<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
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.
[ ] 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:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(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):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] 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:
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<PAGE> 2
CENTENNIAL HEALTHCARE CORPORATION
400 PERIMETER CENTER TERRACE, SUITE 650
ATLANTA, GEORGIA 30346
May 15, 2000
Dear Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders (the
"SPECIAL MEETING") of Centennial HealthCare Corporation ("CENTENNIAL") to be
held on June 12, 2000, at 10:00 a.m., local time, at The South Terraces
Conference Center Classroom, 115 Perimeter Center Place, Atlanta, Georgia 30346.
The purpose of this Special Meeting is to consider and vote upon the merger of
Centennial (the "MERGER"). If you vote to approve the Merger and the Merger is
consummated, you will receive $5.50 in cash for each share of Centennial common
stock, $0.01 par value per share (the "COMMON STOCK"), that you own at the
effective time of the Merger. You will not have any other equity interest in
Centennial or the surviving corporation created by the Merger.
Hilltopper Holding Corp., a Delaware corporation ("HOLDING"), formed
Hilltopper Acquisition Corp., a Georgia corporation ("ACQUISITION"), to acquire
all of the outstanding Common Stock. As the first step in its plan to acquire
all of the Common Stock, on March 17, 2000, Acquisition commenced an offer to
purchase all of the outstanding Common Stock (the "OFFER"). On May 2, 2000,
Acquisition consummated the Offer and acquired 51.8% of the outstanding shares
of Common Stock. As the second step, Acquisition will merge with and into
Centennial. Centennial will be the surviving corporation after the Merger and
will be a wholly owned subsidiary of Holding. After the Merger, in accordance
with the terms of the Agreement and Plan of Merger dated as of February 25, 2000
among Centennial, Holding and Acquisition (the "MERGER AGREEMENT") Centennial
will no longer have public shareholders, have its stock quoted on the Nasdaq
National Market or file periodic reports with the Securities and Exchange
Commission.
Warburg, Pincus Equity Partners, L.P. ("WPEP") formed and currently owns
all of the outstanding capital stock of Holding. Five significant shareholders
of Centennial, seven general partners of the general partner of Welsh, Carson,
Anderson & Stowe VI, L.P., one of those significant shareholders ("WCAS VI"),
and four members of Centennial's senior management (collectively, the
"CONTRIBUTING SHAREHOLDERS") contributed a total of 4,710,252 shares of Common
Stock (representing some or all of their shares of Common Stock) to Holding on
May 3, 2000, one day after the consummation of the Offer and prior to the Merger
in exchange for shares of Holding preferred stock. The shares contributed to
Holding by the Contributing Shareholders represented approximately 39.5% of the
outstanding Common Stock. With the contributed shares and the shares purchased
by Acquisition in the Offer, Holding beneficially owns approximately 91.3% of
the Common Stock.
The Contributing Shareholders are WCAS VI, seven individual general
partners of the general partner of WCAS VI (including Andrew M. Paul, a director
of Centennial) (collectively, the "WCAS GENERAL PARTNERS"), WCAS Healthcare
Partners, L.P. ("WCAS HP"), South Atlantic Venture Fund II, Limited Partnership,
South Atlantic Venture Fund III, Limited Partnership, The Burton Partnership,
Limited Partnership (collectively, "SOUTH ATLANTIC"), Alan C. Dahl, Kent C.
Fosha, Sr., Lawrence W. Lepley, Jr. and myself (Mr. Dahl and myself being
officers and directors of Centennial, Mr. Fosha being an officer of Centennial
and Mr. Lepley being an officer of Paragon Rehabilitation, Inc., an indirect
wholly owned subsidiary of Centennial). In addition, affiliates of WPEP
(collectively, the "WP FUNDS") and affiliates of South Atlantic (the "SOUTH
ATLANTIC INVESTORS") contributed a total of $15,000,000 to Holding one day after
the consummation of the Offer in exchange for shares of Holding preferred stock.
This amount will be used to pay down a portion of Centennial's outstanding debt.
The WP Funds contributed $49,673,513 in exchange for Holding preferred stock to
pay the costs of the Offer and the Merger.
The Contributing Shareholders contributed a total of 4,710,252 shares of
Common Stock to Holding in exchange for 4,710,252 shares of Holding preferred
stock. As part of the Merger, I will receive $5.50 a share for 545,454 shares of
Common Stock that I own and am not contributing to Holding. I contributed
569,917 shares to Holding for 569,917 shares of Holding preferred stock. Mr.
Paul, a director of Centennial, will also receive as part of the Merger $5.50 a
share for 3,021 shares of Common Stock that he is not contributing to
<PAGE> 3
Holding. WCAS Capital Partners II, L.P., an affiliate of WCAS VI, will receive
as part of the Merger $5.50 a share for 246,896 shares of Common Stock owned by
it, which was not tendered in the Offer.
After the Merger, the Contributing Shareholders, the WP Funds and the South
Atlantic Investors (collectively, the "INVESTORS") will, as shareholders of
Holding, continue to have an equity interest in Centennial. The Investors want
to own Centennial because they believe that while the short-term financial
prospects of Centennial are extremely limited, these prospects over the
long-term may be good. As a private company, Centennial will be able to make
decisions that negatively affect current quarter earnings but that increase the
value of its assets or earnings over the long-term. In a public company setting,
it is difficult to make decisions that could negatively affect earnings knowing
that the result of those decisions could be a significant reduction in the per
share price if analysts' short-term earnings expectations are not met or
exceeded. If the Merger is completed, the Investors may receive substantial
benefits in the future if Centennial is profitable and as a result of its
profitable operations or favorable industry trends the value of its stock
increases in excess of the consideration in the Offer and the Merger. The
Investors have no assurance that Centennial will be profitable in the future or
that it will be able to grow through acquisitions or otherwise. The Investors
will be subject to the risks inherent in owning stock in a company subject to
changing governmental regulations that could materially and adversely effect
revenues and earnings and in holding stock of a private company with no market
for their shares.
A special committee of the board of directors of Centennial (the "SPECIAL
COMMITTEE"), consisting of two directors who are not members of or affiliated
with the Investors, was formed to consider and evaluate the Offer and the
Merger. As discussed in the enclosed Proxy Statement, the Special Committee
approved the Offer and the Merger. The Merger Agreement provides that Centennial
and its affiliates are not permitted to solicit or initiate discussions, offers
or proposals from a third party for an alternative transaction to the Merger,
unless necessary to allow the directors to satisfy their fiduciary duties to
Centennial's shareholders. Centennial may terminate the Merger Agreement if
necessary to pursue an acquisition proposal with another party that is more
favorable to Centennial's shareholders than the Merger, provided that Centennial
pay to Holding a $2 million "breakup" fee and reimburse Holding for its expenses
incurred in the Offer and the Merger up to a maximum of $1 million. The Special
Committee has unanimously recommended to Centennial's board of directors that
the Merger and related agreements be approved by Centennial's shareholders. In
connection with its evaluation of the Offer and the Merger, the Special
Committee engaged J.P. Morgan Securities, Inc. ("J.P. MORGAN") to act as its
financial advisor. J.P. Morgan rendered its opinion dated February 25, 2000 that
based upon and subject to the assumptions, limitations and qualifications set
out in that opinion, the cash merger consideration of $5.50 per share to be
received in the Merger is fair from a financial point of view to Centennial's
shareholders (other than Holding, Acquisition and the Contributing
Shareholders). The written opinion of J.P. Morgan 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 CENTENNIAL'S SHAREHOLDERS
(OTHER THAN HOLDING, ACQUISITION AND THE MEMBERS OF THE INVESTORS) AND RECOMMEND
THAT THE SHAREHOLDERS APPROVE THE MERGER.
Approval of the Merger at the Special Meeting will require the affirmative
vote of holders of a majority of the outstanding shares of Common Stock entitled
to vote at the Special Meeting. By obtaining more than a majority of the shares
of outstanding Common Stock through the Offer and taking into account the shares
contributed by the Contributing Shareholders, Acquisition owns sufficient shares
of Common Stock to approve the Merger without the vote of any other shareholder.
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 THE SPECIAL MEETING, IT IS IMPORTANT THAT YOUR SHARES ARE
REPRESENTED AT THE SPECIAL MEETING. 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 SHARES IN
PERSON IF YOU LATER CHOOSE TO
<PAGE> 4
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 $5.50 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,
/s/ J. Stephen Eaton
J. Stephen Eaton
Chairman, President and Chief
Executive Officer
<PAGE> 5
CENTENNIAL HEALTHCARE CORPORATION
400 PERIMETER CENTER TERRACE, SUITE 650
ATLANTA, GEORGIA 30346
---------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 12, 2000
---------------------
Notice is hereby given that a Special Meeting of Shareholders (the "SPECIAL
MEETING") of Centennial HealthCare Corporation, a Georgia corporation
("CENTENNIAL") will be held on June 12, 2000, at 10:00 a.m., local time, at The
South Terraces Conference Center Classroom, 115 Perimeter Center Place, Atlanta,
Georgia 30346 for the following purposes:
(1) To consider and vote upon a proposal to approve an Agreement and
Plan of Merger, dated as of February 25, 2000 (the "MERGER AGREEMENT"),
pursuant to which Hilltopper Acquisition Corp., a newly formed Georgia
corporation ("ACQUISITION") and wholly owned subsidiary of Hilltopper
Holding Corp., a Delaware corporation ("HOLDING"), will be merged (the
"MERGER") with and into Centennial and each share of Centennial common
stock, $.01 par value (the "COMMON Stock"), outstanding on the effective
date of the Merger, will be converted into the right to receive $5.50 in
cash (the "CASH MERGER CONSIDERATION"), other than shares held by
shareholders who have properly exercised their dissenters' appraisal rights
under Georgia law and shares held by Acquisition, Holding or any subsidiary
or affiliate of Acquisition, Holding or held in Centennial's treasury
(including shares contributed before the Merger to Holding by members of
Centennial's management and other significant shareholders and
individuals). 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 Centennial has determined that only holders of
Common Stock of record at the close of business on May 5, 2000, will be entitled
to notice of, and to vote at, the Special Meeting or any adjournment 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
/s/ DARYL R. GRISWOLD
Daryl R. Griswold
Assistant Secretary
Atlanta, Georgia
May 15, 2000
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.
<PAGE> 6
Any record 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.
Centennial will determine "fair value" for dissenting shares based on the value
of the shares immediately before the consummation of the Merger, excluding any
appreciation or depreciation in anticipation of the Merger. If Centennial and
the dissenting shareholder cannot agree on the "fair value" for a holder's
shares, the Superior Court of DeKalb County, Georgia will determine the "fair
value". In order to comply with Article 13, a dissenting shareholder must
deliver written notice, before the Special Meeting, of his or her intent to
demand payment for his or her shares of Common Stock. The payment demand must be
mailed or delivered to the attention of the Secretary of Centennial 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. Voting against, abstaining from voting or failing
to vote on the Merger will not constitute the required demand for payment. 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> 7
TABLE OF CONTENTS
<TABLE>
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... i
WHO CAN HELP ANSWER YOUR QUESTIONS.......................... iv
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION............................................... iv
SUMMARY..................................................... 1
The Companies............................................. 1
The Special Meeting....................................... 1
Record Date; Voting Power................................. 1
Vote Required............................................. 1
Recommendations........................................... 2
Opinion of Financial Advisor.............................. 2
Terms of the Merger Agreement............................. 2
Share Ownership of Holding following the Merger........... 3
Accounting Treatment...................................... 4
Conflicts of Interest..................................... 4
Regulatory Approvals...................................... 5
Dissenters' Appraisal Rights.............................. 5
Historical Market Information............................. 6
Selected Consolidated Financial Data of Centennial........ 7
Centennial Projections.................................... 8
SPECIAL FACTORS............................................. 10
Background of the Merger.................................. 10
The Special Committee's and the Board's Recommendation.... 17
Opinion of Financial Advisor.............................. 22
Purpose, Alternatives and Reasons of Centennial and the
Investors for the Merger............................... 25
Position of the Investors, Holding, Acquisition and
Centennial as to Fairness of the Merger................ 27
Conflicts of Interest..................................... 28
Certain Effects of the Merger............................. 31
Financing of the Merger................................... 32
Conduct of Centennial's Business After the Merger......... 32
THE SPECIAL MEETING......................................... 33
Date, Time and Place of the Special Meeting............... 33
Proxy Solicitation........................................ 33
Record Date and Quorum Requirement........................ 33
Voting Procedures......................................... 33
Voting and Revocation of Proxies.......................... 33
Effective Time of the Merger and Payment for Shares....... 34
Other Matters to be Considered............................ 34
THE MERGER.................................................. 35
Terms of the Merger Agreement............................. 35
Terms of the Subscription Agreement, Voting Agreement and
Employment Agreements.................................. 42
Accounting Treatment...................................... 44
Estimated Fees and Expenses of the Merger................. 44
RIGHTS OF DISSENTING SHAREHOLDERS........................... 45
FEDERAL INCOME TAX CONSEQUENCES............................. 46
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT AND
OTHERS.................................................... 48
CERTAIN INFORMATION CONCERNING HOLDING, ACQUISITION AND THE
INVESTORS................................................. 48
INDEPENDENT AUDITORS........................................ 50
WHERE YOU CAN FIND MORE INFORMATION......................... 50
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 51
</TABLE>
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<TABLE>
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PAGE
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OTHER MATTERS............................................... 51
SHAREHOLDER PROPOSALS....................................... 51
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> 9
CENTENNIAL HEALTHCARE CORPORATION
400 PERIMETER CENTER TERRACE, SUITE 650
ATLANTA, GEORGIA 30346
---------------------
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 12, 2000
---------------------
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What will happen in the Merger?
A: In the Merger, Acquisition will be merged with and into Centennial with
Centennial being the surviving corporation (the "SURVIVING CORPORATION").
All shares of Centennial common stock (the "COMMON STOCK") outstanding at
the time of the Merger, other than shares held by Holding, Acquisition or
any subsidiary or affiliate of Holding, Acquisition or Centennial or in
Centennial's treasury and by shareholders who properly exercise their
dissenters' appraisal rights under Georgia law, will be converted into the
right to receive a cash payment of $5.50 a share. Before the Merger, five
significant shareholders, seven individual general partners of the general
partner of one of these significant shareholders and four members of
Centennial's senior management (collectively, the "CONTRIBUTING
SHAREHOLDERS") contributed 4,710,252 shares of Common Stock, representing
some or all of their shares of Common Stock to Holding and received
4,710,252 shares of Holding preferred stock in exchange and will not
receive cash for the shares that are contributed for Holding preferred
stock. The contributed shares represented approximately 39.5% of the
outstanding Common Stock. To review the structure of the Merger in greater
detail, see pages 35 through 42.
Q: Who will own Centennial after the Merger?
A: After the Merger, Centennial will become a privately held company
indirectly owned by investors comprised of:
- five significant shareholders of Centennial (the "SIGNIFICANT
SHAREHOLDERS"): Welsh, Carson, Anderson & Stowe VI, L.P. ("WCAS VI");
WCAS Healthcare Partners, L.P. ("WCAS HP"); South Atlantic Venture Fund
II, Limited Partnership ("SAII"); South Atlantic Venture Fund III,
Limited Partner ("SAIII"); and The Burton Partnership, Limited
Partnership ("BURTON LP" and with SAII and SAIII, "SOUTH ATLANTIC");
- seven individual general partners of the general partner of WCAS VI,
including Andrew M. Paul, a director of Centennial (the "WCAS GENERAL
PARTNERS"):
- four members of Centennial's senior management: J. Stephen Eaton,
Chairman, President and Chief Executive Officer; Alan C. Dahl, Director,
Executive Vice President, Chief Financial Officer and Treasurer; Kent C.
Fosha, Sr., Executive Vice President of Operations; and Lawrence W.
Lepley, Jr., President of Centennial's indirect, wholly-owned subsidiary,
Paragon Rehabilitation, Inc. ("PARAGON");
- two affiliates of South Atlantic: South Atlantic Private Equity Fund IV,
Limited Partnership and South Atlantic Private Equity Fund IV (QP),
Limited Partnership (together, the "SOUTH ATLANTIC INVESTORS"); and
- affiliates of Warburg, Pincus Equity Partners, L.P. ("WPEP"), the parent
of Holding: Warburg, Pincus Netherland Equity Partners I, C.V.; Warburg,
Pincus Netherlands Equity Partners II, C.V.; and Warburg, Pincus Equity
Partners Netherlands III, C.V. (collectively, the "WP FUNDS").
The individuals and entities identified above are referred to in this Proxy
Statement collectively as the "INVESTORS."
i
<PAGE> 10
Q: What happened before the Merger?
A: As the first step in its acquisition of Centennial, Acquisition began a
cash tender offer on March 17, 2000 for all of the outstanding Common Stock
(the "OFFER"). The Offer closed on May 2, 2000 and Acquisition acquired
6,179,862 shares or 51.8% of the Common Stock for $5.50 a share. Taking
into account the shares contributed by the Contributing Shareholders and
the shares purchased by Acquisition in the Offer, Holding beneficially owns
approximately 91.3% of the Common Stock. The Merger Agreement allows
Acquisition to complete its acquisition of all of the Common Stock through
the Merger.
Q: What risks are associated with the Merger for shareholders who are not
Investors?
A: Upon completion of the Merger, you will no longer have an equity interest
in Centennial and will no longer participate in any future earnings or
growth of Centennial. Because Holding through its ownership of Acquisition
has acquired 91.3% of the outstanding Common Stock in the Offer and through
the contribution of shares of Common Stock by the Contributing
Shareholders, Centennial will no longer file reports with the Securities
and Exchange Commission and will not satisfy the listing requirements of
the Nasdaq National Market and will no longer have its shares listed for
quotation. You may receive a greater return if Centennial remains a public
company rather than entering into the Merger transaction. A third party
other than the Investors might offer greater than $5.50 per share in a
future transaction. Also, the "fair value" of any dissenting shares has not
been determined and may be greater than $5.50 per share. To review the
effects of the Merger, see pages 41 through 51. To review the rights of
dissenting shareholders, see pages 51 through 52.
Q: Why is Centennial being acquired?
A: Centennial's Board of Directors (the "BOARD") believes that the acquisition
of Centennial is in the best interests of shareholders of Centennial other
than Holding, Acquisition and the Contributing Shareholders (the "PUBLIC
SHAREHOLDERS") 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 16 through 23.
Q: Why was the Special Committee formed?
A: Because five of the directors of Centennial have an interest in the Merger,
the Board appointed a special committee of directors who are not members of
management or general partners of the general partner of WCAS VI, or
affiliated with the Investors (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. To review the Special Committee's recommendation, see pages
23 through 31.
Q: What will I receive in the Merger?
A: You will receive $5.50 in cash, without interest, for each share of Common
Stock that you own. For example: If you own 100 shares of Common Stock,
upon completion of the Merger you will receive $550.00 in cash.
Q: When do you expect the Merger to be completed?
A: We are working to complete the Merger by June 13, 2000.
Q: What are the federal 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 52 through 53. Your
tax consequences will depend on your personal situation. You should consult
your tax advisors for a full understanding of the federal and state tax
consequences of the Merger to you.
ii
<PAGE> 11
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 Holding through the Offer and
the Merger. In the Offer, Acquisition acquired shares representing 51.8% of
the outstanding Common Stock. The Merger Agreement requires the vote of a
majority of the outstanding shares of Common Stock and due to Acquisition's
ownership of 51.8% of the outstanding Common Stock through the Offer, no
shareholder other than Acquisition must vote for the Merger in order for
the Merger to be approved. Including the shares acquired by Acquisition in
the Offer and the shares contributed by the Contributing Shareholders,
Holding beneficially owns 91.3% of the outstanding Common Stock. 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 Agreement and the transactions
contemplated therein, and the Board has approved and adopted the Merger
Agreement and the transactions contemplated therein, 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, then sign, date and
mail it in the enclosed envelope as soon as possible, so that your shares
will be represented at the meeting. The Special Meeting will take place on
June 12, 2000 at 10:00 a.m., local time, at The South Terraces Conference
Center Classroom, 115 Perimeter Center Place, Atlanta, Georgia 30346. 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. What if I want to change my vote?
A: If you decide to change your vote, you may revoke your proxy by sending in
a later dated proxy or by attending the Special Meeting and voting 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.
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.
Q: What if I want to exercise my dissenters' rights under Georgia law?
A: To properly exercise your dissenters' rights under Georgia law and receive
"fair value" for your shares of Common Stock, you must deliver to
Centennial before the vote is taken at the Special Meeting written notice
of your intent to demand payment if the Merger is consummated and you must
not vote your shares in favor of the Merger. The notice must be delivered
by the record holder of the Common Stock. You should determine the record
holder of your shares to provide the required notice. Voting against,
abstaining from voting or failing to vote will not satisfy the written
notice of demand requirement. Article 13 of the Georgia Business
Corporation Code is attached to this Proxy Statement as Appendix C and
should be read in its entirety if you decide to pursue your dissenters'
rights. "Fair value" will be based on the value of the shares immediately
before the Merger and may be more or less than $5.50 a share.
iii
<PAGE> 12
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
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
THIS PROXY STATEMENT AND OTHER STATEMENTS MADE FROM TIME TO TIME BY
CENTENNIAL, HOLDING, ACQUISITION OR THEIR REPRESENTATIVES CONTAIN
FORWARD-LOOKING STATEMENTS. THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE
INTENT, BELIEF OR CURRENT EXPECTATIONS OF CENTENNIAL, HOLDING AND ACQUISITION
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,
HOLDING AND ACQUISITION 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. THE PROTECTION
OF THE LIABILITY SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS CONTAINED IN THE
PRIVATE SECURITIES REFORM ACT OF 1995 IS NOT APPLICABLE TO THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT OR IN STATEMENTS INCORPORATED BY REFERENCE IN
THIS PROXY STATEMENT.
iv
<PAGE> 13
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 50).
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. Centennial, through its subsidiaries, operates 100 owned, leased or
managed skilled nursing facilities, with approximately 10,800 licensed,
available beds, in 21 states and the District of Columbia. In addition, through
its subsidiaries, Centennial provides comprehensive rehabilitation services and
home health care services.
Hilltopper Holding Corp.
Hilltopper Acquisition Corp.
c/o E.M. Warburg, Pincus & Co., LLC
466 Lexington Avenue
New York, New York 10017
(212) 878-0600
Holding was organized by WPEP. Warburg, Pincus & Co. ("WARBURG") is the
sole general partner of WPEP. Before the Contributing Shareholders contributed
shares of Common Stock for shares of Holding preferred stock, all of the
outstanding shares of Holding were owned by WPEP. Acquisition agreed with the
members of the Investors who contributed shares of Common Stock for, or
purchased shares of, Holding preferred stock, to acquire the public stock of
Centennial through the Merger. Holding organized and owns all of the outstanding
shares of Acquisition.
THE SPECIAL MEETING (PAGE 33)
The Special Meeting will be held on June 12, 2000, at 10:00 a.m., local
time, at The South Terraces Conference Center Classroom, 115 Perimeter Center
Place, Atlanta, Georgia 30346. 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 33)
Holders of record of Common Stock at the close of business on May 5, 2000
(the "RECORD DATE") are entitled to notice of and to vote at the Special
Meeting. As of such date, there were 11,923,618 shares of Common Stock issued
and outstanding held by approximately 44 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.
VOTE REQUIRED (PAGE 33)
Approval by the Centennial shareholders of the proposal to approve and
adopt the Merger Agreement will require the affirmative vote of a majority of
the shares of Common Stock outstanding on the Record Date. Through the Offer,
Acquisition has acquired 51.8% of the shares of Common Stock outstanding on the
Record Date and will vote all of its shares in favor of the Merger. Including
the shares contributed to Holding by the Contributing Shareholders and through
its ownership of Acquisition, Holding beneficially owns 91.3% of the
1
<PAGE> 14
Common Stock. Acquisition will satisfy the majority vote requirement without the
need for any other shareholder to vote in favor of the Merger. A failure to vote
or a vote to abstain will have the effect of a vote against the Merger.
RECOMMENDATIONS (PAGE 17)
Because five of the Centennial directors have a material financial interest
in the transactions contemplated by the Merger Agreement, 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 recommended to the shareholders of Centennial. Following the
unanimous recommendation of the Special Committee, the Board unanimously
determined that the Merger, the Merger Agreement and the transactions
contemplated thereby were fair to and in the best interests of the Public
Shareholders and recommended that the Public Shareholders approve the Merger
Agreement. The Special Committee and the Board recommend that the Public
Shareholders vote "For" the approval of the Merger Agreement. You also should
refer to the factors that the Special Committee and the Board considered in
determining whether to approve and adopt the Merger Agreement beginning on page
29.
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
February 25, 2000, to the Special Committee that the Cash Merger Consideration
is fair from a financial point of view to 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 35)
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 Acquisition will be merged
with and into Centennial, with Centennial being the Surviving Corporation. As a
result of the Merger, the shareholders of Centennial will receive $5.50 in cash,
without interest, for each share of Common Stock that they own, other than
shares held by shareholders who properly exercise their dissenters' appraisal
rights and shares held by Acquisition and Holding or any subsidiary or affiliate
of Acquisition or Holding or Centennial or in Centennial's treasury (including
shares that were contributed to Holding prior to the Merger by the Contributing
Shareholders).
Conditions to the Merger. The completion of the Merger depends upon the
satisfaction of a number of conditions, including:
- consummation of the Offer;
- approval of the Merger Agreement by the holders of a majority of the
outstanding shares of Common Stock;
- 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;
- 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.
2
<PAGE> 15
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 a
"SUPERIOR PROPOSAL").
Termination. Either Centennial or Holding may terminate the Merger
Agreement and abandon the Merger under certain circumstances, including if:
- if Centennial and Holding mutually consent;
- legal constraints or prohibitions issued by a governmental entity prevent
the consummation of the Merger; 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 10 business days after written notice of such
breach.
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 Centennial, that a Superior 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 Superior 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 Acquisition a "break
up" fee of $2 million and reimburse Acquisition for its expenses up to a maximum
of $1 million.
Fees and Expenses. Centennial and Acquisition 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 Acquisition the break up
fee and expenses reimbursement, under certain circumstances, including if
Centennial approves, enters into or consummates a Superior 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 Holding and Acquisition, including the fees and expenses of counsel,
accountants, investment bankers and other advisors and experts.
SHARE OWNERSHIP OF HOLDING FOLLOWING THE MERGER (PAGE 48)
- The Management Group. 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 and a
director 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
contribute an aggregate of 754,904 shares of Common Stock for shares of
Series A Convertible Preferred Stock, $.01 par value, of Holding (the
"SERIES A PREFERRED STOCK"). Shares of Common Stock owned by Mr. Eaton
but not contributed for shares of Series A Preferred Stock will be
converted into the right to receive $5.50 per share in the Merger for an
aggregate consideration of $2,999,997. After the Merger, the management
group will own an aggregate equity interest in Holding of approximately
5.2% or 754,904 shares of Holding preferred stock. The Board will reserve
2,585,451 shares of Holding common stock representing approximately 15%
of the equity of Holding (calculated on a fully diluted basis) at the
closing of the Merger for options to be granted to the members of the
management group and other officers and key employees of Centennial.
- The WP Funds. The WP Funds are purchasing 9,031,548 shares of Series A
Preferred Stock at a price of $5.50 per share for a total $49,673,514.
After the Merger, the WP Funds will own an aggregate equity interest in
Holding of approximately 61.6% of the Holding preferred stock.
3
<PAGE> 16
- South Atlantic. South Atlantic will contribute an aggregate of 1,183,677
shares of Common Stock for 1,183,677 shares of Series B Non-Voting
Convertible Preferred Stock, $.01 par value (the "SERIES B PREFERRED
STOCK"), of Holding. In addition, the South Atlantic Investors are
purchasing 909,091 shares of Series B Preferred Stock at a price of $5.50
per share for a total of $5,000,000. After the Merger, South Atlantic and
the South Atlantic Investors will own an aggregate equity interest in
Holding of approximately 14.3% of the Holding preferred stock.
- WCAS. WCAS VI , WCAS HP and the WCAS General Partners; (WCAS VI, WCAS HP
and the WCAS General Partners collectively, "WCAS") will contribute an
aggregate of 2,762,671 shares of Common Stock for 2,762,671 shares of
Series B Preferred Stock of Holding. After the Merger, WCAS will own an
aggregate equity interest in Holding of approximately 18.9% of Holding
preferred stock.
Series A Preferred Stock will be convertible into shares of Holding's
voting common stock and Series B Preferred Stock will be convertible into
non-voting common stock. The non-voting common stock is convertible at the
option of the holder into voting common stock (i) upon the sale or transfer of
the non-voting common stock to any person or entity other than WCAS VI, South
Atlantic or any of their affiliates; or (ii) if after giving effect to such
conversion, the holder would not own shares of voting common stock representing
more than 10% of the voting common stock and Series A Preferred Stock then
outstanding.
ACCOUNTING TREATMENT (PAGE 44)
Acquisition believes that the Merger will be accounted for as a "purchase"
under the purchase method in accordance with generally accepted accounting
principles.
CONFLICTS OF INTEREST (PAGE 28)
- The Management Group. Messrs. Eaton, Dahl, Fosha and Lepley have
interests in the Merger that are different from, or in addition to, yours
as a Centennial shareholder. They will continue to have an equity
interest in the Surviving Corporation through their ownership of Holding
preferred stock and the ultimate value of this interest could exceed
$5.50 per share. If the Merger is consummated, Mr. Eaton will be
designated as a member of the board of directors of the Surviving
Corporation and Holding and Messrs. Eaton, Dahl, Fosha and Lepley will
remain as senior management of the Surviving Corporation pursuant to
amended and restated employment agreements that provide for two year
rolling severance and noncompete periods (three years for Mr. Eaton). In
addition, if the Merger is consummated, options to purchase Holding
common stock will be made available to Messrs. Eaton, Dahl, Fosha and
Lepley and other officers and key employees. 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. See "The Merger -- Terms of the Subscription Agreement,
Voting Agreement and Employment Agreements" (page 52).
- WCAS. In the Merger, Andrew M. Paul, one of the WCAS General Partners
and a director of Centennial, will receive $5.50 per share for 3,021
shares of Common Stock that he does not contribute for shares of Holding
preferred stock. WCAS Capital Partners II, L.P. ("WCAS CP"), an affiliate
of WCAS, will receive in the Merger $5.50 per share for 246,896 shares of
Common Stock owned by it.
- Other Directors. Bertil Nordin is a director of Centennial and a special
limited partner of a South Atlantic affiliate. Mr. Nordin is a special
limited partner in a limited partnership that invested in a South
Atlantic affiliate holding Common Stock. James Hoover is a director of
Centennial and a former partner and current limited partner of the
general partner of WCAS VI, as well as a general partner of the sole
general partner of WCAS CP. Mr. Hoover is also affiliated with Dauphin
Capital Partners, which approached the WP Funds about participating in
the Offer and the Merger but ultimately did not participate.
- The Special Committee. The members of the Special Committee were paid
$37,500 each for serving on the committee and received $1,000 for each
committee meeting attended.
4
<PAGE> 17
REGULATORY APPROVALS
Centennial is required to make filings with or obtain approvals from
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 by
Acquisition on March 13, 2000 and by Centennial on March 23, 2000 and the
waiting period has expired. All other necessary applications and notices have
been filed or are in the process of being filed.
DISSENTERS' APPRAISAL RIGHTS (PAGE 45)
Any shareholder of Centennial who does not vote in favor of the proposal to
approve the Merger Agreement and who strictly complies 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 $5.50 a share. "Fair value" will be determined based on the
value of the dissenting shares immediately before the effective time of the
Merger without any appreciation or depreciation in anticipation of the Merger.
If Centennial and a dissenting shareholder are unable to agree upon the "fair
value" for the holder's shares of Common Stock, the Superior Court of DeKalb
County, Georgia will determine the "fair value". To perfect these appraisal
rights with respect to the Merger, you must follow the required procedures
precisely, which include the requirement to give written notice to Centennial
before the Special Meeting of your intent to demand payment. The applicable
provisions of Article 13 are attached to this Proxy Statement as Appendix C.
5
<PAGE> 18
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 for Centennial's two most recent fiscal years and for the
current fiscal year to date.
<TABLE>
<CAPTION>
CALENDAR YEAR HIGH LOW
- ------------- --------- ---------
<S> <C> <C> <C> <C>
1998:
First Quarter............................................. $25 1/8 $19 5/8
Second Quarter............................................ 25 16 7/16
Third Quarter............................................. 20 3/8 7 1/2
Fourth Quarter............................................ 15 1/2 7 3/8
1999:
First Quarter............................................. $15 9/16 $ 8
Second Quarter............................................ 10 1
Third Quarter............................................. 5 17/32 2 5/8
Fourth Quarter............................................ 3 9/16 2 7/32
2000:
First Quarter............................................. $ 5 9/32 $ 4
Second Quarter (through April 26, 2000)................... 5 1/2 4
</TABLE>
On February 24, 2000, the last full trading day prior to the public
announcement of the terms of the Offer and the Merger, the reported closing
price per Share on the Nasdaq National Market was $2 15/16 per share. On March
16, 2000, the last full trading day prior to the commencement of the Offer, the
reported closing price per share on the Nasdaq National Market was 55/32 per
share. On May 4, 2000, the high and low bid quotations per share were $5.8438
and $5.375 and there were 44 shareholders of record of the Common Stock.
Since its inception, Centennial has not paid any cash dividends on its
Common Stock. Under the Merger Agreement, Centennial has agreed not to pay any
dividends on the Common Stock prior to the closing of the Merger. Under
Centennial's current senior credit facility, the distribution of dividends would
require lender consent. In addition, applicable laws generally limit the ability
of Centennial's subsidiaries to pay dividends to the extent that required
regulatory capital would be impaired, which in turn further limits Centennial'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
Centennial received net proceeds of approximately $66.8 million.
6
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA OF CENTENNIAL
Certain selected consolidated historical financial data of Centennial,
derived from its audited financial statements is set forth below. The selected
financial data should be read in conjunction with the Consolidated Financial
Statements of Centennial, related notes and other financial information
incorporated by reference into this Proxy Statement.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
REVENUES:
Net patient service revenues.............................. $368,655 $342,203
Management fees and other revenues........................ 9,874 15,442
-------- --------
Total revenues.................................... 378,529 357,645
-------- --------
EXPENSES:
Facility operating expenses............................... 322,051 275,489
Lease expense............................................. 33,309 22,946
Corporate administrative costs............................ 26,445 21,515
Depreciation and amortization............................. 12,588 9,292
Loss on closure of nursing facility....................... -- 4,010
Terminated merger transaction costs....................... (2,583) 3,619
Provision for asset revaluation........................... 14,530 12,152
-------- --------
Total operating expenses.......................... 406,340 349,023
-------- --------
(27,811) 8,622
-------- --------
OTHER INCOME (EXPENSE):
Interest income........................................... 1,479 2,011
Interest expense.......................................... (12,050) (9,165)
-------- --------
Total other income (expense)...................... (10,570) (7,154)
-------- --------
(38,382) 1,468
Provision for income taxes (income tax benefit)............. (13,165) 1,504
Loss before minority interest and cumulative effect of
change in accounting method............................... (25,217) (36)
Minority interest in net income of subsidiary, net of income
taxes..................................................... (226) (279)
-------- --------
Loss before cumulative effect of change in accounting
method.................................................... (29,443) (315)
Cumulative effect of change in accounting method, net of
income taxes.............................................. (427) --
-------- --------
Net loss.......................................... $(25,870) $ (315)
======== ========
Per common share information (diluted):
Loss before cumulative effect of change in accounting
method.................................................... $ (2.13) $ (0.03)
Cumulative effect of change in accounting method............ (0.04) --
-------- --------
Net loss.......................................... $ (2.17) $ (0.03)
-------- --------
Weighted average number of common and common stock
equivalents outstanding (diluted)......................... 11,923 12,078
======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 25,698 $ 57,125
Total assets.............................................. 264,345 285,332
Long-term debt, less current maturities................... 108,076 112,849
Net shareholders' equity.................................. 87,813 113,683
</TABLE>
7
<PAGE> 20
<TABLE>
<CAPTION>
12/31/98 12/31/99
-------- --------
<S> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES:......................... 1.0 0.15
</TABLE>
<TABLE>
<CAPTION>
12/31/98 12/31/99
-------- --------
<S> <C> <C>
BOOK VALUE PER SHARE:....................................... 9.53 7.36
</TABLE>
CENTENNIAL PROJECTIONS
Certain Projections of Centennial. In the course of discussions giving
rise to the Merger Agreement, representatives of Centennial furnished to
Holding's representatives certain business and financial information that was
not publicly available, including certain financial projections for fiscal years
2000, 2001, 2002 and 2003. The non-public information provided by Centennial
included projections developed over a period of time by Centennial of its future
operations performance and were delivered in preliminary and final versions
(together, "CENTENNIAL'S PROJECTIONS"). Centennial does not as a matter of
course publicly disclose projections as to future revenues or earnings.
Centennial's Projections were prepared by management solely for Centennial's
internal purposes and were not prepared for publication or with a view to
complying with the published guidelines of the Commission regarding projections
or with the American Institute of Certified Public Accountants guide for
Prospective Financial Statements, and such information is being included in this
Proxy Statement solely because it was furnished to us in connection with the
discussions giving rise to the Merger Agreement. The independent accountants of
Centennial have neither examined nor compiled the financial information set
forth below and, accordingly, do not express an opinion or any other form of
assurance with respect thereto. The reports of such independent accountants
incorporated by reference in this Proxy Statement relate to the historical
financial information of Centennial and do not extend to the following financial
information and should not be read to do so.
Centennial's Projections set forth below necessarily reflect numerous
assumptions with respect to general business and economic conditions and other
matters, many of which are inherently uncertain or beyond Centennial's or the
Investors' control, may not be apparent on the face of the assumptions and do
not take into account any changes in Centennial's operations or capital
structure which may result from the Offer and the Merger. In addition, factors
such as industry performance and regulatory and financial conditions, which are
difficult to project, may cause Centennial's Projections or the underlying
assumptions to be inaccurate. It is not possible to predict whether the
assumptions made in preparing the projected financial information will be valid.
Accordingly, there can be no assurance that Centennial's Projections will be
realized, and actual results may prove to be materially higher or lower than
those contained in the projections. The inclusion of this information should not
be regarded as an indication that Centennial or anyone else who received this
information considered it a reliable predictor of future events, and this
information should not be relied on as such. None of the Investors or any of
their respective representatives assumes any responsibility for the validity,
reasonableness, or completeness of the projected financial information, and
Centennial has made no representation regarding such information.
The preliminary projections were prepared in November 1999 and were based
upon estimates of year ending December 31, 1999 revenues and expenses. The final
projections were revised for actual unaudited year ended December 31, 1999
revenues and expenses, reductions in revenues and expenses resulting from
Centennial selling three facilities and terminating its lease of a fourth
facility in the fourth quarter of 1999 and discontinuing selected non-essential
lines of business, actual cost cuts relating to the implementation of a new
Medicare prospective payment system contained in the Balanced Budget Act of 1997
which was enacted in August 1997 ("PPS"), revised projections of anticipated
Medicare rate increases resulting from the recent legislation adding back a
portion of the Medicare spending reductions through the implementation of PPS,
revised growth rate assumptions for both revenues and expenses and revised
interest rate assumptions.
8
<PAGE> 21
The major assumptions made by Centennial with respect to the preliminary
Centennial's Projections were as follows: revenues increased by 5.3% to 5.6% per
year beginning in 2000; operating expenses were estimated at approximately 77%
of revenue; corporate overhead was estimated at approximately 6% of revenue; the
interest rate on current debt was estimated at 8.8%; and an effective tax rate
of 36% to 37% was utilized.
<TABLE>
<CAPTION>
PRELIMINARY
---------------------------------
2000 2001 2002 2003
------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues.................................................... $400.5 $421.8 $445.5 $470.2
Earnings before interest, taxes, depreciation amortization
and rent.................................................. 70.0 73.5 77.4 81.6
Income before income taxes.................................. 16.3 20.1 24.3 30.2
Net income.................................................. 9.9 12.3 15.0 18.7
</TABLE>
In preparing the final Centennial's Projections that were completed in
February 2000, Centennial made the following changes to the preliminary Company
Projections: adjustments were made to reflect the sale of three facilities owned
by Centennial and the termination of the lease of one facility leased by
Centennial in late 1999; revenues increased by approximately 4% per year
beginning in 2000; operating expenses were estimated at approximately 76% of
revenue; corporate overhead was estimated at approximately 6.4% of revenue; the
average interest rate on current debt was increased to 9.7%; and the effective
tax rate was increased to approximately 41%.
<TABLE>
<CAPTION>
FINAL
---------------------------------
2000 2001 2002 2003
------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues.................................................... $385.1 $400.1 $416.3 $433.1
Earnings before interest, taxes, depreciation amortization
and rent.................................................. 67.0 71.9 74.6 77.3
Income before income taxes.................................. 8.5 14.5 18.0 23.3
Net income.................................................. 5.0 8.6 10.7 13.8
</TABLE>
9
<PAGE> 22
SPECIAL FACTORS
BACKGROUND OF THE MERGER
General. In 1998, changes in the capital markets began to impede
Centennial's growth strategy. Centennial 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, Centennial's growth strategy has been affected by the
implementation of PPS. Prior to PPS, Centennial's skilled nursing care
facilities operated under a "cost based" Medicare reimbursement system. PPS is a
program for implementing an estimated $16 billion of reductions in Medicare
spending over five years for skilled nursing care facilities such as those
operated by Centennial. In late 1999, approximately $2 billion of these
reductions were restored.
PPS payments are based on per diem rates as payment for all services to the
covered residents of a facility. Under PPS, each covered Medicare resident of a
skilled nursing facility is classified into 1 of 44 Resource Utilization Groups
("RUG") categories based upon the resident's clinical condition, extent of
services needed and functional status. Periodic reassessment of residents is
required on a set schedule to determine whether the resident is in the correct
RUG category, as well as when a resident's condition changes. A facility
receives payment under Medicare based upon each resident's RUG category, there
being a separate rate for each RUG category. As a result, accurate
classification of each resident into his or her appropriate RUG category is
crucial to the facility receiving the appropriate payment for services provided
to that resident. Overall, the rates received by Centennial at its facilities
under PPS are less than rates previously received by Centennial under the "cost
based" reimbursement system, and the per diem rates paid for a resident in a
particular RUG category does not necessarily cover the cost of care for that
resident.
In June 1998, management commenced a comprehensive internal study of the
effects of PPS on Centennial'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 indicated that even if Centennial was successful in reducing
ongoing costs to match revenue reductions under PPS, the implementation of PPS
would cause Centennial to incur significant additional training, implementation
and other costs and expenses of approximately $2.5 million in the last half of
1998 and approximately $3.0 million in the first half of 1999 that could not be
recovered from revenues. These costs and expenses included additional staffing
at the facilities and corporate offices to assist in classifying residents into
proper RUG categories, travel costs associated with sending trainers to the
facilities and personnel from the facilities to the corporate offices of
Centennial to provide and receive training in classifying residents into proper
RUG categories, training in the requirements of PPS and inefficiencies
associated with the implementation of a new, radically different reimbursement
program at both the facility and corporate office levels.
PPS became fully effective for Centennial in January 1999. Management
initially believed that PPS would not have an adverse effect on earnings when
fully implemented because the decreased revenues under PPS would be offset by
anticipated cost reductions. To realize these anticipated costs reductions,
Centennial had to seek substantial cost savings from third party suppliers, as
well as from its own subsidiaries providing rehabilitation therapy services to
Centennial's skilled nursing care facilities. Although Centennial has made
progress in obtaining these cost reductions, it has taken longer than
anticipated to realize the benefit of such reductions and, to date, Centennial
has not obtained all anticipated cost reductions. Centennial is continuing to
seek such cost reductions both internally and from third party suppliers. During
the second half of 1998 and the first half of 1999, Centennial incurred
significant additional training, implementation and other costs and expenses
associated with PPS.
PPS continued to have a material effect on Centennial and its results of
operations throughout 1999 and into 2000. As stated above, to date, Centennial
has not been able to obtain all anticipated cost reductions necessary to make
the earnings effect of PPS neutral. Other factors, including the continuing
tight labor market (which has driven up labor costs), increases in liability,
health and workers compensation insurance rates and rising interest rates, have
also increased Centennial's cost of doing business.
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The changing environment, which began in 1998 and continued through 1999,
led management to evaluate various alternatives for the future of Centennial.
While management expected that strategic acquisition opportunities for
Centennial to grow would continue to exist, these opportunities would require
significant capital that, if available in the current market, would be more
expensive or dilutive to the value of Centennial in this economic environment.
Centennial would not be able to produce year-to-year growth rates in revenue in
line with historical levels that included acquisitions. In addition,
Centennial's lenders could prevent acquisition growth due to covenants in
Centennial's credit facility that prohibit Centennial from incurring additional
debt or entering into additional leases. Centennial also faced uncertainty
concerning its ability to reduce costs sufficiently, and management believed
that this uncertainty might further depress Centennial's stock price. Each of
these factors led management to the conclusion that it was in the best interest
of Centennial's shareholders to consider strategic alternatives for Centennial.
Events Leading to the Merger. In September 1998, following a drop in the
per share price of Centennial's common stock from $14.75 in August 1998 to
$7.50, representatives of WCAS VI and its affiliates (collectively, "WELSH
CARSON") and BT Alex. Brown Incorporated met to discuss the possibility of an
acquisition of Centennial by Welsh Carson. On September 22, 1998, Welsh Carson
commenced a legal and regulatory due diligence review of Centennial, and, on
September 25, 1998, Welsh Carson delivered to Centennial a non-binding
expression of interest to acquire Centennial through a cash exchange for the
outstanding shares of Common Stock (the "SHARES"). The proposal was conditioned
on management participating in the transaction as investors and officers of the
surviving corporation. The Board formed a special committee to consider the
expression of interest by Welsh Carson. The special committee retained
Kilpatrick Stockton, LLP ("KILPATRICK STOCKTON") as its legal counsel and J.P.
Morgan as its financial advisor. The special committee negotiated a merger
agreement and recommended the transaction to the Board and on October 22, 1998,
the Board accepted the offer of $16 per share by Welsh Carson, approved the
merger proposal and entered into the merger agreement with Welsh Carson.
On March 26, 1999, Centennial received an investigatory subpoena from the
Office of Inspector General, Department of Health & Human Services (the "OIG")
seeking records relating to the allocation of nurse staffing costs. On April 2,
1999, Welsh Carson terminated the merger agreement as a result of this pending
investigation.
After the termination of the merger agreement with Welsh Carson, Centennial
continued to work with SunTrust Equitable Securities ("SUNTRUST EQUITABLE")
(which had participated in the representation of Centennial during the
transaction with Welsh Carson) in seeking strategic opportunities for
Centennial. SunTrust Equitable will receive a fee of $2.1 million upon the
consummation of the Merger for assisting Centennial in seeking strategic
opportunities. E.M. Warburg, Pincus & Co., LLC ("WARBURG PINCUS") then
approached SunTrust Equitable about the possibility of acquiring Centennial. On
April 27, 1999, Warburg Pincus and Centennial entered into a confidentiality
agreement whereby Centennial agreed to provide certain information to Warburg
Pincus to enable it to evaluate a potential transaction with Centennial.
Centennial entered into this confidentiality agreement with Warburg Pincus
because the same factors that led Centennial to determine that the merger
agreement with Welsh Carson was the best alternative for the future of
Centennial continued to affect Centennial at that time. These factors, as well
as additional new factors, including the lack of capital to enable Centennial to
grow through strategic acquisition opportunities, increasing debt costs as a
result of increasing interest rates, increasing labor costs, the delay in
obtaining all anticipated cost reductions necessary for PPS to have no adverse
effect on Centennial's earnings, the deterioration of the financial condition of
several other long-term care providers (which drove most capital sources from
the sector and contributed to the tightening of Centennial's credit arrangements
with its existing lenders) and substantial modifications of the financial
covenants in Centennial's credit facility after the termination of the merger
agreement with Welsh Carson that placed Centennial in danger of default under
that credit facility in the future.
Centennial engaged in preliminary discussions with Warburg Pincus about an
acquisition of Centennial; however, the ongoing investigation of Centennial by
the OIG deterred Warburg Pincus from making a proposal to acquire Centennial at
that time. In July 1999, Warburg Pincus and Centennial discussed other
investment structures, including a joint venture that would acquire facilities
to be managed by Centennial.
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<PAGE> 24
Warburg Pincus did not pursue this proposal because it was concerned that its
interests would not be aligned with the interests of Centennial if Centennial
was unable to contribute capital to the proposed joint venture.
In late September 1999, following additional review by its counsel and
additional due diligence regarding the OIG investigation, Warburg Pincus
discussed the possibility of acquiring all of the outstanding shares of
Centennial and taking Centennial private. Over the next few months, Warburg
Pincus engaged in a review and analysis of Centennial and SunTrust Equitable
provided initial financial modeling for a going private acquisition.
In October 1999, South Atlantic, a holder of approximately ten percent of
the outstanding shares of Centennial's stock, approached Centennial about
contributing additional equity to Centennial to either fund an acquisition
vehicle or engage in a going private transaction. On October 25, 1999,
Centennial entered into a confidentiality agreement with South Atlantic. South
Atlantic ultimately determined it could not provide enough capital for either of
the proposed transactions. Throughout this time, Centennial also had discussions
with other parties unaffiliated with either Warburg Pincus or South Atlantic
about potential funding of acquisition vehicles in joint venture or contractual
type relationships. None of these discussions led to a specific proposal.
In November 1999, after its initial review of Centennial, Warburg Pincus
indicated its interest in making a proposal to Centennial. Warburg Pincus
proposed a structure in which management would contribute all or part of their
respective interests in Centennial into the surviving corporation and continue
to serve as management in the surviving corporation. Warburg Pincus indicated
that it would permit, but not require, WCAS VI, the WCAS VI General Partners,
WCAS HP and South Atlantic to contribute all or part of their interests in
Centennial into the surviving corporation. Warburg Pincus intended to acquire
the remaining outstanding shares of Common Stock in a tender offer or cash
merger transaction.
On November 17, 1999, at the regularly scheduled quarterly Board meeting,
the Board discussed the indicated interest of Warburg Pincus. The Board
concluded that it would be willing to consider a proposal from Warburg Pincus if
it indicated a serious interest in acquiring Centennial at a price that provided
the shareholders of Centennial a substantial premium over the current market
price of the Shares. On November 30, 1999, the Board and management met with
Warburg Pincus to discuss its interest in Centennial. At this meeting, Warburg
Pincus indicated that subject to completion of due diligence it would consider
an offer of $5.00 a share for all of the outstanding shares of Common Stock.
After discussion, the Board concluded that it would not pursue a transaction
with Warburg Pincus at the indicated price.
Warburg Pincus reviewed the Board's response and responded that it would
consider an offer of $5.25 per share for all of the outstanding shares of Common
Stock and requested an exclusive due diligence period to undertake a more
thorough review of Centennial prior to making a formal proposal. On December 6,
1999, the Board met to discuss Warburg Pincus' response and its valuation of
Centennial. The Board noted that $5.25 per share represented a substantial
premium over the then-current market price of $3.0625 and that the proposed
transaction could provide the shareholders of Centennial with liquidity for
their investments. The Board noted the impact that recent legislation restoring
approximately $2 billion of the $16 billion in spending cuts to the long-term
sector of the healthcare industry could have on Centennial. The Board noted that
the proposed structure of the transaction would result in Centennial being a
private company and that shareholders not affiliated with management, WCAS VI,
the WCAS General Partners, WCAS HP and South Atlantic would not have the
opportunity to participate in the future growth of Centennial. The Board
addressed the need to appoint a special committee of disinterested directors to
represent the shareholders in considering any formal proposal by Warburg Pincus.
The Board concluded that it was not willing to grant the exclusivity period
based on a $5.25 per share offer. SunTrust Equitable communicated the Board's
position to Warburg Pincus.
Warburg Pincus responded by stating that it would consider $5.50 per share,
together with a $15 million equity contribution to Centennial to cover
transaction expenses and to assist Centennial in paying down a portion of its
debt. On December 13, 1999, the Board met to consider whether to grant Warburg
Pincus the exclusivity period at this level of interest. The Board considered
the substantial premium over the then current market price, and determined that
the 30-day exclusivity period would be justified at this level of interest in
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<PAGE> 25
Centennial. The Board decided that the exclusivity period would only prohibit
Centennial from soliciting a competing proposal and would not prohibit
Centennial from responding to a proposal from a third party. The Board voted
unanimously to grant Warburg Pincus a 30-day exclusivity period for its due
diligence review. The Board again discussed the need to have a special committee
negotiate with Warburg Pincus if it submitted a formal proposal. On December 14,
1999, Centennial granted Warburg Pincus a 30-day exclusivity period for due
diligence, which expired on January 13, 2000.
On January 6, 2000, the Board met to discuss forming a special committee to
negotiate any proposal made by Warburg Pincus or any third party. The Board
reviewed each director's affiliations and possible interests in a transaction
with Warburg Pincus. WCAS VI, the WCAS VI General Partners, WCAS HP, management
and South Atlantic would have an interest in the transaction if Warburg Pincus
allowed WCAS VI, the WCAS VI General Partners, WCAS HP, management and South
Atlantic to exchange their Shares for equity interests in the surviving
corporation. Mr. Charles D. Nash was the only director without any interest in
the proposed transaction. The Board considered that while a special committee
comprised of only one disinterested director is permissible, it would be
preferable for the special committee to be comprised of more than one director.
The Board decided to fill the existing vacancy on the Board with a disinterested
director who would be eligible to serve on the Special Committee. A special
meeting of the Board was scheduled to fill the vacancy on the Board and form the
Special Committee to review the Warburg Pincus discussions and any further
acquisition proposals.
At the January 12, 2000 meeting, the Board appointed Bob L. Wood as a
director to fill the vacancy on the Board and named Charles D. Nash and Bob L.
Wood as members of the Special Committee. Mr. Wood has no interest in the
proposed transaction or any current affiliation with any member of the
Investors. Prior to joining the Board, Mr. Wood had served as president and
chief executive officer of Nations Healthcare, Inc., a company in which WCAS VI
held an interest until April 1999. Andrew Paul, a director of Centennial, served
as Chairman of the Board of Nations Healthcare until April 1999. The Special
Committee was authorized to review and evaluate the proposal by Warburg Pincus,
and, if considered reasonable in light of all circumstances and the
recommendation of its advisors, to explore additional offers and to recommend to
the Board those actions that the Special Committee believed, in the exercise of
its business judgment, to be in the best interests of Centennial and its
shareholders. 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 appropriate and necessary to fully and adequately
make determinations and to conduct negotiations with Warburg Pincus regarding
the terms of the proposed transaction and to otherwise fulfill its duties. The
Board also agreed that because of the time and energy involved in reviewing the
transaction, the members of the Special Committee should receive a fixed fee of
$37,500 each, with an additional $1,000 each for each meeting held by the
Special Committee.
At the end of the exclusivity period with Warburg Pincus, Citicorp Venture
Capital, Ltd. ("CITICORP") approached Centennial about a possible acquisition of
Centennial. On January 26, 2000, Centennial and Citicorp entered into a
confidentiality agreement. Citicorp proposed an equity investment of $25 million
in Centennial to be used to retire some of Centennial's debt and gain leverage
to buy additional facilities.
The Special Committee engaged Kilpatrick Stockton as its legal counsel to
advise it regarding its duties in connection with a possible sale of Centennial.
On January 17, 2000, the Special Committee and its legal counsel met to discuss
various matters, including, among others, the qualifications of the members of
the Special Committee to serve on the Special Committee, the qualification of
Kilpatrick Stockton to serve as counsel to the Special Committee, developments
at Centennial during the past year (including the naming of new independent
auditors), the structure of the Special Committee, the potential interest of
Citicorp in a transaction with Centennial, the terms of engagement for the
Special Committee's financial advisors and the procedures to be followed in
analyzing any offer from Warburg Pincus to acquire Centennial. Counsel also
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 Warburg Pincus.
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At that time, the Special Committee selected J.P. Morgan to serve as its
financial advisor for the purpose of advising the Special Committee and
assisting it in negotiations with Warburg Pincus, 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 Centennial.
From January 17 to February 24, 2000, J.P. Morgan reviewed financial and
other information concerning Centennial, including Centennial's audited and
interim financial statements, Centennial's Projections, Centennial's internal
study of the effects of PPS on Centennial, and other information concerning
Centennial described in "Special Factors -- Opinion of the Financial Advisor."
J.P. Morgan also met with members of management, as well as Centennial's current
independent auditors.
On January 19 and 20, 2000, the Special Committee met with members of
management, J.P. Morgan, Kilpatrick Stockton and Centennial's current
independent auditors to review the financial position of Centennial and its
competitors, and Centennial's operations and financial statements. Management
made a presentation to, and answered questions from, the Special Committee and
its advisors concerning the ongoing investigation of Centennial by the OIG,
indicating that there was significant uncertainty concerning Centennial's
potential liability and the timing of any possible resolution of the
investigation. The Special Committee also received a detailed summary of the
contacts to date between Centennial and Warburg Pincus at these meetings.
Management also discussed the financial and operating implications of PPS
since its implementation. Management discussed Centennial's earlier views of the
effects that PPS would have on Centennial's revenues and expenses, the actual
effects to date, and the anticipated impact on Centennial and its financial
condition in the future. In addition to a general discussion, management
specifically discussed in detail such actual and anticipated effects on each
line item of Centennial's income statement, and the assumptions inherent in
Centennial's Projections. Management noted that Centennial's Projections
included no acquisitions by Centennial, due to the lack of capital with which to
pursue acquisitions under Centennial's lines of credit and the fact that the
availability of additional credit in the near-future was unlikely. Management
also described the efforts of Centennial's financial advisors in searching for
financing of additional acquisitions during the previous six to eight months,
without success.
Management indicated that the implementation of PPS had resulted in
significant operating losses for most industry participants, and that
Centennial's EBITDAR margins had decreased by approximately 7% for the nine
month period ended September 30, 1999 compared to the twelve-month period ended
December 31, 1998. Management also indicated that moving from a "cost plus"
Medicare reimbursement system to PPS had required significant reengineering of
the manner in which companies in Centennial's industry segment tracked
reimbursable activities at the point of care in nursing facilities, and that
these efforts had required significant training costs. Management reported that
participants in this industry segment were perceived by the financial community
as facing continued operating and earnings challenges in transitioning to PPS,
and that this situation had affected the market price of the shares of these
companies, including the Common Stock.
On January 25, 2000, the Special Committee met with Kilpatrick Stockton and
J.P. Morgan to discuss the latest developments between Warburg Pincus and
Centennial, and Centennial's initial contacts with Citicorp concerning a
potential transaction. After a discussion of the status of both potential
transactions, Kilpatrick Stockton summarized its conversations with Willkie Farr
& Gallagher ("WILLKIE FARR"), legal counsel to Warburg Pincus, concerning the
timing, structure and process for a potential transaction. Among other matters,
the Special Committee discussed with its legal and financial advisors
Centennial's disclosure obligations, the importance of Centennial being able to
perform an effective market check in connection with any transaction, the
necessary and preferred vote levels for Centennial's public shareholders to
approve a potential transaction, the possible restructuring of Centennial's
credit facility and lender consents, whether such restructuring and consents
would be a condition to the potential offer by Warburg Pincus, and the need for
more information concerning the OIG investigation in order for J.P. Morgan to
complete its valuation work.
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<PAGE> 27
Between January 26 and February 10, 2000, the Special Committee met several
times to discuss developments with Warburg Pincus and Citicorp. On January 27,
2000, after a report on the preliminary discussions with Citicorp in which it
indicated a desire to undertake a diligence investigation to determine whether
to pursue a potential transaction with Centennial, the Special Committee agreed
to direct Centennial to provide Citicorp with access to Centennial information
and records at least equal to the level afforded to Warburg Pincus. The Special
Committee also discussed whether to direct Centennial to speak to members of its
lending group concerning a potential acquisition, ultimately deciding to direct
management to begin such discussions by addressing a potential acquisition of
Centennial in a neutral and generic manner, rather than with regard to a
potential transaction with Warburg Pincus as this approach would allow the
lenders to focus on the possibility of a competing bidder which might request a
similar amendment.
Between February 7 and February 11, 2000, Citicorp conducted its due
diligence review of Centennial to determine whether it had an interest in
pursuing a transaction other than its proposed equity investment of $25 million.
On February 11, 2000, the Special Committee received a preliminary draft of
a merger agreement from Willkie Farr, who indicated that the draft was being
circulated prior to delivery of any offer from Warburg Pincus in order to
expedite the Special Committee's review of the agreement's basic terms, and to
allow Centennial time to prepare disclosure schedules should Warburg Pincus
decide to make an offer. Although the draft merger agreement did not contain
pricing terms, the Special Committee evaluated the agreement based on the
Special Committee's expectation that Warburg Pincus would make an offer at a
price reflecting a premium to the then-current market price.
On February 15, 2000, the Special Committee met with Kilpatrick Stockton
and J.P. Morgan to discuss issues raised by the draft merger agreement received
from Willkie Farr. The Special Committee discussed in detail the desirability of
retaining the flexibility to entertain competing offers from other interested
potential acquirors, should those acquirors approach Centennial with a competing
offer. The Special Committee believed that this flexibility to entertain
competing offers would simulate an auction environment and encourage any
interested acquirors to come forward. In order to retain this flexibility, the
Special Committee directed Kilpatrick Stockton to seek terms in the merger
agreement which would minimize the termination fees Centennial would have to pay
if it terminated the merger agreement to pursue a competing proposal, and which
would permit Centennial to publicly announce its ability to entertain competing
proposals, even if Centennial could not otherwise initiate or solicit them.
Among other items discussed, the Special Committee also agreed to propose
that the transaction be conditioned on the approval of it by a supermajority of
Centennial's shareholders, and that Warburg Pincus accept the risk of the
ongoing OIG investigation and only be allowed to terminate its offer in the
event of a "material worsening" of the investigation.
On February 15, 2000, J.P. Morgan reported on Centennial's two-day
diligence meetings with Citicorp's legal and financial advisors. J.P. Morgan
reported that Citicorp had indicated a preliminary interest (without making an
offer) in pursuing an investment in Centennial of between $30 and $40 million,
in exchange for convertible preferred stock of Centennial. J.P. Morgan further
reported, however, that before Centennial or the Special Committee could address
such preliminary interest, Citicorp chose to terminate the discussions, and that
Citicorp indicated that there was no particular issue or concern that had caused
it to do so.
In addition, the J.P. Morgan team led a discussion of its valuation
analysis of Centennial. It reviewed in detail the written background materials
previously provided to the Special Committee. Among other issues, J.P. Morgan
discussed (i) the lack of comparable transactions with which to compare a
proposed offer from Warburg Pincus, (ii) a discounted cash flow analysis of the
transaction (including the cost of capital); and (iii) an analysis of public
company trading multiples.
After the delivery of the draft merger agreement, the Special Committee's
advisors held numerous discussions with Wilkie Farr regarding various provisions
in the draft merger agreement.
On February 16, 2000, the Special Committee discussed with management the
likelihood that earnings for the fourth quarter of 1999 would be lower than
anticipated by Centennial and financial analysts.
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Management specifically discussed events which occurred during the past several
months leading to these results, including, among others, the sale of three of
Centennial's facilities and the termination of a lease for a fourth facility,
declines in census at Centennial's facilities, continued increased labor costs,
revaluations of Centennial assets and the termination of several third-party
management contracts. Management then detailed the effects of those and other
events on Centennial's operations. Management also answered questions from the
Special Committee and its advisors.
On February 21, 2000, the Special Committee focused on four key issues
related to the draft merger agreement, as follows:
- OIG Investigation. The Special Committee decided to try to cause Warburg
Pincus to assume the risk of the investigation based on information
currently available to it and to only be permitted to terminate the
transaction if there was a "material worsening" of the investigation
prior to closing of the transaction.
- Termination Fee. The Special Committee concluded that it would be
desirable if the termination fee were less than the fee in the
acquisition transaction proposed in 1998.
- Expenses. The Special Committee concluded that it was reasonable for
Centennial to reimburse some of Warburg Pincus' expenses should the
proposed merger agreement be terminated to pursue another transaction,
based on the lengthy period of time that Warburg Pincus had devoted to,
and the extensive use of its advisors in, its diligence investigation of
Centennial. However, the Special Committee believed that these expenses
should be limited or capped in some manner.
- Credit Facility. The Special Committee directed management to poll the
remaining members of Centennial's lending group to determine whether they
would agree to renegotiate Centennial's credit facility in connection
with any offer received.
The Special Committee also discussed other issues related to the proposed
merger agreement, including, among others, the proposed "drop dead" date for
consummation of the proposed transaction and the ability of Centennial to make a
public announcement that it had the ability the receive proposals from other
bidders.
From February 22 through February 24, 2000, Willkie Farr, Kilpatrick
Stockton, J.P. Morgan, Centennial and King & Spalding, counsel to Centennial,
continued negotiations at Willkie Farr's offices in New York. Kilpatrick
Stockton and J.P. Morgan reported back to the Special Committee on several
occasions throughout that period, receiving instructions from the Special
Committee on various issues, including, among others, the timing for the
transaction, the description of a "material worsening" of the OIG investigation,
other conditions and termination events, the content of a press release
announcing the offer, the "no-shop" clause, Centennial's fiduciary "out" and the
amount of the termination fees and expense reimbursement.
On February 11, 2000, WCAS VI, South Atlantic and members of management
received drafts of the Contribution Agreement and the Voting Agreement (as
defined below). Over the next two weeks, representatives of Warburg Pincus and
Willkie Farr negotiated the terms of these agreements with representatives of
the Contributing Shareholders and their counsel.
On February 24, 2000, the Contributing Shareholders, the WP Funds, the
South Atlantic Investors and Holding entered into the Subscription Agreement.
The Subscription Agreement provides for the Contributing Shareholders to
contribute some or all of their Shares to Holding for Holding preferred stock
and for the WP Funds and the South Atlantic Investors to contribute an aggregate
of $54,673,513 for shares of Holding preferred stock.
On February 24, 2000, the Special Committee met to discuss the remaining
open issues, including, among others, the termination fees and expenses to be
reimbursed by Centennial. After the market closed, representatives of Holding
contacted Kilpatrick Stockton to deliver Holding's offer to acquire Centennial.
The offer consisted of a cash tender offer to be made by Acquisition followed by
a merger at a cash purchase price of $5.50 per share, a termination fee of
$2,000,000 and a maximum reimbursement of $1,000,000 for out-of-pocket expenses.
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<PAGE> 29
The Special Committee then met with Kilpatrick Stockton and J.P. Morgan to
discuss the offer, including the latest proposals to address the remaining open
issues. 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 Common Stock, based on materials previously provided to the Special
Committee. The Special Committee also discussed with J.P. Morgan its finding in
connection with J.P. Morgan's due diligence investigation of Centennial and its
other background discussions, 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 indicated that based on the discussions with Holding's
representatives, it believed that the $5.50 per share offer was Holding's best
available offer. Because this 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 $5.50 per share price was fair to the
shareholders of Centennial (other than Holding, Acquisition and the Contributing
Shareholders) from a financial point of view. The Special Committee discussed
the $5.50 per share offer in detail, and the concern that if the Special
Committee did not accept the offer, the shareholders of Centennial (other than
Holding, Acquisition and the Contributing Shareholders) might not have the
opportunity to consider a transaction that offered a substantial premium for
their shares.
Based in part on J.P. Morgan's oral opinion delivered and the valuation
analyses presented by J.P. Morgan to the Special Committee during the February
24 meeting, the Special Committee's belief that the $5.50 per share price was
the best offer available and the other factors described in "Special Factors --
The Special Committee's and the Board's Recommendation," the Special Committee
unanimously decided to recommend to the Board the approval and adoption of the
Merger Agreement, the Offer and the Merger.
On February 25, 2000, prior to the opening of trading, the Board met to
receive the report of the Special Committee. At this meeting, Mr. Stockton of
Kilpatrick Stockton and Mr. Nash as 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 $5.50 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 February 24 for the Board,
and reaffirmed its opinion that the $5.50 per share offer was fair to the
shareholders of Centennial (other than Holding, Acquisition and the Contributing
Shareholders) from a financial point of view and delivered its written opinion
to that effect. After considerable discussion, the Board approved the Merger
Agreement and resolved to recommend the approval of the Merger Agreement, the
Offer and the Merger to the shareholders of Centennial.
Concurrently with the execution of the Merger Agreement, on February 25,
2000, Holding, Acquisition, the Contributing Shareholders and WCAS CP entered
into the Voting Agreement (the "VOTING AGREEMENT"). The Voting Agreement
requires the Contributing Shareholders and WCAS CP to vote their Shares in favor
of the Merger and against other proposals unless the Merger Agreement is
terminated. The Contributing Shareholders will contribute their shares to
Holding one day after the consummation of the Offer and prior to the Special
Meeting and will not vote the contributed shares at the Special Meeting.
THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION
The Board formed the Special Committee to review and evaluate the proposed
transaction because it appeared that all of the directors except Mr. Nash and a
newly appointed member, Mr. Wood, would have a substantial financial interest in
the proposed transaction or pre-existing financial relationship with Warburg
Pincus. The Special Committee unanimously recommended to the Board that the
Merger Agreement be approved and that the Offer and the Merger be recommended to
the shareholders of Centennial. Following the unanimous recommendation of the
Special Committee, the Board approved the Merger Agreement and recommended that
the shareholders of Centennial tender their shares pursuant to the Offer and
approve the Merger. In connection with the foregoing, the Special Committee and
the Board determined that the Offer, the Merger, the Merger Agreement and the
transactions contemplated thereby were fair to, and in the best
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<PAGE> 30
interests of the Public Shareholders. All of the non-employee directors approved
the Merger Agreement, the Offer and the Merger. 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, and the
Board adopted the analyses and findings of the Special Committee. THE SPECIAL
COMMITTEE AND THE BOARD RECOMMENDED THAT THE PUBLIC SHAREHOLDERS ACCEPT THE
OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER AND VOTE FOR THE APPROVAL OF
THE MERGER AGREEMENT.
The Special Committee met on 16 occasions between January 17, 2000 and the
date of this Proxy Statement, in person or by telephone conference, to consider
developments relating to a possible sale of Centennial. 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 February 24, 2000, the
Special Committee determined that the Offer, the Merger, the Merger Agreement
and the transactions contemplated thereby were fair to, and in the best
interests of the Public Shareholders and recommended that the Board approve the
Merger Agreement. The Special Committee is unaware of any development since its
February 24, 2000 meeting that would affect its determination, and reconfirms,
as of the date of this Proxy Statement, its determination that the Offer, the
Merger, the Merger Agreement and the transactions contemplated thereby are fair
to, and in the best interests of the Public Shareholders. Based on the
foregoing, the Board also reconfirms, as of the date of this Proxy Statement,
its determination that the Offer, the Merger, the Merger Agreement and the
transactions contemplated thereby are fair to, and in the best interests of the
Public Shareholders.
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 Offer, the Merger, the Merger Agreement and the
transactions contemplated thereby are fair to, and in the best interests of the
Public Shareholders:
- There is significant near-term uncertainty in the long-term care sector.
The implementation of PPS has resulted in significant operating losses
for most industry participants. Centennial's EBITDAR margins decreased by
approximately 7% for the nine month period ended September 30, 1999
compared to the twelve month period ended December 31, 1998. Since
September 1999, four of the six largest nursing home providers have filed
for bankruptcy protection. Further, many industry participants are
currently being investigated for alleged Medicare overpayments. As a
result of the operating impact of PPS and the ongoing government
investigations, stock prices of Centennial and its competitors were
trading at less than 25% of their 24-month highs as of February 24, 2000,
the date on which the Special Committee approved the Offer.
- Centennial'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. Historically, only a small part of Centennial's
revenue growth has come from its existing facilities. Based on historic
trends, management believes that there is limited potential for
significant increase in revenues at Centennial's existing facilities. As
a result, acquisitions represent the most viable method of increasing
Centennial's revenues. Without acquisitions, it can be anticipated that
Centennial's revenues and earnings will not grow as significantly as they
have in the past, and that Centennial's share price will continue to
reflect this reduced growth rate.
However, Centennial's credit facility restricts its ability to add new
facilities through either acquisitions or leases. Centennial will need
additional debt and equity financing to pursue a growth strategy through
acquisitions. The reluctance by Centennial's current lenders to advance
additional funds for acquisitions is indicative of the difficulty that
can be reasonably anticipated in arranging necessary additional debt and
equity financing.
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 uncertainty surrounding the long-term care sector and
Centennial's reduced stock price would likely make acquisitions using
stock more expensive and dilutive to earnings because Centennial would
have to issue a greater number of shares to raise the
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same amount of equity necessary for its acquisitions. In this connection,
the Special Committee considered that Centennial 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
Centennial 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 would adversely impact earnings per
share and the market price of the Common Stock in the short term if
Centennial were public. As a private company, Centennial would also have
greater flexibility to wait for the financing markets to improve, because
Centennial would not be subject to the pressures on a public company to
maintain and grow revenues on a quarterly and annual basis.
- On March 26, 1999, Centennial received an investigatory subpoena from the
OIG requesting records in connection with an investigation of possible
improper claims for payment under Title XVIII (Medicare) of the Social
Security Act. The request related to records for the period January 1,
1994 through December 31, 1998, concerning certain of Centennial's
internal policies, and relating to certain long-term care facilities
operated by Centennial. The investigation centers upon allegations that
certain skilled nursing facilities improperly allocated nursing time
between Medicare and non-Medicare patients. Although Centennial is
vigorously defending this matter, depending on the outcome, a settlement
of such matter could result in substantial liability for Centennial. At
this time, neither the amount nor timing of any potential liability can
be estimated with any reasonable certainty. However, it is possible that
resolution of this investigation could have a material adverse effect on
Centennial's cash flow, results of operations and consolidated financial
position, and on the public trading price for the Shares.
- Centennial remains under significant liquidity pressures on a day-to-day
operating basis. In June 1999, Centennial amended its credit facility. As
part of the new agreement, Centennial transferred $5.7 million of
availability under the synthetic lease portion of its credit facility to
the revolver portion. The amendment, coupled with previous 1998
amendments to the synthetic lease facility, increased Centennial's
interest rate to 3.0% over LIBOR from 1.75% over LIBOR and accelerated
amortization of principal, or reduction in availability, of $5.7 million
on December 31, 1999, $11.0 million on December 31, 2000, and $22 million
during each of the years ending December 31, 2001 and 2002. As of
December 31, 1999, Centennial had $82 million outstanding under the
revolver portion of its credit facility. Although Centennial has remained
in compliance with the covenants of the credit facility through the date
of this Proxy Statement, it was required to sell three facilities and
terminate the lease on a fourth facility during the fourth quarter of
1999 to meet its amortization payments, and, if the Merger is not
consummated, likely would be required to sell additional facilities or
raise capital by other means to meet its scheduled amortization payments.
The financial covenants in the credit facility become more restrictive
during 2000 and early 2001 and Centennial is at risk that it may not be
able to comply with those financial covenants.
- Centennial continues to experience operational uncertainties relating to
the implementation of PPS and other market factors, including increasing
labor costs, increasing liability and workers compensation insurance
costs, increasing interest rates and the inability to obtain all
anticipated cost reductions.
- 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 ability to consider such bids
in a press release, and the reasonable termination fees imposed on
Centennial if the Board were to accept an alternative proposal, would
facilitate any competing bid. In addition, the Special Committee believed
that the Per Share Amount was the highest price that could be obtained
from Acquisition, and considered the possibility that Acquisition would
withdraw its bid if its proposal was used to attempt to generate higher
bids from third parties. The Special Committee was advised by J.P. Morgan
that the group of potential bidders for Centennial was relatively small.
This view was reinforced by the lack of any serious interest in acquiring
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Centennial by any person other than Warburg Pincus after Centennial's
previous acquisition proposal was terminated in April 1999.
- J.P. Morgan's oral opinion delivered to the Special Committee on February
24, 2000, reconfirmed in writing as of February 25, 2000, that the $5.50
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, which sets forth assumptions made, matters
considered and limitations on the review undertaken in connection with
its opinion, is attached hereto as Annex A 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. Centennial's shareholders are urged to and
should read the opinion in its entirety. In reaching its opinion as to
the fairness of the Merger, J.P. Morgan employed generally accepted
valuation methods. These methods included an analysis of public company
trading multiples, which implied a value for the Common Stock of $1.75 to
$4.00 per share; a discounted cash flow analysis, which indicated a range
of equity values between $2.00 and $6.00 per share; and a selected
transaction analysis, which suggested an estimated range of equity values
of between $2.60 and $6.00 per share. These analyses are all more fully
described in "Special Factors -- The Special Committee's and the Board's
Recommendation."
- The Merger Agreement does not provide for unreasonable termination fees
and expense reimbursement obligations which would have the effect of
unreasonably discouraging competing bids and, subject to the satisfaction
of specified 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
Centennial to indicate in its press release announcing the execution of
the Merger Agreement that Centennial 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 Offer. See "The
Merger -- Terms of the Merger Agreement."
- The Merger Agreement requires that there have been tendered and not
withdrawn Shares, which when taken together with the Shares, if any,
beneficially owned by Holding, represent more than 68.5% of the
outstanding shares of Common Stock on a fully diluted basis, as a
condition to the Merger. After giving effect to the 545,454 shares held
by Mr. Eaton and 246,896 shares held by WCAS CP which will not be
tendered in the Offer, Public Shareholders holding at least 54% of the
shares of Common Stock held by the Public Shareholders in the aggregate
will have to tender their shares in the Offer in order to satisfy the
minimum condition that Holding beneficially own at least 68.5% of the
Common Stock (the "Minimum Condition"). The tender of shares by the
Public Shareholders evidences their approval of the transactions
contemplated by the Merger Agreement. The Special Committee believed that
the Minimum Condition was an important safeguard in light of the
significant percentage of shares of Common Stock held by the Contributing
Shareholders.
- On February 18, 2000, one week prior to the announcement of the Merger,
the Common Stock had closed at $2.97 per share, and the $5.50 per share
to be received by the Public Shareholders in the Offer and the Merger
represented an 85% premium over such price (as well as the 87% premium
over the $2.94 per share closing price on February 24, 2000). In
addition, J.P. Morgan's analyses of the premiums paid in comparable
merger transactions indicated that the average premiums paid over the
target stock prices one week prior to the announcement date was 31%.
- The Merger Agreement does not condition Acquisition's obligations to
consummate the Merger on Acquisition's or Holding's ability to obtain
financing for the Merger. Holding has represented in the Merger Agreement
that it has or will have available to it funds sufficient to satisfy its
and Acquisition's obligation to consummate the Offer and the Merger.
- The shareholders who may not support the Merger have the ability to
obtain "fair value" for their Common Stock if they do not tender their
shares in the Offer and properly perfect and exercise their appraisal
rights under Georgia law. Georgia law provides shareholders with the
opportunity to exercise
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appraisal rights and to seek a determination in court of the fair value
of their Shares if they are dissatisfied with the consideration offered
in the Merger.
Potentially negative factors considered by the Special Committee were the
actual or potential conflicts of interest to which Messrs. Eaton and Dahl and
their affiliates are subject in connection with the Merger, as follows:
- The Special Committee considered that Holding has given members of
Centennial's senior management an opportunity to contribute all or a
substantial portion of their equity investments in Centennial for an
investment in Holding. As a result, the members of Centennial senior
management will own shares of Holding Series A Preferred Stock
representing approximately 5.2% of Holding's outstanding capital stock.
The Special Committee considered that the contribution of a substantial
portion of current equity investment in Centennial would indicate a level
of confidence in Centennial's prospects that might be inconsistent with
the Special Committee's assessment of the risks associated with
Centennial's future, but the Special Committee noted that members of
Centennial's senior management believed that Centennial would likely have
better access to capital as a private company controlled by a party such
as Acquisition with better access to private capital. The Special
Committee also considered that as a private company Centennial could
operate free from the pressures of public shareholders and securities
analysts to report predictable growth in earnings from quarter to
quarter.
- The Special Committee considered that members of Centennial's senior
management would enter into employment agreements with the Surviving
Corporation amending their existing employment agreements with
Centennial, and that such employment agreements would provide for the
payment to them of base salaries, possible annual cash bonuses and
potential severance benefits. The Special Committee also considered that
members of senior management will receive options to purchase shares of
Holding common stock at $5.50 per share.
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
and the transactions contemplated thereby on the Public Shareholders compared to
any alternative transaction and the likely effect of rejecting the Merger
proposal.
The Special Committee noted that the Contributing Shareholders have agreed
to contribute approximately 39.5% of the outstanding Common Stock prior to the
Merger. The Special Committee also considered that the obligation of Centennial
to consummate the Merger is conditioned upon the tender by holders of Common
Stock, which when taken together with the Common Stock, if any, beneficially
owned by Holding, represent more than 68.5% of the outstanding Common Stock on a
fully diluted basis.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
TENDER THEIR SHARES PURSUANT TO THE OFFER
AND APPROVE THE MERGER AGREEMENT AND THE MERGER
FAIRNESS OF THE MERGER
The Special Committee believes that the procedure that was followed in
determining the purchase price to be paid to the shareholders of Centennial was
fair to, and in the best interest of the Public Shareholders. The seven person
Board (a majority of whom are Contributing Shareholders or their affiliates),
appointed as the only members of the Special Committee two non-employee
directors who were not Contributing Shareholders or affiliates of the WP Funds,
and granted the Special Committee exclusive authority on behalf of the Board to
review, evaluate and negotiate the proposed transactions. The Merger Agreement
negotiated by the Special Committee contains provisions that would enable the
Board to withdraw or modify its recommendation to the Public Shareholders
regarding the Offer and the Merger and to enter into an
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agreement with respect to a more favorable transaction with a third party, and
contains provisions (without which the Special Committee believes Acquisition
would not have entered into the Merger Agreement) imposing upon Centennial
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 Public Shareholders may decide not to
tender their shares in the Offer and 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 the tender of shares,
which when taken together with the shares, if any, beneficially owned by
Holding, represent more than 68.5% of the outstanding shares of Common Stock on
a fully diluted basis, as a condition of the Merger. 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.
The Special Committee believes that the Merger is procedurally and
substantively fair to the Public Shareholders because (i) the Special Committee
(comprised of directors who are not Contributing Shareholders, their affiliates
or affiliates of the WP Funds) was authorized to review, evaluate and negotiate
the proposed Merger; (ii) the Special Committee retained J.P. Morgan, an
unaffiliated financial advisor, to act solely on behalf of the Public
Shareholders and render an opinion as to the fairness of the Merger from a
financial point of view; (iii) the Merger Agreement allows the Board to withdraw
its recommendation to the shareholders and does not prohibit Centennial from
entering into an alternative transaction; (iv) the Merger requires the tender by
holders of shares of Common Stock, which when taken together with the Common
Stock, if any, beneficially owned by Holding, represent more than 68.5% of the
outstanding shares on a fully diluted basis; and (v) all of the non-employee
directors approved the Merger.
Based on the foregoing, the Special Committee unanimously determined that
the Offer, the Merger, the Merger Agreement and the transactions contemplated
thereby were fair to, and in the best interests of the Public Shareholders and
recommended to the Board approval of the Merger Agreement and that the Offer,
the Merger and the Merger Agreement be recommended to the shareholders of
Centennial. The Board approved the Offer, the Merger and the Merger Agreement on
February 25, 2000 and has reconfirmed, as of the date of this Proxy Statement,
that the Merger is fair to, and in the best interests of the Public
Shareholders.
All of the directors of Centennial other than the members of the Special
Committee may be considered to have an interest in the Offer and the Merger.
Accordingly, the Board based its determination that the terms of the Offer are
procedurally and substantively fair to the Public Shareholders primarily upon
the conclusions of the Special Committee described above, the J.P. Morgan
opinion and the other factors described above for the Special Committee and
adopted the analyses of the Special Committee and J.P. Morgan.
OPINION OF FINANCIAL ADVISOR
At the meeting of the Special Committee on February 24, 2000, J.P. Morgan
rendered its oral opinion to the Special Committee that, as of such date, the
cash consideration to be paid to the Public Shareholders in the proposed tender
offer and subsequent merger (the "TRANSACTION") was fair, from a financial point
of view, to the Public Shareholders. J.P. Morgan confirmed its February 24, 2000
oral opinion by delivering its written opinion, dated as of February 25, 2000,
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 February 25,
2000, 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. Centennial'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 consideration to be paid to the
Public Shareholders pursuant to the transaction and does not constitute a
recommendation to any shareholder of Centennial as to whether such shareholder
should tender its shares of Common Stock in the Offer. 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.
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In arriving at its opinion, J.P. Morgan reviewed, among other things: the
Merger Agreement; the audited financial statements of Centennial for the fiscal
year ended December 31, 1998, and the unaudited financial statements of
Centennial for the periods ended March 31, June 30, September 30, and December
31, 1999; current and historical market prices of Common Stock; publicly
available information including Form 10-Ks and Form 10-Qs concerning other
companies engaged in businesses comparable to those of Centennial (such as
Advocat, Beverly Enterprises, Extendicare Services, Genesis Health Ventures and
HCR Manor Care), and the reported market prices for other companies' securities
deemed comparable; publicly available terms of transactions involving companies
comparable to Centennial and the consideration paid for such companies; the
terms of other business combinations deemed relevant by J.P. Morgan; and the
internal financial analyses and forecasts prepared by Centennial and its
management and agreements with respect to outstanding indebtedness or
obligations of Centennial. J.P. Morgan also held discussions with members of the
management of Centennial and its outside auditors with respect to aspects of the
Merger, the past and current operations of Centennial, the financial condition
and future prospects and operations of Centennial and other matters believed
necessary or appropriate to J.P. Morgan's inquiry. In addition, J.P. Morgan
discussed with Centennial's internal and external counsel the status and
potential impact of the pending OIG investigation, 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 Centennial 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 assumed
that they were 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 Centennial to which such
analyses or forecasts relate. J.P. Morgan also assumed that the Transaction
would have the tax consequences described in this Proxy Statement and in
discussions with, and materials furnished to J.P. Morgan by, representatives of
Centennial, and that the other transactions contemplated by the Merger Agreement
would be consummated as described in the Merger Agreement and this Proxy
Statement.
Centennial's Projections furnished to J.P. Morgan for Centennial were
prepared by management. Centennial 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 Transaction, and such projections were not
prepared with a view toward public disclosure. Centennial's 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. For further discussion of Centennial's Projections, see
"Centennial's Projections."
J.P. Morgan's opinion is 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 opinion. Subsequent developments may affect the written opinion dated as
of February 25, 2000 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 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 Centennial with similar data for
selected publicly traded companies engaged in businesses which J.P. Morgan
judged to be analogous to Centennial. The companies selected by J.P. Morgan
were Advocat, Beverly Enterprises, Extendicare, Genesis Health Ventures,
and HCR Manor Care. These companies were selected, among other reasons,
because they are in the same line of business
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as Centennial. J.P. Morgan gave more weight to Beverly Enterprises and HCR
Manor Care because they are of substantially similar quality as Centennial.
For each comparable company, publicly available financial performance for
the quarter ended September 30, 1999 was measured and then converted to an
annualized basis. J.P. Morgan adjusted the Beverly and HCR Manor Care mean
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 2000 and 2001
projected earnings. These multiples were then applied to Centennial's
EBITDAR, EBITDA and projected earnings, respectively, yielding a range of
implied equity values for the Common Stock of approximately $1.75 to $4.00
per share. The valuation does not take into account any diminution in value
from a potential OIG settlement.
Discounted Cash Flow. 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 Centennial is expected to generate during fiscal years 2000
through 2007 based on Centennial's Projections and a sensitivity case
adjusted by J.P. Morgan to reflect more moderate EBITDAR margins reflecting
fourth quarter 1999 performance. These unlevered cash flows for the period
from fiscal year 2000 through 2007 were $18.4 million, $18.4 million, $20.4
million, $22.3 million, $24.0 million, $26.1 million, $27.3 million and
$29.2 million using the higher EBITDAR margins (as set out in Centennial's
Projections), and $13.4 million, $13.2 million, $14.9 million, $16.5
million, $17.8 million, $19.6 million, $20.4 million and $22.1 million
using the more moderate EBITDAR margins. J.P. Morgan also calculated a
range of terminal values of Centennial at the end of the eight year period
ending 2007 by applying exit EBITDA multiples ranging from 4.0 to 8.0. 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
20% which were chosen by J.P. Morgan based upon an analysis of the weighted
average cost of capital of Centennial and current expected returns for the
long-term care sector. The present value of the unlevered free cash flows
and the range of terminal asset values were then adjusted for Centennial's
September 30, 1999 excess cash and total debt. Based on adjusted management
projections and discount rate and EBITDA multiple sensitivities, the
discounted cash flow analysis indicated a range of equity values of between
$2.00 and $6.00 per share of the Common Stock on the basis of Centennial as
a stand-alone entity. The valuation does not take into account any
diminution in value from a potential OIG settlement.
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 selected going-private
transactions. J.P. Morgan did not choose to use long-term care industry
transaction multiples because these transactions were announced prior to
the market decline of the long-term care sector took place at the beginning
of July 1998. No appropriate transactions occurred after this market
downturn to include in this analysis. Accordingly, J.P. Morgan believed
that long-term care acquisitions prior to July 1998 were of limited
relevance to its evaluation of Centennial. J.P. Morgan reviewed the
premiums paid in going-private transactions of similar size in unrelated
industries, specifically, RB Capital's acquisition of Rock Bottom
Restaurants, the acquisition of Haskel International by an Investors and
Capstar Radio's acquisition of Triathlon Broadcasting. J.P. Morgan applied
a premium of 50% to Centennial's implied public market trading range and
arrived at an estimated range of equity values for the Common Stock of
between $2.60 and $6.00 per share. The valuation does not take into account
any diminution in value from a potential OIG settlement.
The summary set forth above does not purport to be a complete description
of the analyses or data presented by J.P. Morgan but accurately summarizes the
procedures, findings and recommendations of 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 its 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
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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 transaction and the delivery
of its opinion, Centennial paid J.P. Morgan a fee of $500,000 upon execution of
its engagement letter, dated February 9, 2000, and is obligated to pay J.P.
Morgan an additional fee of $1,500,000 upon the earlier of the termination of
the engagement or July 1, 2000. Centennial is also obligated to pay J.P. Morgan
a fee of $300,000 for the opinion delivered by J.P. Morgan on February 25, 2000.
In addition, Centennial has agreed to reimburse J.P. Morgan for its expenses
incurred in connection with its services, including the fees and disbursements
of counsel, and will indemnify J.P. Morgan against certain liabilities,
including liabilities arising under the Federal securities laws.
J.P. Morgan was engaged by Centennial in September 1998 to deliver a
fairness opinion in connection with the proposed transaction with WCAS VI and
its affiliates prior to its services in connection with the Merger. J.P. Morgan
was entitled to a fee of $2 million in connection with the proposed WCAS VI
transaction. Payment of the fees described above for the Merger will satisfy
Centennial's obligations with respect to the proposed WCAS VI transaction. J.P.
Morgan and its affiliates maintain banking and other business relationships with
Warburg Pincus and its affiliates, and have advised, financed and undertaken
capital markets transactions with such entities, for which it receives customary
fees. J.P. Morgan advised Warburg Pincus and its affiliates on the initial
public offering of Earthweb in 1998 and on Earthweb's secondary offering in
1999. J.P. Morgan received less than $1 million in fees from its relationships
with Warburg Pincus in each of 1998 and 1999. These fees were the result of the
arms' length negotiations. In 1998, J.P. Morgan provided the following services
to private investment partnerships affiliated with WCAS VI and WCAS HP: advising
on the sale of Control Data's software business, providing credit, holding
securities, arranging derivative swaps and providing pension fund services. In
1999, J.P. Morgan provided the following services to private investment
partnerships affiliated with WCAS VI and WCAS HP: lead managing the bank
facility for Alliance Data Systems and advising on its equity investment in
Winstar Communications. J.P. Morgan received less than $5 million in fees from
its relationships with the WCAS Group and other affiliated private investment
partnerships in 1998 and 1999. These fees were the result of the arms' length
negotiations. J.P. Morgan has not provided services to South Atlantic in 1998 or
1999. In the ordinary course of their businesses, J.P. Morgan and its affiliates
may actively trade the debt and equity securities of Centennial 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.
PURPOSE, ALTERNATIVES AND REASONS OF CENTENNIAL AND THE INVESTORS FOR THE MERGER
Purpose. The purpose of the Offer and the Merger is for Holding to acquire
control of, and the entire equity interest in, Centennial. The Offer, as the
first step in the acquisition of Centennial, was intended to facilitate the
acquisition of all outstanding Common Stock. The purpose of the Merger is to
acquire all of the outstanding Common Stock not purchased pursuant to the Offer
or otherwise. After consummation of the Offer, a meeting of Centennial's
shareholders is required under the Georgia Business Corporation Code (the
"GBCC") or Centennial's Amended and Restated Articles to approve the Merger;
however, Acquisition currently owns sufficient shares to approve the Merger
without the vote of any other shareholder.
Alternatives. Centennial has historically grown through strategic
acquisitions in the healthcare industry. Several external factors have
restricted the ability of Centennial to continue to grow in this manner. Such
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<PAGE> 38
factors include changes in the capital markets which have made debt and equity
financing more difficult to obtain, changes in the healthcare industry which led
to the tightening of Centennial's credit agreement, increased costs of
operations as a result of PPS, and the dilutive effect that acquisitions in the
current economic environment would have on Centennial's stock value. Each of
these factors led management to the conclusion that it was in the best interest
of Centennial's shareholders for Centennial to be a private company.
Centennial considered various alternatives to the Merger. In October 1999,
South Atlantic, a holder of approximately 10% of the Common Stock, approached
Centennial about contributing additional equity to Centennial to either fund an
acquisition vehicle or engage in a going private transaction. The proposed
investment by South Atlantic was not significant enough to accomplish either of
these objectives and would have been highly dilutive to current shareholder
value and therefore was not a viable option for Centennial.
Centennial was also approached by Citicorp regarding an investment in
Centennial. Citicorp proposed an equity investment of $25 million in Centennial
to be used to retire some of Centennial's debt and to purchase additional
facilities.
Centennial also had discussions with other parties unaffiliated with the WP
Funds about potential funding of acquisition vehicles in joint venture or
contractual type relationships. None of these discussions lead to a specific
proposal. For further discussion regarding specific proposals received by
Centennial, see "Special Factors -- Background of the Merger."
Reasons. Each of the Investors and Centennial believes that it is in
Centennial's best interests to operate as a privately held entity. Without the
constraint of the public market's emphasis on quarterly earnings, Centennial
will have greater operating flexibility to focus on enhancing long-term value by
emphasizing growth (both internally and through acquisitions) and operating cash
flow. The Investors and Centennial believe that an emphasis on long-term growth
rather than short-term earnings could eventually result in greater business and
capital market opportunities than would be available to Centennial if remaining
publicly held. In addition, they believe that as a privately held entity,
Centennial will be able to make decisions that may negatively affect quarterly
earnings but that may increase the value of Centennial's assets or earnings over
the long-term. In a public company setting, it is difficult to make decisions
that could negatively affect earnings when the result of those decisions could
significantly reduce per share price, if analysts' short-term earnings
expectations are not met or exceeded.
In addition, after the Merger, Centennial will no longer be subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), which will allow Centennial to eliminate the time devoted by
its management and certain other employees to matters which relate exclusively
to Centennial being a publicly held company. "Going-private" will also reduce
certain other costs which relate to being a public company, including the costs
of certain accounting, auditing and Commission counsel activities, the cost of
preparing, printing and mailing corporate reports and proxy statements, the
expense of a transfer agent and the cost of investor relations activities.
These assessments are based upon publicly available information regarding
Centennial and the Investors' due diligence investigation or knowledge of
Centennial and the Investors' experience in investing in or managing companies
in the healthcare industry and public companies generally. While the Investors
believe that there will be significant opportunities associated with the
investment in Centennial, they realize that there are also substantial and
significant risks that such opportunities may not be fully realized. The primary
risks to the Investors relate to the unknown long-term effects of PPS and other
possible governmental healthcare spending reductions, the uncertainty concerning
whether Centennial's growth strategy will succeed and Centennial's substantial
indebtedness, including capital leases, of approximately $355 million.
Effects. As a result of the Offer and the Merger, the entire equity
interest in Centennial will be owned by the Investors through their ownership of
Holding. 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 $5.50 in cash, without interest, for
each share held (other than shares for which appraisal rights have been
perfected).
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<PAGE> 39
To the extent that the Contributing Shareholders receive shares of Holding
preferred stock for their shares, they will have the ability to participate in
Centennial's future earnings and potential growth and will have the ability to
benefit from any corporate opportunities that may be pursued by Centennial in
the future. However, to the extent that the Contributing Shareholders receive
shares of Holding preferred stock for their shares of Common Stock, they will
also bear the risk of any decreases in the value of Centennial.
An equity investment in Holding following the Merger will involve
substantial risk resulting from the limited liquidity of any such investment and
the leverage resulting from Centennial's existing leverage and any other
indebtedness required to fund the capital expenditures and acquisitions
necessary to execute Centennial's business strategy. Nonetheless, if Centennial
successfully executes its business strategy, the value of such an equity
investment could be considerably greater than the original cost thereof.
In addition, the Common Stock will no longer be traded on the Nasdaq
National Market and price quotations for sales of shares in the public market
will no longer be available. The registration of the Common Stock under the
Exchange Act will terminate and Centennial will no longer file periodic or
annual reports. Centennial's officers, directors and the owners of more than 10%
of the Common Stock will no longer be subject to the short-swing profit
provisions of Section 16(b) of the Exchange Act.
Plans for Centennial. Pursuant to the Merger Agreement, upon completion of
the Offer, Holding intends to effect the Merger in accordance with the terms and
conditions of the Merger Agreement.
The Merger Agreement provides that, effective upon the consummation of the
Offer, Holding will be entitled to designate a number of directors (rounded up
to the nearest whole number) to the Board in proportion to the percentage of the
total number of outstanding Shares owned by Holding and its affiliates.
Except for the transactions contemplated by the Merger Agreement, the
Investors have no current plans or proposals which relate to or would result in:
(a) an extraordinary corporate transaction, such as a merger, reorganization or
liquidation involving Centennial; (b) a sale or transfer of a material amount of
assets of Centennial; (c) any change in the management or any change in any
material term of the employment contract of any executive officer (except as
discussed in "Special Factors -- Conflicts of Interest"); or (d) any other
material change in Centennial's corporate structure or business.
Nevertheless, the Investors may initiate a review of Centennial and its
assets, corporate structure, capitalization, operations, properties, policies,
management and personnel to determine what changes, if any, would be desirable
following the Merger in order best to organize and coordinate the activities of
Centennial and Holding. Furthermore, in connection with its ongoing review of
Centennial's long term strategy, the Investors may, in the future, consider
transactions such as the disposition or acquisition of material assets,
alliances, joint ventures, other forms of co-operation with third parties or
other extraordinary transactions affecting Centennial or its operations.
POSITION OF THE HOLDING, ACQUISITION, WPEP, WARBURG, THE WP FUNDS, MANAGEMENT
AND CENTENNIAL AS TO FAIRNESS OF THE MERGER
Through its ownership of the Common Stock contributed to it by the
Contributing Shareholders and Acquisition's purchase of Common Stock pursuant to
the Offer, Holding beneficially owns approximately 91.3% of the outstanding
Common Stock. As a result, Holding and its affiliates, including Warburg, may be
deemed to be "affiliates" of Centennial. Rule 13e-3 of the Exchange Act governs
"going-private" transactions by certain issuers and their affiliates.
Accordingly, in compliance with Rule 13e-3, Centennial, Holding, Acquisition,
the WP Funds, Warburg, WPEP and Messrs. Eaton, Dahl, Fosha and Lepley
(collectively, "MANAGEMENT") may be required to consider the fairness of the
Offer and the Merger to the Public Shareholders.
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<PAGE> 40
Centennial, Holding, Acquisition, Warburg, WPEP, the WP Funds and
Management believe the Merger to be substantively and procedurally fair to the
Public Shareholders. Centennial, Holding, Acquisition, Warburg, WPEP, the WP
Funds and Management have considered the J.P. Morgan opinion (see, "Opinion of
Financial Advisor" below), in addition to the following factors:
- The fact that the Board and the Special Committee concluded that the
Offer and the Merger are fair to and in the best interests of, the Public
Shareholders.
- Acquisition obtained 51.8% of the outstanding Common Stock in the Offer.
- The historical and projected financial performance of Centennial and its
financial results.
- The Cash Merger Consideration represents an 87% premium over the closing
price for the Shares on February 24, 2000, the last full trading day
prior to announcement of the $5.50 Merger and is all cash consideration.
- The ability of Public Shareholders who do not tender their Common Stock
in the Offer and object to the Merger to obtain "fair value" for their
shares if they properly exercise their appraisal rights under the GBCC.
- The Merger is not subject to a financing condition.
- The terms of the Merger Agreement were determined through arm's-length
negotiations between the Special Committee and its legal and financial
advisors, on the one hand, and representatives of Holding, on the other
hand. These terms were negotiated before Holding or Acquisition
beneficially owned any Common Stock.
- The Contributing Shareholders have significant control of the Common
Stock and could significantly influence a disposition of Centennial.
- Centennial's liquidity situation, which does not currently allow for
opportunities to grow Centennial through acquisitions.
- Notwithstanding that the J.P. Morgan opinion was provided solely for the
information and assistance of the Special Committee and that Centennial,
Holding, Acquisition, Warburg, the WP Funds and Management are not
entitled to rely on such opinion, the fact that the Special Committee
received an opinion from J.P. Morgan that the $5.50 per Share in cash to
be received by the Public Shareholders in the Merger is fair to such
holders from a financial point of view.
Centennial, Holding, Acquisition, Warburg, WPEP, the WP Funds and
Management have reviewed the factors considered by the Board in support of its
decision as described above, and had no basis to question their consideration of
or reliance on these factors. None of Centennial, Holding, Acquisition, Warburg,
WPEP, the WP Funds and Management find it practicable to assign specific
relative weights to the foregoing factors in reaching its opinion as to the
fairness of the Offer and the Merger to the Public Shareholders.
CONFLICTS OF INTEREST
In considering the recommendations of the Board and the Special Committee
with respect to the Merger, you should be aware that officers and directors of
Centennial, as well as other Contributing Shareholders, have interests in
connection with the Offer and the Merger which may present them with actual or
potential conflicts of interest as described below. The Special Committee and
the Board were aware of these interests and considered them among the other
matters described in "Special Factors -- Special Committee's and the Board's
Recommendation."
WCAS VI, WCAS HP and the WCAS General Partners together owned approximately
23% of the Common Stock and South Atlantic owned approximately 10%. WCAS VI,
WCAS HP and South Atlantic entered into the Subscription Agreement pursuant to
which they contributed to Holding their Common Stock for Series B Preferred
Stock. WCAS VI, WCAS HP, WCAS CP and South Atlantic also entered into the Voting
Agreement pursuant to which they agreed to support the Offer and the Merger.
Pursuant to the
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Merger, Acquisition will acquire 246,895 Shares owned by WCAS CP. See "The
Merger -- Terms of the Subscription Agreement, Voting Agreement and Employment
Agreements."
Mr. Eaton is Chairman, President and Chief Executive Officer of Centennial
and owned approximately 9.4% of the Common Stock. Mr. Eaton entered into the
Subscription Agreement pursuant to which he contributed to Holding 569,917
shares of Common Stock for 569,917 shares of Holding Series A Preferred Stock.
Pursuant to the Merger, Acquisition will acquire for $5.50 a share 545,454
shares of Common Stock owned by Mr. Eaton for aggregate consideration of
$2,999,997. Mr. Eaton also entered into the Voting Agreement pursuant to which
he agreed to support the Offer and the Merger. Mr. Eaton will continue as a
director and as a member of management in the Surviving Corporation pursuant to
a new employment agreement which will take effect upon consummation of the
Merger and provide for severance payments, stock repurchase rights and
non-compete periods. See "The Merger -- Terms of the Subscription Agreement,
Voting Agreement and Employment Agreements."
Mr. Dahl is Executive Vice President, Chief Financial Officer and Treasurer
of Centennial. Mr. Dahl entered into the Subscription Agreement pursuant to
which he contributed to Holding his Common Stock for Series A Preferred Stock.
Mr. Dahl also entered into the Voting Agreement pursuant to which he agreed to
support the Offer and the Merger. Mr. Dahl will continue as a member of
management in the Surviving Corporation pursuant to a new employment agreement
which will take effect upon consummation of the Merger and provide for severance
payments and non-compete periods. Mr. Dahl owned less than one percent of the
Common Stock. See "The Merger -- Terms of the Subscription Agreement, Voting
Agreement and Employment Agreements."
Mr. Paul is a director of Centennial and a general partner of the general
partner of WCAS VI and other entities affiliated with WCAS VI. Mr. Paul entered
into the Subscription Agreement pursuant to which he contributed to Holding
9,686 shares of Common Stock for Series B Preferred Stock. Mr. Paul also entered
into the Voting Agreement pursuant to which he agreed to support the Offer and
the Merger. Pursuant to the Merger, Acquisition will acquire for $5.50 per share
3,021 shares of Common Stock owned by Mr. Paul. Mr. Paul has no affiliation with
management. See "The Merger -- Terms of the Subscription Agreement, Voting
Agreement and Employment Agreements."
Mr. Nordin is a director of Centennial and a special limited partner of a
South Atlantic affiliate. Mr. Nordin is a special limited partner in a limited
partnership which invested in a South Atlantic fund holding an interest in
Centennial. The South Atlantic Investors purchased 908,091 shares of Series B
Preferred Stock. South Atlantic entered into the Subscription Agreement pursuant
to which it contributed to Holding its shares of Common Stock for Series B
Preferred Stock. Mr. Nordin has no affiliation with management. Mr. Nordin owned
less than one percent of the Common Stock.
Mr. Hoover is a director of Centennial and a former general partner and
current limited partner of the general partners of WCAS VI, as well as a general
partner of the respective sole general partners of WCAS CP and Welsh, Carson,
Anderson & Stowe V, L.P (which is an affiliate of WCAS VI). Mr. Hoover is also
affiliated with Dauphin Capital Partners, which approached Warburg Pincus about
participating in the proposed transaction but ultimately did not participate.
Mr. Hoover has no affiliation with management. Mr. Hoover owned less than one
percent of the Shares. See "The Merger -- Terms of the Subscription Agreement;
Voting Agreement and Employment Agreements."
Mr. Fosha is Executive Vice President of Operations of Centennial. Mr.
Fosha entered into the Subscription Agreement pursuant to which he contributed
to Holding his Common Stock for Series A Preferred Stock. Mr. Fosha also entered
into the Voting Agreement pursuant to which he agreed to support the Offer and
the Merger. Mr. Fosha will continue as a member of management in the Surviving
Corporation pursuant to a new employment agreement which will take effect upon
consummation of the Merger and provide for severance payments and non-compete
periods. Mr. Fosha owned less than one percent of the Common Stock. See "The
Merger Terms of the Subscription Agreement, Voting Agreement and Employment
Agreements."
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Mr. Lepley is President of Paragon. Mr. Lepley entered into the
Subscription Agreement pursuant to which he contributed to Holding his Common
Stock for Series A Preferred Stock. Mr. Lepley also entered into the Voting
Agreement pursuant to which he agreed to support the Offer and the Merger. Mr.
Lepley will continue as a member of management in the Surviving Corporation
pursuant to a new employment agreement which will take effect upon consummation
of the Merger and provide for severance payments and non-compete periods. Mr.
Lepley owned less than one percent of the Common Stock. See "The Merger -- Terms
of the Subscription Agreement, Voting Agreement and Employment Agreements." Mr.
Lepley's wife owned 26,500 shares of common stock that she tendered in the
offer.
On February 25, 2000, upon execution of the Merger Agreement, Messrs.
Eaton, Dahl and Fosha entered into new employment agreements with Centennial
which will replace their existing employment agreements upon consummation of the
Merger. In addition, Mr. Lepley entered into a new employment agreement with
Paragon which will replace his existing employment agreement upon consummation
of the Merger. For further discussion of the terms of each of these employment
agreements, see "The Merger -- Terms of the Subscription Agreement, Voting
Agreement and Employment Agreements."
Options. Following the Merger, Holding intends to grant to Messrs. Eaton,
Dahl, Fosha and Lepley, and to other members of management and key employees,
options to purchase an aggregate of 2,585,451 shares of Holding common stock
(the "NEW OPTIONS"). The shares issuable on exercise of the New Options will
represent 15% of the shares of Holding common stock outstanding immediately
after the Merger (assuming the conversion of all preferred stock into common
stock). The exercise price of the New Options will be $5.50 per share.
Mr. Eaton is expected to be granted New Options to purchase approximately
1.2 million shares of Holding common stock, of which 420,000 will be immediately
exercisable and the balance of which will invest in four annual equal
installments on the anniversaries of the date of grant. Each of Messrs. Dahl,
Fosha and Lepley will be granted options to purchase 160,000 shares of Holding
common stock, of which 20% will be immediately exercisable, with the balance
vesting in four annual equal installments on the anniversaries of the date of
grant. For further discussion, see "The Merger -- Terms of the Subscription
Agreement, Voting Agreement and Employment Agreements."
The Merger Agreement requires Centennial (and after the Merger, the
Surviving Corporation) for a period of six years following the consummation of
the Merger to provide indemnification, to the full extent permitted by
applicable law, to the current and former officers, directors, employees,
fiduciaries, and agents of Centennial against liabilities (including reasonable
attorneys' fees) arising out of or pertaining to the Offer or the Merger. The
Surviving Corporation is required to provide officers' and directors' liability
insurance covering Centennial's officers and directors who are currently covered
by Centennial's officers' and directors' insurance for a period of two years,
but is not required to expend annually more than 150% of the current cost of
such coverage. For a more detailed discussion of the indemnification and
insurance provisions of the Merger Agreement, see "The Merger -- Terms of the
Merger Agreement."
Following consummation of the Merger, the executive officers of Centennial
will continue as the executive officers of Holding and the Surviving
Corporation, and Mr. Eaton will serve on the Board of Directors of Holding and
the Surviving Corporation. It is anticipated that all current employees of
Centennial and its subsidiaries will continue in their same capacities after the
Merger.
The Management Group. After consummation of the Offer, each of Messrs.
Eaton, Dahl, Fosha and Lepley owns shares of Holding preferred stock and, after
the consummation of the Merger, will have vested options to purchase shares of
Holding common stock (representing approximately 7.4% of such shares expected to
be then issued and outstanding on a fully diluted basis assuming exercise of all
options then outstanding and conversion of all preferred stock). Mr. Eaton's
shares of Common Stock that are not exchanged for Series A Preferred Stock will
be converted into the right to receive the same Cash Merger Consideration as
shares of Common Stock held by other shareholders of Centennial.
At the closing of the Merger, all outstanding options to purchase Common
Stock will have vested and will be cashed out in accordance with the terms of
the Merger Agreement. All options that are not exercised will
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be canceled in accordance with the terms of the Merger Agreement. See "The
Merger Terms of the Subscription Agreement, Voting Agreement and Employment
Agreements." As of February 25, 2000, there were options outstanding to purchase
an aggregate of 819,875 shares of Common Stock at a weighted average exercise
price of $16.88 per share, of which 8,276 shares have an exercise price per
share of less than $5.50.
The following table sets forth information as of the date of this Proxy
Statement as to the shares of Common Stock held by the Investors or their
affiliates for which Cash Merger Consideration will be received upon
consummation of the Merger.
<TABLE>
<CAPTION>
AMOUNT OF
CASH TO BE
SHARES NOT RECEIVED FOR
CONTRIBUTED TO SHARES NOT
INVESTORS HOLDING CONTRIBUTED
- --------- -------------- ------------
<S> <C> <C>
J. Stephen Eaton............................................ 545,454 $2,999,997
Andrew M. Paul.............................................. 3,021 16,615
WCAS Capital Partners II, L.P............................... 246,896 1,357,928
</TABLE>
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, the entire equity interest in Centennial will be
owned by the Investors through their ownership of Holding preferred stock. The
Public Shareholders will no longer have any interest in, and will not be
shareholders of, Centennial, and therefore will not participate in any future
earnings and potential growth of Centennial. Instead, the Public Shareholders
will have the right to receive $5.50 in cash, without interest, for each share
held (other than shares in respect of which appraisal rights have been
perfected).
The Special Committee believes that the principal benefits of the Merger to
the Public Shareholders arise from the opportunity to receive cash value for the
Common Stock, which is substantial in light of the market price of the Common
Stock one week prior to the announcement of the Merger and the anticipated
future difficulty in pursuing Centennial's acquisition strategy. See "Special
Factors -- The Special Committee's and the Board's Recommendation." The Special
Committee believes that the principal detriments of the Merger to the Public
Shareholders arise from their inability to participate in any future earnings or
potential growth of Centennial following the consummation of the Merger, and
from the expectation that the receipt of Cash Merger Consideration for their
shares of Common Stock in the Merger will be taxable transaction for federal
income tax purposes. To the extent that the Investors receives shares of Holding
preferred stock in exchange for their shares of Common Stock, they will have the
ability to participate in any future earnings and potential growth of Centennial
and will have the ability to benefit from any corporate opportunities that may
be pursued by Centennial in the future. To the extent that the Investors
receives shares of Holding preferred stock in exchange for their shares of
Common Stock, they will also bear the risk of any decreases in the value of
Centennial. The principal benefits of the Merger to Centennial are discussed
under "Special Factors -- The Special Committee's and the Board's
Recommendation."
An equity investment in Holding 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 fund the
capital expenditures and acquisitions necessary to execute Centennial's business
strategy. Nonetheless, if Centennial 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."
In addition, the Common Stock will no longer be traded on the Nasdaq
National Market and price quotations for sales of shares in the public market
will no longer be available. The registration of the Common Stock under the
Exchange Act will terminate and Centennial will no longer file periodic or
annual reports. Centennial's officers, directors and ten percent owners will no
longer be subject to the short-swing profit provisions of Section 16(b) of the
Exchange Act.
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FINANCING OF THE MERGER
It is estimated that approximately $55 million will be required to
consummate the Offer and the Merger and pay related fees and expenses and pay
down current indebtedness. The Merger is not subject to a financing contingency,
and the WP Funds and South Atlantic Investors have committed to make cash
investments of up to an aggregate of $55 million for such purpose. See "Special
Factors -- Special Committee's and the Board's Recommendation". Approximately
$46 million of this investment by the WP Funds and South Atlantic Investors will
be used to consummate the Offer and the Merger and pay related fees and
expenses. The balance of this investment will be used to pay down indebtedness
currently outstanding under Centennial's credit facility. Centennial will have
the right to reborrow the amount paid down under the credit facility. It is
currently contemplated such future borrowings will be used primarily for the
general corporate purposes.
CONDUCT OF CENTENNIAL'S BUSINESS AFTER THE MERGER
The Investors are 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 Investors 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 Investors do not currently intend
to dispose of any assets of Centennial other than in the ordinary course of
business.
The Investors currently anticipate that a separate wholly-owned Centennial
subsidiary may acquire additional skilled nursing facilities. The Investors
anticipate making additional equity contributions to Holding, which will
ultimately be contributed to this acquisition subsidiary. These equity
contributions will be used, together with debt financing and working capital
obtained through this subsidiary, to acquire skilled nursing facilities that
Centennial will then manage.
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THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held on June 12, 2000, at 10:00 a.m., local
time, at The South Terraces Conference Center Classroom, 115 Perimeter Center
Place, Atlanta, Georgia 30346.
PROXY SOLICITATION
Your proxy is being solicited by Centennial pursuant to this Proxy
Statement. All expenses incurred in connection with solicitation of the enclosed
proxy will be paid by Centennial. Officers, directors and regular Centennial
employees, who will receive no additional compensation for their services, may
solicit proxies by telephone or personal call. Centennial has requested brokers
and nominees who hold stock in their names to furnish this proxy material to
their customers and Centennial 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 May 12, 2000.
RECORD DATE AND QUORUM REQUIREMENT
The Common Stock is the only outstanding voting security of Centennial. The
Board has fixed the close of business on May 5, 2000 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 11,923,618 shares of Common
Stock issued and outstanding held by 44 holders of record.
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 the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Special Meeting.
Acquisition, through its ownership of 51.8% of the outstanding Common Stock
acquired in the Offer, has sufficient shares to approve the Merger without the
vote of any other shareholder. Holding, through the contribution by the
Contributing Shareholders of 4,710,252 shares of Common Stock and its ownership
of Acquisition, beneficially owns 91.3% of the outstanding Common Stock. A
failure to vote or a vote to abstain will have the same legal effect as a vote
cast against approval. 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 of Common Stock should
instruct their brokers or nominees how to vote.
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
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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 Centennial 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 Centennial's paying agent, ChaseMellon
Shareholder Service 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 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.
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THE MERGER
TERMS OF THE MERGER AGREEMENT
The Merger Agreement
The following is a summary of the material provisions of the Merger
Agreement. This summary is qualified in its entirety by reference to the Merger
Agreement which is incorporated herein by reference and is attached to this
Proxy Statement as Appendix A. Defined terms used herein and not defined herein
have the meanings assigned to those terms in the Merger Agreement.
The Offer. The Merger Agreement provides that Acquisition will commence
the Offer and that, upon the terms and subject to prior satisfaction or waiver
of the conditions set forth in the Offer as described in Section 13 (including,
if the Offer is extended or amended, the terms and conditions of any extension
or amendment), Acquisition will accept for payment, and pay for, all Shares
validly tendered pursuant to the Offer and not withdrawn on or prior to the
Expiration Date.
Directors. Pursuant to the Merger Agreement, after Acquisition has
purchased any Shares pursuant to the Offer, and from time to time thereafter, as
Shares are acquired by Acquisition, Holding has the right to designate such
number of directors, rounded up to the next whole number, on the Board as will
give Holding, subject to compliance with Section 14(f) of the Exchange Act,
representation on the Board equal to at least that number of directors which
equals the product of the total number of directors on the Board (giving effect
to the directors appointed or elected pursuant to this sentence and including
current directors serving as officers of Centennial) multiplied by the
percentage that the aggregate number of Shares beneficially owned by Holding or
any affiliate of Holding (including for purposes hereof such Shares as are
accepted for payment pursuant to the Offer, but excluding Shares held by
Centennial or any of its Subsidiaries) bears to the number of Shares
outstanding. At each such time, Centennial will also cause (i) each committee of
the Board, (ii) if requested by Holding, the board of directors of each of the
Subsidiaries and (iii) if requested by Holding, each committee of such board, to
include persons designated by Holding constituting the same percentage of each
such committee or board as Holding's designees constitute on the Board.
Centennial has agreed, upon request by Holding, to promptly increase the size of
the Board or exercise its best efforts to secure the resignations of such number
of directors as is necessary to enable Holding's designees to be elected to the
Board in accordance with the above terms and to cause Holding's designees to be
so elected; provided, however, that if at any time or from time to time there
are fewer than two independent directors, the other directors will elect to the
Board such number of persons so that the total of such persons and remaining
Independent Directors serving on the Board is at least two.
The Merger. The Merger Agreement provides that, after the completion of
the Offer and the satisfaction or waiver of certain conditions, Acquisition will
be merged with and into Centennial and Centennial will be the Surviving
Corporation. On the Effective Date of the Merger, each outstanding Share (other
than Shares owned by Holding, Acquisition or any subsidiary or affiliate of
Holding, Acquisition or Centennial, or held in the treasury of Centennial, or
held by shareholders who properly exercise dissenters' rights under the GBCC, if
any) will, by virtue of the Merger and without action by the holder thereof, be
canceled and converted into the right to receive an amount in cash equal to the
Per Share Amount.
Centennial has approved and consented to the Offer and the Board, at a
meeting duly called and held on February 25, 2000, at which all of the directors
were present, and acting on the unanimous recommendation of the Special
Committee, duly and unanimously: (i) approved and adopted the Merger Agreement
and the transactions contemplated thereby, including the Offer and the Merger;
(ii) recommended that you accept the Offer, tender your Shares pursuant to the
Offer and, if you do not tender your Shares in the Offer, that you approve the
Merger Agreement and the transactions contemplated thereby, including the
Merger; (iii) determined that the Merger Agreement and the transactions thereby,
including the Offer and the Merger, are fair to and in your best interests; and
(iv) took all action necessary to render the limitations on business
combinations contained in Part 2 of Article 11 of the GBCC inapplicable to the
Merger Agreement and the transactions contemplated thereby.
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Charter, Bylaws, Directors and Officers. The Certificate of Incorporation
and By-Laws of Acquisition in effect immediately prior to the Effective Time
will be the Certificate of Incorporation and By-Laws of the Surviving
Corporation until amended, subject to the provisions of the Merger Agreement
which provide that all rights to indemnification now existing in favor of
directors and officers of Centennial and its subsidiaries, as provided in their
respective charters or by-laws, will survive the Merger and continue in full
force and effect for a period of not less than the statute of limitations
applicable to such matters.
The directors of Acquisition, immediately prior to the Effective Time, will
be the initial directors of the Surviving Corporation, and the officers of
Centennial, immediately prior to the Effective Time, will be the initial
officers of the Surviving Corporation.
Conversion of Shares. At the Effective Time, by virtue of the Merger and
without any action on the part of Acquisition, Centennial or the holder of any
of the following securities:
(a) Each share of Common Stock issued and outstanding immediately
before the Effective Time (other than any Shares to be canceled pursuant to
Section 2.6(b) of the Merger Agreement and any Dissenting Shares) will be
canceled and extinguished and be converted into the right to receive the
Per Share Amount in cash payable to the holder thereof, without interest,
upon surrender of the certificate representing such Share. Each holder of a
certificate representing any such Shares will cease to have any rights with
respect thereto, except the right to receive the Per Share Amount, without
interest, upon the surrender of such certificate in accordance with the
terms of this Proxy Statement.
(b) Each share of Common Stock held in the treasury of Centennial and
each Share owned by Holding or any direct or indirect wholly owned
subsidiary of Holding or of Centennial immediately before the Effective
Time, will be canceled and extinguished and no payment or other
consideration will be made with respect thereto.
(c) Each share of common stock, $.01 par value, of Acquisition issued
and outstanding immediately before the Effective Time will thereafter
represent one validly issued, fully paid and nonassessable share of common
stock, $.01 par value, of the Surviving Corporation.
Centennial has agreed to take all actions necessary to provide that, prior
to or upon consummation of the Merger, each then outstanding option to purchase
Common Stock (the "OPTIONS") granted under any of Centennial's stock option
plans (collectively, the "OPTION PLANS"), and any and all other outstanding
options, stock warrants and stock rights will be canceled and will be of no
further force or effect. However, with respect to any Options as to which the
Per Share Amount exceeds the applicable per share exercise price, Holding will,
promptly following the Effective Time, pay (or cause to be paid) to the holders
of such Options an amount in cash equal to, with respect to each such Option,
the product of (1) the amount by which (x) the Per Share Amount exceeds (y) the
applicable per share exercise price and (2) the number of shares subject to such
Option at the time of such cancellation. Such amount will be subject to
reduction by applicable tax withholding.
Except as provided herein or as otherwise agreed to by the parties,
Centennial will cause the Option Plans to terminate as of the Effective Time and
the provisions in any other plan, program or arrangement, providing for the
issuance or grant by Centennial or any of its subsidiaries of any interest in
respect of the capital stock of Centennial or any of its subsidiaries will be
deleted as of the Effective Time.
Centennial has indicated that all the Option Plans provide that either (i)
Centennial can take the actions described above without obtaining the consent of
any holders of Options or (ii) if such consent is required, Centennial has
agreed to obtain such consents and provide evidence thereof to Holding at least
10 days prior to the initial expiration of the Offer.
Representations and Warranties. In the Merger Agreement, Centennial has
made customary representations and warranties to Holding and Acquisition with
respect to, among other matters, its organization and qualification,
capitalization, authority, consents and approvals, public filings, financial
statements, absence of any material adverse effect on Centennial, information to
be included in the Offer Documents, brokers, employee benefit matters,
litigation, tax matters, compliance with law, environmental matters,
intellectual
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property, real property, Y2K, material contracts, related party transactions,
inapplicability of state takeover statutes and the vote required, if any, by
Centennial shareholders to approve the Merger. Each of Holding and Acquisition
has made customary representations and warranties to Centennial with respect to,
among other matters, its organization, qualifications, authority, information to
be included in the Offer Documents, consents and approvals, operations of
Acquisition, brokers, financial wherewithal and ownership of Shares.
Conduct of Business Pending the Merger. The Merger Agreement obligates
Centennial and its Subsidiaries, from the date of the Merger Agreement until the
earlier of the Effective Time and the date on which the majority of Centennial's
directors are designees of Holding or Acquisition or until the earlier
termination of the Merger Agreement, to conduct their operations only in the
ordinary and usual course of business and consistent with past practice and
obligates Centennial and its Subsidiaries to use all reasonable efforts to
preserve substantially intact their business organizations, to keep available
the services of their present officers and employees and to preserve the present
relationships with those persons and entities having significant business
relationships with Centennial and its Subsidiaries, except such as would not
have any change in or effect on the business of Centennial that is or would be
reasonably expected to be materially adverse to any of the condition (financial
or otherwise), business, properties, assets, liabilities or results of
operations of Centennial and its Subsidiaries taken as a whole, except as
disclosed to Holding and Acquisition in the disclosure letter to the Merger
Agreement (a "MATERIAL ADVERSE EFFECT"). Centennial is obligated to promptly
advise Holding and Acquisition in writing of any material change in its or any
of its Subsidiaries' condition (financial or otherwise), properties, customer or
supplier relationships, assets, liabilities or results of operations. The Merger
Agreement also contains specific restrictive covenants as to certain activities
of Centennial prior to the date on which the majority of Centennial's directors
are designees of Holding or Acquisition, which provide that Centennial will not
(and will not permit any of its Subsidiaries to) take certain actions without
the prior written consent of Holding, including, among other things and subject
to certain exceptions, issuing or selling its securities, redeeming or
repurchasing securities, changing its capital structure, making material
acquisitions or dispositions, entering into or amending material contracts,
incurring indebtedness, settling litigation or claims, increasing compensation
or adopting new benefit plans, taking any action that may result in the Offer
conditions not being satisfied and permitting certain other material events or
transactions.
No Solicitation. In the Merger Agreement, Centennial has agreed not to,
and to cause its Subsidiaries and the officers, directors, employees, agents and
representatives of Centennial or any of its Subsidiaries (collectively, the
"CENTENNIAL REPRESENTATIVES") not to (i) solicit or initiate, or encourage,
directly or indirectly, any inquiries regarding or the submission of, any
Takeover Proposal (as defined below), (ii) participate in any discussions or
negotiations regarding, or furnish to any Person any information or data with
respect to, or take any other action to knowingly facilitate the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Takeover Proposal or (iii) enter into any agreement with respect to any Takeover
Proposal or approve or resolve to approve any Takeover Proposal; provided,
however, that nothing contained in the Merger Agreement will prohibit Centennial
or the Board from (A) taking and disclosing to the shareholders a position with
respect to a tender or exchange offer by a third party pursuant to Rules 14d-9
and 14e-2 promulgated under the Exchange Act or (B) making such disclosure to
the shareholders as, in the good faith judgment of the Board, after receiving
advice from outside counsel, is required under applicable law, provided that
Centennial can not, except as permitted by Section 5.2(b) of the Merger
Agreement, withdraw or modify, or propose to withdraw or modify, its approval or
recommendation of the Merger Agreement or the transactions contemplated thereby,
including the Offer or the Merger, or approve or recommend, or propose to
approve or recommend any Takeover Proposal, or enter into any agreement with
respect to any Takeover Proposal. Centennial has agreed that it will, and will
cause the Centennial Representatives to, immediately cease any existing
activities, discussions or negotiations with any parties conducted previously
with respect to any of the foregoing, and it will promptly request that each
Person who has previously executed a confidentiality agreement in connection
with such Person's consideration of a Takeover Proposal return all confidential
information previously furnished to such Person by or on behalf of Centennial.
Notwithstanding the foregoing, prior to the time of acceptance of Shares for
payment pursuant to the Offer, Centennial may furnish information concerning its
business, properties or assets to any Person or group pursuant to
confidentiality agreements with terms and conditions similar to the
Confidentiality
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Agreement, dated April 27, 1999 (the "CONFIDENTIALITY AGREEMENT"), between
Centennial and Warburg Pincus (provided that such confidentiality agreements may
not include any provision granting any such Person or group an exclusive right
to negotiate with Centennial), and may negotiate and participate in discussions
and negotiations with such Person or group concerning a Takeover Proposal if:
(x) such Person or group has submitted an unsolicited bona fide written proposal
which is, or is reasonably likely to result in, a Superior Proposal; and (y) the
Board determines in good faith, based upon advice of outside counsel, that such
action is required to discharge its fiduciary duties to you under the GBCC.
Centennial will not release any third party from, or waive any provision of, any
such confidentiality agreement or any other confidentiality or standstill
agreement to which Centennial is a party.
Centennial will promptly notify Holding of the existence of any proposal,
discussion, negotiation or inquiry received by Centennial, and Centennial will
immediately communicate to Holding the terms of any proposal, discussion,
negotiation or inquiry which it may receive (and will promptly provide to
Holding copies of any written materials received by Centennial in connection
with such proposal, discussion, negotiation or inquiry) and the identity of the
Person making such proposal or inquiry or engaging in such discussion or
negotiation. Centennial will promptly provide to Holding any non-public
information concerning Centennial provided to any other Person which was not
previously provided to Holding. Centennial will keep Holding fully informed of
the status and details (including amendments or proposed amendments) to any such
Takeover Proposal.
As used herein and in the Merger Agreement, the following terms have the
meanings set forth below:
"Superior Proposal" means an unsolicited bona fide written proposal by
a Third Party to acquire, directly or indirectly, for consideration
consisting solely of cash and/or marketable securities, all the Shares then
outstanding or all or substantially all of the assets of Centennial, and
(i) otherwise on terms which the Board determines in good faith to be more
favorable to you than the Offer and the Merger (based on a written opinion
of Centennial's independent financial advisor that the value of the
consideration provided for in such proposal exceeds the value of the
consideration provided for in the Offer and the Merger), (ii) for which
financing, to the extent required, is then committed, (iii) which, in the
good faith reasonable judgment of the Board is reasonably likely to be
consummated without undue delay and (iv) which is subject to no more
conditions than those set forth in Annex I to the Merger Agreement.
"Takeover Proposal" means any inquiry, proposal or offer, whether in
writing or otherwise, from a Third Party to acquire beneficial ownership
(as determined under Rule 13d-3 of the Exchange Act) of all or a material
portion of the assets of Centennial or any of its Subsidiaries or 15% or
more of any class of equity securities of Centennial or any of the
Subsidiaries pursuant to a merger, consolidation or other business
combination, sale of shares of capital stock, sale of assets, tender offer,
exchange offer or similar transaction with respect to either Centennial or
any of the Subsidiaries, including any single or multi-step transaction or
series of related transactions, which is structured to permit such Third
Party to acquire beneficial ownership of any material portion of the assets
of, or 15% or more of the equity interest in either Centennial or any of
the Subsidiaries.
"Third Party" means any Person or group other than Holding,
Acquisition or any affiliate thereof.
Indemnification; Directors' and Officers' Insurance. In the Merger
Agreement, Holding and Acquisition have agreed that all rights to
indemnification existing in favor of the present or former directors, officers
and employees of Centennial or any of its Subsidiaries as provided in
Centennial's Amended and Restated Articles or Bylaws, or the articles of
organization, bylaws or similar documents of any of Centennial's subsidiaries as
in effect at the date of the Merger Agreement with respect to matters occurring
prior to the Effective Time will survive the Merger and continue in full force
and effect for a period of not less than the statutes of limitations applicable
to such matters. Holding has agreed to cause the Surviving Corporation to comply
fully with these obligations and may not amend, repeal or otherwise modify the
Certificate of Incorporation and By-Laws of the Surviving Corporation for six
years after the Effective Time in any manner that would adversely affect the
rights of individuals who as of the date of the Merger Agreement were directors,
officers, employees, fiduciaries, agents of Centennial or otherwise entitled to
indemnification under the Centennial's Amended and
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Restated Articles, By-Laws or indemnification agreements. In addition, the
Certificate of Incorporation of the surviving corporation will include
provisions providing for advancement of expenses to such Indemnified Parties (as
defined below) in accordance with Centennial's Amended and Restated Articles and
in accordance with the GBCC.
Subject to the limitations on indemnification contained in the GBCC,
Centennial has agreed, to the fullest extent permitted under applicable law and
regardless of whether the Merger becomes effective, to indemnify and hold
harmless, and after the Effective Time, the Surviving Corporation will for a
period of six years following the Effective Time, to the fullest extent
permitted under applicable law, indemnify and hold harmless, each director,
officer, employee, fiduciary and agent of Centennial or any Subsidiary and their
respective subsidiaries and affiliates including, without limitation, officers
and directors serving as such on the date hereof (collectively, the "INDEMNIFIED
PARTIES") against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to any of the transactions
contemplated hereby, including without limitation liabilities arising under the
Securities Act of 1933, as amended, or the Exchange Act in connection with the
Offer or the Merger, and in the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) Centennial or the Surviving Corporation will pay the reasonable fees
and expenses of counsel selected by the Indemnified Parties, which counsel will
be reasonably satisfactory to Centennial or the Surviving Corporation, promptly
as statements therefor are received, and (ii) Centennial and the Surviving
Corporation will cooperate in the defense of any such matter. For two years
after the Effective Time, the Surviving Corporation is required to maintain or
obtain officers' and directors' liability insurance covering the Indemnified
Parties who are currently covered by Centennial's officers and directors
liability insurance policy on terms not less favorable than those in effect on
the date hereof in terms of coverage and amounts; provided, however, that if the
aggregate annual premiums for such insurance at any time during such period
exceed the per annum rate of premium paid by Centennial for such insurance as of
the date of the Merger Agreement, then the Surviving Corporation will provide
the maximum coverage that will then be available at an annual premium equal to
150% of such per annum rate as of the date of the Merger Agreement. The
Surviving Corporation will continue in effect the indemnification provisions
currently provided by the Amended and Restated Articles and By-Laws of
Centennial for a period of not less than six years following the Effective Time.
Neither Centennial nor the Surviving Corporation will have any obligation to
indemnify any Indemnified Party against any cost, expense, judgment, fine, loss,
claim, damage, liability or settlement amount found to have resulted solely from
such Indemnified Person's own gross negligence or willful misconduct.
Conditions to the Consummation of the Merger. The respective obligations
of each party to effect the Merger are subject to the satisfaction on or prior
to the Effective Time of the following conditions: (i) Acquisition must make, or
cause to be made, the Offer and must purchase, or cause to be purchased, the
Shares pursuant to the Offer; (ii) the Merger and the Merger Agreement must be
approved and adopted by the requisite vote of the shareholders of Centennial, if
required by the GBCC or the Centennial's Amended and Restated Articles; (iii) no
statute, rule, regulation, judgment, writ, decree, order or injunction has been
promulgated, enacted, entered or enforced, and no other action has been taken,
by any Governmental Entity that in any of the foregoing cases has the effect of
making illegal or directly or indirectly restraining, prohibiting or restricting
the consummation of the Merger; and (iv) any waiting period applicable to the
Merger under the HSR Act has expired or have been terminated.
The obligations of Holding and Acquisition to effect the Merger are further
subject to the satisfaction on or prior to the Effective Time of the following
additional conditions: (i) the representations and warranties of Centennial set
forth in the Merger Agreement that are qualified by reference to materiality or
a Material Adverse Effect are true and correct, and any such representations and
warranties that are not so qualified are true and correct in all material
respects, in each case as if such representations and warranties were made at
the Effective Time; (ii) Centennial has performed in all material respects all
obligations and complied in all material respects with all agreements and
covenants of Centennial to be performed or complied with by it under the Merger
Agreement at or prior to the Effective Time; and (iii) all governmental
consents, orders and
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approvals required for the consummation of the Merger (including, without
limitation, all such consents, orders and approvals as are necessary to prevent
any Authorization from being revoked, suspended or otherwise adversely affected,
and to prevent any penalty from being imposed) have been obtained and are in
effect.
The obligations of Centennial to effect the Merger are further subject to
the satisfaction on or prior to the Effective Time of the following additional
conditions: (i) The representations and warranties of Holding and Acquisition
set forth in the Merger Agreement that are qualified by reference to materiality
or a Material Adverse Effect are true and correct, and any such representations
and warranties that are not so qualified are true and correct in all material
respects, in each case as if such representations and warranties were made at
the Effective Time; and (ii) Holding and Acquisition have performed in all
material respects all obligations and complied in all material respects with all
agreements and covenants of each of Holding and Acquisition to be performed or
complied with by it under this Agreement at or prior to the Effective Time.
Termination. The Merger Agreement provides that it may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after approval of matters presented in connection with the Merger by
you:
(a) By the mutual written consent of Holding and Centennial; or
(b) By either of Holding or Centennial if any Governmental Entity
issues an order, decree or ruling or takes any other action (which order,
decree or ruling or other action each party to the Merger Agreement will
use its reasonable best efforts to have vacated or reversed), in each case
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the Merger Agreement and such order, decree,
ruling or other action has become final and non-appealable.
(c) By Centennial:
(i) if Centennial approves a Superior Proposal in accordance with
Section 5.2(b) of the Merger Agreement, provided Centennial complies
with all provisions thereof, including the notice provisions therein,
and that it makes simultaneous payment of the Expenses and the
Termination Fee; or
(ii) if Holding or Acquisition terminates the Offer or the Offer
expires without Holding or Acquisition, as the case may be, purchasing
any Shares pursuant thereto; provided that Centennial may not so
terminate the Merger Agreement if Centennial is in material breach of
the Merger Agreement; or
(iii) if Holding, Acquisition or any of their affiliates fail to
commence the Offer on or prior to 15 business days following the date of
the initial public announcement of the Offer; provided that Centennial
may not so terminate the Merger Agreement if Centennial is in material
breach of the Merger Agreement; or
(iv) if Holding or Acquisition breaches in any material respect any
of its representations, warranties, covenants or other agreements
contained in the Merger Agreement which breach or failure to perform is
incapable of being cured or has not been cured by the earlier of (x) ten
business days following written notice thereof to Holding from
Centennial and (y) the scheduled expiration of the Offer; or
(v) if the Offer has not expired or been terminated on or before
June 30, 2000; provided, however, that if on such date any applicable
waiting period under the HSR Act has not expired or been terminated, or
certain other conditions exist, such date will be extended to July 30,
2000 (such date, as it may be extended the "Termination Date"); provided
further, that Centennial may not so terminate the Merger Agreement if
Centennial is in material breach of the Merger Agreement.
(d) By Holding or Acquisition:
(i) if prior to the purchase of the Shares pursuant to the Offer,
the Board withdraws, or modifies or changes in a manner adverse to
Holding or Acquisition its approval or recommendation
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of the Offer, the Merger Agreement, the Merger, the Subscription
Agreement or the Voting Agreement or approves a Takeover Proposal; or
(ii) if Holding or Acquisition terminates the Offer without Holding
or Acquisition purchasing any Shares thereunder, provided that Holding
or Acquisition may not so terminate the Merger Agreement if Holding or
Acquisition is in material breach of the Merger Agreement; or
(iii) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of
the conditions set forth in Annex I to the Merger Agreement, Holding,
Acquisition, or any of their affiliates fails to commence the Offer on
or prior to 15 business days following the date of the initial public
announcement of the Offer; or
(iv) any Person or "group" (as defined in Section 13(d)(3) of the
Exchange Act), other than Holding, Acquisition or their affiliates or
any group of which any of them is a member acquires beneficial ownership
(as determined pursuant to Rule 13d-3 promulgated under the Exchange
Act) of 15 or more of the Shares; or
(v) if Centennial receives a Takeover Proposal from any Person
(other than Holding or Acquisition), and the Board takes a neutral
position or makes no recommendation with respect to such Takeover
Proposal after a reasonable amount of time (and in no event more than 30
days following such receipt) has elapsed for the Board to review and
make a recommendation with respect to such Takeover Proposal; or
(vi) if Centennial, or any of the Centennial Representatives, takes
any of the actions described in clauses (i) or (ii) of Section 5.2(a) of
the Merger Agreement (regarding soliciting Takeover Proposals and
participating in discussions or furnishing information with respect to
Takeover Proposals), and such action is not permitted by the Merger
Agreement; or
(vii) if Centennial breaches in any material respect any of its
representations, warranties, covenants or other agreements contained in
the Merger Agreement (other than the covenants and agreements in clauses
(i) and (ii) of Section 5.2(a) of the Merger Agreement) which breach or
failure to perform is incapable of being cured or has not been cured by
the earlier of (x) ten business days following written notice thereof to
Centennial from Holding and (y) the scheduled expiration of the Offer;
or
(viii) if the Offer has not expired or been terminated on or before
the Termination Date; provided that Holding or Acquisition may not so
terminate the Merger Agreement if the Holding or Acquisition is in
material breach of the Merger Agreement.
Effect of Termination. (a) In the event that the Merger Agreement is
terminated by either Centennial or Holding or Acquisition as provided above, the
Merger Agreement will forthwith become void and have no effect, without any
liability or obligation on the part of Holding, Acquisition or Centennial.
However, the provisions of the Merger Agreement regarding termination and
expenses will survive termination, and termination will not relieve any party
from liability for breaches of its representations, warranties or covenants
contained in the Merger Agreement.
(b) If (x) Holding or Acquisition terminates the Merger Agreement
pursuant to clause (d)(i), (d)(v) or (d)(vi) above or (y) Centennial
terminates the Merger Agreement pursuant to clause (c)(i) above, then in
each case, Centennial will pay, or cause to be paid to Holding, at the time
of termination, an amount equal to $2 million (the "TERMINATION FEE") plus
Expenses; provided that in no event will Centennial be obligated to pay
more than $1 million in Expenses. In addition, if the Merger Agreement is
terminated by Holding pursuant to clause (d)(ii) or (d)(viii) above or by
Centennial pursuant to clause (c)(ii) or (c)(v) above and at the time of
such termination, Holding is not in material breach of the Merger Agreement
and the Minimum Condition has not been satisfied, then Centennial will pay
to Holding, at the time of termination, the Expenses, and, if Centennial
will thereafter, within 12 months after such termination, enter into an
agreement with respect to a Takeover Proposal, then Centennial will pay the
Termination Fee concurrently with entering into any such agreement.
41
<PAGE> 54
Amendment. To the extent permitted by applicable law, the Merger Agreement
may be amended by action taken by or on behalf of the Board and the board of
directors of Holding and Acquisition, subject in the case of Centennial to the
approval of the Continuing Directors, at any time before or after adoption of
the Merger Agreement by you but, after any such approval by you, no amendment
may be made which decreases the Merger Consideration or which adversely affects
your rights under the Merger Agreement without your approval. Any amendment to
the Merger Agreement must be in writing.
Dissenters' Rights. No dissenters' rights are available in connection with
the Offer; however, shareholders not tendering in the Offer will have
dissenters' rights under the GBCC to dissent and demand appraisal of, and to
receive payment in cash of the fair value of, their Shares in connection with
the Merger.
TERMS OF THE SUBSCRIPTION AGREEMENT, VOTING AGREEMENT AND EMPLOYMENT AGREEMENTS
The Subscription Agreement. On February 24, 2000, Holding entered into the
Subscription Agreement with the WP Funds, the South Atlantic Investors and the
Contributing Shareholders. The following summary of the Subscription Agreement
is qualified in its entirety by reference to the Subscription Agreement, a copy
of which is incorporated herein by reference and copies or forms of which have
been filed with the Commission as exhibits to the Tender Offer Statement on
Schedule TO (the "SCHEDULE TO").
Pursuant to the Subscription Agreement, the WP Funds purchased an aggregate
of 9,031,548 shares of Series A Preferred Stock for a purchase price of $5.50
per share in cash, or an aggregate purchase price of $49,718,614, and the South
Atlantic Investors purchased an aggregate of 909,091 shares of Series B
Preferred Stock for a purchase price of $5.50 per share in cash, or an aggregate
purchase price of $5,000,000, in each case on terms set forth in the
Subscription Agreement. The shares of Series A Preferred Stock will be
convertible into voting common stock and the shares of Series B Preferred Stock
will be convertible into non-voting common stock. The shares of Holding
non-voting common stock will be convertible, at the option of the holder, into
shares of Voting Common Stock (i) upon a sale or transfer of such Non-Voting
Common Stock to any person or entity other than WCAS VI, South Atlantic or any
of their affiliates or (ii) if, after giving effect to such conversion, such
holder would not own shares of voting common stock (including any shares
issuable upon conversion) representing 10% or more of the voting common stock
and Series A Preferred Stock then outstanding.
Also pursuant to the Subscription Agreement, the Contributing Shareholders
contributed 4,710,252 shares of Common Stock to Holding for an aggregate of
4,710,252 shares of Series A Preferred Stock or Series B Preferred Stock, on the
terms set forth in the Subscription Agreement. The Subscription Agreement valued
the shares at $5.50 per share. Based on the 11,923,618 shares of Common Stock
outstanding, the contributed shares represented approximately 39.5% of the
outstanding Common Stock.
The purchases and contributions of shares contemplated under the
Subscription Agreement occurred on May 3, 2000, one business day after the date
on which Acquisition accepted for payment the Shares tendered in the Offer, and
deposited with the depositary funds sufficient to purchase such shares.
Concurrently with the closing of those purchases and contributions, Holding and
the Investors entered into a stockholders agreement and a registration rights
agreement. The stockholders agreement contains various rights and restrictions,
including tag-along and drag-along rights, rights of first refusal and other
restrictions on transfer, in connection with such parties' ownership of equity
securities of Holding following the Merger. In addition, the stockholders
agreement contains provisions regarding the constitution of the Board of
Directors, including provisions permitting Warburg Pincus to designate a
specified number of directors, which varies according to its ownership
percentage of Holding common stock.
Under the registration rights agreement, Holding granted the Contributing
Shareholders, the WP Funds and the South Atlantic Investors certain rights to
register their shares of Holding common stock under the Securities Act.
The Voting Agreement. In connection with the Merger Agreement, the
Contributing Shareholders and WCAS CP entered into the Voting Agreement with
Acquisition and Holding on February 25, 2000. The following summary of the
Voting Agreement is qualified in its entirety by reference to the Voting
Agreement,
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<PAGE> 55
a copy of which is incorporated herein by reference and copies or forms of which
have been filed with the Commission as exhibits to the Schedule TO.
Pursuant to the Voting Agreement, among other things, the Contributing
Shareholders and WCAS CP agreed (i) to vote all shares beneficially owned by
them (the "SUBJECT SHARES") in favor of the Merger Agreement and the Merger and
against any Superior Proposal and any other proposal for action or agreement
that would result in a breach of any covenant, representation or warranty or any
other obligation or agreement of Centennial under the Merger Agreement, (ii) to
waive any dissenters' rights such holders may have in connection with the
Merger, (iii) not to solicit or initiate, or encourage, directly or indirectly,
any inquiries regarding the submission of any Superior Proposal, (iv) not to
participate in any discussions or negotiations regarding, or furnish to any
person any information or data with respect to, or take any other action to
knowingly facilitate the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Superior Proposal, (v) not to enter into
any agreement with respect to any Takeover Proposal or approve or resolve to
approve any Superior Proposal, (vi) not to transfer the shares of Common Stock
owned by them, (vii) to constitute and appoint Holding and Acquisition as their
true and lawful proxies in connection with the Merger and the Merger Agreement
and (viii) not to tender any shares owned by them pursuant to the Offer. Based
on 11,923,618 shares of Common Stock outstanding on February 25, 2000, the
Subject Shares in the aggregate represented approximately 46.5% of the total
outstanding Common Stock.
Executive Employment Agreements. Concurrent with execution of the Merger
Agreement, Messrs. Eaton, Dahl and Fosha entered into new employment agreements
(the "NEW AGREEMENTS") with Centennial and Mr. Lepley entered into a New
Agreement with Paragon which, as of the Effective Time, would supersede and
replace in all respects the executives' current employment agreements. In the
event the Merger Agreement is terminated, each of the New Agreements would be
void and the executives' current employment agreements would remain in full
force and effect.
Mr. Eaton's New Agreement provides that, after the Effective Time, he would
serve as President, Chief Executive Officer and Chairman of Centennial and
Chairman of Holding. The New Agreement does not contain a fixed term of
employment. Mr. Eaton would receive an annual base salary during the term of
employment of $386,000, subject to adjustment upon annual review, and would have
an annual target bonus of 25% of his base salary. Mr. Eaton's actual bonus would
be determined in part by reference to Centennial's performance during the
relevant period. Mr. Eaton would be entitled to participate in Centennial's
pension, health and welfare plans and receive welfare benefits such as life
insurance and long-term disability insurance. If Mr. Eaton's employment were to
be terminated by Centennial for any reason other than for "Cause" (as defined in
his New Agreement) or if Mr. Eaton were to resign for "Good Reason" within 24
months following a "Change in Control" (as those terms are defined in his New
Agreement), (i) Centennial would continue to pay to Mr. Eaton his monthly salary
for a period of 36 months following the date of termination; (ii) Mr. Eaton's
options to purchase shares of Holding common stock would become 100% vested and
immediately exercisable as of the date of termination; and (iii) Mr. Eaton could
require Holding or its successor to purchase up to 50% of the shares of Holding
stock (or the stock of any acquirer into which such Holding stock was converted)
held by Mr. Eaton. Mr. Eaton would also have the option described in clause
(iii) above in the event of a Change in Control or if no public market were to
exist for Holding stock (or an acquirer's stock, if applicable) held by Mr.
Eaton or the average daily trading volume for Holding stock (or an acquirer's
stock, if applicable) was less than 100,000 shares. Further, Mr. Eaton could
require Holding to purchase up to 50% of the shares of Holding stock held by
him, at a price of $5.50 per share, if his employment were to be terminated by
Centennial without Cause prior to a Change in Control and within 12 months of
the date of his New Agreement. Mr. Eaton would also be entitled to a "Tax
Reimbursement Payment" (as defined in his New Agreement) in the event any amount
or benefit paid or distributed to Mr. Eaton pursuant to the New Agreement were
or became subject to an Excise Tax (as defined in his New Agreement).
Mr. Dahl's New Agreement contains substantially the same terms as those
found in Mr. Eaton's New Agreement. Material differences in Mr. Dahl's New
Agreement are as follows: (i) Mr. Dahl would serve as Executive Vice President
and Chief Financial Officer of Centennial; (ii) Mr. Dahl would receive an annual
base salary during the term of employment of $238,000; (iii) Centennial would
continue to pay to Mr. Dahl his monthly salary for a period of 24 months
following the date of termination in the event he was terminated
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<PAGE> 56
without Cause or resigns for Good Reason within 12 months following a Change in
Control (as those terms are defined in his New Agreement); (iv) Mr. Dahl would
not have the right to require Holding (or any acquirer) to purchase any of the
Holding stock held by him; and (v) Mr. Dahl would not be entitled to a Tax
Reimbursement Payment.
Mr. Fosha's New Agreement contains substantially the same terms as those
found in Mr. Dahl's New Agreement, except that Mr. Fosha would serve as
Executive Vice President of Operations of Centennial.
Mr. Lepley's New Agreement contains substantially the same terms as those
found in Mr. Dahl's New Agreement, except that (i) Mr. Lepley's New Agreement
would be with Paragon; (ii) Mr. Lepley would serve as President and Chief
Executive Officer of Paragon; and (iii) Mr. Lepley would receive an annual base
salary during the term of employment of $225,000.
New Options. Following the Merger, Holding intends to grant to Messrs.
Eaton, Dahl, Fosha and Lepley, and to other members of management and other key
employees, options to purchase an aggregate of approximately 2.6 million shares
of Holding common stock. The shares issuable on exercise of the New Options will
represent 15% of the shares of Holding common stock outstanding immediately
after the Merger (assuming the conversion of all preferred stock into common
stock). The exercise price of the New Options will be $5.50 per share.
Mr. Eaton is expected to be granted New Options to purchase approximately
1.2 million shares of Holding common stock, of which approximately 420,000 will
be immediately exercisable and the balance of which will invest in four annual
equal installments on the anniversaries of the date of grant. Each of Messrs.
Dahl, Fosha and Lepley will be granted options to purchase 160,000 shares of
Holding common stock, of which 20% will be immediately exercisable, with the
balance vesting in four annual equal installments on the anniversaries of the
date of grant.
ACCOUNTING TREATMENT
Acquisition 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(1) are approximately as follows:
<TABLE>
<S> <C>
Advisory fees and expenses(2)............................... $4,400,000
Legal fees and expenses(3).................................. 1,000,000
Accounting fees and expenses................................ 500,000
Hart-Scott-Rodino filing fee................................ 45,000
Depositary and paying agent fees and expenses............... 30,000
Proxy solicitation fees and expenses........................ 10,000
Securities and Exchange Commission filing fee............... 15,000
Printing and mailing costs.................................. 200,000
Fees and expenses associated with credit agreement
amendment................................................. 1,000,000
Miscellaneous expenses...................................... 500,000
----------
Total............................................. $7,700,000
==========
</TABLE>
- ---------------
(1) Includes fees and expenses of the Offer and the Merger.
(2) Includes the fees and expenses of $2.3 million to J.P. Morgan, $2.1 million
to SunTrust Equitable Securities.
(3) Includes the estimated fees and expenses of counsel for Centennial, the
Special Committee and the WP Funds.
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<PAGE> 57
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of Shares that do not tender their Shares in the Offer are entitled
to appraisal rights in the Merger under Article 13 of the GBCC. 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 as to which appraisal rights are asserted. A
person having a beneficial interest in Shares 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 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 to
the Schedule TO. THIS DISCUSSION AND APPENDIX C TO THE SCHEDULE TO 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 Centennial.
Demanding payment for such shares shall constitute a request for payment for the
shares at a per share value that is different from the $5.50 consideration
contemplated by the Merger Agreement. Each shareholder electing to demand
payment for his shares shall deliver to Centennial the written notice of the
shareholder's intent to demand payment for his Shares. The demand must
reasonably inform Centennial of the identity of the shareholder and that the
shareholder intends thereby to demand payment for the Shares. 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 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 Centennial 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 owned, and that the shareholder is
thereby demanding payment for his or her Shares.
If the Merger is approved by satisfying any required vote or if no vote is
necessary, upon consummation of the Offer, 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
Centennial must receive the payment demand. The date by which Centennial 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, Centennial must offer to each dissenter the amount Centennial
has determined to be the fair market value of the Shares. Fair market value will
be determined based on the value of the Dissenting Shares immediately before the
Effective Time of the Merger without any appreciation or depreciation in
anticipation of the Merger. The shareholder will then have thirty days to accept
or decline the offer by Centennial. Failure to respond to the offer within such
period is deemed an acceptance. If the shareholder accepts Centennial's offer by
written notice to Centennial 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 Centennial's failure to consummate the
Merger, the shareholder may notify Centennial 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 Centennial, Centennial shall file a petition in the
Superior Court of DeKalb County (the "COURT")
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<PAGE> 58
demanding a determination of the value of the Shares 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 owned by the dissenting
shareholders, determining the fair value of such Shares together with a fair
rate of interest to be paid, if any, upon the amount determined to be the fair
value. If Centennial does not timely file the petition, Centennial must pay to
each dissenter whose demand remains unsettled the amount demanded.
Shareholders considering seeking appraisal should be aware that the "fair
value" of their Shares determined under Article 13 could be more than, the same
as or less than the Per Share Amount, 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 Common Stock
entitled to appraisal.
If Centennial does not consummate the Merger within sixty days after the
date set by Centennial for the demand for payment and the depositing of the
certificates, Centennial must return the certificates and shall release any
transfer restrictions on any uncertificated shares.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS UNDER THE
GBCC DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE
FOLLOWED BY SHAREHOLDERS DESIRING TO EXERCISE ANY DISSENTERS' RIGHTS UNDER THE
GBCC. THE PRESERVATION AND EXERCISE OF DISSENTERS' RIGHTS REQUIRE STRICT
ADHERENCE TO THE APPLICABLE PROVISIONS OF THE GBCC.
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 $5.50 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
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
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<PAGE> 59
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> 60
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 May 5, 2000 by: (i) each person
known to Centennial to beneficially own more than 5% of the Common Stock, (ii)
each director of Centennial, (iii) each of the Investors, (iv) the chief
executive officer and the four other most highly compensated executive officers,
and (v) all executive officers and directors of Centennial as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT AND NATURE COMMON
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP STOCK
- ------------------------ ----------------------- -------------
<S> <C> <C>
Holding(1)(2)............................................... 4,710,252 21.1%
Acquisition(1)(2)........................................... 6,179,862 51.8%
WCAS CP(1)(3)............................................... 246,896 2.0
Andrew M. Paul(1)(3)........................................ 3,021 *
J. Stephen Eaton(1)(4)...................................... 545,454 4.6
Kent C. Fosha, Sr.(1)(4).................................... 0 *
Alan C. Dahl(1)(4).......................................... 0 *
Lawrence W. Lepley, Jr.(1)(4)............................... 0 *
Bertil D. Nordin(4)......................................... 0 *
Charles D. Nash(4).......................................... 0 *
James B. Hoover(5).......................................... 0 *
Bob L. Wood(4).............................................. 0 *
South Atlantic Venture Fund II, Limited Partnership(6)...... 0 *
David Wenstrup(7)........................................... 0 *
Joel Ackerman(7)............................................ 0 *
All executive officers and directors as a group (9
persons).................................................. 548,475 4.6
</TABLE>
- ---------------
* Less than 1%
(1) Based on the terms of the Subscription Agreement dated February 24, 2000.
(2) The principal executive offices of Holding are located at 466 Lexington
Avenue, New York, New York 10017.
(3) The shareholder's address is 320 Park Avenue, New York, New York 10022.
(4) The shareholder's address is 400 Perimeter Center Terrace, Suite 650,
Atlanta, Georgia 30346.
(5) The shareholder's address is Dauphin Capital Partners, 108 Forest Avenue,
Locust Valley, New York 11560.
(6) The shareholder's address is 614 West Bay Street, Suite 200, Tampa, Florida
33606-2704.
(7) The shareholder's address is c/o E.M. Warburg, Pincus & Co., LLC, 466
Lexington Avenue, New York, NY 10017. Does not include shares owned by
Holding or Acquisition.
CERTAIN INFORMATION CONCERNING HOLDING, ACQUISITION,
WARBURG, WPEP, THE WP FUNDS AND MANAGEMENT
Holding. Holding is a newly formed Delaware corporation organized by WPEP.
The principal executive offices of Holding are located at 466 Lexington Avenue,
New York, New York 10017. The current directors of Holding are Joel Ackerman and
David Wenstrup. The current officers of Holding are Joel Ackerman, President and
Treasurer, and David Wenstrup, Vice President and Secretary.
Acquisition. Acquisition is a newly formed Georgia corporation organized
by WPEP for the purpose of effecting the Merger. The principal executive offices
of Acquisition are located at 466 Lexington Avenue, New York, New York 10017.
The directors of Acquisition are Joel Ackerman and David Wenstrup. The officers
of Acquisition are Joel Ackerman, President and Treasurer, and David Wenstrup,
Vice President and Secretary.
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<PAGE> 61
WPEP. The principal business of WPEP, a Delaware limited partnership, is
that of a private investment partnership. The principal executive offices of
WPEP are located at 466 Lexington Avenue, New York, New York 10017. The sole
general partner of WPEP is Warburg, a New York general partnership.
Warburg, Pincus Netherlands Equity I, C.V. The principal business of
Warburg, Pincus Netherlands Equity I, C.V., a Netherlands limited partnership,
is that of a private investment partnership. The principal executive offices of
Warburg, Pincus Netherlands Equity I, C.V. are 466 Lexington Avenue, New York,
New York 10017. The sole general partner of Warburg, Pincus Netherlands Equity
I, C.V. is Warburg.
Warburg, Pincus Netherlands Equity II, C.V. The principal business of
Warburg, Pincus Netherlands Equity II, C.V., a Netherlands limited partnership,
is that of a private investment partnership. The principal executive offices of
Warburg, Pincus Netherlands Equity II, C.V. are 466 Lexington Avenue, New York,
New York 10017. The sole general partner of Warburg, Pincus Netherlands Equity
II, C.V. is Warburg.
Warburg, Pincus Netherlands Equity III, C.V. The principal business of
Warburg, Pincus Netherlands Equity III, C.V., a Netherlands limited partnership,
is that of a private investment partnership. The principal executive offices of
Warburg, Pincus Netherlands Equity III, C.V. are 466 Lexington Avenue, New York,
New York 10017. The sole general partner of Warburg, Pincus Netherlands Equity
III, C.V. is Warburg.
Warburg. The principal business of Warburg is that of a private investment
partnership. The principal executive offices of Warburg are 466 Lexington
Avenue, New York, New York 10017.
Management. The members of Management are Messrs. Eaton, Dahl, Fosha and
Lepley. The business address for each member of Management is the principal
executive offices of Centennial, 400 Perimeter Center Terrace, Suite 650,
Atlanta, Georgia 30346. Each member of Management is a citizen of the United
States.
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
Centennial, in which capacities he has served since founding Centennial 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 ("CRCA"). When Centennial 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 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 Centennial. 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 Centennial. 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 Centennial. His business address is 3100 West End
Avenue, Suite 470, Nashville, Tennessee, 37203.
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<PAGE> 62
INDEPENDENT AUDITORS
The financial statements of Centennial as of December 31, 1999 and for the
year then ended, incorporated by reference in this Proxy Statement, have been
audited by Arthur Andersen LLP, independent public accountants, as stated in
their report.
The financial statements of Centennial as of December 31, 1998 and 1997 and
for the years then ended, incorporated by reference in this Proxy Statement,
have been audited by PricewaterhouseCoopers LLP, independent accountants, as
stated in their reports.
A representative of Arthur Andersen 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 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
Centennial, Holding, Acquisition, Warburg, WPEP and Management have filed a
Schedule TO with the Commission with respect to the Offer and Merger. The
Schedule TO, including any amendments and exhibits filed or incorporated by
reference as a part thereof, are 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 TO 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 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.
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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 May
15, 2000. 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, 1998;
(ii) Centennial's Quarterly Report on Form 10-Q for quarter ended
March 31, 1998;
(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;
(v) Centennial's Quarterly Report on Form 10-Q/A for quarter ended
September 30, 1998;
(vi) Centennial's Annual Report on Form 10-Q for quarter ended March
31, 1999;
(vii) Centennial's Annual Report on Form 10-Q/A for quarter ended
March 31, 1999;
(viii) Centennial's Annual Report on form 10-Q for quarter ended June
30, 1999;
(ix) Centennial's Current Report on Form 10-Q/A for quarter ended June
30, 1999;
(x) Centennial's Current Report on Form 10-Q for quarter ended
September 30, 1999;
(xi) Centennial's Current Report on Form 10-Q/A for quarter ended
September 30, 1999;
(xii) Centennial's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999; and
(xiii) Centennial's Current Report on Form 8-K filed on March 10,
2000.
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.
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.
SHAREHOLDER PROPOSALS
Pursuant to the consummation of the Offer, Centennial will be a majority
owned subsidiary of Holding and will not be subject to the rules and regulations
of the Exchange Act, including the proxy rules.
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APPENDIX A
CENTENNIAL HEALTHCARE CORPORATION,
HILLTOPPER HOLDING CORP.
AND
HILLTOPPER ACQUISITION CORP.
---------------------
AGREEMENT AND PLAN OF MERGER
---------------------
DATED AS OF FEBRUARY 25, 2000
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C> <C>
ARTICLE I. The Tender Offer.........................................................
Section 1.1. The Offer...................................................
Section 1.2. Company Action..............................................
Section 1.3. Directors...................................................
ARTICLE II. The Merger..............................................................
Section 2.1. The Merger..................................................
Section 2.2. Effective Time..............................................
Section 2.3. Effect of the Merger........................................
Section 2.4. Subsequent Actions..........................................
Section 2.5. Articles of Incorporation; By-Laws; Directors and
Officers....................................................
Section 2.6. Conversion of Securities....................................
Section 2.7. Dissenting Shares...........................................
Section 2.8. Surrender of Shares; Stock Transfer Books...................
Section 2.9. Stock Plans.................................................
ARTICLE III. Representations and Warranties of the Parent and Purchaser.............
Section 3.1. Corporate Organization......................................
Section 3.2. Authority Relative to this Agreement........................
Section 3.3. No Conflict; Required Filings and Consents..................
Section 3.4. Financing Arrangements......................................
Section 3.5. No Prior Activities.........................................
Section 3.6. Brokers.....................................................
Section 3.7. Offer Documents; Proxy Statement............................
Section 3.8. Company Stock...............................................
ARTICLE IV. Representations and Warranties of the Company...........................
Section 4.1. Organization and Qualification; Subsidiaries................
Section 4.2. Capitalization..............................................
Section 4.3. Authority Relative to this Agreement........................
Section 4.4. No Conflict; Required Filings and Consents..................
Section 4.5. SEC Filings; Financial Statements...........................
Section 4.6. Absence of Certain Changes or Events........................
Section 4.7. Litigation..................................................
Section 4.8. Employee Benefit Plans......................................
Section 4.9. Properties..................................................
Section 4.10. Intellectual Property.......................................
Section 4.11. Insurance...................................................
Section 4.12. Environmental...............................................
Section 4.13. Governmental Authorizations and Regulations.................
Section 4.14. Condition of Facilities.....................................
Section 4.15. Material Contracts..........................................
Section 4.16. Conduct of Business.........................................
Section 4.17. Fraud and Abuse.............................................
Section 4.18. Health Professional's Financial Relationships; Disqualified
Individuals.................................................
Section 4.19. Taxes.......................................................
Section 4.20. Labor Relations.............................................
Section 4.21. Transactions with Affiliates................................
Section 4.22. Offer Documents; Proxy Statement............................
Section 4.23. Brokers.....................................................
Section 4.24. Control Share Acquisition...................................
</TABLE>
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<TABLE>
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PAGE NO.
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<S> <C> <C> <C>
Section 4.25. Y2K Compliance..............................................
Section 4.26. Disclosure..................................................
ARTICLE V. Conduct of Business Pending the Merger...................................
Section 5.1. Conduct of Business by the Company Pending the Closing......
Section 5.2. No Solicitation.............................................
ARTICLE VI. Additional Agreements...................................................
Section 6.1. Proxy Statement.............................................
Section 6.2. Meeting of Shareholders of the Company......................
Section 6.3. Compliance with Law.........................................
Section 6.4. Notification of Certain Matters.............................
Section 6.5. Access to Information.......................................
Section 6.6. Public Announcements........................................
Section 6.7. Reasonable Best Efforts; Cooperation........................
Section 6.8. Agreement to Defend and Indemnify...........................
Section 6.9. State Takeover Laws.........................................
ARTICLE VII. Conditions of Merger...................................................
Section 7.1. Conditions for Each Party's Obligations to Effect the
Merger......................................................
Section 7.2. Conditions for Obligations of Parent and Purchaser..........
ARTICLE VIII. Termination, Amendment and Waiver.....................................
Section 8.1. Termination.................................................
Section 8.2. Effect of Termination.......................................
ARTICLE IX. General Provisions......................................................
Section 9.1. Non-Survival of Representations, Warranties and
Agreements..................................................
Section 9.2. Notices.....................................................
Section 9.3. Expenses....................................................
Section 9.4. Certain Definitions.........................................
Section 9.5. Headings....................................................
Section 9.6. Severability................................................
Section 9.7. Entire Agreement; No Third-Party Beneficiaries..............
Section 9.8. Assignment..................................................
Section 9.9. Governing Law...............................................
Section 9.10. Amendment...................................................
Section 9.11. Waiver......................................................
Section 9.12. Counterparts................................................
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 25, 2000 (the
"Agreement"), among Centennial HealthCare Corporation, a Georgia corporation
(the "Company"), Hilltopper Holding Corp., a Delaware corporation ("Parent"),
and Hilltopper Acquisition Corp., a Georgia corporation and an indirect wholly
owned subsidiary of Parent ("Purchaser").
WITNESSETH:
WHEREAS, the Boards of Directors of the Company and Purchaser have each
determined that it is in the best interests of their respective shareholders for
Purchaser to acquire the Company upon the terms and subject to the conditions
set forth herein; and
WHEREAS, in furtherance thereof, it is proposed that Purchaser will make a
cash tender offer (the "Offer") to acquire all shares (the "Shares") of the
issued and outstanding common stock, $.01 par value, of the Company (the
"Company Common Stock") for $5.50 per share of Company Common Stock or such
higher price as may be paid in the Offer (the "Per Share Amount"), net to the
seller in cash; and
WHEREAS, also in furtherance of such acquisition, the Boards of Directors
of the Company, Purchaser and Parent have each approved the merger of Purchaser
with and into the Company (the "Merger") following the Offer in accordance with
the Georgia Business Corporation Code (the "Georgia Code") and upon the terms
and subject to the conditions set forth herein; and
WHEREAS, on February 24, 2000, certain shareholders of the Company (the
"Contributing Shareholders") entered into a Subscription and Contribution
Agreement with Parent and certain affiliates of Parent (the "Subscription
Agreement"), pursuant to which each such Contributing Shareholder has, among
other things, agreed to contribute some or all of its Shares to Parent in
exchange for shares of stock of Parent upon the terms set forth in the
Subscription Agreement; and
WHEREAS, as an inducement and a condition to Parent's and Purchaser's
entering into this Agreement, contemporaneously with the execution and delivery
of this Agreement, the Contributing Shareholders have entered into a Voting
Agreement with Parent and Purchaser (the "Voting Agreement"), pursuant to which
each such Contributing Shareholder has, among other things,(x) agreed not to
tender its Shares in the Offer and (y) granted to Parent a proxy with respect to
the voting of such Shares, in each case upon the terms and subject to the
conditions set forth in the Voting Agreement; and
WHEREAS, the Board of Directors of the Company (the "Board of Directors"),
based on the recommendation of a special committee (the "Special Committee") of
the Board of Directors comprised solely of directors unaffiliated with the
Contributing Shareholders, has approved this Agreement, the Subscription
Agreement and the Voting Agreement and has determined that the consideration to
be paid for each Share in the Offer and the Merger is fair to the holders of
such Shares and to recommend that the holders of such Shares accept the Offer
and approve this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Company, Parent and Purchaser hereby agree as follows:
ARTICLE I.
THE TENDER OFFER
Section 1.1. The Offer. (a) Provided that this Agreement shall not have
been terminated in accordance with Section 8.1 hereof and none of the events set
forth in Annex I hereto shall have occurred and be existing, Purchaser or a
direct or indirect subsidiary of Parent as designated by Parent shall commence
(within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934 (the
"Exchange Act") the Offer as
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promptly as reasonably practicable following the execution of this Agreement,
but in any event within 15 business days following the date of this Agreement.
The obligation of Parent to accept for payment any Shares tendered shall be
subject to the satisfaction of those conditions set forth in Annex I. Parent
expressly reserves the right from time to time, subject to Sections 1.1(b) and
1.1(d) hereof, to waive any such condition, to increase the Per Share Amount, or
to make any other changes in the terms and conditions of the Offer. The Per
Share Amount shall be net to the seller in cash, subject to reduction only for
any applicable Federal back-up withholding or stock transfer taxes payable by
the seller. The Company agrees that no Shares held by the Company or any of its
Subsidiaries (as defined below) will be tendered pursuant to the Offer.
(b) Without the prior written consent of the Company, Parent shall not (i)
decrease the Per Share Amount or change the form of consideration payable in the
Offer, (ii) decrease the number of Shares sought, (iii) amend or waive
satisfaction of the Minimum Condition (as defined in Annex I) or (iv) impose
additional conditions to the Offer or amend any other term of the Offer in any
manner adverse to the holders of Shares. Upon the terms and subject to the
conditions of the Offer, Purchaser will accept for payment and purchase, as soon
as permitted under the terms of the Offer, all Shares validly tendered and not
withdrawn prior to the expiration of the Offer.
(c) The Offer shall be made by means of an offer to purchase (the "Offer to
Purchase") having only the conditions set forth in Annex I hereto. As soon as
practicable on the date the Offer is commenced, Parent and Purchaser shall file
with the Securities and Exchange Commission (the "SEC") a Tender Offer Statement
on Schedule TO (together with all amendments and supplements thereto, the
"Schedule TO") and, if necessary, jointly file with Target a Transaction
Statement on Schedule 13E-3 (together with all amendments and supplements
thereto, the "Schedule 13E-3") with respect to the Offer that will comply in all
material respects with the provisions of all applicable Federal securities laws,
and will contain (including as an exhibit) or incorporate by reference the Offer
to Purchase and forms of the related letter of transmittal and summary
advertisement (which documents, together with any supplements or amendments
thereto, and any other SEC schedule or form which is filed in connection with
the Offer and related transactions, are referred to collectively herein as the
"Offer Documents"). Parent and Purchaser agree promptly to correct the Schedule
TO and the Offer Documents and to cooperate with Target to amend the Schedule
13E-3 if and to the extent that such documents shall have become false or
misleading in any material respect (and the Company, with respect to written
information supplied by it specifically for use in the Schedule TO, Schedule
13E-3 or the Offer Documents, shall promptly notify Parent of any required
corrections of such information and shall cooperate with Parent and Purchaser
with respect to correcting such information) and to supplement the information
provided by it specifically for use in the Schedule TO, Schedule 13E-3 or the
Offer Documents to include any information that shall become necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading, and Parent and Purchaser further agree to take all
steps necessary to cause the Schedule TO or Schedule 13E-3, as so corrected or
supplemented, to be filed with the SEC and the Offer Documents, as so corrected
or supplemented, to be disseminated to holders of Shares, in each case as and to
the extent required by applicable Federal securities laws. The Company and its
counsel shall be given a reasonable opportunity to review and comment on any
Offer Documents before they are filed with the SEC.
(d) The Offer to Purchase shall provide for an initial expiration date of
20 business days (as defined in Rule 14d-1 under the Exchange Act) from the date
of commencement. Purchaser agrees that it shall not terminate or withdraw the
Offer or extend the expiration date of the Offer unless at the expiration date
of the Offer the conditions to the Offer described in Annex I hereto shall not
have been satisfied or earlier waived. If at the expiration date of the Offer,
the conditions to the Offer described in Annex I hereto shall not have been
satisfied or earlier waived, Parent may, from time to time extend the expiration
date of the Offer until the date such conditions are satisfied or earlier waived
and Parent becomes obligated to accept for payment and pay for Shares tendered
pursuant to the Offer, but in no event shall such extensions extend beyond the
Termination Date (as defined below). Notwithstanding the foregoing, Purchaser
may, without the consent of the Company, (i) extend the expiration date of the
Offer (as it may be extended) for any period required by applicable rules and
regulations of the SEC in connection with an increase in the consideration to be
paid pursuant to the Offer and (ii) extend the expiration date of the Offer (as
it may be extended) for up to ten
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business days, if on such expiration date the conditions for the Offer described
on Annex I hereto shall have been satisfied or earlier waived, but the number of
Shares that have been validly tendered and not withdrawn, when added to the
Shares, if any, beneficially owned by Parent represents less than 90 percent of
the then issued and outstanding Shares on a fully diluted basis.
Section 1.2. Company Action. (a) The Company hereby approves of and
consents to the Offer and represents and warrants that the Board of Directors,
at a meeting duly called and held on February 25, 2000, at which all of the
Directors were present, and acting on the unanimous recommendation of the
Special Committee, duly and unanimously: (i) approved and adopted this
Agreement, the Subscription Agreement and the Voting Agreement and the
transactions contemplated hereby and thereby, including the Offer and the
Merger; (ii) recommended that the shareholders of the Company accept the Offer,
tender their Shares pursuant to the Offer and approve this Agreement and the
transactions contemplated hereby, including the Merger; (iii) determined that
this Agreement and the transactions contemplated hereby, including the Offer and
the Merger, are fair to and in the best interests of the shareholders of the
Company; and (iv) took all action necessary to render the limitations on
business combinations contained in Part 2 of Article 11 of the Georgia Code
inapplicable to this Agreement, the Subscription Agreement and the Voting
Agreement and the transactions contemplated hereby and thereby. The Company
further represents and warrants that J.P. Morgan Securities Inc. ("J.P. Morgan")
as financial advisor to the Special Committee, delivered to the Special
Committee and the Board of Directors a written opinion, dated as of February 25,
2000, to the effect that the Per Share Amount to be received by the shareholders
(other than Parent, Purchaser and the Contributing Shareholders) of the Company
pursuant to the Offer and the Merger is fair to such shareholders from a
financial point of view.
(b) The Company hereby agrees to file with the SEC, as promptly as
practicable after the filing by Parent and Purchaser of the Schedule TO with
respect to the Offer, a Tender Offer Solicitation/Recommendation Statement on
Schedule 14D-9 (together with any amendments or supplements thereto, the
"Schedule 14D-9") and the Schedule 13E-3 that (i) will comply in all material
respects with the provisions of all applicable Federal securities laws and (ii)
will include the opinion of J.P. Morgan referred to in Section 1.2(a) hereof.
The Schedule 14D-9 and the Offer Documents shall contain the recommendations of
the Board of Directors described in Section 1.2(a) hereof. The Company agrees
promptly to correct the Schedule 14D-9 or the Schedule 13E-3 if and to the
extent that it shall become false or misleading in any material respect (and
each of Parent and Purchaser, with respect to written information supplied by it
specifically for use in the Schedule 14D-9 or the Schedule 13E-3, shall promptly
notify the Company of any required corrections of such information and cooperate
with the Company with respect to correcting such information) and to supplement
the information contained in the Schedule 14D-9 or the Schedule 13E-3 to include
any information that shall become necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and the Company shall take all steps necessary to cause the Schedule
14D-9 or the Schedule 13E-3 as so corrected to be filed with the SEC and
disseminated to the Company's shareholders to the extent required by applicable
Federal securities laws. Parent and its counsel shall be given a reasonable
opportunity to review and comment on the Schedule 14D-9 before it is filed with
the SEC.
(c) In connection with the Offer, the Company shall promptly upon execution
of this Agreement furnish Parent with mailing labels containing the names and
addresses of all record holders of Shares, non-objecting beneficial owners list
and security position listings of Shares held in stock depositories, each as of
a recent date, and shall promptly furnish Parent with such additional
information, including updated lists of shareholders, mailing labels and
security position listings, and such other information and assistance as Parent
or its agents may reasonably request for the purpose of communicating the Offer
to the record and beneficial holders of Shares.
Section 1.3. Directors. Promptly upon the purchase by Purchaser of any
Shares pursuant to the Offer, and from time to time thereafter as Shares are
acquired by Purchaser, Parent shall be entitled to designate such number of
directors, rounded up to the next whole number, on the Board of Directors as
will give Parent, subject to compliance with Section 14(f) of the Exchange Act,
representation on the Board of Directors equal to at least that number of
directors which equals the product of the total number of directors on the Board
of
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Directors (giving effect to the directors appointed or elected pursuant to this
sentence and including current directors serving as officers of the Company)
multiplied by the percentage that the aggregate number of Shares beneficially
owned by Parent or any affiliate of Parent (including for purposes of this
Section 1.3 such Shares as are accepted for payment pursuant to the Offer, but
excluding Shares held by the Company or any of its Subsidiaries) bears to the
number of Shares outstanding. At each such time, the Company will also cause (i)
each committee of the Board of Directors, (ii) if requested by Parent, the board
of directors of each of the Subsidiaries and (iii) if requested by Parent, each
committee of such board to include persons designated by Parent constituting the
same percentage of each such committee or board as Parent's designees constitute
on the Board of Directors. The Company shall, upon request by Parent, promptly
increase the size of the Board of Directors or exercise its best efforts to
secure the resignations of such number of directors as is necessary to enable
Parent's designees to be elected to the Board of Directors in accordance with
the terms of this Section 1.3 and shall cause Parent's designees to be so
elected; PROVIDED, HOWEVER, that, in the event that Parent's designees are
appointed or elected to the Board of Directors, until the Effective Time (as
defined in Section 2.2 hereof) the Board of Directors shall have at least two
directors who are directors on the date hereof and who are neither officers of
the Company, Contributing Shareholders nor designees, shareholders, affiliates
or associates (within the meaning of the Federal securities laws) of Parent or
any Contributing Shareholder (such directors, the "Independent Directors");
PROVIDED FURTHER, that if at any time or from time to time there are fewer than
two Independent Directors, the other directors shall elect to the Board of
Directors such number of persons who shall be neither officers of the Company,
Contributing Shareholders nor designees, shareholders, affiliates or associates
of Parent or any Contributing Shareholder so that the total of such persons and
remaining Independent Directors serving on the Board of Directors is at least
two. Any such person elected to the Board of Directors pursuant to the second
proviso of the preceding sentence shall be deemed to be an Independent Director
for purposes of this Agreement. Subject to applicable law, the Company shall
promptly take all action necessary pursuant to Section 14(f) of the Exchange Act
and Rule 14f-1 promulgated thereunder in order to fulfill its obligations under
this Section 1.3 and shall include in the Schedule 14D-9 mailed to shareholders
promptly after the commencement of the Offer (or an amendment thereof or an
information statement pursuant to Rule 14f-1 if Parent has not theretofore
designated directors) such information with respect to the Company and its
officers and directors as is required under Section 14(f) and Rule 14f-1 in
order to fulfill its obligations under this Section 1.3. Parent will supply the
Company any information with respect to itself and its nominees, officers,
directors and affiliates required by Section 14(f) and Rule 14f-1.
Notwithstanding anything in this Agreement to the contrary, following the time
directors designated by Parent constitute a majority of the Board of Directors
and prior to the Effective Time, the affirmative vote of a majority of the
Independent Directors shall be required to (i) amend or terminate this Agreement
on behalf of the Company, (ii) exercise or waive any of the Company's rights or
remedies hereunder, (iii) extend the time for performance of Parent's
obligations hereunder or (iv) take any other action by the Company in connection
with this Agreement required to be taken by the Board of Directors.
ARTICLE II.
THE MERGER
Section 2.1. The Merger. At the Effective Time (as defined in Section 2.2)
and subject to and upon the terms and conditions of this Agreement and the
Georgia Code, Purchaser shall be merged with and into the Company, the separate
corporate existence of Purchaser shall cease, and the Company shall continue as
the surviving corporation. The Company as the surviving corporation after the
Merger hereinafter sometimes is referred to as the "Surviving Corporation."
Section 2.2. Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in ARTICLE VII, the parties
hereto shall cause the Merger to be consummated by filing Articles of Merger, in
accordance with Section 14-2-1105 of the Georgia Code, with the Secretary of
State of the State of Georgia, in such form as required by, and executed in
accordance with the relevant provisions of, the Georgia Code (the time of such
filing being the "Effective Time").
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Section 2.3. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the Georgia
Code. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of the Company and Purchaser shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Purchaser shall become the
debts, liabilities and duties of the Surviving Corporation.
Section 2.4. Subsequent Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable 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,
properties or assets of either of the Company or Purchaser acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger or otherwise to carry out this Agreement, the officers and directors of
the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of either the Company or Purchaser, all such deeds, bills of
sale, assignments and assurances and to take and do, in the name and on behalf
of each of such corporations or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out this Agreement.
Section 2.5. Articles of Incorporation; By-Laws; Directors and
Officers. (a) Unless otherwise determined by Parent before the Effective Time,
at the Effective Time the Articles of Incorporation of Purchaser, as in effect
immediately before the Effective Time, shall be the Articles of Incorporation of
the Surviving Corporation until thereafter amended as provided by law and such
Articles of Incorporation.
(b) The By-Laws of Purchaser, as in effect immediately before the Effective
Time, shall be the By-Laws of the Surviving Corporation until thereafter amended
as provided by law, the Articles of Incorporation of the Surviving Corporation
and such By-Laws.
(c) The directors of Purchaser immediately before the Effective Time will
be the initial directors of the Surviving Corporation, and the officers of the
Company immediately before the Effective Time will be the initial officers of
the Surviving Corporation, in each case until their successors are elected or
appointed and qualified. If, at the Effective Time, a vacancy shall exist on the
Board of Directors or in any office of the Surviving Corporation, such vacancy
may thereafter be filled in the manner provided by law.
Section 2.6. Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Purchaser, the Company or the
holder of any of the following securities:
(a) Each share of Company Common Stock issued and outstanding
immediately before the Effective Time (other than any Shares to be canceled
pursuant to Section 2.6(b) and any Dissenting Shares (as defined in Section
2.7(a)) shall be canceled and extinguished and be converted into the right
to receive the Per Share Amount in cash payable to the holder thereof,
without interest, upon surrender of the certificate representing such
Share. Each holder of a certificate representing any such Shares shall
cease to have any rights with respect thereto, except the right to receive
the Per Share Amount, without interest, upon the surrender of such
certificate in accordance with Section 2.8 hereof.
(b) Each share of Company Common Stock held in the treasury of the
Company and each Share owned by Parent or any direct or indirect wholly
owned subsidiary of Parent or of the Company immediately before the
Effective Time shall be canceled and extinguished and no payment or other
consideration shall be made with respect thereto.
(c) Each share of common stock, $.01 par value, of Purchaser issued
and outstanding immediately before the Effective Time shall thereafter
represent one validly issued, fully paid and nonassessable share of common
stock, $.01 par value, of the Surviving Corporation.
Section 2.7. Dissenting Shares. (a) Notwithstanding any provision of 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, if any, required by Section 6.2
hereof, a written notice in accordance with Article 13 of the Georgia Code of
such shareholder's intent to demand
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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 cash pursuant to Section 2.6, 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; PROVIDED, HOWEVER, that if such shareholder shall waive such shareholder's
right to demand and obtain 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 cash pursuant to Section 2.6(a) hereof, without any interest thereon,
upon surrender of the certificate or certificates representing such Shares.
(b) The Company shall give Parent (i) prompt notice of any notice 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 voluntarily
offer to make or make any payment with respect to any demands for payment for
Dissenting Shares and shall not, except with the prior written consent of
Parent, settle or offer to settle any such demands.
(c) Dissenting Shares, if any, shall be canceled after the payment of fair
value in respect thereto has been made to the holder of such shares pursuant to
the Georgia Code.
Section 2.8. Surrender of Shares; Stock Transfer Books. (a) Before the
Effective Time, the Company shall designate a bank or trust company to act as
agent for the holders of Shares (the "Exchange Agent") to receive the funds
necessary to make the payments contemplated by Section 2.6. Parent shall, from
time to time, deposit, or cause to be deposited, in trust with the Exchange
Agent for the benefit of holders of Shares funds in amounts and at times
necessary for the payments under Section 2.8(b) to which such holders shall be
entitled at the Effective Time pursuant to Section 2.6. Such funds shall be
invested by the Exchange Agent as directed by Parent. Any net profits resulting
from, or interest or income produced by, such investments shall be payable as
directed by Parent.
(b) Each holder of a certificate or certificates representing any Shares
canceled upon the Merger pursuant to Section 2.6(a) may thereafter surrender
such certificate or certificates to the Exchange Agent, as agent for such
holder, to effect the surrender of such certificate or certificates on such
holder's behalf for a period ending six months after the Effective Time.
Purchaser agrees that promptly after the Effective Time it shall cause the
distribution to holders of record of Shares as of the Effective Time of
appropriate materials to facilitate such surrender. Upon the surrender of
certificates representing the Shares, Parent shall cause the Exchange Agent to
pay the holder of such certificates in exchange therefor cash in an amount equal
to the Per Share Amount multiplied by the number of Shares represented by such
certificate. Until so surrendered, each such certificate (other than
certificates representing Dissenting Shares and certificates representing Shares
held by Parent or in the treasury of the Company) shall represent solely the
right to receive the aggregate Per Share Amount relating thereto.
(c) If payment of cash in respect of canceled Shares is to be made to a
Person other than the Person in whose name a surrendered certificate or
instrument is registered, it shall be a condition to such payment that the
certificate or instrument so surrendered shall be properly endorsed or shall be
otherwise in proper form for transfer and that the Person requesting such
payment shall have paid any transfer and other taxes required by reason of such
payment in a name other than that of the registered holder of the certificate or
instrument surrendered or shall have established to the satisfaction of Parent
or the Exchange Agent that such tax either has been paid or is not payable.
(d) At the Effective Time, the stock transfer books of the Company shall be
closed and there shall not be any further registration of transfers of shares of
any shares of capital stock thereafter on the records of the Company. If, after
the Effective Time, certificates for Shares are presented to the Surviving
Corporation, they shall be canceled and exchanged for cash as provided in
Section 2.6(a). No interest shall accrue or be paid on any cash payable upon the
surrender of a certificate or certificates which immediately before the
Effective Time represented outstanding Shares.
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(e) Promptly following the date which is six months after the Effective
Time, the Exchange Agent shall deliver to Parent all cash, certificates and
other documents in its possession relating to the transactions contemplated
hereby, and the Exchange Agent's duties shall terminate. Thereafter, each holder
of a certificate representing Shares (other than certificates representing
Dissenting Shares and certificates representing Shares held by Parent or in the
treasury of the Company) may surrender such certificate to Parent and (subject
to applicable abandoned property, escheat and similar laws) receive in
consideration thereof the aggregate Per Share Amount relating thereto, without
any interest or dividends thereon.
(f) The Per Share Amount paid in the Merger shall be net to the holder of
Shares in cash, subject to reduction only for any applicable federal back-up
withholding or, as set forth in Section 2.8(c), stock transfer taxes payable by
such holder.
Section 2.9. Stock Plans. (a) The Company shall take all actions necessary
to provide that, prior to or upon consummation of the Merger, each then
outstanding option to purchase shares of Company Common Stock (the "Options")
granted under any of the Company's stock option plans referred to in Section
4.2, each as amended (collectively, the "Option Plans"), and any and all other
outstanding options, stock warrants and stock rights, whether or not granted
pursuant to such stock option plans, whether or not then exercisable or vested,
shall be canceled and shall be of no further force or effect; PROVIDED, HOWEVER,
that with respect to any Options as to which the Per Share Amount exceeds the
applicable per share exercise price, Parent shall promptly following the
Effective Time pay (or cause to be paid) to the holders of such Options an
amount in cash equal to, with respect to each such Option, the product of (1)
the amount by which (x) the Per Share Amount exceeds (y) the applicable per
share exercise price, and (2) the number of shares subject to the Option at the
time of such cancellation. Such amount shall be subject to reduction by
applicable tax withholding.
(b) Except as provided herein or as otherwise agreed to by the parties, the
Company shall cause the Option Plans to terminate as of the Effective Time and
the provisions in any other plan, program or arrangement, providing for the
issuance or grant by the Company or any of its subsidiaries of any interest in
respect of the capital stock of the Company or any of its Subsidiaries shall be
deleted as of the Effective Time.
(c) The Company represents and warrants that all the Option Plans provide
that either (i) the Company can take the actions described in Section 2.9(a)
without obtaining the consent of any holders of Options or (ii) if such consent
is required, the Company will obtain such consents and provide evidence thereof
to Parent at least 10 days prior to the initial expiration of the Offer.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE
PARENT AND PURCHASER
Parent and Purchaser represent and warrant to the Company as follows:
Section 3.1. Corporate Organization. Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has the requisite corporate power
and authority and any necessary governmental authority and approvals to own,
operate or lease the properties that it purports to own, operate or lease and to
carry on its business as it is now being conducted.
Section 3.2. Authority Relative to This Agreement. Parent and Purchaser
have the necessary corporate power and authority to enter into this Agreement
and to carry out their obligations hereunder. The execution and delivery of this
Agreement by Parent and Purchaser and the consummation by Parent and Purchaser
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Parent and Purchaser and no other
corporate proceeding is necessary for the execution and delivery of this
Agreement by Parent or Purchaser, the performance by Parent or Purchaser of
their respective obligations hereunder and the consummation by Parent or
Purchaser of the transactions contemplated hereby. This
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Agreement has been duly executed and delivered by Parent and Purchaser and
constitutes a legal, valid and binding obligation of each such corporation,
enforceable against each of them in accordance with its terms.
Section 3.3. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by Parent and Purchaser do not, and the
performance of this Agreement and the transactions contemplated hereby by Parent
and Purchaser will not, (i) conflict with or violate any law, regulation, court
order, judgment or decree applicable to Parent or Purchaser or by which any of
their property is bound or affected, (ii) violate or conflict with either the
Articles of Incorporation or By-Laws or other organizational documents of either
Parent or Purchaser, or (iii) result in any breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination or cancellation of, or result
in the creation of a lien or encumbrance on any of the property or assets of
Parent or Purchaser pursuant to, any contract, instrument, permit, license or
franchise to which Parent or Purchaser is a party or by which Parent or
Purchaser or any of its property is bound or affected, except for, in the case
of clause (i), conflicts, violations, breaches or defaults which would not
prevent or materially delay the consummation of any of the transactions
contemplated by this Agreement.
(b) Except for (i) applicable requirements, if any, of the Exchange Act,
(ii) the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (iii) the filing and
recordation of appropriate merger documents as required by the Georgia Code, and
(iv) filings as may be required by any applicable "blue sky" laws and/or the
rules of the National Association of Securities Dealers, Inc., neither Parent
nor Purchaser is required to submit any notice, report or other filing with any
federal, state or local government or any court, administrative or regulatory
agency or commission or other governmental authority or agency, domestic or
foreign (a "Governmental Entity"), in connection with the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby. Except as set forth in Schedule 3.3, no waiver, consent,
approval or authorization of any Governmental Entity, is required to be obtained
or made by either Parent or Purchaser in connection with its execution, delivery
or performance of this Agreement.
Section 3.4. Financing Arrangements. Parent has or will have available to
it funds sufficient to purchase the Shares in accordance with the terms of this
Agreement, pay the amount to which holders of Shares become entitled upon
consummation of the Offer and the Merger and pay all of the fees and expenses it
will incur in connection therewith.
Section 3.5. No Prior Activities. Except for obligations or liabilities
incurred in connection with its incorporation or organization or the negotiation
and consummation of this Agreement and the transactions contemplated hereby
(including any financing), Purchaser has not incurred any obligations or
liabilities, and has not engaged in any business or activities of any type or
kind whatsoever or entered into any agreements or arrangements with any Person
or entity.
Section 3.6. Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by and
on behalf of Parent or Purchaser.
Section 3.7. Offer Documents; Proxy Statement. None of the information
supplied by Parent, its officers, directors, representatives, agents or
employees (the "Parent Information"), for inclusion in the Proxy Statement (as
defined in Section 4.22), or in any amendments thereof or supplements thereto,
will, on the date the Proxy Statement is first mailed to shareholders, at the
time of the Company Shareholders' Meeting (as defined in Section 4.22) or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it will be made, will be false or misleading with
respect to any material fact, or will omit to state any material fact necessary
in order to make the statements therein not false or misleading or necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Shareholders' Meeting which has become
false or misleading. Neither the Offer Documents nor any amendments thereof or
supplements thereto will, at any time the Offer Documents or any such amendments
or supplements are filed with the SEC or first published, sent or given to the
Company's shareholders, contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
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misleading. Notwithstanding the foregoing, Parent and Purchaser do not make any
representation or warranty with respect to any information that has been
supplied by the Company or its accountants, counsel or other authorized
representatives for use in any of the foregoing documents. The Offer Documents
and any amendments or supplements thereto will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder.
Section 3.8. Company Stock. Prior to the date hereof, neither Parent nor
Purchaser owns any shares of Company Common Stock.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser as
follows:
Section 4.1. Organization and Qualification; Subsidiaries. (a) Each of the
Company and its corporate Subsidiaries (as defined in Section 4.1(d)) (the
"Corporate Subsidiaries") is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority and any necessary governmental
authority and approvals to own, operate or lease the properties that it purports
to own, operate or lease and to carry on its business as it is now being
conducted, and is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, operated or leased or the nature of its activities makes
such qualification or licensing necessary, except for such failure which, when
taken together with all other such failures, would not have a Material Adverse
Effect. For purposes of this Agreement, "Material Adverse Effect" means any
change in or effect on the business of the Company or any of the Subsidiaries
that is or is reasonably likely to be materially adverse to the business,
operations, properties (including intangible properties and leased, owned or
managed properties), condition (financial or otherwise), prospects, assets,
liabilities or regulatory status of the Company and the Subsidiaries, taken as a
whole; provided that a Material Adverse Effect shall not include any change or
effect arising solely from the public announcement of any matters disclosed in
the Schedules hereto.
(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, when taken together with all other
such failures, would not have a Material Adverse Effect.
(c) A true and complete list of all the Subsidiaries, together with the
jurisdiction of incorporation or organization of each Subsidiary, the
jurisdictions in which each Subsidiary is licensed or qualified to do business
and the percentage of each Subsidiary's outstanding capital stock or other
equity interests owned by the Company or another Subsidiary, is set forth in
Schedule 4.1 hereto.
(d) For purposes of this Agreement, (x) "Subsidiary" means any corporation
or other legal entity of which the Company (either alone or through or together
with any other Subsidiary) (i) owns, directly or indirectly, more than 50% of
the stock or other equity interests the holders of which are generally entitled
to vote for the election of the board of directors or other governing body of
such corporation or other legal entity, or (ii) in the case of partnerships,
serves as a general partner, or (iii) in the case of a limited liability
company, serves as managing member or owns a majority of the equity interests,
or (iv) otherwise has the ability to elect a majority of the directors, trustees
or managing members thereof, (y) "Provider" means any nursing home, hospital,
home health agency, rehabilitation therapy provider, subacute care facility or
unit, assisted living facility or unit, independent living facility or unit, or
other provider of medical services or products owned, leased or managed by the
Company or any Subsidiary, and (z) "Proprietary Provider" means each Provider
owned or leased (as tenant) by the Company or any Subsidiary, and "Managed
Provider" means each Provider managed by the Company or any Subsidiary. Except
as expressly otherwise provided herein, each
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reference in this Agreement to the Company or a Subsidiary shall be deemed to
include any Proprietary Provider that is owned or leased by such entity, whether
or not so expressed, 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 Provider and licenses or other
property or assets held by, or purported to be held by, any such Proprietary
Provider.
Section 4.2. Capitalization. (a) The authorized capital stock of the
Company consists of: (i) 50,000,000 shares of Company Common Stock and (ii)
50,000,000 shares of preferred stock, $.01 par value per share, of the Company
(the "Company Preferred Stock"). As of the date hereof, (A) 11,923,618 shares of
Company Common Stock were issued and outstanding, all of which were duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights, (B) no shares of Company Preferred Stock were outstanding,
(C) 155,948 shares of Company Common Stock were reserved for issuance upon the
exercise of outstanding Options under the Company's 1994 Employee Stock Option
Plan, (D) 383,162 shares of Company Common Stock were reserved for issuance upon
the exercise of outstanding Options under the Company's 1996 Executive Stock
Plan and (E) 64,341 shares of Company Common Stock were reserved for issuance
upon the exercise of outstanding Options under the Company's 1996 Employee Stock
Option Plan and (F) 1,390,000 shares of Company Common Stock were reserved for
issuance upon the exercise of outstanding Options under the Company's 1997 Stock
Plan. Except as set forth in Schedule 4.2(a) or in this Section 4.2(a): (x)
there are no other options, calls, warrants or rights, agreements, arrangements
or commitments of any character obligating the Company or any of its
Subsidiaries to issue, deliver or sell any shares of capital stock of or other
equity interests in the Company or any of the Subsidiaries; (y) there are no
bonds, debentures, notes or other indebtedness of the Company having the right
to vote (or convertible into, or exchangeable for, securities having the right
to vote) on any matters on which shareholders of the Company may vote; and (z)
there are no shareholders agreements, voting trusts or other agreements or
understandings to which the Company is a party or by which it is bound relating
to the voting, registration or disposition of any shares of the capital stock of
the Company (including any such agreements or understandings that may limit in
any way the solicitation of proxies by or on behalf of the Company from, or the
casting of votes by, the shareholders of the Company with respect to the Merger)
or granting to any person or group of persons the right to elect, or to
designate or nominate for election, a director to the Board of Directors. Except
as set forth in Schedule 4.2(a), there are no programs in place or outstanding
contractual obligations of the Company or any of the Subsidiaries (1) to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or (2) to vote or to dispose of any shares of the capital stock of any
of the Subsidiaries.
(b) All the outstanding capital stock of each of the Corporate Subsidiaries
and all the outstanding partnership (general or limited) units or other
interests of each of the Partnership Subsidiaries are duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights and,
except as set forth in Schedule 4.1, is owned by the Company or a Subsidiary
free and clear of any liens, security interests, pledges, agreements, claims,
charges or encumbrances of any nature whatsoever. There are no existing options,
calls, warrants or other rights, agreements arrangements or commitments of any
character relating to the issued or unissued capital stock or other equity
interests or securities of any Subsidiary. Except for the Subsidiaries and
except as set forth in Schedule 4.2(b), the Company does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in any
other corporation, partnership, joint venture or other business association or
entity. Except as set forth in Schedule 4.2(b), neither the Company nor any
Subsidiary is under any current or prospective obligation to make a capital
contribution or investment in or loan to, or to assume any liability or
obligation of, any corporation, partnership, joint venture or business
association or entity.
Section 4.3. Authority Relative to This Agreement. (a) The Company has the
necessary corporate power and authority to enter into this Agreement and,
subject to obtaining any necessary shareholder approval of the Merger, to carry
out its obligations hereunder. The execution and delivery of this Agreement by
the Company and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Company (including without limitation the unanimous approval of the
Special Committee), subject to the approval of the Merger by the Company's
shareholders, if required, in accordance with the Georgia Code. This Agreement
has been duly executed and
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delivered by the Company and constitutes a legal, valid and binding obligation
of the Company, enforceable against it in accordance with its terms. The
affirmative vote of the holders of a majority of the shares of Company Common
Stock entitled to vote approving this Agreement, if required, is the only vote
of the holders of any class or series of the Company's capital stock necessary
to approve this Agreement, the Subscription Agreement and the Voting Agreement
and the transactions contemplated hereby.
Section 4.4. No Conflict; Required Filings and Consents. (a) Except as set
forth in Schedule 4.4 hereto, the execution and delivery of this Agreement by
the Company does not, and the performance of such agreement by the Company will
not, (i) conflict with or violate any law, regulation, court order, judgment or
decree applicable to the Company or any of the Subsidiaries or by which its or
any of their property is bound or affected, (ii) violate or conflict with the
Articles of Incorporation or By-Laws or equivalent organizational documents of
the Company or any Subsidiary, or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or result in any, or give rise to any rights of termination,
cancellation or acceleration of any obligations or any loss of any material
benefit under or, result in the creation of a lien or encumbrance on any of the
properties or assets (whether owned, leased or managed) of the Company or any of
the Subsidiaries pursuant to, any agreement, contract, instrument, permit,
license or franchise to which the Company or any of the Subsidiaries is a party
or by which the Company or any of the Subsidiaries or its or any of their
property (whether owned, leased or managed) is bound or affected, except for, in
the case of clause (i), conflicts, violations, breaches or defaults which,
individually or in the aggregate, would not be reasonably likely to (x) have a
Material Adverse Effect, (y) impair, in any material respect, the ability of the
Company to perform its obligations under this Agreement or (z) prevent or
materially delay the consummation of the transactions contemplated by this
Agreement, the Subscription Agreement or the Voting Agreement.
(b) Except for (i) applicable requirements, if any, of the Exchange Act,
(ii) the pre-merger notification requirements of the HSR Act, (iii) the filing
and recordation of appropriate merger or other documents as required by the
Georgia Code, (iv) filings as may be required by any "blue sky" laws of various
states and/or the rules of the National Association of Securities Dealers, Inc.,
and (v) as set forth in Schedule 4.4 hereto, the Company and each of the
Subsidiaries are not required to submit any notice, report or other filing with
any Governmental Entity, in connection with the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby. Except as set forth in Schedule 4.4 hereto, no waiver,
consent, approval or authorization of any Governmental Entity, is required to be
obtained or made by the Company in connection with its execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby.
Section 4.5. SEC Filings; Financial Statements. (a) The Company has filed
all forms, reports and documents (including all exhibits thereto) required to be
filed with the SEC since July 2, 1997, and (except for preliminary materials)
has made available to Parent, in the form filed with the SEC, its (i) Annual
Reports on Form 10-K for the fiscal years ended December 31, 1998 and December
31, 1997, respectively, (ii) Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1999, June 30, 1999 and September 30, 1999, (iii) all
proxy statements relating to the Company's meetings of shareholders (whether
annual or special) held since July 2, 1997 and (iv) all other reports or
registration statements filed by the Company with the SEC since July 2, 1997
(collectively, the "SEC Reports"). The SEC Reports (i) at the time filed
complied in all material respects with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act, as the case may
be, and (ii) did not at the time they were filed contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of the
Subsidiaries is required to file any statements or reports with the SEC pursuant
to Sections 13(a) or 15(d) of the Exchange Act.
(b) The consolidated financial statements contained in the SEC Reports were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto) and fairly presented the consolidated financial position
of the Company and its Subsidiaries as at the respective dates thereof and the
consolidated results of operations and changes in financial position of the
Company and its Subsidiaries for the periods indicated, except that the
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unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments (which in the aggregate are not material in
amount) and except as set forth in Schedule 4.5(b).
(c) Set forth in Schedule 4.5(c) is a true and correct copy of the
unaudited consolidated financial statements of the Company and its Subsidiaries
as at December 31, 1999 and for the year then ended (collectively, the "Interim
Financial Statements"). The interim balance sheet included in the Interim
Financial Statements (the "Interim Balance Sheet") was prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved and fairly presented the consolidated financial
position of the Company and its Subsidiaries as at the respective dates thereof
and the consolidated results of operations and changes in financial position of
the Company and its Subsidiaries for the periods indicated.
(d) Except as (i) set forth in Schedule 4.5(d) or (ii) disclosed in any SEC
Report filed prior to the date of this Agreement, and except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since the date of the most recent consolidated balance sheet included
in the SEC Reports filed and publicly available prior to the date of this
Agreement, the Company and the Subsidiaries have no material liabilities of any
nature (whether accrued, absolute, contingent or otherwise).
Section 4.6. Absence of Certain Changes or Events. Except (i) as expressly
permitted or otherwise provided in this Agreement, (ii) as set forth in the SEC
Reports filed prior to the date of this Agreement, (iii) as set forth in the
Interim Financial Statements, or (iv) as set forth in Schedule 4.6 hereto, since
December 31, 1998, the business of the Company and the Subsidiaries has been
conducted in the ordinary course consistent with past practice and there has not
been:
(a) any Material Adverse Effect;
(b) any damage, destruction or loss (whether or not covered by
insurance) with respect to any of the assets of the Company, any of its
Subsidiaries or any Managed Provider having a Material Adverse Effect;
(c) any redemption or other acquisition of Company Common Stock by the
Company or any of the Subsidiaries or any declaration or payment of any
dividend or other distribution in cash, stock or property with respect to
Company Common Stock, except for purchases heretofore made pursuant to the
terms of the Company's employee benefit plans;
(d) any change by the Company in accounting methods, principles or
practices;
(e) any revaluation by the Company of any asset (including, without
limitation, any writing down of the value of inventory or writing off of
notes or accounts receivable), other than in the ordinary course of
business consistent with past practice;
(f) any entry by the Company, any Subsidiary or, to the knowledge of
the Company, any Managed Provider into any commitment or transaction
material to the Company and the Subsidiaries taken as a whole, other than
commitments or transactions entered into in the ordinary course of business
consistent with past practice;
(g) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing,
stock option (including, without limitation, the granting of stock options,
stock appreciation rights, performance awards or restricted stock awards)
stock purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any directors, officers or key
employees of the Company or any Subsidiary, except in the ordinary course
of business consistent with past practice;
(h) any entry by the Company or any Subsidiary into any employment,
consulting, severance, termination or indemnification agreement with any
director, officer or key employee of the Company or any Subsidiary or any
entry into any such agreement with any other person;
(i) (i) any settlement or compromise by the Company, any Subsidiary
or, to the knowledge of the Company, any Managed Provider of any claim,
litigation or other legal proceeding, other than in the
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ordinary course of business consistent with past practice in an amount not
involving more than $100,000 or (ii) any payment, discharge or satisfaction
by the Company or any Subsidiary of any other claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than (A) in the ordinary course of business and
consistent with past practice or (B) with respect to any other such claims,
liabilities or obligations reflected or reserved against in, or
contemplated by, the consolidated financial statements (or the notes
thereto) of the Company; or
(j) any agreement, in writing or otherwise, by the Company or any
Subsidiary to take any of the actions described in this Section 4.6 or, to
the knowledge of the Company, by any Managed Provider to take any of the
actions described in Sections 4.6(b), (f) or (i), except as expressly
contemplated by this Agreement.
Section 4.7. Litigation. Except as disclosed in Schedule 4.7 hereto, there
are no claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Company, threatened against or involving the Company, any of
its Subsidiaries or any Provider, or any properties or rights of the Company or
any of its Subsidiaries, by or before any Governmental Entity or arbitrator
which (i) might result in the loss of any Authorization (as defined in Section
4.13(a)) necessary to continue the business of any Provider in substantially the
same manner as it has heretofore operated, (ii) might result in the imposition
upon the Company or any Subsidiary of fines, penalties, judgments or other costs
in excess of $100,000 (after giving effect to amounts covered by insurance), or
(iii) are reasonably likely to have a Material Adverse Effect. Except as set
forth in Schedule 4.7, as of the date hereof, neither the Company nor any of its
Subsidiaries or any Provider nor any of their property is subject to any
judgment in excess of $100,000, order, injunction or decree.
Section 4.8. Employee Benefit Plans. (a) (i) Schedule 4.8(a) sets forth a
list of all "employee benefit plans", as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and all other
employee benefit or executive compensation arrangements, perquisite programs or
payroll practices, including, without limitation, any such arrangements or
payroll practices providing severance pay, sick leave, vacation pay, salary
continuation for disability, retirement benefits, deferred compensation, bonus
pay, incentive pay, stock options (including those held by Directors, employees,
and consultants), hospitalization insurance, medical insurance, life insurance,
scholarships or tuition reimbursements, that are maintained by the Company, any
Subsidiary or any entity within the same "controlled group" as the Company or
Subsidiary, within the meaning of Section 4001(a)(14) of ERISA (a "Company ERISA
Affiliate") or to which the Company, any Subsidiary or Company ERISA Affiliate
is obligated to contribute thereunder for current or former employees of the
Company, any Subsidiary or Company ERISA Affiliate (the "Company Employee
Benefit Plans").
(ii) Schedule 4.8(a)(ii) sets forth, with respect to each Option that
is outstanding under the Option Plans as of the date hereof, the name of
the holder of such Option, the number of shares of Company Common Stock
subject to such Option and the exercise price per share of such Option.
(b) Neither the Company, any Subsidiary nor any Company ERISA Affiliate has
an obligation to contribute to any "multiemployer plan", as defined in Section
4001(a)(3) of ERISA that is subject to Title IV of ERISA (a "Multiemployer
Plan"). Neither the Company, any Subsidiary nor any Company ERISA Affiliate has
withdrawn in a complete or partial withdrawal from any Multiemployer Plan, nor
has any of them incurred any liability due to the termination or reorganization
of any Multiemployer Plan.
(c) None of the Company Employee Benefit Plans is a "single employer plan",
as defined in Section 4001(a)(15) of ERISA, that is subject to Title IV of
ERISA. Neither the Company, any Subsidiary nor any Company ERISA Affiliate has
incurred any outstanding liability under Section 4062 of ERISA to the Pension
Benefit Guaranty Corporation or to a trustee appointed under Section 4042 of
ERISA. Neither the Company, any Subsidiary nor any Company ERISA Affiliate has
engaged in any transaction described in Section 4069 of ERISA. Neither the
Company nor any Subsidiary maintains, or is required, either currently or in the
future, to provide medical benefits to employees, former employees or retirees
after their termination of employment, other than pursuant to the Consolidated
Omnibus Budget Reconciliation Act of 1985.
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(d) Except as set forth in Schedule 4.8(d), each Company Employee Benefit
Plan that is intended to qualify under Section 401 of Internal Revenue Code of
1986, as amended (the "Code"), and each trust maintained pursuant thereto, has
been determined to be exempt from federal income taxation under Section 501 of
the Code by the IRS, and, to the Company's knowledge, nothing has occurred with
respect to the operation of any such Company Employee Benefit Plan that would
cause the loss of such qualification or exemption or the imposition of any
material liability, penalty or tax under ERISA or the Code.
(e) All contributions (including all employer contributions and employee
salary reduction contributions) required to have been made under any of the
Company Employee Benefit Plans to any funds or trusts established thereunder or
in connection therewith have been made in all material respects by the due date
thereof.
(f) There has been no material violation of ERISA or the Code with respect
to the filing of applicable reports, documents and notices regarding the Company
Employee Benefit Plans with the Secretary of Labor or the Secretary of the
Treasury or the furnishing of required reports, documents or notices to the
participants or beneficiaries of the Company Employee Benefit Plans.
(g) None of the Company, the Subsidiaries, nor to the Company's knowledge,
the officers of the Company or any of the Subsidiaries or any trustee or
administrator of any Company Employee Benefit Plans, has engaged in a
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) or any other breach of fiduciary responsibility that could subject the
Company, any of the Subsidiaries or any officer of the Company or any of the
Subsidiaries to any material tax or penalty on prohibited transactions imposed
by such Section 4975 or to any material liability under Section 502(i) or (1) of
ERISA.
(h) The Company does not currently have in force any Company-owned life
insurance policies.
(i) Except as set forth in Schedule 4.8(i), neither the Company nor any of
the Subsidiaries is a party to any contract, agreement or other arrangement
which could result in the payment of amounts that could be nondeductible by
reason of Section 162(m) or Section 280G of the Code.
(j) True, correct and complete copies of the following documents, with
respect to each of the Company Benefit Plans, have been delivered or made
available to Parent by the Company: (i) all Company Employee Benefit Plans and
related trust documents, and amendments thereto; (ii) the most recent Forms 5500
and (iii) summary plan descriptions.
(k) There are no pending actions, claims or lawsuits which have been
asserted, instituted or, to the Company's knowledge, threatened, against the
Company Employee Benefit Plans, the assets of any of the trusts under such plans
or the plan sponsor or the plan administrator, or against any fiduciary of the
Company Employee Benefit Plans with respect to the operation of such plans
(other than routine benefit claims).
(l) Except as set forth in Schedule 4.8(l), all Company Employee Benefit
Plans subject to ERISA or the Code have been maintained and administered, in all
material respects, in accordance with their terms and with all provisions of
ERISA and the Code, respectively, (including rules and regulations thereunder)
and other applicable federal and state laws and regulations and all employees
required to be included as participants by the terms of such plans have been
properly included.
Section 4.9. Properties. (a) Except as set forth in Schedule 4.9(a), the
Company and each of the Subsidiaries has good and marketable title to, or a
valid leasehold interest in, all its properties and assets, free and clear of
all liens and other encumbrances. All tangible personal property, fixtures and
equipment which comprise the assets of the Company and the Subsidiaries, or are
otherwise used in connection with its respective businesses, are in a good state
of repair sufficient for normal operation (ordinary wear and tear excepted) and
operating condition.
(b) Schedule 4.9(b) sets forth a true and complete list and description of
(i) all real property and interests in real property owned in fee by the Company
or any Subsidiary ("Owned Real Property") and (ii) each lease or sublease
relating to Leased Real Property (as defined below) that involves annual
expenditures by the Company or any Subsidiary of $100,000 or more (collectively,
the "Company Material Leases").
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(c) Except as set forth in Schedule 4.9(c), there are no violations of any
law, ordinance or regulation (including, without limitation, any building,
planning or zoning law, ordinance or regulation) relating to any of the real
property or interests in real property leased by the Company or any Subsidiary,
as lessee or lessor (the "Leased Real Property"), or relating to any of the
Owned Real Property, or in any case to any buildings or other improvements
thereon (including, without limitation, plumbing, heating, ventilation, air
conditioning, electrical and lighting systems and equipment) which are
reasonably likely to materially and adversely affect the business of any
Proprietary Provider. Except as set forth in Schedule 4.9(c), neither the
Company nor any Subsidiary has assigned its interest under any Company Material
Lease, or subleased all or any part of the space demised thereby, to any third
party.
(d) The Company has, or has caused to be, made available to Parent true and
complete copies of the Company Material Leases and any and all ancillary
documents pertaining thereto (including, but not limited to, all amendments,
consents for alterations and documents recording variations and evidence of
commencement dates and expiration dates). With respect to each of the Company
Material Leases, (i) such lease or sublease is legal, valid, binding,
enforceable and in full force and effect, except to the extent that its
enforceability may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, fraudulent transfer, moratorium or other laws relating to
or affecting creditors' rights generally and by general principles of equity,
(ii) except as otherwise set forth in Schedule 4.9(d), such lease or sublease
will not cease to be legal, valid, binding, enforceable and in full force and
effect on terms identical to those currently in effect as a result of the
consummation of the transactions contemplated by this Agreement, the
Subscription Agreement or the Voting Agreement, nor will the consummation of
such transactions constitute a breach or default under such lease or sublease or
otherwise give the landlord a right to terminate such lease or sublease and
(iii) neither the Company nor any Subsidiary knows of, or has given or received
notice of, any violation or default thereunder (nor, to the knowledge of the
Company, does there exist any condition which with the passage of time or the
giving of notice or both would result in such a violation or default
thereunder).
(e) All improvements on real property constructed by or on behalf of the
Company or any Subsidiary, to the knowledge of the Company, were constructed in
compliance with applicable laws, ordinances and regulations (including, but not
limited to, any building or zoning laws, ordinances and regulations) affecting
such Owned Real Property or Leased Real Property.
Section 4.10. Intellectual Property. (a) Except as set forth in Schedule
4.10, each of the Company and the Subsidiaries owns, or is licensed or otherwise
possesses rights to use all patents, trademarks and service marks (registered or
unregistered), trade names, domain names, computer software and copyrights and
applications and registrations therefor (collectively, the "Intellectual
Property Rights") that are used in the business of the Company and the
Subsidiaries as currently conducted.
(b) Schedule 4.10 sets forth a list of all patents, patent applications,
trademark and service mark applications and registrations, registered copyrights
and material trade names and common law trademarks owned anywhere in the world
by the Company or any of the Subsidiaries.
(c) Schedule 4.10 sets forth a list of all material licensing agreements to
which the Company or any of its Subsidiaries is a party relating to the
ownership or use of the Intellectual Property Rights.
(d) Each of the Company and the Subsidiaries owns or has right to use the
Intellectual Property Rights sufficient to allow it to conduct, and continue to
conduct, its business as currently conducted in all material respects, and the
consummation of the transactions contemplated hereby will not alter or impair
such ability in any respect.
(e) Except as set forth in Schedule 4.10, (i) to the knowledge of the
Company, there are no pending oppositions, cancellations, invalidity
proceedings, interferences or re-examination proceedings with respect to the
Intellectual Property Rights; (ii) neither the Company nor any of the
Subsidiaries has received notice from any other person or entity pertaining to
or challenging the right of the Company or any of its Subsidiaries to use or
register any of the Intellectual Property Rights; and (iii) to the knowledge of
the Company, neither the Company nor any of the Subsidiaries has any pending
claim, and no Person is violating or infringing the rights of the Company and
the Subsidiaries, in connection with the Intellectual Property Rights.
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Section 4.11. Insurance. Schedule 4.11 sets forth a true and complete list
of all insurance policies carried by, or covering the Company and the
Subsidiaries with respect to their businesses, assets and properties, together
with, in respect of each such policy, the name of the insurer, the policy
number, the type of policy, the amount of coverage and the deductible. True and
complete copies of each such policy have previously been made available to
Parent. All such policies are in full force and effect, and no notice of
cancellation has been given with respect to any such policy. All premiums due on
such policies have been paid in a timely manner and the Company and the
Subsidiaries have complied in all material respects with the terms and
provisions of such policies. The insurance coverage provided by such policies is
customary for the industries in which the Company and the Subsidiaries operate.
Section 4.12. Environmental. Except as set forth in Schedule 4.12:
(a) The Company and the Subsidiaries are and have been in compliance
in all material respects with all applicable Environmental Laws, have
obtained all Environmental Permits and are in compliance with their
requirements, and have resolved all past non-compliance of which the
Company is aware with Environmental Laws and Environmental Permits without
any pending, on-going or future obligation, cost or liability.
(b) Neither the Company nor any of the Subsidiaries has (i) placed,
held, located, released, transported or disposed of any Hazardous
Substances on, under, from or at any of the Company's or any of the
Subsidiaries' properties (whether owned, leased or managed) or any other
properties, other than in a manner that could not, in all such cases taken
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect, (ii) any knowledge or reason to know of the
presence or threat of release of any Hazardous Substances on, under or at
any of the Company's or any of the Subsidiaries' properties or any other
property but arising from the Company's or any of the Subsidiaries' current
or former properties or operations, other than in a manner that could not
reasonably be expected to result in a Material Adverse Effect, or (iii)
received any written notice (A) of any violation of or liability under any
Environmental Laws, (B) of the institution or pendency of any suit, action,
claim, proceeding or investigation by any Governmental Entity or any third
party in connection with any such violation or liability, (C) requiring the
response to or remediation of Hazardous Substances at or arising from any
of the Company's or any of the Subsidiaries' current or former properties
or operations or any other properties, (D) alleging noncompliance by the
Company or any of the Subsidiaries with the terms of any Environmental
Permit in any manner reasonably likely to require material expenditures or
to result in material liability or (E) demanding payment for response to or
remediation of Hazardous Substances at or arising from any of the Company's
or any of the Subsidiaries' current or former properties or operations or
any other properties;
(c) No Environmental Law imposes any obligation upon the Company or
the Subsidiaries arising out of or as a condition to any transaction
contemplated by this Agreement, including any requirement to modify or to
transfer any permit or license, any requirement to file any notice or other
submission with any Governmental Entity, the placement of any notice,
acknowledgment or covenant in any land records, or the modification of or
provision of notice under any agreement, consent order or consent decree.
No lien or other encumbrance has been placed upon any of the Company's or
the Subsidiaries' properties (whether owned, leased or managed) under any
Environmental Law;
(d) The Company and the Subsidiaries have made available to Parent
copies of any environmental assessment or audit report (including all
records maintained for required environmental compliance) or other similar
studies or analyses in the possession of the Company or the Subsidiaries
relating to any real property currently or formerly owned, leased, managed
or occupied by the Company or the Subsidiaries.
(e) As used in this Agreement, the following terms have the meanings
set forth below:
(i) "Environmental Law" means any law, now or hereafter in effect
and as amended, and any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent decree
or judgment, relating to pollution or protection of the environment,
health or safety or
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natural resources, including, without limitation, those relating to the
use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Substances.
(ii) "Environmental Permit" means any permit, approval,
identification number, license or other authorization required under any
applicable Environmental Law.
(iii) "Hazardous Substances" means (a) petroleum and petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials and polychlorinated biphenyls, and (b) any
other chemicals, materials or substances regulated as toxic or hazardous
or as a pollutant, contaminant or waste under any applicable
Environmental Law.
Section 4.13. Governmental Authorizations and Regulations. (a) Except as
set forth in Schedule 4.13, the Company and each Subsidiary has complied and are
currently in compliance with each law, ordinance or governmental or regulatory
rule or regulation, whether federal, state, local or foreign to which such
entity's business, operations, assets or properties is subject ("Regulations"),
except for items of non-compliance (i) which were identified on a survey report
with respect to such Provider, are being cured by the applicable Provider
pursuant to a plan of correction accepted by the applicable governmental
authority, and will not result in the loss or suspension of, or other action
affecting, any Authorization (as defined below) of the applicable Provider, (ii)
are not reasonably likely to materially and adversely affect the business of any
Provider, and (iii) which would not, individually or in the aggregate, have a
Material Adverse Effect. Except as set forth in Schedule 4.13, each of the
Company and the Subsidiaries (or, where required under applicable law, to the
knowledge of the Company, the Managed Providers) owns, holds, possesses or
lawfully uses in the operation of its business all applicable Authorizations,
other than Authorizations which (i) are not necessary to continue the operation
of the business of such Provider in substantially the same manner as it
currently operates and has operated heretofore, or (ii) if not owned, held,
possessed or lawfully used by the Company or such Subsidiary (or by the
applicable Managed Provider), would not, individually or in the aggregate, have
a Material Adverse Effect. As used herein, "Authorizations" means all licenses,
permits, certificates of need, qualifications, registrations, certifications,
provider agreements and other authorizations of any governmental authority which
are required under applicable Regulations for a Provider to conduct its business
and obtain payment for services and goods provided by it under the Federal
Medicare program, the state Medicaid program for each state in which such
Provider operates (the "Applicable Medicaid Programs"), and any other
governmental programs for payment of health care services or goods in which such
Provider purports to participate, other than any of the foregoing which are not
material to the business and operations of the relevant Provider, the Company or
any Subsidiary.
Except as set forth in Schedule 4.13, all of the Authorizations owned,
held, possessed or lawfully used by the Company or its Subsidiaries (or, where
required under applicable law, to the knowledge of the Company, the Managed
Providers) are valid and in good standing, non-probationary, non-provisional and
in full force and effect. Except as set forth in Schedule 4.13, none of the
Providers is subject to any governmental restrictions on its operations (e.g.,
due to prior survey deficiencies) which adversely affects the conduct of its
business, other than restrictions which apply to all providers of the services
or goods furnished by such Provider in the relevant jurisdiction. Except as set
forth in Schedule 4.13, there are no actions or proceedings to revoke, withdraw,
terminate or suspend any Authorization, neither the Company nor any of its
Subsidiaries has received any notice or other communication threatening any of
the foregoing (other than notices and communications which have been withdrawn
or otherwise resolved), nor does the Company have any knowledge of any reason
why any Authorization is likely not to be renewed by the applicable governmental
authority in the ordinary course.
(b) Other than as set forth in Schedule 4.13, all claims for payment for
services rendered or products sold or supplied by the Company and its
Subsidiaries which have been made to any third-party payor (including, without
limitation, the Federal Medicare program, the Medicaid programs for the states
in which a Provider operates, and any applicable commercial insurance company,
health maintenance organization or preferred provider organization)
(collectively, "Payors"), have been prepared and filed in accordance with all
applicable Regulations and requirements of the Payor, and all such claims have
been prepared in an accurate and complete manner and timely submitted to the
appropriate Payor, except in each case for items of non-
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compliance (i) which are not reasonably likely to result in the loss of any
Authorization, (ii) are reasonably likely not to materially and adversely affect
the business of any Provider, and (iii) which would not, individually or in the
aggregate, have a Material Adverse Effect. The Company and/or the Subsidiaries
have paid or made provision to pay through proper recordation any net liability
for overpayments received from any Payor and any similar obligations with
respect to any Payor, in compliance with all applicable Regulations and the
requirements of the Payor, except for items of non-compliance (i) which are not
reasonably likely to result in the loss of any Authorization, (ii) are
reasonably likely not to materially and adversely affect the business of any
Provider, and (iii) which would not, individually or in the aggregate, have a
Material Adverse Effect. Without limitation of the foregoing, except as set
forth in Schedule 4.13 hereto neither the Company nor any of its Subsidiaries
has submitted any claim for payment to any Payor in violation of any applicable
Federal, state or local false claim or fraud law or regulation, including
without limitation the Federal False Claims Act, 31 U.S.C. Section 3729.
The Company and its Subsidiaries have made available to Parent or its
counsel true and complete copies of all cost reports requested by same, together
with all relevant schedules, correspondence, notices of program reimbursement,
audit reports, settlement agreements and similar materials relating thereto. The
Company and its Subsidiaries have timely filed all required cost reports with
respect to the Medicare program and each state Medicaid program in which any of
the Providers participates. Schedule 4.13 sets forth for each Provider the years
for which cost reports remain to be settled, specifying the Payor at issue and
the status of the matter, including identification of any pending reimbursement
appeals.
(c) Schedule 4.13 sets forth a complete and accurate statement, for each
Facility (as defined below), of (i) the bed categories for (e.g., nursing beds,
skilled nursing beds, rehabilitation hospital beds) for which such Facility is
licensed or qualified to participate under the Medicare program and the
Applicable 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 February 9, 2000 admitted
in each Facility (A) who as of such date qualify for Medicare and whose stay at
the Facility is being paid for under Part A of the Medicare program, (B) who
qualify for the Applicable Medicaid Program and whose stay at the Facility is
being paid for by the Applicable Medicaid Program, (C) whose stay at the
Facility is being paid for by another governmental Payor (e.g., the Veteran's
Administration or CHAMPUS), and (D) whose stay at the Facility is being paid for
by the patient, the patient's relatives or another non-Payor private party. As
used herein "Facility" means each nursing facility, hospital, assisted living
facility, independent living facility or other inpatient Provider owned, leased
or managed by the Company or its Subsidiaries.
Section 4.14. Condition of Facilities. Except as set forth in Schedule
4.14, 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 structural defects in any
Facility that could adversely affect the operation of such Facility as conducted
presently and in the past.
Section 4.15. Material Contracts. (a) Except as set forth in the SEC
Reports filed prior to the date of this Agreement, in Schedule 4.15 or otherwise
expressly provided in this Agreement, neither the Company nor any of the
Subsidiaries is a party to or bound by:
(i) any "material contract" (as defined in Item 601(b)(10) of
Regulation S-K of the SEC);
(ii) any contract or agreement for the purchase or lease (as lessee)
of materials or personal property from any supplier or for the furnishing
of services to the Company or any Subsidiary that involves or is likely to
involve future aggregate payments by the Company or any of the Subsidiaries
of more than (x) $300,000 or (y) $100,000 in any year;
(iii) any contract or agreement for the sale, license or lease (as
lessor) by the Company or any Subsidiary of services, materials, products,
supplies or other assets, owned or leased by the Company or the
Subsidiaries, that involves or is likely to involve future aggregate
payments to the Company or any of the Subsidiaries of more than (x)
$300,000 or (y) $100,000 in any year
(iv) any contract, agreement or instrument relating to or evidencing
indebtedness for borrowed money of the Company or any Subsidiary;
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(v) any non-competition agreement or any other agreement or obligation
which purports to limit in any respect the manner in which, or the
localities in which, the business of the Company or the Subsidiaries may be
conducted;
(vi) any agreement with any present or former affiliates of the
Company;
(vii) any partnership, joint venture, strategic alliance or
cooperation agreement (or any agreement similar to any of the foregoing);
(viii) any voting or other agreement governing how any Shares shall be
voted;
(ix) any agreement with any shareholders of the Company;
(x) any agreement with any Managed Provider, including without
limitation any such management agreement, employee lease agreement, billing
services agreement, option agreement or evidence of indebtedness; or
(xi) any contract or other agreement which would prohibit or
materially delay the consummation of the Merger or any of the transactions
contemplated by this Agreement.
The foregoing contracts and agreements to which the Company or any Subsidiary
are parties or are bound are collectively referred to herein as "Company
Material Contracts."
(b) Each Company Material Contract is valid and binding on the Company (or,
to the extent a Subsidiary is a party, such Subsidiary) and is in full force and
effect, and the Company and each Subsidiary have performed, in all material
respects, all obligations required to be performed by them to date under each
Company Material Contract, except where such noncompliance, individually or in
the aggregate, would not have a Material Adverse Effect. The Company has, or has
caused to be, made available to Parent or its counsel true and complete copies
of the Company Material Contracts requested by same and any and all ancillary
documents pertaining thereto (including, but not limited to, all amendments and
waivers). Except as otherwise set forth in Schedule 4.15(b), each Company
Material Contract will not cease to be legal, valid, binding, enforceable and in
full force and effect on terms identical to those currently in effect as a
result of the consummation of the transactions contemplated by this Agreement
(except to the extent that its enforceability may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, fraudulent transfer,
moratorium or other laws relating to or affecting creditors' rights generally
and by general principles of equity), nor will the consummation of such
transactions constitute a breach or default under such lease or sublease or
otherwise give the landlord a right to terminate such lease or sublease. Except
as set forth in Schedule 4.15(b), neither the Company nor any Subsidiary knows
of, or has given or received notice of, any violation or default under (nor, to
the knowledge of the Company, does there exist any condition which with the
passage of time or the giving of notice or both would result in such a violation
or default under) any Company Material Contract.
(c) Except as disclosed in the SEC Reports filed prior to the date of this
Agreement or in Schedule 4.15 or as expressly provided for in this Agreement,
neither the Company nor any of the Subsidiaries is a party to any oral or
written (i) employment or consulting agreement that cannot be terminated on
thirty days' or less notice, (ii) agreement with any officer or other key
employee of the Company or any of the Subsidiaries the benefits of which are
contingent or vest, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company or any the Subsidiaries of the
nature contemplated by this Agreement, the Subscription Agreement or the Voting
Agreement, (iii) agreement with respect to any officer or other key employee of
the Company or any of the Subsidiaries providing any term of employment or
compensation guarantee or (iv) stock or stock purchase plan (other than the
Option Plans), any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement, the Subscription Agreement or the
Voting Agreement or the value of any of the benefits of which will be calculated
on the basis of any of such transactions.
Section 4.16. Conduct of Business. Except as set forth in Schedule 4.16,
the business and operations of the Company and the Subsidiaries are not being
conducted in default or violation of any term, condition or provision of (i)
their respective Articles of Incorporation or By-Laws or similar organizational
documents, or
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(ii) any note, bond, mortgage, indenture, contract, agreement, lease or other
instrument or agreement of any kind to which the Company or any of the
Subsidiaries is now a party or by which the Company or any of the Subsidiaries
or any of their respective properties or assets may be bound, except, with
respect to the foregoing clause (ii), defaults or violations that would not,
individually or in the aggregate, have a Material Adverse Effect.
Section 4.17. Fraud and Abuse. Except as set forth in Schedule 4.17,
neither the Company nor any Subsidiary or affiliate thereof or any of their
respective partners, officers and directors, or, to the knowledge of the
Company, any person who provides professional services on behalf of or under
agreements with the Company, any Subsidiary or any affiliate has engaged in any
activities which are prohibited under the federal Medicare or federal or state
Medicaid statutes, including, without limitation, 42 U.S.C. Sections 1320a-7,
1320a-7a and 1320a-7b, the federal CHAMPUS statute, 10 U.S.C. Section 1071 et
seq., the Federal Civil False Claims Act, 31 U.S.C. Section 3729 et seq., or the
regulations promulgated pursuant to such statutes 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, any state Medicaid program, CHAMPUS or any other Federal health
care program (as used herein, such term shall have the meaning specified in
42 U.S.C. Section 1320a-7b(f)) that is for an item or service that is known
or could be known to be (i) not provided as claimed, or (ii) false or
fraudulent;
(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 party by CHAMPUS, Medicare, any state Medicaid program, or any other
Federal health care program, or (ii) in return for purchasing, leasing or
ordering or arranging for or recommending purchasing, leasing or ordering
any good, Provider, service or item for which payment may be made in whole
or in part by CHAMPUS, Medicare, any state Medicaid program or any other
Federal 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 omitting to state a fact required to be stated therein or necessary to
make the statements contained therein not misleading) of a material fact
with respect to (i) the conditions or operations of a Provider in order
that the Provider may qualify for certification under CHAMPUS, Medicare, a
state Medicaid program or another Federal health care program, or (ii)
information required to be provided under Section 1124A of the Social
Security Act (42 U.S.C. Section 1320a-3).
Section 4.18. Health Professional's Financial Relationships; Disqualified
Individuals. (a) The operations of the Company and the Subsidiaries are and at
all times have been in compliance with all applicable Regulations regarding
health professional self-referrals, including without limitation 42 U.S.C.
Section 1395nn (commonly known as the "Stark Statute") and 42 U.S.C. Section
1396b.
(b) Except as set forth in Schedule 4.18, none of the Company, any of its
Subsidiaries or, to the knowledge of the Company, any Managed Provider, nor
their respective officers, directors, trustees, partners, members, managers,
employees or contractors, has been charged with or convicted of any Medicare,
Medicaid or other Federal health care program-related offense, or has been
debarred, excluded or suspended from participation in Medicare, Medicaid or any
other Federal health care program, or is currently listed on the
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General Services Administration list of parties excluded from Federal
procurement programs and non-procurement programs. Except as set forth in
Schedule 4.18, to the knowledge of the Company and its Subsidiaries, none of the
Company, any of its Subsidiaries or any Managed Provider, nor their respective
officers, directors, trustees, partners, members, managers, employees or
contractors, has been investigated for any Medicare, Medicaid or other Federal
health care program-related offense, or is currently under sanction, exclusion
or investigation (civil or criminal) by any Federal or state enforcement,
regulatory, administrative or licensing authority.
Section 4.19. Taxes. (a) Except as set forth in Schedule 4.19, all Tax
Returns (as defined below) by or on behalf of the Company or any Subsidiary or
any affiliated, combined or unitary group of which the Company or any Subsidiary
is or was a member have been duly and timely filed with the appropriate taxing
authorities and were, in all material respects, true, complete and correct.
(b) Except as set forth in Schedule 4.19, the Company and each Subsidiary
has paid to the appropriate taxing authority on its behalf, within the time and
in the manner prescribed by law, all material Taxes (as defined below) for which
it is liable.
(c) The Company and each Subsidiary has established on its books and
records adequate reserves for the payment of all Taxes for which it is liable
which are not yet due and payable, and with respect to any such Taxes which have
been proposed, assessed or asserted against them.
(d) The Company and each Subsidiary has complied in all respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes for which it is liable (including, without limitation, withholding of
such Taxes pursuant to sections 1441 and 1442 of the Code or similar provisions
under any state, local or foreign laws, and has, within the time and in the
manner prescribed by law, withheld and paid over to the appropriate taxing
authorities all amounts required to be so withheld and paid over under all
applicable domestic and foreign laws.
(e) Except as set forth in Schedule 4.19, neither the Company nor any
Subsidiary has requested any extension of time within which to file any Tax
Return in respect of any taxable year, which Tax Return has not since been
filed.
(f) Except as set forth in Schedule 4.19, there are no outstanding waivers
or comparable consents that have been given by the Company or any Subsidiary or
with respect to any Tax Return of the Company or any Subsidiary regarding the
application of any statute of limitations with respect to any Taxes or Tax
Returns of the Company or any such Subsidiary.
(g) Except as set forth in Schedule 4.19 (which shall set forth the nature
of the proceeding, the type of return, the deficiencies claimed, asserted,
proposed or assessed and the amount thereof, and the taxable year in question),
no United States federal, state, local or foreign audits, investigations, other
administrative proceedings or court proceedings are presently pending against
the Company or any Subsidiary that could materially affect the liability for
Taxes of the Company or any Subsidiary or against the Company or any Subsidiary
with regard to any Taxes or Tax Returns of the Company or any Subsidiary and no
notification has been received by the Company or any Subsidiary that such an
audit, investigation or other proceeding is pending or threatened.
(h) The Company and each Subsidiary (i)are members of an affiliated group
of corporations within the meaning of section 1504(a) of the Code; and such
affiliated group filed a consolidated return with respect to United States
federal income taxes and (ii) neither the Company nor any Subsidiary has
liability for the Taxes of any person (other than members of the affiliated
group described in clause (i) of this Section 4.19(h)) under Treasury
Regulations section 1.1502-6 (or a similar or corresponding provision of state,
local, or foreign law);
(i) Except as set forth in Schedule 4.19, there are no encumbrances for
Taxes upon the assets or properties of the Company or any Subsidiary except for
statutory encumbrances for Taxes not yet due.
(j) Neither the Company or any Subsidiary is a party to, is bound by or has
an obligation under any Tax sharing agreement, Tax indemnification agreement,
Tax allocation agreement or similar contract or arrange-
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ment (including any agreement, contract or arrangement providing for the sharing
or ceding of credits or losses) or has a potential liability or obligation to
any person as a result of or pursuant to any such agreement, contract,
arrangement or commitment.
(k) Except as set forth in Schedule 4.19, neither the Company nor any
Subsidiary is a party to any agreement, plan, contract or arrangement that would
result, individually or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of section 280G of the Code or similar
provision or other law.
(l) Except as set forth in Schedule 4.19, no jurisdiction where the Company
or any Subsidiary has not filed a Tax Return has made a claim that the Company
or such Subsidiary is required to file a Tax Return in such jurisdiction.
(m) The Company and each Subsidiary have previously delivered or made
available to Purchaser complete and accurate copies of each of (i) all audit
reports, letter rulings and technical advice memoranda relating to United States
federal, state, local or foreign Taxes due with respect to the income or
business of the Company or any Subsidiary, (ii) all income Tax Returns filed
with any taxing authority (or the relevant portions of any combined,
consolidated, or unitary Tax Return filed in any jurisdiction of which the
Company or any Subsidiary is a member, including, without limitation,
information relating to the computation of taxable income) filed by or on behalf
of the Company or any Subsidiary in the last six years, (iii) any closing
agreement, settlement agreement or similar agreement or arrangement entered into
by or on behalf of the Company or any Subsidiary with any taxing authority, and
(iv) any Tax sharing agreement, Tax indemnification agreement or similar
contract or arrangement entered into by or on behalf of the Company or any
Subsidiary.
(n) For purposes of this Agreement, "Taxes" shall mean all taxes, charges,
fees, levies or other assessments, including, without limitation, all net
income, gross income, gross receipts, sales, use, AD VALOREM, goods and
services, capital, transfer, franchise, profits, license, withholding, payroll,
employment, employer health, excise, severance, stamp, occupation, real and
personal property, social security, estimated, recording, gift, value assessed,
windfall profits or other taxes, customs duties, fees, assessments or charges of
any kind whatsoever, whether computed on a separate, consolidated, unitary,
combined or other basis, together with any interest, fines, penalties, additions
to tax or other additional amounts imposed by any taxing authority (domestic or
foreign). For purposes of this Agreement, "Tax Return" shall mean any return,
declaration, report, estimate, information or other document (including any
documents, statements or schedules attached thereto) required to be filed with
any federal, state, local or foreign tax authority with respect to Taxes.
Section 4.20. Labor Relations. Except as set forth in the SEC Reports or
Schedule 4.20: (i) each of the Company and the Subsidiaries is, and has at all
times been, in material compliance with all applicable laws, rules, regulations
and orders respecting employment and employment practices, terms and conditions
of employment, wages, hours or work and occupational safety and health, and is
not engaged in any unfair labor practices as defined in the National Labor
Relations Act or other applicable law; (ii) there is no labor grievance,
arbitration, strike, slowdown, stoppage or lockout pending, or, to the knowledge
of the Company, threatened against or affecting the Company or any of the
Subsidiaries; (iii) neither the Company nor any of its Subsidiaries is a party
to or bound by any collective bargaining or similar agreement with any union or
other labor organization or is engaged in any labor negotiations with any labor
union; (iv) there are no proceedings pending between the Company and any of the
Subsidiaries or any of their respective employees before any federal or state
agency; and (v) to the knowledge of the Company, there are no activities or
proceedings of any labor union to organize any non-union employees of the
Company or any of the Subsidiaries.
Section 4.21. Transactions with Affiliates. Except as disclosed in
Schedule 4.21 or the SEC reports filed prior to the date of this Agreement, no
present or former affiliate of the Company has, or since December 31, 1998 has
had, (i) any interest in any property (whether real, personal or mixed and
whether tangible or intangible) used in or pertaining to any of the businesses
of the Company or any of the Subsidiaries, (ii) has had business dealings or a
material financial interest in any transaction with the Company or any of the
Subsidiaries (other than compensation and benefits received in the ordinary
course of
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business as an employee or director of the Company or any of the Subsidiaries)
or (iii) an equity interest or any other financial or profit interest in any
Person that has had business dealings or a material financial interest in any
transaction with the Company or any of the Subsidiaries.
Section 4.22. Offer Documents; Proxy Statement. The Schedule 14D-9 and the
Schedule 13E-3 will comply in all material respects with the Exchange Act and
the rules and regulations thereunder. Neither the Schedule 14D-9, the Schedule
13E-3 nor any of the information relating to the Company or its affiliates
provided by or on behalf of the Company specifically for inclusion in the
Schedule TO, the Schedule 13E-3 or the Offer Documents will, at the respective
times the Schedule 14D-9, the Schedule TO and the Offer Documents or any
amendments or supplements thereto are filed with the SEC and are first
published, sent or given to shareholders of the Company, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. No
representation is made by the Company with respect to written information
supplied by Parent or Purchaser specifically for inclusion in the Schedule 14D-9
or the Schedule 13E-3. The proxy statement to be sent to the shareholders of the
Company in connection with the meeting of the Company's shareholders to consider
the Merger (the "Company Shareholders' Meeting") or the information statement to
be sent to such shareholders, as appropriate (such proxy statement or
information statement, as amended or supplemented, is herein referred to as the
"Proxy Statement"), will comply in all material respects with the applicable
requirements of the Exchange Act and the rules and regulations thereunder,
except that no representation or warranty is being made by the Company with
respect to Parent Information. The Proxy Statement will not, at the time the
Proxy Statement (or any amendment or supplement thereto) is filed with the SEC
or first sent to shareholders, at the time of the Company Shareholders Meeting
or at the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
Section 4.23. Brokers. No broker, finder or investment banker (other than
SunTrust Equitable Securities and J.P. Morgan) is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf of
the Company. The Company has heretofore furnished to Parent true and complete
copies of all agreements and other arrangements between the Company and SunTrust
Equitable Securities and J.P. Morgan.
Section 4.24. Control Share Acquisition. Neither Parts 2 nor 3 of Article
11 of the Georgia Code nor any other "fair price", "moratorium", "control share
acquisition", "interested shareholder" or similar antitakeover statute or
regulation enacted under Georgia law applicable to the Company or any of its
Subsidiaries is applicable to the Offer, the Merger, this Agreement, the
Subscription Agreement or the Voting Agreement or any of the transactions
contemplated by this Agreement, the Subscription Agreement or the Voting
Agreement.
Section 4.25. Y2K Compliance. Except as set forth in the SEC Reports, all
items, products, software, components and systems used in and material to the
operation of the business of the Company and the Subsidiaries, which incorporate
the processing of dates or date-related data (including, but not limited to,
representing, calculating, comparing and sequencing), including, but not limited
to, computer systems, infrastructure items, software applications, hardware and
related equipment and utilities, developed, in whole or part, by the Company or
any of the Subsidiaries are currently Y2K-compliant. Except as set forth in
Schedule 4.22, the Company has obtained commitments that all vendors that are
material to the Company and the Subsidiaries are Y2K-compliant.
Section 4.26. Disclosure. No representation or warranty by the Company in
this Agreement and no statement contained in any document (including, without
limitation, the Schedules hereto), certificate, or other writing furnished or to
be furnished by the Company to Parent pursuant to the provisions hereof or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of material facts or omits or will omit to state any
material fact necessary, in light of the circumstances under which it was made,
in order to make the statements herein or therein not misleading.
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ARTICLE V.
CONDUCT OF BUSINESS PENDING THE MERGER
Section 5.1. Conduct of Business by the Company Pending the Closing. From
the date of this Agreement to the Effective Time, except as expressly
contemplated by this Agreement, the Company shall, and shall cause each of the
Subsidiaries to (i) carry on its respective businesses in the ordinary course,
(ii) use all reasonable best efforts to preserve intact its current business
organizations and keep available the services of its current officers and key
employees, (iii) use all reasonable best efforts to preserve its relationships
with customers, suppliers, third party payors and other Persons with which it
has business dealings, (iv) comply in all material respects with all laws and
regulations applicable to it or any of its properties, assets or business and
(v) maintain in full force and effect all Authorizations necessary for such
business. Without limiting the generality of the foregoing, except as (x)
expressly contemplated by this Agreement or (y) set forth in Schedule 5.1, the
Company shall not, and shall cause each of the Subsidiaries not to:
(a) amend its Articles of Incorporation or By-Laws or similar
organizational documents or change the number of directors constituting its
entire board of directors;
(b) (i)(A) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock or other equity interests, except that a wholly owned Subsidiary may
declare and pay a dividend or make advances to its parent or the Company or
(B) redeem, purchase or otherwise acquire, directly or indirectly, any of
its capital stock or other securities; (ii) issue, sell, pledge, dispose of
or encumber any (A) additional shares of its capital stock or other equity
interests, (B) securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares
of its capital stock or other equity interests, or (C) of its other
securities, other than Shares issued upon the exercise of Options
outstanding on the date hereof in accordance with the Option Plans as in
effect on the date hereof; or (iii) split, combine or reclassify any of its
outstanding capital stock or other equity interests;
(c) acquire or agree to acquire (A) by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof (including
entities which are Subsidiaries) or (B) any assets, including real estate,
in excess of $100,000, except purchases in the ordinary course of business
consistent with past practice;
(d) authorize or make any single capital expenditure in excess of
$50,000 or capital expenditures in excess of $500,000 in the aggregate;
(e) except in the ordinary course of business, amend or terminate any
Company Material Contract, or waive, release or assign any material rights
or claims;
(f) transfer, lease, license, sell, mortgage, pledge, dispose of, or
encumber any property or assets other than in the ordinary course of
business and consistent with past practice;
(g) (i) enter into or amend any employment or severance agreement with
or, except in accordance with the existing policies of the Company, grant
any severance or termination pay to any officer, director or key employee
of the Company or any Subsidiary; or (ii) hire or agree to hire any new or
additional key employees or officers;
(h) except as required to comply with applicable law, (A) adopt, enter
into, terminate, amend or increase the amount or accelerate the payment or
vesting of any benefit or award or amount payable under any Company
Employee Benefit Plan or other arrangement for the current or future
benefit or welfare of any director, officer or current or former employee,
(B) increase in any manner the compensation or fringe benefits of, or pay
any bonus to, any director, officer or, other than in the ordinary course
of business consistent with past practice, employee, (C) pay any benefit
not provided for under any Benefit Plan, (D) grant any awards under any
bonus, incentive, performance or other compensation plan or arrangement or
Company Employee Benefit Plan (including the grant of stock options, stock
appreciation rights, stock based or stock related awards, performance units
or restricted stock, or the
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removal of existing restrictions in any Company Employee Benefit Plans or
agreements or awards made thereunder) or (E) take any action to fund or in
any other way secure the payment of compensation or benefits under any
employee plan, agreement, contract or arrangement or Company Employee
Benefit Plan;
(i) (i) incur or assume any long-term debt, or except in the ordinary
course of business in amounts consistent with past practice, incur or
assume any short-term indebtedness; (ii) incur or modify any material
indebtedness or other liability; (iii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other Person, except in the ordinary
course of business and consistent with past practice; (iv) make any loans,
advances or capital contributions to, or investments in, any other Person
(other than to wholly owned Subsidiaries or customary loans or advances to
employees in accordance with past practice); (v) settle any claims other
than in the ordinary course of business, in accordance with past practice,
and without admission of liability; or (vi) enter into any material
commitment or transaction;
(j) make, revoke or change the accounting methods, including
accounting methods with respect to Taxes, used by it unless required by
generally accepted accounting principles;
(k) make any Tax election or settle or compromise any Tax liability;
(l) (i) settle or compromise any claim, litigation or other legal
proceeding, other than in the ordinary course of business consistent with
past practice in an amount not involving more than $100,000 or (ii) pay,
discharge or satisfy any other claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction of (A) any such other claims,
liabilities or obligations, in the ordinary course of business and
consistent with past practice, or (B) of any such other claims, liabilities
or obligations reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) of the Company;
(m) except in the ordinary course of business consistent with past
practice, waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or
any Subsidiary is a party;
(n) permit any insurance policy naming the Company or any Subsidiary
as a beneficiary or a loss payable payee to be canceled or terminated
without notice to Parent, except in the ordinary course of business and
consistent with past practice;
(o) take or omit to take any action which would make any of the
representations or warranties of the Company contained in this Agreement
untrue and incorrect in any material respect as of the date when made if
such action had then been taken or omitted, or would result in any of the
conditions set forth in Annex I hereto or the conditions set forth in
Article VII hereof not being satisfied; or
(p) enter into an agreement, contract, commitment or arrangement to do
any of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing.
Section 5.2. No Solicitation. (a) The Company shall not, and it shall
cause the Subsidiaries and the officers, directors, employees, agents and
representatives of the Company or any of the Subsidiaries (collectively, the
Company Representatives) not to, (i) solicit or initiate, or encourage, directly
or indirectly, any inquiries regarding or the submission of, any Takeover
Proposal (as defined below), (ii) participate in any discussions or negotiations
regarding, or furnish to any Person any information or data with respect to, or
take any other action to knowingly facilitate the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Takeover Proposal or
(iii) enter into any agreement with respect to any Takeover Proposal or approve
or resolve to approve any Takeover Proposal; PROVIDED, HOWEVER, that nothing
contained in this Section 5.2 or any other provision hereof shall prohibit the
Company or the Board of Directors from (A) taking and disclosing to the
Company's shareholders a position with respect to a tender or exchange offer by
a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange
Act or (B) making such disclosure to the Company's shareholders as, in the good
faith judgment of the Board of Directors, after receiving advice from outside
counsel, is required under applicable law, provided that the
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Company may not, except as permitted by Section 5.2(b), withdraw or modify, or
propose to withdraw or modify, its approval or recommendation of this Agreement,
the Subscription Agreement or the Voting Agreement or the transactions
contemplated hereby or thereby, including the Offer or the Merger, or approve or
recommend, or propose to approve or recommend any Takeover Proposal, or enter
into any agreement with respect to any Takeover Proposal. Upon execution of this
Agreement, the Company shall, and it shall cause the Company Representatives to,
immediately cease any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing, and it shall
promptly request that each Person who has heretofore executed a confidentiality
agreement in connection with such Person's consideration of a Takeover Proposal
return all confidential information heretofore furnished to such Person by or on
behalf of the Company. Notwithstanding the foregoing, prior to the time of
acceptance of Shares for payment pursuant to the Offer, the Company may furnish
information concerning its business, properties or assets to any Person or group
pursuant to confidentiality agreements with terms and conditions similar to the
Confidentiality Agreement, dated April 27, 1999 (the "Confidentiality
Agreement"), between the Company and E.M. Warburg, Pincus & Co., LLC ("Warburg")
(provided that such confidentiality agreements may not include any provision
granting any such Person or group an exclusive right to negotiate with the
Company), and may negotiate and participate in discussions and negotiations with
such Person or group concerning a Takeover Proposal if: (x) such Person or group
has submitted an unsolicited bona fide written proposal which is, or is
reasonably likely to result in, a Superior Proposal; and (y) the Board of
Directors determines in good faith, based upon advice of outside counsel, that
such action is required to discharge the Board's fiduciary duties to the
Company's shareholders under the Georgia Code. 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.
The Company will promptly notify Parent of the existence of any proposal,
discussion, negotiation or inquiry received by the Company, and the Company will
immediately communicate to Parent the terms of any proposal, discussion,
negotiation or inquiry which it may receive (and will promptly provide to Parent
copies of any written materials received by the Company in connection with such
proposal, discussion, negotiation or inquiry) and the identity of the Person
making such proposal or inquiry or engaging in such discussion or negotiation.
The Company will promptly provide to Parent any non-public information
concerning the Company provided to any other Person which was not previously
provided to Parent. The Company will keep Parent fully informed of the status
and details (including amendments or proposed amendments) to any such Takeover
Proposal.
As used in this Agreement, the following terms have the meanings set forth
below:
"Superior Proposal" means an unsolicited bona fide written proposal by a
Third Party to acquire, directly or indirectly, for consideration consisting
solely of cash and/or marketable securities, all the Shares then outstanding or
all or substantially all of the assets of the Company, and (i) otherwise on
terms which the Board of Directors determines in good faith to be more favorable
to the Company's shareholders than the Offer and the Merger (based on a written
opinion of the Company's independent financial advisor that the value of the
consideration provided for in such proposal exceeds the value of the
consideration provided for in the Offer and the Merger), (ii) for which
financing, to the extent required, is then committed, (iii) which, in the good
faith reasonable judgment of the Board of Directors of the Company, is
reasonably likely to be consummated without undue delay and (iv) which is
subject to no more conditions than those set forth in Annex I hereto.
"Takeover Proposal" means any inquiry, proposal or offer, whether in
writing or otherwise, from a Third Party to acquire beneficial ownership (as
determined under Rule 13d-3 of the Exchange Act) of all or a material portion of
the assets of the Company or any of its Subsidiaries or 15% or more of any class
of equity securities of the Company or any of the Subsidiaries pursuant to a
merger, consolidation or other business combination, sale of shares of capital
stock, sale of assets, tender offer, exchange offer or similar transaction with
respect to either the Company or any of the Subsidiaries, including any single
or multi-step transaction or series of related transactions, which is structured
to permit such Third Party to acquire beneficial ownership of any material
portion of the assets of, or 15% or more of the equity interest in either the
Company or any of the Subsidiaries.
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"Third Party" means any Person or group other than Parent, Purchaser or any
affiliate thereof.
(b) Except as set forth in this Section 5.2(b), neither the Board of
Directors nor any committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent or Purchaser, the approval or
recommendation by the Board of Directors or any such committee of this
Agreement, the Subscription Agreement or the Voting Agreement or the
transactions contemplated hereby or thereby, including the Offer or the Merger,
(ii) approve or recommend, or propose to approve or recommend, any Takeover
Proposal or (iii) enter into any agreement with respect to any Takeover
Proposal. Notwithstanding the foregoing, prior to the time of acceptance for
payment of Shares pursuant to the Offer, the Board of Directors may withdraw or
modify its approval or recommendation of this Agreement or the Subscription
Agreement or the transactions contemplated hereby or thereby, including the
Offer or the Merger, approve or recommend a Superior Proposal, or enter into an
agreement with respect to a Superior Proposal, in each case if (A) the Company
shall have received a Superior Proposal which is pending at the time the Company
determines to take such action, (B) the Board of Directors shall have determined
in good faith, based upon advice of outside counsel, that such action is
required to discharge the Board of Director's fiduciary duties to the Company's
stockholders under the Georgia Code, (C) at least five business days shall have
passed following Parent's receipt of written notice from the Company advising
Parent that the Board of Directors has received a Superior Proposal which it
intends to accept, specifying the material terms and conditions of such Superior
Proposal, identifying the Person making such Superior Proposal, but only if the
Company shall have caused its financial and legal advisors to negotiate in good
faith with Parent to make such adjustments to the terms and conditions of this
Agreement as would enable the Company to proceed with the transactions
contemplated herein on such adjusted terms and (D) concurrently with taking such
action the Company shall have terminated this Agreement pursuant to and in
accordance with Section 8.1(c)(i) hereof.
ARTICLE VI.
ADDITIONAL AGREEMENTS
Section 6.1. Proxy Statement. As promptly as practicable after the
consummation of the Offer and if required by the Exchange Act, the Company shall
prepare and file with the SEC, and shall use all reasonable efforts to have
cleared by the SEC, and promptly thereafter shall mail to shareholders, the
Proxy Statement. The Proxy Statement shall contain the recommendation of the
Board of Directors that the Company's shareholders approve this Agreement and
the Merger. Parent will cooperate with the Company in preparing such Proxy
Statement.
Section 6.2. Meeting of Shareholders of the Company. Following the
consummation of the Offer, the Company shall promptly take all action necessary
in accordance with the Georgia Code and its Articles of Incorporation and
By-Laws to convene the Company Shareholders' Meeting, if such meeting is
required. The shareholder vote required for approval of the Merger will be no
greater than that set forth in the Georgia Code. The Company shall use its best
efforts to solicit from shareholders of the Company proxies in favor of the
Merger and shall take all other action necessary or, in the reasonable opinion
of Parent, advisable to secure any vote of shareholders required by the Georgia
Code to effect the Merger. Notwithstanding the foregoing, if Purchaser or any
other subsidiary of Parent shall acquire at least 90 percent of the outstanding
Shares on a fully diluted basis, and provided that the conditions set forth in
Article VII shall have been satisfied or waived, the Company shall, at the
request of Parent, take all necessary and appropriate action to cause the Merger
to become effective as soon as practicable after such acquisition, without the
approval of the shareholders of the Company, in accordance with Section
14-2-1104 of the Georgia Code.
Section 6.3. Compliance with Law. Each of the Company, Parent and
Purchaser will comply in all material respects with all applicable laws and with
all applicable rules and regulations of any Governmental Entity in connection
with its execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
Section 6.4. Notification of Certain Matters. The Company shall give
prompt notice to Parent of (i) the occurrence, or non-occurrence of any event
whose occurrence, or non-occurrence would be likely to
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cause either (A) any representation or warranty contained in this Agreement to
be untrue or inaccurate in any respect at any time from the date hereof to the
Effective Time or (B) any condition set forth in Annex I to be unsatisfied in
any material respect at any time from the date hereof to the date Parent
purchases Shares pursuant to the Offer and (ii) any failure of the Company, or
any of its officers, directors, employees or agents, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 6.4 shall not limit or otherwise affect the remedies available hereunder
to Parent.
Section 6.5. Access to Information. From the date hereof to the Effective
Time, the Company shall, and shall cause its Subsidiaries, officers, directors,
employees, auditors and agents to, afford the officers, employees and agents of
Parent and Purchaser reasonable access at all reasonable times to its officers,
employees, agents, properties, offices and other facilities and to all books and
records, and shall promptly furnish Parent and Purchaser with (a) all financial,
operating and other data and information as Parent or Purchaser, through its
officers, employees or agents, may reasonably request and (b) a copy of each
report, schedule and other document filed or received by the Company or any of
the Subsidiaries during such period pursuant to the requirements of applicable
securities laws.
Section 6.6. Public Announcements. So long as this Agreement is in effect,
Parent and the Company shall consult with each other before issuing any press
release or otherwise making any public statements with respect to the Offer or
the Merger and shall not issue, or permit their affiliates to issue, any such
press release or make any such public statement before such consultation, except
as may be required by law. Notwithstanding the foregoing, the Company may issue
a press release describing Section 5.2 of this Agreement in a form approved by
Parent prior to its issue.
Section 6.7. Reasonable Best Efforts; Cooperation. Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use all
reasonable best efforts to obtain in a timely manner all necessary waivers,
consents and approvals and to effect all necessary registrations and filings,
and to use all reasonable best efforts to take, or cause to be taken, all other
actions and to do, or cause to be done, all other things necessary, proper or
advisable to cause all conditions to the Offer to be satisfied and to consummate
and make effective as promptly as practicable the transactions contemplated by
this Agreement, including, without limitation, (i) cooperating in responding to
inquiries from, and making presentations to, regulatory authorities and (ii)
defending against and responding to any action, suit, proceeding, or
investigation, whether judicial or administrative, challenging or relating to
this Agreement, the Subscription Agreement or the Voting Agreement or the
transactions contemplated hereby or thereby, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed. Notwithstanding anything herein to the contrary, in
connection with any filing or submission or other action required to be made or
taken by any party to effect the Merger and all other transactions contemplated
hereby, the Company shall not, without the prior written consent of Parent,
commit to any divestiture transaction, and Parent shall not be required to
divest or hold separate or otherwise take or commence to take any action that,
in the reasonable discretion of Parent, limits its freedom of action with
respect to, or its ability to retain, the Company or any of Parent's affiliates
or any material portion of the Company's assets or such affiliates' assets.
Section 6.8. Agreement to Defend and Indemnify. (a) It is understood and
agreed that, subject to the limitations on indemnification contained in the
Georgia Code, the Company shall, to the fullest extent permitted under
applicable law and regardless of whether the Merger becomes effective, indemnify
and hold harmless, and after the Effective Time, the Surviving Corporation shall
for a period of six years following the Effective Time, to the fullest extent
permitted under applicable law, indemnify and hold harmless, each director,
officer, employee, fiduciary and agent of the Company or any Subsidiary and
their respective subsidiaries and affiliates including, without limitation,
officers and directors serving as such on the date hereof (collectively, the
"Indemnified Parties") against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages, liabilities and
amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation arising out of or pertaining to any of the
transactions contemplated hereby, including without limitation liabilities
arising under the Securities Act or the Exchange Act in connection with the
Offer or the Merger, and in the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) the Company or the Surviving
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Corporation shall pay the reasonable fees and expenses of counsel selected by
the Indemnified Parties, which counsel shall be reasonably satisfactory to the
Company or the Surviving Corporation, promptly as statements therefor are
received, and (ii) the Company and the Surviving Corporation will cooperate in
the defense of any such matter; PROVIDED, HOWEVER, that neither the Company nor
the Surviving Corporation shall be liable for any settlement effected without
its prior written consent (which consent shall not be unreasonably withheld);
and PROVIDED FURTHER, that neither the Company nor the Surviving Corporation
shall be obliged pursuant to this Section 6.8 to pay the fees and disbursements
of more than one counsel for all Indemnified Parties in any single action except
to the extent that, in the opinion of counsel for the Indemnified Parties, two
or more of such Indemnified Parties have conflicting interests in the outcome of
such action. For two years after the Effective Time, the Surviving Corporation
shall be required to maintain or obtain officers' and directors' liability
insurance covering the Indemnified Parties who are currently covered by the
Company's officers and directors liability insurance policy on terms not less
favorable than those in effect on the date hereof in terms of coverage and
amounts; PROVIDED, HOWEVER, that if the aggregate annual premiums for such
insurance at any time during such period exceed the per annum rate of premium
paid by the Company for such insurance as of the date of this Agreement, then
the Surviving Corporation shall provide the maximum coverage that will then be
available at an annual premium equal to 150% of such per annum rate as of the
date of this Agreement. The Surviving Corporation shall continue in effect the
indemnification provisions currently provided by the Third Amended and Restated
Articles of Incorporation and By-Laws of the Company for a period of not less
than six years following the Effective Time. This Section 6.8 shall survive the
consummation of the Merger. Notwithstanding anything in this Section 6.8 to the
contrary, neither the Company nor the Surviving Corporation shall have any
obligation under this Section 6.8 to indemnify any Indemnified Party against any
cost, expense, judgment, fine, loss, claim, damage, liability or settlement
amount found to have resulted solely from such Indemnified Person's own gross
negligence or willful misconduct. This covenant shall survive any termination of
this Agreement pursuant to Section 8.1 hereof. Notwithstanding Section 9.7
hereof, this Section 6.8 is intended to be for the benefit of and to grant
third-party rights to Indemnified Parties whether or not parties to this
Agreement, and each of the Indemnified Parties shall be entitled to enforce the
covenants contained herein.
(b) If the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
Person, then and in each such case, proper provision shall be made so that the
successors and assigns of the Surviving Corporation assume the obligations set
forth in this Section 6.8.
Section 6.9. State Takeover Laws. If any state takeover statute or other
similar statute or regulation becomes or is deemed to become applicable to the
Offer, the Merger, this Agreement, the Subscription Agreement or the Voting
Agreement or any of the transactions contemplated by this Agreement, the
Subscription Agreement or the Voting Agreement, the Company shall promptly take
all reasonable action necessary to render such statute or regulation
inapplicable to all of the foregoing.
ARTICLE VII.
CONDITIONS OF MERGER
Section 7.1. Conditions for Each Party's Obligations to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Effective Time of the following
conditions:
(a) Purchaser shall have made, or caused to be made, the Offer and
shall have purchased, or caused to be purchased, the Shares pursuant to the
Offer;
(b) The Merger and this Agreement shall have been approved and adopted
by the requisite vote of the shareholders of the Company, if required by
the Georgia Code or the Company's Third Amended and Restated Articles of
Incorporation;
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(c) No statute, rule, regulation, judgment, writ, decree, order or
injunction shall have been promulgated, enacted, entered or enforced, and
no other action shall have been taken, by any Governmental Entity that in
any of the foregoing cases has the effect of making illegal or directly or
indirectly restraining, prohibiting or restricting the consummation of the
Merger; and
(d) Any waiting period applicable to the Merger under the HSR Act
shall have expired or have been terminated.
Section 7.2. Conditions for Obligations of Parent and Purchaser. The
obligations of Parent and Purchaser to effect the Merger shall be further
subject to the satisfaction on or prior to the Effective Time of the following
additional conditions:
(a) The representations and warranties of the Company set forth in
this Agreement that are qualified by reference to materiality or a Material
Adverse Effect shall be true and correct, and any such representations and
warranties that are not so qualified shall be true and correct in all
material respects, in each case as if such representations and warranties
were made at the Effective Time;
(b) The Company shall have performed in all material respects all
obligations and complied in all material respects with all agreements and
covenants of the Company to be performed or complied with by it under this
Agreement at or prior to the Effective Time; and
(c) All governmental consents, orders and approvals required for the
consummation of the Merger (including, without limitation, all such
consents, orders and approvals as are necessary to prevent any
Authorization from being revoked, suspended or otherwise adversely
affected, and to prevent any penalty from being imposed) shall have been
obtained and shall be in effect.
Section 7.3. Conditions for Obligations of the Company. The obligations of
the Company to effect the Merger shall be further subject to the satisfaction on
or prior to the Effective Time of the following additional conditions:
(a) The representations and warranties of Parent and Purchaser set
forth in this Agreement that are qualified by reference to materiality or a
Material Adverse Effect shall be true and correct, and any such
representations and warranties that are not so qualified shall be true and
correct in all material respects, in each case as if such representations
and warranties were made at the Effective Time; and
(b) Parent and Purchaser shall have performed in all material respects
all obligations and complied in all material respects with all agreements
and covenants of each of Parent and Purchaser to be performed or complied
with by it under this Agreement at or prior to the Effective Time.
ARTICLE VIII.
TERMINATION, AMENDMENT AND WAIVER
Section 8.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after approval of matters presented in connection with the Merger by the
shareholders of the Company:
(a) By the mutual written consent of Parent and the Company; or
(b) By either of Parent or the Company if any Governmental Entity
shall have issued an order, decree or ruling or taken any other action
(which order, decree or ruling or other action each party hereto shall use
its reasonable best efforts to have vacated or reversed), in each case
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling
or other action shall have become final and non-appealable.
(c) By the Company:
(i) if the Company has approved a Superior Proposal in accordance
with Section 5.2(b), provided the Company has complied with all
provisions thereof, including the notice provisions
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therein, and that it makes simultaneous payment of the Expenses and the
Termination Fee (as defined below); or
(ii) if Parent or Purchaser shall have terminated the Offer or the
Offer expires without Parent or Purchaser, as the case may be,
purchasing any shares pursuant thereto; provided that the Company may
not terminate this Agreement pursuant to this Section 8.1(c)(ii) if the
Company is in material breach of this Agreement; or
(iii) if Parent, Purchaser or any of their affiliates shall have
failed to commence the Offer on or prior to 15 business days following
the date of the initial public announcement of the Offer; provided that
the Company may not terminate this Agreement pursuant to this Section
8.1(c)(iii) if the Company is in material breach of this Agreement; or
(iv) if Parent or Purchaser shall have breached in any material
respect any of its representations, warranties, covenants or other
agreements contained in this Agreement which breach or failure to
perform is incapable of being cured or has not been cured by the earlier
of (x) ten business days following written notice thereof to Parent from
the Company and (y) the scheduled expiration of the Offer; or
(v) if the Offer shall not have expired or been terminated on or
before June 30, 2000; PROVIDED, HOWEVER, that if on such date any
applicable waiting period under the HSR Act shall not have expired or
been terminated, or any of the conditions in clauses (f), (g) or (h) in
Annex I hereto exist such date shall be extended to July 30, 2000 (such
date, as it may be extended, the "Termination Date"); provided further
that the Company may not terminate this Agreement pursuant to this
Section 8.1(c)(v) if the Company is in material breach of this
Agreement.
(d) By Parent or Purchaser:
(i) if prior to the purchase of the Shares pursuant to the Offer,
the Board of Directors shall have withdrawn, or modified or changed in a
manner adverse to Parent or Purchaser its approval or recommendation of
the Offer, this Agreement, the Merger, the Subscription Agreement or the
Voting Agreement or shall have approved a Takeover Proposal; or
(ii) if Parent or Purchaser shall have terminated the Offer without
Parent or Purchaser purchasing any Shares thereunder, provided that
Parent or Purchaser may not terminate this Agreement pursuant to this
Section 8.1(d)(ii) if Parent or Purchaser is in material breach of this
Agreement; or
(iii) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of
the conditions set forth in Annex I hereto, Parent, Purchaser, or any of
their affiliates shall have failed to commence the Offer on or prior to
15 business days following the date of the initial public announcement
of the Offer; or
(iv) any Person or "group" (as defined in Section 13(d)(3) of the
Exchange Act), other than Parent, Purchaser or their affiliates or any
group of which any of them is a member shall have acquired beneficial
ownership (as determined pursuant to Rule 13d-3 promulgated under the
Exchange Act) of 15% or more of the Shares; or
(v) if the Company receives a Takeover Proposal from any Person
(other than Parent or Purchaser), and the Board of Directors takes a
neutral position or makes no recommendation with respect to such
Takeover Proposal after a reasonable amount of time (and in no event
more than 30 days following such receipt) has elapsed for the Board of
Directors to review and make a recommendation with respect to such
Takeover Proposal; or
(vi) if the Company, or any of the Company Representatives, shall
take any of the actions described in clauses (i) or (ii) of Section
5.2(a) hereof, and such action is not permitted by this Agreement; or
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(vii) if the Company shall have breached in any material respect
any of its representations, warranties, covenants or other agreements
contained in this Agreement (other than the covenants and agreements in
clauses (i) and (ii) of Section 5.2(a)) which breach or failure to
perform is incapable of being cured or has not been cured by the earlier
of (x) ten business days following written notice thereof to the Company
from Parent and (y) the scheduled expiration of the Offer; or
(viii) if the Offer shall not have expired or been terminated on or
before the Termination Date; provided that Parent or Purchaser may not
terminate this Agreement pursuant to this Section 8.1(d)(viii) if the
Parent or Purchaser is in material breach of this Agreement.
Section 8.2. Effect of Termination. (a) In the event of termination of
this Agreement by either the Company or Parent or Purchaser as provided in
Section 8.1, this Agreement shall forthwith become void and have no effect,
without any liability or obligation on the part of Parent, Purchaser or the
Company, other than the provisions of this Article VIII and as provided in
Section 9.1 and except that nothing herein shall relieve any party for breach of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
(b) If (x) Parent or Purchaser terminates this Agreement pursuant to
Section 8.1(d)(i), 8.1(v) or 8.1(d)(vi) or (y) the Company terminates this
Agreement pursuant to Section 8.1(c)(i), then in each case, the Company shall
pay, or cause to be paid to Parent, at the time of termination, an amount equal
to $2 million (the "Termination Fee") plus an amount equal to the actual and
reasonably documented out-of-pocket expenses of Parent, Purchaser or Warburg or
any affiliate of Warburg incurred by any such person in connection with the
Offer, the Merger, this Agreement and the consummation of the transactions
contemplated hereby, including, without limitation, the fees and expenses of any
such person's counsel and accountants as well as all fees and expenses payable
to all banks, investment banking firms, and other financial institutions and
Persons and their respective agents and counsel incurred in connection with
acting as any such person's financial advisor with respect to, or arranging or
committing to provide or providing any financing for, the transactions
contemplated hereby (the "Expenses"); provided that in no event shall the
Company be obligated to pay more than $1 million in Expenses. In addition, if
this Agreement is terminated by Parent pursuant to Section 8.1(d)(ii) or Section
8.1(d)(viii) or by the Company pursuant to Section 8.1(c)(ii) or Section
8.1(c)(v) and at the time of such termination, Parent is not in material breach
of this Agreement and the Minimum Condition has not been satisfied, then the
Company shall pay to Parent, at the time of termination, the Expenses, and, if
the Company shall thereafter, within 12 months after such termination, enter
into an agreement with respect to a Takeover Proposal, then the Company shall
pay the Termination Fee concurrently with entering into any such agreement.
ARTICLE IX.
GENERAL PROVISIONS
Section 9.1. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or the termination of this Agreement
pursuant to Section 8.1, as the case may be, except as provided in Section 8.2
and except that the agreements set forth in Article II and Sections 6.8 and 9.3
shall survive the Effective Time indefinitely and those set forth in Article
VIII and Section 9.3 shall survive termination indefinitely.
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Section 9.2. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made (i) as of the date delivered or sent by facsimile if delivered
personally or by facsimile, and (ii) on the third business day after deposit in
the U.S. mail, if mailed by registered or certified mail (postage prepaid,
return receipt requested), in each case to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice, except that notices of changes of address shall be effective upon
receipt):
(a) if to Parent or Purchaser
Hilltopper Holding Corp.
Hilltopper Acquisition Corp.
c/o Warburg, Pincus & Co.
466 Lexington Avenue
New York, New York 10017
Attention: Joel Ackerman
Facsimile: (212) 878-9351
With a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: Steven J. Gartner, Esq.
Facsimile: (212) 728-8111
(b) if to the Company:
Centennial HealthCare Corporation
400 Perimeter Center Terrace
Suite 650
Atlanta, Georgia 30346
Attention: Daryl Griswold, Esq.
Facsimile: (770) 730-1268
With copies to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Attention: Paul A. Quiros, Esq.
Facsimile: (404) 572-5100
Kilpatrick Stockton LLP
1100 Peachtree Street, Suite 2800
Atlanta, Georgia 30309-4530
Attention: David A. Stockton, Esq.
Facsimile: (404) 815-6555
Section 9.3. Expenses. Except as set forth in Section 8.2(b) or the
following sentence, all fees, costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such fees, costs and expenses. Promptly following the Effective
Time, the Company shall pay or, to the extent previously paid, reimburse Parent,
Purchaser or Warburg or any affiliate of Warburg, as applicable, for, all fees,
costs and expenses incurred by any such person in connection with the Merger
Agreement and the transactions contemplated by that Agreement.
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Section 9.4. Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" of a Person means a Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned Person;
(b) "control" (including the terms "controlled by" and "under common
control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of stock, as trustee or executor, by contract
or credit arrangement or otherwise; and
(c) "Person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
entity.
Section 9.5. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9.6. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the maximum extent
possible.
Section 9.7. Entire Agreement; No Third-Party Beneficiaries. This
Agreement and the Confidentiality Agreement constitute the entire agreement and
supersede any and all other prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof. This Agreement is not intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder, except as otherwise provided
herein and except that Sections 8.2(b) and 9.3 are intended to be for the
benefit of and to grant third-party rights to Warburg, and Warburg shall be
entitled to enforce the covenants contained in such sections.
Section 9.8. Assignment. This Agreement shall not be assigned by operation
of law or otherwise, except that Parent and Purchaser may assign all or any of
their rights hereunder to any affiliate of Parent provided that no such
assignment shall relieve the assigning party of its obligations hereunder.
Section 9.9. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Georgia applicable to
contracts executed in and to be performed entirely within that State.
Section 9.10. Amendment. This Agreement may be amended by the parties
hereto by action taken by Parent and Purchaser, and by action taken by the
Special Committee of the Board of Directors at any time before the Effective
Time; PROVIDED, HOWEVER, that, after approval of the Merger by the shareholders
of the Company, no amendment may be made which would reduce the amount or change
the type of consideration into which each Share will be converted upon
consummation of the Merger. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 9.11. Waiver. At any time before the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties of the other parties hereto contained herein or
in any document delivered pursuant hereto and (c) waive compliance by the other
parties hereto with any of their agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only as against such party and only if set forth in an instrument in
writing signed by such party. The failure of any party hereto to assert any of
its rights under this Agreement or otherwise shall not constitute a waiver of
those rights.
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Section 9.12. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which shall
constitute one and the same agreement.
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IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
CENTENNIAL HEALTHCARE
CORPORATION
By:
------------------------------------
J. Stephen Eaton
HILLTOPPER HOLDING CORP.
By:
------------------------------------
David Wenstrup
HILLTOPPER ACQUISITION CORP.
By:
------------------------------------
David Wenstrup
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ANNEX I
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) promulgated under the Exchange
Act (relating to Parent's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for, and (subject to
any such rules or regulations) may delay the acceptance for payment of any
tendered Shares and (except as provided in this Agreement) amend or terminate
the Offer as to any Shares not then paid for if (i) there shall not have been
validly tendered and not withdrawn prior to the expiration of the Offer a number
of shares of Company Common Stock which, when taken together with the Shares, if
any, beneficially owned by Parent, represents more than 68.5% of the number of
shares of Company Common Stock outstanding on a fully diluted basis (the
"Minimum Condition") or (ii) any applicable waiting period under the HSR Act
shall not have expired or been terminated prior to the expiration of the Offer
or (iii) at any time after the date of this Agreement and before the time of
payment for any such Shares (whether or not any Shares have theretofore been
accepted for payment or paid for pursuant to the Offer), any of the following
events shall occur and be continuing or conditions exists:
(a) there shall be an injunction or other order, decree, judgment or
ruling issued or threatened by a Governmental Entity of competent
jurisdiction or a statute, rule, regulation, executive order or other
action shall have been enacted, promulgated, taken or threatened by a
Governmental Entity of competent jurisdiction which in any such case (i)
restrains or prohibits or seeks to restrain or prohibit the making or
consummation of the Offer or the consummation of the Merger or the
performance of the other transactions contemplated by this Agreement, the
Subscription Agreement or the Voting Agreement, (ii) prohibits or restricts
or seeks to prohibit or restrict the ownership or operation by Parent (or
any of its affiliates or subsidiaries) of any portion of its or the
Company's business or assets which is material to the business of all such
entities taken as a whole, or compels Parent (or any of its affiliates or
subsidiaries) to dispose of or hold separate any portion of its or the
Company's business or assets which is material to the business of all such
entities taken as a whole, (iii) imposes or seeks to impose material
limitations on the ability of Parent effectively to acquire or to hold or
to exercise full rights of ownership of the Shares, including, without
limitation, the right to vote the Shares purchased by Purchaser or acquired
by Parent under the Subscription Agreement on all matters properly
presented to the shareholders of the Company, (iv) imposes or seeks to
impose any material limitations on the ability of Parent or any of their
respective affiliates or subsidiaries effectively to control in any
material respect the business and operations of the Company and any of the
Subsidiaries, or (v) which otherwise is reasonably likely to have a
Material Adverse Effect; or
(b) this Agreement shall have been terminated by the Company or Parent
in accordance with its terms; or
(c) there shall have occurred or been discovered any event, change or
development that, individually or when considered together with any other
matter, has had or is reasonably likely to have a Material Adverse Effect;
or
(d) any of the representations and warranties of the Company set forth
in this Agreement that are qualified by reference to materiality or
Material Adverse Effect shall not be true and correct, or any such
representations and warranties that are not so qualified shall not be true
and correct in any material respects, in each case as if such
representations and warranties were made at the time of such determination;
or
(e) the Company shall have failed to perform in any material respect
any obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under this
Agreement; or
(f) the Company shall have not obtained consents of third parties
listed in Schedule 4.4 to this Agreement (the terms of which consents shall
be reasonably satisfactory to Parent) and delivered evidence of such
consents to Parent; or
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(g) the Company's credit agreement shall have not been amended on
terms reasonably satisfactory to Parent; or
(h) all notices, applications, approvals, licenses, consents,
certifications and waivers ("Approvals") required to be furnished to or
obtained from any governmental or regulatory authority or accreditation or
certification agency, including any Approvals in respect of Authorizations,
provider numbers, and program participation rights possessed by the Company
and the Subsidiaries, necessary in order for the Company and the
Subsidiaries to conduct their business following the consummation of the
transactions contemplated by this Agreement in the manner as such business
is now and has heretofore been conducted shall not have been obtained or
furnished and any applicable waiting period or periods shall not have
expired (or, if there be no time limit for waiver or objection, a notice of
no-objection or equivalent with respect thereto shall not have been
received by the Company); or
(i) any suit, action, claim, proceeding or investigation shall have
been commenced or be pending by or before any Governmental Entity or
arbitrator, or shall have been, to the Company's knowledge, threatened by
any Governmental Entity, or any QUI TAM action shall have been filed or, to
the Company's knowledge, threatened, relating to any billing or claims made
or submitted by the Company or any Subsidiary of or to any Governmental
Entity (including any federal or state healthcare or health benefit
program) or any insurance carrier, health maintenance or other managed care
organization, independent physician association or any other third party
payor which, in the case of any of the foregoing taken separately or
together, in the reasonable judgment of Parent either (i) materially
adversely affects the value of the equity of the Company to Parent or (ii)
presents a risk reasonably unacceptable to Parent of subjecting the Company
or any Subsidiary to a material liability or a material amount of damages
or, on a going-forward basis, imposing material limitations on the business
of the Company and the Subsidiaries and/or methods of operation (including
any limitations on the ability of the Company and the Subsidiaries to be
reimbursed by any Governmental Entity, including any federal or state
healthcare or health benefit program); or
(j) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on any national securities
exchange or the over-the-counter market, (ii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (iii) any limitation (whether or not mandatory) by an government or
Governmental Entity, on the extension of credit by banks or other lending
institutions, (iv) a commencement of a war or armed hostilities or other
national calamity directly involving the United States or (v) in the case
of any of the foregoing existing at the time of the execution of this
Agreement, a material acceleration or worsening thereof; or
(k) the Board of Directors (i) shall have withdrawn, or modified or
changed in a manner adverse to Parent or Purchaser (including by amendment
of the Schedule 14D-9) its approval or recommendation of this Agreement,
the Subscription Agreement or the Voting Agreement or the transactions
contemplated hereby or thereby, including the Offer or the Merger, (ii)
recommended a Takeover Proposal, (iii) shall have adopted any resolution to
effect any of the foregoing, or (iv) upon request of Purchaser, shall fail
to reaffirm its approval or recommendation of the Offer, this Agreement or
the Merger; or
(l) any Person or "group" (as defined in Section 13(d)(3) of the
Exchange Act), other than Parent, Purchaser or their affiliates or any
group of which any of them is a member, shall have acquired beneficial
ownership (as determined pursuant to Rule 13d-3 promulgated under the
Exchange Act) of 15% or more of the Shares; or
(m) any party to the Subscription Agreement or the Voting Agreement
other than the Purchaser, Parent or Warburg shall have breached or failed
to perform any of its agreements under such agreement or breached any of
its representations and warranties in such agreement or any such agreement
shall not be valid, binding and enforceable, except for such breaches or
failures or failures to be valid, binding and enforceable that would result
in the Minimum Condition not being satisfied;
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which, in the judgment of Parent with respect to each and every matter referred
to above and regardless of the circumstances giving rise to any such condition,
makes it inadvisable to proceed with the Offer or with such acceptance for
payment of or payment for Shares or to proceed with the Merger.
The foregoing conditions are for the sole benefit of Parent and may be
asserted by Purchaser regardless of the circumstances (including any action or
inaction by Purchaser) giving rise to any such conditions and may be waived by
Purchaser in whole or in part at any time and from time to time, in each case,
in the exercise of the good faith judgment of Purchaser and subject to the terms
of this Agreement. The failure by Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
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APPENDIX B
OPINION OF J.P. MORGAN SECURITIES, INC.
<PAGE> 107
February 25, 2000
Special Committee of the Board of Directors
Centennial HealthCare Corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, Georgia 30346
Attention: Mr. Bob L. Wood
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") of the consideration to be paid to them in connection with the
proposed tender offer (the "Tender Offer") for all shares of the Company Common
Stock, par value $0.01 per share (the "Common Stock"), by, and the proposed
merger (the "Merger") of the Company with, Hilltopper Acquisition Corp.
("Acquisition Sub"), a wholly owned subsidiary of Hilltopper Holdings
Corporation ("Parent"), a company formed at the direction of E.M. Warburg Pincus
& Co., LLC (the "Buyer"). Pursuant to the Agreement and Plan of Merger, dated as
of February 25, 2000 (the "Agreement"), among the Company, Parent and
Acquisition Sub, Acquisition Sub will offer to purchase all shares of Common
Stock in the Tender Offer for $5.50 per share and then will merge with and into
the Company, and each share of Common Stock, issued and outstanding immediately
prior to the effective time of the Merger (other than shares contributed to
Parent by certain institutional shareholders of the Company and certain members
of senior management of the Company (the "Contributing Shareholders"),
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 $5.50.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii)
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; (iii) publicly available terms of certain transactions
involving companies comparable to the Company and the consideration received for
such companies; (iv) current and historical market prices of the common stock of
the Company; (v) the audited financial statements of the Company for the fiscal
year ended December 31, 1998 and the unaudited financial statements of the
Company for the periods ended March 31, June 30, September 30, and December 31,
1999; (vi) certain agreements with respect to outstanding indebtedness or
obligations of the Company; (vii) certain internal financial analyses, forecasts
and other information prepared by the Company and its management (collectively,
the "Financial Information"); and (viii) the terms of certain other business
combinations that we deemed relevant.
In addition, we have held discussions with certain members of the
management of the Company and with outside auditors with respect to certain
aspects of the Tender Offer and 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 Tender Offer and 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 reviewed
such other financial studies and analyses and considered such other information
as we deemed appropriate for the purposes of this opinion. We have also held
discussions with the Company's internal and external counsel regarding the
status and potential impact of the pending OIG investigation.
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 the Financial
Information 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
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such Financial Information relates. We have also assumed that the Merger will
have the tax consequences described 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.
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 of the Company with respect to the proposed Tender Offer and the
proposed Merger and will receive a fee from the Company for our services. Please
be advised that we have no other current financial advisory or other
relationships with the Company. We acted as financial advisor to a Special
Committee of the Board of Directors of the Company with respect to a proposed
merger transaction between the Company and affiliates of Welsh, Carson Anderson
& Stowe, VI, L.P. in October 1998, which was terminated prior to consummation.
J.P. Morgan Securities Inc. and its affiliates maintain an ongoing relationship
with the Buyer and have advised, financed and undertaken capital markets
transactions with the Buyer. In the ordinary course of their businesses, J.P.
Morgan Securities Inc. and its 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 Tender Offer and the proposed Merger is fair, from a financial
point of view, to such stockholders.
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 should vote with respect to the Merger.
This opinion may not be disclosed, referred to, or communicated (in whole or in
part) to any third party for any purpose whatsoever except with our prior
written consent in each instance. This opinion may be reproduced in full in any
offer to purchase, proxy or information statement mailed to stockholders of the
Company but may not otherwise be disclosed publicly in any manner without our
prior written approval and must be treated as confidential.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By:
------------------------------------
Name: John D. Fowler
Title: Managing Director
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APPENDIX C
ARTICLE 13 OF THE GEORGIA BUSINESS CORPORATION CODE
<PAGE> 110
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
(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
Holding 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
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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
(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.
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PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
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;
(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.
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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;
(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
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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.
(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 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.
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(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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CENTENNIAL HEALTHCARE CORPORATION
400 PERIMETER CENTER TERRACE, SUITE 650
ATLANTA, GEORGIA 30346
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 12, 2000 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 May 5, 2000, which the undersigned
would be entitled to vote if personally present at the Special Meeting of
Shareholders to be held on June 12, 2000 at 10:00 a.m., local time, at The South
Terrace Conference Center Classroom, 115 Perimeter Center Place, Atlanta,
Georgia 30346, 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 February 25, 2000,
by and among Hilltopper Holding Corporation, Hilltopper 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.
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.
Dated: , 2000
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Signature
