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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
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KAPSON SENIOR QUARTERS CORP.
(NAME OF SUBJECT COMPANY)
KAPSON SENIOR QUARTERS CORP.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
$2.00 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK, PAR VALUE $.01 PER SHARE
(TITLES OF CLASSES OF SECURITIES)
485624100
485624209
(CUSIP NUMBERS OF CLASSES OF SECURITIES)
GLENN KAPLAN
KAPSON SENIOR QUARTERS CORP.
125 FROEHLICH FARM BOULEVARD
WOODBURY, NEW YORK 11797
(516) 921-8900
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
Copy to:
ARNOLD J. LEVINE, ESQ.
PROSKAUER ROSE LLP
1585 BROADWAY
NEW YORK, NEW YORK 10036-8299
(212) 969-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Kapson Senior Quarters Corp., a Delaware
corporation (the 'Company'), and the address of the principal executive offices
of the Company is 125 Froehlich Farm Boulevard, Woodbury, New York 11797. The
titles of the classes of equity securities to which this Statement relates are
the common stock, par value $.01 per share (the 'Common Stock'), of the Company
and the $2.00 Convertible Exchangeable Preferred Stock, par value $.01 per share
(the 'Preferred Stock'), of the Company (the Common Stock and the Preferred
Stock are sometimes collectively referred to herein as the 'Shares').
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer by Prometheus Acquisition Corp.,
a Delaware corporation, as bidder (the 'Offeror'), a wholly owned subsidiary of
Prometheus Senior Quarters, LLC, a Delaware limited liability company
('Parent'), and an affiliate of Lazard Freres Real Estate Investors, L.L.C., a
Delaware limited liability company ('LFREI'), disclosed in a Tender Offer
Statement on Schedule 14D-1, dated March 2, 1998 (together with all amendments
thereto, the 'Schedule 14D-1'), to purchase all of the outstanding shares of
Common Stock, at a price of $14.50 per share, net to the seller in cash, without
interest (the 'Common Stock Offer Price'), and all of the outstanding shares of
Preferred Stock, at a price of $27.93 per share, net to the seller in cash,
without interest (the 'Preferred Stock Offer Price'), upon the terms and subject
to the conditions set forth in the Offeror's Offer to Purchase, dated March 2,
1998 (together with all amendments thereto, the 'Offer to Purchase'), and the
related Letter of Transmittal (which, together with the Offer to Purchase,
constitute the 'Offer' and are contained within the Schedule 14D-1).
As set forth in the Schedule 14D-1, the principal executive offices of
Parent and the Offeror are located at 30 Rockefeller Plaza, New York, New York
10020.
The Offer is being made pursuant to an Amended and Restated Agreement and
Plan of Merger, dated as of February 23, 1998 (the 'Merger Agreement'), among
the Company, Parent and the Offeror, pursuant to which, following the
consummation of the Offer and the satisfaction or waiver of certain conditions
set forth in the Merger Agreement and in accordance with the General Corporation
Law of the State of Delaware (the 'DGCL'), the Offeror will be merged with and
into the Company (the 'Merger'), the separate existence of the Offeror will
cease and the Company will continue as the surviving corporation following the
Merger (the 'Surviving Corporation'). At the effective time of the Merger (the
'Effective Time'), each outstanding Share (other than Shares held in the
treasury of the Company, Shares owned by any subsidiary of the Company, Shares
owned by the Offeror or Parent or Shares with respect to which appraisal rights
are properly exercised under the DGCL (the 'Dissenting Shares')) will be
converted into and represent the right to receive, in the case of the Common
Stock, the Common Stock Offer Price (the 'Common Stock Merger Consideration')
and in the case of the Preferred Stock, the Preferred Stock Offer Price (the
'Preferred Stock Merger Consideration,' together with the Common Stock Merger
Consideration, the 'Merger Consideration'), in each case in cash without
interest. Certain other terms of the Merger Agreement are described in Item
3(b). A copy of the Merger Agreement is filed herewith as Exhibit 1 and is
incorporated herein by reference.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Statement, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements and understandings between
the Company and its executive officers, directors and affiliates are described
on pages 5-16 of the Company's proxy statement relating to the annual meeting of
the Company's stockholders held on July 18, 1997 (the '1997 Proxy Statement') in
the sections, 'Compensation of Directors,' 'Summary Compensation Table,'
'Employment Agreements,' 'Compensation Committee Report,' 'Certain Transactions'
and 'Certain Transactions Regarding Sales of Common Stock.' Pages 5-16 of the
1997 Proxy Statement are filed as Exhibit 2 hereto and are incorporated herein
by reference.
ARRANGEMENTS REGARDING THE OPERATION OF CERTAIN OF THE COMPANY'S FACILITIES
Because of New York law and regulations, Glenn Kaplan, Wayne L. Kaplan and
Evan A. Kaplan (collectively, the 'Kaplans'), directors and executive officers
of the Company who beneficially own approximately 54% of the outstanding Common
Stock, individually currently are, and subsequent to any consummation of the
Offer or the Merger will continue to be, the operators of most of the Company's
assisted
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living facilities located in New York until such time as a successor entity
controlled by one of the Kaplans and an individual associated with LFREI is
approved as a replacement operator in accordance with applicable law. Subsequent
to consummation of the Merger, each operating agreement with a facility that is
wholly owned by the Company will have a term of five years and provide for a
management fee to the operators of $5,000 per month. The form of operating
agreement is filed as Exhibit 3 hereto and is incorporated herein by reference.
The current operating agreements with facilities not wholly owned by the Company
generally have a term of at least five years and provide for an operating fee
equal to 5% of gross revenues or the greater of 5% of gross revenues and a
minimum fee (if there is a minimum fee, it is usually set at $150,000 per annum
which, in some instances, will phase out over a period of time) and the Company
may also be entitled to an incentive fee. The Kaplans or the successor entity,
as operators of each of these facilities, will engage a wholly-owned subsidiary
of the Company to provide certain management services in connection with the
day-to-day operations of each facility, in each case pursuant to a separate
management agreement. The Master Management Services Agreement and the Interim
Management Services Agreement are filed as Exhibits 4 and 5 hereto,
respectively, and are incorporated herein by reference. The term of the
management agreements will be five years. The fee payable to the Company's
subsidiary under each management agreement with a facility operated by the
Kaplans or a successor entity and wholly owned by the Company will be $4,000 per
month. The fee payable to the Company's subsidiary under management agreements
related to facilities that are not wholly owned by the Company will be the
greater of (i) 5% of total gross revenues less $1,000 or (ii) $11,500 per month,
but the foregoing fee will be contingent on the operators receiving payment of
said amount from the owner of the facility. To the extent one or more of the
Kaplans retains operating fees, such amounts will be offset against the
Company's payment obligations under their employment agreements with the
Company. The Company has agreed to indemnify the Kaplans from and against any
losses, claims, damages and other liabilities they may sustain as a result of
their serving as operators of any facility owned by the Company or its
affiliates after the Merger or, under certain circumstances, after the Offer.
The letter agreement relating to the indemnification of the Kaplans by the
Company is filed as Exhibit 6 hereto and is incorporated herein by reference.
Pursuant to a letter agreement among the Company, the Kaplans, the Offeror
and Parent, dated February 23, 1998 (the 'Home Health Agency Letter Agreement'),
the Kaplans have agreed, for no monetary consideration, to use their reasonable
best efforts to arrange and obtain regulatory approval for the transfer of
responsibility for the operation of the Kapson Licensed Home Care Services
Agency ('KLHCSA'), which is currently owned and operated by The Kapson Group, a
partnership comprised of the Kaplans, to the Company promptly after the
consummation of the Offer or the Merger. The Kaplans have also agreed to cause
KLHCSA to maintain its existing business arrangements with the Company and its
subsidiaries until the ownership of KLHCSA is transferred to the Company, which
the parties acknowledge may take a considerable period of time due to the need
for regulatory review of the transfer application by the New York Department of
Health. The Home Health Agency Letter Agreement is filed as Exhibit 7 hereto and
is incorporated herein by reference.
The operating agreements, the Interim Management Services Agreement and the
Master Management Services Agreement are in the process of being revised to
conform to comments recently received from the New York State Department of
Health. These revisions will reduce the role of the Company in the operation of
the New York facilities and increase the authority of the operator of the New
York facilities.
THE MERGER AGREEMENT
The Offer
The Offeror commenced the Offer in accordance with the terms of the Merger
Agreement.
The Merger
The Merger Agreement provides that upon the terms and subject to the
conditions therein, and in accordance with the DGCL, at the Effective Time the
Offeror will be merged with and into the Company and the separate corporate
existence of the Offeror will cease and the Company will continue as the
Surviving Corporation. The Certificate of Incorporation and By-laws of the
Company, as in effect immediately prior to the Effective Time, will be the
Certificate of Incorporation and By-laws of the Surviving Corporation. The
directors of the Offeror immediately prior to the Effective Time and Glenn
Kaplan and Evan A. Kaplan (directors and executive officers of the Company) will
be the directors of the Surviving Corporation and the officers of the Company
immediately prior to the Effective Time will be the officers of the Surviving
Corporation as of the Effective Time.
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Conversion of Securities
At the Effective Time, (1) each share of Common Stock issued and
outstanding immediately prior thereto will be converted into the right to
receive the Common Stock Merger Consideration, without interest, and (2) each
share of Preferred Stock issued and outstanding immediately prior thereto will
be converted into the right to receive the Preferred Stock Merger Consideration,
without interest (except in each such case for Shares held by the Company as
treasury shares, Shares owned by Parent or any of its subsidiaries, including
the Offeror, all of which will be canceled and no consideration will be
delivered in exchange therefor, and Dissenting Shares). All options
(individually, an 'Option' and, collectively, the 'Options') outstanding
immediately prior to the Effective Time under any Company stock option plan,
whether or not then exercisable, will be canceled and each holder of an Option
will be entitled to receive from the Surviving Corporation, for each share of
Common Stock subject to an Option, an amount in cash equal to the excess, if
any, of the Common Stock Merger Consideration over the per share exercise price
of such Option, without interest.
Dissenting Shares
The Merger Agreement provides that, if required by the DGCL, Dissenting
Shares will not be exchangeable for the right to receive the Merger
Consideration and holders of such Dissenting Shares will be entitled to receive
payment of the appraised value of their Dissenting Shares in accordance with the
DGCL unless such holders fail to perfect or withdraw or lose their right to
appraisal and payment under the DGCL. If, after the Effective Time, any holder
fails to perfect or effectively withdraws or loses such right, such Dissenting
Shares will thereupon be treated as if they had been converted into, at the
Effective Time, the right to receive, without interest, the Merger
Consideration.
Merger Without Meeting of Stockholders
If the Offeror, or any other direct or indirect subsidiary of Parent,
acquires at least 90% of the outstanding shares of the Common Stock and at least
90% of the outstanding shares of the Preferred Stock, the parties agree to take
all necessary and appropriate action to cause the Merger to become effective as
soon as practicable after the expiration of the Offer without a meeting of
stockholders of the Company in accordance with Section 253 of the DGCL.
Representations and Warranties
The Merger Agreement contains customary representations and warranties of
the Company and its subsidiaries relating to: (a) organization, standing and
power; (b) capital structure; (c) subsidiaries; (d) authority and
non-contravention; (e) documents filed by the Company with the Securities and
Exchange Commission (the 'Commission'); (f) absence of certain events; (g)
litigation; (h) compliance with law; (i) employee plans; (j) employment
relations and agreements; (k) contracts; (l) environmental laws and regulations;
(m) property and leases; (n) patents, trademarks and copyrights; (o) insurance;
(p) takeover statutes; (q) taxes; (r) absence of change of control; (s) brokers;
and (t) disclosures.
The Merger Agreement also contains customary representations and warranties
of Parent relating to: (a) organization, standing and power; (b) authority and
non-contravention; (c) financing; and (d) brokers. In addition, the Merger
Agreement contains representations and warranties of the Offeror relating to:
(a) organization and standing; and (b) authority and non-contravention.
Conduct of Business
Pursuant to the Merger Agreement, the Company has agreed that, prior to the
Effective Time, the Company will, and will cause each of its subsidiaries to, in
all material respects carry on its business in, and not enter into any material
transaction other than in accordance with, the regular and ordinary course and,
to the extent consistent therewith, use its reasonable best efforts to preserve
intact its current business organization, keep available the services of its
current officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it. Without limiting the
generality of the foregoing, and except as otherwise expressly contemplated by
the Merger Agreement, the Merger Agreement provides that the Company will not,
and will cause each of its subsidiaries not to, without the prior written
consent of Parent: (a) other than in connection with (i) the conversion of
Preferred Stock into Common Stock in accordance with its terms, (ii) the
exercise of options outstanding prior to the date hereof in accordance with
their terms and (iii) the payment of dividends on the Preferred Stock in
accordance with its terms, (x) declare, set aside or pay any dividends on, or
make any other actual, constructive or deemed distributions in respect of, any
of its capital stock,
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or otherwise make any payments to its stockholders in their capacity as such,
(y) split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (z) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any of its
subsidiaries or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities; (b) issue, deliver, sell,
pledge, dispose of or otherwise encumber any shares of its capital stock, any
other voting securities or equity equivalent or any securities convertible into,
or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities or equity equivalent (other than as
specified in clauses (i) and (ii) of paragraph (a) above); (c) amend its
Certificate of Incorporation or By-laws; (d) acquire or agree to acquire by
merging or consolidating with, or purchasing a substantial portion of the assets
of or equity in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets that in the aggregate have a
value in excess of 1% of the Company's assets; (e) sell, lease or otherwise
dispose of, or agree to sell, lease or otherwise dispose of, any of its assets
that in the aggregate have an excess of 1% of the Company's assets; (f) amend or
otherwise modify, or terminate, any material contract, or enter into any joint
venture, lease or management agreement or other material agreement of the
Company or any of its subsidiaries; (g) incur any additional indebtedness
(including for this purpose any indebtedness evidenced by notes, debentures,
bonds, leases or other similar instruments, or secured by any lien on any
property, conditional sale obligations, obligations under any title retention
agreement and obligations under letters of credit or similar credit transaction)
in a single transaction or a group of related transactions, enter into a
guaranty, or engage in any other financing arrangements having a value in excess
of 1% of the Company's assets, or make any loans, advances or capital
contributions to, or investments in, any other person; (h) alter through merger,
liquidation, reorganization, restructuring or in any other fashion its corporate
structure or ownership; (i) except as may be required as a result of a change in
law or in generally accepted accounting principles, change any of the accounting
principles or practices used by it; (j) revalue any of its assets, including,
without limitation, writing down the value of its inventory or writing off notes
or accounts receivable, other than in the ordinary course of business; (k) make
any tax election, change any annual tax accounting period, amend any tax return,
settle or compromise any income tax liability, enter into any closing agreement,
settle any tax claim or assessment, surrender any right to claim a tax refund or
fail to make the payments or consent to any extension or waiver of the
limitations period applicable to any tax claim or assessment; (l) except in the
ordinary course of business, settle or compromise any pending or threatened
suit, action or claim relating to the transactions contemplated by the Merger
Agreement with a cost of $250,000 or more; (m) pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction in
the ordinary course of business of liabilities reflected or reserved against in,
or contemplated by, the financial statements (or the notes thereto) of the
Company or incurred in the ordinary course of business consistent with past
practice; (n) increase in any manner the compensation or fringe benefits of any
of its directors, officers and other key employees or pay any pension or
retirement allowance not required by any existing plan or agreement to any such
employees, or become a party to, amend or commit itself to any pension,
retirement, profit-sharing or welfare benefit plan or agreement or employment
agreement with or for the benefit of any employee, other than increases in the
compensation of employees who are not officers or directors of the Company or
any of its subsidiaries made in the ordinary course of business consistent with
past practice, or, except to the extent required by law, voluntarily accelerate
the vesting of any compensation or benefit; (o) waive, amend or allow to lapse
any term or condition of any confidentiality, 'standstill,' consulting, advisory
or employment agreement to which the Company is a party; (p) approve any annual
operating budgets for the Company and its subsidiaries; (q) change the Company's
dividend policy; (r) enter into any transaction with affiliates; (s) enter into
any business other than the ownership, management, operation and development of
assisted living facilities and business related thereto; (t) pursuant to or
within the meaning of any bankruptcy law, (i) commence a voluntary case, (ii)
consent to the entry of an order for relief against it in an involuntary case,
(iii) consent to the appointment of a custodian of it or for all or
substantially all of its property or (iv) make a general assignment for the
benefit of its creditors; (u) purchase or lease or enter into a binding
agreement to purchase or lease any real property; (v) enter into any employment
agreement with any officer or employee; (w) enter into any development
agreement, option relating to new development or any other obligation relating
to new development which in the aggregate would have a cost to the Company in
excess of 1% of the Company's assets; or (x) take, or agree in writing or
otherwise to take, any of the foregoing actions.
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The Merger Agreement also provides that, prior to the Effective Time, as
requested by Parent, (i) the Company will confer on a regular basis with one or
more representatives of Parent with respect to material operational matters;
(ii) the Company will, within 30 days following each fiscal month, deliver to
Parent financial statements, including an income statement and balance sheet for
such month; and (iii) upon the knowledge of the Company or any of its
subsidiaries of any Material Adverse Change (as defined in the Merger Agreement)
to the Company, any material litigation or material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or the breach in any material respect of any representation or
warranty contained therein, the Company will promptly notify Parent thereof.
Alternative Proposal
Pursuant to the Merger Agreement, the Company agrees (a) that neither it
nor any of its subsidiaries will, nor will its or any of its subsidiaries'
officers, directors, employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or any
of its subsidiaries) initiate, solicit or encourage, directly or indirectly, any
inquiries or the making or implementation of any proposal or offer (including,
without limitation, any proposal or offer to its stockholders) with respect to a
merger, acquisition, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or equity securities
of, the Company or any of its subsidiaries (any such proposal or offer being
hereinafter referred to as an 'Alternative Proposal'), or except as may be
required in the exercise of the fiduciary duties of the Company's directors to
the Company or its stockholders after receiving advice from outside counsel,
engage in any negotiations concerning, or provide any confidential information
or data to, or have any discussions with, any person relating to an Alternative
Proposal, or release any third party from any obligations under any existing
standstill agreement or arrangement, or otherwise facilitate any effort or
attempt to make or implement an Alternative Proposal; (b) that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted prior to the execution of
the Merger Agreement with respect to any of the foregoing, and it will take the
necessary steps to inform the individuals or entities referred to above of the
obligations described in this paragraph; provided, however, that the Company or
its Board of Directors may take and disclose to the Company's stockholders a
position with respect to a tender offer by a third party pursuant to Rules 14d-9
and 14e-2(a) promulgated under the Securities Exchange Act of 1934 (the
'Exchange Act') or may make such disclosure to the Company's stockholders which,
in the judgment of the Board of Directors of the Company after receiving advice
of outside counsel, may be required under applicable law. The Merger Agreement
provides that the Company will immediately advise Parent in writing of the
receipt, directly or indirectly, of any inquiry, discussion, negotiation or
proposal relating to an Alternative Proposal (including the specific terms
thereof and the identity of the other party or parties involved) and furnish to
Parent within 24 hours of such receipt an accurate description of all material
terms (including any changes or adjustments to such terms as a result of
negotiations or otherwise) of any such written proposal in addition to any
information provided to any third party relating thereto. In addition, the
Merger Agreement provides that the Company will immediately advise Parent, in
writing, if the Board of Directors of the Company makes any determination as to
any Alternative Proposal.
Company Stockholder Approval; Proxy Statement
The Merger Agreement provides that if approval or action in respect of the
Merger by the stockholders of the Company is required by applicable law, the
Company will, if appropriate, call a meeting of its stockholders (the
'Stockholder Meeting') for the purpose of voting upon the Merger and will use
its reasonable best efforts to obtain stockholders' approval of the Merger. The
Merger Agreement provides that the Stockholder Meeting will be held as soon as
practicable following the purchase of Shares pursuant to the Offer and the
Company will, through its Board of Directors but subject to the fiduciary duties
of its Board of Directors under applicable law as determined by the Board of
Directors in good faith after consultation with the Company's outside counsel,
recommend to its stockholders the approval of the Merger and not rescind its
declaration that the Merger is advisable. The record date for the Stockholder
Meeting will be a date subsequent to the date Parent or the Offeror becomes a
record holder of Shares purchased pursuant to the Offer. The Merger Agreement
also provides that if required by applicable law, the Company will, as soon as
practicable following the expiration of the Offer, prepare and file a
preliminary proxy statement or, if applicable, an information statement with the
Commission with respect to the Stockholder Meeting and will use its reasonable
best efforts to respond to any comments of the Commission or its staff and to
cause such proxy statement or information statement to be cleared by the
Commission. As promptly as practicable after the proxy statement or, if
applicable, the information statement has
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been cleared by the Commission, the Company will mail the proxy statement or, if
applicable, the information statement to the stockholders of the Company.
The Merger Agreement provides that the Company will use its reasonable best
efforts to obtain any necessary approvals by its stockholders of the Merger, the
Merger Agreement and the transactions contemplated thereby and that Parent will
cause all Shares purchased pursuant to the Offer and all other Shares owned by
the Offeror or any other subsidiary of Parent to be voted in favor of the
approval of the Merger.
Indemnification and Insurance
The Merger Agreement provides that Parent will cause the Surviving
Corporation to keep in effect provisions in its Certificate of Incorporation and
By-laws providing for exculpation of director and officer liability and
indemnification of each person who is now or has at any time prior to the date
of the Merger Agreement been entitled to the benefit of the indemnification
provisions set forth in the Company's Certificate of Incorporation and By-laws
(the 'Indemnified Parties'), to the fullest extent now or hereafter permitted
under the DGCL, which provisions will not be amended except as required by
applicable law or except to make changes permitted by law that would enlarge the
Indemnified Parties' right of indemnification. Pursuant to the Merger Agreement,
the Surviving Corporation will pay all expenses, including attorneys' fees, that
may be incurred by any Indemnified Parties in enforcing the indemnity
obligations provided for in this paragraph. The Merger Agreement provides that
the rights of each Indemnified Party thereunder will be in addition to any other
rights such Indemnified Party may have under the Certificate of Incorporation or
By-laws of the Company, under the DGCL or otherwise. Further, the Merger
Agreement provides that for the period from the time the Offeror first purchases
Shares pursuant to the Offer through the Effective Time, Parent will not permit
the Company to amend the provisions in its Certificate of Incorporation or
By-laws providing for exculpation of directors' and officers' liability and
indemnification of the Indemnified Parties.
Under the Merger Agreement, the Surviving Corporation will maintain in
effect for not less than three years after the Effective Time the current
policies of directors' and officers' liability insurance maintained by the
Company with respect to matters occurring on or prior to the Effective Time;
provided, however, that the Surviving Corporation may substitute therefor
policies of at least the same coverage (with carriers comparable to the
Company's existing carriers) containing terms and conditions which are no less
advantageous to the Indemnified Parties; provided, however, that the Surviving
Corporation will not be required 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 coverage (the 'Cap'); and provided, further, that if equivalent
coverage cannot be obtained, or can be obtained only by paying an annual premium
in excess of the Cap, the Surviving Corporation will be required to obtain only
as much coverage as can be obtained by paying an annual premium equal to the
Cap.
Board Representation; Directors
Pursuant to the Merger Agreement, promptly upon the purchase of shares of
Common Stock pursuant to the Offer, Parent will be entitled to designate such
number of directors, rounded up to the next whole number, on the Board of
Directors of the Company as will give Parent, subject to compliance with Section
14(f) of the Exchange Act, representation on the Board of Directors equal to the
product of (a) the total number of directors on the Board of Directors and (b)
the percentage that the number of shares of Common Stock purchased by Parent
bears to the number of shares of Common Stock outstanding, and the Company will,
upon request by Parent, promptly increase the size of the Board of Directors
and/or exercise its reasonable best efforts to secure the resignations of such
number of directors as is necessary to enable Parent's designees to be elected
to the Board of Directors and will cause Parent's designees to be so elected.
The Merger Agreement provides that the Company will take, at its expense, all
action required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1
thereunder in order to fulfill its obligations under this paragraph and will
include in the Schedule 14D-9 or otherwise timely mail to its stockholders such
information with respect to the Company and its officers and directors as is
required by such Section 14(f) and Rule 14f-1 in order to fulfill its
obligations under this paragraph. Parent will supply to the Company in writing
and be solely responsible for any information with respect to itself and its
nominees, officers, directors and affiliates required by such Section 14(f) and
Rule 14f-1. A copy of the information statement is filed as Schedule I hereto
and is incorporated herein by reference.
Fees and Expenses
The Merger Agreement provides that whether or not the Merger, the Offer or
the other transactions contemplated by the Merger Agreement are consummated,
except as described below under 'Effect of
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Termination and Abandonment,' all costs and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby will be paid by
the party incurring such expenses.
Conditions to Each Party's Obligation to Effect the Merger
The respective obligations of each party to effect the Merger will be
subject to the fulfillment at or prior to the Effective Time of the following
conditions: (a) if approval of the Merger by the holders of the Common Stock is
required by applicable law, the Merger will have been approved by the requisite
vote of such holders; and (b) no preliminary or permanent injunction or other
order by any federal or state court in the United States of competent
jurisdiction which prevents the consummation of the Merger will have been issued
and remain in effect (each party agreeing to use all commercially reasonable
efforts to have any such injunction lifted).
Termination by Mutual Consent
The Merger Agreement provides that it may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, before or after any
approval by the stockholders of the Company, by the mutual consent of Parent and
the Company prior to the purchase of the Shares pursuant to the Offer.
Termination by Either Parent or the Company
The Merger Agreement may be terminated and the Merger may be abandoned by
action of the Board of Directors of the Company or by Parent if: (a) the Merger
has not been consummated by December 31, 1998; provided, however, that the right
to terminate the Merger Agreement pursuant to this clause will not be available
(i) to Parent, if the Offeror or any affiliate of the Offeror acquires Shares
pursuant to the Offer, or (ii) to any party whose failure to fulfill any
obligation of the Merger Agreement has been the cause of, or resulted in, the
failure of the Merger to have occurred on or prior to the aforesaid date; or (b)
upon a vote at a duly held meeting or upon any adjournment thereof, the
stockholders of the Company have failed to give any approval required by
applicable law; or (c) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory or
administrative agency or commission has issued an order, decree or ruling or
taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Merger Agreement and such
order, decree, ruling or other action has become final and non-appealable;
provided that the party seeking to terminate the Merger Agreement pursuant to
this clause has used all commercially reasonable efforts to remove such
injunction, order or decree; or (d) as the result of the failure of any of the
conditions to the Offer or otherwise, the Offer has terminated or expired in
accordance with its terms without the Offeror having purchased any Shares
pursuant to the Offer; provided, however, that the right to terminate the Merger
Agreement pursuant to this clause (d) will not be available to any party whose
failure to fulfill any of its obligations under the Merger Agreement results in
the failure of any such condition; or (e) Parent has reasonably determined that
any condition to the Offer (other than the condition that a minimum number of
Shares be tendered in the Offer) is not capable of being satisfied at any time
in the future and the Offeror has not purchased Shares pursuant to the Offer;
provided, however, that the right to terminate the Merger Agreement pursuant to
this clause (e) will not be available to any party whose failure to fulfill any
obligation of the Merger Agreement has been the cause of, or resulted in, such
Offer condition being incapable of satisfaction.
Termination by Parent
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time by Parent if the Board of Directors of the
Company has failed to recommend, or has withdrawn, modified or amended in any
material respect its approval or recommendations of the Offer or the Merger or
has resolved to do any of the foregoing, or has recommended an Alternative
Proposal to the Company's stockholders.
Termination by the Company
The Merger Agreement may be terminated and the Merger abandoned by the
Company at any time prior to the approval of the Merger by the stockholders of
the Company, if there is an Alternative Proposal which the Board of Directors of
the Company in good faith determines represents a superior transaction for the
stockholders of the Company as compared to the Merger, and the Board of
Directors of the Company determines, after consultation with counsel, that
failure to terminate the Merger Agreement would be inconsistent with the
compliance by the Board of Directors of the Company with its fiduciary duties to
stockholders imposed by law; provided, however, that the right to terminate the
Merger Agreement pursuant to this paragraph will not be available (i) if the
Company has breached in any material respect its obligations under the Merger
Agreement or
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(ii) if the Alternative Proposal is subject to a financing condition, unless the
Board of Directors of the Company is of the opinion, after receiving a written
opinion from a nationally recognized investment banking firm, that the
Alternative Proposal can be financed. The Company will provide Parent with two
days' written notice of its intention to so terminate the Merger Agreement.
Effect of Termination and Abandonment
(a) If (w) the Merger Agreement is terminated by either party pursuant to
clause (b) under the paragraph above, 'Termination by Either Parent or the
Company,' (x) the Board of Directors of the Company withdraws or modifies in a
manner adverse to Parent its approval or recommendation of the Offer or the
Merger or recommends an Alternative Proposal to the Company's stockholders and
Parent terminates the Merger Agreement pursuant to the paragraph above,
'Termination by Parent,' (y) the Merger Agreement is terminated by the Company
pursuant to the paragraph above, 'Termination by the Company,' or (z) any person
makes an Alternative Proposal at $14.50 per share of Common Stock or more for
75% or more of the Common Stock and thereafter the Merger Agreement is
terminated for any reason other than those set forth in clause (w), (x) or (y)
above and within six months thereafter the Company enters into an agreement with
respect to an Alternative Proposal at $14.50 per share of Common Stock or more
for 75% or more of the Common Stock, then the Merger Agreement provides that the
Company will pay Parent $6,000,000. The Merger Agreement further provides that
if the Merger Agreement is terminated as a result of the failure of the
conditions specified in Exhibit A thereto, then the Company will promptly
reimburse Parent for all out-of-pocket costs and expenses incurred by Parent in
connection with the Offer, the Merger Agreement and the transactions
contemplated thereby, including costs and expenses of accountants, attorneys and
financial advisors in an amount not to exceed $1,000,000. The Merger Agreement
is filed as Exhibit 1 hereto and is incorporated herein by reference.
THE STOCKHOLDER AGREEMENT
Pursuant to a Second Amended and Restated Stockholders Agreement, dated as
of February 23, 1998 (the 'Stockholder Agreement'), among the Kaplans and
Parent, the Kaplans, who beneficially own in the aggregate approximately 54% of
the outstanding shares of Common Stock, have agreed to tender and sell to Parent
pursuant to the Offer all the Common Stock held by them and not to withdraw any
Common Stock tendered in the Offer.
Each of the Kaplans has further agreed to: (1) vote all of the shares of
Common Stock beneficially owned by him in favor of the Merger, the Merger
Agreement and the transactions contemplated by the Merger Agreement; (2) vote
the shares of Common Stock beneficially owned by him against any action or
agreement involving a sale of such shares, merger or sale of substantially all
of the assets of the Company that would result in a breach in any material
respect of any obligation of the Company under the Merger Agreement; and (3)
vote the shares of Common Stock beneficially owned by him against any action or
agreement that would reasonably be expected to impede, interfere with, delay or
attempt to discourage the Merger. If any of the Kaplans fails to comply with the
foregoing, as determined by Parent in its sole discretion, such failure will
result in the automatic, irrevocable appointment of Parent as the attorney and
proxy of such Kaplan, with full power of substitution, to vote, and otherwise
act with respect to, all shares of Common Stock that such Kaplan is entitled to
vote on any of the foregoing matters.
The Kaplans also have granted to Parent an irrevocable option (the 'Stock
Option') to purchase for $14.50 per share (i) all, but not less than all, of the
shares of Common Stock beneficially owned by the Kaplans and (ii) any additional
shares of Common Stock acquired by the Kaplans during the term of the
Stockholder Agreement. The Stockholder Agreement sets no limitation on the
number of shares of Common Stock the Kaplans can own. The Stock Option may be
exercised by Parent at any time prior to the termination of the Stockholder
Agreement and prior to the earliest to occur of (i) the first anniversary of the
date of the Stockholder Agreement, (ii) if the Merger Agreement is terminated,
or Parent provides written or oral notice to the Company that it elects not to
consummate the Offer or close the transactions contemplated by the Merger
Agreement, as a result of the failure of any of the conditions specified in
Exhibit A to the Merger Agreement, and at the time of such termination or notice
there does not exist any Alternative Proposal at $14.50 or more per share of
Common Stock for 75% or more of the outstanding Common Stock of the Company, the
termination of the Merger Agreement and (iii) if the Merger Agreement is
terminated, or Parent provides written or oral notice to the Company that it
elects not to consummate the Offer or close the transactions contemplated by the
Merger
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Agreement, as a result of the failure of any of the conditions specified in
Exhibit A to the Merger Agreement, and at the time of such termination or notice
there exists any Alternative Proposal at $14.50 or more per share of Common
Stock for 75% or more of the outstanding Common Stock of the Company, the date
six months after the date of the termination of the Merger Agreement; provided,
however, that if a tender offer is commenced by any party or entity other than
Parent and its affiliates with respect to the Common Stock, then,
notwithstanding any provision of the Stockholder Agreement, the Kaplans may
tender all or any of their shares of Common Stock into such tender offer on or
before the time 48 hours before the expiration of such offer.
Each of the Kaplans has also made certain covenants with respect to the
disposition or encumbrance of the shares of Common Stock beneficially owned by
him, the acquisition of additional shares and the solicitation of transactions
relating to the shares of Common Stock beneficially owned by him. Each of the
Kaplans has further agreed that, in the event of any change in the
capitalization of the Company, he will adjust the number and kind of the shares
of Common Stock beneficially owned by him and the consideration payable in
respect of such shares so as to restore to Parent its rights and privileges
under the Stockholder Agreement.
The Stockholder Agreement is filed as Exhibit 8 hereto and is incorporated
herein by reference.
THE EMPLOYMENT AGREEMENTS
In connection with the execution of the Merger Agreement, the Company has
entered into an amended and restated employment agreement with each of the
following employees: (1) Glenn Kaplan as Chief Executive Officer; (2) Evan A.
Kaplan as Chief Operating Officer; (3) Wayne L. Kaplan as Senior Executive Vice
President, Secretary or General Counsel; and (4) Raymond DioGuardi as Chief
Financial Officer. Base compensation under the employment agreements will be not
less than $250,000 per year for Glenn Kaplan, not less than $225,000 per year
for Evan A. Kaplan, not less than $200,000 per year for Wayne L. Kaplan, and not
less than $175,000 per year for Mr. DioGuardi. In addition, each of the
employees will be entitled to receive a target bonus, based upon the Company's
achievement of certain operating and/or financial goals, equal to a specified
percentage of each employee's then current annual base salary (up to 75% in the
case of Glenn Kaplan and Wayne L. Kaplan, up to 100% in the case of Evan A.
Kaplan, and up to 50% in the case of Mr. DioGuardi). With respect to each of
Glenn Kaplan, Evan A. Kaplan and Wayne L. Kaplan, any bonus payable in respect
of the fiscal year beginning January 1, 1998 shall be payable, with interest at
an annual rate equal to 4%, within five days following the end of fiscal year
1999; provided, however, that no bonus shall be payable for such fiscal year in
the event the employee's employment with the Company shall have been terminated
by the Company for 'Cause' (as defined in such employee's employment agreement)
or voluntarily by the employee without 'Good Reason' (as defined in such
employee's employment agreement) on or prior to December 31, 1999. The Board of
Directors may increase an employee's bonus for any fiscal year to an amount
greater than the percentages specified above; provided, however, that the
Company has attained no less than 95% of the applicable operating or financial
goals for such fiscal year. Each of the employees shall be eligible to
participate in all benefit plans and receive all fringe benefits available to
similarly situated employees which, in the aggregate, shall be no less favorable
than those provided to any other employee of the Company determined as of the
date of the employment agreements.
The term of each employment agreement is for two years commencing at the
Effective Time, which term will be automatically renewed for successive one-year
terms unless either party gives written notice no less than six months prior to
the then applicable term that the term will not be so extended. The Company may
terminate the employees at any time and for any reason, but the employees may
resign only for Good Reason. If an employee's employment with the Company is
terminated: (i) by the Company other than for Cause, death or disability; or
(ii) voluntarily by the employee with Good Reason, the employment agreement
provides that the Company will continue to pay such employee an amount equal to
his then current annual base salary for the remainder of the then applicable
employment term, and the Company will continue such employee's then current
medical coverage for a period of two years following the termination of the
employee's employment.
Pursuant to non-competition covenants contained in the employment
agreements, each of the employees has agreed that he will not, during the term
of his employment and for a period of three years after the date of his
termination (five years if he is terminated for Cause), directly or indirectly
own, manage, operate, join, control, be employed by or participate in the
ownership, management, operation or control of, or be connected in any manner,
including, but not limited to, holding the positions of stockholder, director,
officer, consultant, independent contractor, employee, partner or investor, with
any person or entity engaged in the business of
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providing assisted living, independent living, skilled nursing facilities or
continuing care retirement centers (containing assisted living, independent
living and skilled nursing facilities in one campus) (each a 'Competitive
Business') within a 25-mile radius of any such business operated or in the
pipeline to be operated (to the extent the employee has knowledge thereof after
due inquiry) by the Company, LFREI or any affiliate of LFREI (a 'Competing
Enterprise'); provided, however, that if Mr. DioGuardi's employment with the
Company shall be terminated by his giving notice of his intention not to extend
his employment past the second anniversary of the effective date of his
employment agreement (the 'Initial Term'), he shall not be precluded from
accepting the position of chief financial officer with any Competing Enterprise;
and provided, further, that if Mr. DioGuardi's employment is terminated by the
Company giving notice of its intention not to extend his employment beyond the
Initial Term (a 'Limited DioGuardi Termination'), Mr. DioGuardi shall have no
restriction on his employment after the Initial Term.
In addition, during the term of his employment and for a period of two
years thereafter, each of the employees has agreed not to interfere with the
Company's relationship with, or endeavor to entice away from the Company, any
person who at any time during the employee's term of employment was an employee
or customer of the Company or otherwise had a material business relationship
with the Company. With respect to each of Glenn Kaplan, Evan A. Kaplan and Wayne
L. Kaplan, the foregoing shall not apply with respect to Mr. DioGuardi if (i)
Mr. DioGuardi's employment shall have terminated pursuant to a Limited DioGuardi
Termination; and (ii) Mr. DioGuardi shall not be employed in any Competitive
Business.
The employment agreements between the Company and each of Glenn Kaplan,
Wayne L. Kaplan, Evan A. Kaplan and Raymond DioGuardi are filed as Exhibits 9,
10, 11 and 12 hereto, respectively, and are incorporated herein by reference.
THE ESCROW AGREEMENT
Pursuant to an Escrow Agreement, dated as of February 23, 1998, among the
Kaplans, the Company, the Offeror and Parent and a letter agreement among the
same parties dated as of the same date (the 'Escrow Agreement'), the Kaplans
have agreed that $6,000,000 of the proceeds from the shares tendered by them in
the Offer or sold by the Kaplans to Parent pursuant to the Stockholder Agreement
will be placed in escrow. The escrowed funds will be delivered to the Company if
the Kaplans or any of the Kaplans licensed to operate certain of the Company's
facilities loses any such operating certificate or if the Kaplans cause any such
facility to be without a licensed operator as a result of the breach by the
Kaplans of their obligations under certain agreements between the Kaplans and
the Company (a 'License Loss Breach') to the extent that such License Loss
Breach damages the Company. The escrowed funds will be delivered to the Kaplans
upon (i) the retention by the Kaplans of such operating certificates for a given
period of time, (ii) the issuance of such operating certificates for all such
facilities to a Replacement Operator (as defined in the Escrow Agreement), or
(iii) the satisfaction of certain other conditions. The Escrow Agreement is
filed as Exhibit 13 hereto and is incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) At a meeting of the Board of Directors held on February 23, 1998, the
Board of Directors, based upon and subject to the terms and conditions set forth
in the Merger Agreement, unanimously approved and adopted the Merger Agreement,
the Merger and the Offer; and recommended that the stockholders of the Company
accept the Offer (and tender their Shares pursuant thereto)and adopt the Merger
Agreement and the transactions contemplated thereby. The events preceding this
action are described below in this Item 4(a).
The Company completed its initial public offering of Common Stock in
October 1996. Subsequent thereto, the Company expanded its business
significantly and entered into a number of negotiations relating to the
acquisition and development of assisted living facilities.
During the fourth quarter of 1996 and the first quarter of 1997, the
Company began to experience increased competition in the acquisition and
development of assisted living facilities in its core markets, principally from
other large companies, many of which have considerably greater financial
resources and a lower cost of capital than the Company. Because of such
competition, the continued expansion of the Company's business and its plans for
future expansion, the Company determined that it needed to increase its
financial resources. Beginning in early 1997, the Company evaluated the amount
of capital it would need to continue its acquisition and development program,
lower the cost of its indebtedness and improve its balance sheet. Among the
alternatives
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that were considered by the Company were (i) continuing to operate without a
capital infusion, (ii) undertaking a public or private offering of equity or
equity-linked securities or (iii) obtaining a strategic or financial investment
in the Company. The Company had preliminary discussions with potential strategic
and financial investors to evaluate the capital-raising alternatives available,
including an investment in the Company and a potential merger with the Company.
Most of these discussions did not progress beyond a preliminary stage. The
discussions with two such potential investors, both assisted living companies,
were terminated when the parties were unable to agree on the terms of investment
in the Company.
In August 1997, Salomon Brothers Inc ('Salomon Brothers'), a predecessor to
Salomon Smith Barney ('Salomon'), introduced the Company to a publicly traded
assisted living company with a market capitalization approximately twice that of
the Company ('Public Strategic Investor') that was interested in discussing a
possible business combination with the Company. After having conducted
preliminary negotiations with the Company, Public Strategic Investor made a
preliminary proposal to the Company to acquire 100% of the Common Stock for
$16.00 per share in cash, to redeem all the issued and outstanding Preferred
Stock and to assume the debt of the Company.
Also in August 1997, the Company received an indication of interest from a
private assisted living company ('Private Strategic Investor') to discuss the
potential acquisition of the Company by Private Strategic Investor for cash. The
Company met with Private Strategic Investor to discuss the terms of a potential
transaction. These negotiations continued into early September.
On September 11, 1997, Public Strategic Investor indicated, based on its
financial analysis of the Company, that its proposed offer would be dilutive to
Public Strategic Investor's current stockholders, and proposed in the
alternative that the parties commence discussions regarding a stock-for-stock
exchange. In the opinion of the Company, the terms of the proposed exchange were
not attractive because they would not be approved by the controlling
stockholders of the Company, who were interested in pursuing a cash transaction.
The Company reiterated its interest in a transaction involving cash. Based on
their inability to agree on a mutually acceptable merger consideration, the
Company and Public Strategic Investor mutually agreed to terminate discussions.
In mid September 1997, Salomon Brothers contacted Private Strategic
Investor in order to reopen discussions between the Company and Private
Strategic Investor. The Company renewed negotiations with Private Strategic
Investor, which negotiations continued through the end of September, during
which time Private Strategic Investor conducted due diligence.
On September 12, 1997, Salomon Brothers introduced LFREI to the Company and
the parties conducted preliminary discussions regarding a possible transaction.
On September 15, 1997, LFREI made a proposal to the Company to acquire 100% of
the Common Stock at a price of $16 per share and 100% of the Preferred Stock at
a price of $30.82 per share (which represents the number of shares of Common
Stock into which the Preferred Stock is convertible, multiplied by $16.00),
subject to the execution of a definitive agreement and the completion of
customary due diligence. On September 17, 1997, the Company and LFREI commenced
negotiations to discuss the terms and structure of a potential transaction,
which negotiations continued over the course of that week. On September 24,
1997, due to certain accounting considerations, LFREI withdrew its all cash
offer and offered instead a cash and stock proposal along the lines of a draft
of the Agreement and Plan of Merger among the Company, Parent and the Offeror
(the 'Original Merger Agreement,' and the merger contemplated therein, the
'Original Merger'), under which, among other things, each share of Common Stock
would be converted into the right to receive $16.00 in cash (the 'Original
Common Stock Consideration') and each share of Preferred Stock would be
converted into the right to receive $30.82 in cash (the 'Original Preferred
Stock Consideration' and, together with the Original Common Stock Consideration,
the 'Original Merger Consideration'), provided that holders of Common Stock
would have been required to retain, in the aggregate, an approximately 11%
equity interest in the Company (in lieu of cash) after the transaction. During
September, LFREI and its legal, accounting and other advisors conducted a
detailed due diligence review of the Company on a non-exclusive basis. During
this same period, the Company and LFREI, through their respective counsel,
exchanged drafts of the Original Merger Agreement and related documents,
including draft employment agreements for each of the Kaplans and Raymond
DioGuardi, Chief Financial Officer of the Company, and a draft stockholder
agreement, pursuant to which the Kaplans would agree to vote their shares of
Common Stock in favor of the proposed Original Merger and to grant Parent an
option to acquire their shares. With regard to the employment agreements, it was
agreed that the terms and conditions would be identical to the Kaplans' existing
agreements, with the
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exception of compensation, which would be lower on an overall basis when
compared to the Kaplans' then current overall compensation, and more heavily
weighted towards incentives, rather than straight, guaranteed salary. The
provisions in the stockholder agreement were standard and customary conditions
found in other merger transactions involving companies with significant
stockholders and were required by LFREI as a condition to entering into the
Original Merger Agreement. LFREI insisted that the Kaplans retain a substantial
number of shares in the Company so that their interests would continue to be
closely aligned with those of other stockholders, including LFREI.
On September 30, 1997, a special meeting of the Board of Directors of the
Company was called to discuss the proposed Original Merger Agreement and to
receive a report from Salomon Brothers concerning the proposed Original Merger.
The Chairman of the Board, Glenn Kaplan, summarized for the Board of Directors
the terms of the Original Merger, the strategic advantages of the Original
Merger and the status of the Original Merger Agreement. The Board also discussed
the status of the negotiations with, and the due diligence investigation being
conducted by, Private Strategic Investor. Private Strategic Investor had
previously indicated to the Company that it needed to conduct further due
diligence prior to making a firm offer to acquire the Company, that it needed to
reconsider the structure of such an acquisition and, further, that it was
unlikely that any such offer would equal or exceed the value of the
consideration offered by LFREI. In light of the foregoing and the existing firm
offer from LFREI, the Board determined that discussions with Private Strategic
Investor should be terminated.
Salomon Brothers then distributed a report to the Board of Directors
describing the current financial and strategic situation of the Company and the
transaction with LFREI. Salomon Brothers discussed the analysis it had performed
to arrive at its opinion as to fairness. Salomon Brothers then rendered its
written opinion to the Board that, as of such date, the consideration to be
received and retained by the stockholders of the Company in the proposed
Original Merger was fair, from a financial point of view, to such stockholders.
In connection with rendering its opinion, Salomon Brothers advised the
Board of Directors that, based on an express disclaimer in the Salomon
Engagement Letter (as hereinafter defined), Salomon Brothers does not believe
that any person (including a stockholder of the Company), other than the Company
or the Board of Directors, has a legal right to rely upon its fairness opinion
to support any claims against Salomon Brothers arising under applicable state
law and that, should any such claims be brought against Salomon Brothers by any
such person, this assertion will be raised as a defense. In the absence of
applicable state law authority, the availability of such a defense will be
resolved by a court of competent jurisdiction. Resolution of the question of the
availability of such a defense, however, will have no effect on the rights and
responsibilities of the Board of Directors under applicable state law. Nor would
the availability of such a state law defense to Salomon Brothers have any effect
on the rights and responsibilities of either Salomon Brothers or the Board of
Directors under the federal securities law.
After a full discussion of the proposed terms of the Original Merger, the
Kaplans left the meeting and the independent directors of the Company, Joseph G.
Beck, Bernard J. Korman, Risa Lavizzo-Mourey, M.D. and Gerald Schuster,
discussed the proposed Original Merger, as well as the stockholder agreement and
related employment agreements, among themselves. The independent directors
unanimously approved the execution and delivery of the Original Merger Agreement
and related definitive documentation. Because it was the sense of the
independent directors that the Board's approval would be unanimous, the
independent directors did not engage in any formal separate analysis or make a
separate presentation to the entire Board. The Kaplans rejoined the meeting and
the full Board of Directors of the Company thereupon unanimously approved the
Original Merger Agreement and related documents.
On September 30, 1997, the parties executed the Original Merger Agreement
and Parent and the Kaplans executed a stockholder agreement. On October 2, 1997,
the parties issued a press release announcing the Original Merger.
Subsequent to the execution of the Original Merger Agreement, the Company,
the Offeror and Parent worked together to satisfy the conditions to the
consummation of the Original Merger. Toward the end of January, the Company, the
Offeror and Parent separately began to be concerned about the possibility that
the conditions to the consummation of the Original Merger would not be satisfied
prior to March 31, 1998, the date on which either Parent or the Company would
have the right to terminate the Original Merger Agreement in accordance with its
terms. In particular, the Company was concerned that further delays in
consummating the Original Merger Agreement might adversely affect the Company's
business, including the Company's ability to effect acquisitions, develop new
facilities, obtain financing on competitive terms, retain and attract key
employees or otherwise make long-range plans. Parent and the Offeror were
concerned that the Company would not be able to satisfy certain conditions to
the closing of the Original Merger Agreement as specified therein relating to
the Company's delivery to Parent and the Offeror of certain information which
would support the projections provided by the Company to the Offeror and Parent
prior to the execution of the Original Merger Agreement, which projections, were
in part, the basis for the Original Merger Consideration.
On February 2, 1998, the Offeror and Parent met with the Company to discuss
the status of the transaction and express their respective concerns. At the
meeting, the parties discussed three possible alternatives. The first
alternative was an extension of the termination date specified in the Original
Merger Agreement. The second alternative was to make no change to the Original
Merger Agreement and to wait until March 31, 1998 to
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determine whether or not the conditions to the Original Merger were met, and if
they were not, the parties would at that time determine whether to amend, extend
or terminate the Original Merger Agreement. However, in each case,
representatives of the Company expressed the concern that any continued delay in
consummating the Original Merger would adversely affect the Company for the
reasons described in the preceding paragraph.
The third alternative discussed was to restructure the transaction as an
all-cash tender offer by the Offeror for all of the outstanding capital stock of
the Company. All of the participants at the meeting agreed that this alternative
would be in the best interest of all parties, since a successful cash tender
offer would allow the transaction to be consummated on an expedited basis.
However, representatives of the Offeror and Parent indicated that the
consideration per share of Common Stock to be offered in an all-cash tender
offer would have to be reduced to $14.50 from $16.00 (the value as provided in
the Original Merger Agreement). The Offeror and Parent believed that such
reduction was necessary to compensate Parent and the Offeror for the additional
cost of structuring the transaction as an all-cash tender offer, which could not
be characterized for accounting purposes as a 'recapitalization' transaction.
Representatives of the Company indicated at such meeting that an all-cash tender
offer would be attractive to the Company only if the Offeror and Parent would
agree that the conditions to the consummation of the Offer would not include
conditions relating to (i) material adverse changes, (ii) the accuracy of
representations and warranties contained in the Original Merger Agreement, (iii)
obtaining various consents and approvals and (iv) the delivery by the Company to
the Offeror and Parent of material to support the financial projections provided
by the Company to Parent (collectively, the 'Conditions'), which were conditions
to the Original Merger. The meeting concluded with the parties agreeing that an
all-cash tender offer was the preferred structure for a transaction if the
Company, the Offeror and Parent could agree on the terms thereof.
Subsequent to this meeting, in February the parties continued to attempt to
satisfy the conditions in the Original Merger Agreement while, at the same time,
the Offeror and Parent commenced a due diligence review of the Company to
determine whether they would be agreeable to commence an all-cash tender offer
which would not include the Conditions. As a result of this due diligence
review, the Offeror and Parent determined that, in light of the Company's recent
operations, the Company was not able to provide the Offeror and Parent with
supporting material affirming the projections provided by the Company to the
Offeror and Parent prior to the execution of the Original Merger Agreement,
which was a condition to Parent's and the Offeror's obligation to consummate the
Original Merger.
In mid February, it became apparent to the Company that certain conditions
to the Original Merger specified in the Original Merger Agreement were not
capable of being met prior to March 31, 1998. In addition, in mid February, the
respective legal counsels of Parent, the Offeror and the Company began
exchanging and negotiating documents relating to a possible all-cash tender
offer.
On February 21, 1998, Parent and the Offeror notified the Company that they
would agree to restructure the transaction as an all-cash tender offer for all
of the capital stock of the Company at $14.50 per share of Common Stock and
$27.93 per share of Preferred Stock and to the deletion of the Conditions as
conditions to the consummation of the Offer.
On February 22, 1998, the Board of Directors of the Company reviewed drafts
of the Merger Agreement and related documents. On February 22 and February 23,
1998, the Board of Directors of the Company discussed the Merger Agreement and
the Offer. Salomon and J.P. Morgan Securities Inc. ('J.P. Morgan'), which had
also been retained by the Company as the Company's financial advisor,
participated in such meetings and on February 23, 1998, each delivered its
opinion to the effect that the consideration to be received by the stockholders
in the Offer and the Merger was fair to the stockholders of the Company from a
financial point of view. On February 23, 1998, the Board of Directors approved
the Merger Agreement and the Offer, the Merger Agreement was executed and
delivered by all parties thereto and a press release relating thereto was
issued. The press release is filed as Exhibit 14 hereto and is incorporated
herein by reference.
(b) In addition to the matters considered by the Board of Directors and the
reasons described in paragraph (a) of this Item 4, the reasons for the
recommendation set forth in paragraph (a) of this Item 4 and the factors
considered by the Board of Directors of the Company in connection with such
recommendation are set forth below:
(1) The Board considered the risks and benefits of the Offer and the
Merger (collectively, the 'Transaction') against the risks and benefits of
continuing as an independent entity or continuing to pursue other potential
financial or strategic investments or relationships. Of these alternatives,
the Board of
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Directors concluded that the Transaction was in the best interests of the
stockholders of the Company. The Transaction was, on balance, the most
favorable acquisition proposal received by the Company from the time that
it initiated a search for an investor or partner to assist in taking
advantage of development and acquisition opportunities in the assisted
living marketplace, both because the consideration per share was the most
favorable and also because, as an all cash transaction, it provided
superior liquidity to the Company's stockholders; it was unlikely that a
continued search for alternatives would yield a proposal superior to the
Transaction. The Transaction was determined to be more favorable to
stockholders than the Company continuing as an independent entity because
the Company's future growth prospects as an independent entity could be
limited, since the Company does not have the ability, as an independent
entity, fully to take advantage of development and acquisition
opportunities in the assisted living marketplace due to its substantial
leverage and its relatively high cost of capital, as well as increased
competition for prime acquisition and development opportunities.
(2) The concern about the possibility that the conditions to the
consummation of the Original Merger would not be satisfied prior to March
31, 1998, the date on which either Parent or the Company would have the
right to terminate the Original Merger Agreement in accordance with its
terms. The Board was concerned that any such termination might adversely
affect the Company's ability to effect a transaction with another party on
terms similar to, or more favorable than, the proposed terms of the Merger
Agreement. The Board was also concerned that further delays in consummating
the Original Merger Agreement might adversely affect the Company's
business, including the Company's ability to effect acquisitions, develop
new facilities, obtain financing on competitive terms, retain and attract
key employees or otherwise make long-range plans.
(3) The elimination in the Merger Agreement of the Conditions
contained in the Original Merger Agreement and the restructuring of the
Transaction to include the Offer increased the likelihood that the
Transaction would be consummated and that consummation could be achieved in
a shorter time frame than under the Original Merger Agreement.
(4) The Board of Directors considered that shares of Common Stock have
traded as low as $6 3/8 per share during the last year, meaning that the
consideration to be received in the Transaction, even though it represented
a reduction from the consideration proposed to be received pursuant to the
Original Merger Agreement, offered a substantial premium to stockholders
compared to recent historical price levels of the Common Stock. The Board
was aware that, since the third quarter of 1997, including the day prior to
the announcement of the execution of the Original Merger Agreement when the
closing price of the Common Stock was $14.625 per share, the Common Stock
had been trading at prices higher than the Common Stock Offer Price.
However, the Board considered that such prices were impacted by
expectations of the consummation of the Original Merger Agreement, which
the Board concluded, for the reasons stated above, was unlikely to occur.
(5) The opinions of the Company's financial advisors to the effect
that, based upon and subject to various considerations (and the analyses
presented to the Board of Directors of the Company underlying such
opinions) set forth in such opinions, the consideration to be received by
the Company's stockholders in the Transaction is fair, from a financial
point of view, to such stockholders.
(6) The Board of Directors considered the Company's recent operating
results, as well as the Company's most recent internal financial
projections which indicated that projected increases in the Company's total
revenues, EBIT (earnings before interest and taxes) and net income for the
years ending December 31, 1998 and 1999 would be lower than the projected
increases in total revenues, EBIT and net income set forth in the Company's
internal financial forecasts that had been delivered to Parent in September
1997.
(7) The terms and conditions of the Stockholder Agreement, which
provides, among other things, that the Kaplans, who beneficially own
approximately 54% of the outstanding shares of Common Stock, will tender
all of their shares of Common Stock pursuant to the Offer. The Board was
also aware that Parent had requested and required that the Stockholder
Agreement be entered into as a condition of Parent's execution of the
Merger Agreement.
The opinions of Salomon and J. P. Morgan are filed herewith as Exhibits 15
and 16 hereto, respectively, and are incorporated herein by reference.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained Salomon Brothers pursuant to a letter agreement dated
August 14, 1997 (the 'Salomon Engagement Letter') to act as its financial
advisor in connection with, among other things, a possible combination or sale
transaction involving the Company. Pursuant to the Salomon Engagement Letter,
Salomon
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rendered financial advisory services to the Company in connection with the
Transaction. Pursuant to the Salomon Engagement Letter, as amended on February
21, 1998, the Company will pay Salomon the following fees: (a) $150,000, payable
upon the execution of the Original Merger Agreement; plus (b) an additional fee
equal to 1% of the aggregate consideration (approximately $2.6 million), less
$1,000,000 in accordance with the February 21 amendment, which is contingent
upon the consummation of the Merger and payable at the closing thereof, against
which the fees described in clause (a) will be credited. The Company has also
agreed to reimburse Salomon for its reasonable travel and other out-of-pocket
expenses incurred in connection with its engagement and to indemnify Salomon
against certain liabilities and expenses relating to or arising out of its
engagement, including certain liabilities under the federal securities laws.
The Company retained J. P. Morgan pursuant to a letter agreement dated
January 23, 1998 (the 'Morgan Engagement Letter') to act together with Salomon
as the Company's financial advisor in connection with the Offer and the Merger.
Pursuant to the Morgan Engagement Letter, the Company will pay J. P. Morgan a
fee of $1 million upon consummation of a merger of the Company, a sale of all or
a significant portion of the Company's assets, or a sale of more than 50% of its
equity securities. The Company also agreed to reimburse J. P. Morgan for all
reasonable expenses, not to exceed $50,000 without the Company's approval, and
to indemnify J. P. Morgan against certain liabilities and expenses relating to
or arising out of its engagement, including certain liabilities under the
federal securities laws.
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any person to make solicitations or
recommendations to stockholders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except pursuant to the Stockholder Agreement (see Item 3 hereof),
during the past 60 days, neither the Company nor any subsidiary of the Company
nor, to the best of the Company's knowledge, any executive officer, director or
affiliate of the Company has effected a transaction in the Shares.
(b) To the best knowledge of the Company, all of its executive officers,
directors, affiliates and subsidiaries presently intend to tender to the Offeror
all Shares held of record or beneficially owned by such persons (other than
Shares issuable upon exercise of stock options and Shares, if any, which if
tendered could cause such persons to incur liability under the provisions of
Section 16(b) of the Securities Exchange Act of 1934). Reference is also made to
the Stockholder Agreement described in Item 3 herein.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Statement, no negotiation is being
undertaken or is underway by the Company in response to the Offer which relates
to or would result in:
(1) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company;
(2) a purchase, sale or transfer of a material amount of assets by the
Company or any subsidiary of the Company;
(3) a tender offer for or other acquisition of securities by or of the
Company; or
(4) any material change in the present capitalization or dividend
policy of the Company.
(b) Not applicable.
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ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
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<S> <C>
Exhibit 1* Amended and Restated Agreement and Plan of Merger, dated as of February 23, 1998, among Prometheus
Senior Quarters, LLC, Prometheus Acquisition Corp. and Kapson Senior Quarters Corp.
Exhibit 2* Pages 5-16 of the Proxy Statement, dated June 23, 1997, of Kapson Senior Quarters Corp.
Exhibit 3* Form of operating agreement among Glenn Kaplan, Wayne L. Kaplan, Evan A. Kaplan and Senior
Quarters Management Corp.
Exhibit 4* Master Management Services Agreement, dated as of September 30, 1997, among Glenn Kaplan, Wayne L.
Kaplan, Evan A. Kaplan and Senior Quarters Management Corp.
Exhibit 5* Interim Management Services Agreement, dated as of September 30, 1997, among Glenn Kaplan, Wayne
L. Kaplan, Evan A. Kaplan and Senior Quarters Management Corp.
Exhibit 6* Letter agreement relating to the indemnification of Glenn Kaplan, Wayne L. Kaplan and Evan A.
Kaplan by Kapson Senior Quarters Corp.
Exhibit 7* Home Health Agency letter agreement, dated February 23, 1998, among Glenn Kaplan, Wayne L. Kaplan,
Evan A. Kaplan, Kapson Senior Quarters Corp., Prometheus Senior Quarters, LLC and Prometheus
Acquisition Corp.
Exhibit 8* Second Amended and Restated Stockholders Agreement, dated as of February 23, 1998, among
Prometheus Senior Quarters, LLC, Glenn Kaplan, Wayne L. Kaplan and Evan A. Kaplan.
Exhibit 9* Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Glenn Kaplan.
Exhibit 10* Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Wayne L. Kaplan.
Exhibit 11* Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Evan A. Kaplan.
Exhibit 12* Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Raymond DioGuardi.
Exhibit 13* Amended and Restated Escrow Agreement, dated as of February 23, 1998, and related letter agreement
among Glenn Kaplan, Wayne L. Kaplan, Evan A. Kaplan, Kapson Senior Quarters Corp. and Prometheus
Acquisition Corp.
Exhibit 14* Press release, dated February 24, 1998.
Exhibit 15* Opinion, dated February 23, 1998, of Salomon Smith Barney.
Exhibit 16* Opinion, dated February 23, 1998, of J. P. Morgan Securities Inc.
</TABLE>
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* Previously filed.
16
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
KAPSON SENIOR QUARTERS CORP.
Dated: March 16, 1998 By /s/ GLENN KAPLAN
-------------------------
Glenn Kaplan
Chairman of the Board and
Chief Executive Officer
17
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- --------------- --------------------------------------------------------------------------------------------------
<S> <C>
Exhibit 1* Amended and Restated Agreement and Plan of Merger, dated as of February 23, 1998, among Prometheus
Senior Quarters, LLC, Prometheus Acquisition Corp. and Kapson Senior Quarters Corp.
Exhibit 2* Pages 5-16 of the Proxy Statement, dated June 23, 1997, of Kapson Senior Quarters Corp.
Exhibit 3* Form of operating agreement among Glenn Kaplan, Wayne L. Kaplan, Evan A. Kaplan and Senior
Quarters Management Corp.
Exhibit 4* Master Management Services Agreement, dated as of September 30, 1997, among Glenn Kaplan, Wayne L.
Kaplan, Evan A. Kaplan and Senior Quarters Management Corp.
Exhibit 5* Interim Management Services Agreement, dated as of September 30, 1997, among Glenn Kaplan, Wayne
L. Kaplan, Evan A. Kaplan and Senior Quarters Management Corp.
Exhibit 6* Letter agreement relating to the indemnification of Glenn Kaplan, Wayne L. Kaplan and Evan A.
Kaplan by Kapson Senior Quarters Corp.
Exhibit 7* Home Health Agency letter agreement, dated February 23, 1998, among Glenn Kaplan, Wayne L. Kaplan,
Evan A. Kaplan, Kapson Senior Quarters Corp., Prometheus Senior Quarters, LLC and Prometheus
Acquisition Corp.
Exhibit 8* Second Amended and Restated Stockholders Agreement, dated as of February 23, 1998, among
Prometheus Senior Quarters, LLC, Glenn Kaplan, Wayne L. Kaplan and Evan A. Kaplan.
Exhibit 9* Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Glenn Kaplan.
Exhibit 10* Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Wayne L. Kaplan.
Exhibit 11* Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Evan A. Kaplan.
Exhibit 12* Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Raymond DioGuardi.
Exhibit 13* Amended and Restated Escrow Agreement, dated as of February 23, 1998, and related letter agreement
among Glenn Kaplan, Wayne L. Kaplan, Evan A. Kaplan, Kapson Senior Quarters Corp. and Prometheus
Acquisition Corp.
Exhibit 14* Press release, dated February 24, 1998, and tombstone advertisement, dated March 2, 1998.
Exhibit 15* Opinion, dated February 23, 1998, of Salomon Smith Barney.
Exhibit 16* Opinion, dated February 23, 1998, of J. P. Morgan Securities Inc.
</TABLE>
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* Previously filed.
