to each share of Common Stock as to which the right is exercised, the
excess of the share's fair market value on the date of exercise over its fair
market value on the date the Right was granted. However, the Committee may
provide at the time of grant that the amount the Participant is entitled to
receive will be adjusted upward or downward under rules established by the
Committee to take into account the performance of the Common Shares in
comparison with the performance of other stocks or an index or indices of other
stocks. The Committee may also grant Stock Appreciation Rights which provide
that following a Change in Control of the Company the holder of such Right will
be entitled to receive, with respect to each Common Share subject to the Right,
an amount equal to the excess of a specified value (which may include an average
of values) for a Common Share during a period preceding such Change in Control
over the fair market value of a Common Share on the date the Right was granted.
8.2 Rights Granted in Tandem With Options. Stock Appreciation Rights may
-------------------------------------
be granted in tandem with, or independently of, Options granted under this Plan.
A Stock Appreciation Right granted in
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tandem with an Option which is not an ISO may be granted either at or after the
time the Option is granted. A Stock Appreciation Right granted in tandem with an
ISO may be granted only at the time the Option is granted. When Stock
Appreciation Rights are granted in tandem with Options, the following rules will
apply:
(a) The Stock Appreciation Right will be exercisable only at such
time or times, and to the extent, that the related Option is exercisable and
will be exercisable in accordance with the procedure required for exercise of
the related Option.
(b) The Stock Appreciation Right will terminate and no longer be
exercisable upon the termination or exercise of the related Option, except that
a Stock Appreciation Right granted with respect to less than the full number of
shares covered by an Option will not be reduced until the number of shares as to
which the related Option has been exercised or has terminated exceeds the number
of shares not covered by the Stock Appreciation Right.
(c) The Option will terminate and no longer be exercisable upon the
exercise of the related Stock Appreciation Right.
(d) The Stock Appreciation Right will be transferable only with the
related Option.
(e) A Stock Appreciation Right granted in tandem with an ISO may be
exercised only when the market price of the Common Stock subject to the Option
exceeds the exercise price of such Option.
8.3 Rights Not Granted in Tandem With Options. A Stock Appreciation Right
-----------------------------------------
not granted in tandem with an Option will become exercisable at such time or
times, and on such terms and conditions, as the Committee may specify. The
Committee may at any time accelerate the time at which all or any part of the
Stock Appreciation Right may be exercised. Any exercise of an independent Stock
Appreciation Right must be in writing, signed by the proper person and delivered
or mailed to the Company, accompanied by any other documents required by the
Committee.
ARTICLE IX. STOCK AWARDS.
---------- ------------
9.1 Restricted Stock Awards. The Committee may make Restricted Stock
-----------------------
Awards. A Participant who is granted a Restricted Stock Award shall have no
rights with respect to such Award unless the Participant accepts the Award by
written instrument delivered or mailed to the Company accompanied by payment in
full of the specified purchase price, if any, of the shares covered by the
Award. Payment may be by certified or bank check or other instrument acceptable
to the Committee. A Participant who receives a Restricted Stock Award shall
have all the rights of a stockholder with respect to such stock, including
voting and dividend rights, subject to the restrictions described in Section 9.1
and any other conditions imposed by the Committee at the time of grant. Unless
the Committee otherwise determines, certificates evidencing such shares will
remain in the possession of the Company until such shares are free of all
restrictions under this Plan. Except as provided in this Plan or the Award, if
a Participant suffers a Status Change for any reason, such Participant's
restricted stock must be offered to the Company for purchase for the amount of
cash paid for the Common Stock, or forfeited to the Company if no cash was paid.
These restrictions will lapse at such time or times, and on such terms and
conditions, as the Committee may determine. The Committee may at any time
accelerate the time at which the restrictions on all or any part of the shares
will lapse. Any Participant making, or required by an Award to make, an
election under Section 83(b) of the Code with respect to Restricted Stock Award
shall deliver to the Company, within 10 days of the filing of such election with
the Internal Revenue Service, a copy of such election.
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9.2 Unrestricted Stock Award. The Committee may, in its sole discretion,
------------------------
approve the sale to any Participant of Common Shares free of restrictions under
the Plan for a price which is not less than the par value of the Common Shares.
9.3 Deferred Stock Awards. The Committee may make Deferred Stock Awards.
---------------------
Under a Deferred Stock Award, delivery of the Common Shares will take place at
such time or times, and on such terms and conditions, as the Committee may
determine. The Committee may at any time accelerate the time at which delivery
of all or any part of the Common Shares will take place. At the time any Award
is granted, the Committee may provide that, at the time Common Shares would
otherwise be delivered pursuant to the Award, the Participant will instead
receive an instrument evidencing the Participant's right to future delivery of
Common Shares.
ARTICLE X. PERFORMANCE AWARDS.
--------- ------------------
The Committee may make Performance Awards. Performance Awards are based on
the attainment of performance goals which may be related to personal
performance, corporate performance, group or departmental performance or any
such other category of performance as the Committee may determine. The
Committee shall have the authority to determine the performance goals, the
period or period during which performance is to be measured and all other terms
and conditions applicable to the Award.
ARTICLE XI. LOANS AND SUPPLEMENTAL GRANTS.
---------- -----------------------------
11.1 Loans. In connection with any Award, the Committee shall have the
-----
authority, in its sole discretion, to determine whether to make a Loan, the
amount, terms and conditions of the Loan, including the interest rate (which may
be zero), whether the Loan is to be secured or unsecured or with or without
recourse against the borrower, the terms on which the Loan is to be repaid and
the terms and conditions, if any, under which the Loan may be forgiven. In no
event shall any Loan have a term (including extensions) in excess of ten years.
11.2 Supplemental Grants. In connection with any Award, the Committee
-------------------
shall have the authority, in its sole discretion, to make a Supplemental Grant
not to exceed an amount equal to (1) the amount of any Federal, state and local
income tax on ordinary income for which the Participant may be liable with
respect to the Award, determined by assuming taxation at the highest marginal
rate, plus (2) an additional amount on a grossed-up basis intended to make the
Participant whole on an after-tax basis after discharging all the Participant's
income tax liabilities arising from all Awards. Any payments under this Section
11.2 shall be made at the time the Participant incurs Federal income tax
liability with respect to the Award.
ARTICLE XII. EVENTS AFFECTING OUTSTANDING AWARDS
----------- -----------------------------------
12.1 Status Change Due to Death or Disability. If a Participant who
----------------------------------------
suffers a Status Change by reason of death or permanent disability (as
determined by the Committee), the following rules shall apply, unless otherwise
determined by the Committee:
(a) All Options and Stock Appreciation Rights held by the Participant at
the time of such Status Change, to the extent then exercisable, will continue to
be exercisable by the Participant's heirs, executor, administrator or other
legal representative, for a period of one year after the Participant's Status
Change. After the expiration of such one-year period, all such Options and
Stock Appreciation Rights shall terminate. In no event, however, shall an
Option or Stock Appreciation Right remain exercisable beyond the latest date on
which it could have been exercised without regard to this Section 12. All
Options and Stock Appreciation
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<PAGE>
Rights held by a Participant at the time of such Status Change that are not then
exercisable shall terminate upon such Status Change.
(b) All Restricted Stock held by the Participant at the time of such
Status Change shall immediately become free of all restrictions and conditions.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award or Supplemental Grant to which the Participant was not irrevocably
entitled at the time of such Status Change shall be forfeited and the Award
canceled as of the time of such Status Change.
12.2 Status Change Due to Events Other Than Death or Disability. If a
----------------------------------------------------------
Participant suffers a Status Change other than by reason of death or permanent
disability (as determined by the Committee), the following rules shall apply,
unless otherwise determined by the Committee:
(a) All Options and Stock Appreciation Rights held by the Participant at
the time of such Status Change, to the extent then exercisable, will continue to
be exercisable by the Participant for a period of three months after the
Participant's Status Change. After the expiration of such three-month period,
all such Options and Stock Appreciation Rights shall terminate. In no event,
however, shall an Option or Stock Appreciation Right remain exercisable beyond
the latest date on which it could have been exercised without regard to this
Section 12. All Options and Stock Appreciation Rights held by a Participant at
the time of such Status Change that are not then exercisable shall terminate
upon such Status Change.
(b) All Restricted Stock held by the Participant at the time of such
Status Change shall immediately become free of all restrictions and conditions,
unless such Status Change results from a termination for Cause (as defined in
Section 12.2(d)), in which event all Restricted Stock held by the Participant at
the time of the Status Change shall be transferred to the Company (and, in the
event the certificates representing such Restricted Stock are held by the
Company, such Restricted Stock shall be so transferred without any further
action by the Participant) in accordance with Article IX above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocably
entitled at the time of such Status Change shall be forfeited and the Award
canceled as of the date of such Status Change.
(d) A termination by the Company of a Participant's employment with or
service to the Company shall be for "Cause" only if: (a) at least 75% of the
members of the Board determined that the Participant (i) was guilty of gross
negligence or willful misconduct in the performance of his or her duties for the
Company, or (ii) breached or violated, in a material respect, any agreement
between the Participant and the Company or any of the Company's policy
statements regarding conflicts-of-interest, insider trading or confidentiality,
or (iii) committed a material act of dishonesty or breach of trust; and (b) in
the case of a Participant who is an Employee, (i) such determination was made at
a duly convened meeting of the Board with respect to which the Participant
received at least 10 days prior written notice, had a reasonable opportunity to
make a statement and answer the allegations against him or her; and (ii) either
(A) the Participant was given a reasonable opportunity to take remedial action
but failed or refused to do so, or (B) at least 75% of the members of the Board
also determined, at such meeting, that an opportunity to take remedial action
would not have been meaningful under the circumstances.
(e) For all purposes of this Section 12.2: (a) if a Participant is an
Employee of a subsidiary of the Company and such subsidiary ceases to be a
subsidiary of the Company, then the Participant's employment with the Company
will be deemed to have been terminated by the Company without Cause, unless the
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<PAGE>
Participant is transferred to the Company or another subsidiary of the Company;
(b) the employment with the Company of a Participant who is an Employee will not
be deemed to have been terminated if the Participant is transferred from the
Company to a subsidiary of the Company, or vice versa, or from one subsidiary of
the Company to another; and (c) if a Participant who is an Employee terminates
his or her employment with the Company following a reduction in his or her rate
of compensation, then the Participant's employment with the Company will be
deemed to have been terminated by the Company without Cause.
ARTICLE XIII. PAYMENT FOR SHARES.
------------ ------------------
13.1 General Rule. The entire Exercise Price of the Common Shares issued
------------
upon exercise of an Award shall be payable in cash, certified check, bank draft
or money order at the time when such Common Shares are purchased, except as
follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable
Stock Option Agreement. The Stock Option Agreement may specify
that payment may be made in any form(s) described in this
Article XIII.
(b) In the case of an Award (other than an ISO), the Committee may
at any time accept payment in any form(s) described in this
Article XIII.
13.2 Surrender of Stock. To the extent that this Section 13.2 is
------------------
applicable and approved by the Committee, payment for all or any part of the
Exercise Price may be made with Common Shares which have already been owned by
the Participant for more than six months. Such Common Shares shall be valued at
their Fair Market Value on the date when the new Common Shares are purchased
under the Plan.
13.3 Promissory Note. To the extent that this Section 13.3 is applicable
---------------
and approved by the Committee, payment for all or any part of the Exercise Price
may be made with a full-recourse promissory note (on a form prescribed by the
Company); provided that the par value of newly issued Common Shares must be paid
in lawful money of the United States at the time when such Common Shares are
purchased.
13.4 Exercise/Sale. To the extent that this Section 13.4 is applicable
-------------
and approved by the Committee, payment may be made by the delivery (on a form
prescribed by the Company) of an irrevocable direction to a securities broker
approved by the Company to sell Common Shares and to deliver all or part of the
sales proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
13.5 Exercise/Pledge. To the extent that this Section 13.5 is applicable
---------------
and approved by the Committee, payment may be made by the delivery (on a form
prescribed by the Company) of an irrevocable direction to pledge Common Shares
to a securities broker or lender approved by the Company, as security for a
loan, and to deliver all or part of the loan proceeds to the Company in payment
of all or part of the Exercise Price and any withholding taxes.
13.6 Other Forms of Payment. To the extent that this Section 13.6 is
----------------------
applicable and approved by the Committee, payment may be made in any other form
that is consistent with applicable laws, regulations and rules.
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<PAGE>
ARTICLE XIV. LIMITATION ON RIGHTS.
----------- --------------------
14.1 Written Instrument Required. The Committee's approval of a grant of
---------------------------
an Award under this Plan, including the names of Participants and the size of
the Award, including the number of Common Shares subject to the Award, shall be
reflected in minutes of meetings held by the Committee or the Board or in
written consents signed by members of the Committee or the Board. Once approved
by the Committee, each Award shall be evidenced by such written instrument,
containing such terms as are required by this Plan and such other terms,
consistent with the provisions of this Plan, as may be approved from time to
time by the Committee. Each instrument may be in the form of agreements to be
executed by both the Participant and the Company, or certificates, letters or
similar instruments, which need not be executed by the Participant but
acceptance of which shall evidence agreement to the terms thereof. The receipt
of an Award shall not impose any obligation on the Participant to accept the
Award.
14.2 No Stockholder Rights. Except as specifically provided by this Plan,
---------------------
the receipt of an Award shall not give a Participant rights as a stockholder.
The Participant shall obtain such rights, subject to any limitations imposed by
this Plan or the instrument evidencing the Award, upon actual receipt of Common
Shares. However, the Committee may, on such conditions as it deems appropriate,
provide that a Participant will receive a benefit in lieu of cash dividends that
would have been payable on any or all Common Shares subject to the Participant's
Award had such Common Shares been outstanding. Without limitation, the
Committee may provide for payment to the Participant of amounts representing
such dividends, either currently or in the future, or for the investment of such
amounts on behalf of the Participant.
14.3 Regulatory Requirements. The Company shall not be obligated to
-----------------------
deliver any Common Shares (a) until, in the opinion of the Company's counsel,
all applicable federal, state and foreign laws and regulations have been
complied with, (b) if the outstanding Common Shares are at the time listed on
any stock exchange, until the Common Shares to be delivered have been listed or
authorized to be listed on such exchange upon official notice of issuance, and
(c) until all other legal matters in connection with the issuance and delivery
of such Common Shares have been approved by the Company's counsel. If the sale
of Common Shares has not been registered under the Securities Act of 1933, as
amended, the Company may require, as a condition to the exercise of an option,
such representations and agreements as counsel for the Company may consider
appropriate to avoid violation of such Act or applicable state laws and may
require the certificates evidencing such Common Shares bear an appropriate
legend restricting transfer.
14.4 Exercise of Awards. Awards shall not be exercisable until at least
------------------
six (6) months after the date of grant.
ARTICLE XV. WITHHOLDING TAXES.
---------- -----------------
15.1 General. To the extent required by applicable federal, state, local
-------
or foreign law, the recipient of any payment or property under this Plan shall
make arrangements satisfactory to the Company for the satisfaction of any
withholding tax obligations that arise by reason of the receipt or vesting of
such payment or property. The Company shall not be required to issue any Common
Shares or make any cash payment under this Plan until such obligations are
satisfied.
15.2 Share Withholding. The Committee may permit the recipient of any
-----------------
payment or property under this Plan to satisfy all or part of his or her
withholding or income tax obligations by having the Company withhold a portion
or any Common Shares that otherwise would be issued to him or her or by
surrendering a portion of any Common Shares that previously were issued to him
or her. Such Common Shares shall be valued at their Fair Market Value on the
date when taxes otherwise would be withheld in cash.
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Any payment of taxes by assigning Common Shares to the Company may be subject to
restrictions, including any restrictions required by rules of the Securities and
Exchange Commission.
ARTICLE XVI. FUTURE OF THE PLAN.
----------- ------------------
16.1 Term of the Plan. This Plan, as set forth herein, shall become
----------------
effective on the Effective Date, subject to the approval of the Company's
shareholders. This Plan shall remain in effect until it is terminated under
this Article XVI, except that ISOs shall not be granted after the expiration of
a period which is ten (10) from the date this Plan was first approved by the
Company's shareholders.
16.2 Amendment or Termination. The Board may, at any time and for any
------------------------
reason, amend or terminate this Plan, except that the provisions of Section 6.2
relating to Outside Directors shall not be amended more than once in any six (6)
month period. An amendment of this Plan shall be subject to the approval of the
Company's shareholders only to the extent required by applicable law,
regulations or rules. No Awards shall be granted under this Plan after the
termination thereof. The termination of this Plan, or any amendment thereof,
shall not affect any Awards previously granted under this Plan.
ARTICLE XVII. EFFECTIVENESS OF AWARD.
------------ ----------------------
Corporate action constituting an offer by the Company of Common Shares to
any Participant under the terms of an Award shall be deemed completed as of the
date of grant of the Award, regardless of when the instrument, certificate, or
letter evidencing the Award is actually received or accepted by the Participant.
ARTICLE XVIII. NO ASSIGNMENT.
------------- -------------
None of a Participant's rights under any Award or under this Plan may be
assigned or transferred in any manner other than by will or under the laws or
descent and distribution. The foregoing shall not, however, restrict a
Participant's right with respect to unrestricted Common Shares or the outright
transfer of cash, nor shall it restrict the ability of a Participant's heirs,
estate, beneficiaries, or personal or legal representatives to enforce the terms
of the Plan with respect to Awards granted to the Participant.
ARTICLE XIX. MISCELLANEOUS
---------------------------
19.1 Shareholder Approval. This Plan shall be approved and ratified by the
--------------------
stockholders of the Company, not later than one year after adoption of this Plan
by the Board, pursuant to Treasury regulation section 1.423-2(c). Grants of
Awards under this plan may be made prior to that date (but after adoption of the
Plan by the Board), subject to the approval of this Plan by the Company's
shareholders.
19.2 Employment/Engagement Rights. Neither the establishment of this Plan,
----------------------------
nor the grant of any Options thereunder, nor the exercise thereof shall be
deemed to give to any Employee or Consultant the right to be retained in the
employ of or to receive any consideration from the Company or any Subsidiary or
to interfere with the right of the Company or any Subsidiary to discharge any
Employee or Consultant or otherwise modify the employment or consulting
relationship at any time.
19.3 Other Options Not Precluded. Neither the adoption of this Plan nor
---------------------------
the grant of Awards to an Employee or Consultant shall affect the Company's
right to grant such Awards that are not subject to this Plan, to issue to
Employees or Consultants stock as a bonus or otherwise, or to adopt other plans
or arrangements under stock may be issued to Employees or Consultants.
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<PAGE>
19.4 Governing Law. This Plan shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Pennsylvania except to the
extent such laws are preempted by the laws of the United States.
IN WITNESS WHEREOF, to record the approval of this Plan by the Board, the
Company has caused its duly authorized officer to affix the corporate name and
seal hereto on this 15th day of September, 1995.
HOME HEALTH CORPORATION OF AMERICA, INC.
By:/S/ BRUCE J. FELDMAN
--------------------------
ATTEST:/S/ TINA LABANT
----------------------
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<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC.
KING OF PRUSSIA, PA
PROXY FOR 1997 ANNUAL MEETING OF SHAREHOLDERS, [ ]
Solicited On Behalf of the Board of Directors
The undersigned hereby constitutes and appoints Bruce J. Feldman, Bruce J.
Colburn and Tina Labant, and each of them, as attorneys and proxies of the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned, to appear at the annual meeting of shareholders of
Home Heath Corporation of America, Inc. to be held on the __th day of [ ]
and at any postponement or adjournment thereof, and to vote all of the shares of
Home Heath Corporation of America, Inc. which the undersigned is entitled to
vote, with all the powers and authority the undersigned would possess if
personally present. The undersigned hereby directs that this proxy be voted as
marked on the reverse side hereof.
THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED. IF NO
DIRECTIONS TO THE CONTRARY ARE INDICATED IN THE BOXES PROVIDED, THE PERSONS
NAMED HEREIN INTEND TO VOTE FOR EACH PROPOSAL LISTED ON THE REVERSE SIDE HEREOF.
A MAJORITY OF SAID ATTORNEYS AND PROXIES PRESENT AND ACTING AT THE MEETING
IN PERSON OR BY THEIR SUBSTITUTES (OR IF ONLY ONE IS PRESENT AND ACTING, THEN
THAT ONE) MAY EXERCISE ALL THE POWERS CONFERRED HEREBY. DISCRETIONARY AUTHORITY
IS CONFERRED HEREBY AS TO CERTAIN MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
(Continued and to be marked, signed and dated on the reverse side)
<PAGE>
(1) Proposal to approve and adopt the Amended and Restated Agreement and Plan
of Merger ("Merger Agreement"), dated as of September 26, 1997, among Home
Health Corporation of America, Inc. ("HHCA"), HHCA Acquisition Corporation,
Inc. ("Subsidiary"), and U.S. HomeCare Corporation ("USHO") and to approve
the merger of Subsidiary with and into USHO pursuant to the Merger
Agreement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(2) ELECTION OF DIRECTOR: G. Michael Bellenghi
FOR the nominee WITHHOLD AUTHORITY
listed above (except to vote for the
as marked to the nominee listed
contrary below.) above.
[ ] [ ]
(3) Proposal to consider and approve amendments to HHCA's 1995 Employee and
Consultant Equity Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(4) Proposal to adjourn the HHCA Annual Meeting, if necessary, to permit
further solicitation of proxies in the event there are not sufficient votes
at the time of the HHCA Annual Meeting to constitute a quorum or to approve
the merger of Subsidiary with and into USHO pursuant to the Merger
Agreement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
-2-
<PAGE>
(5) To transact such other business as may properly come before the meeting or
any postponement or adjournment thereof.
Receipt of the Notice of Annual Meeting
of Shareholders and Proxy Statement
dated [ ] is hereby acknowledged.
________________________________________
Signature
________________________________________
Signature
Dated: _________________________________
Please sign exactly as your name or
names appear hereon, including any
official position or representative
capacity.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE PAID ENVELOPE.
-3-
