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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
(Amendment No. )
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CENTENNIAL HEALTHCARE CORPORATION
(Name of the Issuer)
WELSH, CARSON, ANDERSON & STOWE, VIII, L.P.
WCAS CAPITAL PARTNERS III, L.P.
COUGAR HOLDINGS CORPORATION
COUGAR ACQUISITION CORP.
ANDREW M. PAUL
J. STEPHEN EATON
KENT C. FOSHA, SR.
ALAN C. DAHL
LAWRENCE W. LEPLEY, JR.
CENTENNIAL HEALTHCARE CORPORATION
(Name of Person(s) Filing Statement)
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COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
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150937100
(CUSIP Number of Class of Securities)
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Lawrence B. Sorrel, President Daryl R. Griswold, Esq.
Cougar Holdings Corporation Centennial HealthCare Corporation
c/o Welsh, Carson, Anderson & 400 Perimeter Center Terrace
Stowe VIII, L.P. Suite 650
320 Park Avenue Atlanta, Georgia 30346
New York, New York 10022 (770) 698-9040
(212) 893-9500
WITH COPIES TO:
Paul A. Quiros, Esq. William J. Hewitt, Esq.
Lynn S. Scott, Esq. Reboul, MacMurray, Hewitt,
King & Spalding Maynard & Kristol
191 Peachtree Street 45 Rockefeller Plaza
Atlanta, Georgia 30303 New York, New York 10111
(404) 572-4600 (212) 841-5700
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Person(s) Filing Statement)
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This statement is filed in connection with (check the appropriate box):
a. /X/ The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C, or Rule
13e-3(c) under the Securities Exchange Act of 1934.
b. / / The filing of a registration statement under the Securities
Act of 1933.
c. / / A tender offer.
d. / / None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: /X/
CALCULATION OF FILING FEE
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Transaction Valuation(1) Amount of Filing Fee
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$191,734,366........................ $38,346.87
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/X/ Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
Amount previously paid: $38,346.87
Form or registration no.: Schedule 14A - Preliminary
Proxy Statement
Filing party: Centennial HealthCare Corporation
Date filed: December 11, 1998
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(1) For purposes of calculating the fee only. Assumes purchase of
11,923,618 shares of common stock, par value $.01 per share, of Centennial
HealthCare Corporation ("Common Stock") at $16.00 per share and the
purchase of underlying options to purchase Common Stock for an aggregate
of $956,478.
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This Rule 13e-3 Transaction Statement (this "Statement") relates to the
Agreement and Plan of Merger, dated as of October 22, 1998 (the "Merger
Agreement"), by and among Centennial HealthCare Corporation, a Georgia
corporation (the "Company"), Cougar Acquisition Corp., a Georgia corporation
(the "Acquiror"), and Cougar Holdings Corporation, a Delaware corporation (the
"Parent"), pursuant to which the Acquiror, a wholly-owned subsidiary of the
Parent, will be merged (the "Merger") with and into the Company, with the
Company surviving the Merger. The Parent and the Acquiror were organized at the
direction of Welsh, Carson, Anderson & Stowe VIII, L.P., a Delaware limited
partnership ("WCAS VIII") and WCAS Capital Partners III, L.P., a Delaware
limited partnership ("WCAS CP III"). WCAS VIII Associates LLC, a Delaware
limited liability company is the sole general partner of WCAS VIII and WCAS CP
III Associates L.L.C., a Delaware limited liability company is the sole general
partner of WCAS CP III. The Parent and the Acquiror were formed for the purpose
of consummating the Merger and the transactions contemplated thereby.
Concurrently with the filing of this Statement, the Company is filing with the
Securities and Exchange Commission a preliminary proxy statement on Schedule 14A
under the Securities and Exchange Act of 1934, as amended (together with all
annexes thereto, the "Preliminary Proxy Statement") relating to a special
meeting of shareholders of the Company. At such meeting, the shareholders of the
Company will vote upon a proposal to approve the Merger Agreement.
A copy of the Preliminary Proxy Statement is attached hereto as Exhibit
(d)(3). A copy of the Merger Agreement is attached as Appendix A to the
Preliminary Proxy statement.
Upon the terms and subject to the conditions of the Merger Agreement,
at the Effective Time (as defined below): (i) the Acquiror will be merged with
and into the Company, with the Company continuing as the surviving corporation
(the "Surviving Corporation"); (ii) the shares of common stock of the Acquiror
held by the Parent will be converted into shares of common stock, $.01 par
value, of the Surviving Corporation (the "Surviving Corporation Common Stock"),
representing all of the outstanding shares of the Surviving Corporation Common
Stock; (iii) each outstanding share of common stock, $.01 par value, of the
Company ("Company Common Stock") will be converted into the right to receive
$16.00 per share in cash, other than shares held by shareholders who are
entitled to and have perfected their dissenters' appraisal rights and shares
held by the Company and its subsidiaries, the Acquiror and the Parent (including
shares contributed immediately prior to the Effective Time to the Parent by
certain members of the Company's management and certain affiliates of the Parent
and the Acquiror). The "Effective Time" of the Merger will be the date and time
of the filing of a certificate of merger with the Georgia Secretary of State in
accordance with the Georgia Business Corporation Code, which is scheduled to
occur as soon as practicable after the satisfaction or waiver of the closing
conditions contained in the Merger Agreement.
The following cross reference sheet is supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Preliminary Proxy
Statement of the information required to be included in this Statement in
response to the information required by Schedule 13E-3. The information in the
Preliminary Proxy Statement, a copy of which is attached hereto as Exhibit
(d)(3), is hereby expressly incorporated herein by reference and the responses
to each item in this Statement are qualified in their entirety by the
information contained in the Preliminary Proxy Statement. Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to such terms
in the Preliminary Proxy Statement. The Preliminary Proxy Statement will be
completed and, if appropriate, amended, prior to the time the definitive Proxy
Statement is first sent or given to shareholders of the Company. This Statement
will be amended as necessary to reflect the completion or amendment of the
Preliminary Proxy Statement.
The filing of this Statement shall not be construed as an admission by
the Company, the Parent, the Acquiror, WCAS VIII or WCAS CP III or any of their
affiliates, including Andrew M. Paul, a director of the Company (together, the
"WCAS Persons") or any of Messrs. J. Stephen Eaton, Alan C. Dahl, Kent C. Fosha,
Sr. and Lawrence W. Lepley, Jr. that the Company is "controlled" by the WCAS
Persons or that any of the WCAS Persons is an "affiliate" of the Company within
the meaning of Rule 13e-3 under Section 13(e) of the Securities Exchange Act of
1934, as amended.
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CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN THE
ITEM IN SCHEDULE 13E-3 PROXY STATEMENT
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Item 1(a) Cover Page, "Questions and Answers About the Merger"
and "Summary--The Companies"
Item 1(b) Cover Page, "Summary--Record Date; Voting Power" and
"The Special Meeting--Record Date and Quorum
Requirement"
Item 1(c)-(d) "Summary--Historical Market Information" and
"Purchases of Common Stock by Certain Persons"
Item 1(e) "Summary--Historical Market Information" and
"Purchases of Common Stock by Certain Persons"
Item 1(f) "Purchases of Common Stock by Certain Persons"
Item 2(a)-(d) and (g) "Summary--The Companies", "Principal Shareholders and
Stock Ownership of Management and Others" and
"Certain Information Concerning the Parent, the
Acquiror and the Investor Group"
Item 2(e)-(f) *
Item 3(a)(1) "Summary--Conflicts of Interest", "Special
Factors--Conflicts of Interest", and "Purchases of
Common Stock By Certain Persons"
Item 3(a)(2) "Questions and Answers About the Merger",
"Summary--The Companies", "--Terms of the Merger
Agreement", "--Share Ownership of the Parent
Following the Merger", "--Conflicts of Interest",
"Special Factors--Background of the Merger", "--The
Special Committee's and the Board's Recommendations",
"--Purpose and Reasons of the Affiliates for the
Merger", "--Conflicts of Interest", "--Financing of
the Merger", "The Merger--Terms of the Merger
Agreement", "Certain Information Concerning the
Parent, the Acquiror and the Investor Group" and
"Purchases of Common Stock By Certain Persons"
Item 3(b) "Questions and Answers About the Merger",
"Summary--The Companies", "--Terms of the Merger
Agreement", "--Share Ownership of the Parent
Following the Merger", "--Conflicts of Interest",
"Special Factors--Background of the Merger", "--The
Special Committee's and the Board's Recommendations",
"--Purpose and Reasons of the Investor Group for the
Merger", "--Conflicts of Interest", "--Financing of
the Merger", "The Merger--Terms of the Merger
Agreement", "Certain Information Concerning the
Parent, the Acquiror and the
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<TABLE>
<S> <C>
Investor Group" and "Purchases of Common Stock By
Certain Persons"
Item 4(a) "Questions and Answers about the Merger",
"Summary--Terms of the Merger Agreement", "--Share
Ownership of the Parent Following the Merger",
"--Conflicts of Interest", "-- Appraisal Rights",
"Special Factors--The Special Committee's and the
Board's Recommendation", "--Purpose and Reasons of
the Investor Group for the Merger", "--Conflicts of
Interest", "--Financing of the Merger", "--Certain
Effects of the Merger", "The Special
Meeting--Effective Time of the Merger and Payment for
Shares", "The Merger--Terms of the Merger Agreement",
"Rights of Dissenting Shareholders" and Appendix A to
the Proxy Statement
Item 4(b) "Questions and Answers about the Merger",
"Summary--Terms of the Merger Agreement", "--Share
Ownership of the Parent following the Merger",
"--Conflicts of Interest", "--Appraisal Rights",
"--Company Projections", "Special Factors--Background
of the Merger", "--The Special Committee's and the
Board's Recommendation", "--Purpose and Reasons of
the Investor Group for the Merger", "--Conflicts of
Interest", "--Certain Effects of the Merger",
"--Financing of the Merger", "The Merger--Terms of
the Merger Agreement", "Rights of Dissenting
Shareholders" and Appendix A to the Proxy Statement
Item 5(a)-(b) "Special Factors--Purpose and Reasons of the Investor
Group for the Merger", "--Certain Effects of the
Merger", and "--Conduct of Centennial's Business
After the Merger"
Item 5(c) "Summary--Conflicts of Interest", "Special
Factors--Conflicts of Interest" and "--Conduct of
Centennial's Business After the Merger"
Item 5(d) "Summary--Share Ownership of the Parent following the
Merger", "--Conflicts of Interests", "--Historical
Market Information", "Special Factors--Conflicts of
Interest", "--Financing of the Merger", "Conduct of
Centennial's Business After the Merger", and "The
Merger--Terms of the Merger Agreement"
Item 5(e) "Questions and Answers About the Merger",
"Summary--The Companies", "--Terms of the Merger
Agreement","--Share Ownership of the Parent Following
the Merger", "--Conflicts of Interest", "--Historical
Market Information", "--Company Projections",
"Special Factors--Background of the Merger", "--The
Special Committee's and the Board's Recommendations",
"--Purpose and Reasons of the Investor Group for the
Merger", "--Conflicts of Interest", "Special
Factors--Certain Effects of the Merger", "--Financing
of the Merger", "--Conduct of Centennial's Business
After the Merger", and "The Merger--Terms of the
Merger Agreement"
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Item 5(f)-(g) "Questions and Answers About the Merger" and "Special
Factors--Certain Effects of the Merger"
Item 6(a) "Special Factors--Financing of the Merger"
Item 6(b) "The Merger--Estimated Fees and Expenses of the Merger"
Item 6(c) "Special Factors--Financing of the Merger"
Item 6(d) *
Item 7(a)-(c) "Questions and Answers about the Merger", "Summary",
"Special Factors--Background of the Merger", "--The
Special Committee's and the Board's Recommendation",
"--Opinion of Financial Advisor", "--Purpose and
Reason of the Investor Group for the Merger" and
"--Conflicts of Interest"
Item 7(d) "Questions and Answers about the Merger", "Summary",
"Special Factors--Background of the Merger", "The
Special Committee's and the Board's Recommendation",
"--Purpose and Reasons of the Investor Group for the
Merger", "--Conflicts of Interest", "--Certain
Effects of the Merger", "--Financing of the Merger",
"--Conduct of Centennial's Business After the
Merger", "Rights of Dissenting Shareholders",
"Federal Income Tax Consequences", "The Merger--Terms
of the Merger Agreement", "--Estimated Fees and
Expenses of the Merger"
Item 8(a)-(b) "Questions and Answers about the Merger",
"Summary--"Vote Required", --Recommendations",
"--Opinion of Financial Advisor", "--Terms of the
Merger Agreement", "--Conflicts of Interest",
"--Appraisal Rights", "--Historical Market
Information", "--Selected Consolidated Financial Data
of the Company", "--Company Projections", "Special
Factors--Background of the Merger", "--The Special
Committee's and the Board's Recommendation",
"--Opinion of Financial Advisor", "-- Purpose and
Reasons of the Investor Group for the Merger",
"--Position of the Investor Group as to Fairness of
the Merger", "--Conflicts of Interest", "Certain
Effects of the Merger", "The Special Meeting--Voting
Procedures", "Rights of Dissenting Shareholders",
"Purchases of Common Stock By Certain Persons"
Item 8(c) "Questions and Answers about the Merger",
"Summary--Vote Required", "Special Factors--The
Special Committee's and the Board's Recommendation",
"The Special Meeting--Voting Procedures" and "The
Merger--Terms of the Merger Agreement--Conditions to
the Merger"
Item 8(d) "Questions and Answers about the Merger",
"Summary--Recommendations", "--Opinion of Financial
Advisor", "Special Factors--Background of the
Merger", "--The Special Committee's and the Board's
Recommendation", "--Opinion of Financial Advisor",
and "--Conflicts of Interest"
</TABLE>
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<TABLE>
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Item 8(e) "Questions and Answers about the Merger",
"Summary--Recommendations", "Special Factors--
Background of the Merger", "--The Special Committee's
and the Board's Recommendation"
Item 8(f) *
Item 9(a)-(c) "Summary--Recommendations", "--Opinion of Financial
Advisor", "Special Factors--Background of the
Merger", "--The Special Committee's and the Board's
Recommendation", "--Opinion of Financial Advisor" and
"--Conflicts of Interest" and Appendix B to the Proxy
Statement
Item 10(a)-(b) "Special Factors--Conflicts of Interest;" "Principal
Shareholders and Stock Ownership of Management and
Others", and "Purchases Of Common Stock By Certain
Persons"
Item 11 "Questions and Answers about the Merger",
"Summary--The Companies", "--Terms of the Merger
Agreement", "--Share Ownership of the Parent
following the Merger", "--Conflicts of Interest,
"Special Factors--Background of the Merger", "--The
Special Committee's and the Board's Recommendation",
"--Purpose and Reasons of the Investor Group for the
Merger", "--Conflicts of Interest", "--Certain
Effects of the Merger", "--Financing of the Merger",
"The Merger--Terms of the Merger Agreement", "Certain
Information Concerning The Parent, the Acquiror and
the Investor Group" and "Purchase of Common Stock by
Certain Persons" and Appendix A to the Proxy
Statement
Item 12(a)-(b) "Summary--Recommendations", "-- Share Ownership of
the Parent following the Merger", "--Conflicts of
Interest", "Special Factors--The Special Committee's
and the Board's Recommendation", "--Purpose and
Reasons of the Investor Group for the Merger",
"--Position of the Investor Group as to Fairness of
the Merger", "--Conflicts of Interest" and "Certain
Information Concerning the Parent, the Acquiror and
the Investor Group"
Item 13(a) "Summary--Appraisal Rights" "Rights of Dissenting
Shareholders" and Appendix A and Appendix C to the
Proxy Statement
Item 13(b) *
Item 13(c) *
Item 14(a) "Summary--Selected Consolidated Financial Data of the
Company", "Incorporation of Certain Documents by
Reference" and "Independent Auditors"
Item 14(b) *
</TABLE>
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<TABLE>
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Item 15(a)-(b) "Summary--Share Ownership of the Parent Following the
Merger", "--Conflicts of Interest", "Special
Factors--Background of the Merger", "--The Special
Committee's and the Board's Recommendation",
"--Conflicts of Interest", "The Special
Meeting--Proxy Solicitation", "The Merger--Terms of
the Merger Agreement", and "--Estimated Fees and
Expenses of the Merger"
Item 16 Proxy Statement
Item 17(a)-(f) *
</TABLE>
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*Not applicable or answer is negative.
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information set forth on the cover page to the Proxy Statement
and in the sections entitled "Questions and Answers About the Merger" and
"Summary--The Companies" of the Proxy Statement is incorporated herein by
reference.
(b) The information set forth on the cover page to the Proxy Statement
and in the sections entitled "Summary--Record Date; Voting Power" and "The
Special Meeting--Record Date and Quorum Requirement" of the Proxy Statement is
incorporated herein by reference.
(c) The information set forth in the section entitled
"Summary--Historical Market Information" of the Proxy Statement is incorporated
herein by reference.
(d) The information set forth in the section entitled
"Summary--Historical Market Information" of the Proxy Statement is incorporated
herein by reference.
(e) The information set forth in the section entitled
"Summary--Historical Market Information" and "Purchases of Common Stock by
Certain Persons" of the Proxy Statement is incorporated herein by reference.
(f) The information sets forth in the section entitled "Purchases of
Common Stock by Certain Persons" of the Proxy Statement is incorporated herein
by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d), (g) The information set forth in the sections entitled
"Summary--The Companies", "Principal Shareholders and Stock Ownership of
Management", and "Certain Information Concerning the Parent, the Acquiror and
the Investor Group" of the Proxy Statement is incorporated herein by reference.
(e), (f) The information set forth in the section entitled "Certain
Information Concerning the Parent, the Acquiror and the Investor Group" of the
Proxy Statement is incorporated herein by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) The information set forth in the section entitled
"Summary--Conflicts of Interest", "Special Factors--Conflicts of Interest", and
"Purchases of Common Stock by Certain Persons" of the Proxy Statement is
incorporated herein by reference.
(a)(2) The information set forth in the sections entitled "Questions
and Answers About the Merger", "Summary--The Companies", "--Terms of the Merger
Agreement", "--Share Ownership of the Parent Following the Merger", "--Conflicts
of Interest", "Special Factors--Background of the Merger", "--The Special
Committee's and the Board's Recommendations", "--Purpose and Reasons of the
Affiliates for the Merger", "--Conflicts of Interest", "--Financing of the
Merger", "The Merger--Terms of the Merger Agreement", "Certain Information
Concerning the Parent, the Acquiror and the Investor Group" and "Purchases of
Common Stock By Certain Persons" of the Proxy Statement is incorporated herein
by reference.
(b) The information set forth in the sections entitled "Questions and
Answers About the Merger", "Summary--The Companies", "--Terms of the Merger
Agreement", "--Share Ownership of the Parent Following the Merger", "--Conflicts
of Interest", "Special Factors--Background of the Merger", "--The Special
Committee's and the Board's Recommendations", "--Purpose and Reasons of the
Investor Group for the Merger", "--Conflicts of Interest", "--Financing of the
Merger", "The Merger--Terms of the Merger Agreement", "Certain Information
Concerning the Parent, the Acquiror and the Investor Group" and "Purchases of
Common Stock By Certain Persons" of the Proxy Statement is incorporated herein
by reference.
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ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in the sections entitled "Questions and
Answers about the Merger", "Summary--Terms of the Merger Agreement", "--Share
Ownership of the Parent following the Merger", "--Conflicts of Interest", "--
Appraisal Rights", "Special Factors--The Special Committee's and the Board's
Recommendation", "--Purpose and Reasons of the Investor Group for the Merger",
"--Conflicts of Interest", "--Financing of the Merger", "--Certain Effects of
the Merger", "The Special Meeting--Effective Time of the Merger and Payment for
Shares", "The Merger--Terms of the Merger Agreement", "Rights of Dissenting
Stockholders" of the Proxy Statement and Appendix A to the Proxy Statement is
incorporated herein by reference.
(b) The information set forth in the sections entitled "Questions and
Answers about the Merger", "Summary--Terms of the Merger Agreement", "--Share
Ownership of the Parent following the Merger", "--Conflicts of Interest",
"--Appraisal Rights", "--Company Projections", "Special Factors--Background of
the Merger", "--The Special Committee's and the Board's Recommendation",
"--Purpose and Reasons of the Investor Group for the Merger", "--Conflicts of
Interest", "--Certain Effects of the Merger", "--Financing of the Merger", "The
Merger--Terms of the Merger Agreement", and "Rights of Dissenting Shareholders"
of the Proxy Statement and Appendix A to the Proxy Statement is incorporated
herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(b) The information set forth in the sections entitled "Special
Factors," ["--Purpose and Reasons of The Investor Group for the Merger",]
"--Certain Effects of the Merger", and "--Conduct of Centennial's Business After
the Merger" of the Proxy Statement is incorporated herein by reference.
(c) The information set forth in the sections entitled
"Summary--Conflicts of Interest", "Special Factors--Conflicts of Interest" and
"--Conduct of Centennial's Business After the Merger" of the Proxy Statement is
incorporated herein by reference.
(d) The information set forth in the sections entitled "Summary--Share
Ownership of the Parent following the Merger", "--Conflicts of Interests",
"--Historical Market Information", "Special Factors--Conflicts of Interest",
"--Financing of the Merger", "Conduct of Centennial's Business After the
Merger", and "The Merger--Terms of the Merger Agreement" of the Proxy Statement
is incorporated herein by reference.
(e) The information set forth in the sections entitled "Questions and
Answers About the Merger", "Summary--The Companies", "--Terms of the Merger
Agreement", "Share Ownership of the Parent Following the Merger", "--Conflicts
of Interest", "--Historical Market Information", "--Company Projections",
"Special Factors--Background of the Merger", "--The Special Committee's and the
Board's Recommendations", "--Purpose and Reasons of the Investor Group for the
Merger", "--Conflicts of Interest", "Special Factors--Certain Effects of the
Merger", "--Financing of the Merger", "--Conduct of Centennial's Business After
the Merger", and "The Merger--Terms of the Merger Agreement" of the Proxy
Statement is incorporated herein by reference.
(f)-(g) The information set forth in the section entitled "Questions
and Answers About the Merger" and "Special Factors--Certain Effects of the
Merger" of the Proxy Statement is incorporated herein by reference.
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ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth in the section entitled "Special
Factors--Financing of the Merger" of the Proxy Statement is incorporated herein
by reference.
(b) The information set forth in the section entitled "The
Merger--Estimated Fees and Expenses of the Merger" of the Proxy Statement is
incorporated herein by reference.
(c) The information set forth in the section entitled "Special
Factors--Financing of the Merger" of the Proxy Statement is incorporated herein
by reference.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(c) The information set forth in the sections entitled "Questions
and Answers about the Merger", "Summary", "Special Factors--Background of the
Merger", "--The Special Committee's and the Board's Recommendation", "--Opinion
of Financial Advisor", "--Purpose and Reasons of the Investor Group for the
Merger" and "--Conflicts of Interest" of the Proxy Statement is incorporated
herein by reference.
(d) The information set forth in the sections entitled "Questions and
Answers about the Merger", "Summary", "Special Factors--Background of the
Merger", "The Special Committee's and the Board's Recommendation", "--Purpose
and Reasons of the Investor Group for the Merger", "--Conflicts of Interest",
"--Certain Effects of the Merger", "--Financing of the Merger", "--Conduct of
Centennial's Business After the Merger", "Rights of Dissenting Shareholders",
"Federal Income Tax Consequences", "The Merger--Terms of the Merger Agreement",
"--Estimated Fees and Expenses of the Merger" of the Proxy Statement is
incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(b) The information set forth in the sections entitled "Questions
and Answers about the Merger", "Summary-- "Vote Required", --Recommendations",
"--Opinion of Financial Advisor", "--Terms of the Merger Agreement",
"--Conflicts of Interest", "--Appraisal Rights", "--Historical Market
Information", "--Selected Consolidated Financial Data of the Company",
"--Company Projections", "Special Factors--Background of the Merger", "--The
Special Committee's and the Board's Recommendation", "--Opinion of Financial
Advisor", "--Purpose and Reasons of the Investor Group for the Merger",
"--Position of the Investor Group as to Fairness of the Merger", "--Conflicts of
Interest", "Certain Effects of the Merger", "The Special Meeting--Voting
Procedures", "Rights of Dissenting Shareholders", "Purchases of Common Stock By
Certain Persons" of the Proxy Statement are incorporated herein by reference.
(c) The information set forth in the sections entitled "Questions and
Answers about the Merger", "Summary--Vote Required", "Special Factors--The
Special Committee's and the Board's Recommendation", "The Special
Meeting--Voting Procedures" and "The Merger--Terms of the Merger
Agreement--Conditions to the Merger" of the Proxy Statement is incorporated
herein by reference.
(d) The information set forth in the sections entitled "Questions and
Answers about the Merger", "Summary--Recommendations", "--Opinion of Financial
Advisor", "Special Factors--Background of the Merger", "--The Special
Committee's and the Board's Recommendation", "--Opinion of Financial Advisor",
and "--Conflicts of Interest" of the Proxy Statement is incorporated herein by
reference.
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(e) The information set forth in the sections entitled "Questions and
Answers about the Merger", "Summary--Recommendations", "Special
Factors--Background of the Merger", and "--The Special Committee's and the
Board's Recommendation" of the Proxy Statement is incorporated herein by
reference.
(f) Not Applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The information set forth in the sections entitled
"Summary--Recommendations", "--Opinion of Financial Advisor", "Special
Factors--Background of the Merger", "The Special Committee's and the Board's
Recommendation", "--Opinion of Financial Advisor" and "--Conflicts of Interest"
of the Proxy Statement and in Appendix B to the Proxy Statement is incorporated
herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a)-(b) The information set forth in the sections entitled "Special
Factors--Conflicts of Interest;" "Principal Shareholders and Stock Ownership of
Management and Others", and "Purchases Of Common Stock By Certain Persons" of
the Proxy Statement is incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The information set forth in the sections entitled "Questions and
Answers about the Merger", "Summary--The Companies", "--Terms of the Merger
Agreement", "--Share Ownership of the Parent following the Merger", "--Conflicts
of Interest, "Special Factors--Background of the Merger", "--The Special
Committee's and the Board's Recommendation", "--Purpose and Reasons of the
Investor Group for the Merger", "--Conflicts of Interest", "--Certain Effects of
the Merger", "--Financing of the Merger", "The Merger", "Certain Information
Concerning the Parent, the Acquiror and the Investor Group" and "Purchase of
Common Stock by Certain Persons" of the Proxy Statement and in Appendix A to the
Proxy Statement is incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a)-(b) The information set forth in the sections entitled
"Summary--Recommendations", "-- Share Ownership of the Parent following the
Merger", "--Conflicts of Interest", "Special Factors--The Special Committee's
and the Board's Recommendation", "--Purpose and Reasons of the Investor Group
for the Merger", "--Position of the Investor Group as to Fairness of the
Merger", "--Conflicts of Interest" and "Certain Information Concerning the
Parent, the Acquiror and the Investor Group" of the Proxy Statement is
incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in the sections entitled
"Summary--Appraisal Rights" and "Rights of Dissenting Shareholders" of the Proxy
Statement and in Appendix A and Appendix C to the Proxy Statement is
incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
12
<PAGE>
ITEM 14. FINANCIAL INFORMATION.
(a) The relevant financial information set forth under the sections
entitled "Summary--Selected Consolidated Financial Data of the Company",
"Incorporation of Certain Documents by Reference" and "Independent Auditors" of
the Proxy Statement is incorporated herein by reference.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a)-(b) The information set forth in the sections entitled
"Summary--Share Ownership of the Parent Following the Merger", "--Conflicts of
Interest", "Special Factors--Background of the Merger", "--The Special
Committee's and the Board's Recommendation", "--Conflicts of Interest", "The
Special Meeting--Proxy Solicitation", "The Merger--Terms of the Merger
Agreement", and "--Estimated Fees and Expenses of the Merger" of the Proxy
Statement is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
The entirety of the Proxy Statement is incorporated herein by
reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Commitment Letter dated October 22, 1998 by and among Welsh,
Carson, Anderson & Stowe VIII, L.P., a Delaware limited
partnership, WCAS Capital Partners III, L.P. a Delaware
limited partnership, and Cougar Holdings Corporation
(incorporated by reference to Schedule 13D filed on November
2, 1998).
(b)(1) Opinion of J.P. Morgan Securities Inc. dated October 22, 1998
(included as Appendix B to the Preliminary Proxy Statement,
which is filed herewith as Exhibit (d)(3)).
(b)(2) Financial Analysis Presentation materials prepared by J.P.
Morgan Securities Inc. in connection with providing its
opinion to the Special Committee on October 21, 1998.
(c)(1) Agreement and Plan of Merger dated as of October 22, 1998 by
and among Cougar Holdings Corporation, Cougar Acquisition
Corp., Centennial HealthCare Corporation (included as Appendix
A to the Preliminary Proxy Statement, which is filed herewith
as Exhibit (d)(3)).
(c)(2) Shareholders Agreement dated as of October 22, 1998 by and
among Courgar Holdings Corporation, Cougar Acquisition Corp.,
and certain shareholders of Centennial Healthcare Corporation
(incorporated by reference to Schedule 13D filed on November
2, 1998).
(d)(1) Letter to Shareholders (included in the Preliminary Proxy
Statement, which is filed herewith as Exhibit (d)(3)).
(d)(2) Notice of Special Meeting of Shareholders (included in the
Preliminary Proxy Statement, which is filed herewith as
Exhibit (d)(3)).
(d)(3) Preliminary Proxy Statement, dated December 11, 1998.
(d)(4) Form of Proxy (included in the Preliminary Proxy Statement,
which is filed herewith as Exhibit (d)(3)).
13
<PAGE>
(d)(5) Joint Press Release issued by Centennial HealthCare
Corporation and Welsh, Carson, Anderson & Stowe VIII, L.P.
dated as of October 22, 1998 (incorporated by reference to the
Current Report on Form 8-K filed by Centennial on October 28,
1998).
(e) Text of Article 13 of the Georgia Business Corporation Code
(included as Appendix C to the Preliminary Proxy Statement,
which is filed herewith as Exhibit (d)(3)).
(f) Not applicable.
14
<PAGE>
SIGNATURES
After due inquiry and to the best of our knowledge and belief, each of
the undersigned certifies that the information set forth in this Statement is
true, complete and correct.
CENTENNIAL HEALTHCARE CORPORATION
By: /s/ J. Stepehn Eaton
-------------------------------
Name: J. Stephen Eaton
Dated: December 11, 1998 Title: President
COUGAR HOLDINGS CORPORATION
By: /s/ Lawrence B. Sorrel
-------------------------------
Name: Lawrence B. Sorrel
Dated: December 11, 1998 Title: President
COUGAR ACQUISITION CORP.
By: /s/ Lawrence B. Sorrel
-------------------------------
Name: Lawrence B. Sorrel
Dated: December 11, 1998 Title: President
WELSH, CARSON, ANDERSON & STOWE, VIII, L.P.
By WCAS VIII Associates, LLC, General Partner
Dated: December 11, 1998 By: /s/ Lawrence B. Sorrel
-------------------------------
Name: Lawrence B. Sorrel
Title: Managing Member
15
<PAGE>
[Signatures continued from previous page]
WELSH, CARSON, ANDERSON & STOWE,
CAPITAL PARTNERS III, L.P.
By: WCAS CP III Associates L.L.C
General Partner
Dated: December 11, 1998 By: /s/ Lawrence B. Sorrel
----------------------------
Name:
Title: Managing Member
Dated: December 11, 1998 /s/ Andrew M. Paul
-------------------------------
Andrew M. Paul
Dated: December 11, 1998 /s/ J. Stephen Eaton
-------------------------------
J. Stephen Eaton
Dated: December 11, 1998 /s/ Kent C. Fosha, Sr.
-------------------------------
Kent C. Fosha, Sr.
Dated: December 11, 1998 /s/ Alan C. Dahl
-------------------------------
Alan C. Dahl
Dated: December 11, 1998 /s/ Lawrence W. Lepley, Jr.
-------------------------------
Lawrence W. Lepley, Jr.
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NUMBER
- ----------- ----------- -----------
<S> <C>
(a)(1) Commitment Letter dated October 22, 1998 by and among, Welsh,
Carson, Anderson & Stowe VIII, L.P., a Delaware limited
partnership, WCAS Capital Partners III, L.P. a Delaware
limited partnership, and Cougar Holdings Corporation
(incorporated by reference to Schedule 13D filed on November
2, 1998).
(b)(1) Opinion of J.P. Morgan Securities Inc. dated October 22, 1998
(included as Appendix B to the Preliminary Proxy Statement,
which is filed herewith as Exhibit (d)(3)).
(b)(2) Financial Analysis Presentation materials prepared by J.P.
Morgan Securities Inc. in connection with providing its
opinion to the Special Committee on October 21, 1998.
(c)(1) Agreement and Plan of Merger dated as of October 22, 1998 by
and among Cougar Holdings Corporation, Cougar Acquisition
Corp., Centennial HealthCare Corporation (included as Appendix
A to the Preliminary Proxy Statement, which is filed herewith
as Exhibit (d)(3)).
(c)(2) Shareholders Agreement dated as of October 22, 1998
(incorporated by reference to Schedule 13D filed on November
2, 1998).
(d)(1) Letter to Shareholders (included in the Preliminary Proxy
Statement, which is filed herewith as Exhibit (d)(3)).
(d)(2) Notice of Special Meeting of Shareholders (included in the
Preliminary Proxy Statement, which is filed herewith as
Exhibit (d)(3)).
(d)(3) Preliminary Proxy Statement, dated December 11, 1998.
(d)(4) Form of Proxy (included in the Preliminary Proxy Statement,
which is filed herewith as Exhibit (d)(3)).
(d)(5) Joint Press Release issued by Centennial HealthCare
Corporation and Welsh, Carson, Anderson & Stowe VIII, L.P.
dated as of October 22, 1998 (incorporated by reference to the
Current Report on Form 8-K filed by Centennial on October 28,
1998).
(e) Text of Article 13 of the Georgia Business Corporation Code
(included as Appendix C to the Preliminary Proxy Statement,
which is filed herewith as Exhibit (d)(3)).
(f) Not applicable.
</TABLE>
17
<PAGE>
OCTOBER 1998 HIGHLY CONFIDENTIAL
- ----------------------------------------------------------------------------
PROJECT FRANKLIN BOARD
VALUATION DISCUSSION
JP MORGAN
<PAGE>
This presentation was prepared exclusively for the benefit and internal use
of Centennial Healthcare Corporation ("Centennial" or the "Company"). This
presentation is incomplete without reference to, and should be viewed solely
in conjunction with, the oral briefing provided by J.P. Morgan. Neither this
presentation nor any of its contents may be used for any other purpose
without the prior written consent of J.P. Morgan.
The information in this presentation is based upon management forecasts and
reflects prevailing conditions and our views as of this date, all of which
are accordingly subject to change. In preparing this presentation, we have
relied upon and assumed, without independent verification, the accuracy and
completeness of all information available from public sources or which was
provided to us by or on behalf of Centennial which was otherwise reviewed by
us. In addition, our analyses are not and do not purport to be appraisals of
the assets, stock, or business of Centennial.
JP MORGAN
<PAGE>
AGENDA
- -----------------------------------------------------------------------------
- -------------------------------------------------
- - SUMMARY OF PROPOSED TRANSACTION
- -------------------------------------------------
- - Overview of issues impacting long-term care sector
- - Franklin overview
- - Franklin valuation analysis
JP MORGAN 1
<PAGE>
J.P. MORGAN HAS BEEN ASKED TO SERVE AS FINANCIAL
ADVISOR TO THE SPECIAL COMMITTEE IN A NURSING HOME
GOING-PRIVATE TRANSACTION
- -----------------------------------------------------------------------------
TRANSACTION SUMMARY
<TABLE>
<CAPTION>
PRELIMINARY TERMS COMMENTS
- -----------------------------------------------------------------------------
<S> <C>
CURRENT VALUE(1) $101 million market cap, $200 million firm value
PREMIUM(1) 88%
OFFER PRICE $191 million equity value, $290 million firm value
SIGNIFICANT SHAREHOLDERS SHAREHOLDER # SHARES (MM) % SHARES
------------------------------------------------------------------
Welsh Carson 2.8 24%
Officers, directors 1.7 15%
Dresdner 1.2 10%
South Atlantic 1.0 8%
Putnam 0.9 7%
Total shares 11.9 100%
CONSIDERATION All options cashed out at their spread value
CONDITIONS TO CLOSING No material adverse changes
BREAK-UP FEES AND EXPENSES $3 million (approximately 1% of firm value)
RIGHT TO SHOP No affirmative right to shop; Board retains right to respond to offer
OTHER Transaction must be approved by a majority of disinterested voting shareholders
</TABLE>
(1) As of close 10/21/98
JP MORGAN 2
<PAGE>
AGENDA
- -------------------------------------------------------------------------------
- Summary of proposed transaction
- -------------------------------------------------------------------------------
- OVERVIEW OF ISSUES IMPACTING LONG-TERM CARE SECTOR
- -------------------------------------------------------------------------------
- Franklin overview
- Franklin valuation analysis
JP MORGAN 3
<PAGE>
RECENT LONG-TERM CARE SECTOR PUBLIC ANNOUNCEMENTS
HAVE BEEN PRIMARILY NEGATIVE
- -------------------------------------------------------------------------------
- - Vencor completes split into two companies (operating and REIT) (5/1/98);
completes sales of Atria (9/15/98); under a new accounting policy, the
company announced a $12.4MM write-off of previously capitalized start-up
and organizational costs (4/98)
- - Beverly announces it is subject of a federal government investigation
relating to Medicare -- reimbursed nursing labor costs in its SNFs
(7/23/98); National Labor Relations Board decides against company for
240 illegal anti-union activities (8/6/98)
- - Sun states that third quarter earnings will be negatively impacted due
to changing government reimbursement rates; shares fall 16% (9/28/98)
- - News story focusing on "repeated resident care violations" by Genesis
Health Ventures
- - President Clinton asks Congress to pass legislation to strengthen the
current federal oversight of nursing home quality and safety standards
JP MORGAN 4
<PAGE>
AFTER PERFORMING STRONGLY IN 1997, THE LONG-TERM CARE SECTOR HAS STALLED
- -------------------------------------------------------------------------------
[GRAPHIC]
JP MORGAN 5
<PAGE>
RECENT CHANGE IN MEDICARE REIMBURSEMENT HAS CAUSED SIGNIFICANT INVESTOR
CONCERN
- -------------------------------------------------------------------------------
- - Medicare's Prospective Payment System (PPS), established as part of the
Balanced Budget Act of 1997, attempts to contain the rapid growth in
nursing home spending. The system will be phased in over 4 years
beginning July 1998
- - HCFA expects to cut reimbursement by 17% for savings of $12.9BN over
five years to baseline spending expectations
- - PPS replaces Medicare's cost-based system with an all-inclusive fixed
per-diem payment
- Recasts provider's financial incentives
- Imposes sizable financial/administrative demands
- Sector is being forced to quickly become efficient
- - Leading industry participants insist that PPS will be earnings neutral
within approximately 12 months. Investors are concerned that industry
profitability has been permanently reduced
JP MORGAN 6
<PAGE>
LONG-TERM CARE COMPANIES ARE TRADING SIGNIFICANTLY BELOW THEIR ONE- AND
TWELVE-MONTH HIGHS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENT PRICE
AS A % OF
LAST 30 DAYS(1) LAST 12 MONTHS -------------
CURRENT --------------- -------------- 30-DAY 12-MONTH 1999
COMPANY PRICE LOW HIGH LOW HIGH HIGH HIGH PE/LTGR
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advocate $4.88 $4.88 $6.94 $4.88 $10.81 70% 45% NM
Beverly 7.63 5.88 8.63 5.88 17.50 88 44 0.5x
Centennial 8.50 7.38 9.25 7.38 25.13 92 34 0.3
Extendicare 5.68 5.38 6.94 5.38 15.88 82 36 0.5
Genesis 13.25 11.13 16.06 11.19 38.38 82 35 0.3
HCR Manor 32.00 24.44 32.56 23.94 47.31 98 68 0.7
Integrated Health Svcs 15.08 12.63 22.44 12.63 39.38 67 38 0.2
Mariner Post-Acute 6.13 3.19 7.38 3.19 21.19 83 29 NM
Sun Healthcare Group 5.50 4.86 10.19 4.88 22.13 54 25 0.3
Vencor 4.44 3.00 4.75 3.00 12.50 93 36 0.8
Median 83% 36% 0.4x
</TABLE>
(1) Trading days
Note: Current price as of October 20, 1998
JP MORGAN 7
<PAGE>
AGENDA
- -------------------------------------------------------------------------------
- - Summary of proposed transaction
- - Overview of issues impacting long-term care sector
- -------------------------------------------------------------------------------
- - FRANKLIN OVERVIEW
- -------------------------------------------------------------------------------
- - Franklin valuation analysis
JP MORGAN 8
<PAGE>
FRANKLIN OVERVIEW
- -------------------------------------------------------------------------------
- - Founded in 1989, Franklin owns, leases and manages 101 skilled nursing
facilities with approximately 10,800 beds
- - Franklin also provides ancillary services through its two subsidiaries,
Paragon for rehabilitation therapy and Total Care for home health services
- - In 1995, Franklin merged with a Welsh Carson-owned long-term care
company and took over management of NewCo. Ownership was 50%-50% but
Franklin had operating control
- - Franklin went public in July 1997, selling 40% of the company at $16
per share ($190 post money value). As a result of both sector and
company-specific factors, the stock currently trades at $8.50
- - Franklin is a quality company with excellent management and reputation
with particularly well-developed information systems suited for changing
reimbursement
JP MORGAN 9
<PAGE>
FRANKLIN'S HOMES ARE CONCENTRATED IN FOUR GEOGRAPHIC REGIONS
- ------------------------------------------------------------------------------
[GRAPHIC]
<TABLE>
<CAPTION>
- ----------------------------------------
NURSING HOMES FACILITIES BEDS
<S> <C> <C>
Owned/leased 66 6,917
Managed 35 3,826
---------------------
Total 101 10,743
- ----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------
KEY
<S> <C>
/ / Total facilities in state
* Major facility location
( ) Number of facilities in location
- ----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------
ANCILLARIES
<S> <C>
Rehabilitation 134 contract
637 therapists
21 states
Home Healthcare 30 offices
300,000 visits
- ----------------------------------------
</TABLE>
Source: Company information, 10K, brokerage reports
JP MORGAN 10
<PAGE>
FRANKLIN HAS HAD STRONG GROWTH AND
CONSISTENT PROFITABILITY
- --------------------------------------------------------------------------------
FRANKLIN P&L
<TABLE>
<CAPTION>
1995 1996 1997 LTM LQA
<S> <C> <C> <C> <C> <C>
Revenues 75.2 233.0 304.3 343.1 351.6
% GROWTH 210% 30.6% 12.8% 2.5%
Gross profit 16.7 49.7 69.7 80.6 85.1
GROSS MARGIN 22.1% 21.3% 22.9% 23.5% 24.2%
SG&A 5.0 11.4 16.1 19.0 21.0
EBITDAR 12.0 37.8 53.2 61.2 63.7
EBITDAR margin 16.0% 16.2% 17.5% 17.8% 18.1%
Rent expense 7.7 18.8 21.4 22.1 23.0
EBITDA 4.3 19.1 31.8 39.1 40.7
EBITDA MARGIN 5.8% 8.2% 10.5% 11.4% 11.6%
Depreciation and amortization 0.7 5.0 6.8 8.3 9.5
Net income (b/l ext) 1.9 2.8 10.4 14.9 15.3
NET MARGIN 2.5% 1.2% 3.4% 4.3% 4.4%
</TABLE>
SECTOR MARGIN REVIEW
<TABLE>
<CAPTION>
EBITDAR
---------------------
Company LQA(1) MARGIN
<S> <C> <C>
Beverly 316.3 11.1
Franklin 63.7 18.1
Extendicare 154.0 13.2
Genesis 270.3 19.2
Integrated Health Svcs 837.0 25.6
Mariner Post-Acute 461.5 16.7
Sun Healthcare Group 681.3 20.6
Median 18.1%
</TABLE>
(1) LQA end 6/30/98 excluding non-recurring charges and preferred dividends
JP MORGAN 11
<PAGE>
QUARTERLY PERFORMANCE SINCE THE IPO HAS MET, OR
EXCEEDED, ANALYSTS' EXPECTATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS REPORTED
---------------------------------------
$ MILLIONS (EXCEPT EPS) Q397 Q497 Q198 Q298
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $81.9 $86.2 $87.1 $87.9
EBITDA 9.0 9.6 10.3 10.2
Net income 2.8(1) 3.9 3.8 3.8
Actual EPS $0.30(1) $0.32 $0.32 $0.32
Consensus IBES estimates $0.29 $0.31 $0.31 $0.32
</TABLE>
(1) Does not include dividends and accretion on preferred stock
Note: Before non-recurring charges
JP MORGAN 12
<PAGE>
FRANKLIN OUTPERFORMED PEERS UNTIL RECENT
EARNINGS WARNING
- --------------------------------------------------------------------------------
STOCK PERFORMANCE VS. LTC INDEX(1) VS. S&P 400(1)
[GRAPHIC]
(1) Indices based off of Franklin's share price (7/2/97)
Source: Pricelink (10/2/98)
JP MORGAN 13
<PAGE>
WALL STREET ANALYSTS HAVE REMAINED UPBEAT ABOUT FRANKLIN'S PROSPECTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DATE BROKERAGE FIRM OUTLOOK COMMENT
<S> <C> <C> <C>
8/5/98 CREDIT LYONNAIS ADD While these (additional costs due to reimbursement changes) are
SECURITIES Price target clearly a setback, WE STILL FIND SOME CAUSE FOR OPTIMISM.
12-month: $14.00 Operating margins held strong. . .and the acquisition pipeline
is full.
No published revisions Franklin in our view is A WELL-MANAGED LONG-TERM CARE OPERATOR
as of 10/21/98 with excellent growth prospects. THE COMPANY CONTINUES TO
SUPPLEMENT GOOD INTERNAL GROWTH WITH DELIBERATE ACQUISITIONS. The
financial platform for further acquisitions is solid. (from
3/5/98 report)
8/4/98 BT ALEX. BROWN MARKET PERFORMER Our downgraded rating on Franklin to "market perform" from "buy"
is due to increased spending as a result of preparation for the
Outlook reaffirmed onset of Medicare's new reimbursement system.
8/31/98
We continue to believe FRANKLIN IS WELL POSITIONED FOR CHANGES IN
MEDICARE REIMBURSEMENT due to its focus on smaller secondary
markets. Since two-thirds of Franklin's facilities are located in
these markets, FRANKLIN IS ABLE TO CAPTURE SIGNIFICANT MARKET
SHARE, CAPITALIZING ON THE COMPANY'S LOW-COST STRUCTURE. In
addition, the Company's secondary market focus affords strong
same-store growth as well as potential for growth through
acquisition. (from 6/22/98 report)
8/4/98 SUNTRUST STRONG BUY In our opinion, today's 50% decline in Franklin's share price was
EQUITABLE Price target overly harsh. FRANKLIN'S EXPERIENCED MANAGEMENT TEAM AND STATE-
12-18 month: $25.00 OF-THE-ART MANAGEMENT INFORMATION SYSTEM HAVE POSITIONED THE
COMPANY TO SUCCEED UNDER A PPS; Moreover we believe the fact that
No published revisions the case-mix adjusted rates will be based on 1995 cost reports,
as of 10/21/98 should provide an additional boost to Franklin. . .
We are reiterating our Strong Buy rating on shares of Franklin and
our belief that INVESTORS WHO STEP UP AND BUY AT THESE LEVELS WILL
BE HANDSOMELY REWARDED
</TABLE>
- --------------------------------------------------------------------------------
JP MORGAN 14
<PAGE>
THERE HAS BEEN A LIMITED AMOUNT OF TURNOVER IN OWNERSHIP OF FRANKLIN OVER THE
PAST THREE MONTHS
- --------------------------------------------------------------------------------
[GRAPHIC]
(1) Excludes Insider shares and shares owned by Welsh Carson
JP MORGAN 15
<PAGE>
WELSH CARSON AND FRANKLIN MANAGEMENT TOGETHER OWN 40% OF THE STOCK
- --------------------------------------------------------------------------------
COMMON STOCK OWNERSHIP PROFILE
<TABLE>
<CAPTION>
SHARES %
13-F INSTITUTIONS HELD OWNERSHIP
- ------------------------------------------------------------------------
<S> <C> <C>
Dresdner RCM 1,186,470 10.0%
Putnam Investment 878,900 7.4%
Schroder Cap Mgmt 389,900 3.3%
Nationsbank Corp. 274,800 2.3%
Provident Investments 262,047 2.2%
Other 13-F 2,738,299 23.0%
---------------------------------
Total institutions 5,730,416 48.1%
TOTAL OFFICERS AND DIRECTORS 1,737,771 14.6%
OTHER BENEFICIAL OWNERS
Welsh Carson 2,848,473 23.9%
South Atlantic VF 1,005,177 8.4%
Other investors 601,781 5.0%
---------------------------------
TOTAL SHARES OUTSTANDING 11,923,618 100%
</TABLE>
PRIMARY OWNERSHIP PROFILE
[GRAPHIC]
Source: Spectrum/Proxy
JP MORGAN 16
<PAGE>
AGENDA
- --------------------------------------------------------------------------------
- - Summary of proposed transaction
- - Overview of issues impacting long-term care sector
- - Franklin overview
- --------------------------------------------------------------------------------
- - FRANKLIN VALUATION ANALYSIS
- --------------------------------------------------------------------------------
- - Appendix
JP MORGAN 17
<PAGE>
FRANKLIN SUMMARY VALUATION
- --------------------------------------------------------------------------------
52-week trading range ($7.00-$25.00)
[GRAPHIC]
(1) Market price as of 10/20/98
(2) Transactions announced prior to 6/10/98 and to the July long-term care
market correction (the index has fallen 57% since mid-July)
JP MORGAN 18
<PAGE>
THE AVERAGE ACQUISITION PREMIUM PAID BY 20%-PLUS
MINORITY SHAREHOLDERS IS 25% TO 35%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREMIUM TO % OWNERSHIP
DATE DEAL VALUE 1 WEEK AT
ANNOUNCED TARGET ACQUIROR TARGET INDUSTRY (EQUITY) PRIOR (%) ANNOUNCEMENT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6/4/98 Allied Life Financial Corp Nationwide Mutual Insurance Co Financial 90 14 34
5/11/98 DeKalb Genetics Corp Monsanto Co Consumer 2,263 200 37
3/13/98 MedCath Inc KKR, Welsh Carson H Tech/Med 228 11 16(1)
12/11/97 TriMas Corp MascoTech Inc Basic 912 10 37
11/19/97 Telemundo Group Inc Investor Group H Tech/Med 521 29 34
11/17/97 Shared Technologies Fairchild Intermedia Communications H Tech 504 107 20
10/20/97 Ticketmaster Group Inc HSN Inc Consumer 413 28 45
9/12/97 Western National Corp American General Corp Financial 1,215 7 45
8/29/97 Rexel Inc Rexel SA (Pinault-Printemps) Basic 302 26 49
8/4/97 Perkins Family Restaurant LP Restaurant Co Consumer 76 27 48
7/30/97 Amdahl Corp Fujitsu Ltd H Tech/Med 925 23 39
1/30/97 AST Research Inc Samsung Electronics Co Ltd H Tech/Med 496 8 45
10/30/96 Vons Cos Inc Safeway Consumer 2,252 22 32
10/28/96 Loclite Corp Henkel KGaA Health/Chem 1,289 37 34
6/9/96 Univar Pakhoed Holding NV Consumer 332 64 28
5/10/96 Transnational Re PXRE Financial 133 17 22
4/8/98 Cellular Communications Inc AirTouch Communications H Tech/Med 1,657 8 38
1/26/96 Charter Bancshares Inc NationsBank Corp, Charlotte, NC Financial 95 16 42
MEDIAN 504 23 37
AVERAGE 761 36 36
</TABLE>
(1) Shares owned by Mr. Welsh and Mr. Paul, partners at Welsh Carson
Source: SDC
JP MORGAN 19
<PAGE>
COMPARABLE COMPANY ANALYSIS
- --------------------------------------------------------------------------------
$ MILLIONS, EXCEPT STOCK PRICE
<TABLE>
<CAPTION>
FIRM
VALUE(1) ADJ FV(2) EQUITY VALUE
STOCK MARKET ------- --------- ---------------
PRICE AT VALUE OF FIRM LQA(3) LQA(3)
COMPANY OCT-20-98 EQUITY VALUE EBITDA EBITDAR 1998E 1999E
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beverly Enterprises(4) BEV 7.63 787 1,537 5.5 5.8 9.5 8.1
Extendicare Services EXE A 5.68 355 1,068 7.7 7.7 9.2 6.4
Genesis Health Ventures GHV 13.25 472 1,543 6.5 6.7 7.4 6.2
Integrated Health Services IHS 15.06 814 3,896 5.6 6.0 4.9 4.3
Mariner Post-Acute MPN 6.13 462 2,423 6.5 6.6 9.7 NM
Sun Healthcare Group SHG 5.50 343 2,297 6.5 7.3 5.7 3.9
High 7.7x 7.7x 9.7x 8.1x
Low 5.5x 5.8x 4.9x 3.9x
Mean 6.4x 6.7x 7.7x 5.8x
Median 6.5x 6.8x 8.3x 6.2x
Franklin 8.50 101 201 4.9x 6.0x 7.0x 6.0x
Franklin financials 41 64 15(5) 17(6)
Implied equity value 166 101 121 107
Implied value per share $13.91 $8.50 $10.11 $8.99
</TABLE>
(1) Firm value equals equity value (all fully diluted shares at the stock
price less any option proceeds) plus straight debt, minority interest less
investments in unconsolidated affiliates and cash
(2) Adjusted firm value includes capitalized leases (8" lease expense)
(3) Last quarter ending 6/30/98
(4) Rent expenses at 1.4% of sales
(5) IBES
(6) Company forecast
JP MORGAN 20
<PAGE>
LONG-TERM CARE PRECEDENT TRANSACTIONS TOOK PLACE BEFORE
THE JULY 1998 SECTOR CORRECTION AND THEREFORE SUGGEST
HIGHER VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PURCHASE PRICE AS A
DESCRIPTION CONSIDERATION MULTIPLE OF
------------------------- --------------------------------- --------------------------
ANN. DATE PURCHASE PREMIUM
(EFFECTIVE ACQUIROR/ QUALITY PRICE NET FIRM FROM 30
DATE) TARGET FACILITIES BEDS MIX (EQUITY) DEBT VALUE DAYS PRIOR LTM NI NI + 1 NI + 2
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
x/10/98 Health Care & Retirement Corp. 213 28,300 74% $2,610 $491 $3,101 18% 30.2x 20.2x 17.3x
(9/25/98) Manor Care
x/15/98 Investcorp 43 5,290 60% $209 $88 $297 11% 29.4x 24.6x 18.9x
(8/1/98) Harborside Healthcare
x/13/98 Paragon Health Network 133 13,304 69% $623 $594 $1,217 30% 28.2x 18.0x 15.6x
(7/31/98) Mariner Health Group
x/9/90 Fountain View 41 NA 68% $146 $131 $277 31% 59.8x 21.8x NA
(4/16/98) Summit Care Corp.
x/29/97 Extendicare Inc. 31 3,700 66% $321 $102 $423 20% 25.9x 25.9x 21.7x
(11/26/97) Arbor Health Care
x/1/97 Integrated Health Services 54 4,450 50% $30 $80 $90 10% NA NM NA
(9/26/97) Community Care of America
x/28/97 Sun Healthcare Group 116 11,493 65% $368 $203 $571 45% 26.xx 24.7x 21.8x
(10/8/97) Regency Health Services
x/16/97 Genesis Health Ventures 155 16,000 67% $1,031 $338 $1,388 31% 32.5x 23.5x 19.7x
(10/10/97) MultiCare Cos.
x/8/97 GranCare + LCA (Paragon) 125 15,109 61% $238 $280 $518 18% 12.6x 13.3x 11.9x
(11/1/97) GranCare
x/8/97 GranCare + LCA (Paragon) 206 23,500 57% $810 $317 $1,127 66% 19.4x 14.9x 12.5x
(11/1/97) Living Centers of America
Median 31% 26.9x 21.6x 15.7x
FRANKLIN FINANCIALS 15 15(1) 17(2)
Implied value per share $33.86 $26.41 $22.94
<CAPTION>
FIRM VALUE AS A
ANN. DATE MULTIPLE OF
(EFFECTIVE ACQUIROR/ -----------------------
DATE) TARGET REVS EBITDAR EBITDA
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
x/10/98 Health Care & Retirement Corp. 2.3x 13.0x 13.2x
(x/25/98) Manor Care
x/15/98 Investcorp 1.2x 10.1x 13.3x
(8/1/98) Harborside Healthcare
x/13/98 Paragon Health Network 1.6x 11.0x 11.1x
(7/31/98) Mariner Health Group
x/9/90 Fountain View 1.3x 12.8x 13.5x
(4/16/98) Summit Care Corp.
x/29/97 Extendicare Inc. 1.8x 10.8x 11.1x
(11/26/97) Arbor Health Care
x/1/97 Integrated Health Services 0.7x 18.7x NM
(9/26/97) Community Care of America
x/28/97 Sun Healthcare Group 1.0x 9.1x 9.7x
(10/8/97) Regency Health Services
x/16/97 Genesis Health Ventures 2.4x 13.0x 13.4x
(10/10/97) MultiCare Cos.
x/8/97 GranCare + LCA (Paragon) 0.6x 6.2x 5.2x
(11/1/97) GranCare
x/8/97 GranCare + LCA (Paragon) 1.0x 8.5x 8.6x
(11/1/97) Living Centers of America
Median 1.0x 9.1x 9.7x
FRANKLIN FINANCIALS 343 61 39
Implied value per share $20.43 $23.54 $23.46
</TABLE>
(1) IBES
(2) Company forecast
JP MORGAN 21
<PAGE>
DISCOUNTED CASH FLOW ASSUMPTIONS
- --------------------------------------------------------------------------------
VALUATION PARAMETERS - MANAGEMENT CASE
- - Projections provided by Franklin management reflect EBIT margins trending
from 8% to 10% and assume $100 million annual acquisition spending at
prices of 7x EBITDA
- - Five years sales growth CAGR of 18% and EPS CAGR of 22%
- - Valuation as of 1/1/99
- - Five-year forecast, mid-year convention used for discounting purposes
- - Weighted average cost of capital of 10% to 13%
- - Implementation of PPS to be neutral to earnings
- - Terminal year capital expenditure 1.2x depreciation
SENSITIVITY CASE
- - Reflects only 50% of annual acquisitions projected in management base case
JP MORGAN 22
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS - MANAGEMENT CASE (FULL ACQUISITIONS)
- --------------------------------------------------------------------------------
$ MILLIONS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED DECEMBER 31,
------------------------------------------------
FORECAST 1999 2000 2001 2002 2003
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue 467 564 672 786 906
% GROWTH 6% 21% 19% 17% 15%
EBITDAR 80 102 120 139 159
% REVENUE 17% 18% 18% 18% 18%
Earnings 16 22 27 32 40
% GROWTH 5% 42% 22% 18% 22%
<CAPTION>
PROJECTED FISCAL YEAR ENDED DECEMBER 31,
------------------------------------------------
DISCOUNTED CASH FLOW 1999 2000 2001 2002 2003
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EBIAT 23 34 43 51 62
Depreciation 8 11 14 17 20
Amortization 2 2 2 2 2
Change in NWI (3) (17) (19) (20) (21)
Maintenance capex (8) (9) (11) (12) (14)
Acquisition capex (100) (100) (100) (100) (100)
------------------------------------------------
FREE CASH FLOW (78) (79) (71) (61) (51)
</TABLE>
FIRM VALUE
<TABLE>
<CAPTION>
EBITDA EXIT MULTIPLE
----------------------
5 6 7
----------------------
<S> <C> <C> <C>
10% 130 211 292
11% 117 195 272
12% 105 179 253
13% 94 165 236
</TABLE>
EQUITY VALUE PER SHARE
<TABLE>
<CAPTION>
EBITDA EXIT MULTIPLE
----------------------
5 6 7
----------------------
<S> <C> <C> <C>
10% 2.57 9.37 16.18
11% 1.50 8.00 14.51
12% 0.49 6.71 12.93
13% (0.45) 5.50 11.45
</TABLE>
JP MORGAN 23
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS - 50% OF
MANAGEMENT ACQUISITIONS
- --------------------------------------------------------------------------------
$ MILLIONS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------------
FORECAST 1999 2000 2001 2002 2003
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue 455 516 582 651 726
% GROWTH 4% 13% 13% 12% 12%
EBITDAR 76 91 103 114 128
% REVENUE 17% 18% 18% 18% 18%
Earnings 14 18 21 23 28
% GROWTH (8%) 31% 15% 12% 21%
PROJECTED FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------------
DISCOUNTED CASH FLOW 1999 2000 2001 2002 2003
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EBIAT 22 31 37 43 49
Depreciation 6 10 12 14 16
Amortization 2 2 2 2 2
Change In NWI (1) (11) (12) (12) (13)
Maintenance capex (7) (8) (10) (11) (13)
Acquisition capex (50) (50) (50) (50) (50)
-----------------------------------------------
FREE CASH FLOW (25) (26) (20) (15) (9)
</TABLE>
FIRM VALUE
<TABLE>
<CAPTION>
EBITDA EXIT MULTIPLE
----------------------
5 6 7
-----------------------
<S> <C> <C> <C>
10% 239 302 365
11% 226 287 347
12% 214 272 330
13% 202 258 313
</TABLE>
EQUITY VALUE PER SHARE
<TABLE>
<CAPTION>
EBITDA EXIT MULTIPLE
--------------------------
5 6 7
--------------------------
<S> <C> <C> <C>
10% 11.70 17.03 22.36
11% 10.63 15.73 20.82
12% 9.62 14.49 19.37
13% 8.66 13.33 17.99
</TABLE>
JP MORGAN 24
<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CENTENNIAL HEALTHCARE CORPORATION
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/x/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share ("Common Stock"), of Centennial
HealthCare Corporation
<PAGE>
(2) Aggregate number of securities to which transaction applies:
11,923,618 shares of Common Stock
274,409 options to purchase shares of Common Stock that are "in the
money"
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$16.00 per share in cash-out merger plus the difference between $16.00
and the exercise price of each share subject to an "in the money"
option
(4) Proposed maximum aggregate value of transaction:
11,923,618 shares of Common Stock x $16.00 per share = $190,777,888
$956,478 to be paid to option holders
Total proposed maximum aggregate value of the transaction $191,734,366
(5) Total fee paid:
$38,346.87 (wired to Mellon Bank, N.A. on December 11, 1998)
/ / Fee paid previously with preliminary materials:
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION
400 Perimeter Center Terrace, Suite 650
Atlanta, Georgia 30346
________, 1998
Dear Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Centennial HealthCare Corporation (the "Company" or
"Centennial") to be held on _________, 1998, at 10:00 a.m., local time, at
____________________________________. The purpose of the Special Meeting is to
consider and vote upon a merger (the "Merger") that, if approved and
subsequently consummated, will result in the shareholders of Centennial at the
effective time of the Merger (other than shareholders who are entitled to and
have perfected their dissenters' appraisal rights) receiving $16.00 in cash per
share for their shares of Centennial common stock, $.01 par value per share
("Common Stock").
If approved by Centennial's shareholders, the Merger would be accomplished
by merging Cougar Acquisition Corp., a newly formed Georgia corporation (the
"Acquiror"), and wholly owned subsidiary of Cougar Holdings Corporation (the
"Parent"), with and into Centennial, with Centennial being the surviving
corporation in the Merger (the "Surviving Corporation"). The Parent and the
Acquiror were organized at the direction of Welsh, Carson, Anderson & Stowe
VIII, L.P. ("WCAS VIII") and WCAS Capital Partners III, L.P. ("WCAS CP III"),
two private investment partnerships that have jointly agreed, together with WCAS
Healthcare Partners, L.P. ("Healthcare Partners"), a private investment
partnership, and certain affiliated individuals (together with WCAS VIII and
WCAS CP III, collectively the "WCAS Investors") and certain members of
management, which include Alan C. Dahl, Kent C. Fosha, Sr., Lawrence W. Lepley,
Jr. and myself (the "Management Investors"), to acquire the Company through
their ownership of the Parent and pursuant to the Merger.
Immediately prior to the consummation of the Merger, certain of the
Management Investors and certain of the WCAS Investors (collectively, the
"Rollover Investors") will contribute all or a portion of their shares of Common
Stock to the Parent in exchange for shares of the Parent's common stock, $.01
par value per share ("Parent Common Stock"). Certain of the Management Investors
have agreed to contribute 508,852 shares of Common Stock in exchange for shares
of Parent Common Stock. The Rollover Investors will not receive any cash in the
Merger for the shares of Common Stock contributed to the Parent. The Management
Investors and WCAS Investors (collectively, the "Investor Group") will receive
$16.00 a share in the Merger for each share of Common Stock not contributed to
the Parent. Through ownership of their shares of Parent Common Stock, the
Rollover Investors will continue to have an indirect ownership interest in the
Surviving Corporation after the Merger. In addition, the Management Investors
will receive cash for the difference between $16.00 a share and the exercise
price of
<PAGE>
options held by them to purchase shares of Common Stock (on the same basis as
other option holders), will receive options to purchase shares of Parent Common
Stock and will receive certain other amounts as well as the opportunity to
purchase additional shares of Parent Common Stock. Welsh, Carson, Anderson &
Stowe VI, L.P. ("WCAS VI") and WCAS Capital Partners II, L.P. ("WCAS CP II"),
two private investment partnerships affiliated with certain of the WCAS
Investors which are collectively the owners of approximately 23.2% of the
outstanding Common Stock, will receive $16.00 per share in the Merger for all of
their shares of Common Stock and will not have any interest in the Parent or
acquire any Parent Common Stock.
A special committee of the Board of Directors of Centennial (the "Special
Committee"), consisting of three independent directors, was formed to consider
and evaluate the Merger. The Special Committee has unanimously recommended to
Centennial's Board of Directors that the Merger and related agreements be
approved. In connection with its evaluation of the Merger, the Special Committee
engaged J.P. Morgan Securities Inc. ("J.P. Morgan") to act as its financial
advisor. J.P. Morgan has rendered its opinion dated October 22, 1998, and has
reconfirmed its opinion as of the date of this Proxy Statement, that based upon
and subject to the assumptions, limitations and qualifications set forth in such
opinion, the cash merger consideration of $16.00 per share to be received in the
Merger is fair from a financial point of view to the shareholders of the Company
(other than the Parent, the Acquiror and the Investor Group). The written
opinion of J.P. Morgan, dated as of the date of this Proxy Statement, is
attached as Appendix B to the enclosed Proxy Statement and should be read
carefully and in its entirety by you.
THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS BELIEVE THAT THE TERMS OF
THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S SHAREHOLDERS
AND RECOMMEND THAT THE SHAREHOLDERS APPROVE THE MERGER.
Approval of the Merger at the Special Meeting will require the affirmative
vote of holders of (i) a majority of the outstanding shares of Common Stock
entitled to vote at the Special Meeting (the "Outstanding Shares Vote
Requirement") and (ii) a majority of the shares voted at the Special Meeting
owned by shareholders other than the Investor Group, WCAS VI, WCAS CP II, the
Acquiror and the Parent (the "Majority Vote Requirement"). The accompanying
Proxy Statement provides a summary of the proposed Merger and additional
information about the parties involved and their interests. A copy of the Merger
Agreement is attached to the Proxy Statement as Appendix A.
PLEASE GIVE ALL OF THIS INFORMATION YOUR CAREFUL ATTENTION. WHETHER OR NOT
YOU PLAN TO ATTEND, IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE
SPECIAL MEETING. A FAILURE TO VOTE WILL NOT COUNT AS A VOTE AGAINST THE MERGER
WITH RESPECT TO THE MAJORITY VOTE REQUIREMENT BUT WILL COUNT AS A VOTE AGAINST
THE MERGER WITH RESPECT TO THE OUTSTANDING SHARES VOTE REQUIREMENT. ACCORDINGLY,
YOU ARE REQUESTED TO PROMPTLY COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD
AND RETURN IT IN THE ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND. THIS
WILL NOT PREVENT YOU FROM VOTING YOUR
<PAGE>
SHARES IN PERSON IF YOU LATER CHOOSE TO ATTEND THE SPECIAL MEETING. IF THE
MERGER IS APPROVED BY THE SHAREHOLDERS, AS SOON AS PRACTICABLE AFTER THE
EFFECTIVENESS OF THE MERGER, YOU WILL RECEIVE INSTRUCTIONS FOR SURRENDERING YOUR
CENTENNIAL SHARE CERTIFICATES (IN EXCHANGE FOR $16.00 IN CASH PER SHARE) AND A
LETTER OF TRANSMITTAL TO BE USED FOR THIS PURPOSE. YOU SHOULD NOT SUBMIT YOUR
SHARE CERTIFICATES FOR EXCHANGE UNTIL YOU HAVE RECEIVED SUCH INSTRUCTIONS AND
THE LETTER OF TRANSMITTAL.
Sincerely,
J. Stephen Eaton
Chairman, President and
Chief Executive Officer
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION
400 Perimeter Center Terrace, Suite 650
Atlanta, Georgia 30346
---------------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On ________, 1999
--------------------------------------------------------
Notice is hereby given that a Special Meeting of Shareholders (the "Special
Meeting") of Centennial HealthCare Corporation, a Georgia corporation (the
"Company" or "Centennial"), will be held on ________, 1998 at 10:00 a.m., local
time, at ___________________for the following purposes:
(1) To consider and vote upon a proposal to approve an Agreement and Plan
of Merger, dated as of October 22, 1998 (the "Merger Agreement")
pursuant to which Cougar Acquisition Corp., a newly formed Georgia
corporation (the "Acquiror") and wholly-owned subsidiary of Cougar
Holdings Corporation (the "Parent"), will be merged (the "Merger") with
and into Centennial and each outstanding share of Centennial common
stock, $.01 par value (the "Common Stock"), will be converted into the
right to receive $16.00 in cash, other than shares held by shareholders
who are entitled to and have perfected their dissenters' appraisal
rights and shares held by Centennial and its subsidiaries, the Acquiror
and the Parent (including shares contributed immediately prior to the
Merger to the Parent by certain members of Centennial's management and
certain affiliates of the Parent and the Acquiror). A copy of the
Merger Agreement is attached as Appendix A to and is described in the
accompanying Proxy Statement.
(2) To consider and act upon such other matters as may properly come before
the Special Meeting or any adjournment or adjournments thereof.
The Board of Directors of the Company has determined that only holders of
Common Stock of record at the close of business on _______, 1998, will be
entitled to notice of, and to vote at, the Special Meeting or any adjournment or
adjournments thereof. A form of proxy and a Proxy Statement containing more
detailed information with respect to the matters to be considered at the Special
Meeting accompany and form a part of this notice.
By order of the Board of Directors,
-----------------------------------
Daryl R. Griswold,
Assistant Secretary
<PAGE>
Atlanta, Georgia
December __, 1998
WHETHER OR NOT YOU ARE ABLE TO ATTEND THE MEETING, PLEASE SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. PLEASE DO NOT SEND IN ANY
CERTIFICATES FOR YOUR SHARES AT THIS TIME.
THE MERGER HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
THE MERGER NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Any shareholder shall have the right to dissent from the Merger and to
receive payment of the "fair value" of his or her shares upon compliance with
the procedures set forth in Article 13 of the Georgia Business Corporation Code.
See "RIGHTS OF DISSENTING SHAREHOLDERS" in the Proxy Statement that accompanies
this notice and the full text of Article 13 of the Georgia Business Corporation
Code, which is attached as Appendix C and is described in the accompanying Proxy
Statement.
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION
400 Perimeter Center Terrace, Suite 650
Atlanta, Georgia 30346
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
To Be Held On ________, 1999
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What will happen in the Merger?
A: In the Merger, the Acquiror will be merged with and into Centennial with
Centennial being the Surviving Corporation. All shareholders of Centennial at
the time of the Merger, other than Centennial and its subsidiaries, the Parent
and the Acquiror and shareholders who exercise their dissenters' appraisal
rights, will receive a cash payment for their outstanding shares of Common
Stock. Immediately before the Merger is completed, certain members of the
Investor Group will contribute some or all of their shares of Common Stock to
the Parent and receive Parent Common Stock in exchange and will not receive cash
for the shares that are contributed for Parent Common Stock. After the Merger,
Centennial will become a privately held company owned by certain equity
investors, members of management and other participants. To review the structure
of the Merger in greater detail, see pages 33 through 34.
Q: Why is Centennial being acquired?
A: The Company's Board of Directors believes that the acquisition of Centennial
is in the best interests of the public shareholders of Centennial other than the
Parent, the Acquiror and the Investor Group and that as a private company,
Centennial will have greater operating flexibility to focus on enhancing value
by emphasizing growth and operating cash flow. To review the background and
reasons for the Merger in greater detail, see pages 9 through 16.
Q: Why was the Special Committee formed?
A: Because certain directors of Centennial have an interest in the Merger, the
Centennial Board of Directors (the "Board") appointed a special committee of
disinterested directors (the "Special Committee") to review and evaluate the
proposed transaction. The Special Committee has determined that the Merger is
fair to and in the best interests of the Public Shareholders.
Q: What will I receive in the Merger?
A: You will receive $16.00 in cash, without interest, for each share of
Centennial Common Stock that you own. This is the "Cash Merger Consideration."
For example: If you own 100 shares of Centennial Common Stock, upon completion
of the Merger you will receive $1,600.00 in cash.
Q: When do you expect the Merger to be completed?
A: We are working to complete the Merger during the first quarter of 1999.
Q: What are the tax consequences of the Merger to me?
A: The receipt of the Cash Merger Consideration by you will be a taxable
transaction for federal income tax purposes. To review the federal income tax
consequences to you in greater detail, see pages 46 through 47.
Your tax consequences will depend on your personal situation. You should consult
your tax advisors for a full understanding of the tax consequences of the Merger
to you.
i
<PAGE>
Q: What am I being asked to vote upon?
A: You are being asked to approve and adopt the Merger Agreement, which provides
for the acquisition of Centennial by the Parent. After the Merger, Centennial
will become a privately held company and you will no longer own an equity
interest in Centennial.
The Special Committee has unanimously approved and adopted the Merger, and
the Board has approved and adopted the Merger, and the Special Committee and the
Board recommend voting FOR the approval and adoption of the Merger Agreement.
Q: What do I need to do now?
A: Just indicate on your proxy card how you want to vote, sign, date and mail it
in the enclosed envelope as soon as possible, so that your shares will be
represented at the meeting.
Approval of the proposal requires the affirmative vote of (i) a majority of
the outstanding shares of Common Stock as the Outstanding Shares Vote
Requirement and (ii) a majority of the shares of Common Stock voted at the
meeting other than shares owned by members of the Investor Group, WCAS VI, WCAS
CP II, the Parent and the Acquiror (collectively, "Non-Affiliated Shareholders")
as the Majority Vote Requirement. A failure to vote or a vote to abstain will
have the same legal effect as a vote against the Merger with respect to the
Outstanding Shares Vote Requirement but will have no effect with respect to the
Majority Vote Requirement.
The Special Meeting will take place on ____________, 1998 at 10:00 a.m.,
local time, at ________________. You may attend the Special Meeting and vote
your shares in person, rather than voting by proxy. In addition, you may
withdraw your proxy up to and including the day of the Special Meeting and
either change your vote or attend the Special Meeting and vote in person.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares of Common Stock only if you provide
instructions on how to vote. You should instruct your broker how to vote your
shares, following the directions your broker provides. If you do not provide
instructions to your broker, your shares will not be voted and they will be
counted as votes against the proposal to approve and adopt the Merger Agreement
with respect to the Outstanding Shares Vote Requirement.
Q: Should I send in my stock certificates now?
A: No. After the Merger is completed we will send you written instructions for
exchanging your Common Stock certificates for the Cash Merger Consideration.
ii
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS
If you would like additional copies of this document, or if you would like
to ask any additional questions about the Merger, you should contact:
Alan C. Dahl
Centennial HealthCare Corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, Georgia 30346
Telephone: 770-698-9040
iii
<PAGE>
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
THIS PROXY STATEMENT AND OTHER STATEMENTS MADE FROM TIME TO TIME BY
CENTENNIAL, THE PARENT, THE ACQUIROR OR THEIR REPRESENTATIVES CONTAIN STATEMENTS
WHICH MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THOSE STATEMENTS INCLUDE STATEMENTS REGARDING
THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF CENTENNIAL, THE PARENT AND THE
ACQUIROR AND MEMBERS OF THEIR RESPECTIVE MANAGEMENT TEAMS, AS WELL AS THE
ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. SUCH FORWARD- LOOKING STATEMENTS
ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES,
AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD- LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT OF
CENTENNIAL, THE PARENT AND THE ACQUIROR THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT
LIMITED TO, THE RISKS DETAILED HEREIN AND THOSE FACTORS SET FORTH FROM TIME TO
TIME IN REPORTS OF CENTENNIAL FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
CENTENNIAL, THE PARENT AND THE ACQUIROR UNDERTAKE NO OBLIGATION TO UPDATE OR
REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGES IN ASSUMPTIONS, THE
OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER
TIME.
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................................................................i
WHO CAN HELP ANSWER YOUR QUESTIONS.....................................................................iii
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION ......................................................................................iv
SUMMARY..................................................................................................1
The Companies...................................................................................1
The Special Meeting.............................................................................1
Record Date; Voting Power.......................................................................1
Votes Required..................................................................................1
Recommendations.................................................................................1
Opinion of Financial Advisor....................................................................2
Terms of the Merger Agreement...................................................................2
Share Ownership of the Parent following the Merger..............................................3
Accounting Treatment............................................................................4
Conflicts of Interest...........................................................................4
Regulatory Approvals............................................................................5
Appraisal Rights................................................................................5
Historical Market Information...................................................................6
Selected Consolidated Financial Data of the Company.............................................7
Company Projections.............................................................................8
SPECIAL FACTORS..........................................................................................9
Background of the Merger........................................................................9
The Special Committee's and the Board's Recommendation.........................................16
Opinion of Financial Advisor...................................................................22
Purpose and Reasons of the Investor Group for the Merger.......................................26
Position of the Investor Group as to Fairness of the Merger....................................27
Conflicts of Interest..........................................................................27
Certain Effects of the Merger..................................................................33
Financing of the Merger........................................................................34
Conduct of Centennial's Business After the Merger..............................................34
THE SPECIAL MEETING.....................................................................................35
Date, Time and Place of the Special Meeting....................................................35
Proxy Solicitation.............................................................................35
Record Date and Quorum Requirement.............................................................35
Voting Procedures..............................................................................35
Voting and Revocation of Proxies...............................................................36
Effective Time of the Merger and Payment for Shares........................................... 36
Other Matters to be Considered.................................................................37
THE MERGER..............................................................................................37
Terms of the Merger Agreement..................................................................37
Accounting Treatment...........................................................................43
Estimated Fees and Expenses of the Merger......................................................43
</TABLE>
<PAGE>
<TABLE>
<S> <C>
RIGHTS OF DISSENTING SHAREHOLDERS.......................................................................44
FEDERAL INCOME TAX CONSEQUENCES.........................................................................46
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF
MANAGEMENT AND OTHERS...............................................................................48
CERTAIN INFORMATION CONCERNING THE PARENT,
THE ACQUIROR AND THE INVESTOR GROUP.................................................................50
PURCHASES OF COMMON STOCK BY CERTAIN PERSONS............................................................54
INDEPENDENT AUDITORS....................................................................................57
WHERE YOU CAN FIND MORE INFORMATION.....................................................................57
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.........................................................58
SHAREHOLDER PROPOSALS...................................................................................59
OTHER MATTERS...........................................................................................59
APPENDICES
APPENDIX A - Agreement and Plan of Merger.............................................................A-1
APPENDIX B - Opinion of J.P. Morgan Securities Inc....................................................B-1
APPENDIX C - Text of Article 13 of the Georgia Business Corporation Code..............................C-1
</TABLE>
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. For a more complete
understanding of the Merger and for a more complete description of the legal
terms of the Merger, you should read this entire document carefully, as well as
the additional documents to which we refer you, including the Merger Agreement.
See "Where You Can Find More Information" (page 57).
The Companies
Centennial HealthCare Corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, Georgia 30346
(770) 698-9040
Centennial, through its subsidiaries, provides a broad range of long-term
health care services to meet the medical needs of elderly and post-acute
patients. Including facilities under contract but not yet operated by
Centennial, the Company, through its subsidiaries, operates 103 owned, leased or
managed skilled nursing facilities, with approximately 11,200 licensed,
available beds, in 19 states and the District of Columbia. In addition, through
its subsidiaries, the Company provides comprehensive rehabilitation services to
Company-owned and third party nursing facilities pursuant to 134 contracts and
home health care services through 30 licensed home health offices.
Cougar Holdings Corporation
Cougar Acquisition Corp.
320 Park Avenue
New York, New York 10022
(212) 893-9500
The Parent and the Acquiror were organized at the direction of WCAS VIII and
WCAS CP III, who have jointly agreed, together with certain of their affiliates
and the Management Investors, to acquire the public stock of Centennial. WCAS VI
and WCAS CP II, two private investment partnerships affiliated with certain of
the WCAS Investors, which are collectively the owners of approximately 23.2% of
the outstanding Common Stock, will receive the Cash Merger Consideration for all
of their shares of Common Stock and will not have any interest in the Parent or
receive any Parent Common Stock.
The Special Meeting (page 35)
The Special Meeting will be held on _______, 1998, at 10:00 a.m., local
time, at ______________. At the Special Meeting, Centennial shareholders will
be asked to consider and vote upon a proposal to approve and adopt the Merger
Agreement.
Record Date; Voting Power (page 35)
Holders of record of Centennial Common Stock at the close of business on
_______, 1998 (the "Record Date") are entitled to notice of and to vote at the
Special Meeting. As of such date, there were _______ shares of Common Stock
issued and outstanding held by approximately ___ holders of record. Holders of
record of Common Stock on the Record Date are entitled to one vote per share on
any matter that may properly come before the Special Meeting.
Votes Required (page 35)
Approval by the Centennial shareholders of the proposal to approve and adopt
the Merger Agreement will require the affirmative vote of (i) a majority of the
shares of Common Stock outstanding on the Record Date, as the Outstanding Shares
Vote Requirement and (ii) a majority of the shares voted at the Special Meeting
owned by Non-Affiliated Shareholders on the Record Date, as the Majority Vote
Requirement. A failure to vote or a vote to abstain will have the same legal
effect as a vote against the Merger with respect to the Outstanding Shares Vote
Requirement and no effect with respect to the Majority Vote Requirement.
Recommendations (page 16)
Because certain of the Centennial directors will have a financial interest
in the Merger, the Board appointed the Special Committee to review and evaluate
the proposed transaction. The Special Committee unanimously recommended to the
Board that the Merger Agreement be approved and that it be recommended to the
shareholders of the Company. Following the unanimous recommendation of the
<PAGE>
Special Committee, the Board determined that the Merger, the Merger Agreement
and the transactions contemplated thereby were fair to and in the best interests
of the Centennial shareholders and recommended that the shareholders approve the
Merger Agreement. The Special Committee and the Board recommend that the
Centennial shareholders vote "For" the approval of the Merger Agreement. You
also should refer to the reasons that the Special Committee and the Board
considered in determining whether to approve and adopt the Merger Agreement
beginning on page 16.
Opinion of Financial Advisor (page 22)
J.P. Morgan, a nationally recognized investment banking firm which served as
financial advisor to the Special Committee, has rendered an opinion dated
October 22, 1998, and has reconfirmed its opinion as of the date of this Proxy
Statement, to the Special Committee that the Cash Merger Consideration is fair
from a financial point of view to the shareholders of Centennial other than the
Parent, the Acquiror and the Investor Group (collectively, the "Public
Shareholders"). A copy of the fairness opinion, setting forth the information
reviewed, assumptions made and matters considered, is attached to this Proxy
Statement as Appendix B. You should read the fairness opinion of J.P. Morgan in
its entirety.
Terms of the Merger Agreement (page 37)
The Merger Agreement is attached to this Proxy Statement as Appendix A. You
should read the Merger Agreement in its entirety. It is the legal document that
governs the Merger.
General. The Merger Agreement provides that the Acquiror will be merged
with and into Centennial, with Centennial being the surviving corporation (the
"Surviving Corporation"). As a result of the Merger, the shareholders of
Centennial will receive $16.00 in cash, without interest, for each share of
Common Stock that they own, other than shares held by shareholders who exercise
their dissenters' appraisal rights and shares held by Centennial and its
subsidiaries, the Acquiror and the Parent (including shares contributed to the
Parent immediately prior to the Merger by certain of the Management Investors
and WCAS Investors).
Conditions to the Merger. The completion of the Merger depends upon the
satisfaction of a number of conditions, including:
- approval of the Merger Agreement by the holders of a majority of the
outstanding shares of Common Stock and a majority of the shares of
Common Stock voted at the Special Meeting owned by Non-Affiliated
Shareholders;
- receipt of all necessary orders and consents of governmental authorities
and the expiration of any regulatory waiting periods;
- accuracy of the representations and warranties of the parties;
- absence of certain litigation;
- the aggregate number of shares of holders dissenting from the Merger not
constituting more than 15% of the number of shares of Common Stock
outstanding immediately prior to the effective time of the Merger
(calculated on a fully diluted basis); and
- absence of the occurrence of any event having a material adverse effect
on the business of Centennial.
Each party may, at its option, waive the satisfaction of any condition to such
party's obligations under the Merger Agreement. EVEN IF THE SHAREHOLDERS APPROVE
THE MERGER, THERE CAN BE NO ASSURANCE THAT THE MERGER WILL BE CONSUMMATED.
No Solicitation. Until consummation or abandonment of the Merger, Centennial
and its affiliates are not permitted to initiate or solicit any discussions,
offers or proposals from or, subject to the Board's fiduciary duties as advised
by counsel, continue or participate in any negotiations or discussions with, a
third party with respect to a merger, consolidation, sale or similar transaction
involving Centennial or any of its subsidiaries (each an "Acquisition
Proposal").
2
<PAGE>
Termination. Either Centennial or the Parent may terminate the Merger
Agreement under certain circumstances, including if:
- the boards of Centennial and Parent consent;
- the Merger is not completed on or before March 31, 1999;
- legal constraints or prohibitions prevent the consummation of the
Merger;
- the Centennial shareholders do not approve the Merger Agreement; or
- the other party breaches in a material manner any of its
representations, warranties or covenants under the Merger Agreement and,
if curable, such breach is not cured within 30 days of notice.
In addition, if the Board determines in good faith by a majority vote, after
consulting with its financial advisors and based on the advice of outside legal
counsel to the Company, that an Acquisition Proposal with another party is more
favorable to Centennial's shareholders than the Merger, Centennial may terminate
the Merger Agreement if necessary to pursue the alternative Acquisition Proposal
or Centennial may terminate the Merger Agreement if the Board or the Special
Committee withdraws, or adversely modifies, its approval or recommendation of
the Merger. Upon such a termination, Centennial must pay the Acquiror a
"breakup" fee of $3.0 million.
Fees and Expenses. Centennial and the Acquiror will pay their own fees,
costs and expenses incurred in connection with the Merger Agreement if the
Merger is not consummated. However, Centennial will pay the Acquiror the "break
up" fee of $3.0 million, under certain circumstances, including if Centennial
approves, enters into or consummates an Acquisition Proposal with another party
or if the Board or the Special Committee withdraws its recommendation of the
Merger. If the Merger is consummated, Centennial will pay, at the effective time
of the Merger, all of its own fees and expenses and fees and expenses incurred
by the Parent and the Acquiror, including the fees and expenses of counsel,
accountants, investment bankers and other advisors and experts.
Share Ownership of the Parent following the
Merger (page 29)
- The Management Investors. J. Stephen Eaton, Chairman of the Board,
President and Chief Executive Officer of Centennial ("Eaton"); Alan C.
Dahl, Executive Vice President, Chief Financial Officer and Treasurer of
Centennial ("Dahl"); Kent C. Fosha, Sr., Executive Vice President of
Centennial ("Fosha") and Lawrence W. Lepley, Jr., President of
Centennial's Paragon Rehabilitation, Inc. subsidiary ("Lepley"), will
exchange an aggregate of 508,852 shares of Common Stock for shares of
common stock, $.01 par value, of the Parent (the "Parent Common Stock").
Shares of Common Stock not exchanged by the Management Investors will be
converted into the right to receive $16.00 per share in the Merger.
After the Merger, Messrs. Eaton, Dahl, Fosha and Lepley will own an
aggregate common equity interest in the Parent of approximately 5.4%.
The Board will reserve 11,281,517 shares of Parent Common Stock
representing approximately 13% of the common equity of the Parent
(calculated on a fully diluted basis) at the closing of the Merger for
options to be granted to the Management Investors and other key
employees of the Company.
- The WCAS Investors. WCAS VIII will invest approximately $117.8 million
in cash in the Acquiror in exchange for 58,900,000 shares of Parent
Common Stock, at $2.00 per share. After the Merger, WCAS VIII will own
an aggregate common equity interest in the Parent of approximately 78%.
WCAS CP III will invest approximately $125.0 million in cash in exchange
for $25.0 million of subordinated notes of the Parent, $100 million of
subordinated notes of the Acquiror and 8,928,571 shares of Parent Common
Stock. After the Merger, WCAS CP III will own an aggregate common equity
interest in the Parent of approximately 11.8%. Certain other investors
affiliated with WCAS VIII and WCAS CP III, including Andrew M. Paul, a
director of
3
<PAGE>
Centennial, and WCAS Healthcare Partners, L.P., a shareholder of
Centennial ("Healthcare Partners"), will contribute shares of Common
Stock to the Parent in exchange for shares of Parent Common Stock and/or
purchase additional shares of Parent Common Stock for cash. After the
Merger, the WCAS Investors (other than WCAS VIII and WCAS CP III) will
own 3,600,000 shares of Parent Common Stock or an aggregate common
equity interest in the Parent of approximately 4.8%.
Accounting Treatment (page 43)
The Acquiror believes that the Merger will be accounted for as a
"purchase" under the purchase method in accordance with generally accepted
accounting principles.
Conflicts of Interests (page 27)
- The Management Investors. Certain of the Management Investors have
interests in the Merger that are different from, or in addition to,
yours as a Centennial shareholder. The Management Investors will
continue to have an equity interest in the Surviving Corporation through
their ownership of Parent Common Stock and the ultimate value of this
interest could exceed $16.00 per share. If the Merger is consummated,
certain of the Management Investors will be designated as members of the
board of directors of the Surviving Corporation and will remain as
senior management of Centennial pursuant to amended and restated
employment agreements that provide for two year rolling severance and
noncompete periods. If the Merger is consummated, the Company will pay
certain of the Management Investors and other key employees an aggregate
of approximately $2.0 million in fees and bonuses in consideration for
these noncompete periods and as bonuses for remaining with the Company,
beginning within two months after the effective time of the Merger. In
addition, if the Merger is consummated, options to purchase Parent
Common Stock will be made available to the Management Investors. Certain
indemnification arrangements and directors' and officers' liability
insurance for existing directors and officers of Centennial will be
continued by the Surviving Corporation after the Merger.
- WCAS Investors. WCAS VI and WCAS CP II hold 2,520,193 and 246,896 shares
of Common Stock, respectively, or approximately 21.1% and 2.1% of the
outstanding shares of Common Stock, respectively, and will receive
$40,323,088 and $3,950,336, respectively, as Cash Merger Consideration.
Mr. Paul, a director of the Company, and certain of the other WCAS
Investors are general partners of the respective sole general partners
of WCAS VI and WCAS CP II. In addition, the Company will pay WCA
Management Corporation, an affiliate of the WCAS Investors, a $3.0
million fee for services rendered in connection with the financing of
the Merger and related transactions.
- The Special Committee. Upon consummation of the Merger, the members of
the Special Committee will receive cash for the aggregate unrealized
gain on their stock options. Messrs. Scott Miller and Charles Nash will
each receive $75,631 for such unrealized gain. Because Mr. Bertil
Nordin, chairman of the Special Committee, will not receive any
unrealized gain on his stock options, the Company agreed to pay him
$75,000 for his service on the Special Committee. Each member of the
Special Committee also received reimbursement of out-of-pocket expenses
and regular fees for attending board or committee meetings. In addition,
Mr. Nordin is a limited partner of WCAS Information Partners, L.P., a
private investment partnership affiliated with certain of the WCAS
Investors. The members of the Special Committee believe that the
foregoing arrangements do not affect their independence or impartiality.
- Other Directors. Two other directors have interests in certain of the
WCAS Investors.Robert Ortenzio, a director of Centennial is the residual
beneficiary of a trust which is a limited partner of WCAS VI. James B.
Hoover, a director of Centennial, is a former
4
<PAGE>
general partner and current limited partner of the respective sole
general partners of WCAS VI and Welsh, Carson, Anderson & Stowe, VII,
L.P., a private investment partnership affiliated with certain of the
WCAS Investors ("WCAS VII") and a general partner of the sole general
partners of WCAS CP II and Welsh, Carson, Anderson & Stowe V, L.P., a
private investment partnership affiliated with certain of the WCAS
Investors ("WCAS V").
Regulatory Approvals (page 38)
Centennial is required to make filings with or obtain approvals from certain
regulatory authorities in connection with the Merger. These consents and
approvals include approval of the Federal Trade Commission, the Department of
Justice, and certain state regulatory authorities. An application and notice was
filed with the Federal Trade Commission and the Department of Justice on
November 16, 1998. All other necessary applications and notices have been filed
or are in the process of being filed.
Centennial cannot predict whether or when the Company will obtain all
required regulatory approvals or the timing of these approvals.
Dissenters' Appraisal Rights (page 44)
Any shareholder of Centennial who does not vote in favor of the proposal to
approve the Merger Agreement and who complies strictly with the applicable
provisions of Article 13 of the Georgia Business Corporation Code has the right
to dissent and be paid cash for the "fair value" for such holder's shares of
Common Stock, which may be more than, the same as, or less than the Cash Merger
Consideration of $16.00 a share. To perfect these appraisal rights with respect
to the Merger, you must follow the required procedures precisely. The applicable
provisions of Article 13 are attached to this Proxy Statement as Appendix C. The
Merger Agreement provides that the Parent and the Acquiror are not required to
consummate the Merger if holders of more than 15% of the shares of Common Stock
outstanding prior to the Merger exercise their right to dissent. Although the
Parent and the Acquiror may waive this requirement, they are not required to do
so. Messrs. Eaton, Dahl, Fosha and Lepley and WCAS VI have each agreed to waive
their right to dissent.
5
<PAGE>
Historical Market Information
The Common Stock is traded on the Nasdaq National Market (symbol: CTEN). The
following table sets forth the high and low closing bid quotations for each
quarterly period since July 2, 1997, the date of the closing of Company's
initial public offering of the Common Stock, and for the current fiscal year to
date.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1997:
Third quarter (from July 2, 1997)....................................... 23.00 16.00
Fourth quarter.......................................................... 25.125 18.125
1998:
First quarter........................................................... 25.125 19.625
Second quarter.......................................................... 25.00 16.4375
Third quarter........................................................... 20.375 7.50
Fourth quarter (through December 9, 1998)............................... 15.4375 15.35
</TABLE>
On October 21, 1998, the last trading day prior to announcement of the
execution of the Merger Agreement, the closing price per share of Common Stock
as reported by the Nasdaq Stock Market ("Nasdaq") was $8.50. On December 9,
1998, the high and low bid quotations per share of Common Stock as reported by
Nasdaq were $15.4375 and $15.35.
Since its inception, the Company has not paid any cash dividends on its
Common Stock. Under the Merger Agreement, the Company has agreed not to pay any
dividends on the Common Stock prior to the closing of the Merger. Under the
Company's current senior credit facility, the distribution of dividends would
require lender consent. In addition, applicable laws generally limit the ability
of the Company's subsidiaries to pay dividends to the extent that required
regulatory capital would be impaired, which in turn further limits the Company's
ability to pay dividends.
In July 1997, Centennial completed an underwritten initial public offering
of 4,600,000 shares of Common Stock (including the underwriters' exercise of
their over-allotment option). The offering price per share was $16.00 and the
Company received net proceeds of approximately $66.8 million.
6
<PAGE>
Selected Consolidated Financial Data of the Company
Certain selected consolidated historical financial data of the Company
derived from the audited financial statements of the Company are set forth
below. The selected financial data should be read in conjunction with the
Consolidated Financial Statements of the Company, related notes and other
financial information incorporated by reference into this Proxy Statement.
<TABLE>
<CAPTION>
Seven Months
For the year ended Ended
December 31, December 31,
------------------------------------------------ -------------
1997 1996 1995(1) 1995
------------ ------------- ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net patient service revenues............... $ 296,321 $ 227,387 $ 71,862 $ 42,103
Management fee and other revenues.......... 7,952 5,661 3,364 2,108
------------ ------------- ------------- -------------
Total revenues......................... 304,273 233,048 75,226 44,211
Facility operating expenses................ 234,596 183,324 58,565 35,262
Lease expense.............................. 21,403 18,777 7,702 4,651
Corporate administrative costs............. 16,055 11,400 5,027 3,526
Depreciation and amortization.............. 6,760 5,012 738 429
------------ ------------- ------------- -------------
Operating income before net
interest expense and equity in
income of unconsolidated
partnerships........................ 25,459 14,535 3,194 343
Interest income (expense), net............. (8,022) (9,373) (176) (116)
Equity in income (loss) of
unconsolidated partnerships............ -- (108) 448 25
------------ ------------- ------------- -------------
Income (loss) before income
taxes and minority interest
and extraordinary item.............. 17,437 5,054 3,466 252
Provision for income taxes................. 6,800 2,092 1,389 328
------------ ------------- ------------- -------------
Income (loss) before minority
interest and extraordinary item........ 10,637 2,962 2,077 (76)
Minority interest in net income of
subsidiary, net of income taxes........ (252) (183) (201) (82)
------------ ------------- ------------- -------------
Net income (loss) before
extraordinary item..................... 10,385 2,779 1,876 (158)
Extraordinary item - forgiveness of
debt, net of income taxes.............. -- -- -- --
Extraordinary item - loss on
extinguishment of debt,
net of income taxes.................... (537) -- -- --
------------ ------------- ------------- -------------
Net income (loss).......................... $ 9,848 2,779 1,876 $ (158)
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Per common share information (diluted):
Income (loss) before extraordinary item.... $ 0.54 $ 0.12 $ 0.72 $ (0.06)
Extraordinary item - forgiveness of
debt, net of taxes..................... -- -- -- --
Extraordinary item - loss on
extinguishment of debt,
net of income taxes.................... (0.06) -- -- --
------------ ------------- ------------- -------------
Net income (loss) (2)...................... $ 0.48 $ 0.12 $ 0.72 $ (0.06)
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Weighted average number of common
and common stock equivalents
outstanding (diluted).................. 8,462 4,782 2,601 2,601
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
For the year ended
May 31,
--------------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Statement of Operations Data:
Net patient service revenues............... $ 61,856 $ 38,115
Management fee and other revenues.......... 3,362 3,384
-------------- --------------
Total revenues......................... 65,218 41,499
Facility operating expenses................ 48,872 29,510
Lease expense.............................. 6,901 4,823
Corporate administrative costs............. 3,396 2,927
Depreciation and amortization.............. 290 82
-------------- --------------
Operating income before net
interest expense and equity in
income of unconsolidated
partnerships........................ 5,759 4,157
Interest income (expense), net............. 57 131
Equity in income (loss) of
unconsolidated partnerships............ (28) 1,733
-------------- --------------
Income (loss) before income
taxes and minority interest
and extraordinary item.............. 5,788 6,021
Provision for income taxes................. 2,106 2,230
-------------- --------------
Income (loss) before minority
interest and extraordinary item........ 3,682 3,791
Minority interest in net income of
subsidiary, net of income taxes........ (207) --
-------------- --------------
Net income (loss) before
extraordinary item..................... 3,475 3,791
Extraordinary item - forgiveness of
debt, net of income taxes.............. 250 1,598
Extraordinary item - loss on
extinguishment of debt,
net of income taxes.................... -- --
-------------- --------------
Net income (loss).......................... $ 3,725 $ 5,389
-------------- --------------
-------------- --------------
Per common share information (diluted):
Income (loss) before extraordinary item.... $ 1.35 $ 1.60
Extraordinary item - forgiveness of
debt, net of taxes..................... 0.10 0.68
Extraordinary item - loss on
extinguishment of debt,
net of income taxes.................... -- --
-------------- --------------
Net income (loss) (2)...................... $ 1.45 $ 2.28
-------------- --------------
-------------- --------------
Weighted average number of common
and common stock equivalents
outstanding (diluted).................. 2,576 2,363
-------------- --------------
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------
1997 1996 1995
-------------- ---------------- ----------------
(dollars in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Working capital................................ $ 45,560 $ 8,702 $ 3,984
Total assets................................... 243,649 193,448 155,018
Long-term debt and subordinated debt,
less current maturities.................... 78,913 107,795 83,559
Preferred stock (3)............................ -- 21,305 19,455
Net shareholders' equity ...................... 113,104 11,952 10,869
</TABLE>
<TABLE>
<CAPTION>
As of May 31,
-----------------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
Balance Sheet Data:
Working capital................................ $ 4,805 $ 5,540
Total assets................................... 25,499 14,172
Long-term debt and subordinated debt,
less current maturities.................... 4,558 676
Preferred stock (3)............................ 9,187 4,300
Net shareholders' equity ...................... 2,082 1,527
</TABLE>
- ------------------------------------
(1) During 1995, the Company changed its fiscal year from May 31 to December 31
resulting in a seven month transition period ending December 31, 1995.
(2) Net income (loss) per common share for the fiscal years ended December 31,
1997 and 1996 excludes dividends and accretion on preferred stock of $5.9
million and $2.2 million, respectively.
(3) Carried at estimated redemption value with accretion of dividends charged
against shareholders' equity.
7
<PAGE>
Company Projections
In connection with the WCAS Investors' review of the Company and in the
course of the negotiations between the Company and the WCAS Investors described
in "Special Factors--Background of the Merger," the Company provided the WCAS
Investors with certain non-public business and financial information. The
non-public information provided by the Company included certain projections
developed over a period of time by the Company of the future operating
performance of the Company and delivered in preliminary and final versions (the
"Company Projections"). The Company Projections were prepared assuming that the
Company made acquisitions totaling $100 million each year and, alternatively,
assuming that no acquisitions were made. The Company Projections do not give
effect to the Merger or the financing thereof.
The Company does not as a matter of course publicly disclose projections as
to future revenues or earnings. The Company Projections were not prepared with a
view to public disclosure and the following summary thereof is included in the
Proxy Statement only because such information was made available to the WCAS
Investors in connection with their due diligence investigation of the Company.
Accordingly, it is expected that there will be differences between actual and
projected results, and actual results may be materially different from those set
forth below. The Company Projections were not prepared with a view to compliance
with the published guidelines of the Commission regarding projections, nor were
they prepared in accordance with the guidelines established by the American
Institute of Certified Public Accountants for preparation and presentation of
financial projections. No independent accounting firm has compiled or examined
the Company Projections of total revenues and operating income for fiscal years
1999 through 2003 and no expression of assurance of any kind can be given with
respect to the Company Projections or the achievability of the Company
Projections. These forward-looking statements reflect numerous assumptions made
by the Company's management, which are not apparent on the face of the Company
Projections. In addition, factors such as industry performance, general
business, economic, regulatory and market and financial conditions, all of which
are difficult to predict, may cause the Company Projections or the underlying
assumptions to be inaccurate. Accordingly, there can be no assurance that the
Company Projections will be realized, and actual results may be materially
greater or less than those contained in the Company Projections.
The inclusion of the summary of the Company Projections should not be
regarded as an indication that the WCAS Investors or the Company or their
respective financial advisors considered or consider the Company Projections to
be a reliable prediction of future events, and the Company Projections should
not be relied upon as such. None of the Company, the WCAS Investors or any of
their respective financial advisors intends to update or otherwise revise the
Company Projections to reflect circumstances existing after the date when made
or to reflect the occurrence of future events even in the event that any or all
of the assumptions underlying the Company Projections are shown to be in error.
The Company provided to the WCAS Investors the following preliminary Company
Projections: total revenue (assuming acquisitions) of $463.7 million, $586.9
million, $715.6 million, $851.5 million and $995.2 million; and net income of
$13.0 million, $18.0 million, $24.6 million, $32.6 million and $42.1 million for
fiscal years 1999 through 2003, respectively. The preliminary Company
Projections were prepared for initial discussions and were based upon limited
assumptions which did not include any impact of the proposed Medicare
prospective payment system and were later refined in the final version.
The Company provided to the WCAS Investors the following final Company
Projections: total revenue (assuming acquisitions) of $467.8 million, $566.8
million, $671.5 million, $780.3 million and $896.6 million, and net income of
$15.6 million, $22.5 million, $27.3 million, $32.0 million and $39.1 million for
fiscal years 1999 through 2003, respectively, and total revenues (assuming no
acquisitions) of $430.1 million, $450.7 million, $473.9 million. $497.8 million
and $525.9 million, and net income of $16.0 million, $22.8 million, $26.6
million, $29.8 million and $34.7 million for fiscal years 1999 through 2003,
respectively. The WCAS Investors took this information included in the final
Company Projections together with their own analysis, into account in
determining whether to enter into the Merger Agreement.
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SPECIAL FACTORS
Background of the Merger
General. In 1998, changes in the capital markets began to impede the
Company's growth strategy. The Company had historically grown in size and
profitability primarily through acquisitions. From the beginning of 1998,
acquisition prices increased and during the second half of the year, changes in
the capital markets made debt and equity financing more difficult to obtain.
Both of these factors made acquisitions more difficult.
In addition, the Company's growth strategy has been affected by a new
Medicare prospective payment system ("PPS") contained in the Balanced Budget Act
of 1997 enacted in August 1997. PPS is a program for implementing $9.5 billion
of Medicare spending reductions over the next five years for skilled nursing
care facilities such as those operated by the Company. PPS will be fully
effective for the Company by January 1999, and management initially believed
that it would not have an adverse effect on earnings because the decreased
revenues under PPS would be offset by cost reductions. In June 1998, management
commenced a comprehensive internal study of the effects of PPS on the Company's
results for the first five months of 1998, on a pro forma basis as if PPS was
fully effective in 1998. The preliminary results of that study, which were
available in late July 1998, indicated that even if the Company was successful
in reducing ongoing costs to match revenue reductions under PPS, the
implementation of PPS would cause it to incur significant additional training
and other expenses that could not be recovered from revenues.
This changing environment led management to evaluate various alternatives
for the future of the Company during the second and third quarters of 1998.
While it was expected that strategic acquisition opportunities would continue to
exist, such opportunities would require significant capital that would be more
expensive or dilutive in the current economic environment. Management noted that
as a public company being an aggressive acquiror during this period of
uncertainty might erode the Company's stock price. In addition, the prospective
impact of PPS on the nursing home industry was creating uncertainty concerning
the Company's ability to reduce costs sufficiently, even without taking into
account the additional costs indicated by the Company's study, and management
believed that this uncertainty might further depress the Company's stock price.
Each of these factors led management to the conclusion that it was in the best
interest of the Company's shareholders to consider strategic alternatives for
the Company.
Events Leading to the Merger. During May and June 1998, representatives of
WCAS VIII had informal discussions with senior management of the Company and
representatives of BT Alex Brown Incorporated ("BT Alex Brown"), which was
formally engaged by the Company on June 3, 1998 to evaluate strategic
opportunities, with respect to a possible acquisition of the Company that would
be sponsored by WCAS VIII and include a significant investment by management.
These discussions included a visit by Messrs. Eaton and Dahl and representatives
of BT Alex Brown on June 24, 1998 to the New York offices of WCAS VIII. On July
10, 1998,
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WCAS VIII and the Company entered into a confidentiality agreement, and subject
thereto, the Company subsequently provided WCAS VIII with the preliminary
Company Projections.
Commencing on July 11, 1998, WCAS VIII and its accounting advisors began
conducting a business and financial "due diligence" review of the Company at its
offices in Atlanta and at the WCAS VIII offices in New York, and on July 23,
1998, representatives of WCAS VIII traveled to the Company's Atlanta offices
where they met with members of the Company's senior management and
representatives of BT Alex Brown and discussed the Company's financial condition
and the preliminary Company Projections that had been provided.
At the Board's July 28, 1998 regular quarterly meeting, management discussed
the preliminary results of its study of the anticipated effects of PPS on the
operations of the Company, and the Board unanimously determined to make public
disclosure as soon as possible. After the conclusion of the meeting, Mr. Eaton
also informed the Company's directors of management's discussions with
representatives of WCAS VIII.
On August 4, 1998, the Company issued a press release that stated that the
Company expected its financial results for the second quarter ended June 30,
1998 to meet the published consensus estimates. The Company also announced with
its second quarter earnings on August 4, 1998 that it expected to incur costs of
$1.0 million and $1.5 million for the third and fourth quarters of 1998,
respectively, related to training, implementation and other compliance costs to
prepare for PPS. On August 4, 1998, the date the Company announced its earnings
for second quarter, the per share price of the Company's Common Stock dropped
from $14.75 to $7.50.
During August 1998 the Company finalized its analysis of the potential
effects from PPS, and during September 1998, Mr. Eaton, other members of senior
management and representatives of BT Alex. Brown met several times with
representatives of WCAS VIII to discuss the possibility of acquiring the
Company. Prior to a meeting on September 17, 1998, the Company furnished to
representatives of WCAS VIII revised financial projections. The revisions
reflected the effect of the anticipated expense increases which had been
discussed at the July 28, 1998 Board meeting and publicly disclosed in the
August 4, 1998 press release. At this meeting, the revised and final Company
Projections were explained to the representatives of WCAS VIII and discussed
with members of the Company's accounting staff and senior management.
On September 22, 1998, legal and special regulatory counsel for WCAS VIII
commenced a legal and regulatory "due diligence" review of the Company, and, on
September 25, 1998, WCAS VIII delivered to the Company a nonbinding written
expression of interest in pursuing a possible acquisition of the Company by a
new entity to be formed by WCAS VIII and its affiliates (the "Initial
Proposal"). This Initial Proposal expressed the interest of WCAS VIII in
acquiring the Company through a to-be-formed company in exchange for cash and
was contingent on Messrs. Eaton, Dahl, Fosha and Lepley, and potentially other
members of management, participating in the proposed acquisition as investors
and officers of the acquiror. The Initial Proposal did not make any reference to
potential pricing terms.
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A special meeting of the Board was scheduled for September 28, 1998, to
discuss the Initial Proposal. At the special meeting, Andrew M. Paul, a member
of the Board, and a general partner of the sole general partner of WCAS VI, the
owner of approximately 23% of the Common Stock, outlined the provisions of the
Initial Proposal. At the special meeting, the Board discussed the likelihood
that management and Mr. Paul would have a continuing financial interest in any
transaction arising out of the Initial Proposal. The Board determined to
increase the number of directors by two members, who would be disinterested and
independent of any potential acquiror or management and would serve as two of
the three members of the Special Committee. The Special Committee was authorized
to engage advisors to assist in evaluating relevant factors and review and
evaluate the Initial Proposal, and, if considered reasonable in light of all
circumstances and the recommendation of its advisors, to explore additional
merger offers and to recommend to the Board those actions that the Special
Committee believed, in the exercise of its independent business judgment, to be
in the best interests of the Company and its shareholders. The Board appointed
W. Scott Miller and Charles D. Nash as directors and named them as members of
the Special Committee, together with Bertil D. Nordin as Chairman, who was not
employed by the Company and was not participating in the proposed transaction.
The Board further authorized the Special Committee to establish such procedures,
review such information and engage such financial advisors and legal counsel as
it deemed reasonable and necessary to fully and adequately make determinations
and to conduct negotiations with WCAS VIII regarding the terms of the proposed
transaction and to otherwise fulfill its duties.
The Special Committee engaged Kilpatrick Stockton LLP ("Kilpatrick
Stockton") as its legal counsel to advise the Special Committee regarding its
duties in connection with a possible sale of the Company. The Special Committee
and its legal counsel discussed on several occasions the procedures to be
followed in analyzing any offer from WCAS VIII to acquire the Company. Counsel
advised the Special Committee concerning the Special Committee's legal
responsibilities and the legal principles applicable to, and the legal
consequences of, actions taken by the Special Committee with respect to the
offer by WCAS VIII.
The Special Committee selected J.P. Morgan to serve as its financial advisor
for the purpose of advising the Special Committee and assisting the Special
Committee in negotiations with WCAS VIII and to deliver a fairness opinion to
the Special Committee in connection with the proposed transaction. The Special
Committee instructed J.P. Morgan to commence its investigation and analysis of
the value of the Company and the Initial Proposal.
During the period from October 9 to October 19, 1998, J.P. Morgan reviewed
certain financial and other information concerning the Company and met with
certain members of the Company's management, as well as the Company's
independent auditors.
On October 10, 1998, the Special Committee received a preliminary draft of a
merger agreement from legal counsel to the WCAS Investors, who indicated that
the draft was being circulated prior to delivery of any offer from the WCAS
Investors in order to expedite the Special Committee's review of the agreement's
basic terms and to allow the Company time to prepare
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disclosure schedules should the WCAS Investors determine to make an offer.
The draft merger agreement did not contain pricing terms.
On October 13, 1998, the Special Committee met with the Company's
independent auditors, members of Company management, J.P. Morgan and Kilpatrick
Stockton to review the Company's financial position and financial statements.
Company management also discussed the financial and operating implications of
PPS. Company management indicated that moving from a "cost plus" Medicare
reimbursement system to PPS would require significant reengineering of the
manner in which companies in the Company's industry segment tracked reimbursable
activities at the point of care in nursing facilities. These efforts would
require significant training costs and information technology systems.
Management reported that the participants in this industry segment are perceived
by the financial community as facing significant operating and earnings
challenges in transitioning to PPS and this was affecting the market price of
the shares of these companies, including the Company. Management reported that
the results of the study of the effects of PPS on the operations of the Company
for the first five months of 1998 indicated that PPS would have a negative
effect of approximately $25 million on projected gross revenues of approximately
$350 million, but would be earnings neutral, except for costs allocable to the
transition to PPS of $2.5 million in the last half of 1998 and $3 million in the
first half of 1999. Management reported, however, that even a relatively small
variance of $200,000 to $300,000 in expenses or revenues, as well as problems
with Medicare implementing the PPS payment scheme, would put the quarterly
earnings and cash flows of the Company at substantial risk in 1999 and 2000.
At the October 13 meeting, Mr. Eaton reported that the Company had engaged
SunTrust Equitable Securities in September 1998 to explore financing
alternatives for the potential acquisition of the Company. Mr. Eaton reported
that the Company had received a "highly confident" financing letter from a major
financial institution that expressed a willingness to provide debt financing for
the purchase of the Company. Mr. Eaton noted that the financing letter was
subject to conditions and was not a commitment to provide funds. Mr. Eaton
reported that this financing could be utilized by a group that had sufficient
equity to purchase the Company but needed financing to complete such a
transaction.
On October 16, 1998, the Special Committee met with Kilpatrick Stockton to
discuss the preliminary draft merger agreement. Kilpatrick Stockton delivered
the comments of the Special Committee and of the Company to the WCAS Investors'
legal counsel, Reboul, MacMurray, Hewitt, Maynard & Kristol ("Reboul
MacMurray"), and held further discussions with such legal counsel on October 18
and 19, 1998 regarding the terms of the draft merger agreement.
On October 19, 1998, J.P. Morgan held informal discussions with
representatives of WCAS VIII with regard to the timing and possible terms of a
formal offer to acquire the Company. Mr. Nordin met with J.P. Morgan and
Kilpatrick Stockton to discuss the results of those informal discussions. J.P.
Morgan reported to the Special Committee that, based on its conversations with
WCAS VIII, it expected that WCAS VIII would make an initial offer in the range
of $14 to $15
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per share, but that J.P. Morgan believed that WCAS VIII might be willing to
offer as much as $16 per share.
On October 20, 1998, J.P. Morgan met with the Special Committee and its
legal counsel to discuss general economic factors affecting the Company's
industry segment, the expected impact of PPS on the Company's financial and
operating results and the availability of capital in the public markets to
finance the Company's acquisition strategy. The Special Committee discussed
whether, in light of those and other factors, it should continue discussions
with WCAS VIII if the offer from WCAS VIII fell in the range of $14 to $16 per
share, as expected. The Special Committee determined that a fully financed cash
offer in that range could be in the best interests of the Company and its
shareholders, and resolved to continue discussions.
At the October 20 meeting, J.P. Morgan led a discussion addressing the
positives and negatives of soliciting alternative offers prior to entering into
a binding agreement as opposed to entering into an agreement with a market check
mechanism. J.P. Morgan stated that, so long as the Company retained the right to
accept unsolicited bids and could note this ability in the press release
announcing the transaction, it could effectively simulate an auction
environment. J.P. Morgan noted that the group of potential bidders was
relatively small and that it was reasonable to expect that all potential bidders
would be fully aware of the availability of the Company through such a press
release. J.P. Morgan noted that such a procedure might be preferable to an
auction prior to entering into a binding agreement because the failure of any
other buyer to meet or match a price in the range expected to be offered by WCAS
VIII might lead WCAS VIII to lower its offer, or even withdraw from the process
altogether. Given that affiliates of WCAS VIII already owned approximately 23%
of the Company, the Special Committee considered it quite possible that other
potential bidders in an open auction context would not materialize. The Special
Committee determined that if the bid were in the $14 to $16 per share range that
was anticipated, the Company could offer to accept a no-shop provision with a
fiduciary out in exchange for a lower termination fee and minimal expense
reimbursement.
On October 21, 1998, Reboul MacMurray, Kilpatrick Stockton and Company
counsel continued negotiations with respect to the draft merger agreement, while
J.P. Morgan met with the Special Committee and its legal counsel in anticipation
of receiving an offer from WCAS VIII. After the market closed on October 21,
representatives of WCAS VIII met with the Special Committee to deliver its offer
to acquire the Company. The offer consisted of a fully financed, cash purchase
price of $15 per share, and a termination fee equal to 3% of the aggregate value
of the transaction, including debt assumed (approximately $9 million in the
aggregate), plus their out-of-pocket expenses. The representatives of WCAS VIII
stressed that they would agree to the Special Committee's demand from prior
discussions that there would be no financing condition, which they believed
would be a significant advantage in today's marketplace. The WCAS VIII
representatives stated that they thought that an auction of the entire Company
would be disruptive and would likely result in a price that was lower than WCAS
VIII would be willing to commit to pay at that time. They stated that their
intent was to offer a "preemptive price" that would be substantially higher than
any other bidder might reasonably be expected to offer, but
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<PAGE>
that they would only do so in a binding agreement prior to the implementation of
any market checks.
The Special Committee invited Mr. Eaton and Mr. Dahl into the meeting at
that time. The Special Committee inquired of Mr. Eaton and Mr. Dahl if
management would be in a position to initiate an alternative proposal based on
the "highly confident" financing letter the Company had previously obtained
through Equitable Securities. Mr. Eaton responded that management was not
prepared at that time to make an alternative proposal, but that if a price below
$16 per share were likely to be accepted, management would reconsider. Mr. Eaton
and Mr. Dahl also described for the Special Committee the material terms of
management's individual employment and equity arrangements with the WCAS
Investors if the proposed acquisition were to proceed.
The Special Committee then met with Kilpatrick Stockton and J.P. Morgan to
discuss the proposal. Representatives of Kilpatrick Stockton reviewed again with
the members of the Special Committee their legal duties in connection with the
consideration of the offer. Representatives of J.P. Morgan discussed with the
Special Committee the analyses they had performed to produce a range of implied
values for the Company's Common Stock. The Special Committee also discussed with
J.P. Morgan its findings in connection with J.P. Morgan's investigation of the
Company and questioned J.P. Morgan concerning the assumptions made in connection
with its analyses and the facts on which these analyses were based. J.P. Morgan
explained to the Special Committee the assumptions, methodologies and relative
limits of its analyses. J.P. Morgan then provided the Special Committee with
materials outlining its valuation analyses.
After considerable discussion of the adequacy of the proposed purchase price
and the size and nature of the termination fee, the Special Committee directed
J.P. Morgan to seek to negotiate a price of at least $16 per share with a
meaningful market check and a lower termination fee. The Special Committee also
authorized Kilpatrick Stockton to continue to negotiate the terms of the
definitive Merger Agreement.
J.P. Morgan met with the WCAS VIII representatives to discuss the initial
offer of $15.00 per share, the amount of the termination fee and certain other
matters. The WCAS VIII representatives informed J.P. Morgan that they would
review their initial proposal and respond to J.P. Morgan. Later that evening,
the WCAS VIII representatives increased the offer to $16 per share, and lowered
the termination fee to a fixed fee of $6 million, inclusive of out-of-pocket
expenses. They stated that they were willing to increase the offer to $16 per
share because they recognized the significance of the Company's initial public
offering price, but that they were not willing to increase the offer any
further. The WCAS VIII representatives also agreed to condition the acquisition
on receipt of approval of a majority of the shares owned by shareholders
unaffiliated with the Investor Group and voted at a special meeting to approve
the Merger, and to allow any press releases announcing the transaction to
reference the Company's ability to entertain unsolicited alternative proposals.
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The Special Committee then discussed in private with its advisors its desire
to cause some premium above the $16 per share level, which had been the initial
public offering price. After substantial discussion, it was decided that J.P.
Morgan representatives would make a proposal in the alternative to WCAS VIII,
offering the full $6 million termination fee for a per share price of $16.50 or
a lower termination fee for the per share price of $16. After receiving this
revised proposal, the WCAS VIII representatives indicated that $16 per share was
its "best and final offer," but that they were willing to decrease the
termination fee to a flat $3 million, inclusive of all expenses.
During the course of the Special Committee's meetings, the Special Committee
and its advisors again discussed in detail whether a full auction of the Company
would be a more advisable course of action than entering into a binding
commitment with market check features as was being proposed by WCAS VIII. The
Special Committee determined to negotiate a binding agreement with WCAS VIII
rather than pursuing an auction based on (i) the belief that conducting an
auction would cause WCAS VIII to withdraw its offer, (ii) concerns that a
vigorous auction might not materialize in any event, and (iii) the conclusion
that the fiduciary out provisions giving the Company the ability to discuss
unsolicited alternative proposals, announcement of such ability in the press
release, the relatively low termination fee, and the extended time during which
these provisions could operate, were effective means of simulating an auction
environment.
The Special Committee, together with representatives of J.P. Morgan and
Kilpatrick Stockton, met to consider the revised $16 per share cash offer by
WCAS VIII. J.P. Morgan indicated that based on the discussions with WCAS VIII
representatives, it believed that the $16.00 per share offer was the best offer
available from WCAS VIII. Because such price was consistent with and supported
by J.P. Morgan's valuation methodologies as a whole, J.P. Morgan indicated that
it would be able to deliver an opinion that the $16.00 per share price was fair
to the Public Shareholders from a financial point of view. The Special Committee
discussed the $16.00 per share offer in detail, and examined the advantages and
disadvantages of continuing to urge WCAS VIII to make an even higher offer,
including its ability to decline to proceed with the transaction if the Special
Committee insisted on a higher price, with the result that the Public
Shareholders might not have the opportunity to consider a transaction that
offered a substantial premium for their shares.
Based in part on the J.P. Morgan opinion and the valuation analyses
presented by J.P. Morgan to the Special Committee during the October 21 meeting,
the Special Committee's belief that the $16.00 per share price was the best
offer available and the other factors described below in "SPECIAL FACTORS -- The
Special Committee's and Board's Recommendation," the Special Committee
unanimously decided to recommend the approval and adoption of the $16.00 per
share offer. Representatives of Kilpatrick Stockton, the Company, Reboul
MacMurray and WCAS VIII then held meetings during the late evening and early
morning of October 22 to resolve the remaining terms of the proposed Merger
Agreement, resulting in a Merger Agreement mutually satisfactory to WCAS VIII
and the Special Committee.
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On October 22, 1998, prior to the opening of trading on Nasdaq, the Board
met to receive the report of the Special Committee. At this meeting, Mr. Nordin,
Chairman of the Special Committee, gave the report of the Special Committee in
which the Special Committee unanimously recommended to the Board that the Board
accept the $16.00 offer and approve and adopt the Merger Agreement. At the Board
meeting, J.P. Morgan also summarized its presentation given to the Special
Committee on October 21 for the full Board, and reaffirmed its opinion that the
$16.00 per share offer was fair to the Public Shareholders from a financial
point of view. After considerable discussion, the Board, with Mr. Paul
abstaining, approved the Merger Agreement and resolved to recommend the approval
of the Merger Agreement and the Merger to the shareholders of the Company.
At the conclusion of the October 22, 1998 meeting, the Company issued a
press release announcing that based on the unanimous recommendation of the
Special Committee, the Board had approved the WCAS Investors' merger proposal
and the offer of $16.00 per share in cash.
The Special Committee's and the Board's Recommendation
The full Board formed the Special Committee, comprised of three
disinterested directors, to review and evaluate the proposed transaction because
it appeared that certain of the directors would have a financial interest in the
proposed transaction. The Special Committee unanimously recommended to the Board
that the Merger Agreement be approved and that it be recommended to the
shareholders of the Company. Following the unanimous recommendation of the
Special Committee, the Board approved the Merger Agreement and recommended that
the shareholders of the Company approve the Merger Agreement. In connection with
the foregoing, the Special Committee and the Board determined that the Merger,
the Merger Agreement and the transactions contemplated thereby were fair and in
the best interests of the Public Shareholders. In connection with their
recommendations, the Special Committee and the Board each adopted the analyses
and findings of the Special Committee's financial advisor, J.P. Morgan. See
"SPECIAL FACTORS -- Opinion of Financial Advisor." The Special Committee and the
Board recommend that the shareholders vote "For" the approval of the Merger
Agreement.
The Special Committee met on 8 occasions between October 1, 1998 and the
date of this Proxy Statement, in person or by telephone conference, to consider
developments relating to a possible sale of the Company. The Special Committee
was assisted in its deliberations by its financial advisor, J.P. Morgan, and its
legal counsel, Kilpatrick Stockton. At a meeting held on October 21, 1998, the
Special Committee determined that the Merger, the Merger Agreement and the
transactions contemplated thereby were fair and in the best interests of the
Public Shareholders of the Company and recommended that the full Board approve
the Merger Agreement. The Special Committee is unaware of any development since
its October 21, 1998 meeting that would affect its determination, and,
accordingly, the Special Committee reconfirms, as of the date of this Proxy
Statement, its determination that the Merger, the Merger Agreement and the
transactions contemplated thereby are fair and in the best interests of the
Public
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Shareholders of the Company. Based on the foregoing, the Board also reconfirms,
as of the date of this Proxy Statement, its determination that the Merger, the
Merger Agreement and the transactions contemplated thereby are fair and in the
best interests of the Public Shareholders of the Company.
The material factors the Special Committee evaluated in connection with the
Merger are described below. Except as noted below, the Special Committee
considered the following factors to be positive factors supporting its
determination that the Merger is fair and in the best interest of the Public
Shareholders. In arriving at its decision, the Special Committee gave the most
weight to:
(i) Its view that the new PPS that is coming into effect in
1998, 1999 and future years for Medicare reimbursement could cause the
Company's financial results in the near term to fluctuate
significantly, causing the value of the shares of the Company, as well
as other participants in the Company's industry, to be reduced
significantly in the public markets. Based on interviews with Company
management, a review of the Company's PPS study and discussions with
J.P. Morgan, the Special Committee believes that moving from a
cost-plus Medicare reimbursement system to PPS will require significant
re-engineering of the manner in which companies in the Company's
industry segment track reimbursable activities at the point of care in
nursing facilities. These efforts are expected to require significant
expenditures for training and information technology systems. The
participants in this industry segment are perceived by the financial
community as facing significant operating and earnings challenges in
transitioning to PPS, which is negatively affecting the market price of
the shares of these companies. Although the Company's study of the
effects of PPS predicts that PPS will ultimately be earnings neutral,
these results are dependent upon the Company achieving significant
expense reductions and are subject to significant changes from even
relatively small variances in the Company's assumptions.
(ii) Its view that the Company's acquisition strategy would be
difficult to implement as a public company due to the limited
availability of financing in the public markets at this time. The
Company has grown historically through acquisitions, and acquisitions
remain a significant component of the Company's growth strategy. The
Special Committee was advised by J.P. Morgan that the availability of
debt and equity financing in the public markets may be limited as a
result of the disruption in the capital markets, and the Company's
reduced stock price would likely make acquisitions more expensive and
dilutive to earnings. In this connection, the Special Committee
considered that the Company may be managed more effectively as a
private company not subject to pressures from public shareholders and
market professionals to maintain and grow earnings per share. The
Special Committee believes that as a private company the Company would
have greater flexibility to consider business strategies that have
long-term benefits (including acquisitions which are often dilutive in
the short term), but that
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would adversely impact earnings per share and the market price of the
Common Stock in the short term if the Company were public.
(iii) Its belief that the Merger represents a more desirable
alternative than continuing to operate the Company as a public company.
In this connection, the Special Committee gave consideration to
rejecting WCAS VIII's proposal in favor of maintaining the Company's
independence and enabling the Public Shareholders to share in the
Company's future earnings and growth potential. However, the Special
Committee believes that continuing to operate the Company as an
independent entity would subject the Company and its shareholders to
the risk of execution of the Company's acquisition strategy as
described above. After evaluating such risk (including the factors
described under items (i) and (ii) above), the Special Committee
concluded that, while the Company's business strategy could ultimately
prove successful, the risk that the Company will continue to experience
significant operating events adversely impacting the performance of the
Common Stock justifies a sale of the Company pursuant to the terms of
the Merger Agreement. The Special Committee did not consider
alternatives to the Merger, other than continuing to operate the
Company as an independent entity.
(iv) Its belief that it was unlikely another bidder would make
a definitive proposal that would result in a transaction providing
greater value to the Public Shareholders, and its conclusion that
provisions of the Merger Agreement permitting the Board, in the
exercise of its fiduciary duties, to consider competing bids, to
announce its willingness to consider such bids in a press release, and
the reasonable termination fees imposed on the Company if the Board
were to accept an alternative proposal, would facilitate any competing
bid. In addition, the Special Committee believed that the $16.00 per
share price was the highest price that could be obtained from WCAS
VIII, and considered the possibility that WCAS VIII would withdraw its
bid if its proposal was used to attempt to generate higher bids from
third parties.
(v) J.P. Morgan's oral opinion delivered to the Special
Committee on October 21, 1998, reconfirmed in writing as of October 22,
1998, that the $16.00 per share in cash to be received by the Public
Shareholders was fair to such holders from a financial point of view.
The full text of the written opinion of J.P. Morgan reaffirmed as of
the date of this Proxy Statement, which sets forth assumptions made,
matters considered and limitations on the review undertaken in
connection with its opinion, is attached hereto as Appendix B and is
incorporated herein by reference. The Special Committee and the Board
adopted the analyses and findings of J.P. Morgan in their determination
that the Merger is fair to the Public Shareholders. The Company's
shareholders are urged to and should read such opinion in its entirety.
(vi) The proposed terms and conditions of the Merger
Agreement. In particular, the Special Committee considered the fact
that the Merger Agreement does not provide for unreasonable termination
fees and expense reimbursement obligations which
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would have the effect of unreasonably discouraging competing bids and
that, subject to the satisfaction of certain conditions, the Board
would be able to withdraw or modify its recommendation to the
shareholders regarding the Merger and enter into an agreement with
respect to a more favorable transaction with a third party, if such a
transaction becomes available prior to the consummation of the Merger.
In addition, the Merger Agreement allows the Company to indicate in its
press release announcing the execution of the Merger Agreement that the
Company may respond to unsolicited proposals from alternative bidders,
and the lack of a time limit on the Board's ability to consider
alternative proposals allows the Board to effectively consider such
proposals up until the consummation of the Merger. See "THE MERGER."
(vii) The condition in the Merger Agreement that the Merger be
approved by a majority of the shares voted at the Special Meeting held
by Non-Affiliated Shareholders. Under the terms of the Merger
Agreement, the Merger must be approved by both a majority of the
outstanding shares of Common Stock and a majority of the shares voted
at the Special Meeting by Non-Affiliated Shareholders. The Special
Committee believed the approval by a majority of the shares voted at
the Special Meeting by Non-Affiliated Shareholders, which is not
required under applicable law, was an important safeguard in light of
the significant percentage of shares held by the members of the
Investor Group and their respective affiliates.
(viii) The market price of the Common Stock, which Common
Stock on October 15, 1998, one week prior to the announcement of the
Merger, had closed at $7.875 per share, and the premium over such price
(as well as over the $8.50 closing per share market price on October
21, 1998) represented by the $16.00 per share to be received by the
Public Shareholders in the Merger. In addition, the Special Committee
considered J.P. Morgan's analyses of the premiums paid in comparable
merger transactions, which indicated that the average premiums paid
over the target stock prices one week prior to the announcement date
was 36%.
(ix) The financial ability and obligation of the Acquiror to
consummate the Merger. The Merger Agreement does not condition the
Acquiror's obligations to consummate the Merger on the Acquiror's
ability to obtain financing for the Merger. The WCAS Investors have
provided to the Company a commitment letter dated October 22, 1998,
from WCAS VIII and WCAS CP III pursuant to which such parties have
committed, subject only to the terms and conditions of the Merger
Agreement, to provide the Acquiror with up to an aggregate of $210
million of financing and to ensure the performance of the Acquiror
under the Merger Agreement.
(x) The ability of shareholders who may not support the Merger
to obtain "fair value" for their shares if they properly perfect and
exercise their appraisal rights under Georgia law. The Special
Committee felt that it was important that Georgia law provides
shareholders with the opportunity to exercise appraisal rights and to
seek a determination
19
<PAGE>
in court of the fair value of their shares if they are dissatisfied
with the consideration offered in the Merger.
(xi) A potentially negative factor was the actual or potential
conflicts of interest to which certain officers and directors of the
Company and their affiliates are subject in connection with the Merger,
as follows:
o The Special Committee considered that members of the
Management Group will own shares of Parent Common Stock,
representing approximately 5.4% of the Parent's and that
Parent will grant options to certain members of management and
other key employees shares of common stock representing an
aggregate of 12% of Parent's fully diluted equity. The Special
Committee further considered that certain of the Management
Investors will enter into employment agreements with the
Surviving Corporation amending their existing employment
agreements with the Company, and that such employment
agreements will provide for the payment to them of base
salaries, possible annual cash bonuses and potential severance
benefits.
o The Special Committee considered that the WCAS Investors
have given each member of the Management Group an opportunity
to roll over a substantial portion of his or her equity
investment in the Company into an investment in the Parent.
The Special Committee considered that the rollover of a
substantial portion of the member's current equity investment
in the Company would indicate a level of confidence in the
Company's prospects that might be inconsistent with the
Special Committee's assessment of the risks associated with
the Company's future.
In view of the variety of factors considered in connection with its
evaluation of the Merger Agreement, the Special Committee found it impracticable
to, and did not, quantify, rank or otherwise assign relative weights to the
factors considered or determine that any factor was of particular importance in
reaching its determination that the Merger is fair to, and in the best interests
of, the Public Shareholders. Rather, the Special Committee viewed its
recommendations as being based upon its judgment, in light of the totality of
the information presented and considered, of the overall effect of the Merger on
the Public Shareholders compared to any alternative transaction and the likely
effect of rejecting the Merger proposal.
The Special Committee noted that approximately 35% of the outstanding
shares of Common Stock are held by persons who have expressed their intention or
agreed in writing to vote their shares of Common Stock in favor of the Merger,
including members of the Investor Group and other executive officers of
Centennial. The Special Committee also considered that the obligation
20
<PAGE>
of the Company to consummate the Merger is conditioned upon the favorable vote
of a majority of the shares held by Non-Affiliated Shareholders voting at the
Special Meeting.
The Special Committee believes that the procedure that was followed in
determining the purchase price to be paid to the shareholders of the Company was
fair to the Public Shareholders. As described above, the eight person Board (a
majority of whom are members of the Management Group or affiliated with the WCAS
Investors) appointed as the only members of the Special Committee three
non-employee directors who were independent of the Management Group and the WCAS
Investors and granted the Special Committee exclusive authority on behalf of the
Board to review, evaluate and negotiate the transaction proposed by management.
The Merger Agreement negotiated by the Special Committee contains provisions
that would enable the Board to withdraw or modify its recommendation to the
shareholders regarding the Merger and to enter into an agreement with respect to
a more favorable transaction with a third party, and contains provisions
(without which the Special Committee believes the WCAS Investors would not have
entered into the Merger Agreement) imposing upon the Company termination fee and
expense reimbursement obligations that, in the view of the Special Committee,
are reasonable and would not have the effect of unreasonably discouraging
competing bids. Further, the shareholders of the Company may dissent from the
Merger and be paid cash for the "fair value" of their shares as determined in
accordance with Georgia law. In addition, the Merger is structured to require
both the approval of a majority of the outstanding shares of Common Stock and
approval of a majority of the shares held by Non-Affiliated Shareholders voting
at the Special Meeting, and the Special Committee believes, as of the date of
this Proxy Statement and for this and the reasons set forth above, that the
Merger is procedurally fair to the Public Shareholders.
In considering the fairness of the Merger, the Special Committee and the
Board did not consider such factors as the Company's net book value or
liquidation value, which are not believed to be indicative of the value of the
Company as a going concern. The Company's tangible net book value per share and
net book value per share as of September 30, 1998 were $6.15 and $9.66,
respectively, both substantially below the $16.00 purchase price per share of
Common Stock to be paid by the Acquiror in the Merger. The Special Committee
further believes the Company's liquidation value, which takes into account the
appreciated value of the Company's assets, also would be substantially below
$16.00 per share.
Based on the foregoing, the Special Committee unanimously determined that
the Merger, the Merger Agreement and the transactions contemplated thereby were
fair and in the best interests of the Public Shareholders and recommended to the
Board approval of the Merger Agreement and that it be recommended to the
shareholders of the Company. The Board with only Mr. Paul abstaining, approved
the Merger on October 22, 1998 and has reconfirmed as of the date of this Proxy
Statement, that the Merger is fair and in the best interests of the Public
Shareholders.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS APPROVE THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREIN.
21
<PAGE>
Opinion of Financial Advisor
Pursuant to an engagement letter dated October 12, 1998, the Special
Committee retained J.P. Morgan to act as its financial advisor in connection
with the consideration of the possible acquisition by the Acquiror and to render
to the Special Committee an opinion with respect to the fairness, from a
financial point of view, to the Company's Public Shareholders of the Cash Merger
Consideration to be received in the Merger.
At the meeting of the Special Committee on October 21, 1998, J.P. Morgan
rendered its oral opinion to the Special Committee that, as of such date, the
Cash Merger Consideration to be paid to the Public Shareholders in the proposed
Merger was fair, from a financial point of view, to such shareholders. J.P.
Morgan confirmed its October 21, 1998 oral opinion by delivering its written
opinions, dated as of October 22, 1998 and the date of this Proxy Statement, to
the Special Committee to the same effect. No limitations were imposed by the
Special Committee upon J.P. Morgan with respect to the investigations made or
procedures followed by it in rendering its opinions.
The full text of the written opinion of J.P. Morgan dated as of the date of
this Proxy Statement, which sets forth the assumptions made, matters considered
and limits on the review undertaken, is attached as Appendix B to this Proxy
Statement and is incorporated herein by reference. The Company's shareholders
are urged to read the opinion in its entirety. J.P. Morgan's written opinion is
addressed to the Special Committee, is directed only to the Cash Merger
Consideration to be paid to the Public Shareholders and does not constitute a
recommendation to any shareholder of the Company as to how such shareholder
should vote at the Special Meeting. The summary of the opinion of J.P. Morgan
set forth in this Proxy Statement is qualified in its entirety by reference to
the full text of such opinion.
In arriving at its opinions, J.P. Morgan reviewed, among other things, the
Merger Agreement and, in the case of its opinion dated as of the date of this
Proxy Statement, this Proxy Statement; the audited financial statements of the
Company for the fiscal year ended December 31, 1997, and the unaudited financial
statements of the Company for the periods ended March 31 and June 30, 1998 and,
in the case of its opinion dated as of the date of this Proxy Statement, the
unaudited financial statements of the Company for the period ended September 30,
1998; current and historical market prices of the Company's common stock;
certain publicly available information concerning other companies engaged in
businesses comparable to those of the Company, and the reported market prices
for certain other companies' securities deemed comparable; publicly available
terms of certain transactions involving companies comparable to the Company and
the consideration paid for such companies; the terms of other business
combinations deemed relevant by J.P. Morgan; certain internal financial analyses
and forecasts prepared by the Company and its management; and certain agreements
with respect to outstanding indebtedness or obligations of the Company. J.P.
Morgan also held discussions with certain members of the management of the
Company with respect to certain aspects of the Merger, the past and current
operations of the Company, the financial condition and future prospects and
operations of the
22
<PAGE>
Company, and certain other matters believed necessary or appropriate to J.P.
Morgan's inquiry. In addition, J.P. Morgan visited certain representative
facilities of the Company, and reviewed such other financial studies and
analyses and considered such other information as it deemed appropriate for the
purposes of its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by the Company or otherwise reviewed by J.P. Morgan, and
J.P. Morgan has not assumed any responsibility or liability therefor. J.P.
Morgan has not conducted any valuation or appraisal of any assets or
liabilities, nor have any valuations or appraisals been provided to J.P. Morgan.
In relying on financial analyses and forecasts provided to J.P. Morgan, J.P.
Morgan has assumed that they have been reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments by management as
to the expected future results of operations and financial condition of the
Company to which such analyses or forecasts relate. J.P. Morgan has also assumed
that the Merger will have the tax consequences described in this Proxy Statement
and in discussions with, and materials furnished to J.P. Morgan by,
representatives of the Company, and that the other transactions contemplated by
the Merger Agreement will be consummated as described in the Merger Agreement
and this Proxy Statement.
The Company Projections furnished to J.P. Morgan for the Company were
prepared by the management of the Company. The Company does not publicly
disclose internal management projections of the type provided to J.P. Morgan in
connection with J.P. Morgan's analysis of the Merger, and such projections were
not prepared with a view toward public disclosure. The Company Projections were
based on numerous variables and assumptions that are inherently uncertain and
may be beyond the control of management, including, without limitation, factors
related to general economic and competitive conditions and prevailing interest
rates. Accordingly, actual results could vary significantly from those set forth
in such projections. See "Company Projections."
J.P. Morgan's opinions are based on economic, market and other conditions
as in effect on, and the information made available to J.P. Morgan as of, the
date of such opinions. Subsequent developments may affect the written opinion
dated as of the date of this Proxy Statement and J.P. Morgan does not have any
obligation to update, revise, or reaffirm such opinion. J.P. Morgan expressed no
opinions as to the price at which the Company's common stock will trade at any
future time.
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses utilized by J.P.
Morgan in connection with providing its opinion:
Public Trading Multiples. Using publicly available information, J.P. Morgan
compared selected financial data of the Company with similar data for selected
publicly traded companies engaged in businesses which J.P. Morgan judged to be
analogous to the Company. The
23
<PAGE>
companies selected by J.P. Morgan were Beverly Enterprises, Extendicare
Services, Genesis Health Ventures, Integrated Health Services, Mariner
Post-Acute Network, and Sun Healthcare group. These companies were selected,
among other reasons, because they are in the same line of business and are of
substantially similar quality as the Company. For each comparable company,
publicly available financial performance for the quarter ended closest to June
30, 1998 was measured and then converted to an annualized basis. J.P. Morgan
selected the mean and the median values for each multiple, specifically: firm
value to last-quarter annualized (LQA) Earnings before interest taxes
depreciation, amortization and rent (EBITDAR) and Earnings before interest taxes
depreciation and amortization (EBITDA), and equity value to 1998 and 1999
projected earnings. These multiples were then applied to the Company's firm
value and equity value respectively, yielding a range of implied trading values
for the Common Stock of approximately $8.50 to $12.00 per share.
Discounted Cash Flow Analysis. J.P. Morgan conducted a discounted cash flow
analysis for the purpose of determining the fully diluted equity value per share
for the Common Stock. J.P. Morgan calculated the unlevered free cash flows that
the Company is expected to generate during fiscal years 1999 through 2003 based
on the Company Projections and a sensitivity case adjusted by J.P. Morgan to
reflect more moderate growth in revenues as a result of lower adjusted
acquisition capital expenditures. J.P. Morgan also calculated a range of
terminal values of the Company at the end of the five year period ending 2003 by
applying exit EBITDA multiples ranging from 5.0 to 7.0. The unlevered free cash
flows and the range of terminal EBITDA values were then discounted to present
values using a range of discount rates from 10 % to 13%, which were chosen by
J.P. Morgan based upon an analysis of the weighted average cost of capital of
the Company. The present value of the unlevered free cash flows and the range of
terminal asset values were then adjusted for the Company's estimated June 30,
1998 excess cash, option exercise proceeds and total debt. Based on the
management's projections and adjusted management projections and discount rate
and EBITDA multiple sensitivities, the discounted cash flow analysis indicated a
range of equity values of between $12.00 and $18.00 per share of the Common
Stock on a stand-alone basis (i.e., without synergies).
Selected Transaction Analysis. Using publicly available information, J.P.
Morgan examined selected transactions with respect to precedent long-term care
industry acquisitions as well as going private transactions. Specifically, J.P.
Morgan reviewed the following transactions: Investcorp's acquisition of
Haborside Healthcare, Fountain View's acquisition of Summit Care Corporation,
Sun Healthcare Group's acquisition of Regency Health Services as well as the
Grancare-Living Centers of America transaction. Although a significant
datapoint, the value of these transactions in an evaluation of the Company
diminished because they were announced prior to the long-term-care sector market
correction which took place beginning July 1998. J.P. Morgan applied a range of
multiples derived from such analysis to the Company's revenue, EBITDAR and
earnings, and arrived at an estimated range of equity values for the Common
Stock of between $20.00 and $23.00 per share.
24
<PAGE>
The summary set forth above does not purport to be a complete description
of the analyses or data presented by J.P. Morgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. J.P. Morgan believes that the summary set forth
above and their analyses must be considered as a whole and that selecting
portions thereof, without considering all of its analyses, could create an
incomplete view of the processes underlying its analyses and opinion. J.P.
Morgan based its analyses on assumptions that it deemed reasonable, including
assumptions concerning general business and economic conditions and
industry-specific factors. The other principal assumptions upon which J.P.
Morgan based its analyses are set forth above under the description of each such
analysis. J.P. Morgan's analyses are not necessarily indicative of actual values
or actual future results that might be achieved, which values may be higher or
lower than those indicated. Moreover, J.P. Morgan's analyses are not and do not
purport to be appraisals or otherwise reflective of the prices at which
businesses actually could be bought or sold.
As a part of its investment banking business, J.P. Morgan and its
affiliates are continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, investments for passive
and control purposes, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements, and valuations for estate,
corporate and other purposes. J.P. Morgan was selected to advise the Special
Committee and deliver a fairness opinion with respect to the Merger on the basis
of such experience.
For services rendered in connection with the Merger and the delivery of its
opinion, the Company paid J.P. Morgan a fee of $500,000 upon execution of its
engagement letter, dated October 12, 1998, and a fee of $1,500,000 upon the
delivery of its opinion. In addition, the Company has agreed to reimburse J.P.
Morgan for its expenses incurred in connection with its services, including the
fees and disbursements of counsel (such expenses not to exceed $50,000 without
the Company's written consent), and will indemnify J.P. Morgan against certain
liabilities, including liabilities arising under the Federal securities laws.
J.P. Morgan has not provided other services to the Company prior to its
services in connection with the Merger. J.P. Morgan and its affiliates maintain
banking and other business relationships with WCAS and its affiliates, and have
advised, financed and undertaken capital markets transactions with such
entities, for which it receives customary fees. In 1997, J.P. Morgan served as
the dealer manager in connection with the acquisition of Control Data Systems,
Inc. by WCAS CP III, and other private investment partnerships affiliated with
certain of the WCAS Investors. J.P. Morgan has not acted as an advisor to the
Company. In the ordinary course of their businesses, affiliates of J.P. Morgan
may actively trade the debt and equity securities of the Company for their own
accounts or for the accounts of customers and, accordingly, they may at any time
hold long or short positions in such securities.
25
<PAGE>
Purpose and Reasons of the Investor Group for the Merger
The purpose of the Investor Group for engaging in the transactions
contemplated by the Merger Agreement is to acquire 100% ownership of the
Company. The Investor Group believes that as a private company Centennial will
have greater operating flexibility to focus on enhancing value by emphasizing
growth (both internally and through acquisitions) and operating cash flow
without the constraint of the public market's emphasis on quarterly earnings.
This assessment by the Investor Group is based upon publicly available
information regarding the Company, the Investor Group's due diligence
investigation of the Company and the Investor Group's experience in investing in
companies in the healthcare industry. While the Investor Group believes that
there will be significant opportunities associated with its investment in the
Company, there are also substantial risks that such opportunities may not be
fully realized.
As a result of the Merger, WCAS VIII will acquire, for a cash investment
of $117.8 million, approximately 78% of the equity interests in the Parent;
WCAS CP III will acquire, for a cash investment of $125 million, 11.8% of the
equity interests in the Parent, $25 million principal amount of subordinated
notes of the Parent and $100 million principal amount of subordinated notes
of the Acquiror; the Management Investors will acquire, for an investment of
$8.1 million, approximately 5.4% of the equity interests in the Parent; and
the WCAS Investors (other than WCAS VIII and WCAS CP III) will acquire, for
an investment of $7.2 million, approximately 4.8% of the equity interests in
the Parent. The investment in Parent Common Stock by the Management
Investors, as well as all or a portion of the investment in Parent Common
Stock by Healthcare Partners, Mr. Paul and certain of the other WCAS
Investors, will result from their contribution of Common Stock to the Parent.
Certain members of the Investor Group will also receive the Cash Merger
Consideration for the remainder of their investment in the Company on the
same terms as the other shareholders and will receive a cash payment for the
aggregate unrealized value of their outstanding stock options. In addition,
certain members of the Management Investors will have amended and restated
employment agreements with the Surviving Corporation and the Parent. After
consummation of the Merger certain of these individuals, as well as other key
employees, will receive fees and bonuses of approximately $2.0 million.
WCAS VI and WCAS CP II hold 2,520,193 and 246,896 shares of Common Stock,
respectively, or approximately 21.1% and 2.1% of the outstanding shares of
Common Stock, respectively, and will receive $40,323,088 and $3,950,336,
respectively, for such shares in connection with the Merger. Mr. Paul, a
director of the Company, and certain of the other WCAS Investors are general
partners of the sole general partner of WCAS VI and WCAS CP II.
26
<PAGE>
Position of the Investor Group as to Fairness of the Merger
Each member of the Investor Group has considered the analyses and findings
of the Special Committee and the Board (described in detail in "SPECIAL FACTORS
- -- The Special Committee's and the Board's Recommendation") with respect to the
fairness of the Merger to the Public Shareholders of the Company. As of the date
of this Proxy Statement, each member of the Investor Group adopts the analyses
and findings of the Special Committee and the Board with respect to the fairness
of the Merger and believes that the Merger, the Merger Agreement and the
transactions contemplated thereby are fair to and in the best interests of the
Company's Public Shareholders; provided that no opinion is expressed as to the
fairness to any shareholder making an investment in the Parent. None of the
Investor Group makes any recommendation as to how the Company's shareholders
should vote on the Merger Agreement. Certain of the WCAS Investors and the
Management Investors have financial interests in the Merger and the certain
members of the Management Investors have financial and employment interests in
the Merger. See "SPECIAL FACTORS -- Conflicts of Interest."
Conflicts of Interest
In considering the recommendations of the Board with respect to the
Merger, shareholders should be aware that certain officers and directors of
Centennial, as well as certain investors in Centennial, have interests in
connection with the Merger which may present them with actual or potential
conflicts of interest as summarized below. The Special Committee and the
Board were aware of these interests and considered them among the other
matters described under " SPECIAL FACTORS -- The Special Committee's and the
Board's Recommendation." The Special Committee considered the Management
Investors' conflicts of interest to be a negative factor in its determination
that the Merger is fair to and in the best interests of the Public
Shareholders, even though the approximately $2.0 million in fees and bonuses
to be allocated among certain of the members of the Management Investors (and
other key employees) are intended to provide consideration for their agreement
to continue employment with the Company and to extend noncompete periods.
WCAS VI and WCAS CP II hold 2,520,193 and 246,896 shares of Common Stock,
respectively, or approximately 21.1% and 2.1% of the outstanding shares of
Common Stock, respectively, and will receive $40,323,088 and $3,950,336 for such
shares in connection with the Merger. Mr. Paul, a director of the Company, and
certain of the other WCAS Investors are general partners of the sole general
partner of WCAS VI and WCAS CP II. In addition, the Company will pay WCA
Management Corporation, an affiliate of the WCAS Investors, a $3.0 million fee
for services rendered in connection with the financing of the Merger and related
transactions.
Shareholders Agreement. On October 22, 1998, the Parent, the Acquiror, WCAS
VI and Messrs. Eaton, Dahl, Fosha and Lepley entered into a shareholders
agreement (the "Shareholders Agreement") which provides, among other things,
that WCAS VI and each of Messrs. Eaton, Dahl, Fosha and Lepley will vote their
shares of Common Stock (i) in favor of adoption and
27
<PAGE>
approval of the Merger Agreement and the Merger and the approval of the terms
thereof and each of the other actions contemplated by the Merger Agreement and
(ii) except as otherwise agreed to in writing in advance by the Parent, against
(other than the Merger and the transactions contemplated by the Merger
Agreement): (a) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
subsidiaries; (b) any sale, lease or transfer of a material amount of the assets
of the Company or its subsidiaries, or a reorganization, recapitalization,
dissolution or liquidation of the Company or its subsidiaries; (c)(1) any change
in a majority of the Board; (2) any material amendment of the Company's Amended
and Restated Articles of Incorporation or Amended and Restated Bylaws, or (3)
any other action involving the Company or its subsidiaries that has the effect
of impeding, interfering with, delaying, postponing, or impairing the ability of
the Company to consummate the Merger or the transactions contemplated by the
Merger Agreement. Pursuant to the Shareholders Agreement, WCAS VI and each of
Messrs. Eaton, Dahl, Fosha and Lepley agreed not to enter into any agreement or
understanding with any person or entity prior to the termination of the
Shareholders Agreement to vote in any manner inconsistent therewith.
Pursuant to the Shareholders Agreement, each of Messrs. Eaton, Dahl, Fosha
and Lepley agreed that while the Merger Agreement is in effect, and except as
contemplated by the Shareholders Agreement, not to (i) sell, transfer, pledge,
encumber, assign or otherwise dispose of or enter into any contract, option or
other arrangement with respect to or consent to the offer for sale, sale,
transfer, pledge, encumbrance, assignment or other disposition of, any of its
shares of Common Stock, or any interest therein, except to the Parent; (ii)
grant any proxies or powers of attorney, deposit any shares of Common Stock into
a voting trust or enter into a voting agreement with any entity other than the
Parent or the Acquiror; or (iii) take any action that would make any
representation or warranty of such person contained in the Shareholders
Agreement untrue or incorrect or have the effect of preventing or disabling
Messrs. Eaton, Dahl, Fosha or Lepley from performing such person's obligations
under the Shareholders Agreement. The Shareholders' Agreement terminates, and no
party shall have any rights or obligations thereunder upon the earliest of the
effective time of the Merger or termination of the Merger Agreement
28
<PAGE>
Post-Merger Ownership and Control of the Parent. It is anticipated that
immediately after the Merger the following individuals and entities will
beneficially own the number of shares of Parent Common Stock shown in the
following table.
<TABLE>
<CAPTION>
Number of Shares of Percentage of Parent
Name of Parent Common Stock Common Stock
Beneficial Owner Beneficially Owned Beneficially Owned
---------------- ------------------ ------------------
<S> <C> <C>
J. Stephen Eaton 3,436,192 4.6%
Alan C. Dahl 237,968 *
Kent C. Fosha, Sr. 63,760 *
Lawrence W. Lepley 332,896 *
WCAS VIII 58,900,000 78%
WCAS CP III 8,928,571 11.8%
Andrew M. Paul (1) 312,477 *
Healthcare Partners 500,000 *
WCAS Investors (2) 2,787,523 3.7%
*Less than 1%
</TABLE>
(1) Excludes shares of Parent Common Stock owned by WCAS VIII, WCAS CP III
and Healthcare Partners which may be deemed to be beneficially owned by the
respective general partners of the general partners of WCAS who are WCAS
Investors, including Mr. Paul, as a result of being indirect general partners of
such entities.
(2) Excludes shares of Parent Common Stock owned by WCAS VIII, WCAS CP
III, Healthcare Partners and Mr. Paul.
Following consummation of the Merger, the executive officers of Centennial
will continue as the executive officers of the Parent and the Surviving
Corporation, and Messrs. Eaton, Dahl, Paul, Sorrel, and Mackesy will serve on
the Board of Directors of the Parent and the Surviving Corporation.
The Management Investors. After consummation of the Merger, each member of
the Management Investors will own shares of Parent Common Stock and/or vested
options to purchase shares of Parent Common Stock (representing approximately
7.3% of such shares expected to be then issued and outstanding assuming exercise
of all options then outstanding). Shares of Common Stock held by the Management
Investors that are not exchanged for Parent Common Stock will be converted into
the right to receive the same Cash Merger Consideration as shares of Common
Stock held by other shareholders of the Company.
29
<PAGE>
At the closing of the Merger, all outstanding options to purchase Common
Stock shall have vested and will be cashed out in accordance with the terms of
the Merger Agreement. All options that are not exercised will be canceled in
accordance with the terms of the Merger Agreement. See "THE MERGER -- Stock
Options." As of October 22, 1998, there were options outstanding to purchase an
aggregate of 925,580 shares of Common Stock at a weighted average exercise price
of $17.00 per share, of which 274,409 have an exercise price per share of less
than $16.00.
The following table sets forth information as of the date of this Proxy
Statement as to the shares of Common Stock and the options to purchase shares of
Common Stock held by the Investor Group, WCAS VI and WCAS CP II for which Cash
Merger Consideration will be received upon consummation of the Merger.
<TABLE>
<CAPTION>
Amount of
Cash to be
Shares Not Received for Amount of Cash to
Contributed to Shares Not be Received for
Investor Group Parent Contributed Options Terminated
-------------- ------ ----------- ------------------
<S> <C> <C> <C>
J. Stephen Eaton 685,847 $10,973,552 $226,448
Alan C. Dahl 29,746 475,938 75,483
Kent C. Fosha, Sr. 0 0 169,397
Lawrence W. Lepley, Jr. 41,612 665,794 45,834
Andrew M. Paul 0 0 0
Welsh, Carson, Anderson & Stowe VI, 2,520,193 40,323,088 0
L.P.
WCAS Capital Partners II, L.P. 246,896 3,950,336 0
WCAS Healthcare Partners, L.P. 18,884 302,144 0
</TABLE>
Initial Management Ownership. Pursuant to the Shareholders Agreement, at
the effective date of the Merger, (i) the Management Investors will exchange
508,852 shares of Common Stock owned by them for shares of Parent Common Stock;
(ii) the Parent will grant to the Management Investors and other members of
management and certain other key employees options (the "New Options") to
purchase Parent Common Stock representing approximately 12% of the fully diluted
Parent Common Stock which will be granted as either "Time Vesting Options" or
"Performance Vesting Options" as described below; and (iii) the Management Group
and certain other key employees will be given the opportunity to purchase
additional shares of the Parent Common Stock. The Parent will also reserve
options to purchase Parent Common Stock representing approximately 1% of the
fully diluted Parent Common Stock for future key employees of the Parent and/or
Surviving Corporation. The purchase price and option exercise price for shares
of Parent Common Stock granted to existing employees of the Company will be
$2.00 per share. Shares of Common Stock exchanged will be valued at the Cash
Merger Consideration for purposes of the exchange.
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Exercisability of Options. Time Vesting Options will be granted at the
effective time of the Merger representing approximately 7.2% of the fully
diluted Parent Common Stock, of which one-third will be immediately exercisable
and two-thirds will vest in installments of 25% on each of the first through
fourth anniversaries of the effective time of the Merger. Performance Vesting
Options will be granted at the effective time of the Merger representing
approximately 4.8% of the fully diluted Parent Common Stock, and will be
exercisable at any time after the eighth anniversary of the date of grant,
subject to (i) acceleration upon certain liquidity events if certain performance
targets based on the return on WCAS VIII's equity investment are met and (ii) a
potential restructuring if a public offering of Parent Common Stock occurs
before the fourth anniversary of the date of grant.
No determination has yet been made as to the specific number of New Options
to be granted to any individual. Mr. Eaton, in consultation with WCAS VIII, will
determine the recipients of grants of New Options.
Amended and Restated Employment Agreements with the Management Investors.
Upon consummation of the Merger, the existing employment agreements with Messrs.
Eaton, Dahl, Fosha and Lepley will be amended and restated. The principal terms
of the amended employment agreements are the same as the existing agreements
except as summarized below:
o each agreement will provide for two-year rolling severance and
noncompete periods;
o the agreements with Messrs. Eaton, Dahl and Fosha will add the Parent
as a party and provide that employees will have the same title, duties
and responsibilities with the Parent that such employees have with the
Company; and
o Mr. Eaton's employment agreement will be amended to provide that if
following a Change of Control (as defined in the agreement) he is not
offered the opportunity to continue as Chief Executive Officer of the
Parent, and the Parent's Board of Directors determines that the value
of the Parent has reached an agreed upon target, the Parent will, at
Mr. Eaton's request (but subject to obtaining all consents required
under its loan agreements), repurchase up to 50% of the shares of
Parent's Common Stock acquired by Mr. Eaton at fair market value,
unless the Parent is a public company at the time of such Change of
Control, subject to certain liquidity criteria.
Messrs. Eaton, Dahl, Fosha and Lepley will be entitled to an aggregate
payment of approximately $2.0 million for agreeing to amend the employment
agreement, to extend a covenant not to compete and for continuing employment.
The amounts of such payments to be received either immediately after or
beginning within the two month
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period following consummation of the Merger will be allocated $1.4 million to
Mr. Eaton with the remainder allocated to other key employees including
Messrs. Dahl, Fosha and Lepley.
Indemnification and Insurance. The Merger Agreement requires Centennial to
provide indemnification, to the full extent permitted by applicable law, to its
current and former officers and directors (including members of the Special
Committee) against liabilities (including reasonable attorneys' fees) relating
to actions or omissions arising out of their being a director, officer, employee
or agent of the Company at or prior to the closing of the Merger (including the
transactions contemplated by the Merger Agreement). In addition, Centennial is
obligated for a period of six years from the closing of the Merger to continue
in effect directors' and officers' liability insurance with respect to matters
occurring prior to the closing of the Merger, which insurance must contain terms
and conditions no less advantageous than are contained in the Company's current
directors' and officers' liability insurance policy; provided that the Company
is not obligated to expend annually more than 200% of the current cost of such
coverage.
WCAS Affiliate Director. Andrew M. Paul, a director of the Company and a
general partner or managing member of the general partner of each of WCAS VI,
WCAS CP II, Healthcare Partners, WCAS VIII and WCAS CP III, owns 12,707 shares
of Common Stock. Mr. Paul intends to contribute 12,707 shares to the Parent in
return for shares of Parent Common Stock and will not receive the Cash Merger
Consideration for his 12,707 shares of Common Stock. Mr. Paul also intends to
purchase an additional 210,821 shares of Parent Common Stock for cash prior to
the Merger. See "SPECIAL FACTORS - Conflicts of Interest."
Other Members of the Board. Robert Ortenzio, a member of the Board, is
the residual beneficiary of a trust which is a limited partner of WCAS VI.
James B. Hoover, a member of the Board, is a former general partner and
current limited partner of the sole general partner of WCAS VI and WCAS VII
and a general partner of the respective sole general partners of WCAS CP II
and WCAS V.
Payments to Investment Advisor to WCAS. Upon consummation of the Merger,
Centennial will pay a financial advisory fee to WCA Management Corporation of $3
million for services rendered in connection with the financing of the Merger and
related transactions.
Special Committee. The Special Committee met 8 times from October 1, 1998
through the date of this Proxy Statement and each member received compensation
of $1,000 for each meeting attended and reimbursement of out-of-pocket expenses
under Centennial's policy for payment of director's fees and expenses. Members
of the Special Committee will be entitled to certain indemnification rights
granted under the Merger Agreement to the current and former officers and
directors of the Company. Under the terms of the Merger Agreement, the options
held by the members of the Special Committee will be terminated and each holder
thereof will receive an amount in cash equal to the aggregate unrealized gain on
such options on the same basis as other holders of Centennial stock options.
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Mr. Nordin has options to acquire 12,415 shares of Common Stock, Mr. Miller
has options to acquire 10,345 shares of Common Stock and Mr. Nash has options to
acquire 10,345 shares of Common Stock. Upon consummation of the Merger, the
members of the Special Committee will receive the following cash payments: Mr.
Nordin will not receive any consideration for the aggregate unrealized gain on
his stock options and will receive $75,000 for his service as Chairman of the
Special Committee, as well as $15,066 for meetings attended and expenses
reimbursed, for a total cash payment of $90,066. Mr. Miller will receive $75,631
for the aggregate unrealized gain on his stock options, as well as $9,612 for
meetings attended and expenses reimbursed, for a total cash payment of $85,243.
Mr. Nash will receive $75,631 for the aggregate unrealized gain on his stock
options, as well as $9,000 for meetings attended and expenses reimbursed, for a
total cash payment of $84,631.
Mr. Nordin is a limited partner of WCAS Information Partners, L.P., private
investment partnership affiliated with certain of the WCAS Investors.
Certain Effects of the Merger
As a result of the Merger, the entire equity interest in the Company will
be owned by the Investor Group through their ownership of Parent Common Stock.
The Public Shareholders will no longer have any interest in, and will not be
shareholders of, Centennial, and therefore will not participate in Centennial's
future earnings and potential growth. Instead, the Public Shareholders will have
the right to receive $16.00 in cash, without interest, for each share held
(other than shares in respect of which appraisal rights have been perfected). An
equity investment in the Company following the Merger involves substantial risk
resulting from the limited liquidity of any such investment and the leverage
resulting from the future borrowings that will be required to purchase the
Common Stock from the Public Shareholders and to fund the capital expenditures
and acquisitions necessary to execute the Company's business strategy.
Nonetheless, if the Company successfully executes its business strategy, the
value of such an equity investment could be considerably greater than the
original cost thereof. See "SPECIAL FACTORS -- Conflicts of Interest" and
"CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION."
In addition, the Common Stock will no longer be traded on Nasdaq and price
quotations for sales of shares in the public market will no longer be available.
The registration of the Common Stock under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") will terminate and the Company will no longer
file periodic or annual reports.
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Financing of the Merger
It is estimated that approximately $204 million will be required to
consummate the Merger and pay related fees and expenses. The Merger is not
subject to a financing contingency, and WCAS VIII and WCAS CP III have committed
to make cash investments of up to an aggregate of $210 million for such purpose.
See "Special Committee's and the Board's Recommendation". It is currently
anticipated that the total investment of the WCAS Investors will be $250
million, of which $125 million will be for Parent Common Stock and $125 million
will be for an aggregate $125 million principal amount of subordinated debt of
the Parent and the Acquiror ($25 million and $100 million, respectively) and
8,928,571 shares of Parent Common Stock. The subordinated notes will be
unsecured obligations, will mature on the tenth anniversary of issuance and will
bear interest at 10% per annum, payable quarterly.
The Company and the WCAS Investors are currently engaged in negotiations
with respect to the refinancing of the Company's existing senior indebtedness
and leasing arrangements. There are currently no commitments for such
refinancing, however, it is contemplated that a group of banks, for which
NationsBank, N.A. would act as administrative agent, will provide up to $300
million of senior secured bank financing with Centennial as borrower and its
material subsidiaries as guarantors. These facilities are expected to take the
form of (i) a $50 million revolving credit facility, (ii) a $125 million lease
financing facility and (iii) a $125 million delayed draw term loan facility.
Conduct of Centennial's Business After the Merger
The Investor Group is continuing to evaluate Centennial's business,
practices, operations, properties, corporate structure, capitalization,
management and personnel to determine what changes, if any, will be desirable.
Subject to the foregoing, the Investor Group expects that after the Merger the
day-to-day business and operations of Centennial will be conducted substantially
as they are currently being conducted by Centennial. The Investor Group does not
currently intend to dispose of any assets of Centennial other than in the
ordinary course of business. Additionally, the Investor Group does not currently
contemplate any material change in the composition of Centennial's current
management, although after the Merger, the Board will consist of Messrs. Eaton,
Dahl, Paul, Sorrel and Mackesy.
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THE SPECIAL MEETING
Date, Time and Place of the Special Meeting
The Special Meeting will be held on _________, 1998, at 10:00 a.m., local
time, at
-----
Proxy Solicitation
Your proxy is being solicited by the Company pursuant to this Proxy
Statement. All expenses incurred in connection with solicitation of the enclosed
proxy will be paid by the Company. Officers, directors and regular employees of
the Company, who will receive no additional compensation for their services, may
solicit proxies by telephone or personal call. In addition, the Company has
retained Georgeson & Company to solicit proxies for a fee of $10,000 plus
expenses. The Company has requested brokers and nominees who hold stock in their
names to furnish this proxy material to their customers and the Company will
reimburse such brokers and nominees for their related out-of-pocket expenses.
This Proxy Statement and the accompanying proxy card are being mailed to
shareholders on or about ___________, 1998.
Record Date and Quorum Requirement
The Common Stock is the only outstanding voting security of the Company. The
Board has fixed the close of business on _______, 1998 as the Record Date for
the determination of shareholders entitled to notice of, and to vote at, the
Special Meeting and any adjournment or adjournments thereof. Each holder of
record of Common Stock at the close of business on the Record Date is entitled
to one vote for each share then held on each matter submitted to a vote of
shareholders. At the close of business on the Record Date, there were _______
shares of Common Stock issued and outstanding held by ______ holders of record
and by approximately ______ persons or entities holding in nominee name.
The holders of a majority of the outstanding shares entitled to vote at the
Special Meeting must be present in person or represented by proxy to constitute
a quorum for the transaction of business. Abstentions are counted as present for
purposes of determining the presence or absence of a quorum for the transaction
of business.
Voting Procedures
Approval of the Merger Agreement, which is attached as Appendix A hereto,
will require the affirmative vote of (i) the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Special Meeting, as
the Outstanding Shares Vote Requirement and (ii) a majority of the shares held
by the Non-Affiliated Shareholders, voted at the Special Meeting as the Majority
Vote Requirement. A failure to vote or a vote to abstain will have the same
legal effect as a vote cast against approval with respect to the Outstanding
Shares Voting Requirement
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and no effect with respect to the Majority Vote Requirement. Brokers and, in
many cases, nominees will not have discretionary power to vote on the proposal
to be presented at the Special Meeting. Accordingly, beneficial owners of shares
should instruct their brokers or nominees how to vote. A broker non-vote will
have the same effect as a vote against the Merger with respect to the
Outstanding Shares Vote Requirement.
Under Georgia law, holders of Common Stock who do not vote in favor of the
Merger Agreement and who comply with certain notice requirements and other
procedures will have the right to dissent and to be paid cash for the "fair
value" of their shares as finally determined under such procedures, which may be
more or less than the consideration to be received by other shareholders of
Centennial under the terms of the Merger Agreement. Failure to follow such
procedures precisely may result in loss of appraisal rights. See "RIGHTS OF
DISSENTING SHAREHOLDERS."
Voting and Revocation of Proxies
A shareholder giving a proxy has the power to revoke it at any time before
it is exercised by (i) filing with the Secretary of Centennial an instrument
revoking it, (ii) submitting a duly executed proxy bearing a later date or (iii)
voting in person at the Special Meeting. Subject to such revocation, all shares
represented by each properly executed proxy received by the Secretary of
Centennial will be voted in accordance with the instructions indicated thereon,
and if no instructions are indicated, will be voted to approve the Merger and in
such manner as the persons named on the enclosed proxy card in their discretion
determine upon such other business as may properly come before the Special
Meeting or any adjournment thereof.
The shares represented by the accompanying proxy card and entitled to vote
at the Special Meeting will be voted if the proxy card is properly signed, dated
and received by the Secretary of the Company prior to the Special Meeting.
Effective Time of the Merger and Payment for Shares
The effective time of the Merger, which shall be the date and time of filing
of the Certificate of Merger with the Secretary of State of the State of Georgia
(the "Effective Time"), is currently expected to occur as soon as practicable
after the Special Meeting, subject to approval of the Merger Agreement at the
Special Meeting and satisfaction or waiver of the other terms and conditions of
the Merger Agreement. Detailed instructions with regard to the surrender of
Common Stock certificates, together with a letter of transmittal, will be
forwarded to shareholders by the Company's paying agent, ChaseMellon Shareholder
Services LLC (the "Paying Agent"), promptly after the Effective Time.
Shareholders should not submit their certificates to the Paying Agent until they
have received such materials. The Paying Agent will send payment of the Cash
Merger Consideration to shareholders as promptly as practicable following
receipt by the Paying Agent of their certificates and other required documents.
No
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interest will be paid or accrued on the cash payable upon the surrender of
certificates. Shareholders should not send any certificates at this time. See
"THE MERGER -- Conditions."
Other Matters to Be Considered
The Board is not aware of any other matter which will be brought before the
Special Meeting. If, however, other matters are presented, proxies will be voted
at the discretion of the holders of such proxies.
THE MERGER
Terms of the Merger Agreement
General. The Merger Agreement provides that subject to satisfaction of
certain conditions, the Acquiror will be merged with and into Centennial, and
that following the Merger, the separate existence of the Acquiror will cease and
Centennial will continue as the Surviving Corporation. At the Effective Time,
and subject to the terms and conditions set forth in the Merger Agreement, (i)
each issued and outstanding share of Common Stock, other than shares that are
entitled to and as to which appraisal rights are properly perfected and not
withdrawn ("Dissenting Shares") and other than shares held by Centennial or its
subsidiaries, the Parent (including shares contributed to the Parent by members
of the Investor Group immediately prior to the Merger) or the Acquiror, will, by
virtue of the Merger, be converted into the right to receive $16.00 in cash,
without interest and (ii) each outstanding share of common stock, $.01 par
value, of the Acquiror shall be converted into one share of common stock, $.01
par value, of the Surviving Corporation. As a result of the Merger, the Common
Stock will no longer be publicly traded and the equity of the Surviving
Corporation will be 100% owned by the Investor Group through their ownership of
the Parent Common Stock.
The terms of and conditions to the Merger are contained in the Merger
Agreement which is included in full as Appendix A to this Proxy Statement and is
incorporated herein by reference. The discussion in this Proxy Statement of the
Merger and the summary description of the principal terms of the Merger
Agreement are subject to and qualified in their entirety by reference to the
more complete information set forth in the Merger Agreement.
Merger Consideration. Upon consummation of the Merger, each share of Common
Stock issued and outstanding immediately prior to the Effective Time (excluding
shares owned by Centennial or any of its subsidiaries, the Parent or the
Acquiror and the Dissenting Shares) will be converted into the right to receive
the Cash Merger Consideration, upon surrender and exchange of the certificate or
certificates which immediately prior to the Effective Time evidenced Common
Stock (the "Certificate(s)"). All such shares of Common Stock (the "Shares"),
when converted no longer will be outstanding and will automatically be canceled
and retired and will cease to exist, and each Certificate previously evidencing
the Shares will thereafter represent only the right to receive the Cash Merger
Consideration.
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Payments for Shares. Promptly after the Effective Time, the Paying Agent
will mail to each holder of record of a Certificate, a form of letter of
transmittal and instructions for use in effecting the surrender of such
Certificate in exchange for payment therefor. Upon surrender of a Certificate
for cancellation to the Paying Agent, together with such letter of transmittal
(duly executed) and any additional requested items, the holder of such
Certificate will be entitled to receive in respect thereof cash in an amount
equal to the product of (x) the number of shares of Common Stock represented by
such Certificate and (y) the Cash Merger Consideration, less any applicable
withholding tax.
Stock Options. The Merger Agreement provides that, at the Effective Time,
each holder of an outstanding option, including options that are currently
vested and options that are not currently vested (the "Options") to purchase
shares of Common Stock under Centennial's 1994 Employee Stock Option Plan, 1996
Executive Stock Option Plan, 1996 Employee Stock Option Plan and 1997 Stock
Option Plan (collectively, the "Stock Option Plans") with an exercise price less
than the Cash Merger Consideration, will receive cash equal to the excess of the
Cash Merger Consideration over the per share exercise price of such Option
multiplied by the number of shares of Common Stock issuable upon exercise of
such Option, subject to any applicable withholding taxes (the "Option
Consideration"). Any outstanding Options that are not currently vested at the
Effective Time shall become vested and shall terminate as of the Effective Time.
Upon receipt of the Option Consideration, each Option will be canceled. Each
holder of an Option with an exercise price greater than the Cash Merger
Consideration shall not receive any consideration in cancellation or settlement
of such Option. The total number of Options which will be cashed out is 274,409,
and other options totaling 651,171 will be canceled. The Merger Agreement also
provides that, prior to the Effective Time, the Company will not grant any
additional stock options or modify the provisions of the Stock Option Plans and
shall take all actions necessary to ensure that the Stock Option Plans and all
Options issued and outstanding thereunder shall terminate and be canceled as of
the Effective Time and all Options not exercised prior to the Effective Time
shall terminate and expire as of the Effective Time.
Transfer of Shares. At the Effective Time, the Company's stock transfer
books will be closed and there will be no further registration of transfers of
shares of Common Stock thereafter on the records of Centennial. On or after the
Effective Time, any Certificates presented to the Surviving Corporation or the
Paying Agent for any reason will be canceled and exchanged for the Cash Merger
Consideration.
Conditions to the Merger. Each party's respective obligation to effect the
Merger is subject to the expiration or termination, prior to the Closing Date,
of the waiting period (and any extension thereof), applicable to the Merger
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
no action shall have been instituted by the United States Department of Justice
or Federal Trade Commission challenging or seeking to enjoin the consummation of
the Merger.
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The obligations of the Parent and the Acquiror to effect the Merger are
subject to the satisfaction of the following conditions, prior to the Closing
Date, unless waived by the Parent and the Acquiror: (i) the approval and
adoption of the Merger Agreement and the Merger in satisfaction of the
Outstanding Shares Vote Requirement and the Majority Vote Requirement; (ii)
there shall have been no order or injunction entered in any action or proceeding
before any governmental entity or other action taken, nor statute, rule,
regulation, legislation, interpretation, judgment or order enacted, entered,
enforced, promulgated, amended, issued or deemed applicable to Centennial, its
subsidiaries, the Merger or the Merger Agreement by any governmental entity that
would have the effect of making illegal, materially delaying or otherwise
directly or indirectly restraining or prohibiting the Merger or the transactions
contemplated thereby; (iii) all authorizations, consents, orders or approvals
of, or declarations or filings with or expirations of waiting periods imposed by
necessary governmental entities, other than the filing of the Merger Certificate
in accordance with the Georgia Code, shall have been obtained, except where the
failure to obtain such licenses, permits, consents, authorizations, approvals,
qualifications and orders, will not have a Material Adverse Effect (as defined
in the Merger Agreement) on Centennial; (iv) the Parent shall have received an
officers' certificate signed on behalf of Centennial to the effect that the
representations and warranties of Centennial in the Merger Agreement are true in
all material respects as of the date of the Merger Agreement and (except to the
extent such representations and warranties expressly relate to an earlier date)
as of the Closing Date as though made on and as of the Closing Date, except as
otherwise contemplated by the Merger Agreement and except that, with respect to
representations and warranties otherwise qualified by Material Adverse Effect,
such representations and warranties shall be true and correct in all respects;
(v) the Parent shall have received an officers' certificate signed on behalf of
Centennial to the effect that Centennial shall have performed in all material
respects all obligations contained in the Merger Agreement required to be
performed at or prior to the Closing Date; (vi) Parent shall have received an
opinion of King & Spalding, counsel to the Company, with respect to certain
matters concerning the Merger; (vii) the aggregate number of dissenting shares
shall not constitute more than 15% of the number of shares of Common Stock
outstanding immediately prior to the Effective Time; and (viii) there shall not
have occurred a Material Adverse Effect on Centennial or any of its subsidiaries
prior to the Effective Time.
The obligations of Centennial to effect the Merger are subject to the
satisfaction of the following conditions, prior to the closing date, prior to
the closing date unless waived by Centennial: (i) the Merger Agreement and the
Merger shall be approved and adopted by the Outstanding Shares Vote Requirement
and by the Parent and the Acquiror; (ii) no preliminary or permanent injunction
or other order, decree or ruling issued by any court of competent jurisdiction
nor any statute, rule, regulation or other order entered, promulgated or enacted
by any governmental, regulatory or administrative agency or authority shall be
in effect that would prevent the consummation of the Merger; (iii) Centennial
shall have received officer's certificates signed on behalf of the Parent and
the Acquiror to the effect that the representations and warranties of the Parent
and the Acquiror contained in the Merger Agreement are true in all material
respects as of the date of the Merger Agreement and (except to the extent such
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representations and warranties expressly related to an earlier date) as of the
Closing Date, as though made on and as of the Closing Date, except as otherwise
contemplated by the Merger Agreement and except that, with respect to
representations and warranties otherwise qualified by Material Adverse Effect,
such representations and warranties shall be true and correct in all respects;
(iv) Centennial shall have received officers' certificates signed on behalf of
the Parent and the Acquiror to the effect that they have performed in all
material respects all obligations contained in the Merger required to be
performed at or prior to the Closing Date; and (v) no court of competent
jurisdiction or governmental entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, judgment, decree, injunction
or other order (whether temporary, preliminary or permanent) which is then in
effect and has the effect of preventing or prohibiting the consummation of the
transactions contemplated by the Merger Agreement or the effective operation of
the business of Centennial and the subsidiaries after the Effective Time.
EVEN IF THE SHAREHOLDERS APPROVE THE MERGER AS PROVIDED IN THE MERGER
AGREEMENT, THERE CAN BE NO ASSURANCE THAT THE MERGER WILL BE CONSUMMATED.
Representations and Warranties. Centennial made representations and
warranties in the Merger Agreement, qualified in certain instances to the
occurrence of a Material Adverse Effect or as disclosed on the Disclosure
Schedule, regarding its organization and good standing; authority to enter into
the Merger Agreement and consummate the transactions contemplated thereby; the
noncontravention of the Merger Agreement to its Articles of Incorporation,
Bylaws, any contract or law; its capitalization and the capitalization of its
subsidiaries; its compliance with Commission filing requirements; its financial
statements; the absence of any undisclosed liabilities; the fairness of the
transaction as determined by the Special Committee on October 21, 1998; the
delivery of the fairness opinion by the Independent Advisor; the absence of
certain changes in the business of Centennial since June 30, 1998; requisite
governmental and other consents and approvals; compliance with all applicable
laws; absence of litigation to which Centennial is a party; title to real
property; condition of facilities and assets; brokers' and finders' fees;
requisite tax filings; absence of defaults under material contracts; ownership
of intangible rights and software; insurance; employee benefits; and its
compliance with Medicare and Medicaid statutes and environmental matters.
The Parent made customary representations and warranties in the Merger
Agreement regarding its organization and good standing; authority to enter into
the Merger Agreement and consummate the transactions contemplated thereby; the
noncontravention of the Merger Agreement to its Certificate of Incorporation,
Bylaws, any contract or law; the requisite governmental and other consents and
approvals; the accuracy of information supplied by the Parent for submission on
forms and reports required to be filed by Centennial with the Commission;
brokers' and finders' fees; and the sufficiency of funds to consummate the
transactions.
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The Acquiror made customary representations and warranties in the Merger
Agreement regarding its organization and good standing; authority to enter into
the Merger Agreement and consummate the transactions contemplated thereby; the
noncontravention of the Merger Agreement to its Articles of Incorporation,
Bylaws, any contract or law; requisite governmental and other consents and
approvals; the accuracy of information supplied by the Acquiror for submission
on forms and reports required to be filed by Centennial with the Commission and
certain financing commitments.
The representations, warranties and agreements in the Merger Agreement or in
any instrument delivered pursuant to the Merger Agreement will expire at the
Effective Time.
Covenants. In the Merger Agreement, Centennial has agreed that prior to the
Effective Time, unless otherwise agreed to in writing by the Parent or as
otherwise expressly contemplated or permitted by the Merger Agreement,
Centennial and each of its subsidiaries will, among other things, conduct
business only in the usual, regular and ordinary course substantially consistent
with past practice.
Nonsolicitation Covenant. The Merger Agreement provides that none of
Centennial, its subsidiaries nor any of their respective officers and directors
shall, and Centennial will cause its employees, agents and representatives not
to, initiate or solicit, directly or indirectly, any inquiries or the making of
any proposal with respect to a merger, consolidation, sale or similar
transaction involving Centennial or any of its subsidiaries or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to any Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal; provided, however, that the foregoing shall not prohibit the Board
from furnishing information to, or entering into discussions or negotiations, or
otherwise facilitating any effort or attempt to make or implement an Acquisition
Proposal if, and to the extent, that the Board determines after consultation
with counsel and in good faith that failing to take such action would be
inconsistent with the Board's fiduciary duty under applicable law. Centennial
agreed to immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any third parties conducted heretofore with
respect to any of the foregoing. Centennial agreed to notify the Acquiror
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, Centennial, any of its subsidiaries,
or any of their respective officers, directors, or employees, agents or
representatives.
Indemnification and Insurance. The Merger Agreement provides that the
Articles of Incorporation and Bylaws of the Surviving Corporation shall contain
the same provisions in respect to indemnification and exculpation of liability
as are set forth in Centennial's Amended and Restated Articles of Incorporation
and Bylaws in effect on the date of the Merger Agreement. The Surviving
Corporation's Articles of Incorporation and Bylaws must contain such provisions,
without amendment, repeal or modification in any manner which would adversely
affect the rights of the individuals who were officers, directors or employees
of
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Centennial, unless required by law, for a period of six years from the Effective
Time. In addition, the Surviving Corporation is required to maintain in effect,
for a period of six years after the Effective Time, Centennial's policies of
directors' and officers' liability insurance (provided that the Surviving
Corporation may substitute therefor policies of at least the same amounts and
comparable coverage). However, in no event will the Surviving Corporation be
required to pay premiums for such insurance in excess of 200% of the annual
premiums paid currently by Centennial; provided that if the annual premiums
exceed such amount, the Surviving Corporation shall obtain a policy with the
greatest coverage available for a cost not exceeding such amount.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the Merger by the shareholders of Centennial: (a) by mutual action
of the Boards of Directors of Centennial and the Parent; (b) by either the
Parent or Centennial, if the conditions to its obligations under the Merger
Agreement have not been complied with or performed in any material respect and
the noncompliance or nonperformance has not been cured or eliminated by the
other party on or before March 31, 1999, including, under certain circumstances,
by reason of a vote of shareholders disapproving the Merger; (c) by either the
Parent or Centennial if the Merger has not been effected prior to the close of
business on March 31, 1999; provided that the right to terminate under (b) and
(c) is not available to the party if the failure to effect the Merger is a
result of a failure by such party to comply with any obligation of such party
under the Merger Agreement; (d) by either the Parent or Centennial, if any
permanent injunction or action by any court or other governmental entity or
regulatory authority of competent jurisdiction preventing the consummation of
the transaction shall become final and nonappealable; (e) by the Parent if (i)
any of the representations of Centennial fail to be true and correct in any
material respect (ii) a material breach of any of the covenants of agreements in
the Merger Agreement by Centennial, (iii) the Board withdraws or amends in an
adverse manner to the Parent or the Acquiror, its recommendation or approval of
the transaction, makes a recommendation as to an alternative transaction other
than rejection of the alternative transaction, enters into a definitive written
agreement relating to an alternative transaction or takes any material action
that would be prohibited by Section 6.05 of the Merger Agreement; (f) by
Centennial if there has been a material breach of any representations or
warranties of the Parent that would adversely affect the ability of the parties
to consummate the transaction or a material breach of any covenant or agreement
by the Parent which is not curable or is not cured within thirty days after
written notice of such breach or (g) by Centennial, if the Board determines in
good faith by a majority vote, after consulting with its financial advisors and
based on the advice of outside legal counsel to the Company, that an alternative
transaction is more favorable to the shareholders of the Company than the
transactions contemplated by the Merger Agreement.
Fees and Expenses. Except as otherwise provided in Section 6.05 of the
Merger Agreement and except with respect to claims for damages incurred as a
result of the breach of the Merger Agreement, Centennial shall pay all costs and
expenses incurred in connection with the consummation of the Merger Agreement
and the transactions contemplated therein. If the
42
<PAGE>
transactions contemplated by the Merger Agreement are not consummated, all costs
and expenses incurred in connection with the negotiation, preparation and
execution of the Merger Agreement shall be paid by the party incurring such
expenses. If the Merger Agreement is terminated as a result of Centennial
accepting an Acquisition Proposal, Centennial must pay the Parent a $3.0 million
fee in immediately available funds upon the termination of the Merger Agreement
under Sections 8.01(d) or (f) of the Merger Agreement or if any of the following
events occur, in which Centennial's shareholders receive cash securities or
other consideration in excess of the Cash Merger Consideration within twelve
months after the date of the Merger Agreement, other than a termination due to
governmental or regulatory requirements under Section 8.01(c) or a material
breach by the Parent or the Acquiror under Section 8.01(e), the Specified Fee
shall be paid to the Parent: (i) the Company is acquired by merger or otherwise
by a third party, (ii) a third party acquires more than 50% of the total assets
of Centennial and its subsidiaries, (iii) a third party acquires more than 50%
of the outstanding shares of Centennial and its subsidiaries or (iv) the Company
adopts and implements a plan of liquidation or share repurchase relating to more
than 50% of the outstanding shares or an extraordinary dividend relating to more
than 50% of the assets of Centennial and its subsidiaries.
Amendment. The Merger Agreement may be amended, modified or supplemented by
written Agreement prior to the Effective Time and before adoption of the Merger
Agreement by the Centennial shareholders; provided, however, that after the
Merger Agreement is approved by the Centennial shareholders, no such amendment,
modification, or supplement shall be made which under applicable law requires
the approval of such shareholders, without the further approval of such
shareholders.
Accounting Treatment
The Acquiror believes that the Merger will be accounted for as a
"purchase" under the purchase method in accordance with generally accepted
accounting principles.
Estimated Fees and Expenses of the Merger
Estimated fees and expenses incurred or to be incurred by the Surviving
Corporation are approximately as follows:
<TABLE>
<S> <C>
Advisory fees and expenses (1) $10,000,000
Legal fees and expenses (2) 1,200,000
Accounting fees and expenses 125,000
Hart-Scott-Rodino filing fee 45,000
Paying Agent fees and expenses 25,000
Proxy solicitation fees and expenses 50,000
Securities and Exchange Commission filing fee 38,347
Printing and mailing costs 100,000
Miscellaneous expenses 25,000
------------
Total $11,608,347
</TABLE>
43
<PAGE>
- ----------
(1) Includes the fees and expenses of J.P. Morgan, BT Alex. Brown, SunTrust
Equitable Securities and WCA Management Corporation.
(2) Includes the estimated fees and expenses of counsel for the Company, the
Special Committee and the WCAS Investors.
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of shares of Common Stock are entitled to appraisal rights under
Article 13 of the Georgia Business Corporation Code. Article 13 is reprinted in
its entirety as Appendix C to this Proxy Statement. All references in Article 13
and in this summary to a "shareholder" are to the record holder or beneficial
owner of the shares of Common Stock as to which appraisal rights are asserted. A
person having a beneficial interest in shares of Common Stock that are held of
record in the name of another person, such as a broker or nominee, must act
promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect whatever appraisal rights the
beneficial owner may have.
The Merger Agreement provides that if holders of more than fifteen percent
of the shares of Common Stock outstanding prior to the Effective Time exercise
their dissenters' appraisal rights, the Parent and the Acquiror are not required
to consummate the Merger. Although the Acquiror and the Parent may waive this
requirement at their discretion, there can be no assurance that the Acquiror and
the Parent will do so.
The following discussion is not a complete statement of the law relating to
appraisal rights and is qualified in its entirety by reference to Appendix C.
THIS DISCUSSION AND APPENDIX C SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO
WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE
RIGHT TO DO SO BECAUSE FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH
HEREIN AND THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.
Each shareholder intending to elect appraisal rights as to the fair market
value of the shares must first demand "payment" for such shares from the
Company. Demanding payment for such shares shall constitute a request for
payment for the shares at a per share value that is different from the $16.00
consideration contemplated by the Merger Agreement. Each shareholder electing to
demand payment for his shares shall deliver to the Company, before the taking of
the vote on the Merger at the Special Meeting, written notice of the
shareholder's intent to demand payment for his shares of Common Stock. The
demand must reasonably inform the Company of the identity of the shareholder and
that the shareholder intends thereby to demand payment for the shares of the
Company's Common Stock. This written demand for payment for the shares of Common
Stock must be in addition to and separate from any proxy or vote against the
Merger. Voting against, abstaining from voting or failing to vote on the Merger
will not constitute a demand for payment within the meaning of Article 13.
However, any shareholder electing to
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<PAGE>
demand payment will not be granted payment under Article 13 if such shareholder
has voted in favor of the Merger.
The payment demand must be mailed or delivered to the attention of Secretary
of the Company at 400 Perimeter Center Terrace, Suite 650, Atlanta, Georgia
30346. The written payment demand must specify the shareholder's name and
mailing address, the number of shares of Common Stock owned, and that the
shareholder is thereby demanding payment for his or her shares.
If the Merger is approved by satisfying the Outstanding Shares Vote
Requirement and Majority Vote Requirement, shareholders who have demanded
payment will receive, no later than ten days after the Effective Time, a
dissenters' notice that states where a payment demand is to be sent, where and
when certificates for shares must be deposited, and will set the date by which
the Company must receive the payment demand. The date by which the Company must
receive the payment demand must be not fewer than thirty nor more than sixty
days after the delivery of the dissenters' notice. A shareholder must comply
with the terms of the dissenters' notice in order to receive payment for the
shares other than that contemplated by the Merger Agreement.
Within ten days from the later of the receipt of the payment demand or the
Effective Time, the Company must offer to each dissenter the amount the Company
has determined to be the fair market value of the shares. The shareholder will
then have thirty days to accept or decline the offer by the Company. Failure to
respond to the offer within such period is deemed an acceptance. If the
shareholder accepts the Company's offer by written notice to the Company within
the thirty day period, payment shall be made to the shareholder within sixty
days of the later of the making of the offer or the Effective Time. If the
shareholder disagrees with such value, including interest to be received, or the
shareholder does not receive his certificates or the release of transfer
restrictions upon the Company's failure to consummate the Merger, the
shareholder may notify the Company of his estimate of the fair value of the
shares, including interest, in writing.
If the demand for payment remains unsettled sixty days after the receipt of
the demand for payment by the Company, the Company shall file a petition in the
Superior Court of DeKalb County (the "Court") demanding a determination of the
value of the shares of Common Stock and accrued interest of the dissenting
shareholders. All dissenting shareholders shall be made parties to the
proceeding. If a petition for an appraisal is timely filed, the Court, in a
nonjury equitable proceeding, will appraise the shares of Common Stock owned by
the dissenting shareholders, determining the fair value of such shares of Common
Stock together with a fair rate of interest to be paid, if any, upon the amount
determined to be the fair value. If the Company does not timely file the
petition, the Company must pay to each dissenter whose demand remains unsettled
the amount demanded.
45
<PAGE>
Shareholders considering seeking appraisal should be aware that the "fair
value" of their shares of Common Stock determined under Article 13 could be more
than, the same as or less than the Cash Merger Consideration, and that the
opinion of J.P. Morgan as to fairness, from a financial point of view, is not an
opinion as to fair value under Article 13. The cost of the appraisal proceeding
will be determined by the Court and may be assessed against the parties as the
Court deems equitable in the circumstances. The Court may order that all or a
portion of the attorneys' fees incurred by any dissenting shareholder in
connection with the appraisal proceeding be charged pro rata against the value
of all shares of the Company's Common Stock entitled to appraisal.
If the Company does not consummate the Merger within sixty days after the
date set by the Company for the demand for payment and the depositing of the
certificates, the Company must return the certificates and shall release any
transfer restrictions on any uncertificated shares.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations relevant to the Merger that are generally applicable to holders
of Common Stock. This discussion is based on currently existing provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed Treasury Regulations thereunder and current administrative rulings and
court decisions, all of which are subject to change. Any such change, which may
or may not be retroactive, could alter the tax consequences to the holders of
Common Stock as described herein. Special tax consequences not described below
may be applicable to particular classes of taxpayers, including financial
institutions, broker-dealers, persons who are not citizens or residents of the
United States or who are foreign corporations, foreign partnerships or foreign
estates or trusts, persons who will own stock of Centennial (actually or
constructively, under certain constructive ownership rules in the Internal
Revenue Code) after the Merger, and holders who acquired their stock through the
exercise of an employee stock option or otherwise as compensation.
The receipt of the Cash Merger Consideration in the Merger by holders of
Common Stock will be a taxable transaction for federal income tax purposes. Each
holder's gain or loss per share of Common Stock will be equal to the difference
between $16.00 and the holder's basis in that particular share of the Common
Stock. Such gain or loss generally will be a capital gain or loss. In the case
of individuals, trusts and estates, such capital gain will be subject to a
maximum federal income tax rate of 20% for shares of Common Stock held for more
than 12 months prior to the date of disposition.
A holder of Common Stock may be subject to backup withholding at the rate of
31% with respect to Cash Merger Consideration received pursuant to the Merger,
unless the holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (b) provides a correct
taxpayer identification number ("TIN"), certifies concerning no loss of
exemption from backup withholding and otherwise complies with applicable
46
<PAGE>
requirements of the backup withholding rules. To prevent the possibility of
backup federal income tax withholding on payments made with respect to shares of
Common Stock pursuant to the Merger, each holder must provide the Paying Agent
with his correct TIN by completing a Form W-9 or Substitute Form W-9. A holder
of Common Stock who does not provide Centennial with his or her correct TIN may
be subject to penalties imposed by the Internal Revenue Service (the "IRS"), as
well as backup withholding. Any amount withheld under these rules will be
creditable against the holder's federal income tax liability. Centennial (or its
agent) will report to the holders of Common Stock and the IRS the amount of any
"reportable payments," as defined in Section 3406 of the Code, and the amount of
tax, if any, withheld with respect thereto.
THE FOREGOING TAX DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS
BASED UPON PRESENT LAW. THE FOREGOING DISCUSSION DOES NOT DISCUSS TAX
CONSEQUENCES UNDER THE LAWS OF STATES OR LOCAL GOVERNMENTS OR ANY OTHER
JURISDICTION OR TAX CONSEQUENCES TO CATEGORIES OF SHAREHOLDERS THAT MAY BE
SUBJECT TO SPECIAL RULES, SUCH AS FOREIGN PERSONS, TAX-EXEMPT ENTITIES,
INSURANCE COMPANIES, FINANCIAL INSTITUTIONS AND DEALERS IN STOCKS AND
SECURITIES. THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO A SHAREHOLDER WHO
ACQUIRED HIS OR HER SHARES OF COMMON STOCK PURSUANT TO THE EXERCISE OF STOCK
OPTIONS OR OTHERWISE AS COMPENSATION. EACH HOLDER OF COMMON STOCK SHOULD CONSULT
SUCH HOLDER'S OWN TAX ADVISOR CONCERNING THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO SUCH HOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE,
LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECT OF CHANGES IN SUCH TAX LAWS.
47
<PAGE>
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF
MANAGEMENT AND OTHERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of December 9, 1998 by: (i) each
person known to the Company to beneficially own more than 5% of the Common
Stock, (ii) each director of the Company, (iii) each of the Investor Group, (iv)
the chief executive officer and the four other most highly compensated executive
officers, and (v) all executive officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amount and Nature Percentage of
Name of Beneficial Owner of Beneficial Ownership Common Stock
------------------------ ----------------------- ------------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
WCAS VI (1) (2) 2,520,193 21.1%
- -------------------------------------------------------------------------------------------------------------
WCAS CP II (1)(3) 246,896 2.1
- -------------------------------------------------------------------------------------------------------------
Healthcare (1)(4) 81,384 *
- -------------------------------------------------------------------------------------------------------------
Andrew M. Paul (1)(5) 12,707 *
- -------------------------------------------------------------------------------------------------------------
J. Stephen Eaton (1)(6) 1,213,077 10.1
- -------------------------------------------------------------------------------------------------------------
Kent C. Fosha, Sr. (1)(7) 53,949 *
- -------------------------------------------------------------------------------------------------------------
Alan C. Dahl (1)(8) 93,976 *
- -------------------------------------------------------------------------------------------------------------
Lawrence W. Lepley, Jr. (1)(9) 92,226 *
- -------------------------------------------------------------------------------------------------------------
Bertil D. Nordin (10) 0 *
- -------------------------------------------------------------------------------------------------------------
W. Scott Miller (11) 0 *
- -------------------------------------------------------------------------------------------------------------
Charles D. Nash (12) 0 *
- -------------------------------------------------------------------------------------------------------------
James B. Hoover (13) 13,464 *
- -------------------------------------------------------------------------------------------------------------
Robert Ortenzio (14) 1,299 *
- -------------------------------------------------------------------------------------------------------------
Putnam Investments, Inc. (15) 843,600 7.1
- ---------------------------------------------------------------------
Drescher RCM Capital Management (16) 1,186,479 10.0
- ---------------------------------------------------------------------
South Atlantic Venture Fund II, Limited (17) 798,963 6.7
Partnership
- ---------------------------------------------------------------------
All other executive officers and directors as a group 1,480,698 12.4
(10 persons)
</TABLE>
*Less than 1%
48
<PAGE>
(1) Based on the Statement of Beneficial Ownership on Schedule 13D, dated
November 2, 1998 filed by the persons indicated, and WCAS VIII, WCAS CP III
and the respective general partners of WCAS VI, WCAS CP II, Healthcare
Partners, WCAS VIII and WCAS CP III (the "13D Statement"). The shares of
Common Stock shown in the table as beneficially owned by a person exclude
the shares shown as beneficially owned by other persons in the table and
each such person disclaims beneficial ownership of the shares owned by such
other persons. According to the 13D Statement, the following WCAS
Investors, directly own the following shares of Common Stock: Patrick J.
Welsh (49,977 shares), Russell L. Carson (49,977 shares), Bruce K. Anderson
(29,977 shares), Andrew M. Paul (12,707 shares), Thomas E. McInerney
(10,000 shares), Robert A. Minicucci (10,772 shares), Anthony deNicola
(5,000 shares) and Paul B. Queally (750 shares). Such persons, and Andrew
M. Paul, as general partners of the respective sole general partners of
such entities, may be deemed to beneficially own the shares owned by WCAS
VI, WCAS CP II and Healthcare Partners. Such persons disclaim beneficial
ownership of such shares.
(2) The principal executive offices of WCAS VI are located at 320 Park Avenue,
New York, New York 10022. The sole general partner of WCAS VI is WCAS VI
Partners, L.P., a Delaware limited partnership ("WCAS VI Partners"). WCAS
VI Partners and certain of the WCAS Investors, including Andrew M. Paul,
who serve as general partners of WCAS VI Partners may be deemed to
beneficially own the shares owned by WCAS VI. Such persons disclaim
beneficial ownership of such shares.
(3) The principal executive offices of WCAS CP II are located at 320 Park
Avenue, New York, New York 10022. The sole general partner of WCAS CP II is
WCAS CP II Partners, a New Jersey general partnership ("WCAS CP II
Partners). WCAS CP II Partners and certain of the WCAS Investors, including
Andrew M. Paul, who serve as general partners of WCAS CP II Partners may be
deemed to beneficially own the shares owned by WCAS CP II. Such persons
disclaim beneficial ownership of such shares.
(4) The principal executive offices of Healthcare Partners are located at 320
Park Avenue, New York, New York 10022. The sole general partner of
Healthcare Partners is WCAS HP Partners, a Delaware partnership. WCAS HP
Partners and certain of the WCAS Investors, including Andrew M. Paul, who
serve as general partners of WCAS HP Partners may be deemed to beneficially
own the shares owned by Healthcare Partners. Such persons disclaim
beneficial ownership of such shares.
(5) Excludes 2,520,193 shares of Common Stock owned by WCAS VI, 246,896 shares
of Common Stock owned by WCAS CP II and 81,384 shares of Common Stock owned
by Healthcare Partners. Mr. Paul, as a general partner of the respective
sole general partners of each of WCAS VI, WCAS CP II and Healthcare
Partners may be deemed to beneficially own the shares owned by WCAS VI,
WCAS CP II and Healthcare Partners. Mr. Paul disclaims beneficial ownership
of such shares.
(6) Includes 97,706 shares purchasable upon exercise of stock options that are
currently exercisable or will become exercisable within 60 days. Does not
include options to acquire 51,727 shares that are not exercisable within 60
days. The shareholder's address is 400 Perimeter Center Terrace, Suite 650,
Atlanta, Georgia 30346.
(7) Includes 45,979 shares purchasable upon exercise of stock options that are
currently exercisable or will become exercisable within 60 days. Does not
include options to acquire 71,074 shares that are not exercisable within 60
days. The shareholder's address is 400 Perimeter Center Terrace, Suite 650,
Atlanta, Georgia 30346.
(8) Includes 34,484 shares purchasable upon the exercise of stock options that
are currently exercisable or will become exercisable within 60 days and
2,000 shares beneficially owned by Mr. Dahl's sons. Mr. Dahl disclaims
beneficial ownership of these shares. Does not include options to acquire
71,074 shares that are not exercisable within 60 days. The shareholder's
address is 400 Perimeter Center Terrace, Suite 650, Atlanta, Georgia 30346.
(9) Includes 9,001 shares purchasable upon exercise of stock options that are
currently exercisable. Does not include options to acquire 51,343 shares
that are not exercisable within 60 days. The shareholder's address is 400
Perimeter Center Terrace, Suite 650, Atlanta, Georgia 30346.
(10) Includes options to acquire 10,345 shares that are currently exercisable.
Does not include options to acquire 2,070 shares that are not exercisable
within 60 days. Does not include 206,214 shares held by South Atlantic
Venture Fund III, Limited Partnership ("South Atlantic") of which Mr.
Nordin is a special limited partner. Mr. Nordin disclaims beneficial
ownership of the shares owned by South Atlantic. The shareholder's address
is 400 Perimeter Center Terrace, Suite 650, Atlanta, Georgia 30346.
(11) Does not include options to acquire 10,345 shares that are not exercisable
within 60 days. Does not includes 798,963 shares of South Atlantic
Venture Fund II, Limited Partnership of which Mr. Miller is a limited
partner. Mr. Miller disclaims beneficial ownership of these shares.
(12) Does not include options to acquire 10,345 shares that are not exercisable
within 60 days.
49
<PAGE>
(13) Includes shares held by Mr. Hoover or by the James B. Hoover IRA. Does not
include 2,767,089 shares held by WCAS VI, WCAS CP II, of which Mr. Hoover
serves as a general partner of the sole general partner or limited
partner of the sole general. Mr. Hoover disclaims beneficial ownership of
these shares. The shareholder's address is Dauphin Capital Partners,
108 Forest Avenue, Locust Valley, New York 11560.
(14) Does not include 39,719 shares held by Horizon Investment Associates II, of
which Mr. Ortenzio's father is an affiliate; 3,551 shares acquired pursuant
to a distribution by WCAS VI to its limited partners, in one of which Mr.
Ortenzio holds a remainderman interest in a life estate of which his father
is the life tenant; or 77 shares acquired pursuant to a distribution by
WCAS CP II to Camp Hill Associates, L.P., a limited partner of WCAS CP II,
in which Mr. Ortenzio has a 10% ownership interest. Mr. Ortenzio disclaims
beneficial ownership of all such shares. The shareholder's address is 4718
Old Gettysburg Road, Mechanicsburg, Pennsylvania 17055.
(15) Based on Schedule 13G of shareholder filed on January 21, 1998. The
shareholder's address is One Post Office Square, Boston, Massachusetts
02109.
(16) Based on 13G/A of shareholder. The shareholder's address Four Embarcadero
Center, San Francisco, California 94111.
(17) The shareholder's address is 614 West Bay Street, Suite 200, Tampa, Florida
33606-2704.
CERTAIN INFORMATION CONCERNING THE PARENT, THE ACQUIROR
AND THE INVESTOR GROUP
The Parent. The Parent is a newly formed Delaware corporation organized at
the direction of WCAS VIII and WCAS CP III, each of which is a private
investment partnership. The principal executive offices of the Parent are
located at 320 Park Avenue, New York, New York 10022. The current directors of
the Parent are Lawrence B. Sorrel and D. Scott Mackesy. The current officers of
the Parent are Lawrence B. Sorrel, President and Treasurer, and D. Scott
Mackesy, Vice President and Secretary.
The Acquiror. The Acquiror is a newly formed Georgia corporation organized
at the direction of WCAS VIII and WCAS CP III for the purpose of effecting the
Merger. The principle executive offices of the Acquiror are located at 320 Park
Avenue, New York, New York 10022. The directors of the Acquiror are Lawrence B.
Sorrel and D. Scott Mackesy. The officers of the Acquiror are Lawrence B.
Sorrel, President and Treasurer, and D. Scott Mackesy, Vice President and
Secretary.
WCAS VIII. The principal business of WCAS VIII, a Delaware limited
partnership, is that of a private investment partnership. The principal
executive offices of WCAS VIII are located at 320 Park Avenue, New York, New
York 10022. The sole general partner of WCAS VIII is WCAS VIII Associates LLC, a
Delaware limited liability company ("VIII Associates").
VIII Associates. The principal business of VIII Associates is acting as the
sole general partner of WCAS VIII. Each managing member of VIII Associates is a
citizen of the United States. The principal occupation of each managing member
of VIII Associates is being a general partner or managing member of the
partnerships and limited liability companies which serve as the sole general
partners of the private investment partnerships which are affiliated with WCAS
VIII. The managing members of VIII Associates are Patrick J. Welsh, Russell L.
Carson, Bruce K. Anderson, Andrew M. Paul, Thomas E. McInerney, Laura M. Van
Buren, Priscilla A. Newman, Robert A. Minicucci, Anthony J. de Nicola, Paul B.
Queally, and Lawrence B. Sorrel.
50
<PAGE>
The business address of each managing member of VIII Associates is 320 Park
Avenue, New York, New York 10022.
WCAS CP III. The principal business of WCAS CP III, a Delaware limited
partnership, is that of a private investment partnership. The principal
executive offices of WCAS CP III are located at 320 Park Avenue, New York, New
York 10022. The sole general partner of WCAS CP III is WCAS CP III Associates
L.L.C., a Delaware limited liability Company ("CP III Associates").
CP III Associates. The principal business of CP III Associates is acting as
the sole general partner of WCAS CP III. Each managing member of CP III
Associates is a citizen of the United States. The principal occupation of each
managing member of CP III Associates is being a general partner or managing
member of the partnerships and limited liability companies which serve as the
sole general partners of private investment partnerships which are affiliated
with WCAS CP III. The managing members of CP III Associates are Patrick J.
Welsh, Russell L. Carson, Bruce K. Anderson, Richard H. Stowe, Andrew M. Paul,
Thomas E. McInerney, Laura M. Van Buren, Priscilla A. Newman, Robert A.
Minicucci, Anthony J. de Nicola, Paul B. Queally, and Lawrence B. Sorrel. The
business address of each managing member of CP III Associates is 320 Park
Avenue, New York, New York 10022.
Management Investors. The Management Investors are Messrs. Eaton, Dahl,
Fosha and Lepley and certain other members of management. The business address
for each member of the Management Group is the principal executive offices of
Centennial, 400 Perimeter Center Terrace, Suite 650, Atlanta, Georgia 30346.
Each member of the Management Investors is a citizen of the United States.
WCAS Investors. The members of the WCAS Investors, in addition to WCAS VIII
and WCAS CP III are Healthcare Partners, and 14 individuals who are managing
members of either VIII Associates or CP III Associates or employees of WCA
Management Corporation, including Andrew M. Paul, a director of the Company. The
sole general partner of Healthcare Partners is WCAS HP Partners, a Delaware
partnership.
The business address for each member of the WCAS Investors is 320 Park
Avenue, New York, New York 10022. Each member of the WCAS Investors who is a
natural person is a citizen of the United States, other than Mr. Mackesy who is
a citizen of Canada.
None of the Investor Group, the Parent, the Acquiror or any executive
officer, director or person controlling any member of the Investor Group, the
Parent or the Acquiror was during the last five years convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or was a party
to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting activities
subject to, federal or state securities laws or finding any violation of such
laws.
51
<PAGE>
D. Scott Mackesy is a citizen of Canada and his principal occupation is as
an employee of WCA Management Corporation. Mr. Mackesy's business address is 320
Park Avenue, New York, New York, 10022. Prior to joining Welsh, Carson, Anderson
& Stowe ("WCAS") in 1998, Mr. Mackesy was employed from 1992 to 1998 by Morgan
Stanley, Dean Witter, Discover & Co., most recently as a Vice President in its
investment research department.
Prior to joining WCAS in 1993, Mr. Minicucci served as Senior Vice President
and Chief Financial Officer of First Data Corporation from 1992 to 1993. The
address of First Data Corporation is 401 Hackensack Avenue, Hackensack, New
Jersey 07601.
Prior to joining WCAS in 1994, Mr. de Nicola was employed from 1990 to 1994
by William Blair & Company, a private equity investment firm. The address of
William Blair & Company, L.L.C. is 222 West Adams Street, Chicago, Illinois
60606.
Prior to joining WCAS in February 1996, Mr. Queally held various positions,
including, most recently, General Partner, at The Sprout Group, Donaldson,
Lufkin & Jenrette Inc.'s private equity group from May 1987 to February 1996.
The address of Donaldson, Lufkin & Jenrette, Inc. is 277 Park Avenue, New York,
New York 10172.
Prior to joining WCAS in June 1998, Ms. Newman was employed as a Vice
President at AEA Investors, Inc. since 1996. The address of AEA Investors, Inc.
is 65 East 55th Street, New York, New York 10022. From 1993 to 1996, Ms. Newman
was employed as a Senior Vice President, Corporate Finance at Lehman Brothers.
Lehman Brothers address is Three World Financial Center, New York, New York,
10285.
Prior to joining WCAS in June 1998, Mr. Sorrel was employed as a senior
executive at Morgan Stanley, Dean Witter, Discover & Co. working in its private
equity investment business, most recently, as a Managing Director. Mr. Sorrel
joined Morgan Stanley & Co. in 1986. The address of Morgan Stanley, Dean Witter,
Discover & Co. is 1585 Broadway, New York, New York, 10036.
J. Stephen Eaton is a resident of the United States and his principal
occupation is Chairman of the Board, President, and Chief Executive Officer of
the Company, in which capacities he has served since founding the Company in
1989. Mr. Eaton's business address is 400 Perimeter Center Terrace, Suite 650,
Atlanta, Georgia 30346. From 1982 to 1988, Mr. Eaton served in various executive
positions, including Vice President, of Consolidated Resources Corporation of
America and its successors. When the Company acquired CRCA in 1990, CRCA served
as the general partner of private and public limited partnerships that owned in
excess of 31 long-term care and assisted living facilities. Mr. Eaton also
serves as a director of Saint Joseph's Mercy Care Corporation, a non-profit
corporation based in Atlanta, Georgia which provides mobile
52
<PAGE>
health services to the homeless and other underserved populations, and of Saint
Joseph's Health System, a major tertiary care hospital and health system in
Atlanta, Georgia.
Alan C. Dahl is a resident of the United States and his principal occupation
is Executive Vice President, Chief Financial Officer, Treasurer and Director of
the Company. Mr. Dahl has served in these capacities since January 1996. Mr.
Dahl's business address is 400 Perimeter Center Terrace, Suite 650, Atlanta,
Georgia 30346. From February 1991 to December 1995, he served as senior vice
president. Mr. Dahl has been involved in health care finance for the past 12
years. Mr. Dahl was previously senior vice president of Southmark Public
Syndications, Inc., a subsidiary of Southmark Corporation. Mr. Dahl, a certified
public accountant, also worked in the tax department at Arthur Young &
Corporation.
Kent C. Fosha is a resident of the United States and his principal
occupation is Executive Vice President of Operations of the Company. His
principal business address is 400 Perimeter Center Terrace, Suite 650, Atlanta,
Georgia 30346.
Lawrence W. Lepley, Jr. is a resident of the United States and his principal
occupation is President of Paragon Rehabilitation, Inc., an indirect wholly
owned subsidiary of the Company. His business address is 3100 West End Avenue,
Suite 470, Nashville, Tennessee, 37203.
53
<PAGE>
PURCHASES OF COMMON STOCK BY CERTAIN PERSONS
Transactions by the WCAS Investors
THS Merger and Related Settlement Agreement.
In January 1996, pursuant to an Agreement and Plan of Merger (the "THS
Merger Agreement"), dated as of December 31, 1995, among the Company, WelCare
Transitional Acquirors, Inc., a wholly-owned subsidiary of the Company ("THS
Acquisition Sub"), and Transitional Health Services, Inc. ("THS"), THS
Acquisition Sub was merged (the "THS Merger") with and into THS. In the THS
Merger, each holder of capital stock of THS (the "THS Holders"), including WCAS
VI, WCAS CP II, Healthcare Partners, Patrick J. Welsh, Russell L. Carson, Bruce
K. Anderson, Richard H. Stowe, Thomas E. McInerney, Andrew M. Paul, Robert A.
Minicucci and Laura M. VanBuren (collectively, the "WCAS THS Holders"), received
(i) 0.235521068 shares of the Company's Special Voting Common Stock $.01 par
value per share ("Special Voting Common Stock") in exchange for each share of
THS common stock, par value $.01 per share, held by such stockholder and (ii)
one share of the Company's Series C Preferred Stock, $1.00 par value, ("Series C
Preferred Stock") in exchange for each share of THS preferred stock, par value
$1.00 per share, held by such stockholder. Collectively, the WCAS THS Holders
received 3,162,179 shares of Special Voting Stock and 121,982 shares of Series C
Preferred Stock in the THS Merger. In addition, at the closing of the THS
Merger, 351,318 shares of Special Voting Common Stock were deposited in an
escrow account (the "Escrow Account") on behalf of the WCAS THS Holders to
secure their portion of the indemnification obligations of the THS Holders under
the THS Merger Agreement.
January 31, 1997 Transactions
Effective January 31, 1997, in settlement of all indemnification claims
brought under the THS Merger Agreement, the Company, Andrew M. Paul, as agent
for THS Holders, and J. Stephen Eaton, as agent for the shareholders of the
Company prior to the THS Merger (the "WelCare Holders"), entered into a
settlement agreement (the "Settlement Agreement"). Under the Settlement
Agreement, the WelCare Holders were entitled to receive shares of Special Voting
Common Stock from the Escrow Account; however, THS Holders had the option to
make payments of cash to the WelCare Holders in lieu of all or a portion of such
required stock transfer. In March 1997, as provided by the Settlement Agreement,
certain THS Holders (including each of the WCAS THS Holders) made cash payments
to the WelCare Holders in lieu of transferring to them certain shares of Special
Voting Common Stock. For such purposes, the agreed fair market value of shares
of Special Voting Common Stock was $8.40 per share. In connection with the
Settlement Agreement, the WCAS THS Holders made cash payments aggregating
approximately $1,421,578, transferred at total of 81,458 shares of Special
Voting Common Stock to the WelCare Holders and received an aggregate of 269,860
shares of Special Voting Common Stock from the Escrow Account.
54
<PAGE>
Effective January 31, 1997, WCAS VI, Healthcare Partners, Patrick J. Welsh,
Russell L. Carson, Bruce K. Anderson, Richard H. Stowe, Andrew M. Paul, Robert
A. Minicucci, Thomas E. McInerney and Laura M. VanBuren acquired an aggregate of
approximately 86,978 shares (adjusted for a .6897-to-1 stock split (the "Reverse
Split") effected in connection with the Company's July 1997 initial public
offering of Common Stock (the "IPO")) of Common Stock from Messrs. Eaton
(approximately 76,633 shares for approximately $933,323) and Fosha
(approximately 10,346 shares for approximately $126,000) for an aggregate
purchase price of approximately $1,059,324, or approximately $12.00 per share.
Effective January 31, 1997, WCAS VI, Healthcare Partners, Patrick J. Welsh,
Russell L. Carson, Bruce K. Anderson, Richard H. Stowe, Andrew M. Paul, Robert
A. Minicucci, Thomas E. McInerney and Laura M. VanBuren purchased an aggregate
of 43,541 shares of the Company's Series D Preferred Stock, par value $1.00 per
share ("Series D Preferred Stock") from the Company, for an aggregate purchase
price of $4,354,100, or $100 per share. On July 18, 1997, in connection with the
closing of the IPO, each issued and outstanding share of Series D Preferred
Stock was converted into Common Stock at a conversion price of $16.00 per share.
Effective January 31, 1997, WCAS CP II acquired 44,250 investment units
("Units") consisting of one share of the Company's Series E Redeemable Preferred
Stock, par value $1.00 per share, ("Series E Preferred Stock"), and 1.28 shares
(adjusted for the .6897-to-1 stock split effected in connection with the IPO) of
Common Stock (i.e., 44,250 shares of Series E Preferred Stock and 56,492 shares
of Common Stock) for an aggregate purchase price of $4,425,000, or $100 per
Unit.
The July 1997 IPO
In July 1997, in connection with the closing of the IPO, (i) each issued and
outstanding share of the Special Voting Common Stock, was converted into .6897
shares of Common Stock (adjusted for the Reverse Split) and (ii) each issued and
outstanding share of the Series C Preferred Stock, was converted into Common
Stock at a conversion price of $16.00 per share, and (iii) each issued and
outstanding share of Series E Preferred Stock was redeemed at $100 a share.
In July 1997, the Company used proceeds from the IPO to repay a $16,833,000
10.8% senior subordinated note (the "10.8% Note") and a $7,500,000 11.7% senior
subordinated note (the "11.7% Note", and together with the 10.8% Note, the "WCAS
CP II Notes"), each of which was due October 30, 2002 and held by WCAS CP II.
The WCAS CP II Notes were issued in 1994 by a subsidiary of THS that was
acquired by Centennial in the THS Merger.
In July 1997, (i) Anthony J. deNicola, purchased 5,000 shares of Common
Stock (including shares held by an IRA account) and (ii) Andrew M. Paul
purchased 3,000 shares of Common Stock in the IPO at $16.00 per share.
55
<PAGE>
In connection with the IPO, the Company made an offer to the former holders
of shares of Series C Preferred Stock (including the WCAS THS Holders), to
repurchase from such former holders, on a pro rata basis, that number of shares
of Common Stock which could be repurchased, at a per share price equal to the
price to the public in the IPO, with the net proceeds received by the Company in
connection with the exercise of the IPO underwriter's over-allotment option (the
"Repurchase Offer"). The Repurchase Offer was made as consideration for the
consent of these former holders to an amendment of the Company's Articles of
Incorporation to allow the automatic conversion of all shares of Series C
Preferred Stock into Common Stock upon the closing of the IPO. Holders of
approximately 84,000 shares (of the approximately 1.3 million shares available
for pro-rata repurchase) elected to have such shares repurchased by Centennial.
Messrs. Paul, Welsh, Stowe, Anderson, Carson, McInerney, and Minicucci elected
to have an aggregate of 13,171 shares of Common Stock repurchased at $16.00 a
share.
Transactions by Management Investors
THS Merger and Related Settlement Agreement
In the THS Merger, Lawrence W. Lepley, Jr. received 0.235521068 shares of
Special Voting Common Stock in exchange for each share of THS Common Stock. Mr.
Lepley elected to have 21,777 shares of Common Stock repurchased by Centennial
pursuant to the Repurchase Offer.
At the closing of the THS Merger, a stock dividend of 0.1111 shares of
Common Stock was issued on each outstanding share of Common Stock and the stock
dividend shares were deposited in the Escrow Account to secure a portion of the
indemnification obligations of the WelCare Holders under the THS Merger
Agreement.
On January 31, 1997, in connection with the Settlement Agreement, Messrs.
Eaton, Dahl and Fosha received all shares of Common Stock deposited on their
behalf into the Escrow Account. Mr. Dahl also received 5,881 shares of Special
Voting Common Stock.
Purchases of Common Stock in the IPO
Mr. Eaton purchased 5,000 shares of Common Stock and Mr. Dahl purchased
2,000 shares of Common Stock at $16.00 a share in the IPO.
Purchases Through Option Exercises
On January 15, 1996, Mr. Eaton exercised options to acquire 76,633 shares of
Common Stock, Mr. Dahl exercised options to acquire 38,316 shares of Common
Stock (adjusted for the Reverse Split) and Mr. Fosha exercised options to
acquire 38,316 shares of Common Stock (adjusted for the Reverse Split), at
$.2944 a share for an aggregate purchase price of $45,121.
56
<PAGE>
On May 1, 1996, Mr. Dahl exercised an option to acquire 11,495 shares of
Common Stock (adjusted for the Reverse Split) at an exercise price of $7.83 a
share for an aggregate purchase price of $90,005.
Purchases Through Open Market Transactions
On December 9, 1997, Mr. Dahl purchased 2,000 shares of Common Stock in the
open market for $20,125 a share and an aggregate purchase price of $40,250.
INDEPENDENT AUDITORS
The consolidated balance sheets as of December 31, 1997 and December 31,
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1997, incorporated by reference in this Proxy Statement have been audited by
Coopers & Lybrand L.L.P., (now known as PriceWaterhouseCoopers LLP), independent
auditors, as stated in their report. A representative of PriceWaterhouseCoopers
LLP will be at the Special Meeting to answer appropriate questions from
shareholders and will have the opportunity to make a statement if so desired.
WHERE YOU CAN FIND MORE INFORMATION
Centennial files annual, quarterly and current reports, proxy statements and
other information with the Commission. You may read and copy any reports,
statements or other information that Centennial files at the Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information on the
public reference rooms. Centennial public filings are also available to the
public from commercial document retrieval services and at the Internet World
Wide Web site maintained by the Commission at http:// www.sec.gov. Reports,
proxy statements and other information concerning Centennial also may be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Commission allows Centennial to "incorporate by reference" information
into this document, which means that Centennial can disclose important
information to you by referring you to another document filed separately with
the Commission. The information incorporated by reference is deemed to be a part
of this document, except for any information superseded by information contained
directly in this document. This document incorporates by reference certain
documents that Centennial has previously filed with the Commission. These
documents contain important business information about Centennial and its
financial condition.
Centennial may have sent to you some of the documents incorporated by
reference, but you can obtain any of them through Centennial or the Commission
or the Commission's Internet World Wide Web site described above. Documents
incorporated by reference are available from Centennial without charge,
excluding all exhibits unless specifically incorporated by reference as
57
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an exhibit to this document. Shareholders may obtain documents incorporated by
reference in this document by requesting them in writing or by telephone at the
following address:
CENTENNIAL HEALTHCARE CORPORATION
400 Perimeter Center Terrace, Suite 650
Atlanta, Georgia 30076
Telephone: (770) 698-9040
Attention: Shareholder Relations
The Company, the Parent, the Acquiror, certain of the WCAS Investors and the
Management Investors have filed a Schedule 13E-3 with the Commission with
respect to the Merger. The Schedule 13E-3, including any amendments and exhibits
filed or incorporated by reference as a part thereof, is available for
inspection or copying as set forth above. Statements contained in this Proxy
Statement or in any document incorporated herein by reference as to the contents
of any contract or other document referred to herein or therein are not
necessarily complete and in each instance reference is made to such contract or
other document filed as an exhibit to the Schedule 13E-3 or such other document,
and each such statement shall be deemed qualified in its entirety by such
reference.
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM CENTENNIAL HEALTHCARE, PLEASE DO
SO AT LEAST FIVE BUSINESS DAYS BEFORE THE DATE OF THE SPECIAL MEETING IN ORDER
TO RECEIVE TIMELY DELIVERY OF SUCH DOCUMENTS PRIOR TO THE SPECIAL MEETING.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the Special Meeting.
Centennial has not authorized anyone to provide you with information that is
different from what is contained in this document. This document is dated
___________, 1998. You should not assume that the information contained in this
document is accurate as of any date other than that date, and the mailing of
this document to shareholders does not create any implication to the contrary.
This Proxy Statement does not constitute a solicitation of a proxy in any
jurisdiction where, or to or from any person to whom, it is unlawful to make
such proxy solicitation in such jurisdiction.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by Centennial
are incorporated by reference in this Proxy Statement:
(i) Centennial's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
(ii) Centennial's Quarterly Report on Form 10-Q for quarter ended March 31,
1998;
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(iii) Centennial's Quarterly Report on Form 10-Q for quarter ended June 30,
1998;
(iv) Centennial's Quarterly Report on Form 10-Q for quarter ended September
30, 1998; and
(v) Centennial's Current Report on Form 8-K filed on October 28, 1998.
All documents filed by Centennial with the Commission pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof and prior
to the date of the Special Meeting shall be deemed to be incorporated by
reference herein and shall be a part hereof from the date of filing of such
documents. Any statements contained in a document incorporated by reference
herein or contained in this Proxy Statement shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
(or in any other subsequently filed document which also is incorporated by
reference herein) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part hereof except as
so modified or superseded.
SHAREHOLDER PROPOSALS
If the Merger is not consummated for any reason, proposals of shareholders
intended to be presented at the 1999 Annual Meeting of Shareholders must be
received by the Company at its principal executive offices on or prior to
_______, 1998 to be eligible for inclusion in the Company's Proxy Statement and
form of proxy relating to that meeting.
OTHER MATTERS
Management knows of no other business to be presented at the Special
Meeting. If other matters do properly come before the meeting, or any
adjournment or adjournments thereof, it is the intention of the persons named in
the proxy to vote on such matters according to their best judgment unless the
authority to do so is withheld in such proxy.
59
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
A-1
<PAGE>
Appendix A
AGREEMENT AND PLAN OF MERGER
Among
COUGAR HOLDINGS CORPORATION,
COUGAR ACQUISITION CORP.
and
CENTENNIAL HEALTHCARE CORPORATION
Dated as of October 22, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
THE MERGER
SECTION 1.01 The Merger.................................................................................2
SECTION 1.02 Effect of the Merger.......................................................................2
SECTION 1.03 Consummation of the Merger.................................................................2
SECTION 1.04 Closing....................................................................................2
SECTION 1.05 Articles of Incorporation; By-Laws; and Directors and Officers
of the Surviving Corporation......................................................2
SECTION 1.06 Further Assurances.........................................................................3
SECTION 1.07 Company Actions............................................................................3
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Securities...................................................................3
SECTION 2.02 Stock Options..............................................................................4
SECTION 2.03 Payment for Shares.........................................................................5
SECTION 2.04 Dissenting Shares..........................................................................6
SECTION 2.05 Dissenting Shares After Payment of Fair Value..............................................7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01 Organization and Qualification.............................................................7
SECTION 3.02 Authorization and Validity of Agreement....................................................8
SECTION 3.03 Non-Contravention..........................................................................9
SECTION 3.04 Capital Stock; Subsidiaries...............................................................10
SECTION 3.05 SEC Filings...............................................................................11
SECTION 3.06 Financial Statements......................................................................11
SECTION 3.07 Absence of Undisclosed Liabilities........................................................12
SECTION 3.08 Governmental Approvals....................................................................12
SECTION 3.09 Absence of Certain Changes or Events......................................................12
SECTION 3.10 Title to Properties, Absence of Liens and
Encumbrances...................................................................................14
SECTION 3.11 List of Properties, Contracts and Other Data..............................................14
SECTION 3.12 Intangible Rights.........................................................................16
SECTION 3.13 Software..................................................................................16
SECTION 3.14 Litigation................................................................................17
SECTION 3.15 Governmental Authorizations and Regulations...............................................18
SECTION 3.16 Condition of Facilities...................................................................19
SECTION 3.17 Labor Matters.............................................................................19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 3.18 Insurance.................................................................................20
SECTION 3.19 Use of Real Property......................................................................20
SECTION 3.20 Conditions of Assets......................................................................21
SECTION 3.21 Employee Benefit Plans....................................................................21
SECTION 3.22 Environmental Matters.....................................................................22
SECTION 3.23 Information In Proxy Statement............................................................22
SECTION 3.24 Fraud and Abuse...........................................................................23
SECTION 3.25 Health Professional's Financial Relationships.............................................24
SECTION 3.26 Tax Matters...............................................................................24
SECTION 3.27 Transactions With Affiliates..............................................................25
SECTION 3.28 Brokers and Finders.......................................................................25
SECTION 3.29 Opinion of Financial Advisor..............................................................25
SECTION 3.30 Statements True and Correct...............................................................26
SECTION 3.31 Knowledge of the Company..................................................................26
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
SECTION 4.01 Organization and Qualification............................................................26
SECTION 4.02 Authority Relative to Agreement...........................................................26
SECTION 4.03 Non-Contravention.........................................................................27
SECTION 4.04 Governmental Approvals....................................................................27
SECTION 4.05 Proxy and Schedule 13E-3 Information......................................................27
SECTION 4.06 Brokers and Finders.......................................................................28
SECTION 4.07 Sufficient Funds..........................................................................28
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUISITION SUB
SECTION 5.01 Organization and Qualification............................................................28
SECTION 5.02 Authorization and Validity of Agreement...................................................29
SECTION 5.03 Non-Contravention.........................................................................29
SECTION 5.04 Governmental Approvals....................................................................29
ARTICLE VI
CERTAIN AGREEMENTS
SECTION 6.01 Conduct of the Company's Business.........................................................30
SECTION 6.02 Stockholder Approval......................................................................31
SECTION 6.03 Access to Information.....................................................................32
SECTION 6.04 Further Assurances........................................................................32
SECTION 6.05 Inquiries and Negotiations; Certain Payments..............................................32
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 6.06 Notification of Certain Matters...........................................................34
SECTION 6.07 Indemnification...........................................................................34
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01 Conditions to the Merger Relating to Parent
and Acquisition Sub............................................................................35
SECTION 7.02 Conditions to the Merger Relating to the
Company........................................................................................37
ARTICLE VIII
TERMINATION AND ABANDONMENT
SECTION 8.01 Termination and Abandonment...............................................................38
SECTION 8.02 Effect of Termination.....................................................................39
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Nonsurvival of Representations and Warranties.............................................39
SECTION 9.02 Expenses, Etc.............................................................................40
SECTION 9.03 Publicity.................................................................................40
SECTION 9.04 Execution in Counterparts.................................................................40
SECTION 9.05 Notices...................................................................................40
SECTION 9.06 Waivers...................................................................................41
SECTION 9.07 Headings; Interpretation..................................................................42
SECTION 9.08 Entire Agreement..........................................................................42
SECTION 9.09 Governing Law.............................................................................42
SECTION 9.10 Severability..............................................................................42
SECTION 9.11 Binding Effect, Benefits..................................................................43
SECTION 9.12 Assignability.............................................................................43
SECTION 9.13 Amendments................................................................................43
</TABLE>
iii
<PAGE>
INDEX TO EXHIBIT AND DISCLOSURE SCHEDULE
Exhibit Description
- ------- -----------
A Form of Opinion of King & Spalding
B Form of Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol
Disclosure
Schedule
Section Description
- ----------- -----------
3.01 Qualifications to do Business
3.03 Non-Contravention
3.04(a) Stock of Company and Corporate Subsidiaries
3.04(b) Options, Warrants, etc. of Company and Corporate Subsidiaries
3.04(c) Options, Warrants, etc. of Partnership Subsidiaries
3.04(d) Other Investments
3.08 Governmental Approvals (Company)
3.09 Certain Changes
3.10 Liens and Encumbrances
3.11 Properties, Contracts, etc.
3.12 Intangible Rights
3.14 Litigation
3.15 Governmental Authorizations
3.16 Condition of Facilities
3.17 Labor Matters
3.18 Insurance
3.19 Use of Real Property
3.20 Condition of Assets
3.21 Employee Benefits
3.22 Environmental Matters
3.26 Tax Matters
3.28 Transactions with Affiliates
3.31 Knowledge of the Company
4.04 Governmental Approvals (Parent)
5.04 Governmental Approvals (Acquisition Sub)
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of October 22, 1998, by
and among COUGAR HOLDINGS CORPORATION, a Delaware corporation ("Parent"), COUGAR
ACQUISITION CORP., a Georgia corporation and a wholly-owned subsidiary of Parent
("Acquisition Sub"), and CENTENNIAL HEALTHCARE CORPORATION, a Georgia
corporation (the "Company"). The Company and Acquisition Sub are hereinafter
sometimes referred to as the "Constituent Corporations" and the Company as the
"Surviving Corporation".
WHEREAS a special committee (the "Special Committee")
comprised of three independent directors of the Board of Directors of the
Company (the "Company Board") has unanimously determined that the terms of the
proposed acquisition of the Company by Parent pursuant to a merger of
Acquisition Sub with and into the Company, upon the terms and subject to the
conditions hereinafter provided, are fair to, and in the best interest of, the
Company and the shareholders of the Company (the "shareholders" or the "Public
Shareholders"); and
WHEREAS the Special Committee has unanimously approved this
Agreement and Plan of Merger (the "Agreement") and has unanimously recommended
that the Company Board approve this Agreement and the merger, which
recommendation is based in part on a fairness opinion issued by J.P. Morgan
Securities Inc. (the "Independent Advisor"), independent financial advisors to
the Special Committee, that, as of the date of such opinion and based on the
assump tions, qualifications and limitations contained therein, the
consideration to be received by the Public Shareholders for their shares in the
merger is fair to the Public Shareholders from a financial point of view; and
WHEREAS the Company Board has granted full responsibility and
authority on behalf of the Company and the Board to the Special Committee to
modify, amend or otherwise change this Agreement, or any of its terms or
provisions (including modifications, amendments or changes subsequent to the
Closing), to take all action and to execute all documents necessary or desirable
to consummate the transactions contemplated by this Agreement, and to take all
actions and to execute all documents which may be necessary or desirable in
connection therewith, to give and receive consents and all notices on behalf of
the Company hereunder, to negotiate and settle claims on behalf of the Company
hereunder, and to perform any other act arising under or pertaining to this
Agreement and the transactions contemplated hereby on behalf of the Company; and
WHEREAS, the respective Boards of Directors of Parent and
Acquisition Sub and the Company Board have each (i) approved, upon the terms and
subject to the conditions hereinafter provided, and (ii) determined that the
merger is fair to, and deem it advisable and in the best interest of their
respective shareholders to consummate, the acquisition of the Company by Parent
pursuant to a merger of Acquisition Sub with and into the Company;
<PAGE>
NOW, THEREFORE, in consideration of the mutual
representations, warranties, covenants, agreements and conditions contained
herein, and in order to set forth the terms and conditions of the Merger (as
hereinafter defined) and the mode of carrying the same into effect, the parties
hereto hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger. Upon the terms and subject to the
conditions of this Agreement, at the Effective Time (as hereinafter defined), in
accordance with this Agreement and the Georgia Business Corporation Code (the
"Georgia Code"), Acquisition Sub shall be merged with and into the Company (the
"Merger"), the separate existence of Acquisition Sub (except as it may be
continued by operation of law) shall cease, and the Company shall continue as
the surviving corporation in the Merger.
SECTION 1.02 Effect of the Merger. Upon the effectiveness of
the Merger, the Surviving Corporation shall succeed to and assume all the rights
and obligations of the Company and Acquisition Sub in accordance with the
Georgia Code and the Merger shall otherwise have the effects set forth in
Section 14-2-1101 et seq. of the Georgia Code.
SECTION 1.03 Consummation of the Merger. As soon as
practicable (and in any event within five (5) business days) after the
satisfaction or waiver of the conditions to the obligations of the parties to
effect the Merger set forth herein, provided that this Agreement has not been
terminated previously, the parties to this Agreement will cause the Merger to be
consummated by filing with the Secretary of State of the State of Georgia a
properly executed certificate of merger in accordance with Section 14-2-1105 of
the Georgia Code, which shall be effective upon filing or on such later date and
time as the parties hereto agree shall be specified in the Certificate of Merger
(the time of such effectiveness being hereinafter referred to as the "Effective
Time").
SECTION 1.04 Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place, at a location
mutually agreed upon by Parent and the Company, at 10:00 a.m. (local time) on
the day on which the Certificate of Merger is filed pursuant to Section 1.03
(the "Closing Date").
SECTION 1.05 Articles of Incorporation; By-Laws; and Directors
and Officers of the Surviving Corporation. Subject to Section 6.07, the Articles
of Incorporation of Acquisition Sub in effect at the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation, until thereafter amended
in accordance with the provisions thereof and as provided by the Georgia Code.
The By-Laws of Acquisition Sub in effect at the Effective Time shall be the
By-Laws of the Surviving Corporation, until thereafter amended in accordance
with the
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provisions thereof and the Articles of Incorporation of the Surviving
Corporation and as provided by the Georgia Code. From and after the Effective
Time and until their respective successors are duly elected or appointed and
qualified, (a) the directors of Acquisition Sub at the Effective Time shall be
the directors of the Surviving Corporation and (b) the officers of the Company
at the Effective Time shall be the officers of the Surviving Corporation.
SECTION 1.06 Further Assurances. If at any time after the
Effective Time, the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments or assurances or any other acts are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation, its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Constituent Corporations or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either of the Constituent Corporations, all such deeds, bills of sale,
assignments and assurances and do, in the name and on behalf of such Constituent
Corporations, all other acts and things necessary, desirable or proper to vest,
perfect or confirm its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of such Constituent
Corporation or otherwise to carry out the purposes of this Agreement.
SECTION 1.07 Company Actions. The Company hereby approves of
and consents to the Merger and represents and warrants that its Board of
Directors, at a meeting duly called and held, and acting on the unanimous
recommendation of the Special Committee, has (i) unanimously determined that
each of this Agreement and the transactions contemplated hereby, including the
Merger, are fair to and in the best interests of the shareholders of the
Company, (ii) unanimously adopted this Agreement and the transactions
contemplated hereby, including the Merger and (iii) unanimously resolved to
recommend that the shareholders of the Company adopt this Agreement and the
Merger, provided, however, that such recommendation may be with drawn, modified
or amended if, in the opinion of the Board of Directors, after receipt of advice
from outside legal counsel, failure to withdraw, modify or amend such
recommendation would result in the Board of Directors violating its fiduciary
duties to the Company's shareholders under applicable law. The Company further
represents that the Independent Advisor has delivered to the Company's Board of
Directors its written opinion that the Merger Consideration (as hereinaf ter
defined) is fair to the holders of Shares (as hereinafter defined) from a
financial point of view.
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ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Securities. By virtue of the Merger
and without any action on the part of either Constituent Corporation or any
holder of the capital stock thereof, at the Effective Time:
(a) each share of Common Stock, par value $.01 per
share, of Acquisition Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and become one validly
issued, fully paid and nonassessable share of Common Stock, par value
$.01 per share, of the Surviving Corporation;
(b) each share of Common Stock, par value $.01 per
share, of the Company ("Company Common Stock") that is held in the
treasury of the Company or of any Subsidiary, or by Parent or any of
its subsidiaries, shall be canceled and retired and no consideration
shall be paid or delivered in exchange therefor; and
(c) each remaining share (each a "Share") of Company
Common Stock issued and outstanding immediately prior to the Effective
Time (other than Dissenting Shares) shall be converted into the right
to receive an amount in cash, without interest, equal to Sixteen
Dollars ($16.00) per Share (the "Merger Consideration").
SECTION 2.02 Stock Options.
(a) At the Effective Time, each stock option outstanding under
the Company's 1994 Employee Stock Option Plan, the Company's 1996 Executive
Stock Plan, the Company's 1996 Employee Stock Option Plan and/or the Company's
1997 Stock Plan (collectively, the "Company Stock Option Plans") shall, to the
extent not theretofore vested, become vested and shall terminate as of the
Effective Time. Each holder of any such stock option having an exercise price
less than the Merger Consideration shall be entitled to receive from the
Company, in cancellation and settlement of such stock option, an amount in cash
determined by multiplying (x) the excess, if any, of the Merger Consideration
over the per share exercise price of each such option by (y) the number of
shares of Company Common Stock issuable upon exercise of such option, subject to
applicable withholding taxes, if any; and each holder of any such stock option
having an exercise price equal to or greater than the Merger Consideration shall
not receive any consideration in cancellation and settlement of such stock
option.
(b) Prior to the Effective Time, the Company (x) shall not,
without first obtaining the consent of Parent, grant any additional stock
options or modify the provisions thereof or of any of the Company Stock Option
Plans (except as provided in this Section 2.02) and (y) shall take all necessary
actions to ensure that (1) the Company Stock Option Plans and all
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options issued and outstanding thereunder shall terminate and be canceled as of
the Effective Time, (2) the provisions in any other plan, program, agreement or
arrangement providing for the issuance or grant of any other interest in respect
of the capital stock of the Company or any Subsidiary, shall be canceled as of
the Effective Time and (3) all Company options that are not exercised prior to
the Effective time will terminate and expire as of the Effective Time.
SECTION 2.03 Payment for Shares.
(a) Prior to the Effective Time, Parent shall designate a bank
or trust company to act as exchange agent (the "Exchange Agent") for the purpose
of exchanging certificates representing Shares for the Merger Consideration. At
the Effective Time, Parent and Acquisition Sub shall cause such funds as are
required for the conversion of the Shares pursuant to Section 2.01(c) (the
"Exchange Fund") to be deposited with the Exchange Agent.
(b) Promptly after the Effective Time, Parent shall instruct
the Exchange Agent to mail to each holder of record of one or more Shares (i) a
letter of transmittal, which shall specify that delivery shall be effected, and
risk of loss and title to the certificates that immediately prior to the
Effective Time represented outstanding Shares (each, a "Certificate") shall
pass, only upon proper delivery of such Certificates to the Exchange Agent and
have such other provisions as Parent shall specify and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for the Merger
Consideration. Until surrendered as contemplated by this Section 2.03, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive the Merger Consideration. No interest will be paid or
accrued on the Merger Consideration.
(c) Upon surrender of a Certificate (duly endorsed as the
Exchange Agent may require) for cancellation to the Exchange Agent, together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may be required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor the Merger Consideration payable in respect of the Shares
previously represented by such Certificate, after giving effect to any
applicable withholding tax, and the Certificate so surrendered shall forthwith
be canceled. The Exchange Agent may establish such other reasonable and
customary rules and procedures in connection with its duties as it may deem
appropriate.
(d) If the Merger Consideration is to be paid to any person
other than the person in whose name the Certificates surrendered for conversion
are registered, it shall be a condition of payment that such Certificates be
properly endorsed and the signatures thereon properly guaranteed and otherwise
in proper form for transfer and that the person requesting such payment shall
pay to the Exchange Agent any transfer or other taxes required by reason of the
delivery of such consideration to a person other than the registered holder of
such Certificate, or
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shall establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not applicable.
(e) If any Certificate shall have been lost, stolen, mislaid
or destroyed, upon receipt of (i) an affidavit of that fact from the holder
claiming such Certificate to be lost, stolen, mislaid or destroyed, (ii) such
bond, security or indemnity as Parent and/or the Exchange Agent may require and
(iii) any other documents necessary to evidence and effect the bona fide
exchange thereof, the Exchange Agent shall deliver to such holder the Merger
Consideration into which the shares represented by such lost, stolen, mislaid or
destroyed Certificate have been converted.
(f) Any portion of the Exchange Fund held by the Exchange
Agent for delivery pursuant to this Section 2.03 and unclaimed at the end of six
months after the Effective Time shall be repaid or redelivered to Parent, upon
demand, and any holders of Certificates who have not theretofore complied with
this Section 2.03 shall, subject to applicable law, thereafter look only to the
Surviving Corporation for payment of the Merger Consideration in respect of such
holders' Shares. Notwithstanding the foregoing, none of Parent, the Surviving
Corporation or the Exchange Agent shall be liable to any holder of Shares for
any amount paid to a public official pursuant to any applicable abandoned
property, escheat or similar law. Any amounts unclaimed by holders of Shares two
years after the Effective Time (or such earlier date immedi ately prior to such
time as such amounts would otherwise escheat to or become the property of any
governmental entity) shall, to the extent permitted by applicable law, become
the property of the Surviving Corporation free and clear of any claims or
interest of any person previously entitled thereto.
(g) At and after the Effective Time, the stock transfer books
of the Company shall be closed, and there shall be no further registrations of
transfers of shares of Company Common Stock thereafter on the records of the
Company. If, after the Effective Time, Certifi cates are presented to the
Surviving Corporation, Parent or the Exchange Agent for any reason, they shall
be canceled and exchanged for Merger Consideration as provided in this Section
2.03.
SECTION 2.04 Dissenting Shares.
(a) Notwithstanding anything in this Agreement to the
contrary, Shares that are outstanding immediately prior to the Effective Time
and that are held by any shareholder who has delivered to the Company, prior to
the vote of shareholders required by Section 6.02 hereof, a written notice in
accordance with Article 13 of the Georgia Code of such shareholder's intent to
demand payment for such shareholder's Shares if the Merger is effected and who
shall have not voted such Shares in favor of the approval and adoption of this
Agreement (collectively, the "Dissenting Shares") shall not be converted into
the right to receive the Merger Consideration, but the holders of such
Dissenting Shares shall be entitled to payment of the fair value of such
Dissenting Shares in accordance with the provisions of Article 13 of the Georgia
Code,
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provided, however, that if such shareholder shall waive such shareholder's right
to demand payment under Article 13 of the Georgia Code or a court of competent
jurisdiction shall determine that such shareholder is not entitled to the relief
provided by said Article 13, then the right of such holder of Dissenting Shares
to be paid the fair value of such shareholders Dissenting Shares shall cease and
such Dissenting Shares shall thereupon be deemed to have been converted into, as
of the Effective Time, the right to receive the Merger Consideration, without
any interest thereon.
(b) The Company shall give Parent and Acquisition Sub (i)
prompt notice of any notices or other instruments received by the Company
pursuant to Article 13 of the Georgia Code and (ii) the opportunity to direct
all negotiations and proceedings with respect to demands for payment for
Dissenting Shares. The Company shall not, except with the prior written consent
of Parent and Acquisition Sub, voluntarily offer to make or make any payment
with respect to any demands for payment for Dissenting Shares or settle or offer
to settle any such demands.
SECTION 2.05 Dissenting Shares After Payment of Fair Value.
Dissenting Shares, if any, shall be canceled after payments of fair value in
respect thereto have been made to dissenting shareholders of the Company
pursuant to the Georgia Code.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and
Acquisition Sub as follows:
SECTION 3.01 Organization and Qualification.
(a) The Company and each of its corporate Subsidiaries (the
"Corporate Subsidiaries") is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation, and is duly
licensed or qualified and in good standing to do business as a foreign
corporation, and is authorized to do business, in each other jurisdiction in
which the character or location of the properties owned, leased, managed or
operated by such entity or the nature of the business transacted by it makes
such licensing or qualification neces sary, except where the failure to be so
licensed or qualified could not reasonably be expected to have a Material
Adverse Effect (as hereinafter defined). The Company has heretofore delivered to
Parent accurate and complete copies of its Articles of Incorporation and By-laws
and the charter and By-laws of each of the Corporate Subsidiaries, all as
currently in effect. The Company and each Corporate Subsidiary has the requisite
corporate power and authority to own or lease and operate its properties and
assets and to carry on its business as currently conducted. As used in this
Agreement, "Material Adverse Effect" shall mean a material adverse effect on the
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business, properties, results of operation or condition (financial or otherwise)
of the Company and its Subsidiaries, taken as a whole.
(b) Each of the Company's partnership Subsidiaries (the
"Partnership Subsidiaries") is a partnership or limited partnership duly
organized and validly existing under the laws of the state of its organization,
and is duly licensed or qualified and, to the extent applicable, in good
standing, to do business as a foreign partnership, and is authorized to do
business, in each other jurisdiction in which the character or location of the
properties owned, leased, managed or operated by such entity or the nature of
the business transacted by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified could not reason ably be
expected to have a Material Adverse Effect. The Company has heretofore delivered
to Parent accurate and complete copies of the partnership agreement (and other
organizational documents) of each of the Partnership Subsidiaries, all as
currently in effect. The Partnership Subsidiaries have the requisite partnership
power and authority to own or lease and operate their respective assets and
properties and to carry on their respective businesses as currently conducted.
(c) Section 3.01 of the Disclosure Schedule sets forth a
complete list of the jurisdictions in which the Company and each of the
Subsidiaries is licensed or qualified to do business.
(d) As used herein, (x) the term "Subsidiaries" means all
those corporations and other business entities of which the Company (i) owns or
controls 50% or more of the outstanding equity securities either directly or
through an unbroken chain of entities as to each of which 50% or more of the
outstanding equity securities is owned directly or indirectly by its parent, or
(ii) in the case of partnerships, serves as a general partner, or (iii) in the
case of a limited liability company, serves as a managing member or (iv)
otherwise has the ability to elect a majority of the directors, trustees or
managing members thereof, and (y) the term "Facility" means any nursing home or
other medical facility owned or leased (a "Proprietary Facility") or managed (a
"Managed Facility") by the Company or any Subsidiary. Except as expressly
provided herein, each reference in this Agreement to the Company or a Subsidiary
shall be deemed to include any Proprietary Facility that is owned or leased by
such entity, whether so expressed or not, including, by way of example and not
of limitation, references to contracts and commitments entered into, or
purported to be entered into, in the name of any such Proprietary Facility and
licenses or other property or assets held by, or purported to be held by, any
such Proprietary Facility.
SECTION 3.02 Authorization and Validity of Agreement.
(a) The Company has the requisite corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution, delivery and performance by the Company of this
Agreement, and the consummation of the transactions
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contemplated hereby have been duly authorized and approved by all requisite
corporate action (including without limitation the unanimous approval of the
Special Committee), subject to the adoption of this Agreement by the holders of
a majority of the outstanding shares of Company Common Stock, which is the only
shareholder vote required for approval of this Agreement and the consummation of
the Merger. This Agreement has been duly executed and delivered by the Company
and, assuming due execution and delivery by the other parties hereto and
assuming that this Agreement constitutes a valid and binding obligation of
Parent and Acquisition Sub, constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms.
(b) At a Special Committee meeting duly called and held on
October 21, 1998, the Special Committee, based in part upon the opinion of the
Independent Advisor, unanimously (i) determined that this Agreement and the
Merger contemplated hereby are fair to and in the best interest of the Public
Shareholders, (ii) approved, authorized and adopted this Agreement, the Merger
and the other transactions contemplated hereby, and (iii) resolved to recommend
the approval and adoption of this Agreement and the Merger by the shareholders
of the Company.
(c) At a Company Board meeting duly called and held on October
22, 1998, the Company Board, based in part upon the approval and recommendation
of the Special Committee described in Section 3.02(b), (i) determined that this
Agreement and the Merger contemplated hereby are fair to and in the best
interest of the Public Shareholders, (ii) approved, authorized and adopted this
Agreement, the Offer, the Merger and the other transactions contemplated hereby,
and (iii) resolved to recommend the approval and adoption of this Agreement and
the Merger by the shareholders of the Company.
(d) The Independent Advisor has delivered to the Special
Committee and to the Company Board its written opinion, dated prior to or as of
the date of this Agreement, that based on the assumptions, qualifications and
limitations contained therein, the cash consideration to be received by the
Public Shareholders in the Merger is fair to such holders from a financial point
of view.
SECTION 3.03 Non-Contravention. Neither the execution and
delivery of this Agreement by the Company, nor the consummation of the
transactions contemplated hereby, nor compliance by the Company with any of the
terms and provisions hereof, will (i) violate, contravene, conflict with or
result in a breach of any provision of the Company's Articles of Incorporation
or By-laws or the Articles or Certificate of Incorporation or By-laws (or other
equivalent organizational documents) of any Subsidiary, (ii) except as set forth
on Section 3.03 of the Disclosure Schedule, result in any material respects in
any breach or violation of, conflict with, or constitute or result in a default
or event of default or event which, with notice or lapse of time or both, would
constitute such a default or event of default (or give rise to any right of
termina tion, cancellation, payment or acceleration, or any other right to
materially diminish the
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rights of, or materially increase the obligations or costs to, the Company or
any Subsidiary) under, or require any consent pursuant to, or result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever on any of the properties or assets owned, leased or managed by the
Company and/or any Subsidiary under the terms or provisions of, any material
note, bond, mortgage, license, franchise, permit, lease, indenture, agreement,
contract or other instrument or obligation to which the Company and/or any
Subsidiary is a party or to which any of the material properties or assets
owned, leased or managed by the Company or any Subsidiary are bound or otherwise
affected or (iii) contravene or violate in any material respects any law, rule,
regulation, licensing requirement, permit, order or decree of any court,
arbitrator or any other agency of government or authority by which the Company
or any Subsidiary is bound or by which any material properties or assets owned,
leased or managed by the Company or any Subsidiary are bound or otherwise
affected.
SECTION 3.04 Capital Stock; Subsidiaries.
(a) The total number and par value of authorized shares of
capital stock of the Company and each of the Corporate Subsidiaries and the
total number of issued and outstanding shares of capital stock of the Company
and each of the Corporate Subsidiaries is set forth on Section 3.04(a) of the
Disclosure Schedule. All shares of capital stock of the Company and each of the
Corporate Subsidiaries are validly issued and outstanding, fully paid and
nonassessable. The total number of partnership (general or limited) units or
other interests authorized, and the total number of partnership (general or
limited) units or other interests outstanding of the Partnership Subsidiaries is
set forth on Section 3.04(a) of the Disclosure Schedule. All of such partnership
units or other interests are validly issued and outstanding, fully paid and
nonassessable. All of the outstanding shares of capital stock or partnership
(general or limited) units of each Subsidiary are directly owned, of record and
beneficially, by the persons (and in the relative ownership percentages) listed
on Section 3.04(a) of the Disclosure Schedule, free and clear of all pledges,
security interests, liens, claims, charges or other encumbrances of any nature
whatsoever, except for those pledges, security interests, liens, claims, charges
or other encumbrances set forth on Section 3.04(a) of the Disclosure Schedule.
None of the outstanding shares of capital stock or partnership units or other
interests of the Company or any Subsidiary are subject to, nor were any of them
issued in violation of, any pre-emptive or similar rights or any right of first
refusal or first offer or other similar right in favor of any person and there
are no proxies outstanding or restrictions on or agreements with respect to the
voting or transferability any of such shares or units or other interests.
(b) Except as set forth on Section 3.04(b) of the Disclosure
Schedule, (i) no subscription, warrant, option, convertible security or other
right (contingent or other) to purchase or acquire any shares of any class of
capital stock of the Company or any Corporate Subsidiary is authorized or
outstanding, (ii) there are no outstanding stock appreciation rights or phantom
stock plans of the Company, (iii) there is not any commitment on the part of the
Company or of any Corporate Subsidiary to issue any shares, warrants, options or
other such rights or to
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distribute to holders of any class of its capital stock any evidences of
indebtedness or assets and (iv) neither the Company nor any Corporate Subsidiary
has any obligation (contingent or other) to purchase, redeem or otherwise
acquire any shares of the capital stock of the Company or the Corporate
Subsidiaries or any interest therein or to pay any dividend or make any other
distribution in respect thereof.
(c) Except as set forth on Section 3.04(c) of the Disclosure
Schedule, (i) no subscription, warrant, option, convertible security or other
right (contingent or other) to purchase or acquire any interest in any
Partnership Subsidiary is authorized or outstanding, (ii) there is not any
commitment of any Partnership Subsidiary to issue any partnership interests or
other rights or to distribute to its partners any evidences of indebtedness or
assets and (iii) no Partnership Subsidiary has any obligation (contingent or
other) to purchase, redeem or otherwise acquire any partnership interests or to
pay or make any other distribution in respect thereof.
(d) Other than the capital stock of the Corporate Subsidiaries
and the partnership (general or limited) units of the Partnership Subsidiaries,
and except as set forth on Section 3.04(d) of the Disclosure Schedule, neither
the Company nor any Subsidiary owns of record or beneficially, or has any right
or obligation to acquire, directly or indirectly, (i) any shares of outstanding
capital stock or securities convertible into or exchangeable for capital stock
of any other corporation or (ii) any participating interests in any partnership,
joint venture or other non-corporate business enterprise.
SECTION 3.05 SEC Filings
(a) The Company has timely filed and (except for preliminary
materials) made available to Parent all reports, statements, registration
statements and other documents (including all exhibits thereto) filed or
required to be filed by the Company with the Securities Exchange Commission (the
"SEC") (such reports, registration statements and other documents being referred
to herein collectively as the "Company SEC Filings"), including without
limitation, (i) the Company's Registration Statement on Form S-1 dated July 2,
1997, (ii) the Annual Report of the Company on Form 10-K for the year ended
1997, (iii) the Quarterly Reports of the Company on Form 10-Q for the three
months ended March 31, 1998 and June 30, 1998, and (iv) its proxy or information
statements relating to meetings of, or actions taken without a meeting by, the
shareholders of the Company. The Company SEC Filings, including, without
limitation, any financial statements or schedules including therein or
incorporated therein by reference, (i) at the time filed, complied in all
material respects with applicable requirements of the Securities Act of 1933, as
amended (the "Securities Act") and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as the case may be, and other applicable laws,
rules and regulations and (ii) did not, at the time they were filed (or, if
amended or superseded by a filing prior to the date hereof, then on the date of
such later filing) contain any untrue statement of a material fact or omit to
state a material fact required to be stated in such Company SEC Filings or
necessary in order to make the statements in such Company SEC Filings, in light
of the circumstances under
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which they were made, not misleading. No Subsidiary is, or has been, required to
file any forms, reports or other documents with the SEC.
SECTION 3.06 Financial Statements. The financial statements of
the Company and its Subsidiaries contained in the Company SEC Filings or
otherwise furnished to Parent and Acquisition Sub, including (i) the
consolidated balance sheets of the Company and its Subsidiaries as of December
31, 1997 (the "Audited Balance Sheet") and as of each of December 31, 1996 and
December 31, 1995 and the related statements of income, shareholders' equity and
cash flows for the respective years then ended, in each case certified by
PricewaterhouseCoopers LLP, the independent public accountants retained by the
Company and (ii) the unaudited consolidated balance sheets of the Company as of
June 30, 1998 (the "Interim Balance Sheet") and June 30, 1997, and the related
statements of operations, shareholders' equity and cash flows for the respective
six-month periods then ended, certified by the Chief Financial Officer of the
Company, are in accordance with the books and records of the Company and its
Subsidiaries (except as may be indicated in the notes thereto or in the case of
unaudited statements, as permitted by Rule 10- 01 of Regulation S-X promulgated
by the SEC) and present fairly (subject, in the case of unaudited statements, to
normal, recurring accruals, none of which individually or in the aggre gate will
be material), in all material respects, the consolidated financial position of
the Company as of such respective dates and the consolidated results of its
operations for the respective periods then ended in accordance with generally
accepted accounting principles ("GAAP"), applied on a consistent basis
throughout the periods involved.
SECTION 3.07 Absence of Undisclosed Liabilities. Except as set
forth on, and to the extent reflected in, the Interim Balance Sheet or the
Company SEC Filings or as may have been incurred since June 30, 1998 in the
ordinary course of business and consistent with past practice, neither the
Company nor any Subsidiary has incurred any liabilities or obligations of any
kind or nature, whether known or unknown or secured or unsecured (whether
absolute, accrued, contingent or otherwise, and whether due or to become due) of
a nature customarily accrued, reserved against or disclosed in a corporate
balance sheet (including the notes thereto) prepared in conformity with GAAP,
including without limitation any tax liabilities due or to become due.
SECTION 3.08 Governmental Approvals. Except as set forth in
Section 3.08 of the Disclosure Schedule, no order, authorization, approval or
consent from, or filing with, any federal or state governmental or public body
or other authority having jurisdiction over the Company, any Subsidiary or any
Facility is required for the execution, delivery and performance of this
Agreement by the Company or is necessary in order to ensure the legality,
validity, binding effect or enforceability of this Agreement, other than (i)
filings in connection or compliance with the provisions of any federal or state
securities laws and/or the rules of the National Association of Securities
Dealers, Inc. ("NASD"), (ii) filings with the Federal Trade Commission and with
the Antitrust Division of the United States Department of Justice pursuant to
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act), and
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the rules promulgated thereunder, (iii) the filing of a Certificate of Merger
with the Secretary of State of the State of Georgia and related informational
filings under applicable laws of other states in which the Company is qualified
to do or is doing business, and (iv) such consents, approvals, orders or
authorizations which if not obtained, or registrations, declarations or filings
which if not made, would not, individually or in the aggregate, have a Material
Adverse Effect or materially delay or materially adversely affect the ability of
the Company to consummate the transactions contemplated hereby.
SECTION 3.09 Absence of Certain Changes or Events.
(a) Since June 30, 1998, except (x) as otherwise set forth in
Section 3.09 of the Disclosure Schedule, (y) as specifically disclosed in the
Company SEC Filings or (z) as otherwise specifically contemplated by this
Agreement, neither the Company nor any Subsidiary (excluding any Managed
Facility) has:
(i) changed or amended its Articles or Certificate of
Incorporation or By-laws (or other governing documents); (ii) incurred
any indebtedness for borrowed money or guaranteed any indebtedness for
borrowed money or incurred any other material obliga tion or liability
(whether fixed or contingent), except normal trade or business
obligations incurred in the ordinary course of business and consistent
with past practice; (iii) discharged or satisfied any lien, security
interest, charge or other encumbrance or paid any obligation or
liability (fixed or contingent), other than in the ordinary course of
business and consistent with past practice; (iv) mortgaged, pledged or
subjected to any lien, security interest, charge or other encumbrance
(other than Permitted Liens) any of its assets or properties; (v)
transferred, leased or otherwise disposed of any of its assets or
properties except for a fair consideration in the ordinary course of
business and consistent with past practice or, except for a fair
consideration in the ordinary course of business and consistent with
past practice, acquired any assets or properties; (vi) declared, set
aside or paid any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its
capital stock or otherwise acquired any of its capital stock or split,
combined or otherwise altered its capital stock or authorized the
creation or issuance of or issued or sold any shares of its capital
stock or any securities or obligations convertible into or exchangeable
for its capital stock or issued to any person any other right to
acquire any shares of its capital stock or any stock appreciation or
similar rights; (vii) made any investment of a capital nature either by
purchase of stock or securities, contributions to capital, property
transfers or otherwise, or by the purchase of any material property or
assets of any other individual, firm or corporation (other than
transactions between or among the Company and/or the Subsidiaries);
(viii) canceled or compromised any debt or claim other than in the
ordinary course of business, consistent with past practice; (ix)
increased the rate or terms of compensation payable or to become
payable by the Company or the Subsidiaries to their directors, officers
or employees, or increased the rates or terms of any bonus, insurance,
pension, or other employee benefit
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plan, payment or arrangement; (x) waived or released any rights of
material value, including without limitation, any Intangible
Rights, except in the ordinary course of business and consistent with
past practice; (xi) transferred or granted any rights under or with
respect to any Intangible Rights, or permitted any license, permit or
other form of authorization relating to an Intangible Right to lapse,
except in the ordinary course of business and consistent with past
practice; (xii) made or granted any wage or salary increase applicable
to any group or classification of employees generally, entered into any
employment contract with, or made any loan to, or entered into any
material transaction of any other nature with, any officer or employee
of the Company or any Subsidiary; (xiii) entered into any transaction,
contract or commitment that, individually or in the aggregate, are
material to the Company and its Subsidiaries taken as a whole, except
(x) contracts listed, or which pursuant to the terms hereof are not
required to be listed, on Section 3.11 of the Disclosure Schedule, (y)
this Agreement and the transactions contemplated hereby and (z) as
permitted by Section 6.01; (xiv) suffered any casualty loss or damage
(whether or not such loss or damage shall have been covered by
insurance) which affects in any material respect its ability to conduct
its business; or (xv) agreed in writing or otherwise to take any of the
actions listed in clauses (i) through (xiv) of this Section 3.09 or
caused or allowed any Managed Facility to take any of the actions
listed in clauses (ii) through (xiv) of this Section 3.09.
(b) Since June 30, 1998, the Company and its Subsidiaries have
not suffered a Material Adverse Effect.
SECTION 3.10 Title to Properties, Absence of Liens and
Encumbrances. Except as reflected in the Audited Balance Sheet (including any
related notes thereto), as set forth in Section 3.10 of the Disclosure Schedule
or with respect to assets disposed of since December 31, 1997 in the ordinary
course of business and consistent with past practice, each of the Company and
the Subsidiaries (i) has good and marketable fee simple title to all real
property owned by it and (ii) has good and valid title to all its other assets
and properties, in each case free and clear of all liens, claims, charges,
security interests or other encumbrances, other than (x) liens for taxes not yet
delinquent, (y) mechanics, materialmen's and similar liens and encumbrances
which may have arisen in the ordinary course of business and which, in the
aggregate, would not be material to the assets, business, financial condition or
results of operations of the Company and the Subsidiaries taken as a whole, or
(z) security interests securing indebtedness not in default for the purchase
price of or lease rental payments on property purchased or leased under capital
lease arrangements in the ordinary course of business (the liens, charges,
security interests and other encumbrances described in clauses (x), (y) and (z)
above being referred to herein as "Permitted Liens"). Any real property and
buildings held under lease by the Company or any of the Subsid iaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and would not individually or in the aggregate have a Material
Adverse Effect on the Company and the Subsidiaries and do not interfere with the
use made and proposed to be made of such property and buildings.
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SECTION 3.11 List of Properties, Contracts and Other Data.
(a) Annexed hereto as Section 3.11 of the Disclosure Schedule
is a list setting forth the following:
(i) a description of all real property owned by the Company or
any Subsidiary and (ii) all leases of real or personal property
involving payments in excess of $100,000 per annum (x) to which the
Company or any Subsidiary is a party, either as lessee or lessor or (y)
that relate to any real or personal property used in the business of
the Company and/or the Subsidiaries (the "Business"), in each case
including a description of the property to which each such lease
relates;
(ii) all collective bargaining agreements, employment and
consulting agree ments, executive compensation plans, bonus plans or
arrangements, severance plans or arrangements, deferred compensation
agreements, employee pension plains or retirement plans, employee
profit sharing plans, employee stock purchase and stock option plans,
group life insurance, hospitalization insurance or other similar plans
or arrangements providing for benefits to employees of, or independent
contractors or other agents for, the Company or any Subsidiary which
have not been filed as exhibits to the Company SEC Filings and which
exceed $100,000 per annum; and
(iii) all contracts, understandings and commitments (including
without limitation mortgages, indentures and loan agreements) to which
the Company or any Subsidiary is a party, or to which the Company or
any Subsidiary or any of the assets or properties owned, leased or
managed by the Company or any of the Subsidiaries are subject and which
are not specifically referred to in clause (a)(i) or (a)(ii) above,
provided that there need not be listed in Section 3.11 of the
Disclosure Schedule pursuant to this clause (a)(iii) any contracts,
understandings, or commitments filed as exhibits to the Company SEC
Filings or which are incurred in the ordinary course of business and
consistent with past practice, other than any such contract,
understanding or commitment which (A) is a contract or group of related
contracts which exceeds $100,000 in amount, (B) contains warranties by
the Company or any Subsidiary materially more burdensome than those
customary in the Business or (C) cannot be performed in the normal
course within 365 days after the Effective Time or canceled within such
period by the Company or any Subsidiary or its assignee, without breach
or penalty.
(b) Except as set forth on Section 3.11 of the Disclosure
Schedule or disclosed in the Company SEC Filings, neither the Company nor any
Subsidiary is party to any agreement with any employee (i) the benefits of which
(including, without limitation, severance benefits) are contingent, or the terms
of which are materially altered, upon the occurrence of a transaction involving
the Company or any Subsidiary of the nature of any of the transactions
contemplated by this Agreement or (ii) providing severance benefits in excess of
those generally available under the Company's severance policies as in effect on
the date hereof (which are described in
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Section 3.11 of the Disclosure Schedule), or which are conditioned upon a change
of control, after the termination of employment of such employees regardless of
the reason for such termination of employment. Except as set forth on Section
3.11 of the Disclosure Schedule or disclosed in the Company SEC Filings, neither
the Company nor any Subsidiary is a party to any employment agreement or
compensation guarantee extending for a period longer than one year from the date
hereof.
True and complete copies of all documents and complete
descriptions of all oral understandings (if any) referred to in Section 3.11 of
the Disclosure Schedule have been provided or made available to Parent and its
counsel. Except as disclosed in Section 3.11 of the Disclosure Schedule, to its
knowledge, neither the Company nor any Subsidiary has been notified in writing
of any claim that any contract referred to in Section 3.11 of the Disclosure
Schedule is not valid and enforceable in accordance with its terms for the
periods stated therein, or that there is under any such contract any existing
default or event of default or event which with notice or lapse of time or both
would constitute such a default or event of default or that the consummation of
the transactions contemplated hereby would result in a default or any such
condition which, in either case, could reasonably be expected have a Material
Adverse Effect.
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SECTION 3.12 Intangible Rights.
(a) Section 3.12 of the Disclosure Schedule lists (i) all
patents, trademarks and trade names, trademark and trade name registrations,
logos, service marks registrations, copy rights and copyright registrations, all
applications pending on the date hereof for patent or for trademark, trade name,
service mark or copyright registrations, and all other proprietary rights
(collectively "Intangible Rights") owned by the Company or any Subsidiary or
used by them in connection with the Business specifying the nature of its rights
therein, and (ii) all licenses granted by or to the Company or any Subsidiary
and all other agreements to which the Company or any Subsidiary is a party which
relate, in whole or in part, to any Intangible Rights mentioned in clause (i)
above, whether owned b) the Company or any Subsidiary or otherwise. Except as
set forth in Section 3.12 of the Disclosure Schedule and except where such
noncompliance, absence of rights or other failure, individually or in the
aggregate, would not be reasonably likely to have a Material Adverse Effect on
the Company and the Subsidiaries, (w) the Company and the Subsidiaries have
complied with their respective contractual obligations relating to the
protection of such of the Intangible Rights used by them pursuant to licenses or
other contracts, (x) the Company and each of the Subsidiaries has the right to
use the Intangible Rights to provide, sell and produce the services and products
provided, sold and produced by it, and to conduct its business as heretofore
conducted, and the consummation of the transactions contemplated hereby will not
alter or impair any such rights, (y) all such Intangible Rights are valid,
enforceable and in good standing and no claims have been asserted with respect
to the use by the Company or the Subsidiaries of any of the Intangible Rights or
otherwise for patent, copyright or trademark infringement, and (z) to the
knowledge of the Company, no person is infringing on or violating the Intangible
Rights or know-how used by the Company or any Subsidiary.
(b) Upon consummation of the transactions contemplated by this
Agreement, the Company and its Subsidiaries will continue to own and have the
right to use the Intangible Rights necessary to conduct the Business of the
Company and the Subsidiaries (other than any such rights, the absence of which
would not have a Material Adverse Effect, free and clear of all material claims,
liens, encumbrances, obligations and liabilities and, with respect to any agree
ments for the license of any licensed Intangible Rights which require consents
or other actions as a result of the consummation of the transactions
contemplated by this Agreement in order for the Company and its Subsidiaries to
continue to use and operate such Intangible Rights, the Company will have
obtained such consents or taken such other actions so required.
SECTION 3.13 Software.
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(a) The Company and each of the Subsidiaries has valid
licenses to all copies of all software that is not owned by it and is used by it
in connection with the conduct of its business ("Third Party Software"), and the
use by the Company or such Subsidiary of such Third Party Software, including
without limitation all modifications and enhancements thereto (whether or not
created by the Company), complies with such license (except for such
noncompliance as could not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect). The Company owns all right, title
and interest in and to all software or has obtained a third party license to all
software that is marketed or licensed by the Company and the Subsid iaries to
customers or held for use or in development for marketing and licensing to
customers (collectively, the "Proprietary Software").
(b) No claim or demand with respect to any such infringement
or violation has been made or, to the knowledge of the Company, threatened, with
respect to either the Proprietary Software or the Third Party Software.
(c) To the knowledge of the Company, there are no viruses in
the Proprietary Software and there are no defects in the Proprietary Software
that would prevent such software from performing in all material respects the
tasks and functions that it was intended to perform except those that can be
cured without a Material Adverse Effect.
(d) The Company has conducted an inventory of the Proprietary
Software, as well as the hardware and embedded microcontrollers in noncomputer
equipment (collectively, the "Computer Systems") used by the Company and its
Subsidiaries in connection with their respective Businesses in order to
determine which parts of the Computer Systems are not Year 2000 Compatible (as
defined below) and to estimate the cost of rendering such Computer Systems Year
2000 Compatible prior to January 1, 2000 or such earlier date on which the
Computer Systems may shut down or produce incorrect calculations or otherwise
malfunction without becoming totally inoperable. "Year 2000 Compatible" means
that the Computer Systems (i) correctly perform date data century recognition,
and calculations that accommodate same century and multi-century formulas and
date values; (ii) operate or will operate in accordance with their
specifications prior to, during and after the calendar year 2000 A.D.,
including, but not limited to, leap years; and (iii) shall not end abnormally or
provide invalid or incorrect results as a result of date data, specifically
including date data which represents or references different centuries or more
than one century. The Company has delivered to the Parent a copy of its findings
regarding "Year 2000 Compatible".
SECTION 3.14 Litigation.
(a) Section 3.14 of the Disclosure Schedule sets forth a
complete list and an accurate description of all claims, actions, suits,
proceedings and (to the knowledge of the Company) investigations pending or, to
the knowledge of the Company, threatened, by or against or involving the Company
or any Subsidiary or any Facility or any of the properties, rights or
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businesses owned, leased or managed by the Company or any Subsidiary. Except as
set forth in Section 3.14 of the Disclosure Schedule, no such claims, actions,
suits, proceedings or investigations, if adversely determined, could reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect.
(b) There are no actions, suits, proceedings or claims pending
before or by any court, arbitrator or government agency against or affecting the
Company, any Subsidiary or any Facility which seek to enjoin or prevent the
consummation of the transactions contemplated by this Agreement.
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SECTION 3.15 Governmental Authorizations and Regulations.
(a) To the knowledge of the Company, and except as set forth
in Section 3.15 of the Disclosure Schedule, the Company and each Subsidiary has
complied and is currently in compliance with each, and is not in violation of
any, law, ordinance, or governmental or regula tory rule or regulation, whether
federal, state, local or foreign, to which such entity's business, operations,
assets or properties is subject ("Regulations"), except where such noncompliance
could not reasonably be expected to have a Material Adverse Effect. Except as
set forth in Section 3.15 of the Disclosure Schedule, the Company and each
Subsidiary owns, holds, possesses or lawfully uses in the operation of its
business all material franchises, licenses, permits, certificates of need
("CON"), provider agreements and certifications under Subchapters XVIII and XIX
of the Social Security Act (the "Social Security Act"; the reimbursement
programs promulgated under such Subchapters are hereinafter referred to as the
"Medicare and Medicaid Programs") and any other applicable laws for
reimbursement for long-term, skilled and intermedi ate nursing care, or other
type of care provided at each Facility, easements, rights, applications,
filings, registrations and other authorizations ("Authorizations") which are in
any manner necessary for it to conduct its business as now or previously
conducted or for the ownership and use of the assets owned or used by the
Company and such Subsidiary or any Professional in the conduct of the Business,
free and clear of all liens, claims, charges, restrictions and encumbrances and
in substantial compliance with all Regulations, other than any such
Authorizations which, if not owned, held, possessed or lawfully used by the
Company and each Subsidiary, would not individually or in the aggregate have a
Material Adverse Effect. Neither the Company nor any Subsidiary is in default,
nor has the Company or any Subsidiary received any notice of any claim of
default, with respect to any such Authorization. Except as set forth in Section
3.15 of the Disclosure Schedule, neither the Company nor any Subsidiary has been
informed in writing that any action currently is pending by any governmental or
regulatory official, body or authority, either to revoke, withdraw or suspend
any CON or any license to operate any of the Facilities, or to terminate or
decertify any participation of any of the Facilities or Professionals in the
Medicare and Medicaid Programs, nor, to the knowledge of the Company, is there
any decision not to renew any provider agreement related to any Facility. As
used herein, the term "Professional" means any individual who is employed by or
under contract with the Company or any Subsidiary to provide health care
services for which a license or permit is required by any federal, state or
local law.
(b) All cost reports ("Cost Reports") required to be filed by
the Company or any Subsidiary with respect to the Facilities under Subchapters
XVIII and IX of the Social Security Act, or any, other applicable governmental
or private provider regulations for periods ended on or prior to the date of
this Agreement have been prepared and have been filed in accordance with
applicable laws, rules and regulations, and the Company and/or the Subsidiaries
have paid or made provision to pay through proper recordation of any net
liability reflected on or contained in all Notices of Program Reimbursement
received from the Medicare and Medicaid Programs and tentative settlements for
periods ended on or prior to the date of this Agreement
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and any similar obligations with respect to the Medicare and Medicaid Programs.
Section 3.15 of the Disclosure Schedule sets forth for each Facility the years
for which Cost Reports remain to be settled.
(c) Consistent with the Company's record keeping practices,
Section 3.15 of the Disclosure Schedule sets forth a complete and accurate
statement of (i) the bed categories for which each Facility is licensed or
qualified to participate under the Medicare and Medicaid Programs, (ii) the
number of beds in each such category, (iii) the number of beds in each such
category that are available for use in such Facility, and (iv) the number of
patients as of October 16, 1998 admitted in each Facility (A) who qualify for
Medicare, (B) who qualify for Medicaid, (C) who qualify for neither Medicare nor
Medicaid, (D) who qualify for other governmental programs, including, but not
limited to, programs administered by the Veterans Administration, and (E) for
whom reimbursement may be obtained from a non-governmental third-party or from
the patient.
SECTION 3.16 Condition of Facilities. Except as set forth in
Section 3.16 of the Disclosure Schedule, and to the knowledge of the Company,
each of the Facilities is in a good state of repair and condition, there are no
dangerous conditions or defects existing upon or in any of the Facilities, and
there are no (a) structural defects in any Facility that could adversely affect
the operation of such Facility as presently conducted and (b) life safety code
deficiency or other survey requirements which are not (i) subject to waiver or
(ii) currently the subject of a plan of correction which is being implemented.
SECTION 3.17 Labor Matters.
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(a) Except as set forth on Section 3.17 of the Disclosure
Schedule, neither the Company nor any Subsidiary is a party to any collective
bargaining agreement, and no such agreement is applicable to any employees of
the Company or any Subsidiary. Except as set forth in Section 3.17 of the
Disclosure Schedule, there are no controversies between the Company or any
Subsidiary on the one hand, and any of such employees, on the other hand, that
could reasonably be expected to have a Material Adverse Effect. To the knowledge
of the Company the Company and each of the Subsidiaries is in compliance in all
material respects with all federal, state or other applicable laws, domestic or
foreign, respecting employment and employment practices, terms and conditions of
employment and wages and hours, and no such entity has or is engaged in any
unfair labor practice. Except as set forth on Section 3.17 of the Disclosure
Schedule, there are no unresolved labor union grievances or unfair labor
practice or labor arbitration proceedings pending, or to the knowledge of the
Company, threatened, relating to the Business that could reasonably be expected
to have a Material Adverse Effect. To the knowledge of the Company, except as
set forth on Section 3.17 of the Disclosure Schedule, there are no
organizational efforts presently being made in respect of any of the employees
referred to above. Except as set forth in Section 3.17 of the Disclosure
Schedule, neither the Company nor any Subsidiary has received written notice of
any claim that the Company or any Subsidiary has failed to comply with any laws
relating to the employment of labor, including any provisions thereof relating
to wages, hours, collective bargaining, the payment of social security and
similar taxes, equal employment opportunity, employment discrimination and
employment safety, or that the Company or any Subsidiary is liable for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing.
(b) Except as set forth in Section 3.17 of the Disclosure
Schedule, there are no proceedings pending before the National Labor Relations
Board with respect to any employees of the Company or any Subsidiary, nor are
there any discrimination charges (relating to sex, age, religion, race, national
origin, ethnicity, handicap or veteran status) pending before any federal or
state agency or authority against the Company or any Subsidiary, which,
individually or, in the aggregate could reasonably be expect to have a Material
Adverse Effect.
(c) No third party has claimed or notified the Company or any
Subsidiary in writing that any person employed by or otherwise affiliated with
the Company or any Subsidiary has, in respect of his or her activities to date,
violated any of the terms or conditions of his or her employment contract with
any third party, or disclosed or utilized any trade secrets or proprietary
information or documentation of any third party, or interfered in the employment
relationship between any third party and any of its employees, and to the
knowledge of the Company, no person employed by or otherwise affiliated with the
Company or any Subsidiary has employed any trade secrets or any information or
documentation proprietary to any former employer, or violated any confidential
relationship which such person may have had with any third party, in connection
with the development or sale of any products of the Company or any Subsidiary.
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SECTION 3.18 Insurance. All policies of fire, liability,
workers' compensation, and other forms of insurance providing insurance coverage
to or for the Company or any Subsidiary or any Facility are listed in Section
3.18 of the Disclosure Schedule and, except as set forth in said Section 3.18 of
the Disclosure Schedule, all premiums with respect thereto covering all periods
up to and including the date as of which this representation is being made have
been paid, and no notice of cancellation or termination has been received with
respect to any such policy. All such policies are in full force and effect and
provide insurance, including without limitation liability insurance, in such
amounts and against such risks or as disclosed in Section 3.18 of the Disclosure
Schedule to protect the employees, properties, assets and operations of the
Company and the Subsidiaries. Except as shown in Section 3.18 of the Disclosure
Schedule, all such policies will remain in full force and effect and will not in
any way be affected by, or terminate or lapse by reason of, any of the
transactions contemplated hereby.
SECTION 3.19 Use of Real Property. Except as set forth in
Section 3.19 of the Disclosure Schedule and except to the extent that
non-compliance would not be reasonably likely to have a Material Adverse Effect,
the owned and leased real properties listed in Section 3.11 of the Disclosure
Schedule are used and operated in material compliance with all applicable
leases, contracts, commitments, licenses and permits. Neither the Company nor
any Subsidiary has received written notice of any violation of any applicable
zoning or building regulation, ordinance or other law, order, regulation or
requirement relating to its operations or assets which violation could
reasonably be expected to have a Material Adverse Effect. To the knowledge of
the Company, except as set forth in Section 3.19 of the Disclosure Schedule, all
buildings that are covered by leases listed in Section 3.11 of the Disclosure
Schedule conform in all material respects with all applicable ordinances, codes,
regulations and requirements, and no law presently in effect or condition
precludes or materially restricts continuation of the present use of such
properties.
SECTION 3.20 Conditions of Assets. To the knowledge of the
Company, except as set forth in Section 3.20 of the Disclosure Schedule, all
tangible personal property, fixtures and equipment which comprise the assets of
the Company and the Subsidiaries, or are otherwise used in connection with the
Business, are in a good state of repair (ordinary wear and tear excepted) and
operating condition.
SECTION 3.21 Employee Benefit Plans. Except as otherwise set
forth in Section 3.21 of the Disclosure Schedule:
(a) Section 3.21 of the Disclosure Schedule lists each
"employee pension benefit plan" (as such term is defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
maintained by the Company or any Subsidiary or to which the Company or any
Subsidiary contributes or is required to contribute or in which any employee of
the Company or any Subsidiary participates (a "Plan"). The Company and each
Subsidiary have complied and currently are in compliance, both as to form and
operation in all
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material respects, with the applicable provisions of ERISA and the Internal
Revenue Code of 1986, as amended (the "Code"), respectively, with respect to
each Plan.
(b) Each of the Plans which is intended to be "qualified" with
the meaning of Section 401(a) of the Code does so qualify and is exempt from
taxation pursuant to Section 501(a) of the Code.
(c) Neither the Company nor any Subsidiary has maintained,
contributed to or been required to contribute to a "multi-employer plan" (as
defined in Section 3(37) of ERISA). No amount is due or owing from the Company
or any Subsidiary on account of a "multi-employer plan" (as defined in Section
3(37) of ERISA) or on account of any withdrawal therefrom.
(d) Other than normal claims for benefits, there is no claim
pending against the Company or any Subsidiary under the Code, ERISA or other
applicable law with respect to any of the Plans. Full payment has been made, or
will be made in accordance with Section 404(a)(6) of the Code, of all amounts
that are required to be paid under the terms of each Plan and Section 412 of the
Code; and none of the Plans nor any trust established thereunder has incurred
any "accumulated funding deficiency" (as defined n Section 302 of ERISA and 412
of the Code) whether or not waived. The Company and the Subsidiaries have no
current liability for plan termination or withdrawal under Title IV of ERISA.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer of
either of the Company or any Subsidiary to severance pay, unemployment
compensation or any other payment or (ii) accelerate the time of payment or
vesting (except as provided in Section 2.02), or increase the amount of
compensation due any such employee or officer.
(f) The Company has provided (or made available to) Parent
with true and complete copies of (i) summary plan descriptions for each of the
Plans; (ii) each trust agreement, insurance policy or other instrument relating
to the funding of each of the Plans; (iii) the two most recent Annual Reports
(Form 5500 series) and accompanying schedules filed with the Internal Revenue
Service or United States Department of Labor with respect to each of the Plans
and (iv) the most recent audited financial statement for each of the Plans.
SECTION 3.22 Environmental Matters. Except as set forth in
Section 3.22 of the Disclosure Schedule, (i) the Company and the Subsidiaries
conduct the Business in material compliance with all applicable environmental
laws, ordinances and regulations, (ii) neither the Company nor any Subsidiary
has knowledge of or has received written notice of any claim, action, suit,
proceeding, hearing or investigation, based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling, or the emission, discharge, release or threatened release into the
environment, of any pollutant, contaminant, or
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hazardous or toxic material or waste (collectively, an "Environmental Event")
relating to the Business and (iii) to the knowledge of the Company, no notice of
any Environmental Event was given to any person or entity that occupied the
offices of the Company and the Subsidiaries or any Facility prior to the date
such offices or Facility were occupied or used in the Business. Without limiting
the generality of the foregoing, to the knowledge of the Company, neither the
Company nor any Subsidiary has disposed of or placed on or in such offices or
Facility any waste materials, hazardous materials or hazardous substances in
violation of law.
SECTION 3.23 Information In Proxy Statement. None of the
information included or incorporated by reference in the Proxy Statement (as
hereinafter defined), including any amendments or supplements thereto, will at
the time the Proxy Statement is first mailed to the shareholders of the Company
or at the time of the Special Meeting, 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 necessary
in order to make the statements therein not false or misleading. Notwithstanding
the foregoing, the Company does not make any representation or warranty with
respect to the information that has been or will be supplied by Parent or
Acquisition Sub or their respective representatives or Affiliates, for inclusion
or incorporation by reference into the Proxy Statement. The Proxy Statement and
any amendments or supplements thereto will comply in all material respects with
the applicable provisions of the Exchange Act and the rules and regulations
thereunder.
SECTION 3.24 Fraud and Abuse. Neither the Company nor any
Subsidiary or affiliate thereof or any of their respective partners, officers
and directors, or, to the best knowledge of the Company, any person (including
without limitation Professionals) who provides professional services under
agreements with the Company, any Subsidiary or any affiliate has engaged in any
activities which are prohibited under federal Medicare and Medicaid statutes,
including, without limitation, 42 U.S.C. SectionSection 1320a-7, 1320a-7a and
1320a-7b, the federal CHAMPUS statute, 10 U.S.C. Section1071 et seq., the
Federal Civil False Claims Act, 31 U.S.C. Section3729 et seq., or the
regulations promulgated pursuant to such statutes or related state or local
statutes or regulations or which are prohibited by rules of professional
conduct, including but not limited to the following:
(a) knowingly and willfully making or causing to be made false
statement or representation of a material fact in any application for any
benefit or payment;
(b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment;
(c) presenting or causing to be presented a claim for services
under Medicare, Medicaid, CHAMPUS or other state health care program that is for
an item or service that is known or should be known to be (i) not provided as
claimed, or (ii) false or fraudulent;
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(d) failing to disclose knowledge by a claimant of the
occurrence of any event affecting the initial or continued right to any benefit
or payment on its own behalf or on behalf of another, with intent to
fraudulently secure such benefit or payment;
(e) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe, or rebate), directly
or indirectly, overtly or covertly, in cash or in kind (i) in return for
referring an individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole or in
part by CHAMPUS, Medicare or Medicaid, or other state health care program, or
(ii) in return for purchasing, leasing, or ordering or arranging for or
recommending purchasing, leasing, or ordering any good, facility, service, or
item for which payment may be made in whole or in part by CHAMPUS, Medicare or
Medicaid or other state health care program; or
(f) knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omit to state a fact required to be stated therein or
necessary to make the statements contained therein not mislead ing) of a
material fact with respect to (i) the conditions or operations of a facility in
order that the facility may qualify for CHAMPUS, Medicare, Medicaid or other
state health care program certification, or (ii) information required to be
provided under Section 1124A of the Social Security Act (42 U.S.C. Section
1320a-3).
SECTION 3.25 Health Professional's Financial Relationships.
The operations of the Company and the Subsidiaries are in compliance with and do
not otherwise violate the federal Medicare and Medicaid statutes regarding
health professional self-referrals, 42 U.S.C. Section 1395nn and 42 U.S.C.
Section 1396b, or the regulations promulgated pursuant to such statute, or
similar state or local statutes or regulations.
SECTION 3.26 Tax Matters.
(a) Except as set forth in Section 3.26 of the Disclosure
Schedule, the Company and the Subsidiaries have duly and timely filed or caused
to be filed all federal, state, local and foreign returns, declarations,
reports, estimates, information returns and statements (collectively, "Tax
Returns") required to be filed by them in respect of any Taxes (as hereinafter
defined) for all years and periods for which such Tax Returns have become due.
All such Tax Returns were correct as filed in all material respects and were not
delinquent. Except as set forth in Section 3.26 of the Disclosure Schedule, the
Company and the Subsidiaries have paid all taxes shown as due on such Tax
Returns. Where payment of any Taxes of the Company or the Subsidiaries with
respect to any taxable period ending on or prior to the Effective Time is not
yet due, the Company and the Subsidiaries have established, or will establish,
consistent with past practice, an adequate reserve on each such entity's books
and records for the payment of all such Taxes. For purposes of this Agreement,
"Taxes" shall mean all federal, state, local, foreign or other taxing authority
net income, franchise, sales, use, ad valorem, property, payroll, withhold-
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ing, excise, severance, transfer, employment, alternative or add-on minimum,
stamp, occupation, premium, environmental or windfall profits taxes, and other
taxes, charges, fees, levies, imposts, customs, duties, licenses or other
assessments, together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority.
(b) Except as set forth in Section 3.26 of the Disclosure
Schedule, (i) no extensions of time have been granted to the Company or any
Subsidiary to file any Tax Return required by applicable law to be filed by it
prior to or on the Effective Time which have expired, or will expire, on or
before the Effective Time without such Tax Return having been filed, (ii) no
deficiency or adjustment for any Taxes has been proposed, asserted, or assessed
against the Company or any Subsidiary and no federal, state or local audits or
other administrative proceedings or court proceedings are presently pending
with regard to any Taxes and (iii) no waiver or consent extending any statute of
limitation for the assessment or collection of any Taxes, which waiver or
consent remains in effect, has been executed by the Company or any Subsidiary or
on behalf of the Company or any Subsidiary, nor are any requests for such waiver
or consent pending.
(c) Each Corporate Subsidiary has been an includible member of
an "affiliated group" (within the meaning of Section 1504 of the Code) in which
either the Company or Transitional Health Services, Inc. ("THS") is (in the case
of the Company) or was (in the case of THS (to the knowledge of the Company))
the parent since the date of such Corporate Subsidiary's incorporation; and for
all taxable periods following each such Corporate Subsidiary's incorporation,
each of either the Company or THS (to the knowledge of the Company), on the one
hand, and the Corporate Subsidiary, on the other hand, was entitled to report
its income on consolidated federal income Tax Returns filed on behalf of such
affiliated group. All federal income Tax Returns required to be filed by the
Company, THS (to the knowledge of the Company) and the Corporate Subsidiaries
have been duly and timely filed on behalf of the Company, THS (to the knowledge
of the Company) and the Subsidiaries on a consolidated basis. Except as shown on
Section 3.26 of the Disclosure Schedule, all other Tax Returns of the Company
and the Corporate Subsidiaries have been filed on a separate company,
non-combined, non-consolidated and non-unitary basis.
(d) Except as set forth on Section 3.26 of the Disclosure
Schedule, neither the Company nor any Subsidiary is a party to any tax-sharing
or allocation agreements.
(e) Except as set forth on Section 3.26 of the Disclosure
Schedule, neither the Company nor any Subsidiary is a party to any agreement,
contract, or arrangement that would result, by reason of the consummation of any
of the transactions contemplated herein, separately or in the aggregate, in the
payment of any "excess parachute payment" within the meaning of Section 280G of
the Code.
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SECTION 3.27 Transactions With Affiliates. Except as described
in Section 3.28 of the Disclosure Schedule or in the Company SEC Filings, no
shareholder, director, officer or employee of the Company or any Subsidiary, or
any member of his or her immediate family or any other of its, his or her
affiliates, (i) is or was during the period from July 2, 1997 through the date
hereof the subject of any material contract, agreement or understanding,
business arrangement or relationship with the Company or any Subsidiary (an
"Affiliate Contract") or (ii) owns or has a five percent or greater ownership
interest in any corporation or other entity which is or was during the three
years preceding the date hereof the subject of any Affiliate Contract.
SECTION 3.28 Brokers and Finders. Except for BT Alex. Brown
and the fees owed to J.P. Morgan Securities Inc. and Suntrust Equitable
Securities in connection with its engagement by the Company, neither the
Company, nor any of its officers, directors, employees, Subsidiaries or
Affiliates has employed any broker or finder or incurred any liability for any
financial advisory fees, investment bankers' fees, brokerage fees, commissions,
finders' fees or similar payments in connection with this Agreement or the
transactions contemplated hereby. True and correct signed copies of all
agreements and engagement letters between the Company and each of BT Alex.
Brown, J.P. Morgan Securities Inc. and Suntrust Equitable Securities have been
delivered to Parent, which engagement letters establish the total amount owed to
each of them in connection with the transactions contemplated hereby.
SECTION 3.29 Opinion of Financial Advisor. The Special
Committee has received the opinion of J.P. Morgan Securities Inc. on October 21,
1998 to the effect that, as of such date, the consideration to be received in
the Merger by the Public Shareholders is fair to such holders, from a financial
point of view, a signed copy of which has been delivered to Parent.
SECTION 3.30 Statements True and Correct. No representation or
warranty or statement contained in this Agreement or any certificate, exhibit,
annex, schedule, instrument or other writing furnished or to be furnished by the
Company or any Subsidiary or Affiliate of the Company to Parent pursuant to this
Agreement or any other documents, agreement or instrument referred to herein
contains or will contain any untrue statement of material fact or omits or will
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
SECTION 3.31 Knowledge of the Company. Whenever used in this
Article III, "to the knowledge of the Company" (or similar language) shall mean
the actual knowledge of the senior managers of the Company listed on Section
3.31 of the Disclosure Schedule after reasonable inquiry.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
SECTION 4.01 Organization and Qualification.
(a) Parent is a corporation duly incorporated and organized,
validly existing and in good standing under the laws of the State of Delaware,
and is duly licensed or qualified and in good standing to do business as a
foreign corporation, and is authorized to do business, in each other
jurisdiction in which the character or location of the properties owned or
leased and operated by it or the nature of the business transacted by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified could not reasonably be expected to have a material
adverse effect on the business, properties or condition (financial or other) of
Parent and Acquisition Sub. Parent has the requisite corporate power and
authority to own or lease and operate its properties and assets and to carry on
its business as currently conducted.
(b) Since the date of its incorporation, Parent has not
engaged in any activity other than in connection with or as contemplated by this
Agreement and the Merger or in connection with arranging financing in connection
the transactions contemplated hereby.
SECTION 4.02 Authority Relative to Agreement. Parent has the
requisite power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution, delivery and performance by
Parent of this Agreement, and the consummation of the transactions contemplated
hereby have been duly authorized and approved by all requisite corporate action
(including, without limitation, all necessary action of the Board of Directors
and shareholders of Parent) and no other action of the part of such persons is
necessary to authorize the execution, delivery and performance of this
Agreement. This Agreement has been duly executed and delivered by Parent and,
assuming due execution and delivery by the other parties hereto, constitutes the
legal, valid and binding obligation of Parent, enforceable against Parent in
accordance with its terms.
SECTION 4.03 Non-Contravention. Neither the execution and
delivery of this Agreement by Parent, nor the consummation of the transactions
contemplated hereby, nor compliance by Parent with any of the terms and
provisions hereof, will (i) violate, contravene, conflict with or result in a
breach of any provision of Parent's Certificate of Incorporation or By-laws or
any resolution adopted by the Board of Directors or shareholders of Parent, or
(ii) result in any breach or violation of, conflict with, or constitute or
result in a default or event of default or event which with notice or lapse of
time or both would constitute such a default or event of default under, or give
rise to any right of termination, cancellation, payment or acceleration, or
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require any consent pursuant to, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever on any of the properties or
assets owned, leased or managed by Parent under the terms or provisions of any
note, bond, mortgage, license, franchise, permit, lease, indenture, agreement,
contract or other instrument or obligation to which Parent is a party or to
which any of the properties or assets owned or leased by Parent is bound or
otherwise affected or (iii) contravene or violate any law, rule, regulation,
licensing requirement, permit, order or decree of any court, arbitrator or any
other agency of government or authority by which Parent is bound or by which any
properties or assets owned or leased by Parent is bound or otherwise affected.
SECTION 4.04 Governmental Approvals. Except as set forth in
Section 4.04 of the Disclosure Schedule, no order, authorization, approval or
consent from, or filing with, any federal or state governmental or public body
or other authority having jurisdiction over Parent is required for the
execution, delivery and performance of this Agreement by Parent or is necessary
in order to ensure the legality, validity, binding effect or enforceability of
this Agreement other than (i) filings with the Federal Trade Commission and with
the Antitrust Division of the United States Department of Justice pursuant to
the HSR Act, and the rules promulgated thereunder, (ii) the filing of a
Certificate of Merger with the Secretary of State of the State of Georgia and
(iii) such consents, approvals, orders or authorizations which if not obtained,
or registrations, declarations or filings which if not made, would not
materially delay or materially adversely affect the ability of Parent to
consummate the transactions contemplated hereby.
SECTION 4.05 Proxy and Schedule 13E-3 Information. None of the
information supplied or to be supplied by Parent or Acquisition Sub, or any of
their respective officers, directors, employees, representatives or agents for
inclusion or incorporation by reference in the Proxy Statement or the Schedule
13E-3 will (i) in the case of the definitive Proxy Statement, at the time such
definitive Proxy Statement is mailed to the Company's shareholders or at the
time of the Special Meeting and (ii) with respect to the Schedule 13E-3, at the
time of filing with the SEC and at the time of the Special Meeting, 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 necessary in order to make the statements therein not
false or misleading. Notwithstanding the foregoing, neither Parent or
Acquisition Sub is making any representation or warranty with respect to the
information that has been supplied by the Company or any Subsidiary to its
officers, directors, employees, representatives or agents for inclusion or
incorporation by reference in the Proxy Statement or the Schedule 13E-3.
SECTION 4.06 Brokers and Finders. No person is entitled to any
brokerage or finder's fee or commission in connection with the transactions
contemplated by this Agreement as a result of any action taken by or on behalf
of Parent or Acquisition Sub.
SECTION 4.07 Sufficient Funds. The Company has received a copy
of the commitment letter dated October 22, 1998, from Welsh, Carson, Anderson &
Stowe VIII, L.P.
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("WCAS VIII") and certain affiliates of WCAS VIII (collectively, the "Financing
Entities"), pursuant to which the Financing Entities have committed, subject to
the terms and conditions set forth herein, to provide Parent with up to an
aggregate $210 million of financing (the "Financing") and, subject to the terms
and conditions of this Agreement, to ensure the performance of Parent's and
Acquisition Sub's obligations hereunder. The aggregate proceeds of the Financing
should be sufficient to pay all amounts required to be paid pursuant to the
Merger, to pay all amounts required to be paid hereunder in respect of
outstanding options under the Company Stock Option Plans and to pay all related
fees and expenses required to be paid by Parent, Acquisition Sub and, together
with funds of the Company, the Company pursuant to this Agreement. Such commit
ment letter has not been withdrawn as of the date hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUISITION SUB
Acquisition Sub represents and warrants to the Company as
follows:
SECTION 5.01 Organization and Qualification.
(a) Acquisition Sub is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Georgia, and is duly licensed or qualified and in good standing to do business
as a foreign corporation, and is authorized to do business, in each other
jurisdiction in which the character or location of the properties owned or
leased and operated by it or the nature of the business transacted by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified could not reasonably be expected to have a material
adverse effect on the business, properties or condition (financial or other) of
Parent and Acquisition Sub. Acquisition Sub has the requisite corporate power
and authority to own or lease and operate its properties and assets and to carry
on its business as currently conducted.
(b) Since the date of its incorporation, Acquisition Sub has
not engaged in any activity other than in connection with or as contemplated by
this Agreement and the Merger or in connection with arranging financing in
connection the transactions contemplated hereby.
SECTION 5.02 Authorization and Validity of Agreement.
Acquisition Sub has the requisite power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. The execution, delivery
and performance by Acquisition Sub of this Agreement, and the consummation of
the transactions contemplated hereby have been duly authorized and approved by
all requisite corporate action (including, without limitation, all necessary
action of the Board of Directors and shareholders of Acquisition Sub) and no
other action of the part of such persons is necessary to authorize the
execution, delivery and perfor-
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mance of this Agreement. This Agreement has been duly executed and delivered by
Acquisition Sub and, assuming due execution and delivery by the other parties
hereto, constitutes the legal, valid and binding obligation of Acquisition Sub,
enforceable against Acquisition Sub in accor dance with its terms.
SECTION 5.03 Non-Contravention. Neither the execution and
delivery of this Agreement by Acquisition Sub, nor the consummation of the
transactions contemplated hereby, nor compliance by Acquisition Sub with any of
the terms and provisions hereof, will (i) violate, contravene, conflict with or
result in a breach of any provision of the Articles of Incorporation or By-laws
of Acquisition Sub or any resolution adopted by the Board of Directors or
shareholders of Acquisition Sub, or (ii) result in any breach or violation of,
conflict with, or constitute or result in a default or event of default or event
which with notice or lapse of time or both would constitute such a default or
event of default under, or give rise to any right of termination, cancellation,
payment or acceleration, or require any consent pursuant to, or result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever on any of the properties or assets owned, leased or managed by
Acquisition Sub under the terms or provisions of any note, bond, mortgage,
license, franchise, permit, lease, indenture, agreement, contract or other
instrument or obligation to which Acquisition Sub is a party or to which any of
the properties or assets owned or leased by Acquisition Sub is bound or
otherwise affected or (iii) contravene or violate any law, rule, regulation,
licensing requirement, permit, order or decree of any court, arbitrator or any
other agency of government or authority by which Acquisition Sub is bound or by
which any properties or assets owned or leased by Acquisition Sub is bound or
otherwise affected.
SECTION 5.04 Governmental Approvals. Except as set forth in
Section 5.04 of the Disclosure Schedule, no order, authorization, approval or
consent from, or filing with, any federal or state governmental or public body
or other authority having jurisdiction over Acquisition Sub is required for the
execution, delivery and performance of this Agreement by Acquisition Sub or is
necessary in order to ensure the legality, validity, binding effect or
enforceability of this Agreement other than (i) filings with the Federal Trade
Commission and with the Antitrust Division of the United States Department of
Justice pursuant to the HSR Act, and the rules promulgated thereunder, (ii) the
filing of a Certificate of Merger with the Secretary of State of the State of
Georgia and (iii) such consents, approvals, orders or authorizations which if
not obtained, or registrations, declarations or filings which if not made, would
not materially adversely affect the ability of Acquisition Sub to consummate the
transactions contemplated hereby.
ARTICLE VI
CERTAIN AGREEMENTS
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SECTION 6.01 Conduct of the Company's Business. The Company
covenants and agrees that, after the date of this Agreement but prior to the
Effective Time, unless Parent shall otherwise consent in writing or as otherwise
expressly contemplated by this Agreement:
(a) neither the Company nor any Subsidiary shall take (or
agree in writing to take) any of the actions listed in clauses (i)
through (xiv) of Section 3.09 or cause or allow any Managed Facility to
take (or agree in writing to take) any of the actions listed in clauses
(i) through (xiv) of Section 3.09;
(b) neither the Company nor any Subsidiary shall take any
action that would make any representation or warranty of the Company
hereunder inaccurate in any material respect at, or as of any time
prior to, the Effective Time, or omit to take any action necessary to
prevent any such representation or warranty from being inaccurate in
any material respect at any such time;
(c) each of the Company and the Subsidiaries shall use its
best efforts, to the extent not prohibited by the foregoing provisions
of this Section 6.01, to maintain its relationships with its suppliers,
customers and third party payors, and if and as requested by Parent or
Acquisition Sub, (i) the Company shall use its reasonable efforts to
make reasonable arrangements for representatives of Parent or
Acquisition Sub to meet with suppliers, customers and third party
payors of the Company or any Subsidiary and (ii) the Company shall
schedule, and the management of the Company shall participate in,
meetings of representatives of Parent or Acquisition Sub with employees
of the Company or any Subsidiary; and
(d) the Company and its Subsidiaries shall properly complete
and file all reports required to be filed by them with the SEC and all
other federal, state or local governmental or regulatory authorities
(including self-regulatory authorities) having jurisdiction over the
Company and/or the Subsidiaries and shall deliver or make available to
Parent copies of all such reports promptly after the same are filed. If
financial state ments are contained in any such reports filed with the
SEC, such financial statements will fairly present the consolidated
financial position of the entity filing such statements as of the dates
indicated and the consolidated results of operations, changes in
shareholders' equity, and cash flows for the periods then ended in
accordance with GAAP. As of their respective dates, such reports
filed with the SEC will comply in all material respects with the
federal securities laws and will not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were
made, not misleading. Any financial statements contained in any other
reports to another regulatory authority shall be prepared in accordance
with all laws applicable to such reports.
SECTION 6.02 Stockholder Approval.
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(a) As promptly as practicable after the execution of this
Agreement, the Company shall, subject to its fiduciary duties as advised by
counsel, take all action necessary in accordance with all applicable laws and
its Articles of Incorporation and By-laws, to duly call, give notice of, convene
and hold a special meeting (the "Special Meeting") of its shareholders to
consider and vote upon the approval and adoption of this Agreement and the
Merger and for such other purposes as may be necessary or desirable. The Board
of Directors of the Company has determined that the Merger is advisable and in
the best interests of the shareholders of the Company and shall, subject to its
fiduciary duties as advised by counsel, recommend that the shareholders of the
Company vote to approve and adopt this Agreement and the Merger and any other
matters to be submitted to shareholders in connection therewith.
(b) As promptly as practicable following the date hereof, the
Company shall file with the SEC a preliminary proxy or information statement
pertaining to the Merger and this Agreement and use its best efforts (x) to
obtain and furnish the information required to be included by the SEC in the
Proxy Statement (as hereinafter defined) and, after consultation with Parent, to
respond promptly to any comments made by the SEC with respect to the preliminary
proxy or information statement (it being understood and agreed that the Company
shall notify Parent of the receipt of any such comments and of any requests by
the SEC for amendments or supplements to the Proxy Statement or for additional
information, and shall promptly supply Parent with copies of all correspondence
between the Company (or its representatives) and the SEC (or its staff) with
respect thereto) and cause a definitive proxy or information statement,
including any amendment or supplement thereto (the "Proxy Statement"), to be
mailed to its shareholders entitled to vote upon the Merger as promptly as
practicable thereafter, provided, that no amendment or supplement to the Proxy
Statement will be made by the Company without consultation with Parent and its
counsel, and (y) to obtain the necessary approvals of the Merger and this
Agreement by its shareholders.
(c) The Company, Parent and any person that may be deemed to
be an affiliate of the Company shall prepare and file with the SEC concurrently
with the filing of the preliminary proxy or information statement described in
the first sentence of Section 6.02(c) above a Statement on Schedule 13E-3
("Schedule 13E-3") under the Exchange Act. If at any time prior to the Special
Meeting any event should occur which is required by applicable law to be set
forth in an amendment of, or supplement to, said Schedule 13E-3, the Company and
such person shall file such amendments or supplements.
(d) Each of the parties hereto agrees that if, at any time
prior to the Special Meeting, any event should occur relating to or affecting
the Company, Parent or Acquisition Sub, or to their respective officers or
directors, which event should be described in an amendment or supplement to the
Proxy Statement, the parties shall promptly inform one another and shall
cooperate in promptly preparing, filing and clearing with the SEC and, if
required by applicable law, distributing to the Company's shareholders such
amendment or supplement.
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SECTION 6.03 Access to Information.
(a) The Company shall, and shall cause the Subsidiaries and
its and their respective officers, directors, employees, representatives and
agents to, afford, from the date hereof to the Effective Time, the officers,
employees, representatives and agents of Parent reasonable access to its
officers, employees, agents, properties, books, records and workpapers, and
shall promptly furnish Parent all financial, operating and other information and
data as Parent, through its officers, employees or agents, may reasonably
request.
(b) Except as required by law, Parent shall hold, and will
cause its respective officers, employees, representatives and agents to hold,
any confidential information in accordance with the Confidentiality Agreement
dated July 10, 1998 between the Company and WCAS VIII (the "Confidentiality
Agreement").
(c) No investigation pursuant to this Section 6.03 shall
affect, add to or subtract from any representations or warranties of the parties
hereto or the conditions to the obligations of the parties hereto to effect the
Merger.
SECTION 6.04 Further Assurances. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, including, without limitation, using all reasonable efforts to obtain
all necessary waivers, consents and approvals and to effect all necessary
registrations and filings (including without limitation any necessary filings
under the HSR Act).
SECTION 6.05 Inquiries and Negotiations; Certain Payments.
(a) From and after the date of this Agreement until the
termination of this Agreement pursuant to Section 8.01, the Company, the
Subsidiaries and their respective officers, directors, employees,
representatives and other agents will not, directly or indirectly, solicit or
initiate any discussions, submissions of proposals or offers or negotiations
with (it being understood that the issuance of the press release issued by the
Company upon the execution of this Agreement shall not be deemed to violate this
provision) or, subject to the fiduciary duties of the Company's Board of
Directors as advised by counsel, continue or participate in any negotiations or
discussions with, or provide any information or data of any nature whatsoever
to, or otherwise cooperate in any other way with, any Third Party in connection
with any proposed merger, consolidation, sale of any Subsidiary or division that
is material to the business of the Company and the Subsidiaries, sale of shares
of capital stock or other equity securities, tender or exchange offer,
recapitalization, debt restructuring or similar transaction involving the
Company (such transactions being hereinafter referred to as "Alternative
Transactions").
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(b) From and after the date of this Agreement until the
termination of this Agreement pursuant to Section 8.01, the Company shall
immediately notify Parent if any proposal, offer, inquiry or other contact is
made or received by, any information is requested from, or any discussions or
negotiations are sought to be initiated or continued with, the Company in
respect of an Alternative Transaction, and shall, in any such notice to Parent,
indicate the identity of the Third Party and the terms and conditions of any
proposals or offers or the nature of any inquiries or contacts, and thereafter
shall keep Parent informed, on a current basis, of the status and terms of any
such proposals or offers and the status of any such discussions or negotiations.
Without limiting the generality of the foregoing, the Company shall provide
Parent with not less then (i) two business days' notice prior to the execution
by the Company of any definitive agreement with respect to any Alternative
Transaction and (ii) two days' notice (or the longest notice legally permissible
in the reasonable determination of counsel for the Company, if less than two
days) of any public announcement relating to any Alternative Transaction. Prior
to furnishing any non-public information to, or entering into negotiations or
discussions with, any Third Party, the Company will obtain an executed
confidentiality agreement from such Third Party on terms substantially the same
as, or no less favorable to the Company in any material respect than, those
contained in the Confidentiality Agreement. The Company shall not release any
Third Party from, or waive any provision of, any such confidentiality agreement
or any other confidentiality or standstill agreement to which the Company is a
party.
(c) If a Payment Event (as hereinafter defined) occurs, the
Company shall pay to Parent, within two business days following such Payment
Event, a fee of Three Million Dollars ($3,000,000) in cash. "Payment Event"
means (i) the termination of this Agreement by Parent pursuant to Section
8.01(d); (ii) the termination of this Agreement by the Company pursuant to
Section 8.01(f) or (iii) the occurrence of any of the following events within
twelve months after the date of termination of this Agreement (other than a
termination pursuant to Section 8.01(c) or (e)) whereby shareholders of the
Company receive, pursuant to such event, cash, securities or other consideration
having an aggregate value, when taken together with the value of any securities
of the Company or its subsidiaries otherwise held by the shareholders of the
Company after such event, in excess of Sixteen Dollars ($16.00) per Share: (w)
the Company is acquired by merger or otherwise by a Third Party; (x) a Third
Party acquires more than 50% of the total assets of the Company and the
Subsidiaries, taken as a whole; (y) a Third Party acquires more than 50% of the
outstanding Shares or (z) the Company adopts and implements a plan of
liquidation or share repurchase relating to more than 50% of the outstanding
Shares or an extraordinary dividend relating to more than 50% of the assets of
the Company and the Subsidiaries, taken as a whole.
(d) The Company acknowledges that the agreements contained in
this Section 6.05 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Parent and Acquisition Sub would
not enter into this Agreement; accordingly, if the Company fails to promptly pay
any amount due pursuant to this Section 6.05, and, in order
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to obtain such payment, Parent and/or Acquisition Sub commences a suit which
results in a judgment against the Company for the fee set forth in this Section
6.05, the Company shall also pay to Parent and Acquisition Sub their costs and
expenses incurred in connection with such litigation. Notwithstanding the
foregoing, each party shall bear its own costs and expenses incurred in
connection with any litigation over the reasonableness and/or documentation of
any expenses submitted for reimbursement hereunder.
(e) This Section 6.05 shall survive any termination of this
Agreement, however caused.
SECTION 6.06 Notification of Certain Matters. The Company
shall give notice as promptly as practicable to Parent and Acquisition Sub, and
Parent and Acquisition Sub shall give prompt notice to the Company, of (i) the
occurrence, or failure to occur, of any event that such party believes would be
likely to cause any of its representations or warranties contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date hereof to the Effective Time and (ii) any material failure of the
Company, Parent or Acquisition Sub, as the case may be, or any officer,
director, employee, representative or agent thereof, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder, provided, however, that failure to give such notice shall not
constitute a waiver of any defense that may be validly asserted.
SECTION 6.07 Indemnification.
(a) The Articles of Incorporation and By-Laws of the Surviving
Corporation shall contain the provisions with respect to indemnification and
exculpation from liability set forth in the Company's Articles of Incorporation
and By-laws as in effect on the date hereof, which provisions shall not be
amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who, on or prior to the Effective Time, were directors, officers,
employees or agents of the Company (collectively, the "Indemnified Parties"),
unless such modification is required by law. Parent shall guarantee the
obligations of the Surviving Corporation with respect to indemnification of the
Indemnified Parties under such provisions and under the Company's
indemnification agreements with its directors and officers.
(b) For a period of six years after the expiration date of
the Company's current policy, the Surviving Corporation shall maintain
officers' and directors' liability insurance for periods prior to the
Effective Time covering those Indemnified Parties who are currently covered
by the Company's directors' and officers' liability insurance policy, a copy
of which has heretofore been delivered to Parent, on terms no less favorable
than the terms of such current insurance coverage, provided, however, that in
no event shall the Surviving Corporation be required to expend in any one
year an amount in excess of 200% of the annual premiums currently payable by
the Company for such insurance, provided, further, however, that if the
37
<PAGE>
annual premiums of such insurance coverage exceed such amount, the Surviving
Corporation shall obtain a policy with the greatest coverage available for a
cost not exceeding such amount.
(c) Following the Merger, if the Company or the Surviving
Corporation or any of their respective successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any person,
then, and in each such case, proper provision shall be made so that the
successors and assigns of the Company or the Surviving Corporation, as the case
may be, or at Parent's option, Parent, shall assume the obligations set forth in
this Section 6.07.
(d) This Section 6.07 shall survive the consummation of the
Merger at the Effective Time, is intended to benefit the Company, Parent, the
Surviving Corporation and the Indemnified Parties, and shall be binding on the
successors and assigns of the Surviving Corporation.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01 Conditions to the Merger Relating to Parent and
Acquisition Sub. The obligation of Parent and Acquisition Sub to effect the
Merger shall be subject, at their option, to the fulfillment at or prior to the
Effective Time of the following conditions:
(a) this Agreement and the Merger shall have been
approved and adopted by (i) a majority of the shares voted with respect
to the Merger that are owned by persons not affiliated with, or owning
equity in, Parent or Acquisition Sub and (ii) the requisite vote of the
shareholders of the Company under the Georgia Code;
(b) the expiration or earlier termination of any
waiting period under the HSR Act shall have occurred, and no action
shall have been instituted by the United States Department of Justice
or Federal Trade Commission challenging or seeking to enjoin the
consummation of this transaction, which action shall not have been
withdrawn or terminated;
(c) no preliminary or permanent injunction or other
order, decree or ruling issued by any court of competent jurisdiction
nor any statute, rule, regulation or order entered, promulgated or
enacted by any governmental, regulatory or administrative agency or
authority shall be in effect that would (i) restrain the effective
operation of the business of the Company and the Subsidiaries from
and after the Effective Time or (ii) prevent the consummation of the
Merger as contemplated hereby;
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<PAGE>
(d) other than the filing of the Merger Certificate
in accordance with the Georgia Code, all authorizations, consents,
waivers, orders or approvals of, or declarations or filings with, or
expirations of waiting periods imposed by, any governmen tal or
regulatory entity, the failure of which to obtain, make or occur could
reasonably be expected to have a material adverse effect on the
business, properties, results of operation or condition (financial or
other) at or after the Effective Time of the Surviving Corporation or
its Subsidiaries, shall have been obtained, been filed or have
occurred;
(e) all representations and warranties of the Company
that are qualified with reference to a Material Adverse Effect or
materiality shall be true and correct in all respects and all
representations and warranties that are not so qualified shall be true
and correct in all material respects, in each case (i) as of the date
of this Agreement and (ii) as of the Effective Time, except to the
extent such representations and warranties speak as of an earlier date,
and Parent shall have received a certificate signed on behalf of the
Com pany by a proper officer of the Company to such effect;
(f) each of the Company and its Subsidiaries shall
have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Effective Time,
and Parent shall have received a certificate signed on behalf of the
Company by a proper officer of the Company to such effect;
(g) Parent shall have received an opinion of King &
Spalding, counsel to the Company in the form attached hereto as Exhibit
A;
(h) the aggregate number of Dissenting Shares shall
not constitute more than 15% of the number of shares of Company Common
Stock outstanding as of immediately prior to the Effective Time
(calculated on a fully diluted basis);
(i) since the date of this Agreement, neither the
Company nor any of its Subsidiaries shall have suffered a Material
Adverse Effect; and
(j) there shall be no action, suit, investigation,
proceeding or claim pending or, to the knowledge of the Company,
threatened against or affecting the Company or any Subsidiary or their
respective properties or rights or any Facility, before any
governmental body or arbitration board or tribunal, the outcome of
which, either alone or together with similar actions, could reasonably
be expected to have a Material Adverse Effect.
39
<PAGE>
SECTION 7.02 Conditions to the Merger Relating to the Company.
The obligation of the Company to effect the Merger shall be subject, at its
option, to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) this Agreement and the Merger shall have been
approved and adopted by the requisite vote of the shareholders of the
Company and by Parent and Acquisition Sub;
(b) the expiration or earlier termination of any
waiting period under the HSR Act shall have occurred, and no action
shall have been instituted by the United States Department of Justice
or Federal Trade Commission challenging or seeking to enjoin the
consummation of this transaction, which action shall not have been
withdrawn or terminated;
(c) no preliminary or permanent injunction or other
order, decree or ruling issued by any court of competent jurisdiction
nor any statute, rule, regulation or order entered, promulgated or
enacted by any governmental, regulatory or administrative agency or
authority shall be in effect that would prevent the consummation of the
Merger as contemplated hereby;
(d) all representations and warranties of Parent and
Acquisition Sub that are qualified with reference to a material adverse
effect or materiality shall be true and correct in all respects and all
representations and warranties that are not so qualified shall be true
and correct in all material respects, in each case (i) as of the date
of this Agreement and (ii) as of the Effective Time, except to the
extent such representations and warranties speak as of an earlier date,
and the Company shall have received a certificate signed on behalf of
Parent and Acquisition Sub by a proper officer of Parent and
Acquisition Sub to such effect;
(e) each of Parent and Acquisition Sub shall have
performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Effective Time,
and the Company shall have received a certificate signed on behalf of
Parent and Acquisition Sub by a proper officer of Parent and
Acquisition Sub to such effect;
(f) the Company shall have received an opinion of
Reboul, MacMurray, Hewitt, Maynard & Kristol, counsel to Parent and
Acquisition Sub, in the form attached hereto as Exhibit B; and
(g) there shall be no action, suit, investigation,
proceeding or claim pending or, to the knowledge of Parent, threatened
against or affecting Parent or Acquisition Sub or their respective
properties or rights, before any governmental body or
40
<PAGE>
arbitration board or tribunal, the outcome of which, either alone or
together with similar actions, could reasonably be expected to have a
material adverse effect on the business, properties, results of
operation or condition (financial or other) of Parent and Acquisition
Sub taken as a whole.
ARTICLE VIII
TERMINATION AND ABANDONMENT
SECTION 8.01 Termination and Abandonment. This Agreement may
be terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval by the shareholders of the Company:
(a) by mutual action of the Boards of Directors of Parent and
the Company;
(b) by either Parent or the Company, if (i) the conditions to
its obligations under Section 7.01 or Section 7.02, as the case may be,
shall not have been complied with or performed in any material respect
and such noncompliance or nonperformance shall not have been cured or
eliminated (or by its nature cannot be cured or eliminated) by the
other party on or before March 31, 1999, including, without limitation
(provided that there shall not have occurred any event giving Parent
the right of termination under Section 8.01(d)(iii) or (iv)) by reason
of a vote of shareholders disapproving the Merger or (ii) the Merger
shall not have been effected on or prior to the close of business on
March 31, 1999, provided, however, that the right to terminate this
Agreement pursuant to this Section 8.01(b) 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 before such date;
(c) by either Parent or the Company, if any permanent
injunction or action by any court or other governmental entity or
regulatory authority of competent jurisdiction preventing the
consummation of the Merger shall have become final and nonappealable,
provided, however, that the party seeking to terminate this Agreement
pursuant to this Section 8.01(c) shall have used all reasonable efforts
to remove such injunction or overturn such action; or
(d) by Parent if (i) any of the representations and warranties
of the Company contained in this Agreement shall fail to be true and
correct in any material respect, in each case either as of when made or
at any time thereafter, (ii) there has been a breach in any material
respect of any of the covenants or agreements set forth in this
Agreement on the part of the Company, (iii) the Board of Directors of
the Company (x) withdraws or amends or modifies in a manner adverse to
Parent or Acquisition Sub its recommendation
41
<PAGE>
or approval in respect of this Agreement or the Merger, (y) makes
any recommendation with respect to an Alternative Transaction
(including making no recommendation or stating an inability to make a
recommendation), other than a recommendation to reject such Alternative
Transaction, or (z) takes any material action that would be prohibited
by Section 6.05 or (iv) the Company enters into a definitive written
agreement relating to an Alternative Transaction; or
(e) by the Company, if (i) there has been a breach of any
representations or warranties of Parent set forth herein the effect of
which breach could reasonably be expected to have a material adverse
effect on the ability of Parent and Acquisition Sub to consummate the
transactions contemplated by this Agreement or (ii) there has been a
breach in any material respect of any of the covenants or agreements
set forth in this Agreement on the part of Parent, which breach is not
curable or, if curable, is not cured within 30 days after written
notice of such breach is given by the Company to Parent; or
(f) by the Company, if such termination is necessary to allow
the Company to enter into an Alternative Transaction that its Board of
Directors has determined in good faith, by a majority vote after
consultation with its financial advisors and based upon the advice of
outside legal counsel to the Company, is more favorable to the
shareholders of the Company than the Merger contemplated by this
Agreement (provided that the termination described in this Section
8.01(f) shall not be effective unless and until the Company shall have
paid to Parent in full the fee described in Section 6.05).
Any party desiring to terminate this Agreement pursuant to this Section 8.01
shall give notice to the other party in accordance with Section 9.05.
SECTION 8.02 Effect of Termination. Except as provided in
Sections 6.05 and 9.02 hereof, in the event of the termination of this Agreement
and the abandonment of the Merger pursuant to Section 8.01, this Agreement shall
thereafter become void and have no effect, and no party hereto shall have any
liability to any other party hereto or its shareholders or directors or officers
in respect thereof, except that nothing herein shall relieve any party from
liability for any willful breach hereof.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant hereto shall survive the Effective Time, provided
that this Section 9.01 shall not limit any covenant or agreement of the parties
that by its terms contemplates performance after the Effective Time.
42
<PAGE>
SECTION 9.02 Expenses, Etc.
(a) In the event that the transactions contemplated by this
Agreement are not consummated, then, except as set forth in Section 6.05,
neither the Company, on the one hand, nor Parent and Acquisition Sub, on the
other hand, shall have any obligation to pay any of the fees and expenses of the
other incident to the negotiation, preparation and execution of this Agree ment,
including the fees and expenses of counsel, accountants, consultants, investment
bankers and other advisors and experts.
(b) In the event that the transactions contemplated by this
Agreement are consummated, the Company shall pay, at the Effective Time, all of
its fees and expenses incident to the negotiation, preparation and execution of
this Agreement, including the fees and expenses of counsel, accountants,
consultants, investment bankers and other advisors and experts, and the Company
shall pay all such fees and expenses incurred by Parent and Acquisition Sub.
SECTION 9.03 Publicity. The Company and Parent agree that they
will not issue any press release or make any other public announcement
concerning this Agreement or the transactions contemplated hereby without the
prior consent of the other party, which consent shall not be unreasonably
withheld, except that the Company or Parent may make such public disclosure that
it believes in good faith to be required by law (in which event such party shall
consult, to the extent possible, with the other prior to making such
disclosure).
SECTION 9.04 Execution in Counterparts. For the convenience of
the parties, this Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument, and may be delivered in person or by facsimile
transmission.
SECTION 9.05 Notices. All notices that are required or may be
given pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and delivered by hand or national
overnight courier service, transmitted by telecopy or mailed by registered or
certified mail, postage prepaid, as follows:
If to Parent or Acquisition Sub to it:
In care of Welsh, Carson, Anderson & Stowe
320 Park Avenue, Suite 2500
New York, NY 10022
Facsimile No.: (212) 893-9575
Attention: Lawrence B. Sorrel
with a copy to:
43
<PAGE>
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, NY 10111
Facsimile No.: (212) 841-5725
Attention: William J. Hewitt, Esq.
If to the Company, to:
Centennial Healthcare Corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, Georgia
Facsimile No: (770) 730-1350
Attention: J. Stephen Eaton
Chairman of the Board, President
and Chief Executive Officer
Bertil Nordin
Chairman of the Special Committee
of the Board of Directors of
Centennial Healthcare Corporation
14 Ball Creek Way
Dunwoody, Georgia 30350
with copies to:
King & Spalding
191 Peachtree Street
Atlanta, GA 30303-1763
Facsimile No.: (404) 572-5100
Attention: Paul A. Quiros, Esq.
Kilpatrick Stockton LLP
1100 Peachtree Street, Suite 2800
Atlanta, Georgia 30309-4530
Facsimile No.: (404) 815-6555
Attention: David A. Stockton, Esq.
or such other address or addresses as any party hereto shall have designated by
notice in writing to the other parties hereto.
44
<PAGE>
SECTION 9.06 Waivers. The Company, on the one hand, and Parent
and Acquisition Sub, on the other hand, may, (i) extend the time for the
performance of any of the bligations or other actions of the other under this
Agreement; (ii) waive any inaccuracies in the representations or warranties of
the other contained in this Agreement or in any document delivered pursuant to
this Agreement; (iii) waive compliance with any of the conditions of the other
contained in this Agreement; or (iv) waive performance of any of the obligations
of the other under this Agreement. Any such extension or waiver shall be valid
only if set forth in an instrument in writing specifically referring to this
Agreement and signed on behalf of such party. Except as provided in the
preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
SECTION 9.07 Headings; Interpretation. The headings contained
in this Agreement are for reference purposes only and shall not affect in any
why the meaning or interpretation of this Agreement. References in this
Agreement to Sections, Schedules, Exhibits or Articles mean a Section, Schedule,
Exhibit or Article of this Agreement or the Disclosure Schedule unless otherwise
indicated. References to this Agreement shall be deemed to include all Exhibits
and Sections of the Disclosure Schedule, unless the context otherwise requires.
The term "person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, a governmental entity or an unincorporated
organization.
SECTION 9.08 Entire Agreement. This Agreement (including the
Disclosure Schedule and Exhibits hereto and other documents and instruments
executed at the Effective Time in connection herewith) and the Confidentiality
Agreement constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral and written, among the parties hereto with respect to the
subject matter hereof.
SECTION 9.09 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Georgia, without
regard to principles of conflict of laws.
SECTION 9.10 Severability. In case any one or more of the
provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect against a party hereto, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby and such invalidity, illegality or
unenforceability shall only apply as to such party in the specific jurisdiction
where such judgment shall be made.
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<PAGE>
SECTION 9.11 Binding Effect, Benefits. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective permitted successors and assigns. Notwithstanding anything contained
in this Agreement to the contrary, nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto or
their respective permitted successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, provided,
however, that the provisions of Section 6.07 hereof shall accrue to the benefit
of, and shall be enforceable by, each of the current and former directors and
officers of the Company.
SECTION 9.12 Assignability. Neither this Agreement nor any of
the parties' rights hereunder shall be assignable by any party hereto without
the prior written consent of the other parties hereto.
SECTION 9.13 Amendments. At any time prior to the Effective
Time, this Agreement may be amended, modified or supplemented only by written
agreement (referring specifically to this Agreement) of Parent, Acquisition Sub
and the Company with respect to any of the terms contained herein, provided,
however, that after any approval and adoption of this Agreement by the
shareholders of the Company, no such amendment, modification or supplementation
shall be made which under applicable law requires the approval of such
shareholders, without the further approval of such shareholders.
46
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered
this Agree ment and Plan of Merger as of the day and year first above written.
COUGAR HOLDINGS CORPORATION
By
-------------------------------------
Name:
Title:
COUGAR ACQUISITION CORP.
By
-------------------------------------
Name:
Title:
CENTENNIAL HEALTHCARE CORPORATION
By
-------------------------------------
Name:
Title:
47
<PAGE>
INDEX TO DEFINED TERMS
THIS INDEX IS INCLUDED FOR CONVENIENCE ONLY AND
DOES NOT CONSTITUTE A PART OF THE AGREEMENT
<TABLE>
<CAPTION>
Term Section Reference
- ----------- -----------------
<S> <C>
"Acquisition Sub" Recitals
"Affiliate Contract" 3.28
"Agreement" Recitals
"Alternative Transactions" 6.05(a)
"Audited Balance Sheet" 3.05
"Authorizations" 3.15(a)
"Business" 3.11(a)(i)
"Certificate" 2.03(b)
"Closing" 1.04
"Closing Date" 1.04
"Code" 3.21(a)
"Company" Recitals
"Company Board" Recitals
"Company Common Stock" 2.01(b)
"Company SEC Filings" 3.06(a)
"Company Stock Option Plans" 2.02
"Computer Systems" 3.13(d)
"CON" 3.15(a)
"Confidentiality Agreement" 6.03(b)
"Constituent Corporations" Recitals
"Corporate Subsidiaries" 3.01(a)
"Cost Reports" 3.15(b)
"Dissenting Shares" 2.04(a)
"Effective Time" 1.03
"Environmental Event" 3.22
"ERISA" 3.21a)
"Exchange Act" 3.06(a)
"Exchange Agent" 2.03(a)
"Exchange Fund" 2.03(a)
"Facility" 3.01(d)
"Financing" 4.07
"Financing Entities" 4.07
"GAAP" 3.06
"Georgia Code" 1.01
"HSR Act" 3.08
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Term Section Reference
- ---------- -----------------
<S> <C>
"Indemnified Parties" 6.07(a)
"Independent Advisor" Recitals
"Intangible Rights" 3.12
"Interim Balance Sheet" 3.05
"Managed Facility" 3.01(d)
"Medicare and Medicaid Programs" 3.15(a)
"Material Adverse Effect" 3.01(a)
"Merger" 1.01
"Merger Consideration" 2.01(c)
"NASD" 3.08
"Parent" Recitals
"Partnership Subsidiaries" 3.01(b)
"Payment Event" 6.05(c)
"Permitted Liens" 3.10
"Plans" 3.21(a)
"Professional" 3.15(a)
"Proprietary Facility" 3.01(d)
"Proprietary Software" 3.13(a)
"Proxy Statement" 6.02(b)
"Public Shareholders" Recitals
"Regulations" 3.15(a)
"SEC" 3.06(a)
"Securities Act" 3.06(a)
"Schedule 13E-3" 6.02(c)
"Schedule 14D-9" 1.02(b)
"shareholders" Recitals
"Shares" 2.01(c)
"Social Security Act" 3.15(a)
"Special Committee" Recitals
"Special Meeting" 6.02(a)
"Subsidiary" 3.01(d)
"Surviving Corporation" Recitals
"Third Party" 6.05(a)
"Third Party Software" 3.13(a)
"Taxes" 3.26(a)
"Tax Returns" 3.26(a)
"THS" 3.26(c)
"WCAS VIII" 4.07
"Year 2000 Compatible" 3.13(d)
</TABLE>
<PAGE>
APPENDIX B
OPINION OF J.P. MORGAN SECURITIES INC.
B-1
<PAGE>
APPENDIX B
[Date of Proxy Statement]
Special Committee of the Board of Directors
Centennial HealthCare Corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, Georgia 30346
Attention: Mr. Bertil D. Nordin
Chairman of the Special Committee
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Centennial HealthCare Corporation (the "Company")
(other than (i) Cougar Holdings Corporation ("Parent"), a company formed at the
direction of Welsh, Carson, Anderson & Stowe VIII, L.P. ("WCAS VIII"), and
Parent's wholly-owned subsidiary, Cougar Acquisition Corp. ("Acquisition Sub"),
(ii) WCAS VIII and (iii) certain investment limited partnerships affiliated with
WCAS VIII, certain individuals affiliated with WCAS VIII and such partnerships
and certain members of senior management of the Company, in each case that have
invested or propose to invest in Parent (said persons being herein collectively
referred to as the "Investor Group")) of the consideration to be paid to them
in connection with the proposed merger (the "Merger") of the Company with
Acquisition Sub. Pursuant to the Agreement and Plan of Merger, dated as of
October 22, 1998 (the "Agreement"), among the Company, Parent and Acquisition
Sub, Acquisition Sub will merge with and into the Company, and each share of
Common Stock, par value $0.01 per share, of the Company issued and outstanding
immediately prior to the effective time of the Merger (other than dissenting
shares and shares canceled pursuant to the Agreement) shall be converted into
the right to receive an amount in cash, without interest, equal to $16.00.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii) the Proxy
Statement of the Company relating to the Merger (the "Proxy Statement"); (iii)
certain publicly available information concerning the business of the Company
and of certain other companies engaged in businesses comparable to those of the
Company, and the reported market prices for certain other companies' securities
deemed comparable; (iv) publicly available terms of certain transactions
involving companies comparable to the Company and the consideration received for
such companies; (v) current and historical market prices of the common stock of
the Company; (vi) the audited financial statements of the Company for the fiscal
year ended December 31, 1997 and the unaudited financial statements of the
Company for the periods ended March 31, June 30 and September 30, 1998; (vii)
certain agreements with respect to outstanding indebtedness or obligations of
the Company; (viii) certain internal financial analyses and forecasts prepared
by the Company and its management; and (ix) the terms of certain other business
combinations that we deemed relevant.
<PAGE>
In addition, we have held discussions with certain members of the management of
the Company with respect to certain aspects of the Merger, the past and current
business operations of the Company, the financial condition and future prospects
and operations of the Company, the effects of the Merger on the financial
condition and future prospects of the Company, and certain other matters we
considered necessary or appropriate to our inquiry. We have visited certain
representative facilities of the Company, and reviewed such other financial
studies and analyses and considered such other information as we deemed
appropriate for the purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company or otherwise reviewed by us, and
we have not assumed any responsibility or liability therefor. We have not
conducted any valuation or appraisal of any assets or liabilities, nor have any
such valuations or appraisals been provided to us. In relying on financial
analyses and forecasts provided to us, we have assumed that they have been
reasonably prepared based on assumptions reflecting the best currently available
estimates and judgments by management as to the expected future results of
operations and financial condition of the Company to which such analyses or
forecasts relate. We have also assumed that the Merger will have the tax
consequences described in the Proxy Statement and in discussions with, and
materials furnished to us by, representatives of the Company, and that the other
transactions contemplated by the Agreement will be consummated as described in
the Agreement and the Proxy Statement. We have relied as to all legal matters
relevant to rendering our opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We have acted as financial advisor to the Special Committee of the Board of
Directors with respect to the proposed Merger and will receive a fee from the
Company for our services. We will also receive an additional fee if the
proposed Merger is consummated. Please be advised that we have no other
financial advisory or other relationships with the Company. J.P. Morgan and
its affiliates maintain an ongoing relationship with WCAS VIII and its
affiliated investment limited partnerships and have advised, financed and
undertaken capital markets transactions with such partnerships and their
portfolio companies. In the ordinary course of their businesses, our
affiliates may actively trade the debt and equity securities of the Company
for their own account or for the accounts of customers and, accordingly, they
may at any time hold long or short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the consideration to be paid to the Company's stockholders in the
proposed Merger is fair, from a financial point of view, to such stockholders
(other than the Investor Group).
This letter is provided to the Special Committee of the Board of Directors of
the Company in connection with and for the purposes of its evaluation of the
Merger. This opinion does not constitute a recommendation to any stockholder of
the Company as to how such stockholder
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should vote with respect to the Merger.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By:
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Name: John Fowler
Title: Managing Director
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APPENDIX C
ARTICLE 13 OF THE GEORGIA BUSINESS CORPORATION CODE
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APPENDIX C
DISSENTERS' RIGHTS OF APPRAISAL
TITLE 14, CHAPTER 2
BUSINESS CORPORATIONS
STATE OF GEORGIA
ARTICLE 13
DISSENTERS' RIGHTS
PART 1
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
14-2-1301. Definitions.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right when
and in the manner required by Code Sections 14-2-1320 through 14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under all
the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
14-2-1302. Right to dissent.
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(1) A record shareholder of the corporation is entitled to dissent
from, and obtain payment of the fair value of his shares in the event of, any of
the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If approval of the shareholders of the corporation is
required for the merger by Code Section 14-2-1103 or the
articles of incorporation and the shareholder is entitled to
vote on the merger; or
(B) If the corporation is a subsidiary that is merged with
its parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially
all of the property of the corporation if a shareholder vote is
required on the sale or exchange pursuant to Code Section 14-2-1202,
but not including a sale pursuant to court order or a sale for cash
pursuant to a plan by which all or substantially all of the net
proceeds of the sale will be distributed to the shareholders within
one year after the date of sale;
(4) An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's
shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for
the redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on
any matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with
similar voting rights;
(E) Reduces the number of shares owned by the shareholder
to a fraction of a share if the fractional share so created is
to be acquired for cash under Code Section 14-2- 604; or
(F) Cancels, redeems, or repurchases all or part of the
shares of the class; or
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(5) Any corporate action taken pursuant to a shareholder vote to
the extent that Article 9 of this chapter, the articles of
incorporation, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of
the corporation or the vote required to obtain approval of the corporate
action was obtained by fraudulent and deceptive means, regardless of whether
the shareholder has exercised dissenter's right.
(3) Notwithstanding any other provision of this article, there
shall be no right of dissent in favor of the holder of shares of any class or
series which, at the record date fixed to determine the shareholders entitled
to receive notice of and to vote at a meeting at which a plan of merger or
share exchange or a sale or exchange of property or an amendment of the
articles of incorporation is to be acted on, were either listed on a national
securities exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the
holders of shares of the class or series are required under the plan
of merger or share exchange to accept for their shares anything
except shares of the surviving corporation or another publicly held
corporation which at the effective date of the merger or share
exchange are either listed on a national securities exchange or held
of record by more than 2,000 shareholders, except for scrip or cash
payments in lieu of fractional shares; or
(2) The articles of incorporation or a resolution of the board
of directors approving the transaction provides otherwise.
14-2-1303. Dissent by nominees and beneficial owners.
A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter under this Code
section are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders.
PART 2
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
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14-2-1320. Notice of dissenters' rights.
(4) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(5) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken.
14-2-1321. Notice of intent to demand payment.
(6) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(7) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article.
14-2-1322. Dissenters' notice.
(8) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(9) The dissenters' notice must be sent no later than ten days after
the corporate action was taken and must:
(1) State where the payment demand must be sent and where and
when certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand
is received;
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(3) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days
after the date the notice required in subsection (a) of this Code
section is delivered; and
(4) Be accompanied by a copy of this article.
14-2-1323. Duty to demand payment.
(10) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in accordance
with the terms of the notice.
(11) A record shareholder who demands payment and deposits his shares
under subsection (a) of this Code section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(12) A record shareholder who does not demand payment or deposit his
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his shares under this article.
14-2-1324. Share Restrictions.
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under Code Section
14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
14-2-1325. Offer of payment.
(13) Except as provided in Code Section 14-2-1327, within ten days of
the later of the date the proposed corporate action is taken or receipt of a
payment demand, the corporation shall by notice to each dissenter who complied
with Code Section 14-2-1323 offer to pay to such dissenter the amount the
corporation estimates to be the fair value of his or her shares, plus accrued
interest.
(14) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, an
income statement for that year, a statement of changes in
shareholders' equity for that year, and the latest available interim
financial statements, if any;
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(2) A statement of the corporation's estimate of the fair value
of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under
Code Section 14-2-1327; and
(5) A copy of this article.
(15) If the shareholder accepts the corporation's offer by written
notice to the corporation within 30 days after the corporation's offer or is
deemed to have accepted such offer by failure to respond within said 30 days,
payment for his or her shares shall be made within 60 days after the making of
the offer or the taking of the proposed corporate action, whichever is later.
14-2-1326. Failure to take action.
(16) If the corporation does not take the proposed action within 60
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(17) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
14-2-1327. Procedure if shareholder dissatisfied with payment or offer.
(18) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code
Section 14-2-1325 is less than the fair value of his shares or that
the interest due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action,
does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after
the date set for demanding payment.
(19) A dissenter waives his or her right to demand payment under this
Code section and is deemed to have accepted the corporation's offer unless he or
she notifies the corporation of his or her demand in writing under subsection
(a) of this Code section within 30 days after the corporation offered payment
for his or her shares, as provided in Code Section 14-2-1325.
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(20) If the corporation does not offer payment within the time set
forth in subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall
provide the information to the shareholder within ten days after
receipt of a written demand for the information; and
(2) The shareholder may at any time, subject to the limitations
period of Code Section 14-2-1332, notify the corporation of his own
estimate of the fair value of his shares and the amount of interest
due and demand payment of his estimate of the fair value of his
shares and interest due.
PART 3
JUDICIAL APPRAISAL OF SHARES
14-2-1330. Court action.
(21) If a demand for payment under Code Section 14-2-1327 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest. If the corporation does not commence the
proceeding within the 60 day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(22) The corporation shall commence the proceeding, which shall be a
nonjury equitable valuation proceeding, in the superior court of the county
where a corporation's registered office is located. If the surviving corporation
is a foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(23) The corporation shall make all dissenters, whether or not
residents of this state, whose demands remain unsettled parties to the
proceeding, which shall have the effect of an action quasi in rem against their
shares. The corporation shall serve a copy of the petition in the proceeding
upon each dissenting shareholder who is a resident of this state in the manner
provided by law for the service of a summons and complaint, and upon each
nonresident dissenting shareholder either by registered or certified mail or by
publication, or in any other manner permitted by law.
(24) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers
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have the powers described in the order appointing them or in any amendment to
it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known
as the "Georgia Civil Practice Act," applies to any proceeding with respect to
dissenters' rights under this chapter.
(25) Each dissenter made a party to the proceeding is entitled to
judgment for the amount which the court finds to be the fair value of his
shares, plus interest to the date of judgment.
14-2-1331. Court costs and counsel fees.
(26) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the corporation, except that the court
may assess the costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code Section
14-2-1327.
(27) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially
comply with the requirements of Code Sections 14-2-1320 through
14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously, or
not in good faith with respect to the rights provided by this
article.
(28) If the court finds that the services of attorneys for any
dissenter were of substantial benefit to other dissenters similarly situated,
and that the fees for those services should not be assessed against the
corporation, the court may award to these attorneys reasonable fees to be paid
out of the amounts awarded the dissenters who were benefited.
14-2-1332. Limitation of actions.
No action by any dissenter to enforce dissenters' rights shall be
brought more than three years after the corporate action was taken, regardless
of whether notice of the corporate action and of the right to dissent was given
by the corporation in compliance with the provisions of Code Section 14-2-1320
and Code Section 14-2-1322.
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PROXY
CENTENNIAL HEALTHCARE CORPORATION
400 Perimeter Center Terrace, Suite 650
Atlanta, Georgia 30346
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS TO
BE HELD ON _______, _________, 1998 AT 10:00 A.M.
The undersigned hereby appoints Daryl R. Griswold and Alan B. Cosby, and each
of them, proxies, with full power of substitution and resubstitution, as
proxies for and in the name of the undersigned, to vote all shares of common
stock, par value $.01 per share, of Centennial HealthCare Corporation, held
by the undersigned at the close of business on ___________, 1998, which the
undersigned would be entitled to vote if personally present at the Special
Meeting of Shareholders to be held on ___________, _________, 1998 at 10:00
a.m., local time, at _________________________, and at any adjournment
thereof, upon the matters described in the accompanying Notice of Special
Meeting of Shareholders and Proxy Statement, receipt of which is hereby
acknowledged, and upon any other business that may properly come before the
meeting or any adjournment thereof. Said proxies are directed to vote on the
matters described in the Notice of Special Meeting of Shareholders and Proxy
Statement as follows, and otherwise in their discretion upon such other
business as may properly come before the meeting or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CENTENNIAL
HEALTHCARE CORPORATION. THE BOARD OF DIRECTORS RECOMMEND A VOTE FOR THE
PROPOSAL BELOW.
To approve the Agreement and Plan of Merger, dated as of October 22, 1998, by
and among Cougar Holdings Corporation, Cougar Acquisition Corporation and
Centennial HealthCare Corporation.
/_/ FOR /_/ AGAINST /_/ ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS INDICATED, THE
PROXY WILL BE VOTED FOR THE PROPOSAL LISTED ABOVE.
Dated: , 1998
---------------- ------------------------------------------
Please sign exactly as your name(s) appear(s)
hereon. Where more than one owner is shown
above, each should sign. When signing in a
fiduciary or representative capacity, please
add your full title as such. If this proxy is
submitted by a corporation, it should be
executed in the full corporate name by a duly
authorized officer. If a partnership, please
sign in partnership name by authorized person.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND
THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY.
