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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): OCTOBER 18, 1998
SUNRISE ASSISTED LIVING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-20765 54-1746596
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation of organization) File Number) Identification No.)
9401 LEE HIGHWAY, SUITE 300
FAIRFAX, VIRGINIA 22031
(Address of principal executive offices) (Zip Code)
(703) 273-7500
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former Name or Former Address, if changed Since Last Report)
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Exhibit Index on Page 5
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ITEM 5. OTHER EVENTS
Proposed Acquisition of Karrington Health, Inc. On October 19, 1998,
Sunrise Assisted Living, Inc. (the "Acquiror") announced that it had entered
into an Agreement of Merger, dated as of October 18, 1998 (the "Merger
Agreement"), with Karrington Health, Inc., an Ohio corporation ("Karrington"),
and Buckeye Merger Corporation, an Ohio corporation and a newly-formed wholly
owned subsidiary of the Acquiror ("Merger Sub"), which provides for the merger
(the "Merger") of Merger Sub with and into Karrington with Karrington continuing
as the surviving corporation. Pursuant to the Merger Agreement, at the effective
time of the Merger (the "Effective Time"), each share of Common Stock, without
par value, of Karrington (the "Karrington Common Stock"), outstanding
immediately prior to the Effective Time will be automatically converted,
subject to certain exceptions, into the right to receive (i) a number of shares
of Acquiror Common Stock equal to the lesser of (A) 0.3939; or (B) the number
obtained by dividing $13.00 by the Average Trading Price of Acquiror Common
Stock (as defined in the Merger Agreement) but in no event less than 0.3333,
plus (ii) the associated right to purchase shares of Series C Junior
Participating Preferred Stock of Acquiror under its Stockholder Rights
Agreement. Cash will be paid in lieu of fractional shares. The Merger is
subject to certain conditions, including receipt of required regulatory
approvals and approval of the Merger Agreement by the shareholders of
Karrington. The proposed acquisition of Karrington by Acquiror is expected to
be accounted for using the "purchase method" of accounting.
Concurrently with the execution and delivery of the Merger Agreement,
the Acquiror and Karrington entered into an Option Agreement (the "Option
Agreement"), pursuant to which Karrington granted to Acquiror the option to
acquire 676,903 shares of Karrington Common Stock (subject to adjustment upon
the happening of certain events), representing approximately 9.9% of the
outstanding Karrington Common Stock, at an exercise price of $9.00 per share
(the "Karrington Stock Option"). The Karrington Stock Option is exercisable by
Acquiror, in whole or in part, at any time or from time to time prior to the
termination of the Karrington Stock Option if during the term of the Karrington
Stock Option a proposal for a "Third Party Transaction" (as defined in the
Merger Agreement) is announced or received by Karrington. Notwithstanding the
foregoing, the Karrington Stock Option may not be exercised in whole or in part
with respect to that number of shares of Karrington Common Stock that would
result in the Acquiror realizing upon exercise thereof, taking into account all
prior exercises of the Karrington Stock Option, an Aggregate Spread Value (as
defined in the Option Agreement) in excess of $5.0 million. Under certain
circumstances specified in the Option Agreement, Acquiror has the right to
require Karrington to pay the Acquiror the Put Price (as defined in the Option
Agreement) of the Karrington Stock Option. Notwithstanding the foregoing, in no
event shall the aggregate Put Price, together with the Aggregate Spread Value of
any shares of
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Karrington Common Stock obtained upon exercise of the Karrington Stock Option,
exceed $5.0 million.
As of October 18, 1998, certain affiliates of Karrington (each, a
"Karrington Shareholder"), who collectively own 2,975,000, or approximately
43.5%, of the outstanding shares of Karrington Common Stock also entered into
Shareholder Agreements (each, a "Karrington Shareholder Agreement") with the
Acquiror, pursuant to which each Karrington Shareholder appointed Acquiror as
such Karrington Shareholder's lawful proxy and attorney-in-fact to vote such
Karrington Shareholder's Karrington Common Stock in favor of the approval of the
Merger as set forth in the Merger Agreement and against any "Third Party
Transaction" (as such term is defined in the Merger Agreement).
Pursuant to the Merger Agreement, Acquiror also agreed to make
available promptly to Karrington a fully secured line of credit in the principal
amount of up to $10 million, subject to good faith negotiation, execution and
delivery of mutually acceptable loan documentation.
Copies of the Merger Agreement, the Option Agreement and the form of
the Shareholder Agreement are filed as exhibits hereto. The foregoing
descriptions are qualified in their entirety by reference to such exhibits.
Proposed Acquisition of Meditrust Interests. Acquiror also announced
on October 19, 1998 that it had entered into an agreement with Meditrust
Corporation to acquire four separate first trust mortgages secured by Karrington
properties and six assisted living properties currently leased to Karrington
(the "Meditrust Interests") for approximately $63.7 million. Closing of the
acquisition of the Meditrust Interests is scheduled to occur by December 2,
1998, subject to the satisfaction of certain conditions, such as examination of
titles and completion of transfer documents.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) None.
(b) None.
(c) Exhibits.
2.1 Agreement of Merger, dated as of October 18, 1998,
among the Acquiror, Merger Sub and Karrington.
99.1 Option Agreement dated October 18, 1998 between the
Acquiror and Karrington.
99.2 Form of Shareholder Agreement with Karrington
affiliates.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SUNRISE ASSISTED LIVING, INC.
(Registrant)
Date: October 28, 1998 By: /s/ LARRY E. HULSE
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Larry E. Hulse
Controller and Chief Accounting
Officer
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INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit Name Page
----------- ------------ ----
<S> <C> <C>
2.1 Agreement of Merger, dated as of October 18,
1998, among the Acquiror, Merger Sub and
Karrington.
99.1 Option Agreement dated October 18, 1998
between the Acquiror and Karrington.
99.2 Form of Shareholder Agreement with Karrington
affiliates.
</TABLE>
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EXHIBIT 2.1
AGREEMENT OF MERGER
BY AND AMONG
SUNRISE ASSISTED LIVING, INC.,
BUCKEYE MERGER CORPORATION,
AND
KARRINGTON HEALTH, INC.
DATED AS OF OCTOBER 18, 1998
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I........................................................................................2
1.1 The Merger........................................................................2
1.2 Closing...........................................................................2
1.3 Effective Time....................................................................2
1.4 Effects of Merger.................................................................2
1.5 Articles of Incorporation and Bylaws..............................................3
1.6 Directors and Officers............................................................3
ARTICLE II.......................................................................................3
2.1 Share Consideration; Conversion or Cancellation of Shares in the Merger...........3
2.2 Payment for Shares in the Merger..................................................4
2.3 Exchange Agent....................................................................6
2.4 Fractional Shares.................................................................7
2.5 Further Assurances................................................................8
ARTICLE III......................................................................................8
3.1 Organization......................................................................9
3.2 Capitalization...................................................................10
3.3 No Adjustment Under Notes........................................................11
3.4 Options or Other Rights..........................................................11
3.5 Authority Relative to this Agreement.............................................11
3.6 Acquiror Common Stock............................................................12
3.7 No Violation.....................................................................12
3.8 Compliance with Laws.............................................................13
3.9 Fraud and Abuse Matters..........................................................14
3.10 Medicare/Medicaid Participation.................................................15
3.11 Litigation......................................................................16
3.12 Financial Statements and Reports................................................17
3.13 Absence of Certain Changes or Events............................................18
3.14 Employee Benefit Plans and Employment Matters...................................18
3.15 Labor Matters...................................................................20
3.16 Insurance.......................................................................20
3.17 Environmental Matters...........................................................20
3.18 Tax Matters.....................................................................21
3.19 Intellectual Property...........................................................22
3.20 No Default......................................................................23
3.21 Title to Properties; Encumbrances...............................................23
3.22 Brokers.........................................................................24
3.23 Opinion of Financial Advisor....................................................24
3.24 Company Stock Ownership.........................................................24
3.25 Voting Requirements.............................................................24
3.26 Books and Records...............................................................24
3.27 Disclosure......................................................................24
</TABLE>
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<TABLE>
<S> <C>
ARTICLE IV......................................................................................25
4.1 Organization.....................................................................25
4.2 Capitalization...................................................................26
4.3 Options or Other Rights..........................................................27
4.4 Authority Relative to this Agreement.............................................27
4.5 No Violation.....................................................................28
4.6 Compliance with Laws.............................................................29
4.7 Fraud and Abuse Matters..........................................................30
4.8 Medicare/Medicaid Participation..................................................31
4.9 Litigation.......................................................................32
4.10 Financial Statements and Reports................................................33
4.11 Absence of Certain Changes or Events............................................34
4.12 Employee Benefit Plans and Employment Matters...................................35
4.13 Labor Matters...................................................................36
4.14 Insurance.......................................................................36
4.15 Environmental Matters...........................................................37
4.16 Tax Matters.....................................................................38
4.17 Intellectual Property...........................................................39
4.18 Related Party Transactions......................................................39
4.19 No Undisclosed Material Liabilities.............................................39
4.20 No Default......................................................................40
4.21 Title to Properties; Encumbrances...............................................40
4.22 Brokers.........................................................................41
4.23 Opinion of Financial Advisor....................................................41
4.24 Acquiror Stock Ownership........................................................41
4.25 Voting Requirements.............................................................41
4.26 State Takeover Statutes.........................................................41
4.27 Requested Information; Material Contracts.......................................42
4.28 Receivables.....................................................................42
4.29 Books and Records...............................................................42
4.30 No Excess Parachute Payments....................................................42
4.31 Change of Control Provisions....................................................43
4.32 Franchise Activities............................................................43
4.33 Disclosure......................................................................43
ARTICLE V.......................................................................................44
5.1 Proxy Statement/Prospectus; Registration Statement; Stockholders' Meeting........44
5.2 Conduct of the Business of the Company Prior to the Effective Time...............46
5.3 Conduct of the Business of Acquiror Prior to the Effective Time..................49
5.4 Access to Properties and Records.................................................50
5.5 No Solicitation of Transactions..................................................51
5.6 Compliance by Merger Sub; Conduct of Business by Merger Sub......................52
5.7 Treatment of Options.............................................................52
5.8 Indemnification; Directors' and Officers' Liability..............................53
5.9 Confidentiality..................................................................54
5.10 Best Efforts....................................................................54
5.11 Certification of Stockholder Vote...............................................55
5.12 Affiliate Agreements............................................................55
5.13 Listing Application.............................................................56
5.14 Supplemental Disclosure Schedules...............................................56
5.15 No Action.......................................................................56
5.16 Advice of Changes...............................................................56
5.17 Option and Shareholder Agreements...............................................56
</TABLE>
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<TABLE>
<S> <C>
5.18 Plan of Reorganization..........................................................56
5.19 Possible Acquiror Loan..........................................................57
5.20 Election of JMAC, Inc. Designee.................................................57
5.21 Employee Benefits...............................................................57
ARTICLE VI......................................................................................58
6.1 Conditions to Each Party's Obligation to Effect the Merger.......................58
6.2 Additional Conditions to the Obligations of the Company..........................59
6.3 Conditions to the Obligations of Acquiror and Merger Sub to Effect the Merger....60
ARTICLE VII.....................................................................................62
7.1 Termination......................................................................62
7.2 Effects of Termination...........................................................63
7.3 Procedure for Termination........................................................64
ARTICLE VIII....................................................................................64
8.1 Amendment........................................................................64
8.2 Waiver...........................................................................64
8.3 Survival.........................................................................64
8.4 Expenses and Fees................................................................64
8.5 Notices..........................................................................65
8.6 Interpretation...................................................................66
8.7 Mutual Drafting..................................................................66
8.8 Public Announcements.............................................................66
8.9 Certain Definitions..............................................................67
8.10 Entire Agreement................................................................69
8.11 Assignment; Parties in Interest.................................................69
8.12 Counterparts....................................................................69
8.13 Invalidity; Severability........................................................69
8.14 Enforcement; Consent to Jurisdiction............................................70
8.15 Governing Law...................................................................70
</TABLE>
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EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of Option Agreement
Exhibit B Form of Shareholder Agreement
Exhibit C Form of Company Affiliate Agreement
Exhibit D Intentionally Omitted
Exhibit E-1 Form of Hogan & Hartson L.L.P. Opinion Letter
Exhibit E-2 Form of Dinsmore & Shohl Opinion Letter
Exhibit E-3 Form of Wachtell, Lipton, Rosen & Katz Opinion Letter
Exhibit E-4 Form of Bricker & Eckler LLP Opinion Letter
</TABLE>
ANNEXES
<TABLE>
<S> <C>
Annex A Commitment Letter for Acquiror Loan
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
Schedule 1.6(a) Directors of Surviving Corporation
Schedule 1.6(b) Officers of Surviving Corporation
</TABLE>
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AGREEMENT OF MERGER
AGREEMENT OF MERGER ("Agreement") dated as of October 18, 1998 by and
among SUNRISE ASSISTED LIVING, INC., a Delaware corporation (referred to herein
as "Acquiror"), BUCKEYE MERGER CORPORATION, an Ohio corporation and a wholly
owned subsidiary of Acquiror (referred to herein as "Merger Sub"), and
Karrington Health, Inc., an Ohio corporation (referred to herein as the
"Company").
WHEREAS, Merger Sub, upon the terms and subject to the conditions of this
Agreement and in accordance with the Ohio General Corporation Law (the "OGCL")
will merge with and into the Company (the "Merger") (the Company, following the
effectiveness of the Merger, being hereinafter sometimes referred to as the
"Surviving Corporation");
WHEREAS, the Board of Directors of the Company has (i) determined that
the Merger is fair and in the best interests of the Company's shareholders, (ii)
approved and adopted this Agreement and the transactions contemplated hereby,
and (iii) recommended approval and adoption of the Agreement by the shareholders
of the Company;
WHEREAS, the Board of Directors of Acquiror has determined that the
Merger is in the best interests of Acquiror and its stockholders and the Boards
of Directors of Acquiror and Merger Sub have approved and adopted the Agreement;
WHEREAS, concurrently with the execution and delivery of this Agreement,
as a condition of Acquiror's willingness to enter into this Agreement, the
Company is entering into an Option Agreement dated the date hereof and attached
as Exhibit A hereto (the "Option Agreement") pursuant to which the Company is
granting to Acquiror an option to purchase shares of the common stock, without
par value, of the Company (the "Company Common Stock");
WHEREAS, as a condition to Acquiror's and Merger Sub's willingness to
enter into this Agreement, concurrently herewith certain shareholders and each
of the directors and officers of the Company are entering into shareholder
agreements with Acquiror dated the date hereof and attached as Exhibit B hereto
(the "Shareholder Agreements"), pursuant to which, among other things, each such
shareholder, officer and director (in such director's and officer's capacity as
a shareholder) agrees to vote in favor of this Agreement and the Merger and
against any competing proposals;
WHEREAS, it is the intention of Acquiror and the Company to negotiate
definitive documentation for the provision of the Acquiror Loan (as defined
herein) under the circumstances and terms set forth herein;
WHEREAS, Acquiror and the Company desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger; and
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WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and conditions of the Merger and the method of carrying
the same into effect, the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereinafter
set forth, and in accordance with the OGCL, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company. As a result
of the Merger, the separate corporate existence of Merger Sub shall cease and
the Company, as the Surviving Corporation, shall continue to exist under and be
governed by the OGCL. The name of the Surviving Corporation shall be Karrington
Health, Inc., unless and until otherwise changed in accordance with the OGCL.
1.2 Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place at 10:00 a.m.,
Washington, D.C. time, at the offices of Hogan & Hartson L.L.P., 555 Thirteenth
Street, N.W., Washington, D.C. 20004, as promptly as practicable (but in no
event later than the second business day) after satisfaction or waiver, if
permissible, of the conditions set forth in Article VI, or at such other
location, time or date as may be agreed to in writing by the parties hereto. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
1.3 Effective Time. If all the conditions to the Merger set forth in
Article VI shall have been satisfied or, if permissible, waived in accordance
herewith and this Agreement shall not have been terminated as provided in
Article VII, the parties hereto shall cause the Merger to be consummated by
filing, on or as soon as practicable following the Closing Date, a certificate
of merger meeting the requirements of the OGCL ("Certificate of Merger") with
the Secretary of State of the State of Ohio in such form as required by, and
executed in accordance with such requirements of, the OGCL. The Merger shall
become effective at the time of filing of the Certificate of Merger with the
Secretary of State of the State of Ohio in accordance with the OGCL or at such
other time which the parties hereto shall have agreed upon and designated in
such filing as the effective time of the Merger (the "Effective Time").
1.4 Effects of Merger. At the Effective Time, the Merger shall have the
effects set forth in Section 1701.82 and other applicable provisions of the
OGCL. As of the Effective Time, Acquiror shall own directly all of the
outstanding equity securities of the Surviving Corporation.
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1.5 Articles of Incorporation and Bylaws. At the Effective Time, the
Articles of Incorporation and the Bylaws of Merger Sub shall be the Articles of
Incorporation and Bylaws of the Surviving Corporation, in each case until
thereafter changed or amended as provided therein or in accordance with
applicable Law.
1.6 Directors and Officers. The persons set forth on Schedule 1.6(a)
hereto shall, after the Effective Time, serve as the directors of the Surviving
Corporation, to serve until their successors have been duly elected and
qualified in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation. The persons set forth on Schedule 1.6(b) hereto shall,
after the Effective Time, serve as the officers of the Surviving Corporation at
the pleasure of the Board of Directors of the Surviving Corporation in the
office(s) set forth on said Schedule 1.6(b).
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
2.1 Share Consideration; Conversion or Cancellation of Shares in the
Merger. Subject to the provisions of this Article II, at the Effective Time, by
virtue of the Merger and without any action on the part of Merger Sub, the
Company or the holders of any of the following securities:
(a) Each issued and outstanding share of Company Common Stock
(other than shares of Company Common Stock to be canceled in accordance
with Section 2.1(d)) shall be automatically converted into the right to
receive (i) a number of shares of Acquiror Common Stock equal to the
lesser of (A) 0.3939; or (B) the number obtained by dividing $13.00 by
the Average Trading Price of Acquiror Common Stock (as defined below) but
in no event less than 0.3333 (the "Exchange Ratio"), plus (ii) the
associated right to purchase shares of Series C Junior Participating
Preferred Stock of Acquiror pursuant to that certain Rights Agreement
dated as of April 25, 1996 between Acquiror and First Union National Bank
of North Carolina, as amended (the "Rights Agreement"). For purposes of
the preceding sentence, the Average Trading Price of Acquiror Common
Stock shall be equal to the average of the closing price of a share of
Acquiror Common Stock as quoted on Nasdaq National Market for the ten
(10) day trading period ending three trading days prior to the date of
the Company Shareholders' Meeting. If, between the date of this Agreement
and the Effective Time, Acquiror or the Company should split, subdivide,
reclassify, recapitalize, combine or exchange their respective Common
Stock, or pay a stock dividend or other stock distribution in their
respective Common Stock, or otherwise change their respective Common
Stock into a different number of shares, a different class or a different
type of security, or make any other dividend or distribution on their
respective Common Stock, then the Exchange Ratio will be appropriately
adjusted to reflect such split, subdivision, reclassification,
recapitalization, combination, exchange, dividend or other distribution
or change. The Exchange Ratio shall be rounded, in each case, to the
nearest ten-thousandth of a share.
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(b) All of the issued and outstanding shares of the Company Common
Stock converted into Acquiror Common Stock pursuant to Section 2.1(a)
(the "Company Shares") shall cease to be outstanding, shall automatically
be canceled and retired and shall cease to exist, and each certificate
representing any such shares shall thereafter only represent the right to
receive for each of such shares, upon the surrender of such certificate
by the holder thereof in accordance with Section 2.2(b), the amount of
the Acquiror Common Stock specified above (the "Share Consideration") and
cash in lieu of fractional shares of Acquiror Common Stock as
contemplated by Section 2.4. The holders of such certificates previously
evidencing such shares of Company Common Stock immediately prior to the
Effective Time shall cease to have any rights with respect to such shares
of Company Common Stock except as otherwise provided herein.
(c) The issued and outstanding shares of the common stock, $.01 par
value, of Merger Sub (the "Merger Sub Common Stock"), shall be converted
into one hundred (100) shares of newly and validly issued, fully paid
and nonassessable shares of common stock, without par value, of the
Surviving Corporation ("Surviving Corporation Common Stock"), so that at
and immediately following the Effective Time only such newly issued
Surviving Corporation Common Stock will constitute all of the issued and
outstanding capital stock of the Surviving Corporation.
(d) All shares of Company Common Stock that are owned by the
Company, Acquiror or any direct or indirect wholly owned subsidiary of
Acquiror or of the Company immediately prior to the Effective Time shall
automatically be canceled and retired and cease to exist, without any
conversion thereof or payment with respect thereto, and no Acquiror
Common Stock or other consideration shall be delivered in exchange
therefor.
(e) Each outstanding option to purchase Company Common Stock (each,
a "Company Stock Option") shall be assumed by Acquiror in the manner
provided in Section 5.7.
2.2 Payment for Shares in the Merger.
(a) As of the Effective Time, Acquiror shall enter into an agreement
with a bank or trust company selected by Acquiror and reasonably acceptable to
the Company as exchange agent for the Company Shares in accordance with this
Article II (the "Exchange Agent"), which shall provide that Acquiror shall
deposit, or shall cause to be deposited, with the Exchange Agent, for the
benefit of those persons who immediately prior to the Effective Time were the
holders of Company Shares, a sufficient number of certificates representing
shares of Acquiror Common Stock required to effect the delivery of the aggregate
Share Consideration required to be issued pursuant to Section 2.1 (the
certificates representing Acquiror Common Stock comprising such aggregate Share
Consideration, together with any dividends or distributions with respect thereto
with a record date after the Effective Time, being hereinafter referred to as
the "Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions from Acquiror, deliver the shares of Acquiror Common Stock
contemplated to be
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issued pursuant to Section 2.1 and, unless otherwise directed by the Acquiror in
accordance with Section 2.4(b), effect the sales provided for in Section 2.4(a)
out of the Exchange Fund. The Exchange Fund shall not be used for any other
purpose.
(b) As soon as reasonably practicable after the Effective Time,
Acquiror shall cause the Exchange Agent to mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
evidenced outstanding Company Shares (the "Certificates"), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Acquiror may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
evidencing the Share Consideration and cash in lieu of fractional shares, if
any. Upon the surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal duly completed and properly executed in
accordance with instructions thereto and such other customary documents as may
be reasonably required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in exchange therefor (X) certificates
evidencing the number of shares of Acquiror Common Stock that such holder has
the right to receive pursuant to Section 2.1(a), rounded down to the nearest
whole share (after taking into account all shares of Company Common Stock then
held by such holder under all such Certificates so surrendered), (Y) cash in
lieu of fractional shares of Acquiror Common Stock to which such holder is
entitled pursuant to Section 2.4 herein and (Z) any dividends or other
distributions to which such holder is entitled pursuant to Section 2.2(c)
herein, the dividends, distributions and cash described in clauses (Y) and (Z)
being collectively referred to as the "Other Amounts", and the surrendered
Certificate shall forthwith be canceled. Until so surrendered and exchanged, the
Certificates shall represent solely the right to receive the Share Consideration
and the Other Amounts, subject to any required withholding of taxes. If Share
Consideration for any Company Shares is to be issued to a person other than the
person in whose name the Certificates for such surrendered shares are
registered, it shall be a condition of the exchange that the person requesting
such exchange shall pay to the Exchange Agent any transfer or other taxes
required by reason of the issuance or delivery of such Share Consideration to a
person other than the registered holder of the Certificates surrendered or shall
establish to the satisfaction of Acquiror that such tax has been paid or is not
applicable. Unless prohibited by law, former stockholders of record of the
Company as of the Effective Time shall be entitled to vote, after the Effective
Time, at any meeting of Acquiror stockholders, the number of whole shares of
Acquiror Common Stock into which their respective Company Shares are converted,
regardless of whether such holders have exchanged their Certificates in
accordance with this Section 2.2.
(c) No dividends or other distributions with respect to Acquiror
Common Stock with a record date after the Effective Time shall be paid to the
holders of any unsurrendered Certificate with respect to the shares of Acquiror
Common Stock represented thereby, and no part of the Share Consideration or
Other Amounts shall be paid to any such holder, until the surrender of such
Certificate in accordance with this Section 2.2. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid by Acquiror or the Exchange Agent to the holder of the certificates
evidencing whole shares of
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Acquiror Common Stock issued in exchange therefor, in addition to the Share
Consideration to be issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of any cash payable in lieu of a fractional
share of Acquiror Common Stock to which such holder is entitled pursuant to
Section 2.4 and the amount of dividends or other distributions, with a record
date after the Effective Time theretofore paid with respect to such Share
Consideration, and (ii) at the appropriate payment date, the amount of dividends
or other distributions, with a record date after the Effective Time but prior to
such surrender and with a payment date subsequent to such surrender, payable
with respect to such Share Consideration.
(d) All shares of Acquiror Common Stock issued and all cash paid upon
the surrender for exchange of the shares of Company Common Stock in accordance
with the terms hereof (including any cash paid pursuant to Sections 2.2(c) or
2.4) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock, subject, however, to the
Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have been
declared or made by the Company on such shares of Company Common Stock in
accordance with the terms of this Agreement or prior to the date of this
Agreement and which have been disclosed to Acquiror on the Company Disclosure
Schedule and which remain unpaid at the Effective Time, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, Acquiror or the
Exchange Agent for any reason, they shall be canceled and exchanged as provided
in this Article II.
(e) In the event any Certificates shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Acquiror,
the posting by such person of a bond in such amount, form and with such surety
as Acquiror may reasonably direct as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed Certificate the number of shares
of the Acquiror Common Stock and cash in lieu of fractional shares deliverable
(and unpaid dividends and distributions) in respect thereof pursuant to this
Agreement.
(f) Acquiror, as the sole stockholder of Merger Sub, shall, upon
surrender to the Surviving Corporation of certificates representing the Merger
Sub Common Stock, receive a certificate representing the number of shares of the
Surviving Corporation Common Stock into which such Merger Sub Common Stock shall
have been converted pursuant to Section 2.1.
(g) Certificates surrendered for exchange by any person constituting
a Company Affiliate (as defined in Section 5.12) shall not be exchanged for
certificates representing Acquiror Common Stock until Acquiror has received a
written agreement from such person as provided in Section 5.12.
2.3 Exchange Agent. Acquiror shall cause the Exchange Agent to agree,
among other things, that (i) the Exchange Agent shall maintain the Exchange Fund
as a separate fund to
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be held for the benefit of the holders of the Company Shares, which shall be
promptly applied by the Exchange Agent to making the payments provided for in
Section 2.2, (ii) any portion of the Exchange Fund that has not been paid to
holders of the Company Shares pursuant to Section 2.2 prior to that date which
is six months from the Effective Time shall be delivered to Acquiror, and any
holders of Company Shares who shall not have theretofore complied with Section
2.2 shall thereafter look only to Acquiror for the Share Consideration and Other
Amounts; (iii) the Exchange Fund shall not be used for any purpose that is not
provided for herein, and (iv) all expenses of the Exchange Agent shall be paid
directly by Acquiror. Promptly following the date which is six months from the
Effective Time, the Exchange Agent shall return to Acquiror all cash, securities
and any other instruments in its possession relating to the transactions
described in this Agreement, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of Certificates may surrender such Certificates to
Acquiror and (subject to applicable abandoned property, escheat and similar
laws) receive in exchange therefor the Share Consideration payable with respect
thereto, without interest, but shall have no greater rights against Acquiror
than may be accorded to general creditors of Acquiror under the OGCL. The
Exchange Agent shall not be entitled to vote or exercise any rights of ownership
with respect to the Acquiror Common Stock held by it from time to time
hereunder. None of Acquiror, Merger Sub, the Company, the Exchange Agent, nor
any of their respective officers, directors and employees shall be liable to any
holder of shares of Company Common Stock for any Share Consideration or Other
Amounts from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. The Exchange Agent shall
invest any cash included in the Exchange Fund, as directed by Acquiror, on a
daily basis. Any interest and other income resulting from such investments shall
be paid to Acquiror.
2.4 Fractional Shares.
(a) No certificates or scrip evidencing fractional shares of Acquiror
Common Stock shall be issued upon the surrender for exchange of Certificates,
and any such fractional share interests will not entitle the owner thereof to
vote or to any rights of a stockholder of Acquiror. In lieu of any such
fractional shares, each holder of Company Shares who would otherwise have been
entitled to a fractional share of Acquiror Common Stock upon surrender of
Certificates for exchange pursuant to this Article II will be paid an amount in
cash (without interest), rounded to the nearest cent, equal to such holder's
proportionate interest in the Fractional Securities Fund (as defined below) or
as otherwise provided in Section 2.4(b). As promptly as practicable following
the Effective Time, the Exchange Agent shall determine the excess of (i) the
number of whole shares of the Acquiror Common Stock delivered to the Exchange
Agent by Acquiror pursuant to Section 2.2(a) over (ii) the aggregate number of
whole shares of the Acquiror Common Stock to be distributed to holders of the
Company Shares pursuant to Section 2.2(b) (such excess being herein called the
"Excess Shares"), and the Exchange Agent, as agent for the holders of Company
Shares, unless otherwise directed by Acquiror pursuant to Section 2.4(b), shall
sell the Excess Shares at then prevailing prices on The Nasdaq National Market
("Nasdaq"), all in the manner provided in this Section 2.4(a). The sale of the
Excess Shares by the Exchange Agent shall be executed on Nasdaq and shall be
executed in round lots to the extent practicable. The Exchange Agent shall use
reasonable efforts to complete the sale of the Excess Shares as promptly
following the Effective Time as, in the
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Exchange Agent's sole judgment, is practicable consistent with obtaining the
best execution of such sales in light of prevailing market conditions. Acquiror
shall pay all commissions, transfer taxes and other out-of-pocket transaction
costs, including the expenses and compensation of the Exchange Agent, incurred
in connection with such sale of Excess Shares. Until the net proceeds of such
sale or sales have been distributed to the holders of Company Shares, the
Exchange Agent will hold such proceeds in trust for such holders of Company
Shares (the "Fractional Securities Fund").
(b) In lieu of establishing the Fractional Securities Fund pursuant
to Section 2.4(a), the Exchange Agent may, at the direction of Acquiror prior to
the Effective Time, pay any cash amounts due the former stockholders of the
Company directly from cash made available to the Exchange Agent by Acquiror for
such purpose, in which event, each holder of Company Shares who would otherwise
have been entitled to receive a fraction of a share of Acquiror Common Stock
(after taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of Acquiror Common Stock multiplied by the closing
price of a share of Acquiror Common Stock on the business day immediately
preceding the Closing Date as reported on Nasdaq.
(c) As soon as practicable after the determination of the amount of
cash to be paid to holders of Company Shares in lieu of any fractional
interests, the Exchange Agent shall make available in accordance with this
Agreement such amounts to such holders.
2.5 Further Assurances. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any further deeds, bills
of sale, assignments, assurances in law or any other acts or things are
necessary, desirable or proper (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, the title to or interest in any
property or right of the Company or Merger Sub acquired or to be acquired by
reason of, or as a result of, the Merger, or (b) otherwise to carry out the
purposes of this Agreement, the Company and Merger Sub agree that the Surviving
Corporation and its proper officers and directors shall and will execute and
deliver all such deeds, bills of sale, assignments and assurances in law and do
all acts or things necessary, desirable or proper to vest, perfect or confirm
title to or interest in such property or right in the Surviving Corporation and
otherwise to carry out the purposes of this Agreement, and that the proper
officers and directors of the Surviving Corporation are fully authorized in the
name of the Company and Merger Sub or otherwise to take any and all such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
On or prior to the date hereof, Acquiror has delivered to the Company a
schedule (the "Acquiror Disclosure Schedule") setting forth, among other things,
items the disclosure of which is necessary or appropriate either (i) in response
to an express disclosure requirement contained in a provision hereof or (ii) as
an exception to one or more representations or warranties contained in Article
III or to one or more of its covenants contained in Article V;
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provided that the mere inclusion of an item in the Acquiror Disclosure Schedule
as an exception to a representation or warranty shall not be deemed an admission
by the Acquiror that such item represents a material exception or fact, event or
circumstance or that such item is reasonably likely to result in a Material
Adverse Effect on Acquiror. Acquiror and Merger Sub, jointly and severally,
represent and warrant to the Company in each case, as of the date of this
Agreement that, except as set forth in the Acquiror Disclosure Schedule, which
shall identify exceptions by specific Section references:
3.1 Organization. Each of Acquiror, Merger Sub and Acquiror's
subsidiaries (the "Acquiror Subsidiaries") has been duly organized and is
validly existing and in good standing (with respect to jurisdictions which
recognize such concept) under the laws of the jurisdiction of its organization,
has all requisite power and authority to own, operate and lease its properties
and to carry on its business as it is now being conducted, and is qualified or
licensed to do business and is in good standing (with respect to jurisdictions
which recognize such concept) in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to be so qualified or
licensed, individually or in the aggregate, would not have a Material Adverse
Effect on Acquiror. The term "Material Adverse Effect on Acquiror" as used in
this Agreement shall mean any change or effect that, individually or when taken
together with all such other changes or effects, is or would reasonably be
expected to be materially adverse to the financial condition, results of
operations, properties or business of Acquiror and the Acquiror Subsidiaries
taken as a whole; provided, however, that Material Adverse Effect on Acquiror
shall not be deemed to include the impact of (i) changes in general economic
conditions or conditions applicable to the assisted living industry generally,
(ii) changes or effects which result from the execution and delivery of this
Agreement or the consummation of any transactions contemplated hereby, or (iii)
the events set forth in Section 3.1 of the Acquiror Disclosure Schedule. True
and complete copies of the Restated Certificate of Incorporation ("Acquiror
Restated Certificate of Incorporation") and the Amended and Restated Bylaws of
Acquiror (the "Acquiror Bylaws") have heretofore been delivered to the Company,
and such Acquiror Restated Certificate of Incorporation and Acquiror Bylaws are
in full force and effect. True and complete copies of the Articles of
Incorporation and the Code of Regulations of Merger Sub have heretofore been
delivered to the Company, and such Articles of Incorporation and Code of
Regulations are in full force and effect. Section 3.1 of the Acquiror Disclosure
Schedule contains a complete and accurate list of all of the Acquiror
Subsidiaries, a list of the jurisdictions where Acquiror and each of the
Acquiror Subsidiaries is duly qualified or licensed to do business as a foreign
organization and Acquiror's percentage ownership in each such Acquiror
Subsidiary. Neither Acquiror nor any Acquiror Subsidiary is in violation of any
provision of its articles or certificate of incorporation or bylaws (each as may
have been amended or restated) or other organizational documents, as the case
may be. Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement. As of the date hereof and the
Effective Time, except for obligations or liabilities incurred in connection
with its incorporation or organization and the transactions contemplated by this
Agreement and except for this Agreement and any other agreements or arrangements
contemplated by this Agreement, Merger Sub has not and will not have incurred,
directly or indirectly, through any subsidiary or affiliate, any liabilities or
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obligations or engaged in any business activities of any type or kind whatsoever
or entered into any agreements or arrangements with any person.
3.2 Capitalization. As of the date of this Agreement, the authorized
capital stock of Acquiror consists of (i) 60,000,000 shares of Common Stock, par
value $0.01 per share ("Acquiror Common Stock") and (ii) 10,000,000 shares of
preferred stock, $.01 par value ("Acquiror Preferred Stock"), of which 30,000
shares of the Acquiror Preferred Stock have been designated as "Series C Junior
Participating Preferred Stock." As of October 16, 1998, (i) 19,383,210 shares of
Acquiror Common Stock were issued and outstanding, all of which were duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, the Acquiror Restated Certificate of
Incorporation or the Acquiror Bylaws or any agreement to which Acquiror is a
party or by which Acquiror is bound and (ii) no shares of Acquiror Common Stock
were held in the treasury of Acquiror. As of the date of this Agreement, no
shares of Acquiror Preferred Stock are issued and outstanding. Each of the
outstanding shares of capital stock of Acquiror were issued in compliance with
all applicable Federal and state laws concerning the issuance of securities. As
of the date of this Agreement, 4,667,678 shares of Acquiror Common Stock are
reserved for future issuance pursuant to employee stock options granted pursuant
to Acquiror's stock option plans described in Section 3.2 of the Acquiror
Disclosure Schedule (the "Acquiror Option Plans") and certain other option
arrangements (any stock option so issued being a "stock option"). In addition to
the foregoing, 4,033,613 shares of Acquiror Common Stock are reserved for
issuance upon conversion of Acquiror's $150,000,000 principal amount of
aggregate outstanding 5.5% Convertible Subordinated Notes Due 2002 (the
"Acquiror Notes"). As of the date of this Agreement, the authorized capital of
Merger Sub consists of 850 shares of common stock, without par value per share,
of which 100 shares are issued and outstanding and were duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights
created by statute, Merger Sub's Articles of Incorporation or Code of
Regulations or any agreement to which Merger Sub is a party or by which Merger
Sub is bound. Acquiror has heretofore delivered to the Company a correct and
complete copy of the Acquiror Option Plans. Except as set forth in this Section
3.2 or in Section 3.2 of the Acquiror Disclosure Schedule, there are no options,
warrants, puts, calls or other rights (including registration rights),
agreements, arrangements or commitments of any character to which Acquiror or
any Acquiror Subsidiary is a party or by which any of them is bound relating to
the issued or unissued capital stock of, or other equity interests in, Acquiror
or any Acquiror Subsidiary or obligating Acquiror or any Acquiror Subsidiary to
grant, issue, deliver or sell, or cause to be granted, issued, delivered or
sold, any shares of capital stock of, or other equity interests in, Acquiror or
any Acquiror Subsidiary, by sale, lease, license or otherwise. All shares of
Acquiror Common Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable
and will not have been issued in violation of or subject to any preemptive
rights created by statute, the Acquiror Restated Certificate of Incorporation or
Acquiror Bylaws or any agreement to which Acquiror is a party or by which
Acquiror is bound. Except as set forth in this Section 3.2, in Section 3.2 of
the Acquiror Disclosure Schedule, or in the Acquiror Current Reports (as defined
in Section 3.11), there are no outstanding contractual obligations, contingent
or otherwise, of Acquiror or any Acquiror Subsidiary to repurchase, redeem or
otherwise acquire any shares of
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Acquiror Common Stock or any capital stock of, or other equity interests in, any
Acquiror Subsidiary. 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 of the revenues or earnings, or any payment based
thereon or calculated in accordance therewith, of Acquiror or any Acquiror
Subsidiary. Each outstanding share of capital stock of, or other equity interest
in, each Acquiror Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and, except as set forth in Section 3.2 of the Acquiror Disclosure
Schedule, each such share or other equity interest owned by Acquiror or another
Acquiror Subsidiary is owned free and clear of all security interests, liens,
claims, charges, pledges, options, rights of first refusal, agreements,
conditions, restrictions, limitations on voting rights, charges, decrees,
judgments, and other encumbrances or imperfections of title of any nature
whatsoever ("Encumbrances"). Except for the capital stock of the Acquiror
Subsidiaries and except for the ownership interests set forth in Section 3.2 of
the Acquiror Disclosure Schedule, Acquiror does not own, directly or indirectly,
any capital stock or other ownership interest in, or any interest convertible
into or exchangeable or exercisable for capital stock of or other ownership
interest in, any person. Acquiror is not aware of any voting trust, stockholder
agreement or other similar arrangement relating to any shares of Acquiror Common
Stock.
3.3 No Adjustment Under Notes. No event has occurred or failed to occur
that has resulted in an adjustment to the original conversion price under the
Acquiror Notes.
3.4 Options or Other Rights. Except as disclosed in Section 3.2 herein or
in the Acquiror SEC Filings (as defined in Section 3.12), as of the date of this
Agreement, there is no outstanding right, subscription, warrant, call,
unsatisfied preemptive right, option or other agreement or arrangement of any
kind to purchase or otherwise to receive from Acquiror or any Acquiror
Subsidiary any of the outstanding authorized but unissued, unauthorized or
treasury shares of the capital stock or any other security of Acquiror or any
Acquiror Subsidiary, and there is no outstanding security of any kind
convertible into or exchangeable for such capital stock. Except as set forth in
Section 3.4 of the Acquiror Disclosure Schedule or the Acquiror SEC Filings,
there are no agreements or understandings among Acquiror or any Acquiror
Subsidiary on the one hand and any other person on the other hand concerning the
registration of any security of Acquiror or an Acquiror Subsidiary under the
Securities Act (as defined below).
3.5 Authority Relative to this Agreement.
(a) Acquiror has all requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby to be consummated by Acquiror.
The execution and delivery of this Agreement by Acquiror and the consummation of
the transactions contemplated on its part hereby have been duly authorized by
all necessary corporate action, and no other corporate proceedings on the part
of Acquiror are necessary to authorize the execution and delivery of this
Agreement by Acquiror or the consummation of the transactions contemplated on
its part hereby. This Agreement has been duly executed and delivered by Acquiror
and, assuming the due authorization, execution and delivery thereof by the
Company, constitutes the legal, valid and
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binding obligation of Acquiror, enforceable against Acquiror in accordance with
its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally or by general equity principles.
(b) Merger Sub has the requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby to be consummated by it. The
execution and delivery of this Agreement by Merger Sub and the consummation by
Merger Sub of the transactions contemplated hereby have been duly authorized by
all necessary corporate action and no other corporate proceedings on the part of
Merger Sub are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Merger Sub and, assuming the due authorization, execution and
delivery thereof by the Company, constitutes a legal, valid and binding
obligation of Merger Sub, enforceable against Merger Sub in accordance with its
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally or by general equity principles.
3.6 Acquiror Common Stock. The shares of Acquiror Common Stock to be
issued in connection with the Merger have been duly authorized and, when issued
as contemplated hereby at the Effective Time, will be validly issued, fully paid
and non-assessable, and not subject to any preemptive rights created by statute,
Acquiror's Restated Certificate of Incorporation or Bylaws or any agreement to
which Acquiror is a party or by which Acquiror is bound and will be registered
under the Securities Act of 1933, as amended (the "Securities Act"), and
registered or exempt from registration under applicable state "blue sky" laws
and approved for listing on Nasdaq.
3.7 No Violation. Other than as listed on Section 3.7 to the Acquiror
Disclosure Schedule, the execution and delivery of this Agreement by each of
Acquiror and Merger Sub do not, the performance by Acquiror and Merger Sub of
their respective obligations hereunder will not, and the consummation by
Acquiror and Merger Sub of the transactions contemplated hereby to be performed
by each of them will not (i) violate or conflict with any provision of any Law
(as defined in Section 8.9(h)) in effect on the date of this Agreement and
applicable to Acquiror or any Acquiror Subsidiary or by which any of their
respective properties or assets is bound or subject, (ii) require Acquiror or
any Acquiror Subsidiary to obtain any consent, waiver, approval, license or
authorization or permit of, or make any filing with, or notification to, any
governmental, quasi-governmental or regulatory authority, domestic or foreign
("Governmental Entities"), based on Laws, rules, regulations and other
requirements of Governmental Entities in effect as of the date of this Agreement
(other than (a) the filing of a pre-merger notification report under The
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder (the "HSR Act") and the expiration of the
applicable waiting period, (b) filings or authorizations required in connection
with or in compliance with the provisions of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Securities Act, the rules and
regulations of Nasdaq or the "takeover" or "blue sky" laws of various states,
(c) filing and recordation of appropriate merger documents as
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required by the OGCL and (d) any other filings and approvals expressly
contemplated by this Agreement), (iii) require the consent, waiver, approval,
license or authorization of any person (other than Governmental Entities), (iv)
violate, conflict with, or result in a breach of or the acceleration of any
obligation under, or constitute a default (or an event which with notice or the
lapse of time or both would become a default) under, or give to others any right
of, or result in any, termination, amendment, acceleration or cancellation of,
or loss of any benefit or creation of a right of first refusal, or require any
payment under, or result in the creation of a lien or other encumbrance on any
of the properties or assets of Acquiror or any Acquiror Subsidiary pursuant to
or under any provision of any indenture, mortgage, note, bond, lien, lease,
license, agreement, franchise, contract, order, judgment, ordinance, Acquiror
Permit (as defined below) or other instrument or obligation to which Acquiror or
any Acquiror Subsidiary is a party or by which Acquiror or any Acquiror
Subsidiary or any of their respective properties is bound or subject to, or (v)
conflict with or violate the Certificate of Incorporation or Bylaws, or the
equivalent organizational documents, in each case as amended or restated, of
Acquiror or any of the Acquiror Subsidiaries, except for any such conflicts,
consents, waivers, approvals, licenses, filings or violations described in
clause (i) or breaches, defaults, events, rights of termination, amendment,
acceleration or cancellation, payment obligations or liens or encumbrances
described in clause (iv) that would not have a Material Adverse Effect on
Acquiror and except for such consents, waivers, approvals, licenses or
authorizations described in clauses (ii) or (iii) that individually or in the
aggregate would not be material to the Acquiror, and except where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications would not, either individually or in the aggregate,
prevent Acquiror or Merger Sub from performing any of their respective
obligations under this Agreement and would not have a Material Adverse Effect on
Acquiror.
3.8 Compliance with Laws.
(a) As of the date of this Agreement, each of Acquiror and the
Acquiror Subsidiaries holds all licenses, certificates of need ("CONs"),
franchises, grants, permits, easements, variances, accreditations, exemptions,
consents, certificates, identification numbers, approvals, orders and other
authorizations (collectively, "Acquiror Permits") necessary to own, lease and
operate its properties and to carry on its business as it is now being
conducted, are certified as providers under all applicable Medicare and Medicaid
programs and the Federal Civilian Health and Medical Plan of the Uniformed
Services ("CHAMPUS") program to the extent required to be so certified, and are
in compliance with, and have performed in all material respects all obligations
under, all Acquiror Permits and all Laws governing their respective businesses,
including, without limitation, the requirements, guidelines, rules and
regulations of Medicare, Medicaid, CHAMPUS, state approved Medicaid waiver
programs and other third-party reimbursement programs, except where the failure
to hold such Acquiror Permits or to so comply or perform, individually or in the
aggregate, would not have a Material Adverse Effect on Acquiror. No Acquiror
Permits will in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement.
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(b) To Acquiror's knowledge, all health care personnel employed by
Acquiror or any Acquiror Subsidiary are properly licensed to the extent required
to perform the duties of their employment in each jurisdiction where such duties
are performed.
(c) Except as set forth in Section 3.8(c) of the Acquiror Disclosure
Schedule, no action or proceeding is pending or, to Acquiror's knowledge,
threatened that may result in the suspension, revocation or termination of any
Acquiror Permit, the issuance of any cease-and-desist order, or the imposition
of any administrative or judicial sanction, and neither Acquiror nor any
Acquiror Subsidiary has received any notice from any governmental authority in
respect of the suspension, revocation or termination of any Acquiror Permit, or
any notice of any intention to conduct any investigation or institute any
proceeding, in any such case where such suspension, revocation, termination,
order, sanction, investigation or proceeding could result, individually or in
the aggregate, in a Material Adverse Effect on Acquiror.
(d) Neither Acquiror nor any Acquiror Subsidiary has received notice
that Medicare, Medicaid, CHAMPUS, state approved Medicaid waiver programs or any
other third-party reimbursement program has any claims for disallowance of costs
against any of them which could result in offsets against future reimbursement
or recovery of prior payments, which offsets or recoveries, individually or in
the aggregate, would have a Material Adverse Effect on Acquiror.
(e) Acquiror and the Acquiror Subsidiaries have filed all forms,
reports, statements, and other documents required to be filed with any
Governments Entities, including, without limitation, state insurance and state
and federal health regulatory authorities and reimbursement programs, except
where the failure to file such forms, reports, statements or other documents
under this Section 3.8(e) would not have a Material Adverse Effect on Acquiror.
3.9 Fraud and Abuse Matters. Neither Acquiror nor any Acquiror
Subsidiary, nor the officers, directors, employees or agents of any of Acquiror
or any Acquiror Subsidiary, have engaged in any activities which are prohibited,
or are cause for civil penalties or mandatory or permissive exclusion from
Medicare, Medicaid, or any other State Health Care Program (as defined in
Section 1128(h) of the federal Social Security Act ("SSA")) or Federal Health
Care Program (as defined in Section 1128B(f) of the SSA) under Sections 1320a-7,
1320a-7a, 1320a-7b, or 1395nn of Title 42 of the United States Code, the federal
CHAMPUS statute, or the regulations promulgated pursuant to such statutes or
regulations or related state or local statutes or which are prohibited by any
private accrediting organization from which Acquiror or any Acquiror Subsidiary
seeks accreditation or by generally recognized professional standards of care or
conduct, including but not limited to the following activities:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
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(b) knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining rights to
any benefit or payment;
(c) presenting or causing to be presented a claim for reimbursement
under CHAMPUS, Medicare, Medicaid or any other State Health Care Program or
Federal Health Care Program that is (i) for an item or service that the person
presenting or causing to be presented knows or should know was not provided as
claimed, or (ii) for an item or service and the person presenting knows or
should know that the claim is false or fraudulent;
(d) knowingly and willfully offering, paying, soliciting or receiving
any remuneration (including any kickback, bribe, or rebate), directly or
indirectly, overtly or covertly, in cash or in kind (i) in return for referring,
or to induce the referral of, an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment may be
made in whole or in part by CHAMPUS, Medicare, Medicaid, or any other State
Health Care Program or Federal Health Care Program, or (ii) in return for, or to
induce, the purchase, lease, or order, or the arranging for or recommending of
the purchase, lease, or order, of any good, facility, service, or item for which
payment may be made in whole or in part by CHAMPUS, Medicare, Medicaid or any
other State Health Care Program or Federal Health Care Program; or
(e) knowingly and willfully making or causing to be made or inducing
or seeking to induce the making of any false statement or representation (or
omitting to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading) or a material fact with
respect to (i) the conditions or operations of a facility in order that the
facility may qualify for CHAMPUS, Medicare, Medicaid or any other State Health
Care Program or Federal Health Care Program certification, or (ii) information
required to be provided under SSA Section 1124A.
3.10 Medicare/Medicaid Participation.
(a) Neither Acquiror nor to the knowledge of Acquiror any other
person who immediately prior to the Closing has a direct or indirect ownership
interest (as those terms are defined in 42 C.F.R. Section 1001.1001(a)(2)) in
Acquiror or any Acquiror Subsidiary, or who has an ownership or control interest
(as defined in SSA Section 1124(a)(3) or any regulations promulgated thereunder)
in Acquiror or any Acquiror Subsidiary, or who is an officer, director, agent
(as defined in 42 C.F.R. Section 1001.1001(a)(2)), or managing employee (as
defined in SSA Section 1126(b)) of Acquiror or any Acquiror Subsidiary, and to
the knowledge of Acquiror and any Acquiror Subsidiary, no person with any
relationship with such entity (including without limitation a parent company or
shareholder of, or partner in any Acquiror Subsidiary) who immediately prior to
the Closing will have an indirect ownership interest (as that term is defined in
42 C.F.R. Section 1001.1001(a)(2)) in Acquiror or any Acquiror Subsidiary: (1)
has had a civil monetary penalty assessed against it under SSA Section 1128A;
(2) has been excluded from participation under Medicare, Medicaid or any other
State Health Care Program or Federal Health Care Program; (3) has been convicted
(as that term is defined in 42 C.F.R. Section 1001.2) of any of the following
categories of offenses as described in SSA Section 1128(a) and (b)(1), (2),
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(3): (i) criminal offenses relating to the delivery of an item or service under
Medi care, Medicaid or any other State Health Care Program or Federal Health
Care Program; (ii) criminal offenses under federal or state law relating to
patient neglect or abuse in connection with the delivery of a health care item
or service; (iii) criminal offenses under federal or state law relating to
fraud, theft, embezzlement, breach of fiduciary responsibility, or other
financial misconduct in connection with the delivery of a health care item or
service or with respect to any act or omission in a program operated by or
financed in whole or in part by any federal, state or local government agency;
(iv) federal or state laws relating to the interference with or obstruction of
any investigation into any criminal offense described in (i) through (iii)
above; or (v) criminal offenses under federal or state law relating to the
unlawful manufacture, distribution, prescription or dispensing of a controlled
substance.
(b) Section 3.10(b) of the Acquiror Disclosure Schedule contains a
list of each existing Medicare and Medicaid contract (the "Acquiror Program
Agreements") or evidence thereof relating to the participation by Acquiror and
the Acquiror Subsidiaries in the Medicare, Medicaid and CHAMPUS programs (the
"Governmental Programs"). The businesses of Acquiror and the Acquiror
Subsidiaries are in compliance with all material terms, conditions and
provisions of the Acquiror Program Agreements except where the failure to comply
would not have a Material Adverse Effect on Acquiror. Except as set forth in
Section 3.10(b) of the Acquiror Disclosure Schedule, (i) no notice of any
offsets against future reimbursement has been received by Acquiror or any
Acquiror Subsidiary, nor to the knowledge of Acquiror, is there any reasonable
basis therefor with respect to the Governmental Programs except with respect to
offsets in the ordinary course of business which could not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect on
Acquiror, (ii) there are no pending appeals, adjustments, challenges, audits,
litigation, notices of intent to reopen or open completed payments with respect
to the Governmental Programs except such adjustments made in the ordinary course
of business which could not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect on Acquiror, and (iii) neither
Acquiror nor any Acquiror Subsidiary has received notice of pending, threatened
or possible decertification or other loss of participation in any of the
Governmental Programs which remains in effect as of the date hereof. Section
3.10(b) of the Acquiror Disclosure Schedule lists any material contracts between
Acquiror or any Acquiror Subsidiary and third party payors, copies of which have
been made available to Acquiror. Acquiror and each of the Acquiror Subsidiaries,
as applicable, are in compliance in all material respects with all of the terms,
conditions and provisions of the contracts referenced in the immediately
preceding sentence.
3.11 Litigation. As of the date of this Agreement, except as may be
disclosed in the Acquiror 10-K (as defined below), reports filed on Forms 10-Q
or 8-K or proxy statements filed on Schedule 14A for periods subsequent to the
period covered by such Acquiror 10-K, in each case filed prior to the date
hereof (such reports and filings, collectively, the "Acquiror Current Reports"),
or except as set forth in Section 3.11 of the Acquiror Disclosure Schedule,
there is no claim, litigation, suit, arbitration, mediation, action, proceeding,
unfair labor practice complaint or grievance pending or, to Acquiror's
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knowledge, investigation of any kind, at law or in equity (including actions or
proceedings seeking injunctive relief), pending or, to Acquiror's knowledge,
threatened in writing against Acquiror or any Acquiror Subsidiary or with
respect to any property or asset of any of them, except for claims, litigations,
suits, arbitrations, mediations, actions, proceedings, complaints, grievances or
investigations which, individually or in the aggregate, (a) would not have a
Material Adverse Effect on Acquiror, (b) would not impair in any material
respect the ability of Acquiror or any Acquiror Subsidiary to perform its
obligations under this Agreement or any other document contemplated hereby or
thereby or (c) would not prevent the consummation by Acquiror or any Acquiror
Subsidiary of any of the transactions contemplated by this Agreement or any
other document contemplated hereby or thereby. Neither Acquiror nor any Acquiror
Subsidiary nor any property or asset of any of them is subject to any continuing
order, judgment, settlement agreement, injunction, consent decree or other
similar written agreement with or, to Acquiror's knowledge, continuing
investigation by, any Governmental Entity, or any judgment, order, writ,
injunction, consent decree or award of any Governmental Entity or arbitrator,
including, without limitation, cease-and-desist or other orders, except for such
matters which (a) would not reasonably be expected to have a Material Adverse
Effect on Acquiror, (b) would not impair in any material respect the ability of
Acquiror or Merger Sub to perform its obligations under this Agreement or (c)
would not prevent the consummation by Acquiror or Merger Sub of the transactions
contemplated by this Agreement.
3.12 Financial Statements and Reports. Acquiror has made available to the
Company true and complete copies of (a) its Annual Report on Form 10-K for the
year ended December 31, 1997 (the "Acquiror 10-K") as filed with the Securities
and Exchange Commission (the "Commission"), (b) its proxy statement relating to
the annual meeting of its stockholders held on April 28, 1998; (c) all
registration statements filed by Acquiror and declared effective under the
Securities Act (other than registration statements on Form S-8), and (d) all
other reports, statements and registration statements (including Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K but excluding preliminary
material and reports pursuant to Sections 13(d) or 13(g) of the Exchange Act)
filed by it with the Commission other than registration statements on Form S-8.
The reports, statements and registration statements referred to in the
immediately preceding sentence (including, without limitation, any financial
statements or schedules or other information, included or incorporated by
reference therein) are referred to in this Agreement as the "Acquiror SEC
Filings." As of the respective times such documents were filed or, as
applicable, were effective, the Acquiror SEC Filings complied as to form in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations promulgated thereunder,
and except to the extent that information contained in any Acquiror SEC Filings
has been revised or superseded by a later Acquiror SEC Filing filed and publicly
available prior to the date of this Agreement, did not 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, in light of the
circumstances under which they were made, not misleading. The financial
statements of Acquiror included in the Acquiror SEC Filings complied as of their
respective dates of filing with the Commission as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the Commission with respect thereto, were prepared in
accordance with generally accepted accounting principles (as in effect from time
to time) applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto or,
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in the case of the unaudited interim financial statements, as permitted by Form
10-Q of the Commission) and present fairly the consolidated financial position,
consolidated results of operations and consolidated cash flows of Acquiror and
the Acquiror Subsidiaries as of the dates and for the periods indicated, except
(i) in the case of unaudited interim consolidated financial statements, to
normal recurring year-end audit adjustments and any other adjustments described
therein and (ii) any pro forma financial information contained therein is not
necessarily indicative of the consolidated financial position of Acquiror and
the Acquiror Subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows for the periods indicated. No
Acquiror Subsidiary is required to file any form, report or other document with
the Commission. Except as set forth in the Acquiror Current Reports, and except
for liabilities and obligations incurred in the ordinary course of business
consistent with past practice, since the date of the most recent consolidated
balance sheet included in the Acquiror Current Reports, neither Acquiror nor any
Acquiror Subsidiary has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by generally accepted
accounting principles to be recognized or disclosed on a consolidated balance
sheet of Acquiror and the Acquiror Subsidiaries or in the notes thereto which
could reasonably be expected to have a Material Adverse Effect on Acquiror. The
pro forma financial information (and related notes thereto) included in the
Acquiror SEC Filings present fairly the information shown therein and were
prepared, as of the respective dates of filing of the Acquiror SEC Filings with
the Commission, in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements. The necessary pro forma adjustments
have been properly applied to the historical amounts in the compilation of such
pro forma financial information, the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein.
3.13 Absence of Certain Changes or Events. Other than as disclosed in the
Acquiror Current Reports or in Section 3.13 to the Acquiror Disclosure Schedule,
since June 30, 1998 and through the date of this Agreement, the business of
Acquiror and of each of the Acquiror Subsidiaries has been conducted in the
ordinary course, and there has not been (i) any Material Adverse Effect on
Acquiror; or (ii) any split, combination or reclassification of any of the
capital stock of Acquiror.
3.14 Employee Benefit Plans and Employment Matters.
(a) Section 3.14(a) of the Acquiror Disclosure Schedule lists all
employee benefit plans, collective bargaining agreements, labor contracts, and
employment agreements not otherwise disclosed in the Acquiror Current Reports in
which Acquiror or any Acquiror Subsidiary participates, or by which any of them
are bound, including, without limitation, (i) any profit sharing, deferred
compensation, bonus, stock option, stock purchase, pension, welfare, and
incentive plan or agreement; (ii) any plan providing for "fringe benefits" to
their employees, including, but not limited to, vacation, sick leave, medical,
hospitalization and life insurance; (iii) any written employment agreement and
any other employment agreement not terminable at will; and (iv) any other
"employee benefit plan" (within the meaning of Section 3(3) of the Employment
Retirement Income Security Act of 1974 ("ERISA")). Acquiror and the Acquiror
Subsidiaries are in compliance in all material respects with the requirements
prescribed by all
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Laws currently in effect applicable to employee benefit plans and to any
employment agreements, including, but not limited to, ERISA and the Code.
Acquiror and the Acquiror Subsidiaries have each performed all of its
obligations under all such employee benefit plans and employment agreements in
all material respects. There is no pending or, to the knowledge of Acquiror,
threatened legal action, proceeding or investigation against or involving any
Acquiror or Acquiror Subsidiary employee benefit plan which could result in a
material amount of liability to such employee benefit plan or to Acquiror, other
than routine claims for benefits involving less than $100,000 for each such
routine claim and $250,000 for all such routine claims in the aggregate.
(b) Neither Acquiror nor the Acquiror Subsidiaries sponsor or
participate in, and have not sponsored or participated in, any employee pension
benefit plan to which Section 4021 of ERISA applies that would create a material
amount of liability to Acquiror under Title IV of ERISA.
(c) Neither Acquiror nor the Acquiror Subsidiaries sponsor or
participate in, and have not sponsored or participated in, any employee benefit
pension plan that is a "multiemployer plan" (within the meaning of Section 3(37)
of ERISA).
(d) All group health plans of Acquiror and the Acquiror Subsidiaries
have been operated in compliance with the group health plan continuation
coverage requirements of Section 4980B of the Code in all material respects, to
the extent such requirements are applicable.
(e) There have been no acts or omissions by Acquiror or any Acquiror
Subsidiary or by any fiduciary, disqualified person or party in interest with
respect to an employee benefit plan of Acquiror or any Acquiror Subsidiaries
that have given rise to or could reasonably be expected to give rise to a
material amount of fines, penalties, taxes, or related charges under Sections
502(c), 502(i) or 4071 of ERISA or under Chapter 43 of the Code.
(f) No "reportable event," as defined in ERISA Section 4043, other
than those events with respect to which the Pension Benefit Guaranty Corporation
has waived the notice requirement, has occurred with respect to any of the
employee benefit plans of Acquiror.
(g) Acquiror has furnished the Company with true and correct copies
of all plan documents and employment agreements referred to on the Acquiror
Disclosure Schedule, including all amendments thereto, and all related summary
plan descriptions to the extent that one is required by Law.
(h) For purposes of this Section 3.14, any reference to "Acquiror"
shall be deemed to include a reference to any entity that is aggregated with
Acquiror under the provisions of Section 414 of the Code, to the extent that
those aggregation rules apply to any representation made herein.
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3.15 Labor Matters. Except as disclosed in Section 3.15 of the Acquiror
Disclosure Schedule, neither Acquiror nor any Acquiror Subsidiary is a party to
any collective bargaining agreement with respect to any of their employees. None
of the employees of Acquiror or any Acquiror Subsidiary is represented by any
labor union. To the knowledge of Acquiror, there is no activity involving any
employees of Acquiror or the Acquiror Subsidiaries seeking to certify a
collective bargaining unit or engaging in any similar organizational activity.
3.16 Insurance. Acquiror and the Acquiror Subsidiaries maintain insurance
against such risks and in such amounts as Acquiror reasonably believes are
necessary to conduct its business. Acquiror and the Acquiror Subsidiaries are
not in default with respect to any provisions or requirements of any such
policy, nor have any of them failed to give notice or present any claim
thereunder in a due and timely fashion, except for defaults or failures which,
individually or in the aggregate, would not have a Material Adverse Effect on
Acquiror. Neither Acquiror nor any Acquiror Subsidiary has received any notice
of cancellation or termination in respect of any of its insurance policies.
3.17 Environmental Matters. Except as disclosed on Section 3.17 of the
Acquiror Disclosure Schedule:
(a) Acquiror and the Acquiror Subsidiaries have complied and are in
compliance with, and the real property owned, operated, leased or used by
Acquiror or the Acquiror Subsidiaries as of June 30, 1998, any additional real
property owned, operated, leased or used since that date, and, for purposes of
this Section 3.17, any real property formerly owned or operated by Acquiror or
any Acquiror Subsidiary (collectively, the "Acquiror Real Property") and all
improvements thereon are in compliance with, all Environmental Laws (as defined
in Section 8.9(e)), except for such non-compliance as would not have a Material
Adverse Effect on Acquiror and would not be considered "material" under the
federal securities laws.
(b) Neither Acquiror nor any Acquiror Subsidiary has any liability
under any Environmental Law, nor is Acquiror or any Acquiror Subsidiary
responsible by contract, by operation of law, otherwise for any liability of any
other person under Environmental Law, which either individually or in the
aggregate would have a Material Adverse Effect on Acquiror or would be
considered "material" under the federal securities laws. Except for matters
which would not have a Material Adverse Effect on Acquiror and would not be
considered "material" under the federal securities laws, there are no pending or
threatened actions, suits, orders, claims, legal proceedings or other
proceedings based on, and neither Acquiror nor any Acquiror Subsidiary, nor any
officer, director or stockholder thereof has directly or indirectly received any
formal or informal notice of any complaint, order, directive, citation, notice
of responsibility, notice of potential responsibility, or information request
from any Governmental Entity or any other person or entity or knows or suspects
any fact(s) which might reasonably form the basis for any such actions or
notices arising out of or attributable to: (i) the current or past presence,
Release (as defined in Section 8.9(j)), or threatened Release of Hazardous
Materials (as defined in Section 8.9(f)) at or from any part of the Acquiror
Real Property; (ii) the off-site disposal or treatment of Hazardous Materials
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originating on or from the Acquiror Real Property or the businesses or assets of
Acquiror or any Acquiror Subsidiary; or (iii) any violation of Environmental
Laws at any part of the Acquiror Real Property or arising from Acquiror's or any
Acquiror Subsidiary's activities (or the activities of Acquiror's or any
Acquiror Subsidiary's predecessors in title) involving Hazardous Materials.
(c) Except as disclosed in Section 3.17(c) of the Acquiror Disclosure
Schedule, Acquiror and the Acquiror Subsidiaries have been duly issued, and
currently have and will maintain through the Closing Date, all permits,
licenses, certificates and approvals required under any Environmental Law, each
of which is valid and in full force and effect. Except in accordance with such
permits, licenses, certificates and approvals, there has been no Release of
material regulated by such permits, licenses, certificates or approvals at, on,
under, or from the Acquiror Real Property.
(d) Neither Acquiror nor any Acquiror Subsidiary has provided to any
Governmental Entity, as required by Law, notice of any Release from any
underground improvements, including but not limited to treatment or storage
tanks, or underground piping associated with such tanks, used currently or in
the past for the management of Hazardous Materials. No portion of the Acquiror
Real Property is or has been used as a dump or landfill or consists of or
contains filled in land or wetlands.
(e) No Encumbrance in favor of any person relating to or in
connection with any demand, claim, action or cause of action, assessment, loss,
damage (including, without limitation, diminution in value), liability, cost and
expense (including, without limitation, interest, penalties and attorneys' fees
and disbursements) (collectively "Claims") under any Environmental Law has been
filed or has attached to the Acquiror Real Property.
3.18 Tax Matters. Neither Acquiror nor, to the knowledge of Acquiror, any
of its affiliates has taken or agreed to take any action that would, nor does
Acquiror have any knowledge of any fact or circumstance that is reasonably
likely to, prevent the Merger from qualifying as a reorganization under the
provisions of Section 368(a) of the Code. Acquiror has paid, or made provision
in accordance with generally accepted accounting principles on its balance sheet
at December 31, 1997 included in the Acquiror 10-K, for all federal, state,
local, foreign or other governmental income, franchise, payroll, F.I.C.A.,
unemployment, withholding, real property, personal property, sales, payroll,
disability and all other taxes imposed on Acquiror or any Acquiror Subsidiary or
with respect to any of their respective properties, or otherwise payable by
them, including interest and penalties, if any, in respect thereof
(collectively, "Acquiror Taxes"), for the Acquiror taxable period ended December
31, 1997 and all fiscal periods of Acquiror prior thereto, except such
nonpayment, or failure to make provision, which, individually or in the
aggregate, would not have a Material Adverse Effect on Acquiror. Acquiror Taxes
paid and/or incurred from December 31, 1997 until the Closing Date shall include
only Acquiror Taxes incurred in the ordinary course of business. Acquiror and
each of the Acquiror Subsidiaries have timely filed all returns, reports and
certifications related to Acquiror Taxes which Acquiror and/or such Acquiror
Subsidiary (as the case may be) are required to file ("Acquiror Tax Returns"),
and have paid or provided for all the amounts shown to be due thereon, except
where such failure to make such timely filings, individually or in the
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aggregate, would not have a Material Adverse Effect on Acquiror, and except for
the nonpayment of such amounts which, individually or in the aggregate, would
not have a Material Adverse Effect on Acquiror. Neither Acquiror nor any
Acquiror Subsidiary (i) has filed or entered into, or is otherwise bound by, any
currently effective election, consent or extension agreement that extends any
applicable statute of limitations with respect to taxable periods of Acquiror,
(ii) is a party to any contractual obligation requiring the indemnification or
reimbursement of any person with respect to the payment of any Acquiror Taxes,
other than among Acquiror and the Acquiror Subsidiaries, or (iii) has received
any claim by an authority in a jurisdiction where neither Acquiror nor any
Acquiror Subsidiary files Acquiror Tax Returns that they are or may be subject
to Acquiror Taxes by that jurisdiction, except for any such claims as,
individually or in the aggregate, would not have a Material Adverse Effect on
Acquiror. No action or proceeding is pending or, to Acquiror's knowledge,
threatened orally to any Acquiror officer or in writing by any governmental
authority for any audit, examination, deficiency, assessment or collection from
Acquiror or any Acquiror Subsidiary of any Acquiror Taxes, no unresolved claim
for any deficiency, assessment or collection of any Acquiror Taxes has been
asserted against Acquiror or any Acquiror Subsidiary, and all resolved
assessments of Acquiror Taxes have been paid or are reflected on the Acquiror
balance sheet at December 31, 1997 included in the Acquiror 10-K, except for any
of the foregoing which, individually or in the aggregate, would not have a
Material Adverse Effect on Acquiror.
3.19 Intellectual Property. Except as disclosed in Section 3.19 of the
Acquiror Disclosure Schedule, Acquiror and the Acquiror Subsidiaries own, or are
licensed or otherwise possess or have all necessary rights to use all patents,
trademarks, trade names, service marks, copyrights and any applications
therefor, net lists, schematics, technology, know-how, trade secrets, inventory,
ideas, algorithms, processes, computer software programs and applications (in
both source code and object code form), and tangible or intangible proprietary
information or material ("Intellectual Property") which is used in the conduct
of their respective businesses (collectively, "Acquiror Intellectual Property
Rights"). To the knowledge of Acquiror, neither Acquiror nor any Acquiror
Subsidiary is infringing or otherwise violating the intellectual property rights
of any person which infringement or violation would subject Acquiror or any
Acquiror Subsidiary to liabilities which, individually or in the aggregate,
would have a Material Adverse Effect on Acquiror or which would prevent Acquiror
or any Acquiror Subsidiary from conducting their respective businesses
substantially in the manner in which they are now being conducted. No claim has
been made or, to Acquiror's knowledge, threatened against Acquiror or any
Acquiror Subsidiary alleging any such violation. To the knowledge of Acquiror,
there is no unauthorized use, disclosure, infringement or misappropriation of
any Acquiror Intellectual Property Rights or any Intellectual Property right of
any third party to the extent licensed by or through Acquiror, by any third
party, including any employee or former employee of Acquiror, that could
reasonably be expected to have a Material Adverse Effect on Acquiror. Acquiror
is not, nor will it be as a result of the execution and delivery of this
Agreement or the performance of it obligations under this Agreement, in breach
of any license, sublicense or other agreement relating to the Acquiror
Intellectual Property Rights or Third Party Intellectual Property Rights (as
defined in Section 8.9(l)). Acquiror has not advised any third party that such
third party may be infringing any Acquiror Intellectual Property Rights or
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breaching any license or agreement involving Acquiror Intellectual Property
Rights that could reasonably be expected to have a Material Adverse Effect on
Acquiror.
3.20 No Default. Except as set forth in Section 3.20 of the Acquiror
Disclosure Schedule, neither Acquiror nor any of the Acquiror Subsidiaries is in
default or violation (and no event has occurred which with or without notice or
the lapse of time or both would constitute a default or violation) of any term,
condition or provision of (i) its certificate or articles of incorporation or
bylaws or other organizational documents, (ii) any Laws applicable to Acquiror
or any Acquiror Subsidiary or by which any of their respective properties is
bound or affected, or (iii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Acquiror or any Acquiror Subsidiary is a party or by which Acquiror or
any Acquiror Subsidiary or any of their respective properties or assets is bound
or affected, except in the case of clauses (ii) and (iii) above for defaults or
violations which would not have a Material Adverse Effect on Acquiror.
3.21 Title to Properties; Encumbrances. Section 3.21 of the Acquiror
Disclosure Schedule sets forth all real property owned or leased by Acquiror and
the Acquiror Subsidiaries (the "Acquiror Real Property"), indicating which
facilities are owned and which are leased. Except as disclosed in the Acquiror
Current Reports and as described in clause (ii) below: (i) each of Acquiror and
the Acquiror Subsidiaries has good, valid and marketable title to, or a valid
leasehold interest in, as applicable, all of its properties and assets (real,
personal and mixed, tangible and intangible), including, without limitation, all
Acquiror Real Property and all other properties and assets reflected in the
consolidated balance sheet of Acquiror and the Acquiror Subsidiaries at June 30,
1998 included in the Acquiror Form 10-Q for the quarter ended June 30, 1998
(except for properties and assets disposed of in the ordinary course of business
and consistent with past practice since June 30, 1998) and (ii) none of such
properties or assets are subject to any liability, obligation, claim, lien,
mortgage, pledge, security interest, conditional sale agreement, charge or
encumbrance of any kind (whether absolute, accrued, contingent or otherwise),
except for liens securing repayment of indebtedness incurred in the ordinary
course consistent with past practice subsequent to June 30, 1998 and liens for
taxes not yet due and payable, unrecorded and undelivered mortgages between a
Acquiror Subsidiary and a joint venture entity in which Acquiror is a limited
partner or a managing member (as identified in Section 3.21 of the Acquiror
Disclosure Schedule) and easements and restrictions of record, if any, which are
not substantial in amount, do not materially detract from the value of the
property or assets subject thereto and do not impair the operations of Acquiror
and the Acquiror Subsidiaries. Each of the leases is in full force and effect
and there is no default by landlord or tenant existing thereunder (and no event
has occurred which, with or without notice or the passage of time or both, would
constitute a default under such lease) which would have a Material Adverse
Effect on Acquiror. Except as set forth in Section 3.21 of the Acquiror
Disclosure Schedule, Acquiror and the Acquiror Subsidiaries have obtained
owner's title insurance on all of the Acquiror Real Property owned by Acquiror
or any Acquiror Subsidiary, in each case insuring good and marketable fee simple
title to such Acquiror Real Property, in an amount at least equal to the
aggregate value of such Acquiror Real Property together with all improvements
thereon. Except as would not cause a Material Adverse Effect on Acquiror, all of
the properties and assets of Acquiror and the Acquiror Subsidiaries are in
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good operating condition and repair, and maintenance thereon has not been
deferred beyond industry standards, and are suitable for the purposes for which
they are presently being used.
3.22 Brokers. Neither Acquiror nor any Acquiror Subsidiary has paid or is
obligated to pay any brokerage, finder's or other fee or commission to any
broker, finder, investment banker or other intermediary in connection with this
Agreement, except that Acquiror has retained Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") as its financial advisor for the transactions
contemplated hereby, pursuant to an engagement letter a copy of which (as
executed by all the parties thereto) has been provided previously to the
Company.
3.23 Opinion of Financial Advisor. The Board of Directors of the Acquiror
has received the opinion of DLJ to the effect that, as of the date of this
Agreement, the consideration to be paid to the holders of shares of Company
Common Stock pursuant to this Agreement is fair to Acquiror, from a financial
point of view, a written copy of which (as executed) will be provided to the
Company promptly after receipt thereof by the Acquiror.
3.24 Company Stock Ownership. Except as contemplated pursuant to the
terms of this Agreement and the transactions to be consummated hereby or by the
Option Agreement, neither Acquiror nor any of the Acquiror Subsidiaries own any
shares of Company Common Stock or rights to acquire or dispose of Company Common
Stock.
3.25 Voting Requirements. There is no vote of the holders of any class or
series of Acquiror's capital stock necessary to approve and adopt this Agreement
and the transactions contemplated hereby.
3.26 Books and Records. The books of account, stock records, minute books
and other records of Acquiror and the Acquiror Subsidiaries are complete and
correct, and Acquiror has devised and maintained a system of internal accounting
controls sufficient to provide the reasonable assurances enumerated in Section
13(b)(2)(B) of the Exchange Act.
3.27 Disclosure. Neither (i) the representations or warranties by
Acquiror contained in this Agreement, or the statements contained in the
Acquiror Disclosure Schedule or any other document, certificate or other
instrument delivered to or to be delivered by or on behalf of Acquiror or
required to be filed by Acquiror or any Acquiror Subsidiary with any
Governmental Entity in connection with or pursuant to this Agreement and all
other documents contemplated hereby, nor (ii) the information supplied or to be
supplied by or on behalf of Acquiror or any Acquiror Subsidiary to any person
for inclusion in any document or application filed or to be filed with any
Governmental Entity in connection with the transactions contemplated by this
Agreement, the Option Agreement and all other documents contemplated hereby and
thereby, contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading or to correct a prior statement. All
documents required to be filed by Acquiror or any Acquiror Subsidiary with any
Governmental Entity in connection with this Agreement and
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all other documents contemplated hereby or the transactions contemplated
hereunder will comply in all material respects with the provisions of applicable
Law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
On or prior to the date hereof, the Company has delivered to Acquiror a
schedule (the "Company Disclosure Schedule") setting forth, among other things,
items the disclosure of which is necessary or appropriate either (i) in response
to an express disclosure requirement contained in a provision hereof or (ii) as
an exception to one or more representations or warranties contained in Article
IV or to one or more of its covenants contained in Article V; provided that the
mere inclusion of an item in the Company Disclosure Schedule as an exception to
a representation or warranty shall not be deemed an admission by the Company
that such item represents a material exception or fact, event or circumstance or
that such item is reasonably likely to result in a Material Adverse Effect on
the Company. The Company represents and warrants to Acquiror and Merger Sub, as
of the date of this Agreement that, except as set forth in the Company
Disclosure Schedule, which shall identify exceptions by specific Section
references:
4.1 Organization. The Company and each of its subsidiaries (the "Company
Subsidiaries") has been duly organized and is validly existing and in good
standing (with respect to jurisdictions which recognize such concept) under the
laws of the jurisdiction of its organization, has all requisite power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted, and is qualified or licensed to do business and is
in good standing (with respect to jurisdictions which recognize such concept) in
each jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary, other
than where failure to be so qualified or licensed, individually or in the
aggregate, would not have a Material Adverse Effect on the Company. The term
"Material Adverse Effect on the Company" as used in this Agreement shall mean
any change or effect that, individually or when taken together with all such
other changes or effects, is or would reasonably be expected to be materially
adverse to the financial condition, results of operations, properties or
business of the Company and the Company Subsidiaries taken as a whole; provided,
however, that Material Adverse Effect on the Company shall not be deemed to
include the impact of (i) changes in general economic conditions or conditions
applicable to the assisted living industry generally, (ii) changes or effects
which result from the execution and delivery of this Agreement or the
consummation of any transactions contemplated hereby other than changes or
effects which result from (A) a change in control or change of control or
similar event applicable to the Company or any Company Subsidiary or (B) the
failure to obtain one or more Third Party Consents (as defined below) which
failure individually or in the aggregate would have a Material Adverse Effect on
the Company, (iii) the matters set forth in Section 4.1 of the Company
Disclosure Schedule, and (iv) the inability of the Company to obtain the consent
to this Agreement of Catholic Health Initiatives ("CHI") related to the joint
venture agreements between the Company and CHI to develop, own and/or operate
assisted living residences in Ohio, New Mexico and Colorado. True and complete
copies of the Articles of Incorporation and the Code of Regulations, together
with all
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amendments thereto, of the Company have heretofore been delivered to
Acquiror, and such Articles of Incorporation and Code of Regulations are in full
force and effect. Section 4.1 of the Company Disclosure Schedule contains a
complete and accurate list of all of the Company Subsidiaries, a list of the
jurisdictions where the Company and each of the Company Subsidiaries is duly
qualified or licensed to do business as a foreign organization and Company's
percentage ownership in each such Company Subsidiary. Neither the Company nor
any Company Subsidiary is in violation of any provision of its articles or
certificate of incorporation or bylaws (each as may have been amended or
restated) or other organizational documents, as the case may be.
4.2 Capitalization. As of the date of this Agreement, the authorized
capital stock of the Company consists in its entirety of (i) 28,000,000 shares
of Company Common Stock, and (ii) 2,000,000 shares of preferred stock, without
par value, none of which were issued and outstanding as of the date of this
Agreement. As of October 16, 1998, (i) 6,837,400 shares of Company Common Stock
were issued and outstanding, (ii) no shares of Company Common Stock were held in
the treasury of the Company, and (iii) 550,000 shares of Company Common Stock
were reserved for future issuance pursuant to employee stock options granted
pursuant to the Company Option Plans (as defined in Section 5.7). Each of the
outstanding shares of capital stock of the Company were issued in compliance
with all applicable federal and state laws concerning the issuance of
securities. Except as set forth on Section 4.2 of the Company Disclosure
Schedule, all of the outstanding shares of capital stock of each of the Company
Subsidiaries is owned beneficially and of record by the Company or a Company
Subsidiary, free and clear of all Encumbrances. All of the outstanding shares of
capital stock of the Company and each of the Company Subsidiaries have been duly
authorized, validly issued and are fully paid and nonassessable and are not
subject to preemptive rights created by statute, their respective charter or
bylaws or any agreement to which any such entity is a party or by which any such
entity is bound. The Company has heretofore delivered to Acquiror, correct and
complete copies of the Company's Stock Option Plans, in each case as currently
in effect. Except as set forth in this Section 4.2 or in Section 4.2 of the
Company Disclosure Schedule, there are no options, warrants, puts, calls or
other rights (including registration rights), agreements, arrangements or
commitments of any character to which the Company or any Company Subsidiary is a
party or by which any of them is bound relating to the issued or unissued
capital stock, or other interest in, of the Company or any Company Subsidiary or
obligating the Company or any Company Subsidiary to grant, issue, deliver or
sell, or cause to be granted, issued, delivered or sold, any shares of capital
stock of, or other equity interests in, the Company or any Company Subsidiary,
by sale, lease, license or otherwise. All shares of Company Common Stock subject
to issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable and will not have been issued in
violation of or subject to any preemptive rights created by statute, the
articles of incorporation or bylaws of the Company or any agreement to which the
Company is a party or to which the Company is bound. Except as set forth in this
Section 4.2, in Section 4.2 of the Company Disclosure Schedule or in the Company
Current Reports (as defined in Section 4.9), there are no outstanding
contractual obligations of the Company or any Company Subsidiary to (x)
repurchase, redeem or otherwise acquire any shares of Company Common Stock or
any capital
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stock, or other interests in, of any Company Subsidiary or (y) except for
guarantees of obligations of, or loans to or capital contribution commitments,
the Company Subsidiaries entered into in the ordinary course of business,
provide funds to, 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 Company Subsidiary or any other person. 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 of
the revenues or earnings, or any payment based thereon or calculated in
accordance therewith, of the Company or any Company Subsidiary. Each outstanding
share of capital stock, or other interest in, of each Company Subsidiary is duly
authorized, validly issued, fully paid and nonassessable and, except as set
forth in Section 4.2 of the Company Disclosure Schedule, each such share owned
by the Company or another Company Subsidiary is owned free and clear of all
Encumbrances. Except for the capital stock of the Company Subsidiaries and
except for the ownership interests set forth in Section 4.2 of the Company
Disclosure Schedule, the Company does not own, directly or indirectly, any
capital stock or other ownership interest in, or any interest convertible into
or exchangeable or exercisable for capital stock of or other ownership interest
in, any person. The Company is not aware of any voting trust, stockholder
agreement or other similar arrangement relating to any shares of Company Common
Stock.
4.3 Options or Other Rights. Except as disclosed in Section 4.3 of the
Company Disclosure Schedule or in the Company SEC Filings (as defined in Section
4.10), there is no outstanding right, subscription, warrant, call, unsatisfied
preemptive right, option or other agreement or arrangement of any kind to
purchase or otherwise to receive from the Company or any Company Subsidiary any
of the outstanding, authorized but unissued, unauthorized or treasury shares of
the capital stock or any other security of the Company or any Company Subsidiary
and there is no outstanding security of any kind convertible into or
exchangeable for such capital stock. Except as set forth in Section 4.3 of the
Company Disclosure Schedule or the Company SEC Filings, there are no agreements
or understandings among the Company or any Company Subsidiary on the one hand
and any other person on the other hand concerning the registration of any
security of the Company or a Company Subsidiary under the Securities Act. All
such registration rights agreements will be null and void and of no further
force and effect upon completion of the Merger. Except as set forth in Section
4.3 of the Company Disclosure Schedule, no options granted under the Company
Option Plans have provisions which accelerate the vesting or right to exercise
such options upon the occurrence of certain events, including, but not limited
to, the consummation of the Merger.
4.4 Authority Relative to this Agreement. The Company has all requisite
corporate power and authority to execute and deliver this Agreement and the
Option Agreement, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated on its part hereby and thereby to be
consummated by the Company. The execution and delivery of this Agreement and the
Option Agreement by the Company and the consummation of the transactions
contemplated on its part hereby and thereby have been duly authorized by all
necessary corporate action, and, other than the approval of the Company's
stockholders as provided in Section 5.1(a) hereof, no other corporate
proceedings on the part of the Company are necessary to authorize the execution
and delivery of this Agreement and the
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Option Agreement by the Company or the consummation of the transactions
contemplated on its part hereby and thereby. This Agreement and the Option
Agreement have been duly executed and delivered by the Company and, assuming the
due authorization, execution and delivery of this Agreement by Acquiror and
Merger Sub, constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except to the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally or by general equity principles.
4.5 No Violation. Other than as listed on Section 4.5 to the Company
Disclosure Schedule, the execution and delivery of this Agreement and of the
Option Agreement by the Company do not, the performance by the Company of its
obligations hereunder and thereunder will not, and the consummation by the
Company of the transactions contemplated to be performed by it hereby and
thereby will not (i) violate or conflict with any provision of any Law in effect
on the date of this Agreement and applicable to the Company or any Company
Subsidiary or by which any of their respective properties or assets is bound or
subject, (ii) require the Company or any Company Subsidiary to obtain any
consent, waiver, approval, license or authorization or permit of, or make any
filing with, or notification to, any Governmental Entities, based on laws,
rules, regulations and other requirements of Governmental Entities in effect and
of the date of this Agreement (other than (a) the filing of a pre-merger
notification report under the HSR Act and the expiration of the applicable
waiting period, (b) filings or authorizations required in connection or in
compliance with the provisions of the Exchange Act, the Securities Act, the
OGCL, the Bylaws of the Nasdaq or the "takeover" or "blue sky" laws of various
states, (c) filing and recordation of appropriate merger documents as required
by the OGCL and (d) any other filings and approvals expressly contemplated by
this Agreement), (iii) require the consent, waiver, approval, license or
authorization of any person (other than Governmental Entities), (iv) violate,
conflict with or result in a breach of or the acceleration of any obligation
under, or constitute a default (or an event which with notice or the lapse of
time or both would become a default) under, or give to others any rights of, or
result in any, termination, amendment, acceleration or cancellation of, or loss
of any benefit or creation of a right of first refusal, or require any payment
under, or result in the creation of a lien or other encumbrance on any of the
properties or assets of the Company or any Company Subsidiary pursuant to or
under any provision of any indenture, mortgage, note, bond, lien, lease,
license, agreement, contract, order, judgment, ordinance, Company Permit (as
defined below) or other instrument or obligation to which the Company or Company
Subsidiary is a party or by which the Company or any Company Subsidiary or any
of their respective properties is bound or subject to, or (v) conflict with or
violate the Articles of Incorporation or the Code of Regulations, or the
equivalent organizational documents, in each case as amended or restated, of
Company or any of the Company Subsidiaries, except for any such conflicts,
consents, waivers, approvals, licenses, filings or violations described in
clause (i) or breaches, defaults, events, rights of termination, amendment,
acceleration or cancellation, payment obligations or liens or encumbrances
described in clause (iv) that would not have a Material Adverse Effect on the
Company and except for such consents, waivers, approvals, licenses or
authorizations described in clauses (ii) or (iii) that individually or in the
aggregate would not be material to the Company or to the Acquiror, and except
where the failure to obtain such consents,
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approvals, authorizations or permits, or to make such filings or notifications
would not, either individually or in the aggregate, prevent the Company from
performing any of its obligations under this Agreement or the Option Agreement
and would not have a Material Adverse Effect on Company. Neither the Company nor
any of its affiliates or associates (as each such term is defined in Section 203
of the Delaware General Corporation Law ("DGCL") is, prior to the date hereof,
an "interested stockholder" (as such term is defined in Section 203 of the DGCL)
of Acquiror. There are no reasonable grounds to believe that the Company or the
Surviving Corporation would be rendered insolvent by the Merger or the
conversion of Company Shares in the Merger within the meaning of Section 1701.78
of the OGCL.
4.6 Compliance with Laws.
(a) As of the date of this Agreement, each of the Company and the
Company Subsidiaries holds all licenses, CONs, franchises, grants, permits,
easements, variances, accreditations, exemptions, consents, certificates,
identification numbers, approvals, orders, and other authorizations
(collectively, "Company Permits") necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted, are
certified as providers under all applicable Medicare, Medicaid and CHAMPUS
programs to the extent required to be so certified, and are in compliance with,
and have performed in all material respects all obligations under, all Company
Permits and all Laws governing their respective businesses, including, without
limitation, the requirements, guidelines, rules and regulations of Medicare,
Medicaid, CHAMPUS, state approved Medicaid waiver programs and other third-party
reimbursement programs, except where the failure to hold such Company Permits or
to so comply or perform, individually or in the aggregate, would not have a
Material Adverse Effect on the Company. No Company Permits will in any way be
affected by, or terminate or lapse by reason of, the transactions contemplated
by this Agreement.
(b) To the Company's knowledge, all health care personnel employed by
the Company or any Company Subsidiary are properly licensed to the extent
required to perform the duties of their employment in each jurisdiction where
such duties are performed.
(c) Except as set forth in Section 4.6(c) of the Company Disclosure
Schedule, no action or proceeding is pending or, to the Company's knowledge,
threatened that may result in the suspension, revocation or termination of any
Company Permit, the issuance of any cease-and-desist order, or the imposition of
any administrative or judicial sanction, and neither the Company nor any Company
Subsidiary has received any notice from any governmental authority in respect of
the suspension, revocation or termination of any Company Permit, or any notice
of any intention to conduct any investigation or institute any proceeding, in
any such case where such suspension, revocation, termination, order, sanction,
investigation or proceeding could result, individually or in the aggregate, in a
Material Adverse Effect on the Company.
(d) Neither the Company nor any Company Subsidiary has received
notice that Medicare, Medicaid, CHAMPUS, state approved Medicaid waiver programs
or any other third-party reimbursement program has any claims for disallowance
of costs against any of them which could result in offsets against future
reimbursement or recovery of prior payments, which
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offsets or recoveries, individually or in the aggregate, would have a Material
Adverse Effect on Company.
(e) The Company and the Company Subsidiaries have filed all forms,
reports, statements, and other documents required to be filed with any
Governments Entities, including, without limitation, state insurance and state
and federal health regulatory authorities and reimbursement programs, except
where the failure to file such forms, reports, statements or other documents
under this Section 4.6(e) would not have a Material Adverse Effect on the
Company.
4.7 Fraud and Abuse Matters. Neither the Company nor any Company
Subsidiary, nor the officers, directors, employees or agents of any of the
Company or any Company Subsidiary, have engaged in any activities which are
prohibited, or are cause for civil penalties or mandatory or permissive
exclusion from Medicare, Medicaid, or any other State Health Care Program or
Federal Health Care Program under Sections 1320a-7, 1320a-7a, 1320a-7b, or
1395nn of Title 42 of the United States Code, the federal CHAMPUS statute, or
the regulations promulgated pursuant to such statutes or regulations or related
state or local statutes or which are prohibited by any private accrediting
organization from which the Company or any Company Subsidiary seeks
accreditation or by generally recognized professional standards of care or
conduct, including but not limited to the following activities:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
(b) knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining rights to
any benefit or payment;
(c) presenting or causing to be presented a claim for reimbursement
under CHAMPUS, Medicare, Medicaid or any other State Health Care Program or
Federal Health Care Program that is (i) for an item or service that the person
presenting or causing to be presented knows or should know was not provided as
claimed, or (ii) for an item or service and the person presenting knows or
should know that the claim is false or fraudulent;
(d) knowingly and willfully offering, paying, soliciting or receiving
any remuneration (including any kickback, bribe, or rebate), directly or
indirectly, overtly or covertly, in cash or in kind (i) in return for referring,
or to induce the referral of, an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment may be
made in whole or in part by CHAMPUS, Medicare, Medicaid, or any other State
Health Care Program or Federal Health Care Program, or (iii) in return for, or
to induce, the purchase, lease, or order, or the arranging for or recommending
of the purchase, lease, or order, of any good, facility, service, or item for
which payment may be made in whole or in part by CHAMPUS, Medicare, Medicaid or
any other State Health Care Program or Federal Health Care Program; or
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(e) knowingly and willfully making or causing to be made or inducing
or seeking to induce the making of any false statement or representation (or
omitting to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading) or a material fact with
respect to (i) the conditions or operations of a facility in order that the
facility may qualify for CHAMPUS, Medicare, Medicaid or any other State Health
Care Program or Federal Health Care Program certification, or (ii) information
required to be provided under SSA Section 1124A.
4.8 Medicare/Medicaid Participation.
(a) Neither the Company nor to the knowledge of the Company any other
person who immediately prior to the Closing has a direct or indirect ownership
interest (as those terms are defined in 42 C.F.R. Section 1001.1001(a)(2)) in
the Company or any Company Subsidiary, or who has an ownership or control
interest (as defined in SSA Section 1124(a)(3) or any regulations promulgated
thereunder) in the Company or any Company Subsidiary, or who is an officer,
director, agent (as defined in 42 C.F.R. Section 1001.1001(a)(2)), or managing
employee (as defined in SSA Section 1126(b)) of the Company or any Company
Subsidiary, and to the knowledge of the Company and any Company Subsidiary, no
person with any relationship with such entity (including without limitation a
parent company or shareholder of, or partner in any Company Subsidiary) who
immediately prior to the Closing has an indirect ownership interest (as that
term is defined in 42 C.F.R. Section 1001.1001(a)(2)) in the Company or any
Company Subsidiary: (1) has had a civil monetary penalty assessed against it
under SSA Section 1128A; (2) has been excluded from participation under
Medicare, Medicaid or any other State Health Care Program or Federal Health Care
Program; (3) has been convicted (as that term is defined in 42 C.F.R. Section
1001.2) of any of the following categories of offenses as described in SSA
Section 1128(a) and (b)(1), (2), (3): (i) criminal offenses relating to the
delivery of an item or service under Medicare, Medicaid or any other State
Health Care Program or Federal Health Care Program; (ii) criminal offenses under
federal or state law relating to patient neglect or abuse in connection with the
delivery of a health care item or service; (iii) criminal offenses under federal
or state law relating to fraud, theft, embezzlement, breach of fiduciary
responsibility, or other financial misconduct in connection with the delivery of
a health care item or service or with respect to any act or omission in a
program operated by or financed in whole or in part by any federal, state or
local government agency; (iv) federal or state laws relating to the interference
with or obstruction of any investigation into any criminal offense described in
(i) through (iii) above; or (v) criminal offenses under federal or state law
relating to the unlawful manufacture, distribution, prescription or dispensing
of a controlled substance.
(b) Section 4.8(b) of the Company Disclosure Schedule contains a list
of each existing Medicare and Medicaid contract (the "Company Program
Agreements") or evidence thereof relating to the participation by Company and
the Company Subsidiaries in the Governmental Programs. The businesses of the
Company and the Company Subsidiaries are in compliance with all material terms,
conditions and provisions of the Company Program Agreements except where the
failure to comply would not have a Material Adverse Effect on Company. Except as
set forth in the Section 4.8(b) of the Company Disclosure Schedule, (i) no
notice of any offsets against future reimbursement has been received by the
Company or
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any Company Subsidiary, nor to the knowledge of Company, is there any reasonable
basis therefor with respect to the Governmental Programs except with respect to
offsets in the ordinary course of business which could not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect on
the Company, (ii) there are no pending appeals, adjustments, challenges, audits,
litigation, notices of intent to reopen or open completed payments with respect
to the Governmental Programs except such adjustments made in the ordinary course
of business which could not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect on the Company, and (iii)
neither the Company nor any Company Subsidiary has received notice of pending,
threatened or possible decertification or other loss of participation in any of
the Governmental Programs which remains in effect as of the date hereof. Section
4.8(b) of the Company Disclosure Schedule lists any material contracts between
the Company or any Company Subsidiary and third party payors, copies of which
have been made available to the Company. The Company and each of the Company
Subsidiaries, as applicable, are in compliance in all material respects with all
of the terms, conditions and provisions of the contracts referenced in the
immediately preceding sentence.
4.9 Litigation. As of the date of this Agreement, except as may be
disclosed in the Company 10-K (as defined below), reports filed on Forms 10-Q or
8-K or proxy statements filed on Schedule 14A for periods subsequent to the
period covered by such Company 10-K, in each case filed prior to the date hereof
(such reports and filings, collectively, the "Company Current Reports"), or
except as set forth in Section 4.9 of the Company Disclosure Schedule, there is
no claim, litigation, suit, arbitration, mediation, action, proceeding, unfair
labor practice complaint or grievance pending or, to the Company's knowledge,
investigation of any kind, at law or in equity (including actions or proceedings
seeking injunctive relief), pending or, to the Company's knowledge, threatened
in writing against the Company or any Company Subsidiary or with respect to any
property or asset of any of them, except for claims, litigations, suits,
arbitrations, mediations, actions, proceedings, complaints, grievances or
investigations which, individually or in the aggregate, (a) would not have a
Material Adverse Effect on the Company, (b) would not impair in any material
respect the ability of the Company or any Company Subsidiary to perform its
obligations under this Agreement or any other document contemplated hereby or
thereby or (c) would not prevent the consummation by the Company or any Company
Subsidiary of any of the transactions contemplated by this Agreement or any
other document contemplated hereby or thereby. Neither the Company nor any
Company Subsidiary nor any property or asset of any of them is subject to any
continuing order, judgment, settlement agreement, injunction, consent decree or
other similar written agreement with or, to the Company's knowledge, continuing
investigation by, any Governmental Entity, or any judgment, order, writ,
injunction, consent decree or award of any Governmental Entity or arbitrator,
including, without limitation, cease-and-desist or other orders, except for such
matters which (a) would not reasonably be expected to have a Material Adverse
Effect on the Company, (b) would not impair in any material respect the ability
of the Company or any Company Subsidiary to perform its obligations under this
Agreement or any other document contemplated hereby or thereby or (c) would not
prevent the consummation by the Company or any Company Subsidiary of any of the
transactions contemplated by this Agreement or any other document contemplated
hereby or thereby.
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4.10 Financial Statements and Reports. The Company has made available to
Acquiror true and complete copies of (a) its Annual Report on Form 10-K for the
year ended December 31, 1997 (the "Company 10-K"), as filed with the Commission,
(b) its proxy statement relating to the annual meeting of its shareholders held
on May 12, 1998, (c) all registration statements filed by the Company and
declared effective under the Securities Act (other than registration statements
on Form S-8) and (d) all other reports, statements and registration statements
(including Quarterly Reports on Form 10-Q and Current Reports on Form 8-K but
excluding preliminary material and reports pursuant to Sections 13(d) or 13(g)
of the Exchange Act) filed by it with the Commission other than registration
statements on Form S-8. The reports, statements and registration statements
referred to in the immediately preceding sentence (including, without
limitation, any financial statements or schedules or other information included
or incorporated by reference therein) are referred to in this Agreement as the
"Company SEC Filings." As of the respective times such documents were filed or,
as applicable, were effective, the Company SEC Filings complied as to form in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations promulgated
thereunder, and except to the extent that information contained in any Company
SEC Filings has been revised or superseded by a later Company SEC Filing filed
and publicly available prior to the date of this Agreement, did not 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, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the Company SEC Filings complied as of
their respective dates of filing with the Commission as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the Commission with respect thereto, were prepared in
accordance with generally accepted accounting principles (as in effect from time
to time) applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto or, in the case of the
unaudited interim financial statements, as permitted by Form 10-Q of the
Commission) and present fairly the consolidated financial position, consolidated
results of operations and consolidated cash flows of the Company and the Company
Subsidiaries as of the dates and for the periods indicated, except (i) in the
case of unaudited interim consolidated financial statements, to normal recurring
year-end audit adjustments and any other adjustments described therein and (ii)
any pro forma financial information contained therein is not necessarily
indicative of the consolidated financial position of the Company and the Company
Subsidiaries as of the respective dates thereof and the consolidated results of
operations and cash flows for the periods indicated. No Company Subsidiary is
required to file any form, report or other document with the Commission. Except
as set forth in the Company Current Reports, and except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice, since the date of the most recent consolidated balance sheet included
in the Company Current Reports, neither the Company nor any Company Subsidiary
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by generally accepted accounting principles to
be recognized or disclosed on a consolidated balance sheet of the Company and
the Company Subsidiaries or in the notes thereto which could reasonably be
expected to have a Material Adverse Effect on the Company. The pro forma
financial information (and related notes thereto) included in the
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Company SEC Filings present fairly the information shown therein and were
prepared, as of the respective dates of filing of the Company SEC Filings with
the Commission, in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements. The necessary pro forma adjustments
have been properly applied to the historical amounts in the compilation of such
pro forma financial information, the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein.
4.11 Absence of Certain Changes or Events. Other than as disclosed in the
Company Current Reports or in Section 4.11 of the Company Disclosure Schedule,
since June 30, 1998 and through the date of this Agreement, the business of the
Company and of each of the Company Subsidiaries has been conducted in the
ordinary course, and there has not been (i) any Material Adverse Effect on the
Company; (ii) any material indebtedness incurred by the Company or any Company
Subsidiary for borrowed money, except under credit facilities disclosed in the
Company Current Reports, if any; (iii) any material transaction or commitment,
except in the ordinary course of business or as contemplated by this Agreement,
entered into by the Company or any of the Company Subsidiaries; (iv) any damage,
destruction or loss, whether covered by insurance or not, which, individually or
in the aggregate, would have a Material Adverse Effect on the Company; (v) any
change by the Company in accounting principles or methods except insofar as
required by a change in generally accepted accounting principles; (vi) any
declaration, setting aside or payment of any dividend (whether in cash,
securities or property) with respect to the Company Common Stock; (vii) any
material agreement to acquire any assets or stock or other interests of any
third-party; (viii) any increase in the compensation payable or to become
payable by the Company or any Company Subsidiary to any employees, officers,
directors, or consultants or in any bonus, insurance, welfare, pension or other
employee benefit plan, payment or arrangement made to, for or with any such
employee, officer, director or consultant (other than as provided in employment
agreements, consulting agreements and welfare and benefit plans set forth on the
Company Disclosure Schedule, and except for increases consistent with past
practice); (ix) any material revaluation by the Company or any Company
Subsidiary of any asset (including, without limitation, any writing down of the
value of inventory or writing off of notes or accounts receivable); (x) any
transfer, mortgage, pledge or disposition of any of the assets or properties of
the Company or any Company Subsidiary or the subjection of any of the assets or
properties of the Company or any Company Subsidiary to any Encumbrances, rights
or claims of others with respect thereto other than in the ordinary course
consistent with past practice; (xi) any assumption or guarantee by the Company
or a Company Subsidiary of the indebtedness of any person or entity, other than
in the ordinary course consistent with past practice; (xii) any split,
combination or reclassification of any of the capital stock of the Company or
any Company Subsidiary or any issuance or the authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for shares of
such capital stock; (xiii) any receipt by the Company or any Company Subsidiary
of written or oral notice that any material contract, agreement or arrangement
to which it is a party has been or will be canceled; (xiv) any issuance by the
Company or any Company Subsidiary of any share of stock, bond, note, option,
warrant or other corporate security; (xv) any capital expenditure or
expenditures by the Company or any Company Subsidiary or commitment(s) to make
such capital expenditure(s) that individually exceeds $250,000, or in the
aggregate exceed
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$500,000; (xvi) any payment or incurring of liability to pay any taxes,
assessments, fees, penalties, interest or other governmental charges, other than
those arising and discharged or to be discharged in the ordinary course of
business and consistent with past practice; (xvii) any loan or loans that
individually exceeds $250,000, or in the aggregate exceed $500,000, made by the
Company or any Company Subsidiary to any person, including but not limited to,
any employee, officer or director of the Company or any Company Subsidiary; or
(xviii) any authorization, approval, agreement or commitment by the Company or
any Company Subsidiary to take any action described in clauses (i) through
(xvii) above.
4.12 Employee Benefit Plans and Employment Matters.
(a) Section 4.12(a) of the Company Disclosure Schedule lists all
employee benefit plans, collective bargaining agreements, labor contracts, and
employment agreements not otherwise disclosed in the Company Current Reports in
which the Company or any Company Subsidiary participates, or by which any of
them are bound, including, without limitation, (i) any profit sharing, deferred
compensation, bonus, stock option, stock purchase, pension, welfare, and
incentive plan or agreement; (ii) any plan providing for "fringe benefits" to
their employees, including, but not limited to, vacation, sick leave, medical,
hospitalization and life insurance; (iii) any written employment agreement and
any other employment agreement not terminable at will; and (iv) any other
"employee benefit plan" (within the meaning of Section 3(3) of ERISA). The
Company and the Company Subsidiaries are in compliance in all material respects
with the requirements prescribed by all Laws currently in effect applicable to
employee benefit plans and to any employment agreements, including, but not
limited to, ERISA and the Code. The Company and the Company Subsidiaries have
each performed all of its obligations under all such employee benefit plans and
employment agreements in all material respects. There is no pending or, to the
knowledge of the Company, threatened legal action, proceeding or investigation
against or involving any Company or Company Subsidiary employee benefit plan
which could result in a material amount of liability to such employee benefit
plan or to the Company, other than routine claims for benefits involving less
than $25,000 for each such routine claim and $100,000 for all such routine
claims in the aggregate.
(b) Neither the Company nor the Company Subsidiaries sponsor or
participate in, and have not sponsored or participated in, any employee pension
benefit plan to which Section 4021 of ERISA applies that would create a material
amount of liability to the Company under Title IV of ERISA.
(c) Neither the Company nor the Company Subsidiaries sponsor or
participate in, and have not sponsored or participated in, any employee pension
benefit plan that is a "multiemployer plan" (within the meaning of Section 3(37)
of ERISA).
(d) All group health plans of the Company and the Company
Subsidiaries have been operated in compliance with the group health plan
continuation coverage requirements of Section 4980B of the Code in all material
respects, to the extent such requirements are applicable.
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(e) There have been no acts or omissions by the Company or any
Company Subsidiary or by any fiduciary, disqualified person or party in interest
with respect to an employee benefit plan of the Company or any Company
Subsidiaries that have given rise to or could reasonably be expected to give
rise to a material amount of fines, penalties, taxes, or related charges under
Sections 502(c), 502(i) or 4071 of ERISA or under Chapter 43 of the Code.
(f) No "reportable event," as defined in ERISA Section 4043, other
than those events with respect to which the Pension Benefit Guaranty Corporation
has waived the notice requirement, has occurred with respect to any of the
employee benefit plans of the Company.
(g) Section 4.12(g) of the Company Disclosure Schedule sets forth the
name of each director, officer or employee of the Company or any Company
Subsidiary entitled to receive any benefit or payment under any existing
employment agreement, severance plan or other benefit plan solely as a result of
the consummation of any transaction contemplated by this Agreement, and with
respect to each such person, the identity of the specific agreement relating to
such person, which agreement the Company has previously provided to Acquiror.
(h) The Company has furnished Acquiror with true and correct copies
of all plan documents and employment agreements referred to on the Company
Disclosure Schedule, including all amendments thereto, and all related summary
plan descriptions to the extent that one is required by Law.
(i) For purposes of this Section 4.12, any reference to the "Company"
shall be deemed to include a reference to any entity that is aggregated with the
Company under the provisions of Section 414 of the Code, to the extent that
those aggregation rules apply to any representation made herein.
4.13 Labor Matters. Neither the Company nor any Company Subsidiary is a
party to any collective bargaining agreement with respect to any of their
employees. None of the employees of the Company or any Company Subsidiary is
represented by any labor union. To the knowledge of the Company, there is no
activity involving any employees of the Company or the Company Subsidiaries
seeking to certify a collective bargaining unit or engaging in any similar
organizational activity.
4.14 Insurance. The Company and the Company Subsidiaries maintain
insurance against such risks and in such amounts as the Company reasonably
believes are necessary to conduct its business. The Company and the Company
Subsidiaries are not in default with respect to any provisions or requirements
of any such policy, nor have any of them failed to give notice or present any
claim thereunder in a due and timely fashion, except for defaults or failures
which, individually or in the aggregate, would not have a Material Adverse
Effect on Company. Neither the Company nor any Company Subsidiary has received
any notice of cancellation or termination in respect of any of its insurance
policies.
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4.15 Environmental Matters. Except as disclosed on Section 4.15 of the
Company Disclosure Schedule:
(a) The Company and the Company Subsidiaries have complied and are in
compliance with, and the real property owned, operated, leased or used by the
Company or the Company Subsidiaries as of June 30, 1998, any additional real
property owned, operated, leased or used since that date, and, for purposes of
this Section 4.15, any real property formerly owned or operated by the Company
or any Company Subsidiary (collectively, the "Company Real Property") and all
improvements thereon are in compliance with, all Environmental Laws, except for
such non-compliance as would not have a Material Adverse Effect on the Company
and would not be considered "material" under the federal securities laws.
(b) Neither the Company nor any Company Subsidiary has any liability
under any Environmental Law, nor is the Company or any Company Subsidiary
responsible by contract, by operation of law, otherwise for any liability of any
other person under Environmental Law, which either individually or in the
aggregate would have a Material Adverse Effect on the Company or would be
considered "material" under the federal securities laws. Except for matters
which would not have a Material Adverse Effect on the Company and would not be
considered "material" under the federal securities laws, there are no pending or
threatened actions, suits, orders, claims, legal proceedings or other
proceedings based on, and neither the Company nor any Company Subsidiary, nor
any officer, director or stockholder thereof has directly or indirectly received
any formal or informal notice of any complaint, order, directive, citation,
notice of responsibility, notice of potential responsibility, or information
request from any Governmental Entity or any other person or entity or knows or
suspects any fact(s) which might reasonably form the basis for any such actions
or notices arising out of or attributable to: (i) the current or past presence,
Release, or threatened Release of Hazardous Materials at or from any part of the
Company Real Property; (ii) the off-site disposal or treatment of Hazardous
Materials originating on or from the Company Real Property or the businesses or
assets of the Company or any Company Subsidiary; or (iii) any violation of
Environmental Laws at any part of the Company Real Property or arising from the
Company's or any Company Subsidiary's activities (or the activities of the
Company's or any Company Subsidiary's predecessors in title) involving Hazardous
Materials.
(c) Except as disclosed in Section 4.15(c) of the Company Disclosure
Schedule, the Company and the Company Subsidiaries have been duly issued, and
currently have and will maintain through the Closing Date, all permits,
licenses, certificates and approvals required under any Environmental Law, each
of which is valid and in full force and effect. Except in accordance with such
permits, licenses, certificates and approvals, there has been no Release of
material regulated by such permits, licenses, certificates or approvals at, on,
under, or from the Company Real Property.
(d) Neither the Company nor any Company Subsidiary has provided to
any Governmental Entity, as required by Law, notice of any Release from any
underground improvements, including but not limited to treatment or storage
tanks, or underground piping
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associated with such tanks, used currently or in the past for the management of
Hazardous Materials. No portion of the Company Real Property is or has been used
as a dump or landfill or consists of or contains filled in land or wetlands.
(e) No Encumbrance in favor of any person relating to or in
connection with any Claim under any Environmental Law has been filed or has
attached to the Company Real Property.
4.16 Tax Matters. Neither Company nor, to the knowledge of Company, any
of its affiliates has taken or agreed to take any action that would, nor does
Company have any knowledge of any fact or circumstance that is reasonably likely
to, prevent the Merger from qualifying as a reorganization under the provisions
of Section 368 (a) of the Code. The Company has paid, or made provision in
accordance with generally accepted accounting principles on its balance sheet at
December 31, 1997 included in the Company 10-K, for all federal, state, local,
foreign or other governmental income, franchise, payroll, F.I.C.A.,
unemployment, withholding, real property, personal property, sales, payroll,
disability and all other taxes imposed on the Company or any Company Subsidiary
or with respect to any of their respective properties, or otherwise payable by
them, including interest and penalties, if any, in respect thereof
(collectively, "Company Taxes"), for the Company taxable period ended December
31, 1997 and all fiscal periods of the Company prior thereto, except such
nonpayment, or failure to make provision, which, individually or in the
aggregate, would not have a Material Adverse Effect on the Company and except as
set forth in Section 4.16 to the Company Disclosure Schedule. The Company Taxes
paid and/or incurred from December 31, 1997 until the Closing Date shall include
only Company Taxes incurred in the ordinary course of business. The Company and
each of the Company Subsidiaries have timely filed all returns, reports and
certifications related to Company Taxes which the Company and/or such Company
Subsidiary (as the case may be) are required to file ("Company Tax Returns"),
and have paid or provided for all the amounts shown to be due thereon, except
where such failure to make such timely filings, individually or in the
aggregate, would not have a Material Adverse Effect on the Company, and except
for the nonpayment of such amounts which, individually or in the aggregate,
would not have a Material Adverse Effect on the Company. Neither the Company nor
any Company Subsidiary (i) has filed or entered into, or is otherwise bound by,
any currently effective election, consent or extension agreement that extends
any applicable statute of limitations with respect to taxable periods of the
Company, (ii) is a party to any contractual obligation requiring the
indemnification or reimbursement of any person with respect to the payment of
any Company Taxes, other than among the Company and the Company Subsidiaries, or
(iii) has received any claim by an authority in a jurisdiction where neither the
Company nor any Company Subsidiary files Company Tax Returns that they are or
may be subject to Company Taxes by that jurisdiction, except for any such claims
as, individually or in the aggregate, would not have a Material Adverse Effect
on the Company. No action or proceeding is pending or, to the Company's
knowledge, threatened orally to any Company officer or in writing by any
governmental authority for any audit, examination, deficiency, assessment or
collection from the Company or any Company Subsidiary of any Company Taxes, no
unresolved claim for any deficiency, assessment or collection of any Company
Taxes has been asserted against the Company or any Company Subsidiary, and all
resolved assessments of Company
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Taxes have been paid or are reflected on the Company balance sheet at December
31, 1997 included in the Company 10-K, except for any of the foregoing which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company. The Company has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. The Company does not have any
liability for the taxes of any person other than the Company Subsidiaries (i)
under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local or
foreign law), (ii) as a transferee or successor, (iii) by contract, or (iv)
otherwise.
4.17 Intellectual Property. Except as disclosed in Section 4.17 of the
Company Disclosure Schedule, the Company and the Company Subsidiaries own, or
are licensed or otherwise possess or have all necessary rights to use all
Intellectual Property which is used in the conduct of their respective
businesses (collectively, "Company Intellectual Property Rights"). To the
knowledge of the Company, neither the Company nor any Company Subsidiary is
infringing or otherwise violating the intellectual property rights of any person
which infringement or violation would subject the Company or any Company
Subsidiary to liabilities which, individually or in the aggregate, would have a
Material Adverse Effect on the Company or which would prevent the Company or any
Company Subsidiary from conducting their respective businesses substantially in
the manner in which they are now being conducted. No claim has been made or, to
the Company's knowledge, threatened against the Company or any Company
Subsidiary alleging any such violation. To the knowledge of the Company, there
is no unauthorized use, disclosure, infringement or misappropriation of any
Company Intellectual Property Rights or any Intellectual Property right of any
third party to the extent licensed by or through Company, by any third party,
including any employee or former employee of the Company, that could reasonably
be expected to have a Material Adverse Effect on the Company. The Company is
not, nor will it be as a result of the execution and delivery of this Agreement
or the performance of it obligations under this Agreement, in breach of any
license, sublicense or other agreement relating to the Company Intellectual
Property Rights or Third Party Intellectual Property Rights. The Company has not
advised any third party that such third party may be infringing any Company
Intellectual Property Rights or breaching any license or agreement involving
Company Intellectual Property Rights that could reasonably be expected to have a
Material Adverse Effect on Company.
4.18 Related Party Transactions. Except as disclosed in the Company SEC
Filings or in Section 4.18 of the Company Disclosure Schedule, there have been
no material transactions between the Company or any Company Subsidiary on the
one hand, and any (i) officer or director of the Company or any Company
Subsidiary, (ii) record or beneficial owner of five percent or more of the
voting securities of the Company or (iii) affiliate (as such term is defined in
Regulation 12b-2 promulgated under the Exchange Act) of any such officer,
director or beneficial owner, on the other hand, other than payment of
compensation for services rendered to the Company or the Company Subsidiaries or
the grant of stock options to purchase shares of Company Common Stock.
4.19 No Undisclosed Material Liabilities. Except as disclosed in the
Company Current Reports, neither the Company nor any of the Company Subsidiaries
has incurred any liabilities of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or
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otherwise, that, individually or in the aggregate, would have a Material Adverse
Effect on the Company other than (i) liabilities incurred in the ordinary course
of business consistent with past practice since June 30, 1998 and identified in
Schedule 4.19 of the Company Disclosure Schedule or the Company SEC Filings,
(ii) liabilities that have been repaid, discharged or otherwise extinguished and
(iii) liabilities under or contemplated by this Agreement.
4.20 No Default. Except as set forth in Section 4.20 of the Company
Disclosure Schedule, neither the Company nor any of the Company Subsidiaries is
in default or violation (and no event has occurred which with notice or the
lapse of time or both would constitute a default or violation) of any term,
condition or provision of (i) its certificate or articles of incorporation or
bylaws or other organizational documents, (ii) any Laws applicable to the
Company or any Company Subsidiary or by which any of their respective properties
is bound or affected, or (iii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any Company Subsidiary is a party or by which the
Company or any Company Subsidiary or any of their respective properties or
assets is bound or affected, except in the case of clauses (ii) and (iii) above
for defaults or violations which would not have a Material Adverse Effect on the
Company.
4.21 Title to Properties; Encumbrances. Section 4.21 of the Company
Disclosure Schedule sets forth all real property owned or leased by the Company
and the Company Subsidiaries (the "Company Real Property"), indicating which
facilities are owned and which are leased. Except as disclosed in the Company
Current Reports and as described in clause (ii) below: (i) each of the Company
and the Company Subsidiaries has good, valid and marketable title to, or a valid
leasehold interest in, as applicable, all of its properties and assets (real,
personal and mixed, tangible and intangible), including, without limitation, all
Company Real Property and all other properties and assets reflected in the
consolidated balance sheet of the Company and the Company Subsidiaries at June
30, 1998 included in the Company Form 10-Q for the quarter ended June 30, 1998
(except for properties and assets disposed of in the ordinary course of business
and consistent with past practice since June 30, 1998) and (ii) none of such
properties or assets are subject to any liability, obligation, claim, lien,
mortgage, pledge, security interest, conditional sale agreement, charge or
encumbrance of any kind (whether absolute, accrued, contingent or otherwise),
except for liens securing repayment of indebtedness incurred in the ordinary
course consistent with past practice subsequent to June 30, 1998 and liens for
taxes not yet due and payable, unrecorded and undelivered mortgages between a
Company Subsidiary and a joint venture entity in which the Company is a limited
partner or a managing member (as identified in Section 4.21 of the Company
Disclosure Schedule) and easements and restrictions of record, if any, which are
not substantial in amount, do not materially detract from the value of the
property or assets subject thereto and do not impair the operations of the
Company and the Company Subsidiaries. Each of the leases is in full force and
effect and there is no default by landlord or tenant existing thereunder (and no
event has occurred which, with or without notice or the passage of time or both,
would constitute a default under such lease) which would have a Material Adverse
Effect on the Company. Except as set forth in Section 4.21 of the Company
Disclosure Schedule, the Company and the Company Subsidiaries have obtained
owner's title insurance on all of the Company Real Property owned by the Company
or any
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Company Subsidiary, in each case insuring good and marketable fee simple title
to such Company Real Property, in an amount at least equal to the aggregate
value of such Company Real Property together with all improvements thereon.
Except as set forth in Section 4.21 of the Company Disclosure Schedule, there
are no mechanics' or materialmen's liens or liens of a similar nature in
existence with respect to any on-going construction activities involving any of
the Company Real Property that, with respect to each such construction activity,
exceeds $50,000 individually, or $200,000 in the aggregate. Except as would not
cause a Material Adverse Effect on the Company, all of the properties and assets
of the Company and the Company Subsidiaries are in good operating condition and
repair, and maintenance thereon has not been deferred beyond industry standards,
and are suitable for the purposes for which they are presently being used.
4.22 Brokers. Neither the Company nor any Company Subsidiary has paid or
is obligated to pay any brokerage, finders or other fee or commission to any
broker, finder, investment banker or other intermediary in connection with this
Agreement or the Option Agreement, except that Company has retained BT Alex.
Brown Incorporated ("BT Alex. Brown") as its financial advisor for the
transactions contemplated hereby, pursuant to an engagement letter a copy of
which (as executed by all the parties thereto) has been provided previously to
Acquiror.
4.23 Opinion of Financial Advisor. The Board of Directors of the Company
has received the opinion of BT Alex. Brown to the effect that, as of the date of
this Agreement, the Exchange Ratio is fair to the holders of Company Common
Stock, from a financial point of view, a written copy of which (as executed)
will be provided to Acquiror promptly after receipt thereof by the Company.
4.24 Acquiror Stock Ownership. Except as contemplated pursuant to the
terms of this Agreement and the transactions to be consummated hereby or by the
Option Agreement, neither the Company nor any of the Company Subsidiaries own
any shares of Acquiror Common Stock or rights to acquire or dispose of Acquiror
Common Stock.
4.25 Voting Requirements. The affirmative vote of the holders of
two-thirds of the outstanding shares of Company Common Stock at the Company
Stockholders' Meeting (as defined in Section 5.1(a)) to adopt this Agreement is
the only vote of the holders of any class or series of the Company's capital
stock necessary to approve and adopt this Agreement and the transactions
contemplated hereby under the OGCL and otherwise.
4.26 State Takeover Statutes. The Ohio Control Share Acquisition Statute
does not apply to the execution, delivery and performance of this Agreement or
the Option Agreement or the transactions contemplated hereby or thereby. To the
knowledge of Company, no Laws that would reasonably be considered a state
takeover or anti-takeover law are applicable to the execution, delivery and
performance of this Agreement or the Option Agreement or the transactions
contemplated hereby or thereby.
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4.27 Requested Information; Material Contracts.
(a) The Company has provided all documents, materials, schedules and
other information in response to the requests for such documents, materials,
schedules and other information from Acquiror identified in Section 4.27(a) of
the Company Disclosure Schedule.
(b) Each existing contract, agreement, arrangement or understanding
of the Company or any of the Company Subsidiaries, including contracts,
agreements, arrangements or understandings (whether oral or written) between the
Company or any of the Company Subsidiaries, on the one hand, and one or more
persons who are affiliates of each other, on the other hand, involving, or
reasonably expected to involve, aggregate payments or commitments of more than
$250,000 during the 12-month period ended June 30, 1998 or during the remaining
term thereof (the "Company Material Contracts"), is in full force and effect and
constitutes a legal, valid and binding obligation of, and is legally enforceable
against, the respective parties thereto. All necessary approvals of any
Governmental Entity with respect thereto have been obtained (except where the
failure so to obtain any such approval would not have a Material Adverse Effect
on the Company), all necessary filings or registrations therefor have been made,
and there are no outstanding disputes thereunder and, to the knowledge of the
Company or any of the Company Subsidiaries, no threatened cancellation or
termination thereof. The Company and each of the Company Subsidiaries have
performed all material obligations thereunder required to be performed by any of
them to date. No party is in default in any material respect under any of the
Company Material Contracts, and there has not occurred any event which (whether
with or without notice, lapse of time or the happening or occurrence of any
other event) would constitute such a default. There has been no written or oral
modification or amendment to any Company Material Contract and there are no
reasonably expected changes to any Company Material Contract.
4.28 Receivables. To the knowledge of the Company, all receivables shown
as receivables in the most recent consolidated balance sheet included in the
Company Current Reports, or thereafter acquired by the Company, are collectible,
and all appropriate reserves or allowances relating to such receivables have
been properly accrued.
4.29 Books and Records. The books of account, stock records, minute books
and other records of the Company and the Company Subsidiaries are complete and
correct, and the Company has devised and maintained a system of internal
accounting controls sufficient to provide the reasonable assurances enumerated
in Section 13(b)(2)(B) of the Exchange Act.
4.30 No Excess Parachute Payments. Except as set forth in Section 4.30 of
the Company Disclosure Schedule, no amount that could be received (whether in
cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer or director
of the Company or any of its affiliates who is a "disqualified individual" (as
such term is defined in Section 280G(c) of the Code) under any employment,
severance or termination agreement, other compensation arrangement or
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Company Option Plan or Other Company arrangement currently in effect would be an
"excess parachute payment" (as such term is defined in Section 280G(b)(1) of the
Code).
4.31 Change of Control Provisions. Except to the extent described in
Section 4.31 of the Company Disclosure Schedule, neither the consummation of the
Merger nor the execution, delivery or performance of this Agreement, the Option
Agreement, or the other transactions contemplated hereby or thereby, will
trigger or constitute a "change in control" or "change of control" or similar
event under any provision of any contract or agreement to which the Company or
any Company Subsidiary is a party.
4.32 Franchise Activities. To the knowledge or the Company, neither the
Company nor any Company Subsidiary has violated any applicable federal or state
Laws regulating franchises or business opportunities, including registration and
disclosure requirements under such Laws, the violation of which could result in
a Material Adverse Effect on the Company. Neither the Company nor any Company
Subsidiary has violated or is currently violating any franchise agreement or
other agreement relating to its franchise activities. All franchise offering
circulars used by the Company or any Company Subsidiary comply as to form in all
material respects with all applicable federal and state Laws, are deemed an
acceptable form of disclosure document in all states which have in effect
franchise registration and disclosure Laws or other applicable business
opportunity Laws, are accurate and complete in all material respects and do not
contain any untrue statement of a material fact or omit to state any material
fact necessary, in light of the circumstances under which it was made, in order
to make the statements therein not misleading. Neither the Company nor any
Company Subsidiary is subject to a currently effective injunctive or restrictive
order relating to franchises or business opportunities under a federal or state
franchise, business opportunity, antitrust, trade regulation or trade practice
Law resulting from a concluded or pending action or proceeding brought by a
Governmental Entity.
4.33 Disclosure. Neither (i) the representations or warranties by the
Company contained in this Agreement or the Option Agreement, or the statements
contained in the Company Disclosure Schedule or any other document, certificate
or other instrument delivered to or to be delivered by or on behalf of the
Company or required to be filed by the Company or any Company Subsidiary with
any Governmental Entity in connection with or pursuant to this Agreement, the
Option Agreement and all other documents contemplated hereby and thereby, nor
(ii) the information supplied or to be supplied by or on behalf of the Company
or any Company Subsidiary to any person for inclusion in any document or
application filed or to be filed with any Governmental Entity in connection with
the transactions contemplated by this Agreement, the Option Agreement and all
other documents contemplated hereby and thereby, contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary, in light of the circumstances under which it was or will be
made, in order to make the statements herein or therein not misleading or to
correct a prior statement. All documents required to be filed by the Company or
any Company Subsidiary with any Governmental Entity in connection with this
Agreement, the Option Agreement and all other documents contemplated hereby or
thereby or the transactions contemplated hereunder or thereunder will comply in
all material respects with the provisions of applicable Law.
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ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement; Stockholders'
Meeting.
(a) The Company hereby agrees that this Agreement shall be submitted
to its shareholders for approval and adoption at a meeting duly called and held
pursuant to the OGCL (the "Company Shareholders' Meeting"). As soon as
practicable after the date of this Agreement, the Company shall take all action,
to the extent necessary in accordance with applicable law and its charter and
bylaws, to convene the Company Shareholders' Meeting promptly to consider and
vote upon the approval of the Merger and such other matters as may be necessary
or desirable to consummate the Merger and the transactions contemplated hereby.
As soon as practicable (but in no case longer than 45 days) after the date of
this Agreement, Company and Acquiror shall jointly prepare and file with the
Commission, subject to the prior approval of the other party, which approval
shall not be unreasonably withheld, preliminary proxy materials relating to such
Company Shareholders' Meeting as required by the Exchange Act, and a
registration statement on Form S-4 (as amended or supplemented, the
"Registration Statement") relating to the registration under the Securities Act
of the shares of Acquiror Common Stock issuable to the holders of the Company
Shares. Acquiror shall also promptly prepare and file with state securities
administrators, such registration statements or other documents as may be
required (other than qualification to do business in any jurisdiction in which
it is not now so qualified and other than general consent to service of process)
under applicable blue sky laws to qualify or register the shares of Acquiror
Common Stock issuable to the holders of the Company Shares (the "Blue Sky
Filings"). The Company, Merger Sub and Acquiror will use their respective best
efforts to cause the Registration Statement to be declared effective under the
Securities Act as soon as practicable. Promptly after the Registration Statement
has become effective and all applicable blue sky laws have been complied with,
the Company and Acquiror shall mail the proxy statement/prospectus included in
the Registration Statement to the Company's shareholders. Such proxy
statement/prospectus at the time it initially is mailed to the shareholders of
the Company and all duly filed supplements, amendments or revisions made
thereto, if any, similarly mailed are hereinafter referred to as the "Proxy
Statement." Notice of the Company Shareholders' Meeting shall be mailed to the
shareholders of the Company along with the Proxy Statement.
(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 the Proxy Statement to be sent to the shareholders of
the Company in connection with the Company Shareholders' Meeting to consider the
Merger shall not, at the date the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to shareholders or at the time of such
Meeting, 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
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misleading. The information supplied by 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.
(c) Each party covenants and agrees that (i) if, at any time prior to
the Effective Time, any event relating to it or any of its affiliates, officers
or directors is discovered that is required to be set forth in an amendment to
the Registration Statement or Blue Sky Filings or a supplement to the Proxy
Statement, such party will promptly inform the other parties, and such amendment
or supplement will be promptly filed with the Commission and appropriate state
securities administrators and disseminated to the shareholders of the Company,
to the extent required by applicable federal and state securities laws, and (ii)
documents which either party files or is responsible for filing with the
Commission and any regulatory agency in connection with the Merger (including,
without limitation, the Proxy Statement) will comply as to form and content in
all material respects with the provisions of applicable law.
(d) The Company hereby represents that its Board of Directors has,
(i) determined that the Merger is fair to and in the best interests of the
Company's shareholders, (ii) approved the Merger and approved and adopted this
Agreement and (iii) resolved to and will recommend in the Proxy Statement
adoption of this Agreement and authorization of the Merger by the shareholders
of the Company unless following an announcement or receipt by the Company of a
proposal for a Third Party Transaction (as defined below) such Board of
Directors (A) is advised in writing by independent outside counsel to the
Company that such resolution and recommendation violate such fiduciary duties of
directors as are applicable under Ohio law because of such proposal for a Third
Party Transaction and (B) concludes based on such advice that such resolution
and recommendation violate such fiduciary duties as are applicable under Ohio
law because of such proposal for a Third Party Transaction.
(e) The Company shall use its best efforts to cause to be delivered
to Acquiror a letter of Ernst & Young ("E&Y"), the Company's independent
accountants, dated a date within two (2) business days before the date on which
the Registration Statement shall become effective, addressed to Acquiror, of the
kind contemplated by the Statement of Auditing Standards with respect to Letters
to Underwriters promulgated by the American Institute of Certified Public
Accountants (the "AICPA Statement"), in form and substance reasonably
satisfactory to Acquiror and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement (the "E&Y Comfort Letter").
Acquiror shall use its best efforts to cause to be delivered to the Company a
letter of E&Y, Acquiror's independent accountants, dated a date within two (2)
business days before the date on which the Registration Statement shall become
effective, addressed to the Company, of the kind contemplated by the AICPA
Statement, in form and substance reasonably satisfactory to the Company and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement (also an "E&Y Comfort Letter").
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5.2 Conduct of the Business of the Company Prior to the Effective Time.
Prior to the Effective Time, except as set forth in Section 5.2 of the Company
Disclosure Schedule or otherwise consented to or approved in writing by
Acquiror, or expressly permitted or contemplated by this Agreement or the Option
Agreement:
(a) The Company shall, and shall cause each Company Subsidiary to,
conduct their respective businesses only in the ordinary course and
consistent in all material respects with past practice, and in compliance
in all material respects with all applicable Laws and regulations, and
shall use their respective best efforts to preserve substantially intact
their respective business organizations and assets, to keep available the
services of their present officers, employees and consultants and to
maintain their present relationships with customers, suppliers, payors
and other persons with whom they have a significant business
relationship; provided, however, that the loss of any officer, employee,
consultant, customer, payor or supplier prior to the Effective Time shall
not constitute a breach of this covenant unless such loss would have a
Material Adverse Effect on the Company;
(b) The Company shall not, and shall cause the Company Subsidiaries
not to, (i) amend their respective charters or bylaws or other
organizational documents, (ii) declare, set aside or pay any dividend or
other distribution, payable in cash, securities or property, in respect
of outstanding shares of capital stock, except for dividends by a
Company Subsidiary to the Company or another Company Subsidiary, (iii)
make any direct or indirect redemption, retirement, purchase or other
acquisition of any of their respective capital stock or any securities
or obligations convertible into or exchangeable for any shares of their
respective capital stock (other than any such acquisition directly from
any wholly owned Company Subsidiary in exchange for capital
contributions or loans to such Company Subsidiary) or any options,
warrants or conversion or other rights to acquire any shares of the
Company's or any Company Subsidiary's capital stock or any such
securities or obligations (except (A) in connection with the exercise
of outstanding stock options referred to in Section 4.2 in accordance
with their terms, and (B) if required by an existing written agreement
identified in Section 5.2(b) of the Company Disclosure Schedule, a copy
which has been provided to Acquiror prior to the date hereof), or (iv)
reclassify, combine, split or subdivide any of their respective
outstanding shares of capital stock;
(c) The Company shall not, and shall cause each Company Subsidiary
not to, directly or indirectly, (i) issue, grant, sell or pledge or agree
or propose to issue, grant, sell or pledge any shares of, or rights or
securities of any kind to acquire any shares of, the capital stock of the
Company or such Company Subsidiary, except that the Company may issue
shares of Company Common Stock upon the exercise of stock options
outstanding on the date hereof pursuant to the terms thereof existing as
of the date hereof or issued hereafter in accordance herewith, (ii) other
than in the ordinary course of business and consistent with past practice
incur any indebtedness for borrowed money, except under credit facilities
existing as of the date hereof and as they may be amended from time to
time or pursuant to a substitute credit facility on terms comparable to
such
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existing credit facilities, (iii) modify, amend or terminate any material
contract or agreement to which the Company or any Company Subsidiary is a
party, or waive, release, grant or transfer any rights of material value,
(iv) merge, consolidate, combine or enter into any similar transaction
with any person or adopt a plan of liquidation or dissolution, (v)
acquire (or enter into an agreement to acquire) any assets, stock or
other interests of a third-party, (vi) transfer, lease, license, sell or
dispose of a material portion of assets or any material assets, other
than in the ordinary course of business, consistent with past practice
and not involving more than $25,000 in any one transaction or series of
related transactions, but not more than $250,000 in the aggregate, (vii)
change any accounting principles or methods except insofar as may be
required by changes in generally accepted accounting principles, (viii)
other than in the ordinary course of business consistent with past
practice, mortgage or pledge any of their assets or properties or subject
any of their assets or properties to any material liens, charges,
encumbrances, imperfections of title, security interests, options or
rights or claims of others with respect thereto (and shall maintain such
assets in good condition, reasonable wear and tear excepted), (ix) enter
into any joint venture, affiliation, partnership or similar agreement,
(x) make any tax election or settle or compromise any tax liability, (xi)
enter into any contracts, agreements, arrangements or understandings
relating to the distribution, sale or marketing by third parties of the
Company's, or any Company Subsidiary's services or services performed on
behalf of the Company or any Company Subsidiary, (xii) make or agree to
make any new unbudgeted capital expenditure or expenditures which was not
disclosed in Section 5.2(c) of the Company Disclosure Schedule and which,
individually, is in excess of $25,000 or, in the aggregate, are in excess
of $250,000, (xiii) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise) other than in the ordinary course of business
consistent with past practice or in accordance with their terms, of
liabilities reflected in the most recent consolidated financial
statements (or the notes thereto) of the Company included in the Company
Current Reports or incurred in the ordinary course of business consistent
with past practice, or waive any material benefits of, or agree to modify
in any material respect, any confidentiality, standstill or similar
agreements to which the Company or any Company Subsidiary is a party,
(xiv) convert or exchange any floating rate indebtedness into fixed rate
indebtedness or make any modifications to existing indebtedness that
would have a similar effect, or (xv) enter into any other contracts,
agreements, arrangements or understandings that are not terminable
without penalty upon 30 or fewer days' notice or that involve payment by
the Company or any Company Subsidiary of $25,000 over the term of the
specific contract, agreement, arrangement or understanding or $250,000 in
the aggregate over the term of all contracts, agreements, arrangements or
understandings;
(d) The Company shall not, and shall cause each Company Subsidiary
not to, directly or indirectly (except, in any such case, as may be
required by applicable Law), (i) increase the compensation payable or to
become payable by it to any of its officers or directors (except in
accordance with employment or other agreements and welfare and benefit
plans set forth on the Company Disclosure Schedule), (ii) increase the
compensation payable or to become payable by it to any of its employees
or consultants
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(except in accordance with employment or consulting agreements and
welfare and benefit plans set forth on the Company Disclosure Schedule
and normal increases in salary to employees other than executive officers
in the ordinary course of business consistent with past practice), (iii)
establish, enter into, adopt or amend any stock option, stock purchase,
profit sharing, pension, retirement, deferred compensation, restricted
stock or severance plan, agreement or arrangement for the benefit of
employees, officers, directors or consultants of the Company or any
Company Subsidiary, except for annual stock option grants required by
pre-existing contractual obligations of the Company under agreements that
are specifically identified on the Company Disclosure Schedule and that
were previously furnished to Acquiror by the Company and except for
specific agreements under the Key Employee Severance Policy that are
listed on the Company Disclosure Schedule and that were previously
furnished to Acquiror by the Company, (iv) enter into or amend any
employment or consulting agreement, (v) make any loan or advance to, or
enter into any written contract, lease or commitment with, any officer or
director of the Company or any Company Subsidiary, or (vi) make any loan
or advance to, or enter into any written contract, lease or commitment
with, any employee or consultant of the Company or any Company
Subsidiary, except for advances to new employees or consultants and offer
letters presented to new employees or consultants in the ordinary course
of business which are in an amount not to exceed $75,000 per employee or
consultant and do not exceed $250,000 in the aggregate;
(e) The Company shall not, and shall cause each Company Subsidiary
not to, directly or indirectly, assume, guarantee, endorse or otherwise
become responsible for the obligations of any other individual,
corporation or other entity, or make any loans or advances to any
individual, corporation or other entity;
(f) The Company shall not, and shall cause each Company Subsidiary
not to, intentionally take any action that (without regard to any action
taken or agreed to be taken by Acquiror or any Acquiror Subsidiary) would
prevent the Merger from qualifying as a reorganization within the meaning
of Sections 368(a) of the Code or that would result in the conditions set
forth in clause (iii) of Sections 6.1(h) and (i) not being true;
(g) The Company shall not, and shall cause each Company Subsidiary
not to, take any action or fail to take any action which could reasonably
be expected to have a Material Adverse Effect on the Company prior to or
after the Effective Time, or that could reasonably be expected to
adversely effect the ability of the Company prior to the Effective Time
to obtain any Third Party Consents (as defined in Section 5.10(a))
required to consummate the transactions contemplated by this Agreement;
(h) From the date hereof until the Effective Time, the Company
shall, and shall cause each Company Subsidiary to, (a) accurately
prepare and timely file (taking into account any extension of time
within which to file) with the relevant taxing authority all Company
Tax Returns ("Company Post-Signing Returns") required to be filed, (b)
timely pay all taxes shown as due and payable on the Company
Post-Signing Returns, (c) pay or otherwise make adequate provision
for all taxes payable by the
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Company and the Company Subsidiaries for which no Company Post-Signing
Return is due prior to the Effective Time, and (d) promptly notify
Acquiror of any action, suit, proceeding, claim or audit pending against
or with respect to the Company or any Company Subsidiary in respect of
any taxes; and
(i) The Company shall not, and shall cause each Company Subsidiary
not to, authorize, commit to, agree to, or enter into any agreement or
understanding to do any of the things prohibited by clauses (a) through
(h) of this Section 5.2.
5.3 Conduct of the Business of Acquiror Prior to the Effective Time.
Prior to the Effective Time, except as set forth in Section 5.3 of the Acquiror
Disclosure Schedule or otherwise consented to or approved in writing by the
Company, which consent shall not be unreasonably withheld or delayed, or
expressly permitted or contemplated by this Agreement or the Option Agreement:
(a) Acquiror shall, and shall cause the Acquiror Subsidiaries to,
conduct their respective businesses (to the extent commercially
reasonable) only in the ordinary course and consistent in all material
respects with past practice, and in compliance in all material respects
with all applicable Laws and regulations, and shall use their respective
best efforts to preserve substantially intact their respective business
organizations and assets;
(b) Acquiror shall not, and shall cause each Acquiror Subsidiary
not to, intentionally take any action that (without regard to any action
taken or agreed to be taken by the Company or any Company Subsidiary)
would prevent the Merger from qualifying as a reorganization within the
meaning of Sections 368(a)(1)(A) or 368(a)(2)(E) of the Code or that
would result in the conditions set forth in clause (iii) of Sections 6.1
(h) and (i) not being true;
(c) Acquiror shall not, and shall cause each Acquiror Subsidiary
not to, take any action or fail to take any action which could reasonably
be expected to have a Material Adverse Effect on Acquiror prior to or
after the Effective Time, or that could reasonably be expected to
adversely effect the ability of Acquiror prior to the Effective Time to
obtain any Third Party Consents required to consummate the transactions
contemplated by this Agreement.
(d) Acquiror shall not enter into any transaction contemplating
the acquisition of Acquiror (an "Acquisition Transaction") which would
reasonably be expected to materially delay the timing of the Company
Shareholders' Meeting or the Closing Date, unless Acquiror's Board of
Directors (A) is advised in writing by outside counsel to the Acquiror
that the failure to enter into such transaction would cause the members
of the Board of Directors to breach such fiduciary duties as are
applicable under Delaware law and (B) concludes based on such advice that
the failure to enter into such transaction would cause the members of
such Board of Directors to breach such fiduciary duties as are applicable
under Delaware law; provided, however, that, so long as the Company is
not in material breach of any provision of this Agreement, if
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Acquiror intends to enter into an Acquisition Transaction consistent with
this subparagraph (d) that would cause Acquiror to merge into or
consolidate with another Person or become a subsidiary of another Person
in a transaction in which stockholders of Acquiror receive securities or
other property from another Person (1) Acquiror agrees to use its best
efforts to make adequate provision in such Acquisition Transaction for
shareholders of the Company to be entitled to receive, in lieu of
Acquiror Common Stock as provided in Article II, the same type of
securities or other property from another Person that the stockholders of
Acquiror would so receive from such other Person, giving effect to the
Exchange Ratio but using as the trading period for calculation of the
Average Trading Price of Acquiror Common Stock the ten (10) day trading
period ending three trading days prior to the Acquiror's execution and
delivery of the definitive agreement for such Acquisition Transaction and
(2) if Acquiror executes and delivers a definitive agreement with respect
to an Acquisition Transaction, then Acquiror agrees to waive as of the
date of the execution and delivery of such definitive agreement Sections
6.3(b) and (c) and the corresponding provisions of Section 6.3(d) so long
as (x) Sections 6.3(b) and (c) are satisfied as of the date of such
execution and delivery of such definitive agreement, (y) as of such date,
it may reasonably be expected that such conditions would continue to be
satisfied as of the date the Closing hereunder would reasonably have been
expected to occur absent any delay occasioned by such Acquisition
Transaction and (z) the Company agrees to waive at the time of such
waiver Sections 6.2(b) and (c) and the corresponding provisions of
Section 6.2(d).
(e) Acquiror shall not, and shall cause each Acquiror Subsidiary
not to, authorize commit to, agree to, or enter into any agreement or
understanding to do any of the things prohibited by clauses (a) through
(d) of this Section 5.3.
5.4 Access to Properties and Records. To the extent permitted by
applicable Law and subject to the terms of the confidentiality agreements dated
October 6, 1998 and October 8, 1998, respectively, between the Company and
Acquiror (the "Confidentiality Agreements"), each party shall, and shall cause
its respective subsidiaries to, afford to the other party and their respective
accountants, counsel and representatives ("Respective Representatives"),
reasonable access during normal business hours upon reasonable prior notice
throughout the period prior to the Effective Time to all of their respective
properties (including, without limitation, access to books, contracts,
commitments, written records and the right to enter and inspect real property)
and shall make reasonably available during normal business hours upon reasonable
prior notice their respective officers and employees to answer fully and
promptly questions put to them thereby; provided, however, that no investigation
or review (including any investigation or review of real property) pursuant to
this Section 5.4 shall alter any representation or warranty of any party hereto
or the conditions to the obligations of the parties hereto or have any effect
for purposes of determining the accuracy of any representation or warranty given
by any party hereto to the other parties hereto. Each of the Company and
Acquiror will hold, and will cause its Respective Representatives to hold, any
nonpublic information in accordance with the terms of the Confidentiality
Agreements.
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5.5 No Solicitation of Transactions.
(a) None of the Company or any Company Subsidiary shall, or shall
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative or agent retained by the Company or any Company Subsidiary to,
initiate or solicit or encourage (including by way of furnishing non-public
information), or take any other action to facilitate, any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Third Party Transaction (as such term is defined below in this Section
5.5), or enter into or maintain or continue discussions or negotiate with any
person or entity in furtherance of such inquiries or to obtain a Third Party
Transaction; provided, however, that, commencing 120 days after the date of this
Agreement and continuing until the Closing Date, the Company may, and may
authorize and permit its officers, directors, employees or agents to, furnish or
cause to be furnished confidential or other non-public information and may
participate in such discussions and negotiations if the Company's Board of
Directors (A) is advised in writing by independent outside counsel to the
Company that the failure to furnish such confidential or other non-public
information or to participate in such discussions and negotiations would cause
the members of the Board of Directors to breach such fiduciary duties as are
applicable under Ohio law and (B) concludes based on such advice that the
failure to furnish such confidential or other non-public information or to
participate in such discussions and negotiations would cause the members of such
Board of Directors to breach such fiduciary duties as are applicable under Ohio
law; provided, further, however, that at least 72 hours prior to furnishing any
such confidential or other non-public information, the Company shall furnish
copies of all such information to Acquiror, together with any inquiries,
proposals, bids, offers or other documentation received by the Company from the
party or parties to whom such confidential or other non-public information is to
be furnished by the Company and information as to the identity of such party or
parties. Except in circumstances in which the immediately preceding proviso
applies, in which event such proviso shall govern, the Company shall immediately
notify Acquiror orally and in writing of all relevant details relating to all
proposals which it or any Company Subsidiary or any such officer, director,
employee, investment banker, financial advisor, attorney, accountant or other
representative may receive relating to any of such matters and, if such inquiry
or proposal is in writing, the Company shall forthwith deliver to Acquiror a
copy of such inquiry or proposal.
(b) For purposes of this Agreement, "Third Party Transaction" shall
mean any of the following other than transactions between Acquiror, Merger Sub
and the Company contemplated in this Agreement: (i) any merger, consolidation,
share exchange, business combination, recapitalization or other similar
transaction involving the Company or any of its subsidiaries; (ii) any sale,
exchange, transfer or other disposition of 20% or more of the assets of the
Company and its subsidiaries, taken as a whole, in a single transaction or
series of transactions; (iii) any sale of or tender offer or exchange offer for
20% or more of the outstanding shares of capital stock of the Company or the
filing of a registration statement under the Securities Act in connection
therewith; (iv) any person acquiring beneficial ownership or the right to
acquire beneficial ownership of, or any "group" (as such term is defined under
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder) having been
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formed for the purpose of effecting a Third Party Transaction referred to in
Sections 5.5(b)(i), (ii) or (iii) which beneficially owns or has the right to
acquire beneficial ownership of, 20% or more of the then outstanding shares of
capital stock of the Company; or (v) any public announcement by such party of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing with respect to the Company or any communication
to the Company of any proposal, plan or intention to do any of the foregoing.
5.6 Compliance by Merger Sub; Conduct of Business by Merger Sub. Acquiror
shall take all action necessary to cause Merger Sub to perform its obligations
hereunder (including, but not limited to, consummation of the Merger) and to
otherwise comply with the terms hereof. Merger Sub shall not conduct any
business between the date of this Agreement and the Closing Date, other than to
consummate the Merger and the transactions contemplated by this Agreement.
5.7 Treatment of Options.
(a) The Company shall use its best efforts to deliver to Acquiror, on
or immediately prior to the Effective Time, either (1) new option agreements
evidencing the consent of each holder of a Company Stock Option to have such
Company Stock Option assumed by Acquiror and to become an option to acquire
Acquiror Common Stock or (2) the opinion of Company's counsel called for by
clause (B) of Section 6.3(h). Each Company Stock Option issued pursuant to the
Company's 1996 Incentive Stock Plan, as amended or issued other than pursuant to
such plan as set forth in the Company Disclosure Schedule (the "Company Option
Plans"), whether or not vested or exercisable, shall, subject to execution and
delivery of a new option agreement by the holder, be assumed by Acquiror and
shall constitute an option to acquire, on the same terms and conditions as were
applicable under such assumed Company Stock Option, a number of shares of
Acquiror Common Stock equal to the product of the Exchange Ratio and the number
of shares of Company Common Stock subject to such Company Stock Option (rounded
to the nearest whole number of shares of Acquiror Common Stock), at a price per
share equal to the aggregate exercise price for the shares of Company Common
Stock subject to such Company Stock Option divided by the number of whole shares
of Acquiror Common Stock deemed to be purchasable pursuant to such Company Stock
Option; provided, however, that in the case of any Company Stock Option to which
Section 421 of the Code applies by reason of its qualification under Section 422
or Section 423 of the Code ("Qualified Stock Options"), the option price, the
number of shares purchasable pursuant to such Company Stock Option and the terms
and conditions of exercise of such Company Stock Option shall be determined in
order to comply with Section 424 of the Code. Acquiror shall comply with the
terms of the Company Option Plans and the terms of the Company Stock Options
issued other than pursuant to the Company Option Plans as they apply to the
Company Stock Options assumed as set forth above.
(b) Acquiror shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Acquiror Common Stock for delivery
upon exercise of the Company Stock Options assumed in accordance with this
Section 5.7. Acquiror shall file a registration statement on Form S-8 (or any
successor form) or another appropriate form,
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effective as of the Effective Time, with respect to shares of Acquiror Common
Stock subject to such Company Stock Options and shall use its best efforts to
maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such Company Stock Options remain outstanding.
With respect to those individuals who subsequent to the Merger will be subject
to the reporting requirements under Section 16(a) of the Exchange Act, Acquiror
shall administer the Company Option Plans and the Company Stock Options assumed
pursuant to this Section 5.7 in a manner that complies with Rule 16b-3
promulgated under the Exchange Act.
5.8 Indemnification; Directors' and Officers' Liability.
(a) From and after the Effective Time, the Surviving Corporation
shall indemnify, defend and hold harmless to the fullest extent permitted by
Ohio law and provided under the Company's Articles of Incorporation and Code of
Regulations as of the date of the Agreement, and Acquiror shall indemnify,
defend and hold harmless to the fullest extent permitted under Delaware law each
person who is now, or has been at any time prior to the date hereof, an officer
or director of the Company (individually, an "Indemnified Party" and
collectively, the "Indemnified Parties"), against all losses, claims, damages,
liabilities, costs or expenses (including attorneys' fees), judgments, fines,
penalties and amounts paid in settlement of or otherwise in connection with any
Claim arising out of or pertaining to acts or omissions, or alleged acts or
omissions, by them in their capacities as such occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement and the Option Agreement and, with respect to the Surviving
Corporation, the Company's Articles of Incorporation and Code of Regulations).
In the event of any such Claim, Acquiror shall pay expenses in advance of the
final disposition of any such action or proceeding to each Indemnified Party to
the fullest extent permitted under the DGCL, upon receipt from the Indemnified
Party to whom expenses are advanced of the undertaking to repay such advances
contemplated by Section 145(e) of the DGCL.
(b) Acquiror shall cause the Surviving Corporation to keep in effect
provisions in its Articles and Code of Regulations with respect to
indemnification identical to such provisions contained in the Articles and Code
of Regulations of the Company on the date hereof, which provisions shall not be
amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at any time prior to the Effective Time were directors or
officers of the Company in respect of actions or omissions at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement and the Option Agreement), except as required by applicable law
or except to make changes permitted by law that would not materially diminish
the Indemnified Parties' right of indemnification.
(c) For a period of six years after the Effective Time, Acquiror
shall cause to be maintained in effect the current officers' and directors'
liability insurance maintained by the Company with respect to those persons who
are currently covered by the Company's directors' and officers' liability
insurance policy (provided that Acquiror may substitute therefor policies of at
least the same coverage and amounts containing terms and conditions
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which are no less advantageous to such persons than such existing insurance)
covering acts or omissions occurring prior to the Effective Time; provided,
however, that Acquiror shall not be required in order to maintain or procure
such coverage to pay an annual premium in excess of 150% of the current annual
premium paid by the Company for its existing coverage (the "Cap"); and provided,
further, that if existing coverage cannot be maintained or equivalent coverage
cannot be obtained, or can be obtained only by paying an annual premium in
excess of the Cap, Acquiror shall only be required to obtain as much coverage as
can be obtained by paying an annual premium equal to the Cap. The current annual
premium paid by the Company for its existing coverage is set forth in Section
5.8(c) of the Company Disclosure Schedule.
(d) This Section 5.8 shall survive the closing of all of the
transactions contemplated hereby, is intended to benefit the officers and
directors of the Company at the Effective Time and each of the Indemnified
Parties and their respective heirs and personal representatives (each of which
shall be entitled to enforce this Section 5.8 against Acquiror and the Surviving
Corporation, as the case may be, as a third-party beneficiary of this
Agreement), and shall be binding on all successors and assigns of Acquiror and
the Surviving Corporation.
5.9 Confidentiality. The Confidentiality Agreements are hereby affirmed
by Acquiror and the Company and the terms thereof are herewith incorporated
herein by reference and shall continue in full force and effect until the
Effective Time shall have occurred, and if this Agreement is terminated or if
the Effective Time shall not have occurred for any reason whatsoever, the
Confidentiality Agreements shall thereafter remain in full force and effect in
accordance with their terms; provided, however, to the extent there are any
provisions in the Confidentiality Agreements inconsistent with the terms of this
Agreement, the terms of this Agreement shall control.
5.10 Best Efforts.
(a) Subject to the terms and conditions herein provided, the parties
hereto shall: (i) promptly make their respective filings, and thereafter make
any other required submissions, with respect to this Agreement and the Merger
required under (A) the Securities Act (in the case of Acquiror) and the Exchange
Act and the rules and regulations thereunder, and any other applicable federal
or state securities laws, (B) the HSR Act and (C) any other applicable Laws;
(ii) use their respective best efforts to cooperate with one another in (A)
determining which filings are required to be made prior to the Effective Time
with, and which consents, approvals, permits or authorizations ("Third Party
Consents") are required to be obtained prior to the Effective Time from,
Governmental Entities or other third parties in order for the consummation by
the parties hereto and their respective subsidiaries of the transactions
contemplated hereby and (B) timely making all such filings and timely seeking
all such Third Party Consents and (iii) use their respective best efforts to
take, or cause to be taken, all other action and do, or cause to be done, all
other things necessary, proper or appropriate to consummate promptly and make
effective the transactions contemplated by this Agreement. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purpose of this Agreement, the proper officers and directors of the parties
hereto shall promptly
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take all such necessary action. Each of the parties hereto shall promptly give
(or cause their respective subsidiaries to give) any notices regarding the
Merger, this Agreement or the transactions contemplated hereby or thereby to
third parties required under applicable Law or by any contract, license, lease
or other agreement to which it or any of its subsidiaries is bound, and use, and
cause its Subsidiaries to use, their respective best efforts to obtain promptly
any Third Party Consents required under any such contract, license, lease or
other agreement in connection with the consummation of the Merger or the other
transactions contemplated by this Agreement. Acquiror will use its best efforts
to consummate the acquisition of the Meditrust Investments (as defined below)
substantially in accordance with the terms of the letter agreement dated October
16, 1998 between the Acquiror and Meditrust Mortgage Investments, Inc.,
including, if necessary, instituting legal proceedings to enforce its rights
under such agreement. In the event that, despite its best efforts, Acquiror is
unable to so consummate such acquisition by the Closing Date, Acquiror and the
Company will use their best efforts to obtain the consent of Meditrust Mortgage
Investments, Inc. or its affiliates to the Merger.
(b) No party hereto shall take any action for the purpose of
delaying, impairing or impeding the receipt of any Third Party Consent, or the
making of any required filing or registration. Each party hereto shall use its
respective best efforts (x) to overturn or vacate any Law or Order (as defined
in Section 7.1(b)) (whether temporary, preliminary or permanent) enacted,
issued, promulgated, enforced or entered by any Governmental Entity or federal
or state court of competent jurisdiction which is in effect and has the effect
of making the Merger illegal or otherwise prohibiting consummation of the
transactions contemplated by this Agreement and (y) to remove any condition or
term of any Order or Third Party Consent (or proposed Order or Third Party
Consent) that, in the reasonable view of either Acquiror or the Company, would
be unreasonably burdensome to Acquiror and Company, on a combined basis, after
the Effective Time.
5.11 Certification of Shareholder Vote. At or prior to the Closing of the
transactions contemplated by this Agreement, the Company shall deliver to
Acquiror a certificate of its Secretary setting forth the number of shares of
Company Common Stock, voted in favor of adoption of this Agreement and
consummation of the Merger and the number of shares of Company Common Stock
voted against adoption of this Agreement and consummation of the Merger.
5.12 Affiliate Agreements. Not fewer than 45 days prior to the Effective
Time, the Company shall deliver to Acquiror a list of names and addresses of
each person who was, in the Company's reasonable judgment, at the record date
for the Company Stockholders' Meeting, an "affiliate" of the Company within the
meaning of Rule 145 promulgated under the Securities Act (a "Company
Affiliate"). The Company shall provide Acquiror such information and documents
as Acquiror shall reasonably request for purposes of reviewing such list. The
Company shall use its best efforts to cause each person who may be deemed to be
a Company Affiliate to deliver or cause to be delivered to Acquiror, not later
than 30 days prior to the Effective Time, an affiliate agreement substantially
in the form attached hereto as Exhibit C (each, a "Company Affiliate
Agreement"), executed by each of the Company Affiliates identified in the
above-referenced list.
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5.13 Listing Application. Acquiror shall promptly prepare and submit to
Nasdaq a listing application covering the shares of Acquiror Common Stock
issuable in the Merger and pursuant to the exercise of Company Stock Options,
and shall use its best efforts to obtain, prior to the Effective Time, approval
for the inclusion in Nasdaq of such Acquiror Common Stock, subject to official
notice of issuance.
5.14 Supplemental Disclosure Schedules. Each of Acquiror and the Company
shall supplement their respective Disclosure Schedules delivered in connection
with this Agreement as of the Closing Date to the extent necessary to reflect
matters permitted by, or consented to by, the other party under this Agreement.
In addition, from time to time prior to the Closing Date, each of Acquiror and
the Company will promptly deliver to the other party such amended or
supplemental Disclosure Schedules as may be necessary to make the Schedules
accurate and complete in all material respects as of the Closing Date; provided,
however, that no such disclosure shall have any effect for the purpose of
determining the accuracy of any representation or warranty given by either party
hereto to the other party hereto or the satisfaction of the conditions set forth
in Article VI of this Agreement.
5.15 No Action. Except as contemplated by this Agreement, no party hereto
will, nor will such party permit any of its respective subsidiaries to, take or
agree or commit to take any action that could reasonably be expected to, result
in (i) any of the representations and warranties of such party set forth in this
Agreement becoming untrue or inaccurate in any material respect at the date made
(to the extent so limited) or as of the Closing Date, or (ii) any of the
conditions to the Merger set forth in Article VI not being satisfied.
5.16 Advice of Changes. Acquiror and the Company shall promptly advise
the other party orally and in writing to the extent it has knowledge of any
change or event having, or which, insofar as can reasonably be foreseen, would
reasonably be expected to have a Material Adverse Effect on Acquiror or the
Company, as the case may be, or on the truth of their respective representations
and warranties or the ability of the conditions set forth in Article VI to be
satisfied; provided, however, that no such notification shall have any effect on
the representations, warranties, covenants or agreements of the parties (or
remedies with respect thereto) or the conditions to the obligations of the
parties under this Agreement.
5.17 Option and Shareholder Agreements. Concurrently with the execution
and delivery of this Agreement, (i) Acquiror and the Company have executed and
delivered the Option Agreement in the form attached hereto as Exhibit A (the
"Option Agreement") and (ii) Acquiror and the other parties shall have executed
and delivered the Shareholder Agreements in the form attached hereto as Exhibit
B.
5.18 Plan of Reorganization. This Agreement is intended to constitute a
"plan of reorganization" within the meaning of Section 1.368-2(g) of the income
tax regulations promulgated under the Code. From and after the date of this
Agreement, each party hereto shall use its respective best efforts to cause the
Merger to qualify, and shall not, without the prior written consent of the other
parties hereto, knowingly take any actions or cause any actions to be taken
which could reasonably be expected to prevent the Merger from qualifying as a
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reorganization under the provisions of Section 368 of the Code. In the event
that the Merger shall fail to qualify as a reorganization under the provisions
of Section 368 of the Code, then the parties hereto agree to negotiate in good
faith to restructure the Merger in order that it shall qualify as a tax-free
transaction under the Code. Following the Effective Time, and consistent with
any such consent, neither the Surviving Corporation nor Acquiror nor any of
their respective affiliates knowingly and voluntarily shall take any action or
cause any action to be taken which could reasonably be expected to cause the
Merger to fail to qualify as a reorganization under Section 368 of the Code.
5.19 Possible Acquiror Loan. Acquiror agrees to make available promptly
to the Company a fully secured line of credit in the principal amount of up to
$10 million on the terms and conditions set forth in the commitment letter
attached as Annex A hereto subject to good faith negotiation, execution and
delivery of mutually acceptable loan documentation consistent with such
commitment letter (the "Acquiror Loan").
5.20 Election of JMAC, Inc. Designee. Acquiror agrees that (a) as soon as
reasonably practicable following the Effective Time, so long as JMAC, Inc.
beneficially owns at least 500,000 shares of Acquiror Common Stock, Acquiror
will increase by one the size of the entire Board of Directors of Acquiror and
use its best efforts to elect or appoint a designee of JMAC, Inc., who is
reasonably acceptable to the Board of Directors of Acquiror, to fill such newly
created directorship and (b) following the initial term of such director, so
long as JMAC, Inc. beneficially owns at least 500,000 shares of Acquiror Common
Stock, Acquiror will nominate or renominate a designee of JMAC, Inc., who is
reasonably acceptable to the Board of Directors of Acquiror, and use its best
efforts to cause the election of such designee by the stockholders of Acquiror;
provided, however, it shall be a requirement of election or appointment under
clause (a) and nomination or renomination under clause (b) that such designee
shall execute and deliver to the Acquiror a letter stating that if such designee
becomes a member of the Board of Directors of Acquiror, such designee resigns as
a director effective upon receiving notice that JMAC, Inc. beneficially owns
less than 500,000 shares of Acquiror Common Stock. Acquiror agrees that either
Richard R. Slager or Pete A. Klisares is acceptable as a designee of JMAC, Inc.
for this purpose.
5.21 Employee Benefits.
(a) It is Acquiror's current intention that, within a reasonable time
after the Effective Time, employees of the Company and the Company Subsidiaries
("Covered Employees") shall be eligible to participate in all employee benefit
and compensation plans, programs and arrangements maintained, sponsored or
contributed to by the Acquiror (the "Acquiror Plans") on the same terms as any
such Acquiror Plan is offered to similarly situated employees of the Acquiror.
For purposes of all Acquiror Plans, including severance plans or policies, the
Acquiror shall cause each such plan, program or arrangement to treat the prior
service of each Covered Employee with the Company or the Company Subsidiaries as
service rendered to the Acquiror for purposes of eligibility, vesting and
benefit accruals under any Acquiror Plan (but not for purposes of benefit
accruals under any defined benefit or defined contribution pension plan). To the
extent Covered Employees are participating in an Acquiror
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welfare benefit plan, the Acquiror will use its best efforts to (i) cause any
and all pre-existing condition limitations and eligibility waiting periods under
such welfare benefit plan to be waived with respect to Covered Employees and
their eligible dependents and (ii) to the extent that any Covered Employee or
his or her eligible dependents have satisfied in whole or in part any annual
deductible or paid any out of pocket or co-payment expenses under the applicable
plan of the Company prior to the commencement of participation in Acquiror's
plan, to cause such individual to be credited therefor under the corresponding
plan of the Acquiror in which such individual participates after such
commencement.
(b) Acquiror shall honor, in accordance with their terms, the
agreements listed in Schedule 4.12 of the Company Disclosure Schedule.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the fulfillment at or prior
to the Effective Time of the following conditions, any or all of which may be
waived, in whole or in part, to the extent permitted by applicable Law:
(a) The Registration Statement shall have been declared effective
by the Commission under the Securities Act, and no stop order suspending
the effectiveness of the Registration Statement shall have been issued by
the Commission and shall be continuing to be in effect, and no
proceedings for that purpose shall have been initiated or threatened by
the Commission. All state securities laws or "blue sky" permits and
authorizations necessary to issue the Share Consideration pursuant to the
Merger and the transactions contemplated hereby at the Closing (except to
the extent contemplated in Section 5.7(b)) shall have been received, or
the issuance of the Share Consideration shall be exempt from the
requirements of such state laws.
(b) This Agreement and the Merger contemplated hereby and any other
action necessary to consummate the transactions contemplated hereby
shall have been approved and adopted by the requisite vote of the
holders of the outstanding shares of the Company Common Stock entitled
to vote thereon at the Company Shareholders' Meeting.
(c) No Governmental Entity or court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any Law or Order
(whether temporary, preliminary or permanent) which is in effect and
would be materially burdensome to Acquiror and the Company, on a
combined basis, after the Effective Time, or has the effect of making
the Merger illegal or otherwise prohibiting consummation of the
transactions contemplated by this Agreement, nor shall any proceeding
by any Governmental Entity seeking any of the foregoing be pending.
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(d) The applicable waiting period under the HSR Act shall have
expired or been terminated without action by the Justice Department or
the Federal Trade Commission to prevent consummation of the Merger.
(e) The shares of Acquiror Common Stock issuable to the Company's
shareholders and option holders in the Merger or thereafter shall have
been authorized for trading in Nasdaq, upon official notice of issuance.
(f) There shall not have been instituted or pending any action or
proceeding by any Governmental Entity, nor shall there be any
determination by any Government Entity, which, in either case, would
require either party to take any action or do anything in connection with
the foregoing which would compel Acquiror to dispose of all or a material
portion of the business or assets of Acquiror and the Acquiror
Subsidiaries, taken as a whole, or of the Company and the Company
Subsidiaries, taken as a whole.
(g) Acquiror and Company shall have received the E&Y Comfort
Letters, as provided in Section 5.1(e).
(h) The Company shall have received the opinion of Wachtell, Lipton,
Rosen & Katz dated as of the Closing Date, to the effect that (i) the
Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, (ii)
that each of Acquiror, Merger Sub and the Company will be a party to the
reorganization within the meaning of Section 368(b) of the Code and (iii)
that no gain or loss will be recognized by a shareholder of the Company
with respect to the exchange of Company Shares solely for shares of
Acquiror Common Stock pursuant to the Merger (except with respect to the
receipt of cash in lieu of fractional share interests in Acquiror Common
Stock).
(i) Acquiror shall have received the opinion of Hogan & Hartson
L.L.P., dated as of the Closing Date, to the effect that (i) the Merger
will be treated for Federal income tax purposes as a reorganization
within the meaning of section 368(a) of the Code, (ii) that each of
Acquiror, Merger Sub and the Company will be a party to the
reorganization within the meaning of Section 368(b) of the Code and (iii)
no gain or loss will be recognized by the Company, Acquiror or Merger Sub
as a result of the Merger.
(j) Acquiror shall have received a Company Affiliate Agreement from
each of the Company Affiliates.
6.2 Additional Conditions to the Obligations of the Company. The
obligation of the Company to effect the Merger and the other transactions
contemplated in this Agreement shall be subject to the fulfillment by the
Company at or prior to the Effective Time of the following additional
conditions, any or all of which may be waived, to the extent permitted by
applicable Law:
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(a) Each of Acquiror and Merger Sub shall have performed and
complied with, in all material respects, all of the agreements,
covenants and obligations under this Agreement required to be
performed or complied with by it on or prior to the Closing Date
pursuant to the terms hereof.
(b) Each of the representations and warranties of Acquiror and
Merger Sub in this Agreement (ii) which are qualified with respect to a
Material Adverse Effect on Acquiror shall be true and correct both when
made and as of the Closing Date, and (ii) all such representations and
warranties that are not so qualified shall be true and correct as of the
date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date (except to the extent any such representation or
warranty expressly speaks as of an earlier date) except where the failure
of such representations and warranties to be true and correct would not,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect on Acquiror.
(c) From the date hereof through the Closing Date, there shall not
have been any Material Adverse Effect on Acquiror.
(d) Each of Acquiror and Merger Sub shall have delivered to the
Company a certificate of its Chief Executive Officer or President and its
Chief Financial Officer certifying the fulfillment (or waiver by the
Company) of the conditions set forth in clauses (a), (b), (c) and (e) of
this Section 6.2 and, as to Acquiror and Merger Sub, of the conditions
set forth in Section 6.1.
(e) Acquiror and Merger Sub shall have obtained all Third Party
Consents (required by Acquiror, any Acquiror Subsidiary or Merger Sub)
for the consummation by such entities of the transactions contemplated
hereby, except for (i) such Third Party Consents which, if not obtained
would not individually or in the aggregate, reasonably be anticipated to
have a Material Adverse Effect on Acquiror and (ii) such Third Party
Consents which, in accordance with applicable Law, cannot be obtained
prior to the Effective Time.
(f) The Company shall have received from Hogan & Hartson L.L.P.,
counsel to Acquiror, and Dinsmore & Shohl, counsel to Acquiror, opinions
dated as of the Effective Time in the forms attached hereto as Exhibit
E-1 and Exhibit E-2, respectively.
6.3 Conditions to the Obligations of Acquiror and Merger Sub to Effect
the Merger. The obligations of Acquiror and Merger Sub to effect the Merger
shall be subject to the fulfillment by Acquiror at or prior to the Effective
Time of the following additional conditions, any or all of which may be waived,
to the extent permitted by applicable law:
(a) The Company shall have performed and complied with, in all
material respects, all of the agreements, covenants and obligations under
this Agreement required to be performed or complied with by it on or
prior to the Closing Date pursuant to the terms hereof.
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(b) Each of the representations and warranties of the Company in
this Agreement (i) which are qualified with respect to a Material Adverse
Effect on the Company or materiality shall be true and correct both when
made and as of the Closing Date, and (ii) all such representations and
warranties that are not so qualified shall be true and correct as of the
date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date (except to the extent any such representation or
warranty expressly speaks as of an earlier date) except where the failure
of such representations and warranties to be true and correct would not,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect on the Company.
(c) From the date hereof through the Closing Date, there shall not
have been any Material Adverse Effect on the Company.
(d) The Company shall have delivered to Acquiror a certificate of
its Chief Executive Officer or President and its Chief Financial Officer
certifying the fulfillment (or waiver by Acquiror) of the conditions set
forth in clauses (a), (b), (c) and (e) of this Section 6.3 and, as to the
Company, of the conditions set forth in Section 6.1.
(e) The Company shall have obtained all Third Party Consents
(required by the Company or any Company Subsidiary) for the consummation
by such entities of the transactions contemplated hereby, except for (i)
such Third Party Consents which, if not obtained, would not individually
or in the aggregate, reasonably be anticipated to have a Material Adverse
Effect on the Company and (ii) such Third Party Consents which, in
accordance with applicable Law, cannot be obtained prior to the Effective
Time; no such Third Party Consent obtained by the Company shall be
subject to a condition or term that individually or in the aggregate
would result in a Material Adverse Effect on the Company after the
Effective Time.
(f) Holders of no more than 10% of the outstanding shares of Company
Common Stock shall have asserted the right to seek relief as a
dissenting shareholder under Section 1701.84 and other applicable
provisions of the OGCL.
(g) Acquiror shall have received from Wachtell, Lipton, Rosen &
Katz, counsel to the Company, and Bricker & Eckler, counsel to the
Company, opinions dated as of the Effective Time in the forms attached
hereto as Exhibit E-3 and Exhibit E-4, respectively.
(h) Either (A) the Company shall have delivered to Acquiror the new
option agreements described in Section 5.7 evidencing the consent of
each holder of a Company Stock Option to have such Company Stock Option
assumed by Acquiror and to become an option to acquire Acquiror Common
Stock, or (B) Acquiror shall have received an opinion of counsel to the
Company, reasonably satisfactory in form and substance to Acquiror, that
as of the Effective Time Acquiror can assume the Company Stock Options in
accordance with Section 5.7(a) of this Agreement without obtaining the
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consents of the holders of the Company Stock Options and without
violating the terms of applicable Company Stock Option Plans and option
agreements thereunder evidencing the Company Stock Options.
(i) Either (A) Acquiror or an Acquiror Subsidiary shall have
acquired the Meditrust Investments (as defined in Section 4.31 of the
Company Disclosure Schedule) or (B) Acquiror shall have received the
written consent to the Merger from Meditrust Mortgage Investments, Inc.
or an affiliate which consent shall not be subject to a condition or
term that Acquiror determines to be unreasonable.
ARTICLE VII
TERMINATION
7.1 Termination.
(a) Termination by Mutual Consent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, before
or after the approval of this Agreement by the shareholders of the Company, by
the mutual written consent of Acquiror and the Company (acting pursuant to
authorization by their respective boards of directors).
(b) Termination by Either the Company or Acquiror. This Agreement may
be terminated and the Merger may be abandoned by action of the Board of
Directors of either the Company or Acquiror (evidenced in a notice given by the
terminating party to the non-terminating party) at any time prior to the
Effective Time, whether before or after the approval and adoption of this
Agreement by the shareholders of the Company, if (i) the Merger shall not have
been consummated by March 31, 1999 (provided, however, that this date may be
extended to a date not later than June 30, 1999 by written notice of either
Acquiror or the Company given to the other if the Merger shall not have been
consummated as a result of Acquiror or the Company having failed by March 31,
1999 to receive all necessary Third Party Consents with respect to the Merger
(as contemplated in Sections 6.2(e) and 6.3(e)) or as a result of an order,
writ, judgment, injunction, consent decree, stipulation, determination or award
entered by or with any Governmental Entity, as contemplated in Sections 6.1(c)
and (f)), or (ii) the approval of the Company's shareholders required by Section
6.1(b) shall not have been obtained at the Company Shareholders' Meeting or at
any adjournment or postponement thereof, or (iii) a court of competent
jurisdiction or Governmental Entity shall have issued an order, decree or ruling
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement (an "Order") and
such Order shall have become final and non-appealable; provided, that the party
seeking to terminate this Agreement pursuant to this clause (iii) must have used
its best efforts to remove such Order; provided further, in the case of a
termination pursuant to clause (i) or (ii) above, that the terminating party
shall not have breached in any material respect its obligations under this
Agreement.
(c) Termination by Acquiror. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the adoption
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and approval by the shareholders of the Company referred to in Section 6.1(b),
by action of the Board of Directors of Acquiror evidenced by notice given by
Acquiror to the Company if (i) there has been a breach of any representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have become
untrue, in either case such that the conditions in Section 6.3(a) or Section
6.3(b) would not be satisfied (a "Terminating Company Breach"); provided that,
if such Terminating Company Breach is curable by the Company through the
exercise of its best efforts, then, for so long as the Company continues to
exercise such best efforts (and as long as such breach is cured within 30 days
of the date the Company is notified by Acquiror of such breach), Acquiror may
not terminate this Agreement under this Section 7.1(c)(i); (ii) following the
announcement or receipt of a proposal of a Third Party Transaction, the Board of
Directors of the Company shall have altered or withdrawn its determination to
recommend that the shareholders of the Company approve this Agreement and the
transactions contemplated hereby; or (iii) following the announcement or receipt
of a proposal for a Third Party Transaction, the Company shall have failed to
proceed to hold the Company Shareholders' Meeting as required by Section 5.1.
(d) Termination by the Company. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the adoption and approval by the shareholders of the Company referred to
in Section 6.1(b) by action of the Board of Directors of the Company evidenced
by notice given by the Company to Acquiror if there has been a breach of any
representation, warranty, covenant or agreement on the part of Acquiror set
forth in this Agreement, or if any representation or warranty of Acquiror shall
have become untrue, in either case such that the conditions in Section 6.2(a) or
Section 6.2(b) would not be satisfied (a "Terminating Acquiror Breach");
provided that, if such Terminating Acquiror Breach is curable by Acquiror
through the exercise of its best efforts and for so long as Acquiror continues
to exercise such best efforts (and as long as such breach is cured within 30
days after the date Acquiror is notified by the Company of such breach), the
Company may not terminate this Agreement under this Section 7.1(d).
7.2 Effects of Termination.
(a) If (A) the Acquiror terminates this Agreement pursuant to clause
(ii) or (iii) of Section 7.1(c) or (B) either Acquiror or the Company terminates
this Agreement pursuant to clause (i) or (ii) of Section 7.1(b) provided that
prior to termination of this Agreement pursuant to either clause (i) or (ii) of
Section 7.1(b) a proposal for a Third Party Transaction was announced or
received by the Company and following termination of this Agreement pursuant to
either subsection (A) or (B) hereof any Third Party Transaction is consummated
(including, in the case of a tender offer, acceptance of shares upon the
expiration of the tender offer) within one year after such termination, the
Company (or the successor thereto) shall pay Acquiror by wire transfer in
immediately available funds a fee of $5 million upon consummation of any Third
Party Transaction.
(b) Except as provided in this Section 7.2 or Section 8.3 or Section
8.4, in the event of the termination of this Agreement pursuant to Section 7.1,
this Agreement shall become
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void and have no effect, there shall be no liability on the part of the parties
or any of their respective officers or directors to the other and all rights and
obligations of any party hereto shall cease; provided, however, that nothing
herein shall relieve any party from liability for the willful and material
breach of any of its representations, warranties, covenants or agreements set
forth in this Agreement, or from any obligation under the Confidentiality
Agreement.
7.3 Procedure for Termination. Termination of this Agreement pursuant to
Section 7.1 shall, in order to be effective, require, in the case of Acquiror or
the Company, action by its Board of Directors.
ARTICLE VIII
MISCELLANEOUS
8.1 Amendment. Subject to the applicable provisions of state law, this
Agreement may be amended by the parties hereto solely by action taken by their
respective Boards of Directors at any time prior to the Effective Time;
provided, however, that after the approval and adoption of this Agreement by the
Company's shareholders, no amendment may be made that (i) would reduce the
amount or change the type of consideration into which each Company Share shall
be converted pursuant hereto or (ii) by Law requires further approval by the
shareholders of the Company without the further approval of such shareholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
8.2 Waiver. At any time prior to the Closing Date, the parties hereto, by
action taken by their respective Boards of Directors, may (i) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any documents delivered pursuant hereto, and
(iii) waive compliance by the other party with any of the agreements or
conditions herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. No waiver by either party of any default with
respect to any provision, condition or requirement hereof shall be deemed to be
a waiver of any other provision, condition or requirement hereof; nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereunder.
8.3 Survival. All representations, warranties and agreements contained in
this Agreement or in any instrument delivered pursuant to this Agreement shall
terminate and be extinguished at the Effective Time or the earlier date of
termination of this Agreement pursuant to Section 7.1, as the case may be,
except that the agreements set forth in Article I and Article II and in Sections
5.7, 5.8, 5.17, 5.21, 8.2, 8.3 and 8.4 will survive the Effective Time and those
set forth in Sections 5.9, 7.2 and Article VIII will survive the termination or
expiration of this Agreement.
8.4 Expenses and Fees. Subject to Section 7.2, whether or not the Merger
is consummated, all costs and expenses incurred by the parties hereto in
connection with this
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Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses except as expressly provided herein and except that (i)
the filing fee in connection with the HSR Act filing, (ii) the filing fee in
connection with the filing of the Registration Statement or Proxy Statement with
the Commission and Blue Sky Filing fees and (iii) the expenses incurred in
connection with printing and mailing of the Registration Statement and the Proxy
Statement, shall be shared equally by Acquiror and the Company.
8.5 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be given (and shall be deemed to have been
duly given upon receipt) by delivery in person, by telecopy or facsimile, by
registered or certified mail (postage prepaid, return receipt requested), or by
a nationally recognized courier service to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or, if sent by telecopy or facsimile, to the parties at the
telecopier numbers specified below:
If to Merger Sub or Acquiror: Sunrise Assisted Living, Inc.
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
Attn: Thomas B. Newell, Esq.
Telecopier: (703) 273-6853
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, DC 20004
Attn: Robert J. Waldman, Esq.
Telecopier: (202) 637-5910
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If to the Company: Karrington Health, Inc.
919 Old Henderson Road
Columbus, Ohio 43220
Attn: Stephen Lewis, Esq.
Telecopier: (614) 451-5199
With copies (which shall not constitute notice) to:
Bricker & Eckler LLP
100 South Third Street
Columbus, Ohio 43215-4291
Attention: Charles H. McCreary, III, Esq.
and Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Craig M. Wasserman, Esq.
8.6 Interpretation. When a reference is made in this Agreement to an
Article, Section, Exhibit or Schedule, such reference is to an Article or
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" and
"including" are used in this Agreement, they are deemed to be followed by the
words "without limitation." For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires, (a) the
terms defined include the plural as well as the singular, (b) all accounting
terms not otherwise defined herein have the meanings assigned under generally
accepted accounting principles, and (iii) the words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular Article, Section, or other subdivision.
8.7 Mutual Drafting. Each party hereto has participated in the drafting
of this Agreement, which each party acknowledges is the result of extensive
negotiations between the parties.
8.8 Public Announcements. The Company and Acquiror shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the transactions contemplated
hereby or any termination of this Agreement (other than statements in response
to nonpublic inquiries received with respect to this Agreement or the
transactions contemplated hereby) and shall not issue any such press release or
make any such public statement (other than statements in response to nonpublic
inquiries received with respect to this Agreement or the transactions
contemplated hereby) without the prior consent of the other party, which shall
not be unreasonably withheld or delayed; provided, however, that a party may,
without the prior consent of the other party, issue such press release or make
such public
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statement as may be required by Law or any listing agreement with a national
securities exchange to which the Company or Acquiror is a party if it has used
best efforts to consult with the other party and to obtain such party's consent
but has been unable to do so in a timely manner.
8.9 Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "best efforts" means, as to a party hereto, an undertaking by
such party to perform or satisfy an obligation or duty or otherwise act in a
manner reasonably calculated to obtain the intended result by action or
expenditure not disproportionate or unduly burdensome in the circumstances,
which means, among other things, that such party shall not be required to (a)
expend funds other than for payment of the reasonable and customary costs and
expenses of employees, counsel, consultants, representatives or agents of such
party in connection with the performance or satisfaction of such obligation or
duty or other action or (ii) institute litigation or arbitration as a part of
its best efforts.
(c) "business day" means any day other than a day on which banks in
the State of New York are authorized or obligated to be closed;
(d) "control" (including the terms "controlled", "controlled by" and
"under common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of voting
securities or as trustee or executor, by contract, agreement or otherwise;
(e) "Environmental Laws" means any Laws (including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act), including any plans, other criteria, or guidelines promulgated
pursuant to such Laws, now or hereafter in effect relating to the generation,
production, installation, use, sale, storage, treatment, transportation,
release, threatened release, or disposal of Hazardous Materials, noise control,
or the protection of human health or safety, natural resources, or the
environment.
(f) "Hazardous Materials" means any wastes, substances, radiation, or
materials (whether solids, liquids or gases) (i) which are hazardous, toxic,
infectious, explosive, radioactive, carcinogenic, or mutagenic; (ii) which are
or become defined as a "pollutants" "contaminants", "hazardous materials,"
"hazardous wastes," "hazardous substances," "toxic substances," "radioactive
materials," "solid wastes," or other similar designations in, or otherwise
subject to regulation under, any Environmental Laws; (iii) the presence of which
on either the Acquiror Real Property or the Company Real Property, as the case
may be, cause or threaten to cause a nuisance pursuant to applicable statutory
or common law upon such Real Property or to adjacent properties; (iv) without
limitation, which contain
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polychlorinated biphenyls (PCBs), asbestos and asbestos-containing materials,
lead-based paints, urea-formaldehyde foam insulation, and petroleum or petroleum
products (including, without limitation, crude oil or any fraction thereof) or
(v) which pose a hazard to human health, safety, natural resources, industrial
hygiene, or the environment, or an impediment to working conditions.
(g) "knowledge" or "known" shall mean, with respect to any matter in
question, if an executive officer of Acquiror or the Company, as the case may
be, has actual knowledge of such matter or, after reasonable diligence, should
know of such matter;
(h) "Laws" means all foreign, federal, state and local statutes,
laws, ordinances, regulations, rules, resolutions, orders, determinations,
writs, injunctions, common law rulings, awards (including, without limitation,
awards of any arbitrator), judgments and decrees applicable to the specified
persons or entities and to the businesses and Assets thereof (including, without
limitation, Laws relating to securities registration and regulation; the sale,
leasing, ownership or management of real property; employment practices, terms
and conditions, and wages and hours; building standards, land use and zoning;
safety, health and fire prevention; and environmental protection, including
Environmental Laws).
(i) "Person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the Exchange Act);
(j) "Release" means any emission, spill, seepage, leak, escape,
leaching, discharge, injection, pumping, pouring, emptying, dumping, disposal,
or release of Hazardous Materials from any source (including, without
limitation, the Acquiror Real Property or the Company Real Property, as the case
may be, and property adjacent to such Real Property) into or upon the
environment, including the air, soil, improvements, surface water, groundwater,
the sewer, septic system, storm drain, publicly owned treatment works, or waste
treatment, storage, or disposal systems at, on, from, above, or under such Real
Property or any other property at which Hazardous Materials originating on or
from such Real Property or the businesses or assets of Acquiror or any Acquiror
Subsidiary or the Company or any Company Subsidiary, as the case may be, have
been stored, treated or disposed.
(k) "subsidiary" or "subsidiaries" of Acquiror, the Company, the
Surviving Corporation or any other person, means any corporation, partnership,
joint venture, limited liability company or other legal entity of which
Acquiror, the Company, the Surviving Corporation or such other person, as the
case may be (either alone or through or together with any other subsidiary),
owns, directly or indirectly, 50% or more of the stock or other equity interests
or voting ownership or voting partnership or voting membership interests the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity or
sufficient to elect a majority of such board of directors or other governing
body.
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(l) "Third Party Intellectual Property Rights" means (i) patents,
patent applications, registered and unregistered trademarks, trade names and
service marks, registered and unregistered copyrights, and maskworks included in
the Acquiror Intellectual Property Rights or Company Intellectual Property
Rights, as the case may be, including the jurisdictions in which each such item
of such Intellectual Property Rights has been issued or registered or in which
any application for such issuance and registration has been filed, (ii)
licenses, sublicenses and other agreements as to which Acquiror or Company, as
applicable, is a party and pursuant to which any person is authorized to use any
such Intellectual Property Rights, and (iii) licenses, sublicenses and other
agreements as to which Acquiror or Company, as applicable, is a party and
pursuant to which Acquiror or Company, as applicable, is authorized to use any
third party patents, trademarks or copyrights, including software.
8.10 Entire Agreement. This Agreement (together with the Exhibits,
Annexes and Schedules hereto), constitutes the entire agreement among the
parties and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof.
8.11 Assignment; Parties in Interest. This Agreement and all of the
provisions hereof shall be binding upon and inure solely to the benefit of the
parties hereto and their respective successors and permitted assigns. Neither
this Agreement nor any of the rights, interests or obligations shall be
assigned, in whole or in part, by any of the parties hereto by operation of law
or otherwise. Except as set forth in Section 5.7, 5.8 and in Article II hereof,
nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
8.12 Counterparts. This Agreement may be executed and delivered in one or
more counterparts, all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
8.13 Invalidity; Severability. In the event that any provision of this
Agreement shall be deemed contrary to law or public policy or invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions shall remain in full force and effect to the extent that such
provisions can still reasonably be given effect in accordance with the
intentions of the parties, and the invalid and unenforceable provisions shall be
deemed, without further action on the part of the parties, modified, amended and
limited solely to the extent necessary to render the same valid and enforceable.
Upon such determination that any term or other provision is invalid, illegal, or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible.
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8.14 Enforcement; Consent to Jurisdiction. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or were
otherwise breached. The parties accordingly agree that the parties will be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in any
court of the United States located in the State of Delaware or in Delaware state
court, this being in addition to any other remedy to which they are entitled at
Law or in equity. In addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of any federal court located in the State of
Delaware or any Delaware state court in the event any dispute arises out of the
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or the transactions contemplated by
this Agreement in any court other than a federal or state court sitting in the
State of Delaware.
8.15 Governing Law. The validity and interpretation of this Agreement
shall be governed by, and construed in accordance with, the laws of the State of
Delaware, without reference to the conflict of laws principles thereof; except
that the effectiveness of the Merger shall be governed by, and construed in
accordance with, the laws of the State of Ohio.
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IN WITNESS WHEREOF, Acquiror, Merger Sub and the Company have caused
this Agreement to be executed and delivered by their respective officers
thereunto duly authorized, all as of the date first written above.
"COMPANY" "ACQUIROR"
By: /s/ RICHARD R. SLAGER By: /s/ DAVID W. FAEDER
------------------------------ ----------------------------
Richard R. Slager David W. Faeder
Chairman and Chief Executive President
Officer
"MERGER SUB"
By: /s/ DAVID W. FAEDER
----------------------------
David W. Faeder
President
[END OF SIGNATURE PAGE]
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EXHIBIT 99.1
OPTION AGREEMENT
NEITHER THIS OPTION AGREEMENT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR HAVE BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
LAWS OF ANY STATE; THEREFORE, THIS OPTION AGREEMENT AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF, IF ANY, MAY NOT BE SOLD OR TRANSFERRED EXCEPT UPON SUCH
REGISTRATION OR QUALIFICATION OR UPON DELIVERY TO THE COMPANY, OF AN OPINION OF
COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT
REGISTRATION OR QUALIFICATION IS NOT REQUIRED FOR SUCH SALE OR TRANSFER.
This OPTION AGREEMENT (this "Agreement") is entered into as of
October 18, 1998, by and among Sunrise Assisted Living, Inc., a Delaware
corporation ("Acquiror"), and Karrington Health, Inc., an Ohio corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this
Agreement, Acquiror, Buckeye Merger Corporation, an Ohio corporation ("Merger
Sub"), and the Company are entering into an Agreement of Merger of even date
herewith (the "Merger Agreement"; capitalized terms used but not defined herein
shall have the same meaning assigned to such terms in the Merger Agreement),
pursuant to which Merger Sub will be merged with and into the Company (the
"Merger"), the separate corporate existence of Merger Sub shall cease and the
Company shall continue as the surviving corporation in the Merger; and
WHEREAS, as a condition to the willingness of the parties to enter
into the Merger Agreement and incur expenses and expend time and effort in
connection with the Merger Agreement and transactions contemplated thereby,
Acquiror has required that the Company agree, and the Company has agreed, among
other things, to grant to Acquiror the Company Stock Option (as hereinafter
defined), in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein and in the Merger Agreement and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
<PAGE> 2
ARTICLE I
THE COMPANY STOCK OPTION
1.1 Grant of Company Stock Option. The Company hereby grants to
Acquiror an irrevocable option (the "Company Stock Option") to purchase, subject
to the terms hereof 676,903 1/ fully paid and nonassessable shares (the "Company
Option Shares") of Company Common Stock at a purchase price of $9.00 per Company
Option Share (the "Company Stock Purchase Price") in the manner set forth in
Sections 1.2, 1.3 and 1.4 hereof; provided, however, that in no event shall the
number of shares of Company Common Stock for which the Company Stock Option is
exercisable exceed 9.9% of the number of shares of Company Common Stock
outstanding before the exercise of the Company Stock Option. The number of
shares of Company Common Stock that may be received upon the exercise of the
Company Stock Option is subject to adjustment as set forth herein.
1.2 Exercise of Company Stock Option.
(a) The Company Stock Option may be exercised by Acquiror, in
whole or in part, at any time or from time to time prior to termination of this
Company Stock Option in accordance with Section 6.7, if during the term of this
Company Stock Option a proposal for a Third Party Transaction is announced or
received by the Company (the "Acquiror Triggering Event").
(b) In the event Acquiror wishes to exercise all or any part of
the Company Stock Option, Acquiror shall deliver to the Company a written notice
(an "Acquiror Exercise Notice," with the date of the Acquiror Exercise Notice
being hereafter called the "Notice Date") notifying Company of its exercise of
the Company Stock Option and specifying the number of the Company Option Shares
to be purchased. The closing of such exercise of the Company Stock Option (a
"Company Option Closing") shall occur at a place, and on a date (not earlier
than three nor later than 30 business days from the Notice Date) and at a time
designated by Acquiror in the Acquiror Exercise Notice.
(c) Upon receipt of an Acquiror Exercise Notice, the Company
shall be obligated to deliver to Acquiror a certificate or certificates
evidencing the Company Option Shares, in accordance with the terms of this
Agreement, on the later of (i) the date specified in the Acquiror Exercise
Notice or (ii) the first business day on which the conditions specified in
Section 1.3 shall be satisfied.
(d) Notwithstanding the foregoing, the Company Stock Option may
not be exercised in whole or in part with respect to that number of shares of
Company Common Stock that would result in the Acquiror realizing upon exercise
- -----------
1/ A number equal to 9.9% of the outstanding Company Common Stock on the date
hereof.
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<PAGE> 3
thereof, taking into account all prior exercises of the Company Stock Option, an
Aggregate Spread Value in excess of $5.0 million. For purposes of this Section
1.2(d), the term "Aggregate Spread Value" shall mean sum of (i) the number of
Company Option Shares purchased upon exercise of the Company Stock Option
multiplied by (ii) the excess, if any, of the average of the last reported sales
prices on the Nasdaq Stock Market ("NASDAQ") of the Company Common Stock during
the five trading days immediately preceding the Notice Date (or each applicable
Notice Date, if the Company Stock Option is exercised on more than one occasion)
over the Company Stock Purchase Price.
1.3 Conditions to Delivery of the Company Option Shares. The right of
Acquiror to exercise the Company Stock Option and the obligation of the Company
to deliver the Company Option Shares upon any exercise of the Company Stock
Option is subject to the following conditions:
(a) Such delivery would not in any material respect violate, or
otherwise cause the material violation of, any material law, including, without
limitation, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act") applicable to
such exercise of the Company Stock Option and the delivery of the Company Option
Shares; and
(b) There shall be no preliminary or permanent injunction or
other order by any court of competent jurisdiction preventing or prohibiting
such exercise of the Company Stock Option or the delivery of the Company Option
Shares in respect of such exercise (and no action or proceeding shall have been
commenced or threatened for purposes of obtaining the same).
1.4 Closings. At any Company Option Closing, (i) the Company will
deliver to Acquiror a certificate or certificates evidencing the number of the
Company Option Shares being purchased in the denominations specified in the
Acquiror Exercise Notice, and, if the Company Stock Option has been exercised in
part, a new Company Stock Option evidencing the right of Acquiror to purchase
the balance of the Company Option Shares; and (ii) Acquiror will pay to the
Company the aggregate Company Stock Purchase Price for the Company Option Shares
to be purchased by Acquiror. Such aggregate purchase price is payable in
Acquiror Common Stock, cash or a combination of Acquiror Common Stock and cash,
in each case at Acquiror's option, as specified in the Acquiror Exercise Notice.
All cash payments made by Acquiror to the Company pursuant to this Section 1.4
shall be made, at the option of Acquiror, either by wire transfer of immediately
available funds or by delivery to the Company of a certified or bank cashier's
check or checks payable to or on the order of the Company, in either case in the
amount of the Company Stock Purchase Price multiplied by the number of shares to
be purchased. If Acquiror elects to pay the Company Stock Purchase Price or a
portion thereof in Acquiror Common Stock, the Acquiror Common Stock shall be
valued at the
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<PAGE> 4
average of the last reported sales prices of the Acquiror Common Stock on the
NASDAQ for the five trading days immediately prior to the date of the Company
Exercise Notice. After payment of the Company Stock Purchase Price for the
Company Option Shares covered by the Acquiror Exercise Notice, the Company Stock
Option shall be deemed exercised to the extent of the Company Option Shares
specified in the Acquiror Exercise Notice as of the date such Company Exercise
Notice is given to the Company.
1.5 Adjustments Upon Share Issuances, Changes in Capitalization, etc.
In the event of any change in the Company Common Stock or in the number of
outstanding shares of the Company Common Stock by reason of a stock dividend,
split-up, recapitalization, combination, exchange of shares or similar
transaction or any other change in the corporate or capital structure of the
Company (including, without limitation, the declaration or payment of an
extraordinary dividend or cash, securities or other property), the type and
number of shares or securities to be issued by the Company upon exercise of the
Company Stock Option shall be adjusted appropriately, and proper provision shall
be made in the agreements governing such transaction, so that Acquiror shall
receive upon exercise of the Company Stock Option the number and class of shares
and voting power represented thereby, or other securities or property that
Acquiror would have received in respect of the Company Common Stock, if the
Company Stock Option had been exercised immediately prior to such event, or the
record date therefor, as applicable, and elected to the fullest extent it would
have been permitted to elect, to receive such securities, cash or other
property.
1.6 Legends. The certificate or certificates evidencing the Company
Option Shares acquired upon exercise of the Company Option Shares shall bear a
legend in substantially the following form:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), NOR HAVE THEY BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE;
THEREFORE, THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED
EXCEPT UPON SUCH REGISTRATION OR QUALIFICATION OR UPON
DELIVERY TO THE COMPANY, OF AN OPINION OF COUNSEL OR OTHER
EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT
REGISTRATION OR QUALIFICATION IS NOT REQUIRED FOR SUCH SALE
OR TRANSFER.
It is understood and agreed that the above legend will be removed by
delivery of substitute certificate(s) without such legend if the holder shall
have delivered to the Company a copy of a letter from the staff of the
Securities and
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<PAGE> 5
Exchange Commission, or an opinion of counsel in form and substance reasonably
satisfactory to the Company and its counsel, to the effect that such legend is
not required for purposes of the Securities Act.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Acquiror as
follows:
2.1 Authority Relative to this Agreement. The Company has all
requisite corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby to be consummated by the Company. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of the Company, and no other corporate proceedings on the part of the
Company are necessary to authorize the execution and delivery of this Agreement
or to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Acquiror, constitutes the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
its terms.
2.2 Authority to Issue Shares. The Company has taken all necessary
corporate action to authorize and reserve and permit it to issue, and at all
times from the date hereof until the Company Stock Option shall no longer be
exercisable, shall have reserved, all the Company Option Shares issuable
pursuant to this Agreement, and the Company will take all necessary corporate
action to authorize and reserve and permit it to issue all additional shares of
the Company Common Stock or other securities which may be issued pursuant to
Section 1.5, all of which, upon their issuance and delivery in accordance with
the terms of this Agreement, shall be duly authorized, validly issued, fully
paid and nonassessable, shall be delivered free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on Acquiror's voting rights, charges and other encumbrances of any
nature whatsoever (other than this Agreement) and shall not be subject to any
preemptive rights.
2.3 No Violation. The execution and delivery of this Agreement by the
Company do not, the performance of its obligations hereunder by the Company will
not, and the consummation by the Company of the transactions contemplated to be
performed by it hereunder will not, (i) violate or conflict with any provision
of any Law in effect on the date of this Agreement and applicable to the Company
or any Company Subsidiary or by which any of their respective properties or
assets is bound or subject; (ii) require the Company or any Company Subsidiary
to obtain
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<PAGE> 6
any consent, waiver, approval, license or authorization or permit of, or make
any filing with, or notification to, any Governmental Entities, based on laws,
rules, regulations and other requirements of Governmental Entities in effect as
of the date of this Agreement (other than (a) the filing of a pre-merger
notification report under the HSR Act and the expiration of the applicable
waiting period, (b) filings or authorizations required in connection or in
compliance with the provisions of the Securities Act, NASDAQ rules for
notification of the listing of additional securities (or the rules of any other
applicable national exchange) or the "blue sky" laws of various states, or (c)
any other filings and approvals expressly contemplated by this Agreement); (iii)
require the consent, waiver, approval, license or authorization of any person
(other than Governmental Entities); (iv) violate, conflict with or result in a
breach of or the acceleration of any obligation under, or constitute a default
(or an event which with notice or the lapse of time or both would become a
default) under, or give to others any rights of, or result in any, termination,
amendment, acceleration or cancellation of, or loss of any benefit or creation
of a right of first refusal, or require any payment under, or result in the
creation of a lien or other encumbrance on any of the properties or assets of
the Company or any Company Subsidiary pursuant to or under any provision of any
indenture, mortgage, note, bond, lien, lease, license, agreement, contract,
order, judgment, ordinance, Company Permit (as defined below) or other
instrument or obligation to which the Company or any Company Subsidiary is a
party or by which the Company or any Company Subsidiary or any of their
respective properties is bound or subject to; or (v) conflict with or violate
the Articles of Incorporation or Bylaws, or the equivalent organizational
documents, in each case as amended or restated, of the Company or any Company
Subsidiary, except for any breaches, defaults, events, rights of termination,
amendment, acceleration or cancellation, payment obligations or liens or
encumbrances described in clause (iv) that would not have a Material Adverse
Effect on the Company and except where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications
would not, either individually or in the aggregate, prevent the Company from
performing any of its obligations under this Agreement and would not have a
Material Adverse Effect on the Company. Neither the Company nor any of its
affiliates or associates (as each such term is defined in Section 203 of the
DGCL) is, prior to the date hereof, an "interested stockholder" (as such term is
defined in Section 203 of the DGCL) of Acquiror. For purposes hereof, "Company
Permit" means any all license, CON, franchise, grant, permit, easement,
variance, accreditation, exemption, consent, certificate, identification number,
approval, order, and other authorization necessary for the Company or any
Company Subsidiary to own, lease and operate properties and to carry on its
business as it is now being conducted.
ARTICLE III
COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
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<PAGE> 7
3.1 Listing; Other Action. (a) If the Company Common Stock or any
other securities to be acquired upon exercise of the Company Stock Option are
then traded on the NASDAQ or any other national exchange, the Company, upon the
request of Acquiror, shall, at the Company's expense, promptly file a
notification to list such shares or other securities on such exchange and will
use reasonable best efforts to obtain approval of such listing on such exchange,
subject to notice of issuance, as promptly as practicable.
(b) The Company shall use its reasonable best efforts to take, or
cause to be taken, all appropriate action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable Laws and regulations to
consummate and make effective the transactions contemplated hereunder,
including, without limitation, using its reasonable best efforts to obtain all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of Governmental Entities. Without limiting the generality of the
foregoing, the Company shall, when required in order to effect the transactions
contemplated hereunder, make all filings and submissions under the HSR Act as
promptly as practicable.
3.2 Registration. Upon the request of Acquiror at any time and from
time to time within two (2) years after the first Company Option Closing, the
Company agrees (i) to effect, as promptly as practicable, up to two
registrations under the Securities Act covering any part or all (as may be
requested by Acquiror) of the securities that have been acquired by or are
issuable to Acquiror upon exercise of Company Stock Option, and to use its best
efforts to qualify such Company Option Shares and/or other securities acquired
upon exercise of the Company Stock Option under any applicable state securities
laws and (ii) to include any part or all of Company Option Shares and such other
securities acquired upon exercise of the Company Stock Option in any
registration statement for common stock filed by the Company under the
Securities Act in which such inclusion is permitted under applicable rules and
regulations and to use its reasonable best efforts to keep each such
registration described in clause (i) effective for a period not in excess of six
(6) months, unless, in the written opinion of counsel to the Company, addressed
to Acquiror and reasonably satisfactory in form and substance to Acquiror, such
registration is not required for the sale and distribution of such securities in
the manner contemplated by Acquiror. If the managing underwriter of a proposed
offering of securities by the Company shall advise the Company in writing that,
in the reasonable opinion of the managing underwriter, the distribution of
Company Option Shares or such other securities acquired upon exercise of the
Company Stock Option requested by Acquiror to be included in a registration
statement concurrently with securities being registered for sale by the Company
would adversely affect the distribution of such securities by the Company, then
the Company shall, at its option, either (i) include such of the Company Option
Shares and/or such other securities acquired upon exercise of the Company Stock
Option in the registration statement, but Acquiror shall agree to delay the
offering
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<PAGE> 8
and sale for such period of time as the managing underwriter may reasonably
request (provided that Acquiror may at any time withdraw its request to include
securities in such offering) or (ii) include such portion of Company Option
Shares and/or such other securities acquired upon exercise of the Company Stock
Option in the registration statement as the managing underwriter advises may be
included for sale simultaneously with sales by the Company. The registrations
effected under this Section 3.2 shall be effected at the Company's expense,
except for underwriting commissions and discounts and the fees and disbursements
of Acquiror's counsel. With respect to a registration statement which has become
effective pursuant to this Agreement, if the Board of Directors of the Company
shall determine, in its good faith reasonable judgment, that it is necessary to
suspend the availability of such registration statement in light of the
existence of any undisclosed acquisition or financing activity or other
undisclosed material event, circumstance or condition involving the Company or
any Company Subsidiary, the disclosure of which in any such case could
reasonably be expected materially to disadvantage the Company, and the existence
of which would render such registration statement inadequate as failing to
include material information, then the Company may cause the right of Acquiror
to make dispositions of Company Option Shares and/or such other securities
acquired upon exercise of the Company Stock Option pursuant to such registration
statement to be suspended for one or more periods of time not exceeding 90 days
in the aggregate, as the Board of Directors of the Company determines in its
good faith reasonable judgment to be necessary. If the Company determines to
suspend the right of the holders pursuant to the immediately preceding sentence,
the Company shall deliver a notice to Acquiror which indicates that such
registration statement is no longer usable. Upon the receipt of any such notice,
Acquiror shall forthwith discontinue any sale of Company Option Shares and/or
other securities acquired upon exercise of the Company Stock Option pursuant to
such registration statement and any use of the prospectus contained therein. As
soon as the circumstances which resulted in the delivery of any such notice
cease to exist, the Company shall promptly notify Acquiror of such cessation,
whereupon Acquiror may resume making dispositions of Company Option Shares
and/or other securities acquired upon exercise of the Company Stock Option
pursuant to such registration statement. Acquiror shall provide all information
reasonably requested by the Company for inclusion in any registration statement
to be filed hereunder. In connection with any registration pursuant to this
Section 3.2, the Company and Acquiror shall provide each other and any
underwriter of the offering with customary representations, warranties,
covenants, indemnification and contribution.
3.3 Put Right. Prior to the termination of the Company Stock Option
in accordance with Section 6.7 hereof and if the other conditions set forth in
Section 1.3 are met and the Company Stock Option is otherwise exercisable,
Acquiror shall have the right in connection with the consummation of a Third
Party Transaction to require the Company to purchase the Company Stock Option
(the "Put Right") at a cash purchase price (the "Put Price") equal to the
product
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<PAGE> 9
determined by multiplying (i) the number of Company Option Shares as to which
the Company Stock Option has not yet been exercised by (ii) the Spread (as
defined below). The Company hereby agrees to furnish notice to Acquiror at least
five business days prior to the anticipated consummation of a Third Party
Transaction. As used herein, the term "Spread" shall mean the excess, if any, of
(i) the greater of (x) the highest price (in cash or fair market value of
securities or other property) per share of the Company Common Stock paid within
12 months preceding the date of exercise of the Put Right (or to be paid
pursuant to any agreement or arrangement in effect as of the date of such
exercise) for any shares of Company Common Stock beneficially owned by any
person who shall have acquired or become the beneficial owner of 20% or more of
the outstanding shares of Company Common Stock after the date hereof or (y) the
average of the last reported sales prices on NASDAQ of the Company Common Stock
during the five trading days immediately preceding the written notice of
exercise of the Put Right over (ii) the Company Stock Purchase Price.
Notwithstanding the foregoing, in no event shall the aggregate Put Price,
together with the Aggregate Spread Value of any Company Option Shares previously
exercised, exceed $5.0 million. The procedures for the exercise of the Company
Stock Option set forth in Section 1.2(b) hereof shall be followed also with
regard to the exercise of this Put Right except that the closing of such
exercise of this Put Right shall occur simultaneously with the consummation of
the Third Party Transaction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror hereby represents and warrants to the Company that it has
all requisite corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby to be consummated by the Acquiror. The
execution and delivery of this Agreement by the Acquiror have been duly
authorized by the Board of Directors of the Acquiror.
ARTICLE V
COVENANTS OF ACQUIROR
Acquiror hereby covenants and agrees that, subject to Section 3.2
hereof, it shall acquire Company Option Shares and/or other securities acquired
upon exercise of the Company Stock Option for investment purposes only and not
with a view to any distribution thereof in violation of the Securities Act, and
shall not sell any such securities purchased pursuant to this Agreement except
in compliance with the Securities Act.
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<PAGE> 10
ARTICLE VI
MISCELLANEOUS
6.1 Expenses. Except as expressly provided herein to the contrary,
each party hereto will pay all of its expenses in connection with the
transactions contemplated by this Agreement, including, without limitation, the
fees and expenses of its counsel and other advisors.
6.2 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be given (and shall be deemed to
have been duly given upon receipt) by delivery in person, by telecopy or
facsimile, by registered or certified mail (postage prepaid, return receipt
requested), or by a nationally recognized courier service to the parties at the
following addresses (or at such other address for a party as shall be specified
by like changes of address) or, if sent by telecopy or facsimile, to the parties
at the telecopier numbers specified below:
If to Acquiror: Sunrise Assisted Living, Inc.
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
Attn: Thomas B. Newell
Telecopier: (703) 273-6853
With a copy Hogan & Hartson L.L.P.
(which shall not 555 13th Street, N.W.
constitute notice) to: Washington, D.C. 20004
Attn: Robert J. Waldman, Esq.
Telecopier: 202-637-5910
If to the Company: Karrington Health, Inc.
919 Old Henderson Road
Columbus, Ohio 34220
Attn: Stephen Lewis, Esq.
Telecopier: (614) 451-5199
With copies Bricker & Eckler LLP
(which shall not 100 South Third Street
constitute notice) to: Columbus, Ohio 43215-4291
Attention: Charles H. McCreary, III, Esq.
and
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Craig M. Wasserman, Esq.
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<PAGE> 11
6.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings, both
written and oral, between the parties, or any of them, with respect to the
subject matter hereof.
6.4 Assignment. This Agreement shall not be assigned by operation of
law or otherwise, without the prior written consent of the other party hereto.
6.5 Governing Law. This Agreement, and all matters relating hereto,
shall be governed by, and construed in accordance with the laws of the State of
Ohio, regardless of the laws that might govern under applicable principles of
conflict of law theory.
6.6 Injunctive Relief. The parties agree that in the event of a
breach of any provision of this Agreement irreparable damage would occur, the
aggrieved party would be without an adequate remedy at law and damages would be
difficult to determine. The parties therefore agree that in the event of a
breach of any provision of this Agreement, the aggrieved party may elect to
institute and prosecute proceedings in any court of competent jurisdiction to
enforce specific performance or to enjoin the continuing breach of such
provision. By seeking or obtaining such relief, the aggrieved party will not be
precluded from seeking or obtaining any other relief to which it may be entitled
at law or in equity.
6.7 Termination. The Company Stock Option shall terminate upon the
earlier of: (i) the Effective Time; or (ii) one year following the termination
or expiration of the Merger Agreement; provided, however, that if an Acquiror
Triggering Event occurs within such one-year period, then the Company Stock
Option shall terminate fifteen months after the termination or expiration of the
Merger Agreement.
6.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same document.
6.9 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as to make it enforceable.
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<PAGE> 12
6.10 Further Assurances. Each party hereto will execute and deliver
all such further documents and instruments and take all such further action as
may be necessary in order to consummate the transactions contemplated by this
Agreement.
6.11 Third Party Beneficiaries. Nothing in this Agreement, expressed
or implied, shall be construed to give any person other than the parties hereto
any legal or equitable right, remedy or claim under or by reason of this
Agreement or any provision contained herein.
6.12 Amendment and Modification. This Agreement may be amended,
modified and supplemented only by a written document executed by Acquiror and
the Company.
IN WITNESS WHEREOF, Acquiror and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
SUNRISE ASSISTED LIVING, INC.
By: /s/ DAVID W. FAEDER
--------------------------------------
Name: David W. Faeder
Title: President
KARRINGTON HEALTH, INC.
By: /s/ RICHARD R. SLAGER
--------------------------------------
Name: Richard R. Slager
Title: Chairman and Chief Executive Officer
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<PAGE> 1
EXHIBIT 99.2
SHAREHOLDER AGREEMENT
SHAREHOLDER AGREEMENT, dated as of October 18, 1998 (this
"Agreement"), by the undersigned shareholder (the "Shareholder") of Karrington
Health, Inc., an Ohio corporation (the "Company"), for the benefit of Sunrise
Assisted Living, Inc., a Delaware corporation ("Acquiror").
RECITALS
WHEREAS, concurrently with the execution and delivery of this
Agreement, Acquiror, Buckeye Merger Corporation, an Ohio corporation ("Merger
Sub"), and the Company are entering into an Agreement of Merger of even date
herewith (the "Merger Agreement"; capitalized terms used but not defined herein
shall have the same meaning assigned to such terms in the Merger Agreement),
pursuant to which Merger Sub will be merged with and into the Company (the
"Merger"), the separate corporate existence of Merger Sub shall cease and the
Company shall continue as the surviving corporation in the Merger; and
WHEREAS, the Shareholder owns of record and/or holds stock options to
acquire (whether or not vested) that number of shares of Company Common Stock
appearing on the signature page hereof (such shares of Company Common Stock,
together with any other shares of capital stock of the Company acquired by such
Shareholder after the date hereof and during the term of this Agreement, being
collectively referred to herein as the "Subject Shares"); and
WHEREAS, the Shareholder will receive a significant economic benefit
as a result of the Merger; and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Acquiror has required that the Shareholder agree, and in order to
induce Acquiror to enter into the Merger Agreement the Shareholder has agreed,
to enter into this Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein, the Shareholder agrees as follows:
1. Proxy.
(a) With respect to the Merger, the Merger Agreement and any Third
Party Transaction for which approval of the shareholders of the Company
is sought, and any transactions contemplated thereby, Shareholder hereby
irrevocably makes, constitutes and appoints Acquiror to act as
Shareholder's true and lawful proxy and attorney-in-fact in the name and
on behalf of Shareholder, with full power to appoint a substitute or
substitutes. Shareholder further directs Acquiror, and Acquiror hereby
agrees, to vote all of the Subject Shares which are entitled to vote at
any meeting of the shareholders of the Company (whether annual or
special and
<PAGE> 2
whether or not an adjourned meeting), or by written consent in the place
and stead of Shareholder in favor of the Merger as set forth in the
Merger Agreement and against any Third Party Transaction. By giving this
proxy Shareholder hereby revokes any other proxy granted by Shareholder
at any time with respect to the Subject Shares and no subsequent proxies
will be given with respect thereto by Shareholder.
(b) All power and authority hereby conferred is coupled with an
interest and is irrevocable, shall not be terminated by any act of
Shareholder or by operation of law, by lack of appropriate power of
authority, or by the occurrence of any other event or events and shall
be binding upon all beneficiaries, heirs at law, legatees, distributees,
successors, assigns and legal representatives of Shareholder. If after
the execution of this Agreement, Shareholder shall cease to have
appropriate power or authority, or if any other such event or events
shall occur, Acquiror is nevertheless authorized and directed to vote
the Subject Shares in accordance with the terms of this Agreement as if
such lack of appropriate power or authority or other event or events had
not occurred and regardless of notice thereof.
(c) The proxy granted herein shall expire on the date of termination
of this Agreement.
2. Covenants of the Shareholder. Until the termination of this
Agreement in accordance with Section 5, the Shareholder irrevocably agrees as
follows:
(a) At any meeting of shareholders of the Company or at any
adjournment thereof or in any other circumstances upon which the
Shareholder's vote, consent or other approval is sought, the Shareholder
shall vote (or cause to be voted) the Subject Shares against any
amendment of the Company's Amended and Restated Certificate of
Incorporation and Restated By-Laws or other action, which amendment or
other action would in any manner impede, delay, frustrate, prevent or
nullify the Merger, the Merger Agreement, the Option Agreement or any of
the other transactions contemplated by the Merger Agreement or change in
any manner the voting rights of any class of capital stock of the
Company. The Shareholder further agrees not to commit or agree to take
any action inconsistent with the foregoing.
(b) The Shareholder agrees not to (i) sell, transfer, pledge,
assign or otherwise dispose of (including by gift) (collectively,
"Transfer"), or enter into any contract, option or other arrangement
(including any profit-sharing arrangement) with respect to the Transfer
of the Subject Shares to any person or (ii) enter into any voting
arrangement, whether by proxy, voting agreement or otherwise, in
relation to the Subject Shares, and agrees not to commit or agree to
take any of the foregoing actions.
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<PAGE> 3
(c) The Shareholder shall not, nor shall the Shareholder permit
any affiliate, director, officer, employee, investment banker, attorney
or other advisor or representative of the Shareholder to, (i) directly
or indirectly solicit, initiate or knowingly encourage the submission
of, any Third Party Transaction or (ii) directly or indirectly
participate in any discussions or negotiations regarding, or furnish to
any person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes
or may reasonably be expected to lead to, any Third Party Transaction,
except in the Shareholder's capacity as a director or officer of the
Company to the extent permitted under the Merger Agreement.
(d) The Shareholder shall use the Shareholder's reasonable best
efforts to take, or cause to be taken, all actions, and to do, or cause
to be done, and to assist and cooperate with Acquiror in doing, all
things necessary, proper or advisable to support and to consummate and
make effective, in the most expeditious manner practicable, the Merger
and the other transactions contemplated by the Merger Agreement.
3. Representations and Warranties. The Shareholder represents and
warrants to Acquiror as follows:
(a) The Shareholder is the record and beneficial owner of, and has
Good and marketable title to, the Subject Shares. The Shareholder does
not own, of record or beneficially, any shares of capital stock of the
Company other than the Subject Shares. The Shareholder has the sole
right to vote, and the sole power of disposition with respect to, the
Subject Shares, and none of the Subject Shares is subject to any voting
trust, proxy or other agreement, arrangement or restriction with respect
to the voting or disposition of such Subject Shares, except as
contemplated by this Agreement.
(b) This Agreement has been duly executed and delivered by the
Shareholder. Assuming the due authorization, execution and delivery of
this Agreement by Acquiror, this Agreement constitutes the valid and
binding agreement of the Shareholder enforceable against the Shareholder
in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application which may affect the enforcement of
creditors' rights generally and by general equitable principles. Neither
the execution or delivery of this Agreement nor the consummation by
Shareholder of the transactions contemplated hereby will (i) require any
consent or approval of or filing with any person or entity (other than
filings, if any, required under the Securities Exchange Act, as amended)
or (ii) constitute a violation of, conflict with or constitute a default
under, any contract, commitment, agreement, understanding, arrangement
or other restriction of any kind to which Shareholder is a party or by
which Shareholder is bound.
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<PAGE> 4
4. Understanding of this Agreement. The Shareholder has carefully
read this Agreement and has discussed its requirements, to the extent such
Shareholder believes necessary, with counsel (which may be counsel to the
Company). The undersigned further understands that the parties to the Merger
Agreement will be proceeding in reliance upon this Agreement.
5. Termination. The obligations of the Shareholder hereunder shall
terminate upon the earlier of (i) the Effective Time or (ii) at 5:00 p.m.
(Eastern Standard Time) on the 90th day following the date of the termination or
expiration of the Merger Agreement pursuant to Article VII thereof.
6. Further Assurances. The Shareholder will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional or
further consents, documents and other instruments as Acquiror may reasonably
request for the purpose of effectively carrying out the transactions
contemplated by this Agreement.
7. Successors, Assigns and Transferees Bound. Any successor, assignee
or transferee (including a successor, assignee or transferee as a result of the
death of the Shareholder, such as an executor or heir) shall be bound by the
terms hereof, and the Shareholder shall take any and all actions necessary to
obtain the written confirmation from such successor, assignee or transferee that
it is bound by the terms hereof.
8. Remedies. The Shareholder acknowledges that money damages would be
both incalculable and an insufficient remedy for any breach of this Agreement by
it, and that any such breach would cause Acquiror irreparable harm. Accordingly,
the Shareholder agrees that in the event of any breach or threatened breach of
this Agreement, Acquiror, in addition to any other remedies at law or in equity
it may have, shall be entitled, without the requirement of posting a bond or
other security, to equitable relief, including injunctive relief and specific
performance.
9. Severability. The invalidity or unenforceability of any provision
of this Agreement in any jurisdiction shall not affect the validity or
enforceability of any other provision of this Agreement in such jurisdiction, or
the validity or enforceability of any provision of this Agreement in any other
jurisdiction.
10. Amendment. This Agreement may be amended only by means of a
written instrument executed and delivered by both the Shareholder and Acquiror.
11. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Ohio, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
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<PAGE> 5
12. Headings. The headings of the Sections of this Agreement are
inserted for convenience of reference only and do not form a part or affect the
meanings hereof.
13. Counterparts. For the convenience of the parties, this Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
14. Entire Agreement. This Agreement constitutes the entire agreement
and suspends all prior agreements and understandings, both written and oral,
among the parties hereto with respect to the subject matter hereof.
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<PAGE> 6
IN WITNESS WHEREOF, Acquiror and the Shareholder have caused this
Agreement to be executed as of the date first written above.
SUNRISE ASSISTED LIVING, INC.
By:
----------------------------------
Name: David W. Faeder
Title: President
SHAREHOLDER
Name:
--------------------------------
Address of Shareholder
-------------------------------------
-------------------------------------
Telephone:
---------------------------
Telecopier:
---------------------------
Number of shares of Company Common Stock
beneficially owned on the date hereof:
-------------------------------------
Number of shares of Company Common Stock
subject to option on the date hereof:
-------------------------------------
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