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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
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INTENSIVA HEALTHCARE CORPORATION
(NAME OF SUBJECT COMPANY)
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INTENSIVA HEALTHCARE CORPORATION
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.001 PER SHARE
(TITLE OF CLASSES OF SECURITIES)
45815Y 10 5
(CUSIP NUMBER OF CLASS OF SECURITIES)
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INTENSIVA HEALTHCARE CORPORATION
7733 FORSYTH BOULEVARD, SUITE 800
ST. LOUIS, MISSOURI 63105
(314) 725-0112
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS ON BEHALF OF THE PERSON FILING STATEMENT)
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WITH COPIES TO:
DENIS P. MCCUSKER, ESQ. THOMAS M. WALSH, ESQ.
J. MARK KLAMER, ESQ. SUELTHAUS & WALSH, P.C.
BRYAN CAVE LLP 7733 FORSYTH BOULEVARD, TWELFTH FLOOR
ONE METROPOLITAN SQUARE ST. LOUIS, MISSOURI 63105
211 N. BROADWAY, SUITE 3600
ST. LOUIS, MISSOURI 63102
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Intensiva HealthCare Corporation, a
Delaware corporation (the "Company"). The address of the principal executive
offices of the Company is 7733 Forsyth Boulevard, Suite 800, St. Louis,
Missouri 63105. The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 of the Company (the
"Statement") relates is the shares of common stock, par value $0.001 per
share, of the Company (the "Common Stock").
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to a tender offer by Select Medical of Mechanicsburg,
Inc., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of
Select Medical Corporation, a Delaware corporation ("Parent"), disclosed in a
Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") dated November
17, 1998 to purchase all outstanding shares (each a "Share") of the Common
Stock at a price of $9.625 per Share (the "Offer Price"), net to the seller in
cash, without interest, upon the terms and subject to the conditions set forth
in the Offer to Purchase dated November 17, 1998 (the "Offer to Purchase") and
the related Letter of Transmittal (the "Letter of Transmittal") (which
together constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of November 9, 1998 (the "Merger Agreement") among Parent, Purchaser and the
Company. The Merger Agreement provides that, among other things, as soon as
practicable after the consummation of the Offer and satisfaction or, if
permissible, waiver of the conditions to the Merger, Purchaser shall be merged
with and into the Company (the "Merger"), the separate existence of Purchaser
shall cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation"). A copy of the Merger Agreement is filed as Exhibit 1
to this Statement and is incorporated herein by reference.
The principal executive offices of Parent are located at 4718 Old Gettysburg
Road, P.O. Box 2034, Mechanicsburg, Pennsylvania 17055. The principal offices
of Purchaser are located at, c/o Select Medical Corporation, 4718 Old
Gettysburg Road, P.O. Box 2034, Mechanicsburg, Pennsylvania 17055.
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 or understandings between
the Company or its affiliates and certain of its executive officers, directors
or affiliates are described in the Company's Information Statement under the
heading "Material Contracts and Agreements with Executive Officers." A copy of
the Information Statement is set forth on Annex I hereto and is incorporated
herein by reference in its entirety. Except as described or incorporated by
reference herein, to the knowledge of the Company, as of the date hereof,
there exists no material contract, agreement, arrangement or understanding and
no actual or potential conflict of interest between the Company or its
affiliates and (i) the Company, its executive officers, directors or
affiliates or (ii) the Purchaser or its executive officers, directors or
affiliates.
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Merger Agreement.
The following is a summary of certain provisions of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full
text of the Merger Agreement filed with the Securities and Exchange Commission
(the "Commission") as an exhibit to this Statement and is incorporated herein
by reference. Capitalized terms not otherwise defined below shall have the
meanings set forth in the Merger Agreement. The Merger Agreement may be
examined, and copies obtained, as set forth in Section 8 of the Schedule 14D-
1.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Purchaser with
respect to, among other things, corporate organization, subsidiaries, capital
stock, options or other rights to acquire Shares, authority to enter into the
Merger Agreement, required consents, no conflicts between the Merger Agreement
and applicable laws and certain agreements to which the Company or its assets
may be subject, financial statements, filings with the Commission, disclosures
in proxy statements and tender offer documents, absence of certain changes or
events, litigation, labor and employment matters, employee benefit plans, tax
matters, compliance with applicable laws, no exclusion from participation in
federal health care programs, accounts receivable, brokers' and finders' fees,
owned and leased real property, environmental matters, applicability of state
takeover statutes, vote required to approve the Merger Agreement, material
contracts, intellectual property, receipt of the Financial Advisor Opinion,
affiliate transactions and prior negotiations with others.
In the Merger Agreement, each of Parent and Purchaser has made customary
representations and warranties to the Company with respect to, among other
things, corporate organization, authority to enter into the Merger Agreement,
required consents, no conflicts between the Merger Agreement and applicable
laws and certain agreements to which Parent or Purchaser or their assets may
be subject, financing, disclosures in proxy statements and tender offer
documents, brokers' and finders' fees and ownership of Shares by Parent and
its affiliates.
Conditions to the Merger. The respective obligations of each party to effect
the Merger are subject to the satisfaction at or prior to the Effective Time
of the following conditions: (i) the Merger Agreement and the transactions
contemplated thereby shall have been approved and adopted by the affirmative
vote of the stockholders of the Company to the extent required by Delaware
Law; (ii) no Governmental Authority or foreign, federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any law, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is then in
effect and has the effect of making the Merger illegal or otherwise preventing
consummation of the Merger; provided, that the parties shall use their best
efforts to have any such injunction, order, restraint or prohibition vacated;
and (iii) Purchaser or its permitted assignee shall have purchased all Shares
validly tendered and not withdrawn pursuant to the Offer; provided, that this
condition shall not be applicable to the obligations of Parent or Purchaser if
Purchaser fails to purchase any Shares validly tendered and not withdrawn
pursuant to the Offer in breach of the Merger Agreement or the terms of the
Offer or if a Merger Notice is delivered pursuant to the Merger Agreement.
The Merger Agreement provides that the obligations of the Parent and
Purchaser to effect the Merger are also subject to the condition that, at or
prior to the Effective Time, the Company shall
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have performed in all material respects all obligations required to be
performed by it under the Merger Agreement, or such performance shall have
been waived; provided, that this condition shall not apply in respect of any
obligation of the Company arising after designees or representatives of Parent
or Purchaser shall represent a majority of the Company Board. After such
designees or representatives so constitute a majority of the Company Board,
the obligations of the Parent and the Purchaser to proceed with the
transactions contemplated by the Merger Agreement including the Merger, the
Offer and the Stockholder Agreement (the "Transactions") may not be waived,
terminated or modified except as expressly permitted under the other
provisions of the Merger Agreement.
If a Merger Notice is delivered pursuant to the Merger Agreement, the
obligations of Parent and Purchaser to effect the Merger are also subject to
the satisfaction or waiver, at the Effective Time, of the following additional
conditions:
(a) any applicable (i) waiting period under the HSR Act or (ii) period
during which Parent or Purchaser shall have consented or otherwise be
barred from consummating the Merger as part of any agreement or other
arrangement with any Governmental Authority involving the HSR Act or any
other applicable antitrust laws has expired or been terminated prior to the
Effective Time;
(b) the Company shall have received any required consent or approval of
any Governmental Authority and there shall not be pending or threatened any
action or proceeding before any court or Governmental Authority, domestic
or foreign, having any of the consequences referred to in clauses (i)
through (vii) of paragraph (c) of Section 15 of the Schedule 14D-1;
(c) there shall not have been any statute, rule, regulation, judgment,
order or injunction enacted, entered, issued, enforced, promulgated or
deemed applicable, or any other action taken, by any Governmental Authority
other than the routine application of the waiting period provisions of the
HSR Act to the Merger, which is reasonably likely to result, directly or
indirectly, in any of the consequences referred to in clauses (i) through
(vii) of paragraph (c) of Section 15 of the Schedule 14D-1;
(d) there shall not have occurred, and be continuing, any change,
condition, event or other development that has had a Material Adverse
Effect;
(e) the representations and warranties of the Company in the Merger
Agreement shall be true and correct (for all purposes of this paragraph (e)
without giving effect to any material or Material Adverse Effect qualifiers
or other qualifiers based on materiality that are contained in the Merger
Agreement) as of such time (except to the extent such representations and
warranties expressly relate to an earlier date, in which case such
representations and warranties shall be true and correct as of such earlier
date), except to the extent that failure or failures to be true or correct
do not, in the aggregate, have a Material Adverse Effect; and
(f) the number of Shares exercising dissenters' rights under the DGCL
shall not exceed 10% of the outstanding Shares.
"Material Adverse Effect" means any change, effect, condition, event or
circumstance that is, or is reasonably likely to be, materially adverse to the
business, financial condition, assets, properties, or results of operations of
the Company and its Subsidiaries, taken as a whole; provided, that "Material
Adverse Effect" shall not include any change, effect, condition, event or
circumstance arising out of or attributable to (i) any decrease in the market
price of the Shares (but not any change, effect,
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condition, event or circumstance underlying such decrease to the extent that
it would otherwise constitute a Material Adverse Effect), (ii) changes,
effects, conditions, events or circumstances that generally affect the
industries in which the Company operates (including legal and regulatory
changes), (iii) general economic conditions or change, effects, conditions or
circumstances affecting the securities markets generally, (iv) changes arising
from the consummation of the Transactions or the announcement of the execution
of the Merger Agreement, including changes resulting from the exercise by
other parties to the LTAC Leases (as defined below) of any contractual rights
they may have (if any) under the express terms of the LTAC Leases as a result
of the Transactions or the announcement of the Transactions; or (v) any matter
expressly disclosed in the Merger Agreement or the Company's Disclosure
Schedule thereto, and provided, further that, subject to the foregoing, a
Material Adverse Effect shall be deemed to have occurred if the Company and
its Subsidiaries shall have lost their accreditation to continue participation
in the Medicare and Medicaid programs in respect of one or more of the
Company's locations which represented, in the aggregate, in excess of 15% of
the Company's net revenues for the most recent four fiscal quarters preceding
the date of such event.
The Merger Agreement provides that the obligation of the Company to effect
the Merger is also subject to the condition that, at or prior to the Effective
Time, the Parent and Purchaser shall have performed in all material respects
all obligations required to be performed by them under the Merger Agreement,
or such performance shall have been waived by a majority of the members of the
Company Board who are not designees or representatives of Parent or Purchaser.
If a Merger Notice is delivered pursuant to the Merger Agreement, the
obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver, at the Effective Time, of the following additional
conditions:
(a) any applicable (i) waiting period under the HSR Act or (ii) period
during which Parent or Purchaser shall have consented or otherwise be
barred from consummating the Merger as part of any agreement or other
arrangement with any Governmental Authority involving the HSR Act or any
other applicable antitrust laws has expired or been terminated prior to the
Effective Time;
(b) the Company shall have received any required consent or approval of
any Governmental Authority, the absence of which could subject any of the
directors, officers or other representatives of the Company to personal
liability; and
(c) the representations and warranties of the Parent and the Purchaser in
the Merger Agreement shall be true and correct in all material respects as
of such time (except to the extent such representations and warranties
expressly relate to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date), except to
the extent that failure or failures to be true and correct do not, in the
aggregate, materially impair the ability of Parent and Purchaser to
consummate the Merger.
The Company Board. The Merger Agreement provides that concurrently with the
purchase by Purchaser of Shares pursuant to the Offer, and from time to time
thereafter, Purchaser will be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Company Board as shall
give Purchaser representation on the Company Board equal to the product of the
total number of directors on the Company Board (giving effect to the directors
elected pursuant to this
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sentence) multiplied by the percentage that the aggregate number of Shares
purchased by Purchaser in the Offer bears to the total number of Shares then
outstanding, and the Company shall, at such time, promptly take all actions
necessary to cause Purchaser's designees to be appointed as directors of the
Company, including increasing the size of the Company Board or securing the
resignations of incumbent directors or both.
The Merger Agreement provides that the Company will promptly take all
actions required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder in order to fulfill such obligations and shall include
in this Schedule 14D-9 such information with respect to the Company and its
officers and directors as is required under Section 14(f) and Rule 14f-1 to
fulfill such obligations. In conjunction with the foregoing, the Company will,
at the request of the Parent, either increase the size of the Company Board
and/or obtain the resignation of such number of its current directors as is
necessary to enable Purchaser's designees to be elected or appointed to the
Company Board.
The Merger Agreement provides that following the election of designees of
Purchaser, prior to the Effective Time, any amendment of the Merger Agreement
or the Certificate of Incorporation or By-laws of the Company, any termination
of the Merger Agreement by the Company, any extension by the Company of the
time for the performance of any of the obligations or other acts of Parent or
Purchaser or waiver of any of the Company's rights under the Merger Agreement
will require the concurrence of a majority of the directors of the Company
then in office who neither were designated by Purchaser nor are employees of
the Company (the "Independent Directors"), or if there is only one Independent
Director, the concurrence of such Independent Director. The Company will use
its best efforts to ensure that at least one Independent Director shall remain
on the Company Board until the Effective Time.
Stockholders Meeting. If required by applicable law in order to consummate
the Merger, the Company, acting through the Company Board, shall, promptly
after consummation of the Offer (or promptly after delivery of a Merger
Notice), in accordance with applicable law and the Certificate of
Incorporation and the Company's By-laws, (i) hold an annual or special meeting
of its stockholders as soon as practicable following consummation of the Offer
for the purpose of considering and taking action on the Merger Agreement and
the Merger (the "Stockholders Meeting") and (ii) in the event a Merger Notice
has been delivered and, otherwise, subject to its fiduciary duties under
applicable law after receiving the advice of independent counsel, include in
the Proxy Statement the recommendation of the Company Board that the
stockholders of the Company approve and adopt the Merger Agreement and the
Merger, and use its best efforts to solicit from holders of Shares proxies in
favor of the Merger Agreement and the Merger, and take all other appropriate
action to request the vote of the holders of Shares required by the DGCL to
effect the Merger. At the Stockholders Meeting, Parent and Purchaser will
cause all Shares then owned by them and their Subsidiaries to be voted in
favor of the approval and adoption of the Merger Agreement and the Merger.
Notwithstanding the foregoing, if the Purchaser acquires at least 90% of the
then outstanding Shares, the parties shall, at the request of Purchaser,
subject to the conditions listed under "--Conditions to the Merger" above,
take all necessary and appropriate action to cause the Merger to become
effective, in accordance with Section 253 of the DGCL, as soon as reasonably
practicable after such acquisition, without a meeting of the stockholders of
the Company.
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Options. The Merger Agreement provides that the Company will use its
reasonable best efforts to obtain from each holder of an Option outstanding,
whether or not exercisable at the Effective Time under the Company's Stock
Option Plans, such holder's agreement that such Option will be canceled by the
Company immediately prior to the Effective Time. Each holder of a canceled
Option will be entitled to receive at the Effective Time or as soon as
practicable thereafter from the Company in consideration for the cancellation
of such Option an amount (the "Option Spread") equal to the product of (i) the
number of Shares previously subject to such Option and (ii) the excess, if
any, of the Offer Price over the exercise price per share of Common Stock
previously subject to such Option. Each holder of an Option will also be given
the right to tender such options, whether or not exercisable, pursuant to the
Offer and to receive the Option Spread pursuant to the Offer; and each holder
of Warrants shall also be given the right to tender such Warrants pursuant to
the Offer and to receive an amount equal to the product of (i) the number of
Shares which may be purchased on exercise of the Warrants and (ii) the excess,
if any, of the Offer Price over the per share exercise price of the Warrants.
The Merger Agreement provides that the Company shall take all actions
necessary and appropriate so that all stock option or other equity based plans
maintained with respect to the Shares will terminate as of the Effective Time
and the provisions in any other benefit plan providing for the issuance,
transfer or grant of any capital stock of the Company shall be deleted as of
the Effective Time.
Interim Operations. The Merger Agreement provides that except as
contemplated by the Merger Agreement, neither the Company nor any Subsidiary
shall, between the date of the Merger Agreement and the Effective Time do any
of the following without the prior written consent of Parent:
(a) amend or otherwise change its Certificate of Incorporation or By-laws
or equivalent organizational documents;
(b) issue any shares of capital stock of any class of the Company or any
Subsidiary, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of such capital stock of the
Company or any Subsidiary (except for the issuance of Shares issuable
pursuant to employee stock options outstanding on the date of the Merger
Agreement and except in connection with the establishment of new wholly
owned subsidiaries for new locations by the Company);
(c) sell, transfer or encumber in any material respect any assets of the
Company or any Subsidiary for consideration in excess of $1,000,000 in the
aggregate except for transactions relating to the establishment of new
locations or modifications or improvements to its existing locations by the
Company in the ordinary course of its business, and except for other
transactions in the ordinary course of business consistent with past
practice; provided, however, that the Company shall not sell, transfer or
encumber any assets for consideration which, in the opinion of the Company
Board, is less than fair value;
(d) declare or pay any dividend or other distribution with respect to any
of its capital stock;
(e) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire any of its capital stock;
(f) (i) acquire any corporation, partnership, other business organization
or any division thereof, except for the establishment of new wholly owned
subsidiaries for new locations by the
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Company; (ii) except for borrowings under existing credit facilities, incur
any indebtedness for borrowed money or issue any debt securities, guarantee
any indebtedness for borrowed money or debt securities of another person,
issue or sell any warrants or other rights to acquire any debt securities
of the Company or any of its Subsidiaries, enter into any "keep well" or
other agreement to maintain any financial statement condition of another
person (except a Subsidiary) or enter into any arrangement having the
economic effect of any of the foregoing, except in the ordinary course of
business consistent with past practice, or make any loans, advances or
capital contributions to, or investments in, any other person, other than
to the Company or any Subsidiary; (iii) authorize capital expenditures
which are, in the aggregate, in excess of $500,000 for the Company and the
Subsidiaries, except for capital expenditures relating to the establishment
of new locations by the Company in the ordinary course of its business, and
other capital expenditures in the ordinary course of business consistent
with past practice; or (iv) enter into any agreement with respect to any
matter set forth under "--Interim Operations";
(g) except as provided under "--Options" above, increase the compensation
payable or to become payable to its current and former officers, directors
or employees, except for increases in compensation (including bonuses) of
employees of the Company or any Subsidiary of the Company in accordance
with past practices, or, other than in accordance with past practices and
policies, grant any severance or termination pay to, or enter into any
employment or severance agreement with, any current or former director,
officer or other employee of the Company or any Subsidiary, or establish,
adopt, enter into or materially amend any collective bargaining agreement
or benefit plans;
(h) other than as required by generally accepted accounting principles,
make any material change to its accounting policies or procedures;
(i) make any material elections or changes in elections for Tax purposes
except in accordance with past practice;
(j) pay, discharge or satisfy any claims (including claims of
stockholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction (x) of liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as
in effect on the date hereof or (y) of claims settled or compromised to the
extent permitted by paragraph (k) below, or waive, release, grant, or
transfer any rights of material value or modify or change in any material
respect any existing license, lease, contract or other document, other than
in the ordinary course of business consistent with past practice;
(k) settle or compromise any litigation (whether or not commenced prior
to the date of the Merger Agreement) other than settlements or compromises
of litigation (i) where the amount paid in settlement or compromise does
not exceed $100,000 and (ii) certain other potential settlements or
compromises;
(l) establish any new lines of credit or other credit facilities or
replace any existing credit facilities;
(m) take any action which would make any representation or warranty of
the Company in the Merger Agreement subject to a materiality qualifier
untrue or incorrect and any representation
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or warranty of the Company in the Merger Agreement that is not so qualified
untrue or incorrect in any material respect;
(n) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization (subject
to the Company's right to take action specifically permitted by the second
paragraph under "--No Solicitation" below);
(o) enter into any new collective bargaining agreement or any successor
collective bargaining agreement except in the ordinary course of business;
(p) agree to any modifications to any of its long term acute care
hospital leases (the "LTAC Leases"), or waive any rights under the LTAC
Leases, in any respect which would materially and adversely affect the
rights of the Company thereunder;
(q) take any action to exempt under or make not subject to (x) Section
203 of the DGCL or (y) any other antitakeover statute or state law that
purports to limit or restrict business combinations or the ability to
acquire or vote shares, any person or entity (other than Parent, Purchaser
and their affiliates) or any action taken thereby, which person, entity or
action would have otherwise been subject to the restrictive provisions
thereof and not exempt therefrom except to the extent specifically
permitted pursuant the second paragraph under "--No Solicitation" below;
(r) authorize any of, or commit or agree to take any of, the foregoing
actions; or
(s) take any action which would result in the conditions to the Offer or
the Merger not being satisfied, subject to the Company's right to take such
actions specifically permitted by the second paragraph under "--No
Solicitation" below.
No Solicitation. Pursuant to the Merger Agreement, the Company has agreed
that it will, and will direct and cause its officers, directors, employees,
representatives and agents to, immediately cease any discussions or
negotiations with any parties that may be ongoing with respect to an
Acquisition Proposal (as hereinafter defined). Pursuant to the Merger
Agreement, the Company has agreed that it will not, nor will it permit any of
its Subsidiaries to, nor will it authorize or permit any of its officers,
directors or employees or any representative retained by it or any of its
Subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage
(including by way of furnishing information), or take any other action
designed or reasonably likely to facilitate, any inquiries or the making of
any proposal which constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal or (ii) participate in any discussions or negotiations
regarding any Acquisition Proposal, provided, that, at any time prior to the
earlier to occur of (1) the acceptance for payment of the Shares pursuant to
the Offer or (2) the Stockholders Meeting, the Company may, upon receipt by
the Company of a written Acquisition Proposal which was not solicited after
the date hereof and after consulting with outside counsel, subject to
compliance with the next paragraph,
(x) furnish information with respect to the Company to any person
pursuant to a customary confidentiality agreement (as determined by the
Company after receipt of written advice from its outside counsel), and
(y) participate in negotiations regarding an Acquisition Proposal,
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if the Company Board determines in good faith that such Acquisition Proposal
is reasonably likely to result in a Superior Proposal and the Company notifies
the Parent and Purchaser in writing that it is taking such action.
The Merger Agreement provides that neither the Company Board nor any
committee thereof will (i) withdraw or modify in a manner adverse to Parent or
Purchaser, or publicly propose or announce an intention to withdraw or modify
adversely, or fail to make the approval or recommendation by the Company Board
or such committee of the Offer, the Merger, the Merger Agreement or the other
transactions contemplated thereby, (ii) approve or recommend any Acquisition
Proposal or (iii) cause the Company to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement
related to any Acquisition Proposal with any Person other than the Parent or
its Affiliates. Notwithstanding the foregoing, if, prior to the Stockholders
Meeting, the Company Board determines in good faith (after consulting with
outside counsel) that the fiduciary duties of the Company Board require it to
do so, in respect of an Acquisition Proposal, which is unsolicited and
received following the date of the Merger Agreement, the Company Board may (A)
withdraw or modify its recommendation of the Offer, the Merger, the Merger
Agreement or the other transactions contemplated thereby, or (B) approve or
recommend a Superior Proposal or (C) terminate the Merger Agreement and, if it
so chooses, cause the Company to enter into any agreement with respect to such
Acquisition Proposal. The Company may take any of the foregoing actions
pursuant to the preceding sentence only if (i) Purchaser shall not have
accepted Shares for payment pursuant to the Offer, (ii) the Company is not in
material breach of its obligations described under "--No Solicitation," (iii)
the Company shall have terminated the Merger Agreement pursuant to clause
(f)(ii) under "--Termination" below and (iv) the Company has paid to Parent
the amounts required under the first paragraph under "--Termination Fee"
below. Any withdrawal or modification of the recommendation of the Merger
Agreement by the Company Board shall not change the approval of the Company
Board for purposes of causing Section 203 of the DGCL or any other
antitakeover statute to be inapplicable to the Offer, the Merger, the
Stockholder Agreement or the purchase of shares under the Merger Agreement.
Subject to compliance with this paragraph, nothing contained under "--No
Solicitation" shall prohibit the Company from complying with Rule 14e-2
promulgated under the Exchange Act.
The Merger Agreement provides that, if the Company Board receives an
Acquisition Proposal or any inquiry regarding the making of an Acquisition
Proposal including any request for information, then the Company shall
promptly inform Parent and Purchaser, orally and in writing, of the terms and
conditions of such proposal request or inquiry and the identity of the Person
making it. The Company will keep Parent and Purchaser informed of the status
and principal terms of any such Acquisition Proposal, request or inquiry in a
manner that will provide Parent and Purchaser with sufficient and timely
knowledge of such status and terms and permit Parent and Purchaser to respond
meaningfully thereto. The term "Acquisition Proposal" means any inquiry,
proposal or offer from any Person relating to any direct or indirect
acquisition or purchase of 25% or more of the assets of the Company and its
Subsidiaries taken as a whole or 25% or more of any class of equity securities
of the Company, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 25% or more of any class of equity
securities of the Company, or any merger, consolidation, share exchange,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company, other than the transactions contemplated by
the Merger Agreement. The term "Superior Proposal" means any bona fide
Acquisition Proposal made by a third party to acquire,
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directly or indirectly, for consideration consisting of cash and/or securities
(and without any financing contingency), all of the shares of the Common Stock
then outstanding or all or substantially all the assets of the Company and its
Affiliates, which proposal the Company Board determines in its good faith
judgment (following consultation with Wasserstein Perella or other financial
advisor of nationally recognized reputation) to be materially more favorable to
the Company's stockholders than the Offer and the Merger.
Termination. The Merger Agreement may be terminated and the Merger and the
other transactions contemplated by the Merger Agreement may be abandoned at
any time prior to the Effective Time, notwithstanding any approval and
adoption of the Merger Agreement and the transactions contemplated thereby by
the stockholders of the Company:
(a) By mutual written consent duly authorized by the Boards of
Directors of Parent, Purchaser and the Company, provided, that any such
consent by the Company Board shall include at least a majority of the
members of the Company Board who are not designees or representatives of
the Parent or the Purchaser;
(b) By either Parent, Purchaser or the Company by written notice to the
other parties if
(i) the Offer (x) shall be terminated or expire in accordance with
its terms without the purchase of any Shares pursuant thereto or (y)
Purchaser shall not have accepted for payment any Shares pursuant to
the Offer on or before January 31, 1999; provided, that the right to
terminate the Merger Agreement under this clause (i) will not be
available to any party whose failure to fulfill any obligation under
the Merger Agreement has been the cause of, or resulted in, the failure
to complete the Offer on or before such date and provided further that
the right to terminate the Merger Agreement under this clause (i) will
not be available to any of the parties to the Merger Agreement if a
Merger Notice has been delivered pursuant to the Merger Agreement;
(ii) the Effective Time shall not have occurred on or before May 31,
1999; provided, that the right to terminate the Merger Agreement under
this clause (ii) will not be available to any party whose failure to
fulfill any obligation under the Merger Agreement has been the cause
of, or resulted in, the failure of the Effective Time to occur on or
before such date; or
(iii) any court of competent jurisdiction or other Governmental
Authority shall have issued an order, decree, ruling or taken any other
action restraining, enjoining or otherwise prohibiting the Offer or
Merger and such order, decree, ruling or other action shall have become
final and nonappealable;
(c) By Parent or Purchaser, by written notice to the Company, if (i)
the Company Board or any committee thereof shall have (1) withdrawn or
modified in a manner adverse to Purchaser or Parent its approval or
recommendation of the Offer, the Merger Agreement, the Merger or any
other transaction contemplated by the Merger Agreement or (2) shall have
approved or recommended any Acquisition Proposal or (ii) Wasserstein
Perella shall have withdrawn, revoked, amended or modified the Financial
Advisor Opinion in any manner adverse to Parent or Purchaser, unless (A)
at the time of or promptly following such withdrawal, revocation,
amendment or modification the Company Board shall have publicly
reaffirmed its approval and recommendation of the Transactions and (B)
within 10 business
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days following such withdrawal, revocation, amendment or modification the
Company Board shall have received a written opinion, from another
financial advisor of nationally recognized reputation reasonably
acceptable to Parent and Purchaser, that the Offer is fair to the
stockholders of the Company from a financial point of view, a copy of
which shall have been delivered to the Parent;
(d) By Parent and Purchaser, by written notice to the Company, if the
Company has (i) exercised a right specified in the first paragraph under
"--No Solicitation" above with respect to any Acquisition Proposal and
the Company Board has not, within 10 business days following a written
request from the Parent to do so, reaffirmed its recommendation of the
Transactions, (ii) taken any action described in the second paragraph
under "--No Solicitation" above, or (iii)(1) been the subject of an
Acquisition Proposal that is publicly disclosed shall have been
commenced, publicly proposed or communicated to the Company which
contains a proposal as to price (without regard to the specificity of
such price proposal) and (2) not rejected such proposal within 10
business days of its receipt or the date its existence first becomes
publicly disclosed, if sooner;
(e) By Parent and Purchaser, by written notice to the Company:
(i) if the Company has breached or failed to perform in any material
respect any of its representations, warranties or covenants required to
be performed by it under the Merger Agreement or the Offer, and, in the
case of any breach other than an intentional material breach, such
breach or failure to perform has continued unremedied for 30 days or is
not reasonably capable of being cured by the expiration date of the
Offer; or
(ii) if the Company has violated its obligations under "--No
Solicitation" above; or
(f) By the Company by written notice to the Parent and the Purchaser:
(i) if Purchaser has failed to publicly announce and commence the
Offer (within the meaning of Rule 14d-2 under the Exchange Act) within
five business days following the date of the Merger Agreement;
provided, that the Company may not terminate the Merger Agreement
pursuant to this subparagraph (i) if the Company is in material breach
under the Merger Agreement;
(ii) in accordance with the requirements under "--No Solicitation"
above and subject to the limitations set forth therein, provided that
Parent or Purchaser does not make, within 3 business days of receipt of
the notice of termination required to be delivered pursuant to the
provisions described under "--No Solicitation" above, an offer that the
Company Board believes in good faith, after consultation with its legal
counsel and financial advisors, is at least as favorable to the holders
of the Shares as such other bidder's offer, and provided, further, that
no termination under this subparagraph (ii) shall be effective unless
the termination fee and expense fee required by the provisions
described under "--Termination Fee" below is paid at the time notice of
such termination is delivered;
(iii) if Parent or Purchaser has breached or failed to perform in any
material respect any of its representations, warranties or covenants
required to be performed by them under the Merger Agreement at or prior
to such date, and, in the case of any breach other than an
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intentional material breach, such breach or failure to perform has
continued unremedied for 30 days or is not reasonably capable of being
cured by the expiration date of the Offer.
Termination Fee. The Merger Agreement provides that, if the Merger Agreement
is terminated pursuant to clauses (c)(i), (c)(ii) (when Parent or Purchaser's
right to terminate arises as a result of the failure of the Company Board to
publicly reaffirm its approval and recommendation of the Transactions), (d),
(e)(ii) or (f)(ii) under "--Termination" above, then the Company shall pay
Parent $4,000,000 plus up to $1,000,000 in reimbursement of actual, verifiable
expenses (the "Expenses") incurred by the Parent in connection with the
negotiation, execution and delivery of the Merger Agreement and the other
documents contemplated thereby and the anticipated completion of the
Transactions.
If the Merger Agreement is terminated pursuant to clause (b) under "--
Termination" above (on account of the failure of the Company to satisfy the
condition set forth in paragraph (f) of Section 15 hereof), clause (c)(ii)
under "--Termination" above (except in the case where Parent or Purchaser's
right to terminate arises as a result of the failure of the Company Board to
publicly reaffirm its approval and recommendation of the Transactions) or
clause (e)(i) under "--Termination" above, then the Company will pay Parent up
to $1,000,000 in reimbursement of Expenses, and if, at any time within one
year of the date of such termination, the Company enters into an agreement
with respect to or consummates any direct or indirect acquisition or purchase
by any person of 25% or more of the assets of the Company and its Subsidiaries
taken as a whole or the issuance of 25% or more of any class of equity
securities of the Company, any tender offer or exchange offer that if
consummated would result in any person beneficially owning 25% or more of any
class of equity securities of the Company, or any merger, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution or
similar transaction involving the Company, other than the Transactions
(collectively, a "Subsequent Transaction"), the Company shall pay Parent
$4,000,000.
If the Merger Agreement is terminated by the Parent or the Purchaser
pursuant to clause (b) under "--Termination" above on account of the failure
of the Company to satisfy the condition set forth in paragraph (i) of Section
15 of the Schedule 14D-1, then the Company will pay Parent up to $1,000,000 in
reimbursement of Expenses.
If the Merger Agreement is terminated by the Parent or the Purchaser
pursuant to clause (b) under "--Termination" above (other than on account of
the failure of the Company to satisfy the conditions set forth in paragraphs
(f) or (i) of Section 15 of the Schedule 14D-1), and if the Company enters
into an agreement with respect to or consummates a Subsequent Transaction
within six months following such termination, then the Company will pay Parent
$4,000,000 plus up to $1,000,000 in reimbursement of Expenses.
Any amounts so payable shall be paid within five business days after demand
by the Parent or the Purchaser or at such earlier time as may be required
under the Merger Agreement. The payment called for in the above paragraphs is
in lieu of any other claims by the Parent or the Purchaser in respect of its
costs, expenses, damages and losses incurred by the Parent or the Purchaser in
respect of the matters referred to in such paragraphs.
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Except as set forth above, all fees and expenses incurred in connection with
the Offer, the Merger, the Merger Agreement and the Transactions will be paid
by the party incurring such fees or expenses, whether or not the Merger is
consummated.
Indemnification. The Merger Agreement provides that the Certificate of
Incorporation of the Surviving Corporation shall contain provisions no less
favorable with respect to indemnification than are set forth in Article VII of
the Certificate of Incorporation of the Company, 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 materially and adversely affect the
rights thereunder of individuals who at the Effective Time were directors,
officers, employees, fiduciaries or agents of the Company, unless such
modification shall be required by law.
The Merger Agreement provides that the Company shall, to the fullest extent
permitted under applicable law and regardless of whether the Merger becomes
effective, indemnify and hold harmless, and, after the Effective Time, Parent
and the Surviving Corporation shall, jointly and severally, to the fullest
extent permitted under applicable law, indemnify and hold harmless, each
present and former director, officer, employee, fiduciary and agent of the
Company and each Subsidiary (collectively, the "Indemnified Parties") against
all costs and expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages, liabilities and settlement amounts paid in
connection with any claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), whether civil, administrative or
investigative, arising out of or pertaining to any action or omission in their
capacity as an officer, director, employee, fiduciary or agent, whether
occurring before or after the Effective Time, for a period of six years after
the date of the Merger Agreement (a "Claim"), provided, however, that no
Indemnified Party shall be entitled to payment of any amount in respect of any
Claim arising from willful misconduct, self dealing or the commission of an
intentional tort by such Indemnified Person. In the event of any such claim,
action, suit, proceeding or investigation, Parent or the Surviving
Corporation, as the case may be, shall assume the defense thereof, and neither
Parent nor the Surviving Corporation will be liable to such Indemnified
Parties for any legal expenses of other counsel incurred subsequent to such
assumption by such Indemnified Parties in connection with the defense thereof,
provided, that (i) the Parent and the Surviving Corporation shall have
acknowledged in writing that their indemnity obligations under the Merger
Agreement are applicable in respect of the matter in issue unless and until a
court of competent jurisdiction ultimately determines, and such determination
becomes final, that the indemnification of such Indemnified Party in the
manner contemplated in the Merger Agreement is prohibited by law, (ii) no
settlement shall be effected without the written consent of an Indemnified
Party which does not include a full and unconditional release of such
Indemnified Party and (iii) the Indemnified Parties shall cooperate in the
defense of any such matter. None of the Company, Parent or the Surviving
Corporation shall be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld). None of the
Company, Parent nor the Surviving Corporation shall be obligated pursuant to
such indemnification provisions to pay the fees and expenses of more than one
counsel for all Indemnified Parties (who shall in any event be reasonably
acceptable to the Parent) in any single action except to the extent that the
named parties to any such proceeding include both the Indemnified Party and
the Company or Parent, or their respective successors, and the representation
of such parties by the same counsel would be proscribed under applicable
standards of professional conduct and provided further that, in the event that
any claim for indemnification is asserted or made within such six-year
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<PAGE>
period, all rights to indemnification in respect of such claim shall continue
until the disposition of such claim.
Pursuant to the Merger Agreement, Parent and the Surviving Corporation will
use their respective reasonable best efforts to maintain in effect for six
years from the Effective Time, if available, the current directors' and
officers' liability insurance policies maintained by the Company (provided
that Parent and the Surviving Corporation may substitute therefor policies of
at least the same coverage containing terms and conditions which are not
materially less favorable) with respect to matters occurring prior to the
Effective Time; provided, that (1) if the existing policies expire, are
terminated or canceled during such period Parent or the Surviving Corporation
will use its reasonable best efforts to obtain substantially similar policies
and (2) Parent or the Surviving Corporation will not be required to spend as an
annual premium therefor an amount in excess of $280,000.
Stockholder Agreement.
The following is a summary of certain provisions of the Stockholder
Agreement. This summary is not a complete description of the terms and
conditions of the Stockholder Agreement and is qualified in its entirety by
reference to the full text of the Stockholder Agreement filed with the
Commission as an exhibit to the Schedule 14D-9 and is incorporated herein by
reference. Capitalized terms not otherwise defined below shall have the
meanings set forth in the Stockholder Agreement. The Stockholder Agreement may
be examined, and copies obtained, as set forth in Section 8 of the
Schedule 14D-1.
Pursuant to the Stockholder Agreement, each of the Certain Stockholders has
unconditionally agreed to tender into the Offer the Shares it owns as of the
date of the Stockholder Agreement, together with any Shares he or it may
acquire prior to the expiration of the Offer, and that it will not withdraw
any Shares so tendered.
Each Certain Stockholder has agreed that (a) such Certain Stockholder will
not, except as contemplated by the terms of the Stockholder Agreement, (i)
sell, transfer, pledge, assign or otherwise dispose of, or enter into any
contract, option or other arrangement (including any profit sharing
arrangement) or understanding with respect to the sale, transfer, pledge,
assignment or other disposition of, the Shares to any person other than
Purchaser or Purchaser's designee, (ii) enter into any voting arrangement,
whether by proxy, voting agreement, voting trust, power-of-attorney or
otherwise, with respect to the Shares or (iii) take any other action that
would in any way restrict, limit or interfere with the performance of such
Certain Stockholder's obligations under the Stockholder Agreement or the
transactions contemplated thereby or which would otherwise diminish the
benefits of the Stockholder Agreement to Parent and Purchaser.
Until the Merger is consummated or the Merger Agreement is terminated, each
Certain Stockholder will not, nor shall any Certain Stockholder permit any of
its affiliates or any investment banker, financial advisor, attorney,
accountant or other representative or agent of such Certain Stockholder or
such Certain Stockholder's affiliates to, directly or indirectly (i) solicit,
initiate or encourage (including by way of furnishing information), or take
any other action designed or reasonably likely to facilitate, any inquiries or
the making of any proposal which constitutes, or may reasonably be expected to
lead to, any Acquisition Proposal or (ii) participate in any discussions or
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<PAGE>
negotiations regarding any Acquisition Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth
in the preceding sentence by an investment banker, financial advisor,
attorney, accountant or other representative or agent of a Certain Stockholder
shall be deemed to be a violation of this paragraph by such Certain
Stockholder.
At any meeting of stockholders of the Company called to vote upon the Merger
and the Merger Agreement or at any adjournment thereof or in any other
circumstances upon which a vote, consent or other approval (including by
written consent) with respect to the Merger and the Merger Agreement is
sought, each Certain Stockholder will vote (or cause to be voted) such Certain
Stockholder's Shares in favor of the Merger, the adoption by the Company of
the Merger Agreement and the approval of the other transactions contemplated
by the Merger Agreement. At any meeting of stockholders of the Company or at
any adjournment thereof or in any other circumstances upon which any Certain
Stockholder's vote, consent or other approval is sought, each Certain
Stockholder will vote (or cause to be voted) such Certain Stockholder's Shares
against (i) any merger agreement or merger (other than the Merger Agreement
and the Merger), consolidation, combination, sale of substantial assets,
reorganization, recapitalization, dissolution, liquidation or winding up of or
by the Company or any other Acquisition Proposal (collectively, "Alternative
Transactions") or (ii) any amendment of the Company's certificate of
incorporation or bylaws or other proposal or transaction involving the Company
or any of its subsidiaries, which amendment or other proposal or transaction
would in any manner impede, frustrate, prevent or nullify the Offer, the
Merger, the Merger Agreement or any of the other transactions contemplated by
the Merger Agreement (collectively, "Frustrating Transactions").
No Certain Stockholder will enter into any agreement or understanding with
any person or entity to vote or give instructions in any manner inconsistent
with the above paragraph. Each Certain Stockholder irrevocably and
unconditionally waived, and agreed to cause any company, trust or other person
or entity controlled by such Certain Stockholder to waive and agree to prevent
the exercise of, any rights of appraisal, any dissenters' rights and any
similar rights relating to the Merger or any related transaction that such
Certain Stockholder or any other person may have by virtue of the ownership of
any outstanding shares of Common Stock beneficially owned by such Certain
Stockholder, or over which such Certain Stockholder has voting power or
control, directly or indirectly (including any Shares beneficial ownership of
which is acquired by such Certain Stockholder after the date of the
Stockholder Agreement).
Pursuant to the Stockholder Agreement, each Certain Stockholder has
irrevocably granted to, and appointed, Michael E. Tarvin and any other
individual who will hereafter be designated by Parent, and each of them
individually, such Certain Stockholder's proxy and attorney-in-fact (with full
power of substitution), for and in the name, place and stead of such Certain
Stockholder, to vote such Certain Stockholder's Shares, or grant a consent or
approval in respect of such Shares, at any meeting of stockholders of the
Company or at any adjournment thereof or in any other circumstances upon which
their vote, consent or other approval is sought, in favor of the Merger, the
adoption by the Company of the Merger Agreement and the approval of the terms
thereof and each of the other transactions contemplated by the Merger
Agreement and against any Alternative Transaction or Frustrating Transaction.
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<PAGE>
The Stockholder Agreement terminates upon the earliest of (a) the day after
the Shares are accepted for payment pursuant to the Offer, (b) the day after
the Merger is consummated, (c) May 31, 1999, (d) upon the termination of the
Merger Agreement or (e) at any time the per Share purchase price in the Offer
is reduced below $9.625.
Confidentiality Agreement.
The following is a summary of certain provisions of the Confidentiality
Agreement entered into on October 7, 1998 by Parent and the Company (the
"Confidentiality Agreement"). This summary is not a complete description of the
terms and conditions of the Confidentiality Agreement and is qualified in its
entirety by reference to the full text of the Confidentiality Agreement filed
with the Commission as an exhibit to the Schedule 14D-9 and is incorporated
herein by reference. Capitalized terms not otherwise defined below have the
meanings set forth in the Confidentiality Agreement. The Confidentiality
Agreement may be examined, and copies obtained, as set forth in Section 8 of the
Schedule 14D-1.
Pursuant to the terms of the Confidentiality Agreement that Parent and
Purchaser entered into on October 7, 1998, the Company and Parent agreed to
provide, among other things, for the confidential treatment of their
discussions regarding the Offer and the Merger and the exchange of certain
confidential information concerning the Company. Parent further agreed that
for a period of one (1) year from the date the Confidentiality Agreement was
entered into by and between Parent and the Company, Parent would not (i)
directly or indirectly solicit for employment or employee any officer or
employee of the Company or any of its affiliates whose annual base pay at the
time of solicitation exceeds $50,000 or who holds the position of President,
Vice President of Provider Relations, Vice President of Patient Care or
Organizational Improvement Coordinator of any of the Company's affiliates, or
(ii) attempt to induce any such person to leave the employment of or otherwise
terminate his or her relationship with the Company or any of its affiliates,
subject to certain exceptions.
Employment of David W. Cross.
Following the delivery of the Merger Agreement, Parent agreed to employ
David W. Cross, President and Chief Executive Officer of the Company, as
Senior Vice President of Business Development of Parent following the Merger.
Mr. Cross' annual compensation for such position has not been determined, but
it will be not less than his current compensation with the Company.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS
At a special meeting held on November 9, 1998, the Board of Directors of the
Company (the "Board") unanimously approved the Merger Agreement, the Offer and
the Merger (as these terms are defined herein), determined that the Offer and
the Merger are fair to and in the best interests of the stockholders of the
Company, and recommended that stockholders accept the Offer and tender their
Shares to Purchaser pursuant to the Offer.
A copy of a press release issued by the Company communicating such approval
and recommendation is filed as Exhibit 3 to this Statement and is incorporated
herein by reference.
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(B) BACKGROUND OF THE MERGER AND THE OFFER; REASONS FOR THE RECOMMENDATION
Background of the Merger and the Offer. In July 1998, Rocco A. Ortenzio,
Chairman and Chief Executive Officer of Parent, contacted David W. Cross,
President and Chief Executive Officer of the Company, regarding the state of
the long-term acute healthcare industry. Over the next several weeks, Messrs.
Ortenzio and Cross discussed by telephone several topics related to activities
within that industry. After a number of such telephone calls, in August 1998
Mr. Ortenzio asked Mr. Cross to meet to discuss a possible combination of
Parent and the Company; the possibility of such a combination had not been
previously discussed. Mr. Cross agreed to meet with Mr. Ortenzio, provided
that the meeting be held on a strictly confidential basis and that Mr.
Ortenzio consent to the attendance by another member of the Board at the
meeting. A meeting was scheduled for August 31, 1998 in Chicago.
Following Mr. Ortenzio's request to meet with Mr. Cross to discuss a
possible combination of Parent and the Company, but prior to the August 31
meeting, Mr. Cross consulted with each member of the Board regarding the
interest of Parent in a transaction with the Company and the pending meeting
with Mr. Rocco Ortenzio. The Board reached a general consensus that Mr. Cross
should investigate a possible transaction with Parent and, further, that
alternative opportunities should be considered. With respect to the
alternative opportunities, the Board members determined that the sphere of
industry bidders would be relatively small given the Company's highly
specialized niche market. No competitor in the long-term acute care "hospital
within a hospital" market, other than Parent, appeared to have the resources
or was large enough to be a likely acquiror of the Company. The only
significant operator of free-standing long-term acute care hospitals had been
publicly quoted as not being interested in expanding its business at this
time. Because of the relative unlikelihood of another strategic bidder, and
concerns over the confidentiality of negotiations with such parties, the Board
determined that management should seek solicitations from entities which might
be interested in an acquisition of the Company with a view towards the
financial--rather than strategic--benefit of such an acquisition ("Financial
Buyers"). Around the time of the August 31, 1998 meeting with Parent,
management of the Company contacted two Financial Buyers which management
believed had the resources to complete a transaction of this size and which
had investment interests in the healthcare industry.
On August 31, 1998, Mr. Cross and David L. Steffy, a member of the Board,
met with Rocco Ortenzio, Robert A. Ortenzio, the President and Chief Operating
Officer of Parent, and Dennis L. Lehman, the Chief Financial Officer of
Parent, in Chicago. At the meeting, the parties discussed several topics,
including the general industry trend toward consolidation. Rocco Ortenzio
indicated that, based on publicly available information and subject to due
diligence and negotiation of definitive documentation, Parent was interested
in pursuing an all cash acquisition of all of the stock of the Company at
$9.00 per Share. Mr. Cross indicated he and the Board would study the
proposal.
On September 3, 1998, the Board held an informal conference call. Mr. Cross
briefed the Board about the August 31 meeting with Parent's management. After
an extensive discussion concerning valuation, the Board informally authorized
management to further investigate a transaction and to engage a financial
advisor in connection therewith.
On September 4, 1998 and for several days thereafter, Mr. Cross interviewed
two financial advisors, including Wasserstein Perella & Co., Inc.
("Wasserstein Perella"), with respect to an
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<PAGE>
engagement to assess the possible transaction and other alternatives. The
Company chose those two financial advisors because of their national
reputation and experience in the healthcare industry. The Company determined
to engage Wasserstein Perella because its personnel had more familiarity with
the Company, and its fees were comparable with the other candidate.
On September 10, 1998, the Company formally engaged Wasserstein Perella to
act as its financial advisor and informed Wasserstein Perella of its desire
that only Financial Buyers be contacted.
During a teleconference on September 17, 1998, Mr. Cross briefed the Board
about his activities since September 3, 1998 relating to the possible
transaction with Parent, other alternatives under consideration, and his
anticipated activities with respect to these matters through October 1, 1998.
The Board authorized Wasserstein Perella to seek additional indications of
interest from possible Financial Buyers and to meet with Parent regarding its
August 31, 1998 proposal.
During a teleconference on September 25, 1998, Mr. Cross updated the Board
on the status of the process and the Board discussed the valuation of the
Company.
On October 1, 1998, the Board, at a regular meeting in San Francisco,
further discussed the same matters.
Wasserstein Perella contacted four additional Financial Buyers to solicit
interest in the Company. Of the two Financial Buyers contacted by the Company
and the four Financial Buyers contacted by Wasserstein Perella, five executed
confidentiality agreements and engaged in a preliminary review of the Company.
The sixth expressed no interest in a possible transaction. Following such
preliminary review, four of the five who engaged in such a review gave initial
indications of interest ranging from $7.50 to $10.00 per Share, subject to due
diligence and other conditions.
On October 7, 1998, Rocco Ortenzio, Robert Ortenzio, Mr. Lehman and Michael
E. Tarvin, Vice President, General Counsel and Secretary of Parent, met with
Mr. Cross and John P. Keefe, Chief Financial Officer of the Company, and
representatives from Wasserstein Perella at Wasserstein Perella's offices in
New York. At that meeting, Parent and the Company executed a confidentiality
agreement and discussed the proposal made by Parent on August 31, 1998. At
this time Parent was given the same information as was provided to the
Financial Buyers who executed confidentiality agreements. During the meeting,
there was discussion concerning valuation of the Company, but no agreement was
reached.
On October 8, 1998, the Board participated in a conference call in which Mr.
Cross reported on the subject matter of the October 7 meeting with Parent and
the status of the process. The Board also generally discussed the valuation of
the Company.
Between October 7 and October 9, 1998, representatives of Wasserstein
Perella held a series of telephone discussions with management of Parent
regarding the purchase price and other aspects of the proposed transaction.
On October 9, 1998, Parent contacted Wasserstein Perella by telephone and
increased its indication of interest to $10.875 per share, subject to due
diligence and negotiation of definitive documentation.
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On October 15, 1998, Parent commenced its due diligence review of the
Company in St. Louis, and the Company delivered to Parent a draft merger
agreement.
On October 16, 1998, the Board participated in an informal conference call
in which Mr. Cross reported on the progress of the negotiations with Parent.
The Board concurred in the course of action being pursued by management of the
Company.
On October 26 and 27, 1998, the management teams of the Company and Parent
and their respective advisors met in St. Louis to negotiate the terms and
conditions of a proposed merger agreement and stockholder agreement. These
negotiations addressed, among other things, the circumstances under which the
termination fee would be payable, the amount of the termination fee,
provisions imposing restrictions on the Company's ability to enter into or
solicit another acquisition proposal, and the conditions to the Offer. Members
of the respective management teams also discussed Parent's concerns regarding
the amount, aging and collectibility of the Company's accounts receivable
balances, the Company's liability for accrued third-party payor settlements,
the status of the Company's efforts to obtain Medicare provider numbers for
certain new facilities, and certain other non-recurring expenses related to
the proposed transaction.
On October 27, 1998, the Board of Directors of the Company again conferred
by telephone for an update of the progress of the potential transaction from
management of the Company.
After completion of its due diligence review on November 3, 1998, Parent
informed the Company that it was not willing to proceed with a transaction
valuing the Company at more than $9.00 per share.
Negotiations continued over the next several days, with several telephone
calls occurring between Rocco Ortenzio and representatives of Wasserstein
Perella to discuss Parent's proposed price. Parent agreed that it would
increase its indicated price to $9.625 per Share on November 6, 1998, if the
Company agreed to certain provisions in the Merger Agreement relating to
termination of the Agreement, solicitation of another transaction, termination
fees and other items. Parent indicated such price was its highest and best
price. In addition, in response to the Company's request for more information
regarding Parent's sources of financing for the transaction, Parent provided
the Company with draft commitments from certain existing stockholders to
invest an amount of up to $130 million in debt and equity securities of Parent
subject to, and to be funded at the time of, the acquisition by Parent of at
least a 90% interest in the Company pursuant to the Merger Agreement at a
price per Share not to exceed $9.625 in either a tender offer or cash merger.
On November 6, 1998, all of the members of the Company's Board of Directors
met informally by conference call. At that time, Mr. Cross discussed with the
Board the transaction structure and the price offered by Parent. The Board
authorized the Company and its advisors to continue to negotiate definitive
merger and stockholder agreements.
From November 6, 1998 to November 9, 1998, the Company, Parent and their
respective advisors continued to negotiate terms of the Merger Agreement and
the Stockholder Agreement.
On November 9, 1998, the Board held a special meeting to review, with the
advice and assistance of the Company's financial and legal advisors, the
proposed terms and conditions of the Offer and Merger. Representatives of
Wasserstein Perella then presented such firm's analysis of the possible
19
<PAGE>
combination and orally informed the Board, which oral advice was subsequently
confirmed in writing, that, as of November 9, 1998, in the opinion of
Wasserstein Perella, the $9.625 per Share consideration to be received by the
holders of the Shares in the Offer and the Merger was fair from a financial
point of view to such holders. Following discussion, the Board unanimously
determined that the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, were fair to and in the best
interests of the Company's stockholders, and approved the Merger Agreement and
the transactions contemplated thereby, including the Offer and the Merger and
authorized the execution and delivery of the Merger Agreement, and recommended
that the Company's stockholders accept the Offer and tender their Shares
pursuant to the Offer and approve and adopt the Merger Agreement.
Following approval by the respective boards of directors of the Company,
Parent and Purchaser, the Merger Agreement was executed and delivered on
November 9, 1998. The transaction was publicly announced through a press
release before the opening of the financial markets in the United States on
November 10, 1998.
Purchaser commenced the Offer on November 17, 1998.
Reasons for the Board's Recommendation. In approving the Merger Agreement
and the transactions contemplated thereby, and recommending that holders of
Shares accept the Offer and tender their shares pursuant to the Offer, the
Board considered a number of factors, including, but not limited to, the
following:
(i) the increasing pressure on reimbursement levels for the Company,
resulting from extensive regulation of the healthcare industry and cost
containment efforts by insurance companies, health maintenance
organizations and other payors. In particular, the Board noted the
introduction of Medicare reimbursement caps in the long-term acute
healthcare industry under the Balanced Budget Act of 1997 and operational
constraints imposed by regulation on its business. In that regard, the
Board considered certain financial projections which assumed a lower
revenue per patient day than exists under the current reimbursement
structure (See "--Certain Projections Analyzed by the Board");
(ii) the constraints on the Company's ability to achieve its goal of
rapid growth caused by the stock market's short-term earnings expectations,
since opening new hospitals reduces the Company's short-term earnings due
to start-up losses, and difficulties and uncertainties of opening new
hospitals;
(iii) the limited number of potential strategic buyers because the
Company operates in a highly specialized niche market. Of these potential
strategic buyers, the Board believed that no competitor in the long-term
acute care "hospital within a hospital" market, other than Parent, appeared
to have the resources or was large enough to be a likely acquiror of the
Company, and the only significant operator of free-standing long-term acute
care hospitals had been publicly quoted as not being interested in
expanding its business at this time;
(iv) the view of the Board that the Financial Buyers who were contacted
by both the Company and by Wasserstein Perella on the Company's behalf,
given both their respective resources to complete a transaction of this
size and investment interests in the healthcare industry, were of the type
reasonably likely to be interested in an acquisition of the Company. The
Board noted that such Financial Buyers' initial oral indications of
interest, which were based upon the
20
<PAGE>
same information provided to Parent, were not as high as the initial
indication of interest at $10.875 per share proposed by Parent on October
9, 1998. The Board believed that the same factors Parent indicated made it
unwilling to raise its final bid above the Offer Price of $9.625, including
primarily concern over the aging, amount and collectibility of accounts
receivable balances, would be raised by Financial Buyers and result in
final bids below initial indications of interest. Further, the Board did
not believe that it was likely that such Financial Buyers or any other
party would propose and be able to consummate a transaction that was more
favorable to the Company and its stockholders;
(v) the premium of approximately 54% that $9.625 represents over the
$6.25 closing sale price for the Shares on The Nasdaq National Market
("NASDAQ") on November 9, 1998, the last trading day prior to the public
announcement of the execution of the Merger Agreement, and the history of
the price of the Shares on NASDAQ for the prior twelve months;
(vi) the relative valuation of small capitalization companies such as the
Company and the significant lack of shareholder liquidity associated with
such companies;
(vii) the fact that the current market had not rewarded the performance
of the Company even though the Company had generally achieved its financial
targets and otherwise met performance expectations;
(viii) the oral opinion of Wasserstein Perella delivered to the Board at
the November 9, 1998 Board meeting (followed by a confirming written
opinion delivered that day) that, as of such date, and subject to the
assumptions made, matters considered and limitations set forth in such
opinion, the $9.625 per Share consideration to be received by the holders
of the Common Stock pursuant to the Merger Agreement was fair from a
financial point of view to such stockholders. (A copy of the confirming
written opinion of Wasserstein Perella which sets forth the assumptions
made, matters considered and limitations on the review undertaken is
attached hereto as Annex II to this Schedule 14D-9 and is incorporated
herein by reference. STOCKHOLDERS ARE URGED TO CAREFULLY READ THE OPINION
OF WASSERSTEIN PERELLA IN ITS ENTIRETY.);
(ix) the fact that the transactions contemplated by the Merger Agreement
provided for an all cash payment to stockholders, with no financing
contingency;
(x) the provisions of the Merger Agreement, including the provision
allowing the Company to respond to certain unsolicited inquiries concerning
an acquisition of the Company, and the provisions which permit the Company
to terminate the Merger Agreement upon payment to Parent and Purchaser of a
termination fee under certain circumstances;
(xi) the willingness of holders of approximately 30% of the outstanding
Shares to enter into the Stockholder Agreement, pursuant to which, among
other things, such persons agreed to tender the Shares owned by them for
purchase pursuant to the Offer; and
(xii) the alternatives available to the Company in light of the
consideration proposed to be paid for the Shares in the Offer and the
Merger, including continuing to maintain the Company as an independent
company and not engaging in any extraordinary transaction.
The Board did not assign relative weights to the above factors or determine
that any factor was of particular importance. Rather, the Board viewed its
position and recommendations as being based on the totality of the information
presented to and considered by it.
21
<PAGE>
The Board recognized that, while the consummation of the Offer gives the
Company's stockholders the opportunity to realize a premium over the price at
which the Shares were traded prior to the public announcement of the Offer,
tendering in the Offer would eliminate the opportunity for such stockholders
to participate in the future growth and profits of the Company. The Board
believes that the loss of the opportunity to participate in the growth and
profits of the Surviving Corporation was reflected in the Offer price of
$9.625 per Share. The Board also recognized that there can be no assurance as
to the level of growth or profits to be attained by the Surviving Corporation
in the future.
It is expected that, if the Shares are not purchased by Parent in accordance
with the terms of the Offer or if the Merger is not consummated, the Company's
current management, under the general direction of the Board, will continue to
manage the Company as an ongoing business.
Certain Projections Analyzed By the Board.
During the course of considering the Offer, the Merger and the Merger
Agreement, the Board considered certain financial information about the
Company which is not publicly available and which contains financial
projections for the Company as an independent company (i.e., without regard to
the impact of a transaction with Parent). Certain of this information was
provided to Parent or its representatives and is set forth in the Schedule
14D-1 under the caption "Certain Information Concerning the Company--Certain
Company Projections," and is incorporated herein by reference.
In addition, the Board and its financial advisors considered certain other
information about the Company and its financial performance which is not
publicly available, and which similarly included financial projections for the
Company as an independent company. The following is a summary of such other
information.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-----------------------------------
1999 2000 2001 2002
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT FACILITIES
DATA)
<S> <C> <C> <C> <C>
Number of facilities...................... 37 47 57 67
Revenues.................................. $188,592 $274,195 $342,530 $411,597
Earnings before interest, taxes,
depreciation and amortization............ 13,472 21,397 26,654 29,112
Net Income................................ 5,524 9,152 11,792 13,054
</TABLE>
The above projections are based on a number of assumptions, including but
not limited to (i) the Company opening 10 new hospitals annually, (ii) costs
remaining at levels consistent with past experience and (iii) the Company
leveraging its fixed overhead over a larger number of hospitals and increasing
its margins. These assumptions are the same as those used in the projections
provided to the Parent, a summary of which is set forth in the Schedule 14D-1
under the caption "Certain Information Concerning the Company--Certain Company
Projections." Unlike those projections, the above projections assume
increasing rate pressure at the governmental and private payor level and lower
revenue per patient day than exists under the current reimbursement structure.
As noted above, the above projections, as did the projections provided to the
Parent, are based on an assumption that ten new hospitals will be opened by
the Company each year, and that the Company will therefore have 27 hospitals
at the end of 1998. The Company now expects that it will have 23 hospitals
open at the end of 1998.
22
<PAGE>
Although the Company believes the assumptions used in preparing this
information were reasonable when made, such assumptions are inherently subject
to significant uncertainties and contingencies which are impossible to predict
and beyond the Company's control, including, but not limited to, the ability
of the Company to develop new facilities in accordance with its business plan,
changes in health care regulation and/or health care reform, changes in the
regulation of relationships among health care providers, difficulty in
obtaining necessary licenses or certifications, ability to collect accounts
receivable, changes in reimbursement policies or procedures, changes in payor
mix, changes in referral source practices, changes in relationships with host
hospitals and/or the leases with such host hospitals, competition, and the
adequacy of professional liability insurance. No prediction can be made as to
whether the assumptions made in preparing the foregoing information were or
will be accurate, and accordingly, there can be no assurance, and no
representation or warranty is made, that actual results will not vary
materially from those described above. The inclusion of this information
should not be regarded as an indication that the Company or anyone who
received this information then considered, or now considers, it a reliable
prediction of future events, and this information should not be relied on as
such. The Company does not assume any responsibility for the validity,
reasonableness, accuracy or completeness of the projections, and the Company
has makes no representation regarding the projections described above. The
Company does not intend to update, revise or correct such projections if they
become inaccurate (even in the short term). The projections have not been
adjusted to reflect the effects of the Merger.
The Company does not as a matter of course make public any projections as to
future performance or earnings. The above projections were not prepared with a
view to public disclosure or compliance with the published guidelines of the
Commission or the guidelines established by the American Institute of
Certified Public Accountants regarding projections or forecasts. The Company's
internal operating projections are, in general, prepared solely for internal
use and capital budgeting and other management decisions and are subjective in
many respects and thus susceptible to various interpretations and periodic
revision based on actual experience and business developments as described
above.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained Wasserstein Perella to act as financial advisor to
the Company in connection with the Offer and the Merger. Pursuant to an
agreement dated September 10, 1998 between Wasserstein Perella and the
Company, as compensation for Wasserstein Perella's services as financial
advisor, the Company has agreed to pay Wasserstein Perella an advisory fee of
$75,000 (upon signing of the agreement) if the transaction is not consummated
and a transaction fee of approximately $1.4 million upon consummation of the
Merger, against which any advisory fee paid would be credited. In addition,
the Company has agreed to reimburse Wasserstein Perella for its reasonable
out-of-pocket expenses (including fees and expenses of its legal counsel)
incurred in connection with its engagement, and to indemnify Wasserstein
Perella and certain related persons against certain liabilities and expenses
arising out of or in conjunction with its rendering of services under its
engagement, including certain liabilities under the federal securities laws.
Except as disclosed herein, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other persons to
make solicitations or recommendations to securityholders on its behalf
concerning the Offer.
23
<PAGE>
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past 60 days
by the Company, or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the Company's knowledge, to the extent permitted by applicable
securities laws, rules or regulations, each executive officer and director of
the Company presently intends to tender in the Offer all Shares held of record
or beneficially owned by such person. In addition, and without expressing a
view that the following stockholders are affiliates of the Company, the
Company notes that each of Three Arch Partners, L.P., Three Arch Associates,
L.P., Sierra Ventures IV, L.P. and Sierra Ventures IV International, L.P. has
executed the Stockholder Agreement which requires the parties thereto to
tender in the Offer all Shares held of record or beneficially owned by such
person. The Company does not believe it has any affiliates other than those
that have been discussed in this Item 6(b).
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in Items 3 and 4 above, the Company is not engaged
in any negotiation in response to the Offer that relates to or would result
in: (i) any extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company; (ii) a purchase, sale
or transfer of a material amount of assets by the Company or any subsidiary of
the Company; (iii) a tender offer for, or other acquisition of, securities by
or of the Company; or (iv) any material change in the present capitalization
or dividend policy of the Company.
(b) Except as described in Items 3 or 4 above, there are no transactions,
Board resolutions, agreements in principle or signed contracts in response to
the Offer that relate to or would result in one or more of the events referred
to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached hereto as Annex I is being furnished
pursuant to Rule 14f-1 under the Exchange Act in connection with the possible
designation by the Company and Parent, pursuant to the Merger Agreement, of
certain persons to be appointed to the Board other than at a meeting of the
Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
Exhibit 1 Agreement and Plan of Merger, dated as of November 9, 1998, by and
among Intensiva HealthCare Corporation, Select Medical of
Mechanicsburg, Inc. and Select Medical Corporation.
Exhibit 2 Form of Letter to Stockholders of Intensiva HealthCare Corporation,
dated November 17, 1998.*
Exhibit 3 Press Release, dated November 9, 1998, issued by Intensiva
HealthCare Corporation
Exhibit 4 Opinion of Wasserstein Perella & Co. Inc.*
Exhibit 5 Confidentiality Agreement, dated as of October 7, 1998, by and
between Intensiva HealthCare Corporation and Select Medical
Corporation.
Exhibit 6 Stockholder Agreement, dated as of November 9, 1998, by and among
Select Medical of Mechanicsburg, Inc., Select Medical Corporation
and certain of the stockholders of Intensiva HealthCare Corporation.
</TABLE>
- --------
* Included with Schedule 14D-9 mailed to stockholders.
24
<PAGE>
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.
Intensiva HealthCare Corporation
/s/ David W. Cross
By: _________________________________
Name: David W. Cross
Title: President and Chief
Executive Officer
Dated: November 17, 1998
25
<PAGE>
ANNEX I
INTENSIVA HEALTHCARE CORPORATION
7733 FORSYTH BOULEVARD, SUITE 800
ST. LOUIS, MISSOURI 63105
----------------
INFORMATION STATEMENT PURSUANT
TO SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
----------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
----------------
This information statement (the "Information Statement"), which is being
mailed on or about November 17, 1998 to the holders of shares of the common
stock, par value $0.001 per share (the "Common Stock"), of Intensiva
HealthCare Corporation, a Delaware corporation (the "Company"), is being
furnished in connection with the anticipated designation by Select Medical of
Mechanicsburg, Inc., a Delaware corporation ("Purchaser") and a wholly owned
subsidiary of Select Medical Corporation, a Delaware corporation ("Parent"),
of persons (the "Purchaser Designees") to the Board of Directors of the
Company (the "Board"). Such designation is to be made pursuant to an Agreement
and Plan of Merger dated as of November 9, 1998 (the "Merger Agreement") among
the Company, Parent and Purchaser. Terms not defined in this Information
Statement shall have the meaning ascribed to them in the Merger Agreement.
Pursuant to the Merger Agreement, Purchaser commenced a cash tender offer on
November 17, 1998 to purchase all of the issued and outstanding shares (the
"Shares") of Common Stock at a price of $9.625 per Share, net to the seller in
cash, without interest, as described in Purchaser's Offer to Purchase dated
November 17, 1998 and the related Letter of Transmittal (which Offer to
Purchase and related Letter of Transmittal together constitute the "Offer").
The Offer is scheduled to expire at 12:00 Midnight, New York City time, on
Tuesday, December 15, 1998, unless extended (the "Expiration Date"). The Offer
is conditioned upon, among other things, (i) there being validly tendered and
not withdrawn prior to the Expiration Date that number of Shares which, when
added to the Shares beneficially owned by Parent (if any), constitutes at
least ninety percent of the Shares outstanding on a fully diluted basis (the
"Minimum Condition") and (ii) all applicable waiting periods under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, having expired or
been terminated. The Offer is also subject to the other conditions set forth
in the Offer to Purchase. Purchaser has reserved the right (subject to the
terms of the Merger Agreement and the applicable rules and regulations of the
Securities and Exchange Commission (the "SEC")) to waive or reduce the Minimum
Condition and to elect to purchase, pursuant to the Offer, fewer than the
minimum number of Shares necessary to satisfy the Minimum Condition; provided
that, without the prior written consent of the Company, Purchaser may not
waive or reduce the Minimum Condition to less than two-thirds of the
outstanding Shares on a fully diluted basis.
<PAGE>
The Merger Agreement also provides for the merger (the "Merger") of
Purchaser with and into the Company as promptly as practicable after
consummation of the Offer and satisfaction or waiver, if permissible, of all
conditions, including the purchase of Shares pursuant to the Offer. Following
the consummation of the Merger (the "Effective Time"), the Company will be the
surviving corporation (the "Surviving Corporation") and a wholly owned
subsidiary of Parent. In the Merger, each Share issued and outstanding
immediately prior to the Effective Time (other than Shares held in the
treasury of the Company or by Parent, Purchaser, or any indirect or direct
wholly owned subsidiary of the Parent or the Company, all of which will be
cancelled, and other than Shares, if any, held by stockholders who have
perfected rights as dissenting stockholders under the Delaware General
Corporation Law (the "Delaware Law")) will be converted into the right to
receive cash in an amount of $9.625 per Share.
RIGHT TO DESIGNATE DIRECTORS; THE PURCHASER DESIGNEES
The Merger Agreement provides that concurrently with the purchase by
Purchaser of Shares pursuant to the Offer, and from time to time thereafter,
Purchaser shall be entitled to designate up to such number of directors,
rounded up to the next whole number, on the Board to give Purchaser
representation on the Board that equals the product of the total number of
directors on the Board (giving effect to the election of any additional
directors pursuant to the Merger Agreement) multiplied by the percentage that
the aggregate number of Shares purchased by Purchaser in the Offer bears to
the total number of outstanding Shares then outstanding, and the Company
shall, at such time, promptly take all actions necessary to cause Purchaser's
designees to be appointed as directors of the Company, including increasing
the size of the Board or securing the resignations of incumbent directors or
both.
Following the election of designees of Purchaser pursuant to the Merger
Agreement and prior to the Effective Time, any amendment of the Merger
Agreement or the Certificate of Incorporation or By-laws of the Company, any
termination of the Merger Agreement by the Company, any extension by the
Company of the time for the performance of any obligations or other acts of
Parent or Purchaser or any waiver of any of the Company's rights thereunder
shall require the concurrence of a majority of the directors of the Company
then in office who neither were designated by Purchaser nor are employees of
the Company (the "Independent Directors"), or if there is only one Independent
Director, the concurrence of such Independent Director. The Company has agreed
to use its best efforts to ensure that at least one Independent Director
remain on the Board until the Effective Time.
The terms of the Merger Agreement, a summary of the events leading up to the
Offer and the execution of the Merger Agreement and other information
concerning the Offer and the Merger are contained in the Offer to Purchase and
in the Solicitation/Recommendation Statement on Schedule 14D-9 of the Company
(the "Schedule 14D-9") with respect to the Offer, copies of which are being
delivered to stockholders of the Company contemporaneously herewith. Certain
other documents (including the Merger Agreement) were filed with the SEC as
exhibits to the Schedule 14D-9 and as exhibits to the Tender Offer Statement
on Schedule 14D-1 of the Purchaser and Parent (the "Schedule 14D-1"). The
exhibits to the Schedule 14D-9 and the Schedule 14D-1 may be examined at, and
copies thereof may be obtained from, the regional offices of, and public and
reference facilities maintained by, the SEC (except that the exhibits thereto
cannot be obtained from the regional offices of the SEC) in the manner set
forth in Sections 8 and 9 of the Offer to Purchase.
I-2
<PAGE>
The Company has been informed that the Purchaser will obtain all funds
required by Purchaser to consummate the purchase of Shares in the Offer and
the Merger (currently estimated to be $130 million) from Parent in the form of
capital contributions and/or advances. Parent has obtained commitments from
certain of its existing stockholders to invest an amount of up to $130 million
in debt and equity securities of Parent, which commitments are subject to, and
will be funded at the time of, the acquisition by Parent or Purchaser of at
least a 90% interest in the Company at a price per Share not to exceed $9.625
in cash in either a tender offer or merger. Parent plans to obtain a
significant portion of the funds for such capital contributions or advances
required to purchase the Shares from a portion of the aforementioned
investment commitments by its existing shareholders and from borrowings under
credit facilities that Parent will seek to obtain from commercial banks and
other financing sources.
No action is required by the stockholders of the Company in connection with
the election or appointment of the Purchaser Designees to the Board. However,
Section 14(f) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the mailing to the Company's stockholders of the
information set forth in this Information Statement prior to a change in a
majority of the Company's directors otherwise than at a meeting of the
Company's stockholders.
The information contained in this Information Statement concerning Parent,
Purchaser and the Purchaser Designees has been furnished to the Company by
such persons, and the Company assumes no responsibility for the accuracy or
completeness of such information. The Schedule 14D-1 indicates that the
principal executive offices of Parent are located at 4718 Old Gettysburg Road,
P.O. Box 2034, Mechanicsburg, Pennsylvania 17055 and that the principal
offices of Purchaser are located at c/o Select Medical Corporation at 4718 Old
Gettysburg, P.O. Box 2034, Mechanicsburg, Pennsylvania 17055.
I-3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of shares of the Company's outstanding Common Stock as of November
9, 1998, by (i) each person known by the Company to be the beneficial owner of
more than 5 percent of the outstanding shares of Common Stock, (ii) each
director or executive officer of the Company, and (iii) all directors and
executive officers of the Company as a group. Except as otherwise indicated,
the persons listed below have sole voting and investment power with respect to
all shares of Common Stock owned by them, except to the extent such power may
be shared with a spouse.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
--------------------
BENEFICIAL OWNER NUMBER PERCENT(1)
- ---------------- --------- ----------
<S> <C> <C>
Sierra Ventures(2)......................................... 998,744 9.91%
300 Sand Hill Road
Building Four, Suite 210
Menlo Park, California 94025
James B. Tananbaum, M.D.(3)................................ 1,021,369 10.13%
Schroder(4)................................................ 580,994 5.76%
c/o Collinson Howe & Lennox, L.L.C.
1055 Washington Boulevard
Stamford, Connecticut 06901
Jeffrey J. Collinson(5).................................... 601,017 5.96%
Three Arch(6).............................................. 833,281 8.27%
2800 Sand Hill Road
Suite 270
Menlo Park, California 94025
Wilfred E. Jaeger, M.D.(7)................................. 838,906 8.32%
Mayfield(8)................................................ 1,208,233 11.99%
2800 Sand Hill Road
Menlo Park, California 94025
David L. Steffy(9)......................................... 479,712 4.76%
Michael R. Hogan (10)...................................... 26,494 (15)
Phillip M. Nudelman(11).................................... 32,812 (15)
David W. Cross(12)......................................... 300,587 2.98%
John R. Lewis(13).......................................... 346,087 3.43%
John P. Keefe(14).......................................... 87,659 (15)
All Directors and Executive Officers
(9 persons)............................................... 3,734,643 36.56%
</TABLE>
- --------
(1) Pursuant to rules of the SEC certain shares of Common Stock which a
person has the right to acquire within 60 days pursuant to the exercise
of stock options are deemed to be held and to be outstanding for the
purpose of computing the percentage ownership of such person, but are not
deemed outstanding for the purpose of computing the percentage ownership
of any other person. Each beneficial owner's percentage ownership is
based upon 10,078,838 shares of Common Stock issued and outstanding as of
November 9, 1998.
(2) Includes 960,319 shares held by Sierra Ventures IV, L.P. and 38,425
shares held by Sierra Ventures IV International, L.P. (collectively these
entities are referred to as "Sierra Ventures"). James B. Tananbaum, M.D.,
a Director of the Company, shares voting and investment powers with
respect to such shares. Dr. Tananbaum disclaims beneficial ownership of
shares held by Sierra Ventures, except to the extent of his proportionate
interest therein.
I-4
<PAGE>
(3) Includes 960,319 shares held by Sierra Ventures IV, L.P. and 38,425
shares held by Sierra Ventures IV International, L.P. James B. Tananbaum,
M.D., a Director of the Company, shares voting and investment powers with
respect to such shares. Dr. Tananbaum disclaims beneficial ownership of
shares held by Sierra Ventures, except to the extent of his proportionate
interest therein. Mr. Tananbaum holds options for 10,000 shares, of which
5,625 are exercisable within 60 days of November 9, 1998 and are included
in the shares beneficially owned. Dr. Tananbaum also holds 2,000 shares
in an IRA of which he is the beneficiary.
(4) Includes 262,400 shares held by Schroders Incorporated, 254,874 shares
held by Schroder Ventures Limited Partnership and 63,720 shares held by
Schroder Ventures U.S. Trust (collectively these entities are referred to
as "Schroder"). Jeffrey J. Collinson, a Director of the Company, shares
voting and investment power with respect to such shares. Mr. Collinson
disclaims beneficial ownership of shares held by the Schroder entities,
except to the extent of his proportionate interest therein.
(5) Includes 262,400 shares held by Schroders Incorporated, 254,874 shares
held by Schroder Ventures Limited Partnership and 63,720 shares held by
Schroder Ventures U.S. Trust. Jeffrey J. Collinson, a Director of the
Company, shares voting and investment power with respect to such shares.
Mr. Collinson disclaims beneficial ownership of shares held by the
Schroder entities, except to the extent of his proportionate interest
therein. Mr. Collinson holds options for 10,000 shares, of which 5,625
are exercisable within 60 days of November 9, 1998 and are included in
the shares beneficially owned. Mr. Collinson also holds 5,948 shares in
an IRA of which he is the beneficiary, and holds 1,117 shares through
other entities controlled by him.
(6) Includes 680,042 shares held by Three Arch Partners, L.P. and 153,239
shares held by Three Arch Associates, L.P. (collectively these entities
are referred to as "Three Arch"). Wilfred E. Jaeger, M.D. shares voting
and investment power with respect to such shares. Dr. Jaeger disclaims
beneficial ownership of shares held by Three Arch, except to the extent
of his proportionate interest therein. Messrs. Lewis and Steffy are
limited partners of Three Arch Partners, L.P., but do not have voting or
investment power with respect to such shares.
(7) Includes 680,042 shares held by Three Arch Partners, L.P. and 153,239
shares held by Three Arch Associates, L.P. Wilfred E. Jaeger, M.D., a
Director of the Company, shares voting and investment power with respect
to such shares. Dr. Jaeger disclaims beneficial ownership of shares held
by Three Arch, except to the extent of his proportionate interest
therein. Dr. Jaeger holds options for 10,000 shares, of which 5,625 are
exercisable within 60 days of November 9, 1998 and are included in the
shares beneficially owned.
(8) Includes 1,147,821 shares held by Mayfield VIII and 60,412 shares held by
Mayfield Associates Fund II (collectively these entities are referred to
as "Mayfield").
(9) Mr. Steffy holds options for 10,000 shares, of which 5,625 are
exercisable within 60 days of November 9, 1998 and are included in the
shares beneficially owned.
(10) Mr. Hogan holds options for 31,000 shares, of which 16,494 are
exercisable within 60 days of November 9, 1998 and are included in the
shares beneficially owned.
(11) Dr. Nudelman holds options for 37,500 shares, of which 32,812 are
exercisable within 60 days of November 9, 1998 and are included in the
shares beneficially owned.
(12) Amount includes 1,500 shares owned by Mr. Cross' spouse, 250 shares held
by Mr. Cross as custodian for John David Cross, and 250 shares held by
Mr. Cross as custodian for Kathleen Cross. Mr. Cross holds options for
33,000 shares, of which 19,800 are exercisable within 60 days of November
9, 1998 and are included in shares beneficially owned.
(13) Mr. Lewis holds options for 33,000 shares, of which 19,800 are
exercisable within 60 days of November 9, 1998, and are included in the
shares beneficially owned.
(14) Mr. Keefe holds options for 94,917 shares, of which 24,776 are
exercisable within 60 days of November 9, 1998, and are included in the
shares beneficially owned.
(15) Less than one percent.
I-5
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
THE PURCHASER DESIGNEES
Purchaser has informed the Company that each of the Purchaser Designees
listed below has consented to act as a director of the Company.
None of the Purchaser Designees currently is a director of, or holds any
position with, the Company. To the best knowledge of the Company, none of the
Purchaser Designees or their associates beneficially owns any equity
securities, or rights to acquire any equity securities, of the Company or has
been involved in any transactions with the Company or any of its directors or
executive officers that are required to be disclosed pursuant to the rules and
regulations of the SEC.
It is expected that the Purchaser Designees may assume office at any time
following the purchase by Purchaser of such number of Shares that satisfies
the Minimum Condition, which purchase cannot be earlier than December 15, 1998
and that, upon assuming office, the Purchaser Designees will thereafter
constitute at least a majority of the Board.
Biographical information concerning each of the Purchaser Designees,
directors and executive officers is presented on the following pages.
PURCHASER DESIGNEES
The following table sets forth the name and present principal occupation or
employment, and material occupations, positions, offices or employments for
the past five years, of each Purchaser Designee. Unless otherwise indicated,
each such person is a citizen of the United States of America and the business
address of each such person is c/o Select Medical Corporation, 4718 Old
Gettysburg Road, P.O. Box 2034, Mechanicsburg, Pennsylvania 17055.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS
NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS
---------------- -------------------------------
<S> <C>
Rocco A. Ortenzio....... Mr. Ortenzio co-founded Parent and has served as its Chairman and
Chief Executive Officer since February 1997. In 1986, he co-founded
Continental Medical Systems, Inc. ("CMS") and served as its
Chairman and Chief Executive Officer until July 1995, when it
merged with Horizon Healthcare Corporation. He was a consultant to
Horizon/CMS Healthcare from 1995 to 1997. Mr. Ortenzio received a
B.S. from West Chester University in 1955 and graduated from the
University of Pennsylvania School of Physical Therapy in 1956. Mr.
Ortenzio serves as a Director of Quorum Health Group, Inc. and
PHICO Insurance Company. He also serves on the Board of Governors
of the Pennsylvania State System of Higher Education (appointed by
Governor Ridge and confirmed by the Senate in 1996) and a Fund
Advisor to HLM Partners, Inc., a venture capital firm located in
Boston, Massachusetts. Mr. Ortenzio is the father of Robert A.
Ortenzio.
</TABLE>
I-6
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS
NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS
---------------- -------------------------------
<S> <C>
Robert A. Ortenzio...... Mr. Ortenzio co-founded Parent and has served as its President and
Chief Operating Officer and as a Director since February 1997. He
was an Executive Vice President and a Director of Horizon/CMS
Healthcare Corporation from July 1995 until July 1996. Mr. Ortenzio
co-founded CMS and served as its President and Chief Executive
Officer from May 1989 and July 1995, respectively, until August
1996. He served as Chief Operating Officer of CMS from April 1988
to July 1995. Mr. Ortenzio received a B.A. from Gettysburg College
in 1979 and a J.D. from Dickinson College of Law in 1982. Mr.
Ortenzio is also a Director of American Oncology Resources, Inc.,
Concentra Managed Care, Inc. and Centennial Healthcare Corporation.
Mr. Ortenzio is the son of Rocco A. Ortenzio.
Russell L. Carson....... Mr. Carson has served as a Director of Parent since February 1997.
Since 1979 he has been a general partner of Welsh, Carson, Anderson
& Stowe, an investment firm that specializes in the acquisition of
companies in the information services and health care industries.
Mr. Carson serves on the Board of Directors of American Oncology
Resources, Inc., Quorum Health Group, Inc. and several private
companies.
Bryan C. Cressey........ Mr. Cressey has served as a Director of Parent since February 1997.
For the past seventeen years he has also been a Principal of
Golder, Thoma, Cressey, Rauner, Inc., a private equity investment
firm. Mr. Cressey received a J.D. and an M.B.A. degree from Harvard
University in 1976. He is also a director of Paging Network and
Cable Design Technologies.
Donald J. Edwards....... Mr. Edwards has served as a Director of Parent since February 1997,
Mr. Edwards joined Golder, Thoma, Cressey, Rauner, Inc. in August
1994 and became a Principal in April 1996. From September 1992 to
June 1994, he attended the Harvard Business School and received an
M.B.A. Prior to that time, Mr. Edwards served as an Associate with
Lazard Freres & Co.
Lawrence B. Sorrel...... Mr. Sorrel has served as a Director of Parent since July 1998.
Since June 1998 he has been general partner or managing member of
the sole general partner of several investment funds affiliated
with Welsh, Carson, Anderson & Stowe. Prior thereto, he was a
Managing Director of Morgan Stanley & Co. Incorporated where he was
employed since 1986 as a senior executive in the firm's private
equity investment business, where he served on the board of various
portfolio companies as well as several different funds. He is also
a director of Emmis Communications Corp. and several private
companies.
LeRoy S. Zimmerman...... Mr. Zimmerman has served as a Director of Parent since October
1998. Since April 1989 he has been Chairman of the Board of
Directors of Eckert Seamans Cherin & Mellon, LLC, a law firm. From
1981 to 1989, Mr. Zimmerman was the Attorney General of the
Commonwealth of Pennsylvania. Prior to that, he was the District
Attorney of Dauphin County, Pennsylvania since 1965.
</TABLE>
I-7
<PAGE>
CURRENT DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
<S> <C> <C>
David W. Cross................ 51 President, Chief Executive Officer and
Director
John P. Keefe................. 50 Chief Financial Officer
John R. Lewis................. 52 Executive Vice President and Chief
Operating Officer
Jeffrey J. Collinson.......... 56 Director
Wilfred E. Jaeger, M.D........ 42 Director
David L. Steffy............... 54 Director
Phillip M. Nudelman, Ph.D..... 62 Director
James B. Tanabaum, M.D........ 34 Director
Michael R. Hogan.............. 44 Director
</TABLE>
CLASS I DIRECTORS. The terms of the Class I directors are scheduled to
expire at the 2000 Annual Meeting of Stockholders. The Class I directors are:
Phillip M. Nudelman, Ph.D.
Dr. Nudelman has served as a director of the Company since June 1996. Since
1991, Dr. Nudelman has served as Chairman and President of Kaiser/Group
Health, a not-for-profit managed healthcare system with 10,000 employees that
provides health care services to over 650,000 people. Dr. Nudelman joined
Kaiser/Group Health in 1973, and has served in various senior level positions.
Dr. Nudelman serves on the President's Advisory Commission on Consumer
Protection and Quality in the Health Care Industry, serves on the boards of
SpaceLabs Medical, Inc., Advanced Technology Laboratories, Inc., Cell
Therapeutics, Inc., and Cytran, Inc., and served on the White House Task Force
on Healthcare Reform. He holds degrees in microbiology and pharmacy from the
University of Washington and an M.B.A. and a Ph.D. in Health Systems
Management from Pacific Western University.
James B. Tananbaum, M.D.
Dr. Tananbaum has served as a director of the Company since December 1994.
Since 1993, Dr. Tananbaum has served as a venture partner with Sierra
Ventures, a leading venture capital firm. From 1991 to 1993, Dr. Tananbaum
held various executive positions with Merck, Inc. From 1997 to present, Dr.
Tananbaum has served as President and Chief Executive Officer of Advanced
Medicine, Inc. Dr. Tananbaum is also a co-founder and Director of GelTex
Pharmaceuticals, Inc., a biopolymer pharmaceutical company. Dr. Tananbaum is
the founding Chairman of Orange Coast Managed Care Services, a physician
practice management company in Southern California (acquired by FPA Medical
Management, Inc.). Dr. Tananbaum also serves as a director of NovaMed Eyecare
Management, Inc. Dr. Tananbaum holds a medical degree from Harvard Medical
School, an M.B.A. from Harvard Business School, and a B.S.E.E. and B.S. from
Yale University.
I-8
<PAGE>
Michael R. Hogan
Mr. Hogan was appointed as a director of the Company on May 23, 1997. Since
January 1996, Mr. Hogan has served as Controller of Monsanto Company. Prior to
joining Monsanto, Mr. Hogan served as an Executive Vice President of General
American Life Insurance Company from 1986 until 1996.
CLASS II DIRECTORS. The terms of the Class II directors are scheduled to
expire at the 2001 Annual Meeting of Stockholders. The Class II directors are:
David W. Cross
Mr. Cross is a founder of the Company and has served as President and Chief
Executive Officer and as a director since the Company's inception in 1994.
Prior to founding the Company, Mr. Cross was a founder, the President and
Chief Executive Officer, and a Director of Advanced Rehabilitation Resources,
Inc., serving in each of these capacities from 1990 to 1993. From 1987 to
1990, he was Senior Vice President of Business Development for RehabCare
Group, Inc., a publicly traded rehabilitation care company, and in 1993 and
1994 served as Executive Vice President and Chief Development Officer of
RehabCare Group, Inc. Mr. Cross currently serves on the Board of Directors of
Odyssey HealthCare, Inc., a hospice health care company, and he is a Trustee
and President of the Long Term Acute Care Hospital Association of America, a
trade association. Mr. Cross holds a B.A. from the University of California at
Fullerton.
Jeffrey J. Collinson
Mr. Collinson has served as a director of the Company since December 1994.
Since 1990, Mr. Collinson has served as President of Collinson Howe Venture
Partners, Inc. (formerly named Schroder Venture Advisors, Inc.), a venture
capital management firm, and from 1983 to 1990, was President of Schroder
Venture Managers, Inc., a venture capital firm. Mr. Collinson is also a
director of Incyte Pharmaceuticals, Inc., Neurogen Corporation, and Spare,
Kaplan, Bischel & Associates.
Class III Directors. The terms of the Class III directors are scheduled to
expire at the 1999 Annual Meeting of Stockholders. The Class III directors
are:
Wilfred E. Jaeger, M.D.
Dr. Jaeger has served as a director of the Company since December 1994. Dr.
Jaeger is a founding General Partner of the lead venture capital investor in
the Company, Three Arch Partners, a venture capital firm that focuses
exclusively on health care investments. Prior to founding Three Arch Partners
in 1993, he was a partner at Schroder Venture Advisors, Inc. from 1992 to
1993. From 1991 to 1992, Dr. Jaeger was an Associate and then General Partner
of The Phoenix Partners, a venture capital firm. Dr. Jaeger received his
medical degree from the University of British Columbia in Vancouver, Canada.
He practiced medicine for six years before earning an M.B.A. from Stanford
University. Dr. Jaeger is also a director of Cell Therapeutics, Inc., Prolific
Medical, Inc., Spinal Dynamics Corp., Transvascular, Inc., Uros Corporation,
and Radiant Medical, Inc.
I-9
<PAGE>
David L. Steffy
Mr. Steffy is a founder of the Company and has served as a director since
its inception in 1994. From 1985 to 1996, Mr. Steffy was Vice Chairman and a
director of Community Health Systems, a company he co-founded. From 1979 to
1985, he held management positions and was a co-founder of Republic Health
Corporation as well as a senior manager of Hospital Affiliates International.
Until 1979, Mr. Steffy served as director, Hospital Administration of the Ohio
State University. Mr. Steffy also serves as a director of Province Healthcare,
Inc., Odyssey Healthcare, Inc., and Arcadian Healthcare Management, Inc.
The executive officers of the Company are:
John R. Lewis
Mr. Lewis is a founder of the Company and has served as Executive Vice
President and Chief Operating Officer since its inception in 1994. Prior to
joining the Company, Mr. Lewis was a co-founder of Advanced Rehabilitation
Resources, Inc. and served as its Chief Operating Officer from 1990 to 1993.
From 1984 until 1990, he served as the Chief Operating Officer of RehabCare
Group, Inc. and in 1993 and 1994 served in various senior executive positions
including Chief Operating Officer with RehabCare Group, Inc. Mr. Lewis holds
and M.A. from Ohio University.
John P. Keefe
Mr. Keefe has served as Chief Financial Officer for the Company since June
1995. From 1993 to 1995, Mr. Keefe served as northwestern Region Area Manager
for Sons of Norway, a fraternal insurance company, and from 1988 to 1993, he
served as Chief Financial Officer and Senior Vice President for Safecare
Health Services, a hospital management company. From 1980 until 1988, he held
senior level financial positions with American Medical International, a
hospital management company. He also served as the Chief Financial Officer for
the George Washington University Health Plan. Mr. Keefe is a certified public
accountant and holds a B.A. in business administration from Georgia State
University.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
All of the current Directors attended at least 75 percent of the aggregate
of all Board of Directors meetings and committee meetings (of which such
Directors were members) during the fiscal year ended December 31, 1997, that
were held during the period he served on the Board and/or committee. Michael
R. Hogan became a Director in May 1997 and attended all of the meetings held
after his appointment. There were four Board of Directors meetings held during
the fiscal year ended December 31, 1997.
The Board of Directors has two standing committees: an Audit Committee and a
Compensation Committee. The Audit Committee has general responsibility for
supervision of financial controls as well as accounting and audit activities
of the Company. The Audit Committee annually reviews the qualifications of the
Company's independent certified public accountants, makes recommendations to
the Board of Directors concerning the selection of the accountants, and
reviews the planning, fees, and results of the accountants' audit. The
Compensation Committee has the authority to (i) administer the
I-10
<PAGE>
Company's stock option plan, including the selection of optionees and the
timing of option grants, and (ii) review and monitor key employee compensation
and benefits policies and administer the Company's management compensation
plans. The current members of the Audit Committee are Jeffrey J. Collinson,
David L. Steffy, and Michael Hogan. The current members of the Compensation
Committee are David L. Steffy, Dr. Wilfred E. Jaeger, and Dr. James B.
Tananbaum.
Compensation of Directors
All non-employee Directors are entitled to elect to receive cash
compensation for their services or to be paid in stock options pursuant to the
Intensiva HealthCare Corporation Directors Stock Option Plan ("Directors
Plan"). Directors who elect cash compensation are paid $2,500 for each board
meeting attended. Directors who elect to be compensated under the Directors
Plan are entitled to receive options to acquire 10,000 shares of the Common
Stock in lieu of cash compensation, which vest and become immediately
exercisable 25% after six months' service, and monthly thereafter over the
next 24 months. The exercise price of options granted under the Directors Plan
is the fair market value of shares of the Company's common stock on the date
such options were granted. Notwithstanding the foregoing, if at any time a
director who holds options under the plan ceases to be a member of the
Company's Board of Directors, any options granted to such person which have
not become exercisable prior to the time such person ceases being a director
shall immediately terminate and be null and void. Directors who elect to be
compensated under the Directors Plan must participate in such plan for a
period of at least two years.
I-11
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth for the years ended December 31, 1997, 1996,
and 1995 the compensation paid by the Company to Mr. Cross, the Company's
President and Chief Executive Officer and each of the other four most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers") who earned salary and bonuses in excess of $100,000
during 1997 for all services rendered in all capacities in which they served:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------- -------------------------------------------
RESTRICTED
NAME AND OTHER ANNUAL STOCK OPTIONS LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) (SHARES) PAYOUTS COMPENSATION(1)
------------------ ---- ------ -------- ------------ ---------- -------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David W. Cross 1997 $182,798 $125,490 -- -- -- -- --
President and Chief 1996 $178,142 $ 91,740 -- -- -- -- --
Executive Officer 1995 $125,000 $ 93,750 $ 7,800 -- 33,000 -- --
John R. Lewis 1997 $147,901 $110,499 -- -- -- -- --
Executive Vice President 1996 $142,775 $ 73,260 -- -- -- -- --
and Chief Operating 1995 $100,000 $ 75,000 $ 7,800 -- 33,000 -- --
Officer
John P. Keefe 1997 $135,000 $ 70,000 -- -- 50,000 -- --
Chief Financial Officer 1996 $138,058 $ 60,000 -- -- -- -- --
1995 $ 70,000 $ 50,765(1) -- -- 107,800 -- --
Anthony J. Torrente 1997 $ 99,985 -- $ 96,065(2) -- -- -- --
Executive Vice 1996 $ 93,171 -- $232,000(2) -- -- -- --
President, Business 1995 $ 90,000 -- $ 46,250(2) -- 100,100 -- --
Development
James D. Pomeroy 1997 $ 90,000 -- $200,500(2) -- -- -- --
Vice President, Business 1996 $ 92,019 -- $100,000(2) -- -- -- --
Development 1995 $ 86,250 -- $ -- -- 80,850 -- --
</TABLE>
- --------
(1) Includes a relocation bonus payment of $36,765. In connection with Mr.
Keefe's relocation to St. Louis, the Company loaned Mr. Keefe $154,000,
without interest, for a bridge loan on his St. Louis home until his prior
home was sold. The loan was secured by deeds of trust on both homes and
was repaid in full upon sale of his prior home which occurred prior to
December 31, 1995.
(2) The dollar amount represents commissions earned during the fiscal years
indicated.
I-12
<PAGE>
OPTION GRANTS DURING 1997
The following tables set forth, with respect to the Company's Chief
Executive Officer and the Named Executive Officers, certain information about
option grants and exercises in the fiscal year ended December 31, 1997. The
Company has not granted any stock appreciation rights.
Option Grants in the Fiscal Year Ended December 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER OF OPTIONS GRANTED
SECURITIES UNDERLYING TO EMPLOYEES EXERCISE PRICE EXPIRATION
NAME OPTIONS GRANTED IN FISCAL YEAR (PER SHARE) DATE
- ---- --------------------- ------------------- -------------- ----------
<S> <C> <C> <C> <C>
David W. Cross.......... -- -- -- --
John R. Lewis........... -- -- -- --
John P. Keefe........... 50,000 56.18% $7.00 9/5/07
Anthony J. Torrente..... -- -- -- --
James D. Pomeroy........ -- -- -- --
</TABLE>
Aggregate Option Exercises in the Fiscal Year Ended December 31, 1997
and Fiscal Year End Option Values
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES ACQUIRED AT FISCAL YEAR END AT FISCAL YEAR END
NAME ON EXERCISE VALUE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
David W. Cross.......... -- -- 13,200/19,800 $ 97,944/$146,916
John R. Lewis........... -- -- 13,200/19,800 $ 97,944/$146,916
John P. Keefe........... -- -- 52,103/105,697 $386,604/$438,271
Anthony J. Torrente..... -- -- 56,530/43,570 $419,453/$323,289
James D. Pomeroy........ -- -- 51,205/29,645 $379,941/$219,966
</TABLE>
MATERIAL CONTRACTS AND AGREEMENTS WITH EXECUTIVE OFFICERS
The Company has entered into employment agreements with each of Messrs.
Cross, Lewis, and Keefe, all of which expire in 2001. All such agreements
provide for discretionary bonuses. Pursuant to Messrs. Cross' and Lewis'
employment agreements certain notes made by each of them and acquired by the
Company from RehabCare Group, Inc. were forgiven on September 22, 1997. All
such agreements provide for severance benefits if the Company terminates
employment without cause (as defined in the agreements). Such severance
benefits are equal to one year's salary in the case of Messrs. Lewis and
Keefe, and two years' salary in the case of Mr. Cross. All of the agreements
provide that the employee will not compete with the Company for twelve months
following termination of employment.
COMPENSATION COMMITTEE REPORT
The purpose of a compensation committee is to consider the levels and
components of executive compensation relative to those generally available in
its marketplace in the context of the overall long-term objectives of the
Company and its stockholders. By maintaining appropriate balance in these
factors, the Compensation Committee believes that it will be most effective in
attracting and retaining well-qualified executives who will be capable of
contributing to the success of the Company.
I-13
<PAGE>
The paramount objective of the Company is building the long-term value of
the stockholders' investment within the framework of operating the Company in
a safe and sound manner. This is accomplished by achieving substantial
improvements and consistency in earnings and strengthening the Company's
presence in new markets. Consequently, the compensation of executives should
be structured to attract individuals capable of contributing to the
achievement of these objectives and to align the welfare of those individuals
with that of the stockholders.
The Compensation Committee periodically reviews the various components of
the Company's executive compensation programs as outlined below:
Base Salary. In determining the appropriate base salaries of its executive
officers, the Compensation Committee evaluates the performance of the Company,
considering general business and industry conditions, among other factors, and
the contributions of specific executives toward that performance. The
Compensation Committee also evaluates each officer's areas of responsibility
and the Company's performance in those areas. Finally, the Compensation
Committee considers the level of compensation paid to comparable executives by
other companies of comparable size in its industry and marketplaces.
Bonus. The Compensation Committee may elect to award bonuses to selected
executive officers based largely upon the same criteria as the evaluations of
base salaries, emphasizing the need to maintain competitive compensation
packages and the desire to recognize outstanding performance by the officers.
Stock Option Program. The Compensation Committee recognizes that one way to
align the interests of the Company's senior employees with those of its
stockholders is the encouragement of ownership of Company stock through stock
options granted under its Employee Stock Option Plan. Under this plan, senior
employees are eligible to receive stock options from time to time, giving them
the right to purchase shares of Common Stock at a specified price in the
future.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
There were no Compensation Committee interlocks or insiders participation
during 1997.
SECTION 16(a) REPORTING
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
directors and Executive Officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company. Executive officers,
directors and greater than ten percent stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports
they file.
To the Company's knowledge, based solely on the Forms 3 (Initial Statement
of Beneficial Ownership of Securities), Forms 4 (Statement of Changes in
Beneficial Ownership), and Forms 5 (Annual Statement of Changes in Beneficial
Ownership) filed with the Company, no persons failed to file any such form in
a timely manner, except that Mr. Steffy filed a Form 4 for his May 1998
transactions on July 10, 1998.
I-14
<PAGE>
PERFORMANCE GRAPH
The Company has prepared a table comparing the yearly percentage change in
stockholder return on the Company's Common Stock to the cumulative return on
the S&P 500 and the companies that share the Company's four digit SIC code
(the "Peer Group"). The table assumes a $100 investment in the Company, the
S&P 500, and the Peer Group on October 11, 1996, and that all dividends paid
have been reinvested.
[GRAPH APPEARS HERE]
I-15
<PAGE>
ANNEX II
[LETTERHEAD OF WASSERSTEIN PERELLA & CO., INC.]
November 9, 1998
The Board of Directors
Intensiva HealthCare Corporation
7733 Forsyth Boulevard
Suite 800
St. Louis, MO 63105
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the holders of the common stock, $0.001 par value
("Shares") of Intensiva HealthCare Corporation (the "Company") of the
consideration to be received by such holders pursuant to the terms of the
Agreement and Plan of Merger, dated as of November 9, 1998 (the "Merger
Agreement"), by and among the Company, Select Medical Corporation ("Parent")
and Select Medical of Mechanicsburg, Inc. ("Purchaser"), a wholly owned
subsidiary of Parent. The Merger Agreement provides for, among other things, a
cash tender offer by Purchaser to acquire all of the issued and outstanding
Shares at a price of $9.625 per Share (the "Tender Offer"), and for a
subsequent merger of Purchaser with and into the Company pursuant to which
each outstanding Share (other than Shares purchased pursuant to the Tender
Offer) will be converted into the right to receive $9.625 in cash (the
"Merger" and, together with the Tender Offer, the "Transaction"). The terms
and conditions of the Transaction are set forth in more detail in the Merger
Agreement.
In connection with rendering our opinion, we have reviewed the Merger
Agreement. We have also reviewed and analyzed certain publicly available
business and financial information relating to the Company for recent years
and interim periods to date, as well as certain internal financial and
operating information, including prospective financial information, prepared
by the Company and provided to us for purposes of our analysis, and we have
met with management of the Company to review and discuss such information and,
among other matters, the Company's business, operations, assets, financial
condition and future prospects.
We have reviewed and considered certain financial and stock market data
relating to the Company, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant, and we have reviewed and considered the financial
terms of certain recent transactions that we believe to be reasonably relevant
to our inquiry. We have also performed such other financial studies, analyses,
and investigations and reviewed such other information as we considered
appropriate for purposes of this opinion.
NEW YORK CHICAGO DALLAS FRANKFURT HOUSTON LONDON LOS
ANGELES PARIS SAN FRANCISCO TOKYO
II-1
<PAGE>
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all financial and other
information provided to or discussed with us or publicly available, and we
have not assumed any responsibility for independent verification of any of
such information. We have also assumed and relied upon the reasonableness and
accuracy of the prospective financial information provided to us and we have
assumed, with your consent, that such prospective financial information was
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of the Company's management. We express no
opinion with respect to such prospective financial information or the
assumptions upon which they are based. In addition, we have not reviewed any
of the books and records of the Company, or assumed any responsibility for
conducting a physical inspection of the properties or facilities of the
Company, or for making or obtaining an independent valuation or appraisal of
the assets or liabilities of the Company, and no such independent valuation or
appraisal was provided to us. We have also assumed that the transactions
described in the Merger Agreement will be consummated on the terms set forth
therein, without waiver or modification of any of the material terms or
conditions contained therein by any party thereto. Our opinion is necessarily
based on economic, regulatory and market conditions and other circumstances as
they exist and can be evaluated by us as of the date hereof.
We are acting as financial advisor to the Company in connection with the
proposed Transaction and will receive a fee for our services, a substantial
portion of which is contingent upon the consummation of the Transaction. In
addition, the Company has agreed to indemnify us for certain liabilities which
may arise out of our engagement as financial advisor, including the rendering
of this opinion. In the ordinary course of our business, we may actively trade
the equity securities of the Company for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position
in such securities.
Our opinion addresses only the fairness from a financial point of view to
the holders of the Shares of the consideration to be received by such holders
pursuant to the Transaction, and we do not express any views on any other
terms of the Transaction. At the Company's instruction, we contacted a limited
number of other potential acquirors and did not explore all possible
alternatives that might be available to the Company. Our opinion does not
address the Company's underlying business decision to effect the transactions
contemplated by the Merger Agreement, nor does our opinion address the
relative merits of the Transaction as compared to any alternative transaction
or business strategy that might be available to the Company.
It is understood that this letter is for the benefit and use of the Board of
Directors of the Company in its consideration of the Transaction and, except
for inclusion in its entirety in a proxy statement circulated to Shareholders
of the Company relating to the Merger or tender offer recommendation statement
on Schedule 14D-9 from the Company to Shareholders relating to the
Transaction, may not be disseminated, quoted, referred to or reproduced at any
time and in any manner without our prior written consent. This opinion does
not constitute a recommendation to any holder of Shares with respect to
whether such holder should tender Shares pursuant to the Tender Offer or as to
how such holder should vote or otherwise act with respect to the Merger, and
should not be relied upon by any Shareholder for such purposes.
II-2
<PAGE>
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date
hereof, the $9.625 per Share cash consideration to be received by the holders
of Shares pursuant to the Transaction is fair to such holders from a financial
point of view.
Very truly yours,
/s/ Wasserstein Perella & Co., Inc.
Wasserstein Perella & Co., Inc.
II-3
<PAGE>
Exhibit 99.1
Agreement and Plan of Merger, dated as of November 9, 1998, by and among Parent,
Purchaser and the Company.
<PAGE>
================================================================================
AGREEMENT AND PLAN OF MERGER
By and Among
SELECT MEDICAL CORPORATION
SELECT MEDICAL OF MECHANICSBURG, INC.
and
INTENSIVA HEALTHCARE CORPORATION
----------------------------
Dated as of November 9, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. THE OFFER.....................................................1
1.1. The Offer.....................................................1
1.2. Conditions to the Offer.......................................2
1.3. Waivers of Conditions.........................................3
1.4. Schedule 14D-1................................................4
1.5. Company Action................................................5
ARTICLE II. THE MERGER...................................................6
2.1. The Merger....................................................6
2.2. Effective Time; Closing.......................................6
2.3. Effect of the Merger..........................................6
2.4. Certificate of Incorporation; By-laws.........................7
2.5. Directors and Officers........................................7
2.6. Conversion of Securities......................................7
2.7. Dissenting Shares.............................................7
2.8. Employee Stock Options........................................8
2.9. Surrender of Shares; Stock Transfer Books.....................8
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............10
3.1. Organization and Qualification; Subsidiaries.................10
3.2. Certificate of Incorporation and By-laws.....................10
3.3. Capitalization...............................................10
3.4. Authority Relating to this Agreement.........................11
3.5. No Conflict; Required Filings and Consents...................11
3.6. SEC Filings; Financial Statements............................12
3.7. Absence of Certain Changes or Events.........................13
3.8. Absence of Litigation........................................13
3.9. Labor Matters; Employee Benefit Plans........................13
3.10. Offer Documents; Schedule 14D-9; Proxy Statement.............15
3.11. Taxes........................................................15
3.12. Compliance with Laws.........................................16
3.13. Exclusion....................................................17
3.14. Accounts Receivable..........................................18
3.15. Brokers......................................................18
3.16. Real Property and Leases.....................................18
3.17. Environmental Matters........................................19
3.18. State Takeover Statutes......................................19
3.19. Vote Required................................................20
3.20. Certain Contracts............................................20
3.21. Intellectual Property........................................20
3.22. Opinion of Financial Advisor.................................21
3.23. Affiliate Transactions.......................................21
3.24. Prior Negotiations...........................................21
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER.....21
4.1. Corporate Organization.......................................21
4.2. Authority Relating to this Agreement.........................21
4.3. No Conflict; Required Filings and Consents...................22
4.4. Financing....................................................22
4.5. Offer Documents; Proxy Statement.............................23
4.6. Brokers......................................................23
ARTICLE V. CONDUCT OF BUSINESS PENDING THE MERGER......................23
5.1. Conduct of Business by the Company Pending the Merger........23
5.2. Additional Covenants.........................................26
ARTICLE VI. ADDITIONAL AGREEMENTS......................................26
6.1. Stockholders Meeting.........................................26
6.2. Proxy Statement..............................................27
6.3. Company Board Representation; Section 14(f)..................27
6.4. Access to Information; Confidentiality.......................28
6.5. No Solicitation of Transactions..............................28
6.6. Employee Matters.............................................30
6.7. Directors' and Officers' Indemnification and Insurance.......30
6.8. Further Action; Reasonable Best Efforts......................32
6.9. Public Announcements.........................................32
6.10. SEC and Stockholder Filings..................................32
6.11. Takeover Statutes............................................32
6.12. Advice of Breaches...........................................33
ARTICLE VII. CONDITIONS TO THE MERGER..................................33
7.1. Conditions to the Merger.....................................33
7.2. Parent and Purchaser Conditions to the Merger................33
7.3. Company Conditions to the Merger.............................34
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER........................35
8.1. Termination..................................................35
8.2. Effect of Termination........................................36
8.3. Fees and Expenses............................................37
8.4. Amendment....................................................38
8.5. Waiver.......................................................38
ARTICLE IX. GENERAL PROVISIONS.........................................38
9.1. Non-Survival of Representations, Warranties and Agreements...38
9.2. Notices......................................................38
9.3. Definitions..................................................39
9.4. Severability.................................................42
9.5. Entire Agreement; Assignment.................................42
9.6. Parties in Interest..........................................43
9.7. Governing Law................................................43
9.8. Headings.....................................................43
9.9. Counterparts.................................................43
9.10. Specific Performance.........................................43
9.11. Costs of Enforcement.........................................43
ii
<PAGE>
THIS AGREEMENT AND PLAN OF MERGER, dated as of November 9, 1998 (the
"Agreement"), is by and among SELECT MEDICAL CORPORATION, a Delaware corporation
("Parent"), SELECT MEDICAL OF MECHANICSBURG, INC., a Delaware corporation and a
wholly owned subsidiary of Parent ("Purchaser"), and INTENSIVA HEALTHCARE
CORPORATION, a Delaware corporation (the "Company").
Background
----------
(a) The Boards of Directors of Parent, Purchaser and the Company have each
determined that it is in the best interests of their respective stockholders for
Parent to acquire the Company upon the terms and subject to the conditions set
forth herein.
(b) In furtherance of such acquisition, Parent, Purchaser and the Company have
agreed that Purchaser shall make a cash tender offer to acquire all the
outstanding shares of common stock of the Company, on the terms and subject to
the conditions of this Agreement.
(c) The Board of Directors of the Company has approved the making of such
offer and has agreed to recommend that holders of Shares tender their Shares
under such offer.
(d) The Boards of Directors of Parent, Purchaser and the Company have approved
the merger of Purchaser with and into the Company following the consummation of
the Offer and on the terms and subject to the conditions set forth herein.
(e) Parent and Purchaser have entered into agreements with certain holders of
the Shares under which such holders agree to tender such Shares in the Offer
and/or vote in favor of the Offer and the Merger (the "Stockholder Agreements").
(f) Certain capitalized terms used herein are defined in Section 9.3.
Agreement
---------
In consideration of the foregoing and the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, Parent, Purchaser
and the Company hereby agree as follows:
ARTICLE I.
THE OFFER
1.1. The Offer.
Upon the terms and subject to the conditions of this Agreement, Purchaser
shall commence a cash tender offer (the "Offer") to acquire all the issued and
outstanding shares (the "Shares") of Common Stock, par value $0.001 per share,
of the Company ("Common Stock"). The purchase price under the Offer shall be
$9.625 per Share (such amount, or any greater amount per Share paid pursuant to
the Offer, being hereinafter referred to as the "Per Share Amount"), net to the
seller in cash, on the terms and subject to the conditions set forth herein.
Purchaser shall commence the Offer as promptly as reasonably practicable after
the date hereof, but in no event later than five Business Days after the initial
public announcement of Purchaser's intention to commence the Offer. Subject to
the terms and conditions of the Offer and in accordance with the terms of this
Agreement, Purchaser shall accept for payment and pay for, as promptly as
practicable after expiration of the Offer, all Shares validly tendered and not
withdrawn.
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<PAGE>
1.2. Conditions to the Offer.
The obligation of the Purchaser to accept for payment and pay for Shares
tendered pursuant to the Offer shall be subject to the following conditions:
(a) At least the number of Shares that, when added to the Shares already owned
by Parent, shall constitute 90% of the then outstanding Shares on a fully
diluted basis (including, without limitation, all Shares issuable upon the
conversion of any convertible securities or upon the exercise of any options,
warrants or rights), shall have been validly tendered and not withdrawn prior to
the expiration of the Offer (the "Minimum Condition");
(b) any applicable (i) waiting period under the HSR Act or (ii) period during
which Parent or Purchaser shall have consented or otherwise be barred from
purchasing Shares pursuant to the Offer as part of any agreement or other
arrangement with any Governmental Authority involving the HSR Act or any other
applicable antitrust laws has expired or been terminated prior to the expiration
of the Offer (as it may be extended hereunder);
(c) the Company shall have received any required consent or approval of any
Governmental Authority and there shall not be pending or threatened any action
or proceeding before any court or Governmental Authority, domestic or foreign,
(i) challenging or seeking to directly or indirectly restrain or prohibit, the
transactions contemplated hereby including the Merger, the Offer and the
Stockholders Agreements (the "Transactions"); (ii) seeking to prohibit or limit
materially the ownership or operation by the Company, Parent or any of their
Subsidiaries of all or any material portion of the business or assets of the
Company, (iii) seeking to impose limitations on the ability of the Parent, the
Purchaser or any other Affiliate of Parent to exercise effectively full rights
of ownership of any Shares, (iv) seeking to require divestiture by Parent,
Purchaser or any other Affiliate of Parent of any Shares, (v) seeking to
prohibit Parent or any of its Subsidiaries from effectively controlling in any
material respect the business or operations of the Company or its Subsidiaries,
(vi) seeking to obtain from the Company, Parent or Purchaser any damages or
otherwise imposing financial burdens, penalties or fines that are material in
relation to the Company and its Subsidiaries, or Parent and its Subsidiaries, in
each case taken as a whole, or (vii) which is otherwise reasonably likely to
have a Material Adverse Effect on the Company;
(d) there shall not have been any statute, rule, regulation, judgment, order
or injunction enacted, entered, issued, enforced, promulgated or deemed
applicable, or any other action taken, by any Government Authority other than
the routine application of the waiting period provisions of the HSR Act to the
Offer, or the Merger, which is reasonably likely to result, directly or
indirectly, in any of the consequences referred to in clauses (i) through (vii)
of the preceding paragraph;
(e) there shall not have occurred, and be continuing, any change, condition,
event or other development that has had a Material Adverse Effect;
(f) the representations and warranties of the Company in this Agreement shall
be true and correct (for all purposes of this paragraph (f) without giving
effect to any material or Material Adverse Effect qualifiers or other qualifiers
based on materiality that are contained in this Agreement) as of such time
(except to the extent such representations and warranties expressly relate to an
earlier date, in which case such representations and warranties shall be true
and
2
<PAGE>
correct as of such earlier date), except to the extent that the failure or
failures to be true or correct do not, in the aggregate, have a Material Adverse
Effect;
(g) the Company shall have performed in all material respects its obligations
under this Agreement which, by their terms, are to be performed prior to such
date;
(h) this Agreement shall not have been terminated in accordance with its
terms; and
(i) all of the holders of outstanding Company Stock Options which have not
been exercised or tendered in the Offer shall have agreed to the cancellation of
such Company Stock Options as described in Section 2.8 in consideration for the
receipt of the Option Spread.
The obligations of the Purchaser to purchase shares pursuant to the Offer
and engage in the Merger are not contingent upon the obtaining of financing by
the Parent or Purchaser, and no such condition shall be implied by the
conditions contained in this Section 1.2.
1.3. Waivers of Conditions.
(a) The conditions in Section 1.2 are for the sole benefit of Purchaser and
Parent and may be waived by Purchaser or Parent in whole or in part at any time
and from time to time in their sole discretion and Purchaser expressly reserves
the right to modify the terms of the Offer, except that, without the prior
written consent of the Company:
(i) the Minimum Condition may not be waived, provided that Parent and
Purchaser may reduce the Minimum Condition to 66-2/3% of the
outstanding Shares on a fully-diluted basis;
(ii) no change may be made which (A) decreases the price per Share
payable in the Offer, (B) reduces the maximum number of Shares to be
purchased in the Offer, (C) imposes conditions to the Offer other than as
set forth above, or (D) is otherwise materially adverse to the Company's
stockholders.
(b) The Purchaser may, without the consent of the Company, (i) extend the
Offer on one or more occasions beyond the then scheduled expiration date (the
initial scheduled expiration date being 20 Business Days following the
commencement of the Offer computed in accordance with SEC Rules) if, at the then
scheduled expiration date of the Offer, any of the conditions to Purchaser's
obligation to accept for payment, and to pay for, the Shares, shall not be
satisfied or waived, (ii) extend the Offer for the minimum period required by
the SEC Rules applicable to the Offer including in connection with any increase
in consideration or waiver of a condition which is permitted to be waived under
Section 1.3(a), (iii) extend the Offer as provided in Section 1.3(c) or (iv)
extend the Offer on one or more occasions for an aggregate period of not more
than 10 Business Days beyond the initial expiration date or the latest
expiration date that would otherwise be permitted (or, in the case of clause
(iii), required) under clause (i), (ii) or (iii) of this sentence; provided,
that, in the case of such an extension under clause (iv), the Purchaser and the
Parent shall have irrevocably waived the conditions contained in Section 1.2
other than the conditions set forth in Section 1.2(a), 1.2(h) and, with respect
to willful breaches, Section 1.2(g).
(c) If on the then scheduled expiration date of the Offer, any condition to
the Offer set forth in Section 1.2(b)-(d) is not satisfied or waived, and all of
the conditions to the Offer other than those set forth in Section 1.2(b)-(d)
have been satisfied or waived, the Purchaser shall, if requested by the Company
in writing prior to the then scheduled expiration date (which notice shall
describe in
3
<PAGE>
reasonable detail the circumstances resulting in the failure of such condition
to be satisfied), extend the Offer to the extent necessary to permit such
condition to be satisfied, provided that Purchaser shall not be required to
extend the Offer under this Section 1.3(c) beyond the date specified in Section
8.1(b)(i) or (ii) if the conditions to the Offer specified herein cannot be
satisfied on or prior to such date.
(d) If on the then scheduled expiration date of the Offer, the Minimum
Condition shall not have been satisfied or waived but more than 66-2/3% of the
outstanding Shares on a fully-diluted basis have been tendered and not
withdrawn, then Purchaser may, in addition to or in lieu of extending the Offer
pursuant to Section 1.3(b), deliver to the Company a written notice (the "Merger
Notice") directing the Company to proceed with the Merger and to call and hold
the Stockholders Meeting and disseminate the Proxy Statement as soon as
reasonably practicable. In the event (i) Purchaser elects not to deliver a
Merger Notice to the Company pursuant to the preceding sentence, (ii) the
Minimum Condition shall not have been satisfied or waived but more than 66-2/3%
of the outstanding Shares on a fully-diluted basis have been tendered and not
withdrawn and (iii) all of the conditions to the Offer other than the Minimum
Condition and those conditions set forth in Section 1.2(b)-(d) have been
satisfied or waived, Purchaser shall extend the Offer for one or more periods of
time to permit the Minimum Condition and the other conditions to be satisfied as
provided in Section 1.3(b); provided that Purchaser shall not be required to
extend the Offer under this Section 1.3(d) (x) beyond the date specified in
Section 8.1(b)(i) or (y) if the conditions to the Offer specified herein cannot
be satisfied on or prior to such date.
(e) If at any time on or after January 15, 1999, (i) the Offer shall not have
expired or terminated in accordance with its terms, (ii) the Minimum Condition
shall not have been satisfied or waived but more than 66-2/3% of the outstanding
Shares on a fully-diluted basis have been tendered and not withdrawn, and (iii)
all of the conditions to the Offer other than the Minimum Condition and those
conditions set forth in Section 1.2(b)-(d) have been satisfied or waived, then
at such time the Company may deliver to Parent and Purchaser a written Merger
Notice informing Parent and Purchaser that the Company has elected to call and
hold the Stockholders Meeting and disseminate the Proxy Statement as soon as
reasonably practicable.
(f) The Per Share Amount has been calculated based on the information set
forth in Section 3.3. If the number of outstanding Shares or Shares issuable
upon the exercise of, or subject to, options or other agreements is, at the date
of acceptance of Shares under the Offer, more or less than the amounts specified
in Section 3.3 by more than 10,000 Shares (including, without limitation, as a
result of any stock split, reverse stock split, stock dividend, including any
dividend or distribution of securities convertible into Shares, recapitalization
or other like change occurring after the date of this Agreement), the Per Share
Amount shall be appropriately adjusted. The provisions of this subsection (f)
shall not, however, be deemed to modify the representation set forth in Section
3.3.
1.4. Schedule 14D-1.
On the date of commencement of the Offer, Parent and Purchaser shall file
with the SEC a Tender Offer Statement on Schedule 14D-1 (together with all
amendments and supplements thereto, the "Schedule 14D-1") with respect to the
Offer, which shall contain or shall incorporate by reference an offer to
purchase (the "Offer to Purchase") and forms of the related letter of
transmittal and any related summary advertisement (the Schedule 14D-1, the Offer
to Purchase
4
<PAGE>
and such other documents, together with all supplements and amendments thereto,
being referred to herein collectively as the "Offer Documents"). The Offer
Documents will comply in all material respects with the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and other applicable laws and will
contain (or will be amended in a timely manner so as to contain) all information
which is required to be included therein in accordance with the Exchange Act and
the rules and regulations thereunder and other applicable laws. Parent,
Purchaser and the Company agree to correct promptly any information provided by
any of them for use in the Offer Documents which were or shall have become false
or misleading, and Parent and Purchaser further agree to take all steps
necessary to cause the Schedule 14D-1 as so corrected to be filed with the SEC
and the other Offer Documents as so corrected to be disseminated to holders of
Shares, in each case as and to the extent required by applicable federal
securities laws. Parent and Purchaser will afford the Company and its counsel a
reasonable opportunity to review and comment on the Offer Documents and any
amendments thereto prior to the filing thereof with the SEC. Parent and
Purchaser will provide the Company and its counsel in writing any comments that
they or their counsel may receive from the SEC or its staff with respect to the
Offer Documents promptly after receipt thereof.
1.5. Company Action.
(a) The Company hereby consents to the Offer and represents and warrants that
(i) the Board, at a meeting duly called and held on November 9, 1998, by
unanimous action has (A) determined that this Agreement and the Transactions,
including the Offer and the Merger, are fair to and in the best interests of the
holders of Shares, (B) approved and adopted this Agreement and the Transactions
(such approval and adoption having been made in accordance with the provisions
of (S) 203 of Delaware Law) and (C) resolved to recommend that the stockholders
of the Company accept the Offer and approve and adopt this Agreement and the
Merger, and (ii) Wasserstein Perella & Co. Inc. ("WP&Co.") has delivered to the
Board its oral opinion (to be confirmed in writing promptly following execution
of this Agreement) that, based on, and subject to, the various assumptions and
qualifications set forth in such opinion, as of the date thereof, the
consideration to be received by the holders of Shares pursuant to each of the
Offer and the Merger is fair to the holders of Shares from a financial point of
view. Unless the recommendation of the Board has been withdrawn in accordance
with Section 6.5, the Company consents to the inclusion in the Offer Documents
of the recommendation of the Board and the written opinion described in the
immediately preceding sentence and agrees to request WP&Co. to consent to the
inclusion of its written opinion in the offering documents forming a part of the
Schedule 14D-9.
(b) On the date of commencement of the Offer, the Company shall file with the
SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the Schedule 14D-9") containing, unless the
recommendation of the Board has been withdrawn in accordance with Section 6.5,
the recommendation of the Board described in Section 1.5(a) and shall
disseminate the Schedule 14D-9 to the extent required by Rule 14d-9 promulgated
under the Exchange Act, and any other applicable federal securities laws. The
Company will afford the Parent and its counsel a reasonable opportunity to
review and comment on the Schedule 14D-9 and its exhibits prior to the filing
thereof with the SEC or dissemination to stockholders of the Company. The
Company will provide Parent and its counsel in writing any comments that the
Company or its counsel may receive from the SEC or its staff with respect to the
Schedule 14D-9 promptly after receipt thereof. The Company represents and
warrants that
5
<PAGE>
Schedule 14D-9 will comply in all material respects with the Exchange Act and
any other applicable laws and will contain (or will be amended in a timely
manner so as to contain) all information which is required to be included
therein in accordance with the Exchange Act and the rules and regulations
thereunder and other applicable laws. The Company, Parent and Purchaser agree to
correct promptly any information provided by any of them for use in the Schedule
14D-9 which has or shall have become false or misleading, and the Company
further agrees to take all steps necessary to cause the Schedule 14D-9 as so
corrected to be filed with the SEC and disseminated to holders of Shares, in
each case as and to the extent required by applicable federal securities laws.
(c) The Company shall promptly furnish Purchaser with mailing labels and any
available listing or computer file containing the names and addresses of all
record holders of Shares and with security position listings of Shares held in
stock depositories, each as of a recent date, and furnish Purchaser with such
information and assistance as Purchaser or its agents may reasonably request in
communicating the Offer to the holders of Shares. Subject to the requirements of
applicable law, and except for such steps as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Offer or the
Merger, Parent and Purchaser shall hold in strict confidence the information
contained in such labels, listings and files, shall use such information only in
connection with the Offer and the Merger, and, if this Agreement shall be
terminated in accordance with Section 8.1, shall promptly deliver to the Company
all copies of such information then in their possession.
ARTICLE II.
THE MERGER
2.1. The Merger.
Upon the terms and subject to the conditions set forth in Article VII, and
in accordance with Delaware Law, at the Effective Time (as hereinafter defined),
Purchaser shall be merged with and into the Company (the "Merger"). As a result
of the Merger, the separate corporate existence of Purchaser shall cease and the
Company shall continue as the surviving corporation of the Merger (the
"Surviving Corporation").
2.2. Effective Time; Closing.
As promptly as practicable after the satisfaction or, if permissible,
waiver of the conditions set forth in Article VII, the parties hereto shall
cause the Merger to be consummated by filing a certificate of merger or
certificate of ownership and merger (in either case, the "Certificate of
Merger") with the Secretary of State of the State of Delaware, in such form as
is required by, and executed in accordance with the relevant provisions of,
Delaware Law. The Merger shall become effective at the time of such filing or
such later time as may be specified in the Certificate of Merger (the date and
time when the Merger shall become effective being the "Effective Time").
2.3. Effect of the Merger.
At the Effective Time, the effect of the Merger shall be as provided in the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Purchaser shall vest in the
Surviving Corporation, and all debts, liabilities,
6
<PAGE>
obligations, restrictions, disabilities and duties of the Company and Purchaser
shall become the debts, liabilities, obligations, restrictions, disabilities and
duties of the Surviving Corporation.
2.4. Certificate of Incorporation; By-laws.
(a) At the Effective Time, the Certificate of Incorporation of Purchaser shall
be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Certificate of Incorporation;
provided, that such Certificate of Incorporation shall be in accordance with the
provisions of Section 6.7 hereof.
(b) The By-laws of Purchaser, as in effect immediately prior to the Effective
Time, shall be the By-laws of the Surviving Corporation until thereafter amended
as provided by law, the Certificate of Incorporation of the Surviving
Corporation and such By-laws.
2.5. Directors and Officers.
The directors of Purchaser immediately prior to the Effective Time shall be
the directors of the Surviving Corporation at and after the Effective Time, each
to hold office in accordance with the Certificate of Incorporation and By-laws
of the Surviving Corporation, and the officers of the Purchaser at the Effective
Time shall be the officers of the Surviving Corporation at and after the
Effective Time, in each case until their respective successors are duly elected
or appointed and qualified.
2.6. Conversion of Securities.
At the Effective Time, by virtue of the Merger and without any action on
the part of Purchaser, the Company or the holders of any of the following
securities:
(a) Each Share issued and outstanding immediately prior to the Effective Time
(other than any Shares to be canceled pursuant to Section 2.6(b)) shall be
converted automatically into the right to receive an amount equal to the Per
Share Amount in cash (the "Merger Consideration") payable after reduction for
any applicable tax withholding, without interest, to the holder of such Share,
upon surrender, in the manner provided in Section 2.9, of the certificate that
formerly evidenced such Share;
(b) Each Share held in the treasury of the Company and each Share owned by
Purchaser, Parent or any direct or indirect wholly owned Subsidiary of Parent or
of the Company immediately prior to the Effective Time shall be canceled and
retired and shall cease to exist without any conversion thereof and no payment
or distribution shall be made with respect thereto; and
(c) Each share of common stock of Purchaser issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of Common Stock, par value
$.001 per share, of the Surviving Corporation.
2.7. Dissenting Shares.
Notwithstanding anything in this Agreement to the contrary, those Shares
which are held by stockholders who have properly complied with the provisions of
Section 262 of the Delaware Law with respect to appraisal rights ("Dissenting
Shares") shall not be converted into the right to receive the Merger
Consideration as provided in Section 2.6(a) hereof, but the holders of
Dissenting Shares shall be entitled to receive such consideration as shall be
determined pursuant
7
<PAGE>
to Section 262 of the Delaware Law; provided, that, if, pursuant to the Delaware
Law, any such holder shall have failed to perfect or shall withdraw or lose such
holder's right to appraisal and payment in accordance with the Delaware Law,
such holder's Shares shall thereupon be deemed to have been converted as of the
Effective Time into the right to receive the Merger Consideration, without any
interest thereon, as provided in Section 2.6(a), and such Shares shall no longer
be Dissenting Shares. The Company (and after the Effective Time, the Surviving
Corporation) shall give Parent and Purchaser (A) prompt notice of any written
demands for appraisal, withdrawals of demands for appraisal and any other
related instruments received by the Company or the Surviving Corporation, as the
case may be, and (B) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal. The Company (and, after the Effective
Time, the Surviving Corporation) will not voluntarily make any payment with
respect to any demands for appraisals and will not, without the prior written
consent of Parent, settle or offer to settle any such demand.
2.8. Employee Stock Options.
The Company will use its reasonable best efforts to obtain from each holder
of a stock option (a "Company Stock Option") outstanding, whether or not
exercisable at the Effective Time under the Company's Stock Option Plan and
Directors Stock Option Plan (the "Company Stock Option Plans"), such holder's
agreement that such option shall be canceled by the Company immediately prior to
the Effective Time. Each holder of a canceled Company Stock Option shall be
entitled to receive at the Effective Time or as soon as practicable thereafter
from the Company in consideration for the cancellation of such Company Stock
Option an amount (the "Option Spread") equal to the product of (i) the number of
Shares previously subject to such Company Stock Option and (ii) the excess, if
any, of the Per Share Amount over the exercise price per share of Company Common
Stock previously subject to such Company Stock Option. Each holder of a Company
Stock Option shall also be given the right to tender such options, whether or
not exercisable, pursuant to the Offer and to receive the Option Spread pursuant
to the Offer; and each holder of Warrants referred to in Section 3.3 shall also
be given the right to tender such Warrants pursuant to the Offer and to receive
an amount equal to the product of (i) the number of Shares which may be
purchased on exercise of the Warrants and (ii) the excess, if any, of the Per
Share Amount over the per share exercise price of the Warrants. In any such
case, such payment, after reduction for applicable tax withholding, if any,
shall be made in cash. Each holder of a Company Stock Option or Warrants shall
be given an opportunity to submit a Form W-9 and/or whatever other forms may be
necessary to prevent any tax from being withheld from the amounts otherwise
payable to such holder hereunder. The Company shall take all actions necessary
and appropriate so that all stock option or other equity based plans maintained
with respect to the Shares, including the Company Plans, shall terminate as of
the Effective Time and the provisions in any other Benefit Plan providing for
the issuance, transfer or grant of any capital stock of the Company shall be
deleted as of the Effective Time.
2.9. Surrender of Shares; Stock Transfer Books.
(a) Prior to the Effective Time, Purchaser shall designate a bank to act as
its paying agent, who shall be reasonably satisfactory to the Company (the
"Paying Agent"), who shall also act as agent for the holders of Shares in
connection with the Merger to receive the funds to which holders of Shares shall
become entitled pursuant to Section 2.6(a). Prior to the Effective Time,
Purchaser shall deposit with the Paying Agent sufficient funds to pay the Merger
Consideration in
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respect of all of the Shares. Such funds may be invested by the Paying Agent as
directed by the Surviving Corporation only in overnight or other investments
which are available on demand, which are obligations of or guaranteed by the
United States of America or of any agency thereof and backed by the full faith
and credit of the United States of America, or in funds the assets of which
consist only of such investments.
(b) Promptly after the Effective Time, the Surviving Corporation shall cause
to be mailed to each person who was, at the Effective Time, a holder of record
of Shares entitled to receive the Merger Consideration pursuant to Section
2.6(a) a form of 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 Paying Agent) and instructions
for use in effecting the surrender of the certificates evidencing the
certificates evidencing the Shares (the "Certificates") pursuant to such letter
of transmittal. Upon surrender to the Paying Agent of a Certificate, together
with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, and such other documents as may be
required pursuant to such instructions in accordance with standard market
practices, the holder of such Certificate shall be entitled to receive in
exchange therefor the Merger Consideration for each Share formerly evidenced by
such Certificate, after reduction of any applicable withholding tax and such
Certificate shall then be canceled. No interest shall accrue or be paid on the
Merger Consideration payable upon the surrender of any Certificate for the
benefit of the holder of such Certificate as long as the Merger Consideration is
made available as provided in this Section. If payment of the Merger
Consideration is to be made to a person other than the person in whose name the
surrendered Certificate is registered on the stock transfer books of the
Company, it shall be a condition of payment that the Certificate so surrendered
shall be endorsed properly or otherwise be in proper form for transfer and that
the person requesting such payment shall have paid all transfer and other taxes
required by reason of the payment of the Merger Consideration to a person other
than the registered holder of the Certificate surrendered or shall have
established to the reasonable satisfaction of the Surviving Corporation that
such taxes either have been paid or are not applicable.
(c) At any time following six months after the Effective Time, the Surviving
Corporation shall be entitled to require the Paying Agent to deliver to it any
funds which were deposited with the Paying Agent and not disbursed to holders of
Shares (including interest and other income received by the Paying Agent in
respect of all funds made available to it), and thereafter such holders shall be
entitled to look to the Surviving Corporation (subject to abandoned property,
escheat and other similar laws) only as general creditors thereof with respect
to any Merger Consideration that may be payable upon due surrender of the
Certificates held by them. Notwithstanding the foregoing, none of Parent, the
Surviving Corporation or the Paying Agent shall be liable to any holder of a
Share for any Merger Consideration delivered in respect of such Share to a
public official pursuant to any abandoned property, escheat or other similar
law.
(d) At the close of business on the day of the Effective Time, the stock
transfer books of the Company shall be closed and thereafter there shall be no
further registration of transfers of Shares on the records of the Company. From
and after the Effective Time, the holders of Shares outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
Shares except as otherwise provided herein or by applicable law.
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(e) Parent and/or the Surviving Corporation shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any holder of shares of Company Common Stock such amounts, if any, as Parent
and/or the Surviving Corporation is required to deduct and withhold with respect
to the making of such payment under the Code, or any provision of state or local
tax law. To the extent that amounts are so withheld by Parent and/or the
Surviving Corporation and properly paid over to the appropriate tax authorities,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Common Stock in respect
of which such deduction and withholding was made by Parent and/or the Surviving
Corporation.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser that,
except as set forth in a disclosure schedule of the Company dated as of the date
hereof and referencing this Agreement ("Company Disclosure Schedule"):
3.1. Organization and Qualification; Subsidiaries.
Each of the Company and each Subsidiary of the Company is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and has the requisite power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted. Each
of the Company and each Subsidiary is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that would not,
individually or in the aggregate, have a Material Adverse Effect. A true and
complete list of all the Subsidiaries, together with the jurisdiction of
incorporation of each Subsidiary and the percentage of the outstanding capital
stock of each Subsidiary owned by the Company and each other Subsidiary, is set
forth in the Company Disclosure Schedule. Except as disclosed in such Schedule,
the Company and its Subsidiaries do not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for any equity or similar interest in, any corporation, partnership,
joint venture or other business association or entity.
3.2. Certificate of Incorporation and By-laws.
The Company has heretofore furnished to Parent a complete and correct
copy of the Certificate of Incorporation and the By-laws or equivalent
organizational documents, each as amended to date, of the Company and each
Subsidiary. Such Certificates of Incorporation and By-Laws or equivalent
organizational documents are in full force and effect, and neither the Company
nor any Subsidiary is in violation of any provision thereof.
3.3. Capitalization.
The authorized capital stock of the Company consists of 70,000,000 Shares
of common stock and 30,000,000 shares of undesignated preferred stock. As of the
date hereof, (i) 10,078,838 Shares are issued and outstanding, all of which are
duly authorized, validly issued, fully paid and nonassessable and free of
preemptive rights, (ii) no shares of preferred stock of the Company are
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issued or outstanding and (iii) 692,358 shares of Common Stock are issuable on
exercise of outstanding stock options granted pursuant to the Company's Plans,
and (iv) 15,950 shares of Common Stock are issuable upon exercise of warrants
(the "Warrants"). Except as set forth above, no shares of capital stock or other
equity securities of the Company are issued or outstanding. There are no bonds,
debentures, notes or other indebtedness or other securities of the Company
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which stockholders of the Company
may vote. Except as contemplated by this Agreement, there are no shareholder,
voting trust, or other agreements or understandings to which the Company or any
of its Subsidiaries is a party or to which any of them are bound, or, to the
knowledge of the Company, any irrevocable proxies, relating to the voting of any
shares of the capital stock or other equity securities of the Company or any of
its Subsidiaries. Except as set forth in this Section or in the Company
Disclosure Schedule, there are no options, warrants or other rights relating to
the capital stock of the Company or any Subsidiary obligating the Company or any
Subsidiary to issue or sell any shares of capital stock of, or other equity
interests in, the Company or any Subsidiary. All shares of 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. There are no commitments,
understandings, restrictions or arrangements obligating the Company to purchase,
redeem or acquire, nor is the Company party to any agreement granting preemptive
or registration rights relating to, shares of capital stock of the Company.
3.4. Authority Relating to this Agreement.
The Company has all necessary power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
Transactions. The execution and delivery of this Agreement by the Company and
the consummation by the Company of the Transactions have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement and to
consummate the Transactions (other than, with respect to the Merger, the
approval and adoption of this Agreement by the holders of two-thirds of the then
outstanding Shares if and to the extent required by applicable law, and the
filing and recording of appropriate merger documents as required by Delaware
Law). This Agreement has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by Parent
and Purchaser, constitutes the legal, valid and binding obligation of the
Company.
3.5. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement and the consummation of the Transactions by
the Company will not, (i) conflict with or violate the Certificate of
Incorporation or By-laws or equivalent organizational documents of the Company
or any Subsidiary, (ii) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to the Company or any Subsidiary or by
which any property or asset of the Company or any Subsidiary is bound or
affected or (iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any right of termination, acceleration or cancellation of, or
result in the creation of a lien or other encumbrance on any property or asset
of the Company or any Subsidiary pursuant to, any note, bond, mortgage,
indenture, contract, agreement, license, permit, franchise or other instrument
or obligation, other than any such
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conflicts, violations, breaches or defaults that would not, individually or in
the aggregate, have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement and the consummation of the Transactions by
the Company will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Authority, except for
applicable requirements, if any, of (i) the Exchange Act (including the filing
of a Schedule 14d-9), (ii) state securities or "blue sky" laws ("Blue Sky
Laws"), (iii) the pre-merger notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR Act"), (iv) filing and recording of appropriate merger
documents as required by Delaware Law, and (v) other filings, consents,
approvals, authorizations or permits, the absence of which will not materially
affect the ability of the parties to carry out the Transactions on the terms
contemplated hereby or otherwise prevent the Company from performing its
obligations under this Agreement or result in a Material Adverse Effect.
3.6. SEC Filings; Financial Statements.
(a) The Company has filed all forms, reports and documents required to be
filed by it with the SEC since December 31, 1996 and has heretofore made
available to Parent, in the form filed with the SEC, (i) its Annual Reports on
Form 10-K for the fiscal years ended December 31, 1996 and 1997, (ii) all proxy
statements relating to the Company's meetings of stockholders (whether annual or
special) held since December 31, 1996 and (iii) all other forms and reports
filed by the Company with the SEC since December 31, 1996 (the forms, reports
and other documents referred to in clauses (i), (ii) and (iii) above being
referred to herein, collectively, as the "SEC Reports"). The SEC Reports filed
prior to the date of this Agreement complied, and the SEC Reports filed with the
SEC on or after the date of this Agreement (the "Subsequent SEC Reports") will
comply, with the requirements of the Exchange Act, as applicable, and the rules
and regulations thereunder. None of the SEC Reports (including the financial
statements included therein) as of such dates contained, and none of the
Subsequent SEC Reports (including the financial statements to be included
therein) will contain, any untrue statement of a material fact or omitted or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. No Subsidiary is required to file any
form, report or other document with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the SEC Reports comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and each fairly presented the
consolidated financial position, results of operations and changes in financial
position of the Company and the Subsidiaries as at the respective dates thereof
and for the respective periods indicated therein (except as otherwise noted
therein and subject, in the case of unaudited statements, to the absence of
footnotes and normal and recurring year-end adjustments).
(c) Except as and to the extent set forth on the consolidated balance sheet
of the Company and its Subsidiaries as at December 31, 1997, including the notes
thereto (the "1997 Balance Sheet"), or the interim unaudited balance sheet of
the Company and its Subsidiaries as at June 30,
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1998 (the "Interim Balance Sheet"), the Company nor any Subsidiary has any
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise), whether or not required to be reflected on a balance sheet and the
notes thereto prepared in accordance with generally accepted accounting
principles, except for liabilities and obligations (i) incurred in the ordinary
course of business consistent with past practice since June 30, 1998 and not in
contravention of this Agreement or (ii) that would not, individually or in the
aggregate, have a Material Adverse Effect.
3.7. Absence of Certain Changes or Events.
From December 31, 1997 through the date hereof, except as disclosed in any
SEC Report or reflected in the Interim Balance Sheet, there has not been (i) a
Material Adverse Effect, (ii) any material change by the Company in its
accounting methods, principles or practices, except as may have been required by
a change in generally accepted accounting principles, (iii) any entry by the
Company or any Subsidiary into any contract material to the Company and the
Subsidiaries, taken as a whole, except for contracts relating to the
establishment of new locations by the Company, copies of which have been made
available to the Purchaser, or contracts otherwise entered into in the ordinary
course of business consistent with past practice, (iv) any declaration, setting
aside or payment of any dividend or distribution in respect of any capital stock
of the Company or any redemption, purchase or other acquisition of any of its
securities, (v) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option, stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any officers or key employees
of the Company or any Subsidiary, except in the ordinary course of business
consistent with past practice, (vi) any adjustment, split, combination or
reclassification any of its capital stock or issuance or authorization for the
issuance of any other securities as a dividend on, in lieu of or in substitution
for shares of its capital stock; (vii) any event, any condition, event or
occurrence which, individually or in the aggregate, would have a Material
Adverse Effect, (viii) any condition, event or occurrence in respect of the
Company which could reasonably be expected to prevent the Company from
consummating the transactions contemplated by this Agreement; (ix) any event
which, if it had taken place following the execution of this Agreement, would
not otherwise have been permitted by Section 5.1 without the prior consent of
Parent.
3.8. Absence of Litigation.
Except as disclosed in the SEC Reports, as of the date hereof, there is no
claim, action, proceeding or investigation pending or, to the knowledge of the
Company, threatened against the Company or any Subsidiary, or any property or
asset of the Company or any Subsidiary, before any court, arbitrator or
administrative, governmental or regulatory authority or body that, individually
or in the aggregate, is reasonably likely to have a Material Adverse Effect or
prevent the Company from consummating the transactions contemplated by this
Agreement. Neither the Company nor any Subsidiary nor any property or asset of
the Company or any Subsidiary is subject to any order, writ, judgment,
injunction, decree, determination or award having, individually or in the
aggregate, a Material Adverse Effect.
3.9. Labor Matters; Employee Benefit Plans.
(a) Except as disclosed in the Company Disclosure Schedule, (1) neither the
Company nor any of its Subsidiaries is a party to, or bound by, any collective
bargaining agreement, contract or
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other agreement or understanding with a labor union or labor organization
representing any of its employees, (2) there is no (A) arbitration, unfair labor
practice, investigation, employment discrimination or other labor or employment
related charge, complaint or claim against the Company or any of its
Subsidiaries pending or, to the knowledge of the Company, threatened before any
Governmental Authority that would have a Material Adverse Effect, or (B)
adjudication on such matters by any Governmental Authority that has or would
have a Material Adverse Effect, and (3) there is no labor strike, dispute,
slowdown or stoppage, or, to the knowledge of the Company, any union
organizational efforts pending or threatened against or involving any employees
of the Company or any of its Subsidiaries.
(b) The Company Disclosure Schedule sets forth each agreement, arrangement,
plan, or policy maintained or required to be contributed to by the Company or
any Subsidiary that involves (i) any pension, retirement, deferred compensation,
bonus, stock option, restricted stock, stock purchase, health, welfare, or
incentive plan, or (ii) welfare or "fringe" benefits, including vacation,
severance, disability, medical, dental, life and other insurance, sick leave or
family leave, or other employee benefits (the "Plans"). Copies of all documents
creating or evidencing such Plans have been delivered to Purchaser.
(c) Each Plan has been administered in material compliance with its terms
and, to the extent applicable, with the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or other law applicable to any Plan. Each Plan
that is intended to qualify under Section 401(a) or Section 501(c)(9) of the
Code has received a favorable determination letter from the Internal Revenue
Service or is a standardized prototype plan which has received a verification
letter from the Internal Revenue Service (a copy of which has been provided to
Purchaser) and related trusts have been determined to be exempt from taxation.
Nothing has occurred that would cause and no action or proceeding is pending or
threatened which, to the knowledge of Company, would be likely to result in the
loss of such exemption or qualification.
(d) There has been no prohibited transaction (within the meaning of Section
406 of ERISA or Section 4975 of the Code) with respect to any Plan that could
reasonably be expected to result in a material liability to the Company or any
Subsidiary. Neither the Company nor any Subsidiary is currently liable or has
previously incurred any liability for any material tax or penalty arising under
Section 4971, 4972, 4979, 4980 or 4980B of the Code or Section 502(c) of ERISA,
and no fact or event exists which could reasonably be expected to give rise to
any such liability. The Company has not incurred any material liability under,
arising out of or by operation of Title IV of ERISA (other than liability for
premiums to the Pension Benefit Guaranty Corporation arising in the ordinary
course), including any material liability in connection with the termination or
reorganization of any employee pension benefit plan subject to Title IV of
ERISA, and no fact or event exists which is reasonably expected to give rise to
any such liability. No complete or partial termination has occurred within the
five years preceding the date hereof with respect to any Plan. No reportable
event (within the meaning of Section 4043 of ERISA) has occurred or is expected
to occur with respect to any Plan subject to Title IV of ERISA (other than a
reportable event with respect to which the 30 day notice requirement has been
waived.)
(e) No Plan is or at any time within the seven calendar years preceding the
date of this Agreement has been a "multiemployer plan" within the meaning of
Section 3(37) of ERISA. No Plan has been subject to Title IV of ERISA.
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(f) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company or any Subsidiary that, individually
or collectively, (i) may give rise to the payment of any amount that would not
be deductible pursuant to the terms of Section 280G of the Code, or (ii) which
creates or accrues benefits or payments by virtue of a change of control of the
Company or any Subsidiary, including, without limitation, as a result of the
transactions contemplated by this Agreement, except, in the case of clause (ii)
of this subparagraph, as provided in the Company Stock Option Plans.
3.10. Offer Documents; Schedule 14D-9; Proxy Statement.
The information to be included in the Schedule 14D-9 and any information
supplied by the Company in writing expressly for inclusion or incorporation by
reference in the Offer Documents shall not, at the respective times the Schedule
14D-9, the Offer Documents or any amendments or supplements thereto are filed
with the SEC or are first published, sent or given to stockholders of the
Company or at the expiration date or the date of purchase, 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 made therein, in the
light of the circumstances under which they are made, not misleading. The
information included or incorporated by reference in the proxy statement to be
sent to the stockholders of the Company in connection with the Stockholders
Meeting (as hereinafter defined) will not, and the information statement to be
sent to such stockholders, as appropriate (such proxy statement or information
statement, as amended or supplemented, being referred to herein as the "Proxy
Statement"), will not, at the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to stockholders of the Company, at the time
of the Stockholders Meeting and at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not false or misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of proxies for the
Stockholders Meeting which shall have become false or misleading.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to information supplied by Parent or Purchaser in writing expressly
for inclusion in the Schedule 14D-9 or Proxy Statement. The Schedule 14D-9 and
the Proxy Statement shall comply in all material respects with the requirements
of the Exchange Act and the rules and regulations thereunder.
3.11. Taxes.
(a) The Company and each Subsidiary and any consolidated, combined, unitary
or aggregate group for Tax purposes of which the Company or a Subsidiary is or
has been a member (a "Consolidated Group") (i) has filed or caused to be filed
with the appropriate Government entity all income Tax Returns and all other
material Tax Returns which have been required to be filed prior to the date of
this Agreement (taking into account any extensions of the time for filing such
tax returns) and (ii) has paid in full all material Taxes due and payable
(whether or not shown on such Tax Returns), except to the extent such
liabilities are reflected on the Interim Balance Sheet. All income and other Tax
Returns filed or caused to be filed by the Company or a Subsidiary or a
Consolidated Group are correct and complete, and accurately reflect taxable
income (or other measure of Tax), in all material respects.
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(b) The Company and each Subsidiary has complied with all laws relating to
the withholding of Taxes and the payment thereof and has timely and properly
withheld from employee wages and paid over to the proper government entity all
amounts required to be withheld and paid over under applicable law, except to
the extent that failure to do so would not have a Material Adverse Effect.
(c) Neither the Company nor any Subsidiary has waived any statute of
limitations in respect of any material Tax Returns or agreed to any extension of
time with respect to a material Tax assessment or deficiency.
(d) True, correct and complete copies of the federal and state income Tax
Returns of the Company and the Subsidiaries for each of the fiscal years ended
December 31, 1994 through December 31, 1997 have been delivered to Parent.
(e) The accruals for Taxes reflected in the Interim Balance Sheet
adequately reflect, in accordance with generally accepted accounting principles,
the Company's estimates of the liability of the Company and the Subsidiaries for
Taxes for periods prior to the date of such Interim Balance Sheet.
(f) Except as disclosed in the Company Disclosure Schedule:
(i) no material claim for unpaid Taxes has become a lien against
the property of the Company or any of its Subsidiaries or is being
asserted against the Company or any of its Subsidiaries.
(ii) no audit, examination or similar proceeding with respect to
Taxes or Tax Returns (a "Tax Proceeding") of the Company or any of its
Subsidiaries is being conducted by a Tax authority and neither the
Company nor any Subsidiary has received any notice of any threatened
Tax Proceeding;
(iii) no consent under Section 341(f) of the Code has been filed with
respect to the Company or any of its Subsidiaries;
(iv) neither the Company nor any of its Subsidiaries has made a
payment, is obligated to make a payment or is a party to any agreement,
option or arrangement that would result, separately or in the
aggregate, in the actual or deemed payment (or other compensatory
event) by the Company or a Subsidiary that would be classified as an
"excess parachute payments" within the meaning of Section 280G of the
Code;
(v) none of the Company or its Subsidiaries has been a United
States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code; and
(vi) neither the Company nor any Subsidiary is a party to any
agreement providing for the allocation or sharing of Taxes with any
person other than the Company or a Subsidiary;
3.12. Compliance with Laws.
(a) Each of the Company and its Subsidiaries holds or has received such
certificates (including certificates of need), provider agreements,
certifications, permits, consents, approvals, orders, clearances, licenses and
authorizations (the "Company Licenses") as are necessary to conduct
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their respective businesses in the manner currently conducted, all of which are
valid and in full force and effect, except to the extent that failure to so have
or to maintain in full force and effect would not have, individually or in the
aggregate, a Material Adverse Effect. The Company and its Subsidiaries are in
compliance with their respective obligations under the Company Licenses, with
only such exceptions as, individually or in the aggregate, would not have a
Material Adverse Effect.
(b) The Company and its Subsidiaries are, to the extent applicable to their
operations, (i) eligible to receive payment under Titles XVIII and XIX of the
Social Security Act, (ii) providers under existing provider agreements with the
Medicare program through applicable intermediaries and with each state Medicaid
program under which they have been providers at any time since December 31, 1996
and (iii) in compliance with the conditions of participation in the Medicare
program, except where such inability in the case of either items (i) or (ii) or
non-compliance in item (iii) does not have a Material Adverse Effect.
(c) The Company and each of its Subsidiaries have filed all required cost
reports and other required claims and governmental filings with respect to
Medicare and each state Medicaid program in which they participate, all of which
were, when filed or as they have been subsequently amended, complete and
correct, except to the extent that such failure to file or failure to be
complete and correct would not have a Material Adverse Effect. The Company has
made available to Parent complete and correct copies of all such cost reports,
claims, governmental filings, audits and schedules prepared or issued by, or
filed with, any Governmental Authority or private payor with respect to the
operations of the Company and its Subsidiaries since December 31, 1996.
(d) Except as set forth in the Company Disclosure Schedule, there is no
suit, proceeding, investigation or review pending or, to the knowledge of the
Company, threatened, by any Governmental Authority or any other Person
(including, without limitation, any qui tam suit) which relates to or which, if
determined adversely to the Company, would adversely affect any Company License
or which alleges any violation by the Company or any of its Subsidiaries of any
law, ordinance, regulation or court ruling governing the operation of the
Company and its Subsidiaries as health care providers.
(e) To the knowledge of the Company, the businesses of the Company and its
Subsidiaries are not being conducted in violation of any law, ordinance,
regulation or court ruling of any Governmental Authority (including, without
limitation, laws, rules and manual provisions pertaining to reimbursement of the
Company and it Subsidiaries for services rendered, the federal False Claims Act
(31 U.S.C. (S)3729) or any other applicable federal or state false claim or
fraud law, the federal anti-kickback statute (42 U.S.C. (S)1320a-7b(b)), any
applicable state anti-kickback law, the federal Ethics in Patient Referrals Act
(42 U.S.C. (S)1395nn, commonly known as the Stark Act) or any applicable state
self-referral law), except for violations which would not, individually or in
the aggregate, have a Material Adverse Effect.
3.13. Exclusion.
To the knowledge of the Company, neither the Company nor any of its
Subsidiaries employs or contracts with any Person who or which has been excluded
from participation in a Federal Health Care Program (as defined in 42 U.S.C.
(S)1320a-7b(f)) where such action could reasonably
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serve as a basis for the Company's or any of its Subsidiaries' suspension or
exclusion from the Medicare or any state Medicaid program.
3.14. Accounts Receivable.
Since December 31, 1997, the Company has not changed any material principle
or practice with respect to the recordation of accounts receivable or the
calculation of reserves therefor, or any material collection, discount or
write-off policy or procedure.
3.15. Brokers.
No broker, finder or investment banker (other than WP&Co.) is entitled to
any brokerage, finder's or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of the Company. The
fees and expenses of WP&Co. will be paid by the Company pursuant to a fee
agreement between the Company and WP&Co., a copy of which has been provided to
the Parent.
3.16. Real Property and Leases.
Except for any matters which would not have a Material Adverse Effect:
(a) The Company and its Subsidiaries have good, valid and marketable title
to, or valid leasehold interests in, all of their properties and assets as
reflected on the Interim Balance Sheet or acquired thereafter, except for assets
sold in the ordinary course of business since the date of the such Balance
Sheet, free and clear of all mortgages, pledges, liens, security interests,
conditional and installment sale agreements, encumbrances, charges or other
claims of third parties of any kind (collectively, "Liens"), other than (A)
Liens for current taxes and assessments not yet past due, (B) inchoate
mechanics' and materialmen's Liens for construction in progress, (C) workmen's,
repairmen's, warehousemen's and carriers' Liens arising in the ordinary course
of business of the Company or such Subsidiary consistent with such practice, and
(D) all immaterial matters of record, Liens and other imperfections of title and
encumbrances (collectively, "Permitted Liens"). To the Company's knowledge, no
such real property leased by the Company or any Subsidiary is subject to any
governmental decree or order to be sold nor is being condemned, expropriated or
otherwise taken by any public authority with or without payment of compensation
therefor, nor, to the best knowledge of the Company, has any such condemnation,
expropriation or taking been proposed.
(b) The Company has provided to the Parent true and complete copies of each
of its Long Term Acute Care Hospital Leases, as in effect on the date of this
agreement pursuant to which it operates its health care facilities (the "LTAC
Leases"), all of which are in full force and effect. To the knowledge of the
Company, the Company is in compliance with all of its obligations under each of
the LTAC Leases.
(c) All other leases of real property leased for the use or benefit of the
Company or any Subsidiary to which the Company or any Subsidiary is a party
requiring rental payments in excess of $150,000 during any calendar year, and
all amendments and modifications thereto, are in full force and effect and have
not been modified or amended, and there exists no default under any such lease
by the Company or any Subsidiary, nor any event which with notice or lapse of
time or both would constitute a default hereunder by the Company or any
Subsidiary.
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(d) Each of the Company and its Subsidiaries has all permits necessary to
own or operate its properties, and no such permits will be required, as a result
of the Merger or the other transactions contemplated hereby, to be issued after
the Closing in order to permit the Company, following the Merger, to continue to
own or operate such properties, other than any such permits which are
ministerial in nature.
3.17. Environmental Matters.
Except for such matters as would not individually or in the aggregate have
a Material Adverse Effect, to the knowledge of the Company:
(a) the Company is in compliance with all applicable Environmental Laws,
and the Company has not received any formal notice or demand from a government
entity, citizens' group or other Person which is currently pending, alleging a
violation of or liability or responsibility under any Environmental Law;
(b) the Company has all permits and other authorizations required under
Environmental Laws, and the Company is in compliance with such permits and other
authorizations;
(c) no conditions were created by the Company at any facility currently or
formerly owned, leased or operated by the Company during the period of the
Company's ownership, lease or operation of such facility that require
remediation under any Environmental Law;
(d) the Company has not received any formal notice, demand or request for
information which is currently pending under any Environmental Law as a result
of the offsite disposal of any hazardous material or waste by the Company;
(e) the Company has not entered into or agreed to any consent decree, order
or agreement under any Environmental Law, and the Company is not subject to any
material judgment, decree, order or other material requirement relating to
compliance with any Environmental Law or to investigation, cleanup, remediation
or removal of regulated substances under any Environmental Law;
(f) the Company has provided Parent and Purchaser copies of all
environmental inspections, investigations, studies, audits, tests, reviews or
other analysis conducted in relation to the Company and any properties now or
previously-owned or leased by tile Company or its Subsidiaries or the operation
of its respective businesses which are in the possession or control of the
Company.
3.18. State Takeover Statutes.
The Board of Directors of the Company has approved the Offer, the Merger,
this Agreement and other Transactions including agreements with certain holders
of Shares as described in Subsection (e) under "Background" above, and no
provision of any Takeover Statute will prevent, impair, impede or prevent, any
Transaction. Section 203 of Delaware Law is and shall be inapplicable to the
Offer, the Merger and, this Agreement and other Transactions, including the
Stockholder Agreements.
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3.19. Vote Required.
The affirmative vote of the holders of two-thirds of the outstanding Common
Stock is the only vote of the holders of any class or series of Company capital
stock necessary to approve the Merger, this Agreement or any of the other
Transactions, including the Stockholder Agreements.
3.20. Certain Contracts.
(a) The Company Disclosure Schedule includes a list of each contract,
agreement, lease, indenture or evidence of indebtedness to which the Company or
any Subsidiary is a party (the "Material Contracts") which involves outstanding,
contingent, or continuing liability or obligation of or to the Company or a
Subsidiary and which (i) involves (A) a guarantee or indemnity involving an
obligation in excess of $1,000,000, (B) a power of attorney, (C) a sharing of
payments or joint venture, (D) material limitations on the ability of the
Company directly or through any of its Subsidiaries to compete in or enter into
any line of business or with any person in any geographic area during any period
of time (other than limitations set forth in the LTAC Leases), (E) collective
bargaining or union representation, (F) a payment obligation in excess of
$500,000, or (ii) is not in the ordinary course of business.
(b) Each of the Material Contracts is a valid, binding and enforceable
obligation of the Company and, to the knowledge of the Company, the other
parties thereto. Except as indicated on the Company Disclosure Schedule, (i) the
Company and its Subsidiaries are not, and (ii) to the knowledge of Company, no
other party to a Material Contract is, in material default under or in material
breach or violation of any Material Contract, and no event has occurred that,
through the passage of time or the giving of notice, or both, would constitute,
such a material default, breach or violation.
3.21. Intellectual Property.
(a) The Company Disclosure Schedule includes a list of all registered
trademarks, service marks, copyrights and patents, and all applications
therefor, included in the Intellectual Property of the Company and its
Subsidiaries, specifying as to each, as applicable: (i) the nature of such
Intellectual Property; (ii) the owner of such Intellectual Property; and (iii)
the jurisdictions by or in which such Intellectual Property has been issued or
registered or in which an application for such issuance or registration has been
filed, including the respective registration or application numbers. Such
Schedule contains a list of all material licenses, sublicenses and other
agreements as to which the Company or its Subsidiaries is a party and pursuant
to which any Person is authorized to use the Intellectual Property or any other
material rights of the Company or its Subsidiaries with respect to intellectual
property.
(b) Except as disclosed on the Company Disclosure Schedule, (i) there has
been no claim made against the Company or any of its Subsidiaries or, to the
Company and its Subsidiaries' knowledge, threatened asserting the invalidity,
misuse or unenforceability of any of the Intellectual Property; (ii) the Company
is not aware of any infringement or misappropriation of any of the Intellectual
Property; and (iii) to its knowledge, the Company has not infringed or
misappropriated any intellectual property or proprietary right of any other
entity.
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3.22. Opinion of Financial Advisor.
The Company has received the opinion of WP&Co. dated the date of this
Agreement, to the effect that, based on, and subject to, the various assumptions
and qualifications set forth in such opinion, as of the date thereof, the
consideration to be received by the holders of Shares pursuant to each of the
Offer and the Merger is fair to the holders of Shares from a financial point of
view. The Company has delivered a copy of such opinion to the Parent.
3.23. Affiliate Transactions.
Except as disclosed in the Company Disclosure Schedule, no Related Party
has borrowed money from or loaned money to the Company which remains outstanding
in an aggregate amount in excess of $50,000, or entered into any material
contractual arrangements with the Company which remains in effect. As used
herein, a "Related Party" means any of the officers or directors of the Company,
or any business or entity in which the Company or, to the knowledge of the
Company, any such person or any affiliate or associate of any such persons has
any direct or indirect material interest.
3.24. Prior Negotiations.
The Company, WP&Co. and the Company's other advisors and representatives
have not been involved in substantive discussions with any group or person (or
any of their respective affiliates or associates) or their representatives, or
furnished material confidential information to any such group or persons (or any
of their respective affiliates or associates) or their representatives, in
connection with a possible takeover proposal except for such groups or persons
which have executed and delivered to the Company a customary confidentiality
agreement. The Company will not waive its rights under any standstill agreements
entered into with any such persons except in connection with actions taken in
accordance with Section 6.5(b).
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent and warrant
to the Company that:
4.1. Corporate Organization.
Each of Parent and Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
material adverse effect on the ability of Parent or Purchaser to perform their
obligations hereunder, or prevent or materially delay the consummation of the
Transactions.
4.2. Authority Relating to this Agreement.
Each of Parent and Purchaser has all necessary corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the Transactions.
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The execution and delivery of this Agreement by Parent and Purchaser and the
consummation by Parent and Purchaser of the Transactions have been duly and
validly authorized by all necessary corporate action and no other corporate
proceedings on the part of Parent or Purchaser are necessary to authorize this
Agreement or to consummate the Transactions (other than, with respect to the
Merger, the filing and recording of appropriate merger documents as required by
Delaware Law). This Agreement has been duly and validly executed and delivered
by Parent and Purchaser and, assuming the due authorization, execution and
delivery by the Company, constitutes the legal, valid and binding obligations of
each of Parent and Purchaser enforceable against each of Parent and Purchaser in
accordance with their terms.
4.3. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent and Purchaser do
not, and the performance of this Agreement by Parent and Purchaser will not, (i)
conflict with or violate the Certificate of Incorporation or By-laws of either
Parent or Purchaser, (ii) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Parent or Purchaser or by which any
property or asset of either of them is bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of Parent or
Purchaser pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Parent or Purchaser is a party or by which Parent or Purchaser or any property
or asset of either of them is bound or affected, except for any such violations,
breaches, defaults or other occurrences which would not, individually or in the
aggregate, have a material adverse effect on the ability of Parent or Purchaser
to perform their obligations hereunder, or prevent or materially delay the
consummation of the Transactions.
(b) The execution and delivery of this Agreement by Parent and Purchaser do
not, and the performance of this Agreement by Parent and Purchaser will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except for applicable
requirements, if any, of (i) the Exchange Act and rules and regulations
thereunder, (ii) Blue Sky Laws (iii) the pre-merger notification requirements of
the HSR Act, (iv) filing and recording of appropriate merger documents as
required by Delaware Law and (v) other filings, consents, approvals,
authorizations or permits, the absence of which will not materially effect the
ability of Parent or Purchaser to carry out the transactions on the terms
contemplated hereby or otherwise prevent Parent or Purchaser from performing
their obligations hereunder.
4.4. Financing.
Purchaser has sufficient cash or other sources of available funds to enable
it to make payment of the aggregate Per Share Amount, Merger Consideration and
any other amounts to be paid by it hereunder. The Purchaser has provided to the
Company a written commitment confirming the availability of such funds. At the
request of the Company from time to time, the Purchaser will provide to the
Company further written confirmation of the availability of such funds and such
related information as the Company may reasonably request.
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4.5. Offer Documents; Proxy Statement.
The information to be included in the Offer Documents and any information
supplied by Parent and Purchaser in writing expressly for inclusion in the
Schedule 14D-9, shall not, at the time the Offer Documents, the Schedule 14D-9
or any amendments or supplements thereto are filed with the SEC or are first
published, sent or given to stockholders of the Company or at the expiration
date or date of purchase, as the case may be, 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 made therein, in the light of the
circumstances under which they are made, not misleading. The information
supplied by Parent for inclusion in the Proxy Statement will not, on the date
the Proxy Statement (or any amendment or supplement thereto) is first mailed to
stockholders of the Company, at the time of the Stockholders Meeting and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, or omits to state any material fact required to be stated therein
or necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Stockholders Meeting which shall have become
false or misleading. Notwithstanding the foregoing, Parent and Purchaser make no
representation or warranty with respect to information supplied by the Company
in writing expressly for inclusion in, or information derived from the Company's
public SEC filings which is incorporated by reference in, the Offer Documents.
The Offer Documents shall comply in all material respects as to form with the
requirements of the Exchange Act and the rules and regulations thereunder.
4.6. Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Transactions based
upon arrangements made by or on behalf of Parent or Purchaser.
4.7 Ownership of Company Common Stock.
Except for Shares owned by Plans maintained by Parent or contributed to by
Parent to any of its subsidiaries (the "Parent Benefit Plans"), neither Parent
nor, to its knowledge, any of its affiliates (i) beneficially owns (as such term
is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, or
(ii) is party to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in each case, shares of capital
stock of the Company.
ARTICLE V.
CONDUCT OF BUSINESS PENDING THE MERGER
5.1. Conduct of Business by the Company Pending the Merger.
Except as contemplated by this Agreement, neither the Company nor any
Subsidiary shall, between the date of this Agreement and the Effective Time do
any of the following without the prior written consent of Parent:
(a) amend or otherwise change its Certificate of Incorporation or By-laws or
equivalent organizational documents;
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(b) issue any shares of capital stock of any class of the Company or any
Subsidiary, or any options, warrants, convertible securities or other rights of
any kind to acquire any shares of such capital stock of the Company or any
Subsidiary (except for the issuance of Shares issuable pursuant to employee
stock options outstanding on the date hereof and except in connection with the
establishment of new wholly owned subsidiaries for new locations by the
Company);
(c) sell, transfer or encumber in any material respect any assets of the
Company or any Subsidiary for consideration in excess of $1,000,000 in the
aggregate except for transactions relating to the establishment of new locations
or modifications or improvements to its existing locations by the Company in the
ordinary course of its business, and except for other transactions in the
ordinary course of business consistent with past practice provided, however,
that the Company shall not sell, transfer or encumber any assets for
consideration which, in the opinion of the board, is less than fair value;
(d) declare or pay any dividend or other distribution with respect to any of
its capital stock;
(e) reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire any of its capital stock;
(f) (i) acquire any corporation, partnership, other business organization or
any division thereof, except for the establishment of new wholly owned
subsidiaries for new locations by the Company; (ii) except for borrowings under
existing credit facilities, incur any indebtedness for borrowed money or issue
any debt securities, guarantee any indebtedness for borrowed money or debt
securities of another person, issue or sell any warrants or other rights to
acquire any debt securities of the Company or any of its Subsidiaries, enter
into any "keep well" or other agreement to maintain any financial statement
condition of another person (except a Subsidiary) or enter into any arrangement
having the economic effect of any of the foregoing, except in the ordinary
course of business consistent with past practice, or make any loans, advances or
capital contributions to, or investments in, any other person, other than to the
Company or any Subsidiary; (iii) authorize capital expenditures which are, in
the aggregate, in excess of $500,000 for the Company and the Subsidiaries,
except for capital expenditures relating to the establishment of new locations
by the Company in the ordinary course of its business, and other capital
expenditures in the ordinary course of business consistent with past practice;
or (iv) enter into any agreement with respect to any matter set forth in this
Section;
(g) except as provided in Section 2.8, increase the compensation payable or
to become payable to its current and former officers, directors or employees,
except for increases in compensation (including bonuses) of employees of the
Company or any Subsidiary of the Company in accordance with past practices, or,
other than in accordance with past practices and policies, grant any severance
or termination pay to, or enter into any employment or severance agreement with,
any current or former director, officer or other employee of the Company or any
Subsidiary, or establish, adopt, enter into or materially amend any collective
bargaining agreement or benefit plans;
(h) other than as required by generally accepted accounting principles, make
any material change to its accounting policies or procedures;
(i) make any material elections or changes in elections for Tax purposes
except in accordance with past practice;
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(j) pay, discharge or satisfy any claims (including claims of stockholders),
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), except for the payment, discharge or satisfaction (x)
of liabilities or obligations in the ordinary course of business consistent with
past practice or in accordance with their terms as in effect on the date hereof
or (y) of claims settled or compromised to the extent permitted by Section
5.1(k), or waive, release, grant, or transfer any rights of material value or
modify or change in any material respect any existing license, lease, contract
or other document, other than in the ordinary course of business consistent with
past practice;
(k) settle or compromise any litigation (whether or not commenced prior to
the date of this Agreement) other than settlements or compromises of litigation
(i) where the amount paid in settlement or compromise does not exceed $100,000
and (ii) potential settlements or compromises which are described in the Company
Disclosure Schedule;
(l) establish any new lines of credit or other credit facilities or replace
any existing credit facilities;
(m) take any action which would make any representation or warranty of the
Company in this Agreement subject to a material qualifier untrue or incorrect
and any representation or warranty of the Company in this Agreement that is not
so qualified untrue or incorrect in any material respect;
(n) adopt a plan of complete or partial liquidation or resolutions providing
for or authorizing such a liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or reorganization (subject to the Company's
right to take action specifically permitted by Section 6.5(b));
(o) enter into any new collective bargaining agreement or any successor
collective bargaining agreement to any collective bargaining agreement disclosed
in the Company Disclosure Schedule except in the ordinary course of business;
(p) agree to any modifications to any of the LTAC Leases, or waive any rights
under the LTAC Leases, in any respect which would materially and adversely
affect the rights of the Company thereunder;
(q) take any action to exempt under or make not subject to (x) Section 203 of
Delaware Law or (y) any other Takeover Statute or state law that purports to
limit or restrict business combinations or the ability to acquire or vote
shares, any person or entity (other than Parent, Purchaser and their affiliates)
or any action taken thereby, which person, entity or action would have otherwise
been subject to the restrictive provisions thereof and not exempt therefrom
except to the extent specifically permitted pursuant to Section 6.5(b);
(r) authorize any of, or commit or agree to take any of, the foregoing
actions; or
(s) take any action which would result in the conditions to the Offer or the
merger not being satisfied, subject to the Company's right to take such actions
specifically permitted by Section 6.5(b).
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5.2. Additional Covenants.
After the date hereof and prior to the Effective Time or the earlier
termination of this Agreement, unless Parent shall otherwise agree, the Company
shall, and shall cause each of its Subsidiaries to:
(a) Conduct their respective businesses in the ordinary and usual course of
business consistent with past practice;
(b) Confer with Parent's designated representatives on a regular basis during
normal business hours regarding operational matters of a material nature and the
general status of the ongoing business of the Company, including matters
relating to billing and collections;
(c) Promptly notify Parent of any significant changes in the business,
financial condition or results of operation of the Company or its Subsidiaries
taken as a whole;
(d) Maintain, with financially responsible insurance companies, insurance on
its tangible assets and its business in such amounts and against such risks and
losses as are consistent with past practice; and
(e) Use all reasonable best efforts to preserve the business of the Company
and its Subsidiaries and preserve the current relationships of the Company and
its Subsidiaries with customers, employees, suppliers and other persons with
which the Company or any Subsidiary has material business relations.
ARTICLE VI.
ADDITIONAL AGREEMENTS
6.1. Stockholders Meeting.
(a) If required by applicable law in order to consummate the Merger, the
Company, acting through the Board, shall, promptly after consummation of the
Offer (or promptly after delivery of a Merger Notice as provided in Section
1.3(d) or (e), in accordance with applicable law and the Company's Certificate
of Incorporation and By-laws, (i) hold an annual or special meeting of its
stockholders as soon as practicable following consummation of the Offer for the
purpose of considering and taking action on this Agreement and the Merger (the
"Stockholders Meeting") and (ii) in the event a Merger Notice has been delivered
and, otherwise, subject to its fiduciary duties under applicable law after
receiving the advice of independent counsel, include in the Proxy Statement the
recommendation of the Board that the stockholders of the Company approve and
adopt this Agreement and the Merger, and use its best efforts to solicit from
holders of Shares proxies in favor of this Agreement and the Merger, and take
all other appropriate action to request the vote of the holders of Shares
required by Delaware Law to effect the Merger. At the Stockholders Meeting,
Parent and Purchaser shall cause all Shares then owned by them and their
Subsidiaries to be voted in favor of the approval and adoption of this Agreement
and the Merger.
(b) Notwithstanding the foregoing, if the Purchaser shall acquire at least 90
percent of the then outstanding Shares, the parties shall, at the request of
Purchaser, subject to Article VII, take all necessary and appropriate action to
cause the Merger to become effective, in accordance with Section 253 of Delaware
Law, as soon as reasonably practicable after such acquisition, without a meeting
of the stockholders of the Company.
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6.2. Proxy Statement.
If required by applicable law, as soon as practicable following
consummation of the Offer (or the delivery of a Merger Notice as provided in
Section 1.3(d) or (e)), the Company shall file the Proxy Statement with the SEC
under the Exchange Act, and shall use all reasonable efforts to have the Proxy
Statement cleared by the SEC. Parent, Purchaser and the Company shall cooperate
in the preparation of the Proxy Statement, and the Company shall notify Parent
of the receipt of any comments of the SEC with respect to the Proxy Statement
and of any requests by the SEC for any amendment or supplement thereto or for
additional information and shall provide to Parent promptly copies of all
correspondence between the Company or any representative of the Company and the
SEC. The Company shall (i) give Parent and its counsel the opportunity to review
the Proxy Statement prior to its being filed with the SEC; (ii) give Parent and
its counsel the opportunity to review all amendments and supplements to the
Proxy Statement and all responses to requests for additional information and
replies to comments prior to their being filed with, or sent to, the SEC; and
(iii) consider in good faith the comments and information provided by Parent,
Purchaser and their counsel with respect thereto. Each of the Company, Parent
and Purchaser shall use all reasonable efforts, after consultation with the
other parties hereto, to respond promptly to all such comments of and requests
by the SEC and to cause the Proxy Statement and all required amendments and
supplements thereto to be mailed to the holders of Shares entitled to vote at
the Stockholders Meeting at the earliest practicable time.
6.3. Company Board Representation; Section 14(f).
(a) Concurrently with the purchase by Purchaser of Shares pursuant to the
Offer, and from time to time thereafter, Purchaser shall be entitled to
designate up to such number of directors, rounded up to the next whole number,
on the Board of the Company as shall give Purchaser representation on the Board
of the Company equal to the product of the total number of directors on the
Board of the Company (giving effect to the directors elected pursuant to this
sentence) multiplied by the percentage that the aggregate number of Shares
purchased by Purchaser in the Offer bears to the total number of Shares then
outstanding, and the Company shall, at such time, promptly take all actions
necessary to cause Purchaser's designees to be appointed as directors of the
Company, including increasing the size of the Board of the Company or securing
the resignations of incumbent directors or both.
(b) The Company shall promptly take all actions required pursuant to Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order to
fulfill its obligations under this Section 6.3 and shall include in the Schedule
14D-9 such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1 to fulfill such
obligations. Parent or Purchaser shall supply to the Company and be solely
responsible for any information with respect to either of them and their
nominees, officers, directors and Affiliates required by such Section 14(f) and
Rule 14f-1. In conjunction with the foregoing, the Company will, at the request
the Parent, either increase the size of the Board and/or obtain the resignation
of such number of its current directors as is necessary to enable Purchaser's
designees to be elected or appointed to the Board.
(c) Following the election of designees of Purchaser pursuant to this Section
6.3, prior to the Effective Time, any amendment of this Agreement or the
Certificate of Incorporation or By-laws of the Company, any termination of this
Agreement by the Company, any extension by the
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Company of the time for the performance of any of the obligations or other acts
of Parent or Purchaser or waiver of any of the Company's rights hereunder shall
require the concurrence of a majority of the directors of the Company then in
office who neither were designated by Purchaser nor are employees of the Company
(the "Independent Directors"), or if there is only one Independent Director, the
concurrence of such Independent Director. The Company shall use its best efforts
to ensure that at least one Independent Director shall remain on the Board until
the Effective Time.
6.4. Access to Information; Confidentiality.
(a) From the date hereof to the Effective Time, subject to compliance by the
Parent and the Purchaser with paragraph (c) below, the Company shall, and shall
cause the Subsidiaries and the officers, directors, employees, auditors and
agents of the Company and the Subsidiaries to, afford the officers, employees
and agents of Parent and Purchaser, and (subject to such confidentiality
arrangements) representatives of entities which have committed or are being
asked to commit to provide financing for the Transactions reasonable access at
all reasonable times during normal business hours to the officers, employees,
agents, properties, offices, plants and other facilities, books and records of
the Company and each Subsidiary, and permit Parent and Purchaser to make such
inspections as it may reasonably request (including environmental inspections),
and shall furnish Parent and Purchaser all financial, operating and other data
and information as Parent or Purchaser, through its officers, employees or
agents, may reasonably request.
(b) The Company, Parent and Purchaser each agree to promptly advise each
other of any information required to update or correct any documents filed,
published or issued by such parties pursuant to the Offer or pursuant to
Sections 6.1 or 6.2.
(c) All requests for information and access pursuant to this Section 6.4
shall be directed to David W. Cross, President and Chief Executive Officer of
the Company, or to such other persons as he shall specify.
(d) All information obtained by Parent or Purchaser pursuant to this Section
6.4 shall be kept confidential in accordance with the confidentiality agreement,
executed October 7, 1998 (the "Confidentiality Agreement"), between Parent and
the Company, which Confidentiality Agreement shall terminate upon the earlier to
occur of the acceptance for payment of the shares pursuant to the Offer or the
Effective Time.
6.5. No Solicitation of Transactions.
(a) The Company shall, and shall direct and cause its officers, directors,
employees, representatives and agents to, immediately cease any discussions or
negotiations with any parties that may be ongoing with respect to an Acquisition
Proposal (as hereinafter defined). The Company shall not, nor shall it permit
any of its Subsidiaries to, nor shall it authorize or permit any of its
officers, directors or employees or any representative retained by it or any of
its Subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage
(including by way of furnishing information), or take any other action designed
or reasonably likely to facilitate, any inquiries or the making of any proposal
which constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal or (ii) participate in any discussions or negotiations regarding any
Acquisition Proposal, provided, that, at any time prior to the earlier to occur
of (1) the acceptance for payment of the Shares pursuant to the Offer or (2) the
Stockholders Meeting, the Company
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may, upon receipt by the Company of a written Acquisition Proposal which was not
solicited after the date hereof and after consulting with outside counsel,
subject to compliance with Section 6.5(b) and (c),
(x) furnish information with respect to the Company to any person
pursuant to a customary confidentiality agreement (as determined by the
Company after receipt of written advice from its outside counsel), and
(y) participate in negotiations regarding an Acquisition Proposal,
if the Board determines in good faith that such Acquisition Proposal is
reasonably likely to result in a Superior Proposal and the Company notifies the
Parent and Purchaser in writing that it is taking such action.
(b) Except as set forth in this Section 6.5, neither the Board nor any
committee thereof shall (i) withdraw or modify in a manner adverse to Parent or
Purchaser, or publicly propose or announce an intention to withdraw or modify
adversely, or fail to make the approval or recommendation by the Board or such
committee of the Offer, the Merger, the Transactions or this Agreement, (ii)
approve or recommend any Acquisition Proposal or (iii) cause the Company to
enter into any letter of intent, agreement in principle, acquisition agreement
or other similar agreement related to any Acquisition Proposal with any Person
other than the Parent or its Affiliates. Notwithstanding the foregoing, if,
prior to the Stockholders Meeting, the Board determines in good faith (after
consulting with outside counsel) that the fiduciary duties of the Board require
it to do so, in respect of an Acquisition Proposal, which is unsolicited and
received following the date hereof, the Board may (A) withdraw or modify its
recommendation of the Offer, the Merger, the Transactions or this Agreement, or
(B) approve or recommend a Superior Proposal or (C) terminate this Agreement
and, if it so chooses, cause the Company to enter into any agreement with
respect to such Acquisition Proposal. The Company may take any of the foregoing
actions pursuant to the preceding sentence only if (i) Purchaser shall not have
accepted Shares for payment pursuant to the Offer, (ii) the Company is not in
material breach of its obligations under this Section 6.5, (iii) the Company
shall have terminated this Agreement pursuant to Section 8.1(f)(ii) and (iv) the
Company has paid to Parent the amounts required under Section 8.3(a). Any
withdrawal or modification of the recommendation of this Agreement by the Board
shall not change the approval of the Board for purposes of causing Section 203
of the Delaware Code or any other Takeover Statute to be inapplicable to the
Offer, the Merger, the Shareholder Agreements or the purchase of shares under
this Agreement.
(c) Subject to compliance with subsection (b) above, nothing contained in
this Section 6.5 shall prohibit the Company from complying with Rule 14e-2
promulgated under the Exchange Act.
(d) If the Board receives an Acquisition Proposal or any inquiry regarding
the making of an Acquisition Proposal including any request for information,
then the Company shall promptly inform Parent and Purchaser, orally and in
writing, of the terms and conditions of such proposal request or inquiry and the
identity of the Person making it. The Company will keep Parent and Purchaser
informed of the status and principal terms of any such Acquisition Proposal
request, or inquiry in a manner that will provide Parent and Purchaser with
sufficient and timely knowledge of such status and terms and permit Parent and
Purchaser to respond meaningfully thereto.
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(e) Without limiting the foregoing, it is understood that any violation of
the restrictions set forth in this Section 6.5 by any director or officer of the
Company or by any of its Subsidiaries or by any investment banker, financial
advisor, attorney, accountant or other representative of the Company and its
Subsidiaries acting on behalf of the Company of its Subsidiaries, shall be
deemed to be a breach of this Section by the Company
(f) (i) "Acquisition Proposal" means any inquiry, proposal or offer from any
Person relating to any direct or indirect acquisition or purchase of 25% or more
of the assets of the Company and its Subsidiaries taken as a whole or 25% or
more of any class of equity securities of the Company, any tender offer or
exchange offer that if consummated would result in any person beneficially
owning 25% or more of any class of equity securities of the Company, or any
merger, consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company, other
than the Transactions; and (ii) "Superior Proposal" means any bona fide
Acquisition Proposal made by a third party to acquire, directly or indirectly,
for consideration consisting of cash and/or securities (and without any
financing contingency), all of the shares of the Company's Common Stock then
outstanding or all or substantially all the assets of the Company and its
Affiliates, which proposal the Board determines in its good faith judgment
(following consultation with WP& Co. or other financial advisor of nationally
recognized reputation) to be materially more favorable to the Company's
stockholders than the Offer and the Merger.
6.6. Employee Matters.
(a) For a period of at least one year following the Effective Time, Parent
shall, or shall cause the Surviving Corporation and its Subsidiaries to,
maintain employee benefit and welfare plans, programs, contracts, agreements,
severance plans, policies and executive perquisites, for the benefit of active
and retired employees of the Company and its Subsidiaries which in the aggregate
provide benefits that are at least equal, on an overall basis, to those provided
by Parent's Subsidiaries to their other employees of comparable status and
seniority.
(b) Parent and Purchaser shall honor, without modification, and after the
purchase of Shares pursuant to the Offer Parent shall cause the Company and its
Subsidiaries to honor, all contracts, agreements, arrangements, policies, plans
and commitments of the Company (or any of its Subsidiaries) in effect as of the
date hereof which are applicable to any employee or former employee or any
director or former director of the Company (or any of its Subsidiaries) set
forth in the Company Disclosure Schedule, including the agreements of the
Company (whether or not in writing) to pay commissions to employees or
representatives of the Company, in accordance with the Company's prior practice,
in respect of LTAC Leases which may be entered into following the date of this
Agreement and which are scheduled on the Company's development plan as of
October 30, 1998 (a copy of which has been provided to Parent by the Company) in
respect of which such employees or representatives have provided services to the
Company prior to the Effective Time.
6.7. Directors' and Officers' Indemnification and Insurance.
(a) The Certificate of Incorporation of the Surviving Corporation shall
contain provisions no less favorable with respect to indemnification than are
set forth in Article VII of the Certificate of Incorporation of the Company,
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 materially
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and adversely affect the rights thereunder of individuals who at the Effective
Time were directors, officers, employees, fiduciaries or agents of the Company,
unless such modification shall be required by law.
(b) The Company shall, to the fullest extent permitted under applicable law
and regardless of whether the Merger becomes effective, indemnify and hold
harmless, and, after the Effective Time, Parent and the Surviving Corporation
shall, jointly and severally, to the fullest extent permitted under applicable
law, indemnify and hold harmless, each present and former director, officer,
employee, fiduciary and agent of the Company and each Subsidiary (collectively,
the "Indemnified Parties") against all costs and expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages, liabilities and
settlement amounts paid in connection with any claim, action, suit, proceeding
or investigation (whether arising before or after the Effective Time), whether
civil, administrative or investigative, arising out of or pertaining to any
action or omission in their capacity as an officer, director, employee,
fiduciary or agent, whether occurring before or after the Effective Time, for a
period of six years after the date hereof ( a "Claim"), provided, however, that
no Indemnified Party shall be entitled to payment of any amount in respect of
any Claim arising from willful misconduct, self dealing or the commission of an
intentional tort by such Indemnified Person. In the event of any such claim,
action, suit, proceeding or investigation, Parent or the Surviving Corporation,
as the case may be, shall assume the defense thereof, and neither Parent nor the
Surviving Corporation will be liable to such Indemnified Parties for any legal
expenses of other counsel incurred subsequent to such assumption by such
Indemnified Parties in connection with the defense thereof, provided, that (i)
the Parent and the Surviving Corporation shall have acknowledged in writing that
their indemnity obligations hereunder are applicable in respect of the matter in
issue unless and until a court of competent jurisdiction ultimately determines,
and such determination becomes final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by law, (ii)
no settlement shall be effected without the written consent of an Indemnified
Party which does not include a full and unconditional release of such
Indemnified Party and (iii) the Indemnified Parties shall cooperate in the
defense of any such matter. None of the Company, Parent or the Surviving
Corporation shall be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld). None of the Company,
Parent nor the Surviving Corporation shall be obligated pursuant to this Section
6.7(b) to pay the fees and expenses of more than one counsel for all Indemnified
Parties (who shall in any event be reasonably acceptable to the Parent) in any
single action except to the extent that the named parties to any such proceeding
include both the Indemnified Party and the Company or Parent, or their
respective successors, and the representation of such parties by the same
counsel would be proscribed under applicable standards of professional conduct
and provided further that, in the event that any claim for indemnification is
asserted or made within such six-year period, all rights to indemnification in
respect of such claim shall continue until the disposition of such claim.
(c) Parent and the Surviving Corporation shall use their respective
reasonable best efforts to maintain in effect for six years from the Effective
Time, if available, the current directors' and officers' liability insurance
policies maintained by the Company (provided that Parent and the Surviving
Corporation may substitute therefor policies of at least the same coverage
containing terms and conditions which are not materially less favorable) with
respect to matters occurring prior to the Effective Time; provided, that (1) if
the existing policies expire, are terminated or
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canceled during such period Parent or the Surviving Corporation will use its
reasonable best efforts to obtain substantially similar policies and (2) Parent
or the Surviving Corporation shall not be required to spend as an annual premium
therefor an amount in excess of $280,000.
6.8. Further Action; Reasonable Best Efforts.
Upon the terms and subject to the conditions hereof, each of the parties
hereto shall (i) make promptly its respective filings, and thereafter make any
other required submissions, under the HSR Act with respect to the Transactions,
provided that no material divestiture or undertaking to make such a material
divestiture shall be made without the consent of the Parent, which will not
unreasonably be withheld, and (ii) 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, including, without limitation,
using all reasonable efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Authorities
and parties to contracts with the Company and the Subsidiaries as are necessary
for the consummation of the Transactions and to fulfill the conditions to the
Offer and the Merger. The filing fee payable under the HSR Act shall be paid by
the Purchaser. In case at any time after the Effective Time any further action
is necessary or desirable to carry out the purposes of this Agreement, the
proper officers and directors of each party to this Agreement shall use their
reasonable best efforts to take all such action. In furtherance of its agreement
in this Section, Parent shall retain a nationally-recognized information agent
to assist in soliciting the shareholders of the Company to tender their Shares
in the offer and/or, in the event a Merger Notice has been delivered pursuant to
Section 1.3, to vote in favor of the Merger.
6.9. Public Announcements.
Parent and the Company shall consult with each other before issuing any
press release or otherwise making any public statements with respect to this
Agreement or any Transaction and shall not issue any such press release or make
any such public statement without the prior consent of the other parties, except
as may be required by law or any listing agreement with a national securities
exchange to which Parent or the Company is a party.
6.10. SEC and Stockholder Filings.
The Company shall deliver to Parent a copy of all material public reports
and materials as and when it sends the same to its stockholders, the SEC or any
state or foreign securities commission.
6.11. Takeover Statutes.
The Company and the Board shall take all reasonable action necessary to
ensure that no "fair price," "moratorium," "control share acquisition" or other
similar antitakeover statute or regulation enacted under state or federal laws
in the United States (each a "Takeover Statute"), including, without limitation,
Section 203 of the Delaware Code, is or becomes applicable to the Offer, the
Merger, this Agreement, or any Transaction, the Company and the members of its
Board of Directors (or any required and duly constituted Committee thereof) will
grant such approvals, and take such actions as are necessary so that the
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated hereby and thereby and otherwise act to
eliminate or minimize the effects of any Takeover Statute on any of the
transactions contemplated hereby or thereby.
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6.12. Advice of Breaches.
Parent and Purchaser, on the one hand, and the Company, on the other, shall
promptly advise each other if they become aware of breaches or any event or
occurrence which would be likely to cause a breach of its own representations,
warranties or covenants herein.
ARTICLE VII.
CONDITIONS TO THE MERGER
7.1. Conditions to the Merger.
The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. This Agreement and the transactions contemplated
--------------------
hereby shall have been approved and adopted by the affirmative vote of the
stockholders of the Company to the extent required by Delaware Law;
(b) No Order. No Governmental Authority or foreign, federal or state court of
--------
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any law, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is then in effect and
has the effect of making the Merger illegal or otherwise preventing consummation
of the Merger; provided, that the parties shall use their best efforts to have
any such injunction, order, restraint or prohibition vacated; and
(c) Offer. Purchaser or its permitted assignee shall have purchased all
-----
Shares validly tendered and not withdrawn pursuant to the Offer; provided, that
this condition shall not be applicable to the obligations of Parent or Purchaser
if Purchaser fails to purchase any Shares validly tendered and not withdrawn
pursuant to the Offer, in breach of this Agreement or the terms of the Offer.
7.2. Parent and Purchaser Conditions to the Merger.
The obligations of the Parent and Purchaser to effect the Merger shall be
subject to the condition that, at or prior to the Effective Time, the Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement, or such performance shall have been
waived; provided, that this condition shall not apply in respect of any
obligation of the Company arising after designees or representatives of Parent
or Purchaser shall represent a majority of the Board. After such designees or
representatives so constitute a majority of the Board, the obligations of the
Parent and the Purchaser to proceed with the Transactions may not be waived,
terminated or modified except as expressly permitted under the other provisions
of this Agreement.
If a Merger Notice is delivered pursuant to Section 1.3(d) or (e), the
obligations of Parent and Purchaser to effect the Merger shall also be subject
to the satisfaction or waiver, at the Effective Time, of the following
conditions:
(a) any applicable (i) waiting period under the HSR Act or (ii) period during
which Parent or Purchaser shall have consented or otherwise be barred from
consummating the Merger as part of any agreement or other arrangement with any
Governmental Authority involving the HSR Act or any other applicable antitrust
laws has expired or been terminated prior to the Effective Time;
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(b) the Company shall have received any required consent or approval of any
Governmental Authority and there shall not be pending or threatened any action
or proceeding before any court or Governmental Authority, domestic or foreign,
having any of the consequences referred to in clauses (i) through (vii) of
Section 1.2(c);
(c) there shall not have been any statute, rule, regulation, judgment, order
or injunction enacted, entered, issued, enforced, promulgated or deemed
applicable, or any other action taken, by any Governmental Authority other than
the routine application of the waiting period provisions of the HSR Act to the
Merger, which is reasonably likely to result, directly or indirectly, in any of
the consequences referred to in clauses (i) through (vii) of Section 1.2(c);
(d) there shall not have occurred, and be continuing, any change, condition,
event or other development that has had a Material Adverse Effect;
(e) the representations and warranties of the Company in this Agreement shall
be true and correct (for all purposes of this paragraph (e) without giving
effect to any material or Material Adverse Effect qualifiers or other qualifiers
based on materiality that are contained in this Agreement) as of such time
(except to the extent such representations and warranties expressly relate to an
earlier date, in which case such representations and warranties shall be true
and correct as of such earlier date), except to the extent that the failure or
failures to be true or correct do not, in the aggregate, have a Material Adverse
Effect;
(f) the number of Dissenting Shares shall not exceed 10% of the outstanding
Shares.
7.3. Company Conditions to the Merger.
The obligation of the Company to effect the Merger shall be subject to the
condition that, at or prior to the Effective Time, the Parent and Purchaser
shall have performed in all material respects all obligations required to be
performed by them under this Agreement, or such performance shall have been
waived by a majority of the members of the Board of Directors of the Company who
are not designees or representatives of Parent or Purchaser.
If a Merger Notice is delivered pursuant to Section 1.3(d) or (e), the
obligations of the Company to effect the Merger shall also be subject to the
satisfaction or waiver, at the Effective Time, of the following conditions:
(a) any applicable (i) waiting period under the HSR Act or (ii) period during
which Parent or Purchaser shall have consented or otherwise be barred from
consummating the Merger as part of any agreement or other arrangement with any
Governmental Authority involving the HSR Act or any other applicable antitrust
laws has expired or been terminated prior to the Effective Time;
(b) the Company shall have received any required consent or approval of any
Governmental Authority, the absence of which could subject any of the directors,
officers or other representatives of the Company to any personal liability;
(c) the representations and warranties of the Parent and the Purchaser in
this Agreement shall be true and correct in all material respects as of such
time (except to the extent such representations and warranties expressly relate
to an earlier date, in which case such representations and warranties shall be
true and correct as of such earlier date), except to the extent that failure or
failures to be true and correct do not, in the aggregate, materially impair the
ability of Parent and Purchaser to consummate the Merger.
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ARTICLE VIII.
TERMINATION, AMENDMENT AND WAIVER
8.1. Termination.
This Agreement may be terminated and the Merger and the other Transactions
may be abandoned at any time prior to the Effective Time, notwithstanding any
approval and adoption of this Agreement and the Transactions by the stockholders
of the Company:
(a) By mutual written consent duly authorized by the Boards of Directors of
Parent, Purchaser and the Company, provided, that any such consent by the Board
of the Company shall include at least a majority of the members of the Board who
are not designees or representatives of the Parent or the Purchaser; or
(b) By either Parent, Purchaser or the Company by written notice to the
other parties if
(i) The Offer (x) shall be terminated or expire in accordance with its
terms without the purchase of any Shares pursuant thereto or (y) Purchaser
shall not have accepted for payment any Shares pursuant to the Offer on or
before January 31, 1999; provided, that the right to terminate this
Agreement under this clause (i) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause
of, or resulted in, the failure to complete the Offer on or before such
date and provided further that the right to terminate this Agreement under
this clause (i) shall not be available to any of the parties to this
Agreement if a Merger Notice has been delivered pursuant to Sections 1.3(d)
or (e);
(ii) the Effective Time shall not have occurred on or before May 31,
1999; provided, that the right to terminate this Agreement under this
clause (ii) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted in,
the failure of the Effective Time to occur on or before such date; or
(iii) any court of competent jurisdiction or other Governmental
Authority shall have issued an order, decree, ruling or taken any other
action restraining, enjoining or otherwise prohibiting the Offer or Merger
and such order, decree, ruling or other action shall have become final and
nonappealable;
(c) By Parent or Purchaser, by written notice to the Company, if (i) the
Board or any committee thereof shall have (1) withdrawn or modified in a manner
adverse to Purchaser or Parent its approval or recommendation of the Offer, this
Agreement, the Merger or any other Transaction or (2) shall have approved or
recommended any Acquisition Proposal or (ii) WP&Co. shall have withdrawn,
revoked, amended or modified its opinion referred to in Section 3.22 in any
manner adverse to Parent or Purchaser, unless (A) at the time of or promptly
following such withdrawal, revocation, amendment or modification the Board shall
have publicly reaffirmed its approval and recommendation of the Transactions and
(B) within 10 Business Days following such withdrawal, revocation, amendment or
modification the Board shall have received a written opinion, from another
financial advisor of nationally recognized reputation reasonably acceptable to
Parent and Purchaser, that the Offer is fair to the shareholders of the Company
from a financial point of view, a copy of which shall have been delivered to the
Parent;
(d) By Parent and Purchaser, by written notice to the Company, if the
Company shall have (i) exercised a right specified in Section 6.5(a) with
respect to any Acquisition Proposal and the
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Board of Directors shall not, within 10 Business Days following a written
request from the Parent to do so, have reaffirmed its recommendation of the
Transactions; (ii) taken any action described in Section 6.5(b), or (iii)(1) an
Acquisition Proposal that is publicly disclosed shall have been commenced,
publicly proposed or communicated to the Company which contains a proposal as to
price (without regard to the specificity of such price proposal) and (2) the
Company shall not have rejected such proposal within 10 business days of its
receipt or the date its existence first becomes publicly disclosed, if sooner;
(e) By Parent and Purchaser, by written notice to the Company:
(i) if the Company shall have breached or failed to perform in any
material respect any of its representations, warranties or covenants
required to be performed by it under this Agreement or the Offer, and,
in the case of any breach other than an intentional material breach,
such breach or failure to perform has continued unremedied for 30 days
or is not reasonably capable of being cured by the expiration date of
the Offer; or
(ii) if the Company shall violate its obligations under Section 6.5;
or
(f) By the Company by written notice to the Parent and the Purchaser:
(i) if Purchaser shall have failed to publicly announce and commence
the Offer (within the meaning of Rule 14d-2 under the Exchange Act)
within five Business Days following the date of this Agreement;
provided, that the Company may not terminate this Agreement pursuant to
this subparagraph (i) if the Company is in material breach under this
Agreement;
(ii) in accordance with Section 6.5 and subject to the limitations
set forth therein, provided that Parent or Purchaser does not make,
within 3 Business Days of receipt of the notice of termination required
to be delivered pursuant to Section 6.5, an offer that the Company's
Board believes in good faith, after consultation with its legal counsel
and financial advisors, is at least as favorable to the holders of the
Shares as such other bidder's offer, and provided, further, that no
termination under this subparagraph (ii) shall be effective unless the
termination fee and expense fee required under Section 8.3 is paid at
the time notice of such termination is delivered;
(iii) if Parent or Purchaser shall have breached or failed to
perform in any material respect any of its representations, warranties
or covenants required to be performed by them under this Agreement at
or prior to such date, and, in the case of any breach other than an
intentional material breach, such breach or failure to perform has
continued unremedied for 30 days or is not reasonably capable of being
cured by the expiration date of the Offer.
8.2. Effect of Termination.
In the event of the termination of this Agreement pursuant to Section 8.1,
this Agreement shall forthwith become void, and there shall be no liability on
the part of any party hereto, except (i) as set forth in Sections 6.4, 8.3 and
9.1 and (ii) nothing herein shall relieve any party from liability for any
breach hereof. Any attempted termination of this Agreement not in accordance
with Section 8.1 shall not be effective and shall not affect the rights or
obligations of the parties set forth herein.
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8.3. Fees and Expenses.
(a) If this Agreement is terminated pursuant to Section 8.1(c)(i), 8.1(c)(ii)
(when Parent or Purchaser's right to terminate arises as a result of the failure
of the Board to publicly reaffirm its approval and recommendation of the
Transactions), 8.1(d), 8.1(e)(ii) or 8.1(f)(ii), then the Company shall pay
Parent $4,000,000 plus up to $1,000,000 in reimbursement of actual, verifiable
expenses (the "Expenses") incurred by the Parent in connection with the
negotiation, execution and delivery of this Agreement and the other documents
contemplated hereby and the anticipated completion of the Transactions.
(b) If this Agreement is terminated pursuant to Section 8.1(b) (on account of
the failure of the Company to satisfy the condition set forth in Section
1.2(f)), 8.1(c)(ii) (except in the case where Parent or Purchaser's right to
terminate arises as a result of the failure of the Board to publicly reaffirm
its approval and recommendation of the Transactions) or 8.1(e)(i), then the
Company shall pay Parent up to $1,000,000 in reimbursement of Expenses, and if,
at any time within one year of the date of such termination, the Company enters
into an agreement with respect to or consummates any direct or indirect
acquisition or purchase by any person of 25% or more of the assets of the
Company and its Subsidiaries taken as a whole or the issuance of 25% or more of
any class of equity securities of the Company, any tender offer or exchange
offer that if consummated would result in any person beneficially owning 25% or
more of any class of equity securities of the Company, or any merger,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company, other
than the Transactions (collectively, a "Subsequent Transaction"), the Company
shall pay Parent $4,000,000.
(c) If this Agreement is terminated by the Parent or the Purchaser pursuant
to Section 8.1(b) on account of the failure of the Company to satisfy the
condition set forth in Section 1.2(i), then the Company shall pay Parent, in
consideration for the expenses incurred in anticipation of the completion of the
Transactions, up to $1,000,000 in reimbursement of Expenses.
(d) If this Agreement is terminated by the Parent or the Purchaser pursuant
to Section 8.1(b) (other than on account of the failure of the Company to
satisfy the condition set forth in Section 1.2(f) or 1.2(i), which are addressed
in subparagraphs (b) and (c) above), and if the Company enters into an agreement
with respect to or consummates a Subsequent Transaction within six months
following such termination, then the Company shall pay Parent $4,000,000 plus up
to $1,000,000 in reimbursement of Expenses.
(e) Any amounts payable under paragraphs (a)-(d) above shall be paid within
five Business Days after demand by the Parent or the Purchaser or at such
earlier time as may be required under Section 6.5 or Section 8.1(f)(ii).
(f) The payment called for in paragraphs (a)-(d) above shall be in lieu of
any other claims by the Parent or the Purchaser in respect of its costs,
expenses, damages and losses incurred by the Parent or the Purchaser in respect
of the matters referred to in such paragraphs. The Company acknowledges that the
agreements contained in this Section 8.3 are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Parent and Purchaser would not enter into this Agreement.
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<PAGE>
(g) Except as set forth in this Section 8.3, all fees and expenses incurred
in connection with the Offer, the Merger, this Agreement and the Transactions
will be paid by the party incurring such fees or expenses, whether or not the
Merger is consummated.
8.4. Amendment.
Subject to Section 6.3, this Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, that, after the approval and
adoption of this Agreement and the Transactions by the stockholders of the
Company, no amendment may be made which would reduce the amount or change the
type of consideration into which each Share shall be converted upon consummation
of the Merger. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
8.5. Waiver.
At any time prior to the Effective Time, any party hereto may (i) extend
the time for the performance of any obligation or other act of any other party
hereto, (ii) waive any inaccuracy in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any agreement or condition contained herein.
ARTICLE IX.
GENERAL PROVISIONS
9.1. Non-Survival of Representations, Warranties and Agreements.
The representations, warranties and agreements in this Agreement shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.1, except that the agreements set forth in Article II and
Sections 6.6 and 6.7 shall survive the Effective Time indefinitely, and those
set forth in Sections 6.4(c), 6.7 and 8.3 and in the last clause of Section
1.5(d), shall survive termination of this Agreement indefinitely. The expiration
of a representation, warranty or agreement in this Agreement pursuant to this
Section 9.1 shall not affect the rights or remedies of any party arising from a
breach thereof occurring prior to such expiration.
9.2. Notices.
All notices, requests, claims, demands and other communications hereunder
shall be in writing and shall be given (and shall be deemed to have been duly
given upon receipt) by delivery in person, by fax or by registered or certified
mail (postage prepaid, return receipt requested) to the respective parties at
the following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section):
if to Parent or Purchaser:
Select Medical Corporation
4718 Old Gettysburg Road
P.O. Box 2034
Mechanicsburg, PA 17055
Attn: Rocco A. Ortenzio
Chairman and Chief Executive Officer
38
<PAGE>
with a copy to:
Dechert Price & Rhoads
1717 Arch Street
Philadelphia, PA 19103-2793
Attn: Henry N. Nassau
if to the Company:
Intensiva HealthCare Corporation
7733 Forsyth Boulevard, Suite 800
St. Louis, MO 63105
Attn: David W. Cross
President and Chief Executive Officer
with a copy to:
Suelthaus & Walsh, P.C.
7733 Forsyth Boulevard, Twelfth Floor,
St. Louis, Missouri 63105
Fax: (314) 727-7166
Attn: Thomas M. Walsh
and
Bryan Cave LLP
211 North Broadway
Suite 3600
St. Louis, Missouri 63102
Fax: (314) 259-2020
Attn: Denis P. McCusker
9.3. Definitions.
For purposes of this Agreement, the term:
(1) "Acquisition Proposal" is defined in Section 6.5(f).
(2) "Affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by, or is
under common control with, such specified person;
(3) "Beneficial Owner" with respect to any Shares means a person who shall be
deemed to be the beneficial owner of such Shares (i) which such person or any of
its Affiliates or associates (as such term is defined in Rule 12b-2 promulgated
under the Exchange Act) beneficially owns, directly or indirectly, (ii) which
such person or any of its Affiliates or associates has, directly or indirectly,
(A) the right to acquire (whether such right is exercisable immediately or
subject only to the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of consideration rights, exchange rights,
warrants or options, or otherwise, or (B) the right to vote pursuant to any
agreement, arrangement or understanding or (iii) which are beneficially owned,
directly or indirectly, by any other persons with whom such person or any of its
Affiliates or associates or person with whom such person or any of its
Affiliates or associates
39
<PAGE>
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any Shares;
(4) "Blue Sky Laws" is defined in Section 3.5(b).
(5) "Business Day" means any day on which the principal offices of the SEC in
Washington, D.C. are open to accept filings, or, in the case of determining a
date when any payment is due, any day on which banks are not required or
authorized to close in the City of New York.
(6) "Board" means the Board of Directors of the Company.
(7) "Claim" shall have the meaning set forth in Section 6.7.
(8) "Code" means the Internal Revenue Code of 1986, as amended.
(9) "Common Stock" is defined in Section 1.1.
(10) "Company Disclosure Schedule" is defined in the first paragraph of
Article III.
(11) "Confidentiality Agreement" is defined in Section 6.4(c).
(12) "Control" (including the terms "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 and policies of
a person, whether through the ownership of voting securities, as trustee or
executor, by contract or credit arrangement or otherwise.
(13) "Delaware Law" means the General Corporation Law of the State of
Delaware.
(14) "Dissenting Shares" is defined in Section 2.7.
(15) "Effective Time" is defined in Section 2.2
(16) "Environmental Laws" means any federal, state, or local statute, rule,
regulation or order, as in effect on the date of this Agreement, relating to the
protection of the environment or to the regulation of any toxic, radioactive,
ignitable, corrosive, reactive, biomedical or otherwise hazardous substances,
materials, contaminants, pollutants or wastes.
(17) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(18) "Governmental Authority" means any agency, instrumentality, department,
commission, court, tribunal or board of any government, whether foreign or
domestic and whether national, federal, state, provincial or local.
(19) "HSR Act" is defined in Section 3.5(b).
(20) "Indemnified Parties" is defined in Section 6.7(b).
(21) "Intellectual Property" means all of the following (in whatever form or
medium) which are owned by or licensed to the Company or any of its Subsidiaries
for use in connection with the operation of its business: (i) patents,
trademarks, service marks, tradedress, logos, designs and copyrights, (ii)
applications for patents and for registration of trademarks, service marks and
copyrights, (iii) trade secrets and trade names, and (iv) all other items of
proprietary know-how or intellectual property.
(22) "Interim Balance Sheet" is defined in Section 3.6(c).
40
<PAGE>
(23) "knowledge" means, in respect of the Company, the actual knowledge of the
persons listed on Exhibit A hereto.
(24) "Liens" is defined in Section 3.16(a).
(25) "LTAC Leases" is defined in Section 3.16(b).
(26) "Material Adverse Effect" means any change, effect, condition, event or
circumstance that is, or is reasonably likely to be, materially adverse to the
business, financial condition, assets, properties, or results of operations of
the Company and the Subsidiaries, taken as a whole; provided, that "Material
Adverse Effect" shall not include any change, effect, condition, event or
circumstance arising out of or attributable to (i) any decrease in the market
price of the Shares (but not any change, effect, condition, event or
circumstance underlying such decrease to the extent that it would otherwise
constitute a Material Adverse Effect), (ii) changes, effects, conditions, events
or circumstances that generally affect the industries in which the Company
operates (including legal and regulatory changes), (iii) general economic
conditions or change, effects, conditions or circumstances affecting the
securities markets generally, (iv) changes arising from the consummation of the
Transactions or the announcement of the execution of this Agreement, including
changes resulting from the exercise by other parties to the LTAC Leases of any
contractual rights they may have (if any) under the express terms of the LTAC
Leases as a result of the Transactions or the announcement of the Transactions;
or (v) any matter expressly disclosed in this Agreement or the Company's
Disclosure Schedule; and provided, further that, subject to the foregoing, a
Material Adverse Effect shall be deemed to have occurred if the Company and its
Subsidiaries shall have lost their accreditation to continue participation in
the Medicare and Medicaid programs in respect of one or more of the Company's
locations which represented, in the aggregate, in excess of 15% of the Company's
net revenues for the most recent four fiscal quarters preceding the date of such
event.
(27) "Merger" is defined in Section 2.1.
(28) "Merger Consideration" is defined in Section 2.6(a).
(29) "Merger Notice" is defined in Section 1.3(d).
(30) "1997 Balance Sheet" is defined in Section 3.6(c).
(31) "Per Share Amount" is defined in Section 1.1
(32) "Person" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person" as
defined in Section 13(d)(3) of the Exchange Act), trust, association or entity
or government, political subdivision, agency or instrumentality of a government.
(33) "Plans" is defined in Section 3.9.
(34) "Proxy Statement" is defined in Section 3.10.
(35) "Returns" shall mean all returns, declarations, reports, statements, and
other documents required to be filed with any government or taxing authority in
respect of Taxes, and the term "Return" shall mean any one of the foregoing
Returns.
(36) "SEC" means the Securities and Exchange Commission.
41
<PAGE>
(37) "SEC Rules" means the rules, regulations or interpretations of the SEC or
the staff thereof.
(38) "Stockholders Meeting" is defined in Section 6.1.
(39) "Subsidiary" or "Subsidiaries" of the Company, the Surviving Corporation,
Parent or any other person means an Affiliate controlled by such person,
directly or indirectly, through one or more intermediaries.
(40) "Superior Proposal" is defined in Section 6.5(f).
(41) "Surviving Corporation" is defined in Section 2.1.
(42) "Takeover Statute" is defined in Section 6.11.
(43) "Tax" or "Taxes" shall mean (A) all federal, state and local and foreign
taxes and assessments of any nature whatsoever, based on the laws and
regulations in effect from time to time through the Closing Date, including,
without limitation, all income, profits, franchise, gross receipts, capital,
sales, use, withholding, value added, ad valorem, transfer, employment, social
security, disability, occupation, property, severance, production, excise,
environmental and other taxes, duties and other similar governmental charges and
assessments imposed by or on behalf of any government or taxing authority,
including all interest, penalties and additions imposed with respect to such
amounts, and (B) any obligations under any agreements or arrangements with
respect to any Taxes described in clause (A) above.
(44) "Tax Returns" means any returns required to be filed with Federal, state
or other applicable taxing authorities in respect of any Taxes.
(45) "Transactions" is defined in Section 1.2(c).
(46) "Warrants" is defined in Section 3.3.
9.4. Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the Transactions
is not affected in any manner materially adverse to any party. 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 a mutually acceptable manner in order that the Transactions be
consummated as originally contemplated to the fullest extent possible. The
parties confirm that, if they are unable to reach such agreement, it is their
intention that the provisions of this Agreement be enforced to the maximum
extent permissible.
9.5. Entire Agreement; Assignment.
Except for the Confidentiality Agreement and the Letter Agreement, this
Agreement constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes, all prior agreements and undertakings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof. This Agreement shall not be assigned by operation of law
or otherwise, except that Parent and Purchaser may assign all or any of their
rights and obligations thereunder to any wholly-owned Subsidiary of Parent
provided that no such
42
<PAGE>
assignment shall relieve the assigning party of its obligations hereunder if
such assignee does not perform such obligations.
9.6. Parties in Interest.
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement (including, without limitation,
Section 6.6), express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 6.7 (which is intended to be for the
benefit of the persons covered thereby and may be enforced by such persons).
9.7. Governing Law.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Delaware.
9.8. Headings.
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.9. Counterparts.
This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
9.10. Specific Performance.
Nothing in this Agreement shall preclude a party from seeking specific
performance, injunctive relief or any other remedies not involving the payment
of monetary damages in the event of any breach or violation (or threatened
breach or violation) of any provision of this Agreement by the other party and
each party acknowledges that, in light of the unique benefit to it of its rights
under this Agreement, such remedies shall be available in respect of any such
breach or violation by it in any suit properly instituted in a court of
competent jurisdiction and shall be in addition to any other remedies available
at law or in equity to such party.
9.11. Costs of Enforcement.
In any action, claim, suit or proceeding to enforce its rights under this
Agreement, the prevailing party shall be entitled to prompt reimbursement of its
reasonable costs and expenses of obtaining such enforcement, including
attorneys' fees.
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<PAGE>
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
SELECT MEDICAL CORPORATION
By /s/ ROCCO A. ORTENZIO
----------------------------
Name: Rocco A. Ortenzio
Title: Chief Executive Officer
SELECT MEDICAL OF
MECHANICSBURG, INC
By /s/ ROCCO A. ORTENZIO
-----------------------------
Name: Rocco A. Ortenzio
Title: Director
INTENSIVA HEALTHCARE
CORPORATION
By /s/ DAVID W. CROSS
-----------------------------
Name: David W. Cross
Title: President and Chief
Executive Officer
44
<PAGE>
Exhibit A
---------
"knowledge" means, in respect of the Company, knowledge by David W. Cross,
John R. Lewis, John P. Keefe and Michael Oligschlaeger.
45
<PAGE>
Exhibit 99.2
[Intensiva Letterhead]
November 17, 1998
To Our Stockholders:
On behalf of the Board of Directors of Intensiva HealthCare Corporation (the
"Company"), I am pleased to inform you that on November 9, 1998 the Company
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Select Medical Corporation, a Delaware corporation ("Parent"), and its wholly
owned subsidiary Select Medical of Mechanicsburg, Inc., a Delaware corporation
("Purchaser"). Pursuant to the Merger Agreement, Purchaser today has commenced
a cash tender offer (the "Offer") to purchase all outstanding shares of common
stock of the Company, par value $.001 per share (the "Shares"), at $9.625 per
share, net to the seller in cash, without interest. Under the Merger
Agreement, upon satisfaction of certain conditions, the Offer will be followed
by a merger (the "Merger") in which any Shares not tendered pursuant to the
Offer will be converted into the right to receive $9.625 per Share in cash,
without interest.
THE COMPANY'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER
ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY, AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES TO PURCHASER PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
that is being filed today with the Securities and Exchange Commission. Among
other things, the Board considered the opinion of its financial advisor,
Wasserstein Perella & Co., that, based upon and subject to the matters
discussed therein, including the various assumptions and limitations set forth
therein, as of the date of such opinion, the consideration to be received by
the holders of Shares pursuant to the Merger Agreement is fair to such holders
from a financial point of view.
In addition to the attached Schedule 14D-9, enclosed also is the Offer to
Purchase dated November 17, 1998, together with related materials, including a
Letter of Transmittal, to be used for tendering your Shares in the Offer.
These documents state the terms and conditions of the Offer and the Merger and
provide instructions for tendering your Shares. We urge you to read these
documents carefully in making your decision with respect to tendering your
Shares pursuant to the Offer.
On behalf of the Board of Directors,
/s/ David W. Cross
_____________________________________
David W. Cross
President and Chief Executive
Officer
<PAGE>
Exhibit 99.3
Press Release, dated November 9, 1998.
<PAGE>
Intensiva HealthCare Announces Definitive Agreement to be Acquired by Select
Medical Corporation; Cash Offer of $9.625 Per Share
ST. LOUIS, Mo.--(BUSINESS WIRE)--Nov. 10, 1998--Intensiva HealthCare Corporation
(NASDAQ:IHCC), a leading provider of highly specialized acute long-term care for
critically ill or injured patients, announced today that it has entered into a
definitive agreement providing for Intensiva HealthCare Corporation to be
acquired by Select Medical Corporation, a leading private acute long-term care
hospital ("LTACH") services company, for $9.625 for each outstanding share. This
represents a 54 percent premium to the Monday, November 9, 1998 closing price of
$6.25 and brings the total purchase price to approximately $110 million,
including debt assumed. Wasserstein Perella & Co., Inc. acted as financial
advisor to Intensiva.
Under the terms of the Agreement, unanimously approved by both company Boards,
Select will commence its offer to purchase Intensiva's shares within five
business days. Once initiated, the offer will be open for 20 business days
unless further extended. The completion of the offer is subject to a number of
customary conditions, including the expiration of the waiting period under the
Hart-Scott-Rodino Act. Shares not purchased under the offer will be acquired in
a subsequent merger at the same price as soon as practicable after completion of
the offer. In addition, Select's obligation to purchase Intensiva's shares in
the offer is subject to a condition that 90 percent of Intensiva's outstanding
common stock on a fully diluted basis is acquired. If 90 percent of the shares
are not tendered, the Agreement provides that, under certain circumstances, the
transaction will be converted into a cash merger at the same per share price.
Such a merger would be subject to the approval of two-thirds of Intensiva's
outstanding shares. In connection with the Agreement, certain shareholders
owning, in the aggregate, approximately 30 percent of Intensiva's outstanding
shares have agreed to tender their shares in the offer or vote for the merger.
The transaction is not subject to a financing contingency and Select has
received a letter on behalf of the Company's investors confirming their
commitment to provide financing for the transaction.
Rocco Ortenzio, chairman and chief executive officer of Select stated, "We are
very excited about the combination of Select and Intensiva, which brings
together two leaders in the acute long-term hospital market. Critical mass is of
paramount importance in today's health care environment, and this merger will
give us a strong base of 38 operating hospitals, with an additional thirteen new
contracted hospitals, which have yet to open."
David Cross, president and chief executive officer of Intensiva, commented, "We
believe that this merger is in the best interest of all Intensiva's
constituencies. Our patients, payors, host hospitals, and employees will benefit
from an even stronger operating platform and the strengthened financial
resources of the combined companies, while shareholders will receive a
substantial premium to the current market value of their stock. Due to Select's
and Intensiva's similar management philosophies, realizing the benefits of this
merger will result in minimal dislocations in our operations. I am pleased to be
staying on as part of this strong, new management team as senior vice president
of development."
<PAGE>
Intensiva HealthCare Corporation, founded in July 1994, has venture backing from
Three Arch Partners, Schroder Ventures, Sierra Ventures, Weiss, Peck & Greer,
Mayfield Partners, and Burr, Egan, DeLeage & Co.
Select Medical Corporation, with projected annualized revenue of approximately
$260 million before the consummation of this transaction, provides acute long-
term hospital services through 16 hospitals in nine states. The Company was
founded by Rocco and Robert Ortenzio in February 1997, with financial backing by
Welsh, Carson, Anderson & Stowe and Golder, Thoma, Cressey & Rauner, two of the
leading private equity investment firms in the United States.
MacKenzie Partners, Inc. will be the Information Agent for the offer. After the
offer to purchase has been mailed to Intensiva's shareholders, copies of the
offer documents can be requested from the Information Agent at 800/322-2885.
This press release contains certain forward-looking statements based on current
expectations, which are covered under the "safe harbor" provision within the
Private Securities Litigation Act of 1995. Actual results and events related to
the acquisition may differ from those anticipated as a result of risks and
uncertainties which include, but are not limited to, the successful completion
of this transaction, the effective integration of Select and its recent
acquisitions and the overall economic, market and industry conditions, as well
as the risks described from time to time in Select's and Intensiva Healthcare's
reports as filed with the Securities and Exchange Commission, including their
most recent filed Form 10-K reports.
CONTACT: Intensiva HealthCare Corporation
David Cross
President, Chief Executive Officer
John P. Keefe, Chief Financial Officer
314/725-0112
or
Investor Relations:
Gordon McCoun/Lauren Felice
Press: Michael McMullan
Morgen-Walke Associates, Inc.
212/850-5600
<PAGE>
Exhibit 99.5
Confidentiality Agreement, dated as of October 7, 1998, by and between Parent
and the Company.
<PAGE>
CONFIDENTIALITY AGREEMENT
This Agreement is made and entered into on the date last below written by
and between INTENSIVA HEALTHCARE CORPORATION, a Delaware corporation, having its
principal office at 7733 Forsyth Boulevard, Suite 800, St. Louis, Missouri 63105
("INTENSIVA"), and SELECT MEDICAL CORPORATION having its principal office at
4718 Old Gettysburg Road, Mechanicsburg, Pennsylvania 17055 (the "COMPANY"). It
is hereby agreed as follows:
1. PURPOSE OF AGREEMENT. It is understood that the Company is interested in
exploring a possible transaction with Intensiva that is material to Intensiva
and is outside the existing business relationship between Intensiva and the
Company, including, without limitation, an acquisition of all or a significant
portion of the assets or equity interest in Intensiva or its affiliates, a
merger or consolidation or other business combination involving Intensiva and
one or more third parties, an acquisition of Intensiva or a significant portion
of its common equity, assets or business, a recapitalization or restructuring of
Intensiva, a joint venture, a strategic alliance or any other similar
transaction, and desires to review certain information concerning Intensiva
which is non-public, confidential, and/or proprietary in nature for the purpose
of making an evaluation of Intensiva in connection therewith.
2. CONFIDENTIALITY OF INFORMATION. Subject to Paragraph 3 below, as an
inducement to Intensiva to furnish information to the Company, the Company
agrees to treat confidentially such information and any other information that
Intensiva or its Representatives (as defined) furnish to the Company, whether in
oral, written, electronic, or other format and whether furnished on, before, or
after the date of this Agreement, together with analyses, compilations, studies,
or other documents or records prepared by the Company, its directors, officers,
employees, agents, advisors, or representatives (collectively,
"REPRESENTATIVES") which contain or otherwise reflect or are generated from such
information (collectively, the "INFORMATION").
3. LIMITED USE OF INFORMATION. The Company agrees that the Information will
not be used other than for the purpose described above, and in no event for
purposes of competition with Intensiva or any of its Affiliates (defined below),
and that such Information shall be kept confidential by the Company and its
Representatives, provided, however, that, notwithstanding any other provision
hereof, (i) any such Information may be disclosed to Representatives who
reasonably need to know same for the purpose described above (it being
understood that such Representatives shall be informed by the Company of the
confidential nature of such Information and shall be directed by the Company to
treat such Information confidentially and not to use it other than for the
purpose described herein); and (ii) any disclosures to which Intensiva consents
in writing may be made or as provided herein. The Company will take all
reasonable efforts to safeguard the Information from disclosure to anyone other
than as permitted herein and shall be responsible for any breach of this
Agreement by its Representatives or any of its Affiliates. For purposes of this
Agreement, an "Affiliate" of a party is any person or entity that controls, is
controlled by, or is under common control with that party.
Confidentiality Agreement Page 1
<PAGE>
4. CONFIDENTIALITY OF DISCUSSIONS. Without the prior written consent of
Intensiva, the Company shall not, and shall direct its Representatives not to,
disclose to any person either the fact that the information has been made
available to the Company or that the Company has inspected any portion of the
Information, the fact that discussions are taking place between Intensiva and
the Company or other facts with respect to such discussions, including the
status thereof; provided, however, that the Company may make disclosure
concerning such discussions if and to the extent that the Company determines in
good faith that such disclosure is required by law or legal process; but
provided further, however, that no such disclosure will be made unless Intensiva
has been advised of the Company's intent to make same and, to the extent
reasonable in the circumstances (as determined by the Company in good faith),
Intensiva has had a reasonable opportunity to discuss the matter with the
Company and/or seek a protective order, as provided below. The term "person" as
used in this Agreement shall be broadly interpreted to include without
limitation any corporation, partnership, joint venture, limited liability
company, individual, or other entity.
5. COMPULSORY DISCLOSURE. In the event that the Company is requested or
required (by oral question, interrogatories, requests for information or
documents, subpoena, civil investigative demand, or similar process) to disclose
any of the Information, the Company shall promptly notify Intensiva of such
request or requirement so that Intensiva may seek an appropriate protective
order or waive the Company's compliance with the provisions of this Agreement.
If, in the absence of a protective order or the receipt of a waiver hereunder,
the Company determines in good faith that it is compelled to disclose any part
of the Information, the Company may disclose such part (but no other part) of
the information to any party compelling such disclosure. The Company shall not
be liable for the disclosure of information pursuant to the preceding sentence
unless such disclosure was caused by or resulted from disclosure by the Company
not permitted by this Agreement.
6. WHAT IS NOT INFORMATION. The following will not constitute Information for
purposes of this Agreement: (i) information which is or becomes generally
available to the public other than as a result of a disclosure by the Company or
its Representatives; (ii) information which was available to the Company on a
non-confidential basis prior to its disclosure to the Company by Intensiva or
its Representatives; or (iii) information which becomes available to the Company
on a non-confidential basis from a source other than Intensiva or its
Representatives, provided that, to the knowledge of the Company after due
inquiry, such source is not subject to any prohibition against transmitting the
Information to the Company. The fact that information included within the
Information is or becomes otherwise available to the Company or its
Representatives under the above exclusion shall not relieve the Company and its
Representatives of the obligations imposed by this Agreement relative to all
other non-excluded information contained within the Information.
7. RETURN OF INFORMATION. The Company shall use reasonable efforts to keep a
record of the Information furnished, and all copies thereof and the location of
such Information and all copies thereof. The written Information, except for
that portion of the Information that may be found in analyses, compilations,
studies, or other documents prepared by or for the Company, shall be returned to
Intensiva or destroyed promptly after Intensiva's request. That
Confidentiality Agreement Page 2
<PAGE>
portion of the Information prepared by or for the Company not so returned shall
be destroyed and the Company shall so certify any such destruction in writing at
Intensiva's request.
8. NO WARRANTY OR LIABILITY. It is understood that Intensiva has or will
endeavor to include in the Information materials which it believes to be
reliable and relevant for the purpose of the Company's evaluation, but the
Company acknowledges that Intensiva and Representatives of Intensiva have not
and do not make any representation or warranty as to the accuracy or
completeness of the information by reason of supplying it or by virtue of
executing this Agreement. None of Intensiva or any of its Representatives shall
have any liability to the Company or any of its Representatives resulting from
the use of or reliance on the Information by the Company or its Representatives,
except and only to the extent, if any, set forth in definitive agreements
executed by the parties.
9. NONHIRE COVENANT. The Company agrees that, during the discussions with
Intensiva and for a period of one year after the date hereof. Company shall
not, directly or indirectly, solicit for employment or employ an employee or
officer of Intensive or any of its Affiliates whose annual base pay at the time
of solicitation exceeds $50,000 or who holds any Hospital Leadership Position
(as defined hereinafter), or attempt to induce any such person to leave the
employment of or otherwise terminate his or her relationship with Intensiva or
any of its Affiliates, except that the Company shall not be precluded from (a)
soliciting such employees pursuant to a General Solicitation (as defined
hereinafter) and from hiring any such employee who responds to such General
Solicitation, or (b) from hiring any employee of the Company who has been
involuntarily terminated prior to commencement of solicitation of such employee.
For purposes of this Agreement, "Hospital Leadership Position" shall mean the
President, Vice President of Provider Relations, Vice President of Patient Care,
and Organizational Improvement Coordinator of each of Intensiva's Affiliates.
For purposes of this Agreement, "General Solicitation" shall mean an
advertisement for employment in (i) a publication of national circulation, (ii)
a publication in the general metropolitan area in which the Company has
operations, or (iii) a publication in a metropolitan area contiguous to a
metropolitan area in which the Company has operations.
10. SHARE OWNERSHIP REPRESENTATION. The Company represents and warrants that,
as of the time of execution of this Agreement, it is not the record and/or
beneficial owner of, and is not a member of a group, as such term is used in
Section 13 of the Securities Exchange Act of 1934, as amended, and the
Regulations promulgated thereunder, that is the record and/or beneficial owner
of, any outstanding voting securities of Intensiva.
11. NO OBLIGATION TO PROCEED. Communication of Information pursuant to this
Agreement shall not obligate either party to enter into any further agreements
relating to an acquisition or other transaction between the parties. It is
understood that unless and until a definitive agreement between Intensiva and
the Company with respect to any transaction between them has been executed and
delivered, neither Intensiva nor the Company shall be under any legal obligation
of any kind whatsoever with respect to such a transaction by virtue of this
Agreement or any written or oral expression with respect to such a transaction
by Intensiva, the Company, or any of their respective Representatives except, in
the case of this Agreement, for the matters
Confidentiality Agreement Page 3
<PAGE>
specifically agreed to herein. The term "definitive agreement" as used in this
Agreement shall not include a letter of intent or any other preliminary written
agreement, or any actual or purported written or verbal acceptance of any offer
or bid.
12. REMEDIES. It is acknowledged that the Information is unique and that the
disclosure and use of the information other than in furtherance of the business
of Intensiva and its Affiliates could reasonably be expected to result in
irreparable harm to Intensiva for which monetary damages would not be an
adequate remedy. Accordingly, in addition to whatever other remedies Intensiva
may have in law, in equity, or pursuant to this Agreement, it is understood and
agreed that, subject to any other applicable provisions of this Agreement,
Intensiva shall be entitled to apply to any court of competent jurisdiction
(without posting bond or other security) to enjoin any actual or threatened
breach or default under the covenants and promises contained herein and shall be
entitled to seek specific performance of this Agreement, and if any such relief
is so ordered (or agreed to by the Company), the Company agrees to pay all costs
of enforcement, including reasonable attorneys' fees and expenses, relating
thereto.
13. NOTICES. Except as otherwise provided herein, all notices required or
permitted hereunder shall be in writing and shall be deemed to be duly received:
(i) on the date given if delivered personally or by facsimile transmission; or
(ii) two business days after delivery to the United States Postal Service,
postage prepaid, mailed by registered or certified mail (return receipt
requested). Notices to a party shall be addressed to the principal office of
that party, or to such other address as a party may, by written notice, request
that notice be delivered.
14. GOVERNING LAW. This Agreement shall be governed and construed by and in
accordance with the internal laws of the State of Delaware, excluding principles
of conflict of laws. Each of Intensiva and the Company hereby consents and
submits to the exclusive jurisdiction and venue of the courts of the States of
Delaware or Missouri and of the United States of America in either Delaware or
the Eastern District of Missouri for any actions, suits, or proceedings arising
out of or related to this Agreement.
15. ENTIRE AGREEMENT, AMENDMENTS. This Agreement represents the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and supersedes any and all prior agreements between the parties,
whether written or oral; provided, however, that all Information furnished to
Company prior to the date of this Agreement shall be subject to the provisions
of this Agreement. This Agreement may be amended or waived only by a separate
written instrument executed by Intensiva and the Company expressly so amending
or waiving any provision of this Agreement.
16. BINDING EFFECT, ASSIGNMENT, SURVIVAL. This Agreement shall inure to the
benefit of and may be enforced by the parties hereto and their respective
successors and permitted assigns, and shall be binding upon the parties hereto
and their respective successors in interest. Neither party may assign or
otherwise transfer any rights, duties, or obligations hereunder without the
prior written consent of the other party, which consent may be withheld for any
reason whatsoever. All agreements, covenants, undertakings, representations,
and warranties made in this Agreement shall survive the termination of
discussions by the parties.
Confidentiality Agreement Page 4
<PAGE>
17. SEVERABILITY. Should any one or more of the provisions of this Agreement
be found to be invalid, illegal, or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby. In addition, if any provisions
of this Agreement shall be found to be invalid, illegal, or unenforceable under
applicable law, such provision shall be deemed to be modified to the minimum
extent necessary to make such provision legal, valid, and enforceable.
18. NO WAIVER. No failure or delay in exercising any right, power, or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof, or the
exercise of any right, power, or privilege hereunder.
19. HEADINGS. The headings hereof are for convenient reference purposes only
and shall not constitute a part of this Agreement nor affect the meaning or
interpretation of this Agreement.
20. COUNTERPARTS. This Agreement shall be executed in counterparts, each of
which shall constitute an original, but all of which, when taken together, shall
constitute but one agreement.
IN WITNESS WHEREOF, this Agreement has been executed by authorized
representatives of Intensiva and the Company as of the 7th day of
October, 1998.
INTENSIVA: INTENSIVA HEALTHCARE CORPORATION
By /s/ DAVID W. CROSS
---------------------------------------------
Title: President and Chief Executive Officer
-----------------------------------------
COMPANY SELECT MEDICAL CORPORATION
By /s/ ROBERT A. ORTENZIO
---------------------------------------------
Title: President
-----------------------------------------
Confidentiality Agreement Page 5
<PAGE>
Exhibit 99.6
Stockholder Agreement, dated as of November 9, 1998, among Parent, Purchaser and
certain stockholders of the Company.
<PAGE>
STOCKHOLDER AGREEMENT
---------------------
STOCKHOLDER AGREEMENT, dated as of November 9,1998, among Select
Medical Corporation, a Delaware corporation ("Parent"), Select Medical of
Mechanicsburg, Inc., a Delaware corporation and a wholly owned subsidiary of
Parent ("Purchaser"), and the persons listed on Schedule A hereto (each a
"Stockholder" and, collectively, the "Stockholders").
WHEREAS, Parent, Purchaser and Intensiva HealthCare Corporation, a
Delaware corporation (the "Company"), propose to enter into an Agreement and
Plan of Merger dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement") providing for the making of a cash tender
offer (as such offer may be amended from time to time as permitted under the
Merger Agreement, the "Offer") by Purchaser for shares of Common Stock par value
$.001 per share, of the Company (the "Common Stock") and the merger of the
Company and Purchaser (the "Merger");
WHEREAS, each Stockholder is the beneficial owner of the shares of
Common Stock set forth opposite such Stockholder's name on Schedule A hereto;
such shares of Common Stock, as such shares may be adjusted by stock dividend,
stock split, recapitalization, combination or exchange of shares, merger,
consolidation, reorganization or other change or transaction of or by the
Company, together with shares of Common Stock that may be acquired after the
date hereof by such Stockholder, including shares of Common Stock issuable upon
the exercise of options or warrants to purchase Common Stock (as the same may be
adjusted as aforesaid), being collectively referred to herein as the "Shares" of
such Stockholder; and
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Parent and Purchaser have requested that the Stockholders enter into
this Agreement;
NOW, THEREFORE, to induce Parent and Purchaser to enter into, and in
consideration of their entering into, the Merger Agreement, and in consideration
of the premises and the representations, warranties and agreements contained
herein, the parties agree as follows:
1. Tender of Shares. Each Stockholder hereby severally and not jointly
----------------
agrees that such Stockholder shall tender into the Offer the Shares it owns as
of the date hereof, together with any Shares it may acquire prior to the
expiration of the Offer, and that it shall not withdraw any Shares so tendered
(it being understood that the obligation contained in this sentence is
unconditional, subject to Section 8).
2. Representations and Warranties of the Stockholders. Each Stockholder
--------------------------------------------------
hereby, severally and not jointly, represents, warrants and covenants to Parent
and Purchaser as follows:
Page 1
<PAGE>
(a) Authority. The Stockholder has all requisite power and authority to
execute and deliver this Agreement. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Stockholder. This Agreement has been duly executed
and delivered by the Stockholder and constitutes a valid and binding obligation
of the Stockholder enforceable against the Stockholder in accordance with its
terms.
(b) Noncontravention. Except for the expiration or termination of any
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), neither the execution, delivery or
performance of this Agreement by the Stockholder nor the consummation by the
Stockholder of the transactions contemplated hereby will (i) require any filing
with, or permit, authorization, consent or approval of , any Governmental
Authority (as defined in the Merger Agreement), (ii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default under, or give rise to any right of termination, amendment, cancellation
or acceleration under, or result in the creation of any Lien (as defined in the
Merger Agreement) upon any of the properties or assets of the Stockholder under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, permit, concession, franchise, contract, agreement or
other instrument or obligation (a "Contract") to which the Stockholder is a
party or by which the Stockholder or any of the Stockholder's properties or
assets, including the Stockholder's Shares, may be bound or (iii) violate any
law, rule, regulation, order, judgment or decree applicable to the Stockholder
or any of the Stockholder's properties or assets, including the Stockholder's
Shares, other than, in the case of clause (ii) above, such items that,
individually or in the aggregate, have not and could not reasonably be expected
to impair the ability of the Stockholder to perform its obligations under this
Agreement.
(c) The Shares. The Stockholder's Shares and the certificates
representing such Shares are now, and at all times during the term hereof will
be, held by such Stockholder, or by a nominee or custodian for the benefit of
such Stockholder, and the Stockholder is the lawful owner of and has good and
marketable title to such Shares, free and clear of any Liens, proxies, rights of
first refusal or offer, voting trusts or agreements, understandings or
arrangements or any other encumbrances whatsoever, except for any such Liens or
proxies arising hereunder.
The Stockholder represents, warrants and agrees that Schedule A annexed
hereto sets forth all of the Shares of which the Stockholder or its affiliates
(as defined under the Securities Exchange Act of 1934, as amended) are the
record or beneficial owner and that the Stockholder and its affiliates are on
the date hereof the lawful owners of the number of Shares set forth in Schedule
A beside the name of the Stockholder or such other person.
Page 2
<PAGE>
Neither the Stockholder nor any of its affiliates, own or hold any
rights to acquire any additional shares of the capital stock of the Company (by
exercise of stock options, warrants or otherwise) or any interest therein or any
voting rights with respect to any additional Shares. The Stockholder, together
with other persons who are signatories to this Stockholder Agreement, has sole
voting power and sole power to issue instructions with respect to the matters
set forth herein, sole power of disposition, sole power of conversion, sole
power to demand appraisal rights and sole power to engage in the actions set
forth herein, in each case with respect to the Shares set forth on Schedule A
hereto beside the name of the Stockholder.
(d) Brokers. Except for Wasserstein Perella & Co., Inc., which is
-------
financial advisor to the Company, no broker, investment banker, financial
advisor or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Stockholder.
(e) Merger Agreement. The Stockholder understands and acknowledges that
----------------
Parent is entering into, and causing Purchaser to enter into, the Merger
Agreement in reliance upon the Stockholder's execution and delivery of this
Agreement.
3. Representations and Warranties of Parent and Purchaser. Parent and
------------------------------------------------------
Purchaser hereby represent and warrant to the Stockholders as follows:
(a) Authority. Each of Parent and Purchaser has the requisite
---------
corporate power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by Parent and Purchaser and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and
Purchaser. This Agreement has been duly executed and delivered by
Parent and Purchaser and constitutes a valid and binding obligation of
Parent and Purchaser enforceable in accordance with its terms.
(b) Securities Act. The Shares will be acquired in compliance
--------------
with, and Purchaser will not offer to sell or otherwise dispose of any
Shares so acquired by it in violation of the registration requirements
of the Securities Act of 1933, as amended.
4. Covenants of the Stockholders. Each Stockholder, severally and not
-----------------------------
jointly, agrees as follows:
(a) The Stockholder shall not, except as contemplated by the
terms of this Agreement, (i) sell, transfer, pledge, assign or
otherwise dispose of, or enter into any Contract, option or other
arrangement (including any profit sharing arrangement) or
Page 3
<PAGE>
understanding with respect to the sale, transfer, pledge, assignment or
other disposition of, the Shares to any person other than Purchaser or
Purchaser's designee, (ii) enter into any voting arrangement, whether
by proxy, voting agreement, voting trust, power-of-attorney or
otherwise, with respect to the Shares or (iii) take any other action
that would in any way restrict, limit or interfere with the performance
of Stockholder's obligations hereunder or the transactions contemplated
hereby or which would otherwise diminish the benefits of this Agreement
to Parent and Purchaser.
(b) Subject to Section 11 hereof, until the Merger is consummated or
the Merger Agreement is terminated, the Stockholder shall not, nor
shall the Stockholder permit any of its affiliates or any investment
banker, financial advisor, attorney, accountant or other representative
or agent of the Stockholder or such Stockholder's affiliates to,
directly or indirectly (i) solicit, initiate or encourage (including by
way of furnishing information), or take any other action designed or
reasonably likely to facilitate, any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to,
any Acquisition Proposal (as defined in the Merger Agreement) or (ii)
participate in any discussions or negotiations regarding any
Acquisition Proposal. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the preceding
sentence by an investment banker, financial advisor, attorney,
accountant or other representative or agent of the Stockholder shall be
deemed to be a violation of this Section 4(b) by the Stockholder.
(c) At any meeting of stockholders of the Company called to vote
upon the Merger and the Merger Agreement or at any adjournment thereof
or in any other circumstances upon which a vote, consent or other
approval (including by written consent) with respect to the Merger and
the Merger Agreement is sought, the Stockholder shall vote (or cause to
be voted) the Stockholder's Shares in favor of the Merger, the adoption
by the Company of the Merger Agreement and the approval of the other
transactions contemplated by the Merger Agreement. At any meeting of
stockholders of the Company or at any adjournment thereof or in any
other circumstances upon which the Stockholder's vote, consent or other
approval is sought, the Stockholder shall vote (or cause to be voted)
the Stockholder's Shares against (i) any merger agreement or merger
(other than the Merger Agreement and the Merger), consolidation,
combination, sale of substantial assets, reorganization,
recapitalization, dissolution, liquidation or winding up of or by the
Company or any other Acquisition Proposal (collectively, "Alternative
Transactions") or (ii) any amendment of the Company's certificate of
incorporation or bylaws or other proposal or transaction involving the
Company or any of its subsidiaries, which amendment or other proposal
or transaction would in any manner impede, frustrate, prevent or
nullify the Offer, the Merger, the Merger Agreement or any of the other
transactions contemplated by the Merger Agreement (collectively,
"Frustrating Transactions").
(d) The Stockholder shall not enter into any agreement or
understanding
Page 4
<PAGE>
with any person or entity to vote or give instructions in any manner
inconsistent with subsection (c). Stockholder hereby irrevocably and
unconditionally waives, and agrees to cause any company, trust or other
person or entity controlled by the Stockholder to waive and agrees to
prevent the exercise of, any rights of appraisal, any dissenters'
rights and any similar rights relating to the Merger or any related
transaction that Stockholder or any other person may have by virtue of
the ownership of any outstanding shares of Common Stock beneficially
owned by the Stockholder, or over which the Stockholder has voting
power or control, directly or indirectly (including any Shares
beneficial ownership of which is acquired by the Stockholder after the
date hereof).
5. Grant of Irrevocable Proxy; Appointment of Proxy.
-------------------------------------------------
(a) Each Stockholder hereby irrevocably grants to, and
appoints, Michael E. Tarvin and any other individual who shall
hereafter be designated by Parent, and each of them individually, such
Stockholder's proxy and attorney-in-fact (with full power of
substitution), for and in the name, place and stead of such
Stockholder, to vote such Stockholder's Shares, or grant a consent or
approval in respect of such Shares, at any meeting of stockholders of
the Company or at any adjournment thereof or in any other circumstances
upon which their vote, consent or other approval is sought, in favor of
the Merger, the adoption by the Company of the Merger Agreement and the
approval of the terms thereof and each of the other transactions
contemplated by the Merger Agreement and against any Alternative
Transaction or Frustrating Transaction.
(b) Each Stockholder represents that any proxies heretofore given in
respect of such Stockholder's Shares are not irrevocable, and that any
such proxies are hereby revoked. The Stockholder agrees that if
requested by Purchaser, the Stockholder will not attend or vote any
Shares beneficially owned by the Stockholder at any annual or special
meeting of stockholders or execute any written consent of stockholders.
(c) Each Stockholder hereby affirms that the irrevocable proxy set
forth in this Section 5 is given in connection with the execution of
the Merger Agreement and that such irrevocable proxy is given to secure
the performance of the duties of such Stockholder under this Agreement.
Such Stockholder hereby further affirms that the irrevocable proxy is
coupled with an interest and may under no circumstances be revoked,
subject to Section 8. Such Stockholder hereby ratifies and confirms all
that such irrevocable proxy may lawfully do or cause to be done by
virtue hereof. Such irrevocable proxy is executed and intended to be
irrevocable in accordance with the provisions of the General
Corporation Law of the State of Delaware. Each Stockholder hereby
affirms such irrevocable proxy shall be valid until the termination of
this Agreement pursuant to Section 8.
6. Further Assurances. Each Stockholder will, from time to time,
------------------
execute and
Page 5
<PAGE>
deliver, or cause to be executed and delivered, such additional or further
transfers, assignments, endorsements, consents and other instruments as Parent
or Purchaser may reasonably request for the purpose of effectively carrying out
the transactions contemplated by this Agreement and to vest the power to vote
such Stockholder's Shares as contemplated by Section 5. Parent and Purchaser
jointly and severally agree to use reasonable efforts to take, or cause to be
taken, all actions necessary to comply promptly with all legal requirements that
may be imposed with respect to the transactions contemplated by this Agreement
(including any applicable legal requirements of the HSR Act).
7. Assignment. Neither this Agreement nor any of the rights, interests
----------
or obligations hereunder shall be assigned by any of the parties without the
prior written consent of the other parties, except that Purchaser may assign, in
its sole discretion, any or all of its rights, interests and obligations
hereunder to Parent or to any direct or indirect wholly owned subsidiary of
Parent. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by, the parties and their respective
successors and assigns. Each Stockholder agrees that this Agreement and the
obligations of such Stockholder hereunder shall attach to such Stockholder's
Shares and shall be binding upon any person or entity to which legal or
beneficial ownership of such Shares shall pass, whether by operation of law or
otherwise, including such Stockholder's heirs, guardians, administrators or
successors.
8. Termination. This Agreement, and all rights and obligations of the
-----------
parties hereunder, shall terminate upon the earliest of (a) the day after the
Shares are accepted for payment pursuant to the Offer; (b) the day after the
Merger is consummated; (c) May 31, 1999; (d) upon the termination of the Merger
Agreement; or (e) at any time the per share purchase price in the Offer is
reduced below $9.625.
9. Stop Transfer. The Company agrees with, and covenants to, Parent
-------------
and Purchaser that the Company shall not register the transfer of any
certificate representing any Stockholder's Shares unless such transfer is made
in accordance with the terms of this Agreement.
10. General Provisions.
-------------------
(a) Expenses. All costs and expenses incurred in connection
--------
with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expense.
(b) Amendments. This Agreement may not be amended except by an
----------
instrument in writing signed by each of the parties hereto.
(c) Notice. All notices and other communications hereunder
------
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is
Page 6
<PAGE>
confirmed), sent by overnight courier (providing proof of delivery) or
mailed by registered or certified mail (return receipt requested) to
the parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
(i) if to Parent or Purchaser, to:
Select Medical Corporation
4718 Gettysburg Road
P.O. Box 2034
Mechanicsburg, PA 17055
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Attention: Henry N. Nassau, Esq.
Telecopier No.: (215) 994-2222
and
(ii) if to a Stockholder, to the address set forth under
the name of such Stockholder on Schedule A hereto
with a copy to:
Suelthaus & Walsh, P.C.
7733 Forsyth Blvd., 12th Floor
St. Louis, MO 63105
Attention: Thomas M. Walsh, Esq.
Telecopier No.: (314) 727-7166
(d) Interpretation. When a reference is made in this
--------------
Agreement to a Section, such reference shall be to a Section of this
Agreement unless otherwise indicated. The headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Wherever the words
"include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." Words
in the singular include the plural, and words in the plural include the
singular.
(e) Counterparts. This Agreement may be executed in
------------
multiple counterparts, and by the different parties hereto in separate
counterparts, each of which
Page 7
<PAGE>
when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
(f) Entire Agreement; No Third-Party Beneficiaries. This
----------------------------------------------
Agreement (including the documents and instruments referred to herein)
(i) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and (ii) is not intended to
confer upon any person other than the parties hereto any rights or
remedies hereunder.
(g) Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the Laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable
principles of conflict of law.
(h) Amendment. This Agreement may not be modified, amended,
---------
altered or supplemented, except upon the execution and delivery of a
written agreement by the parties hereto.
(i) Publicity. Except as otherwise required by law, court
---------
process or the rules of a national securities exchange or the Nasdaq
National Market or as contemplated or provided in the Merger Agreement,
for so long as this Agreement is in effect, no Stockholder shall issue
or cause the publication of any press release or other public
announcement with respect to the transactions contemplated by this
Agreement or the Merger Agreement without the consent of Parent, which
consent shall not be unreasonably withheld.
11. Stockholder Capacity. No person executing this Agreement makes
--------------------
any agreement or understanding herein in his or her capacity as a director or
officer of the Company or any subsidiary of the Company. Each Stockholder signs
solely in his or her capacity as the beneficial owner of such Stockholder's
Shares and nothing herein shall limit or affect any actions taken by a
Stockholder in his or her capacity as an officer or director of the Company or
any subsidiary of the Company to the extent specifically permitted by the Merger
Agreement.
12. Enforcement. 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 their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall 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 federal court located in the
State of Delaware or in any Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity. Stockholder further
agrees to waive any requirement for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other equitable relief.
The provisions of this paragraph are without
Page 8
<PAGE>
prejudice to any other rights that either party hereto may have against the
other party hereto for any failure to perform its obligations under this
Stockholder Agreement. In addition, each of the parties hereto (i) consents to
submit such party 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 this Agreement or any of the transactions contemplated hereby,
(ii) agrees that such party will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, (iii)
agrees that such party will not bring any action relating to this Agreement or
any of the transactions contemplated hereby in any court other than a Federal
court located in the state of Delaware or a Delaware state court and (iv) waives
any right to trial by jury with respect to any claim or proceeding related to or
arising out of this Agreement or any of the transactions contemplated hereby.
The parties irrevocably and unconditionally waive any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of Delaware or of
the United States of America located in the State of Delaware, and hereby
further irrevocably and unconditionally waive and agree not to plead or claim in
any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
IN WITNESS WHEREOF, each of Parent and Purchaser has caused this
Agreement to be signed by its officer or director thereunto duly authorized and
each Stockholder has signed this Agreement, all as of the date first written
above.
PARENT: SELECT MEDICAL CORPORATION
By: /s/ ROCCO A. ORTENZIO
-------------------------
Name: Rocco A. Ortenzio
Title: Chief Executive Officer
PURCHASER: SELECT MEDICAL OF MECHANICSBURG,
INC.
By: /s/ ROCCO A. ORTENZIO
-------------------------
Name: Rocco A. Ortenzio
Title: Director
STOCKHOLDERS:
/s/ Jeffrey J. Collinson
----------------------------
Jeffrey J. Collinson
Page 9
<PAGE>
/s/ David W. Cross
----------------------------
David W. Cross
/s/ Michael R. Hogan
----------------------------
Michael R. Hogan
/s/ Wilfred E. Jaeger
----------------------------
Wilfred E. Jaeger, M.D.
/s/ Phillip M. Nudelman
----------------------------
Phillip M. Nudelman
/s/ David L. Steffy
----------------------------
David L. Steffy
/s/ James B. Tananbaum
----------------------------
James B. Tananbaum, M.D.
THREE ARCH PARTNERS, L.P.
By /s/ WILFRED E. JAEGER
------------------------------
By Three Arch Management, L.P.,
Its General Partner
By Wilfred E. Jaeger, M.D.
THREE ARCH ASSOCIATES, L.P.
By /s/ WILFRED E. JAEGER
----------------------------
By Three Arch Management, L.P.,
Its General Partner
By Wilfred E. Jaeger, M.D.
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<PAGE>
SIERRA VENTURES IV, L.P.,
By S.V. Associates IV, L.P.,
Its General Partner
By /s/ PETER WENDELL
----------------------------
SIERRA VENTURES IV
INTERNATIONAL,L.P.
By S.V. Associates IV, L.P.,
Its General Partner
By /s/ PETER WENDELL
----------------------------
/s/ John R. Lewis
------------------------------
John R. Lewis
/s/ John P. Keefe
------------------------------
John P. Keefe
ACKNOWLEDGED AND AGREED
TO AS TO SECTION 9:
INTENSIVA HEALTHCARE CORPORATION
By /s/ David W. Cross
-------------------------
Name: David W. Cross
Title: President
Page 11
<PAGE>
Schedule A
Stockholder Shares Options
Jeffrey J. Collinson 14,098 10,000
David W. Cross 279,287 33,000
Michael R. Hogan 10,000 31,000
Wilfred E. Jaeger, M.D. None 10,000
Phillip M. Nudelman None 37,500
David L. Steffy 474,087 10,000
James B. Tananbaum, M.D. 17,000 10,000
Three Arch Partners, L.P. 680,042 None
Three Arch Associates, L.P. 153,239 None
Sierra Ventures IV, L.P. 960,319 None
Sierra Ventures IV 38,425 None
International, L.P.
John R. Lewis 326,287 33,000
John P. Keefe 62,883 94,917
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