<PAGE>
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- - -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
AUGUST 31, 1994.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ........ TO .......... .
COMMISSION FILE NUMBER I-7293
- - -------------------------------------------------------------------------------
NATIONAL MEDICAL ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
- - -------------------------------------------------------------------------------
NEVADA 95-2557091
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 COLORADO AVENUE
SANTA MONICA, CA 90404
(Address of principal executive offices)
(310) 998-8000
(Registrant's telephone number, including area code)
---------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS: YES X NO
--- ---
AS OF SEPTEMBER 30, 1994 THERE WERE 166,324,747 SHARES OF $0.075 PAR VALUE
COMMON STOCK OUTSTANDING.
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<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
PAGE
--------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
August 31, 1994 and May 31, 1994 . . . . . . . . . . 2
Condensed Consolidated Statements of Operations -
Three Months Ended August 31, 1994 and 1993. . . . . 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended August 31, 1994 and 1993. . . . . 5
Notes to Condensed Consolidated Financial Statements . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 13
Item 5. Other Events . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 15
Signature. . . . . . . . . . . . . . . . . . . . . . . . 16
- - --------------------
Note: Items 2, 3, and 4 of Part II are omitted because they are not applicable.
1
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1994 AND MAY 31, 1994
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1994 1994
(UNAUDITED)
------------- ------------
(IN THOUSANDS)
ASSETS
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . $ 112,304 $ 313,199
Short-term investments . . . . . . . . . . . . . . . . . . . . . 52,530 60,185
Accounts and notes receivable, less allowance for doubtful
accounts ($67,247 at August 31 and $77,162 at May 31) . . . . . 372,844 384,919
Inventories of supplies, at cost . . . . . . . . . . . . . . . . 53,943 55,132
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 329,000 371,683
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . 79,841 203,847
Prepaid expenses and other current assets. . . . . . . . . . . . 54,103 54,759
----------- -----------
Total current assets. . . . . . . . . . . . . . . . . . . 1,054,565 1,443,724
----------- -----------
Long-term receivables. . . . . . . . . . . . . . . . . . . . . . 72,148 73,280
Investments and other assets . . . . . . . . . . . . . . . . . . 303,450 308,718
Property, plant and equipment, at cost . . . . . . . . . . . . . 2,582,670 2,536,125
Less accumulated depreciation and amortization . . . . . . . . 788,174 771,582
----------- -----------
Net property, plant and equipment . . . . . . . . . . . . 1,794,496 1,764,543
----------- -----------
Intangible assets, at cost . . . . . . . . . . . . . . . . . . . 161,771 160,252
Less accumulated amortization. . . . . . . . . . . . . . . . . 50,084 53,566
----------- -----------
Net intangible assets . . . . . . . . . . . . . . . . . . 111,687 106,686
----------- -----------
$ 3,336,346 $ 3,696,951
----------- -----------
----------- -----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
2
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1994 AND MAY 31, 1994
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1994 1994
(UNAUDITED)
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings and notes. . . . . . . . . . . . . . . . . $ 110,588 $ 66,444
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 144,318 175,993
Employee compensation and benefits . . . . . . . . . . . . . . . 72,345 93,423
Reserves related to discontinued operations (Note 4) . . . . . . 101,595 465,161
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 23,882 58,126
Other current liabilities. . . . . . . . . . . . . . . . . . . . 230,081 236,384
Current portion of long-term debt . . . . . . . . . . . . . . . 495,451 544,506
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . 1,178,260 1,640,037
----------- -----------
Long-term debt, net of current portion . . . . . . . . . . . . . 243,856 223,097
Minority interests . . . . . . . . . . . . . . . . . . . . . . . 59,481 58,501
Other long-term liabilities. . . . . . . . . . . . . . . . . . . 340,585 330,367
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . 126,000 125,055
Stockholders' equity:
Common stock, $0.075 par value; authorized 450,000,000
shares; 185,587,666 shares issued at August 31, 1994 and
at May 31, 1994. . . . . . . . . . . . . . . . . . . . . . . . 13,919 13,919
Other stockholders' equity. . . . . . . . . . . . . . . . . . . 1,653,620 1,588,177
Less treasury stock, at cost, 19,311,722 shares
at August 31, 1994 and 19,507,161 shares at
May 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . (279,375) (282,202)
----------- -----------
Total stockholders' equity. . . . . . . . . . . . . . . . 1,388,164 1,319,894
----------- -----------
$ 3,336,346 $ 3,696,951
----------- -----------
----------- -----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
3
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1994 AND 1993
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net operating revenues (Notes 1, 2, 4 and 5) . . . . . . . . . . . . . $ 662,835 $ 771,554
------------ ------------
Operating and administrative expenses (Notes 3 and 7). . . . . . . . . 540,145 644,060
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 37,822 42,794
Interest, net of capitalized portion . . . . . . . . . . . . . . . . . 17,660 18,406
------------ ------------
Total costs and expenses. . . . . . . . . . . . . . . . . . . . . . . 595,627 705,260
------------ ------------
Investment earnings. . . . . . . . . . . . . . . . . . . . . . . . . . 5,979 7,763
Equity in earnings of unconsolidated affiliates (Note 1) . . . . . . . 6,329 3,470
Minority interests in income of consolidated subsidiaries (Note 1) . . (1,988) (2,198)
Net gain (loss) on disposals of facilities and
long-term investments . . . . . . . . . . . . . . . . . . . . . . . . (2,500) 15,399
Gain on sale of subsidiary's common stock (Note 6) . . . . . . . . . . 32,000 --
------------ ------------
Income from continuing operations before income taxes and
cumulative effect of a change in accounting . . . . . . . . . . . . . 107,028 90,728
Taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . (43,000) (38,000)
------------ ------------
Income from continuing operations before cumulative effect
of a change in accounting . . . . . . . . . . . . . . . . . . . . . . 64,028 52,728
Discontinued operations, net of taxes (Note 4) . . . . . . . . . . . . -- (153,629)
Cumulative effect of a change in accounting
for income taxes (Note 8) . . . . . . . . . . . . . . . . . . . . . . -- 60,121
------------ ------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,028 $ (40,780)
------------ ------------
------------ ------------
Earnings (loss) per share:
Primary:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . $ 0.38 $ 0.32
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . -- (0.93)
Change in accounting. . . . . . . . . . . . . . . . . . . . . . . . -- 0.36
------------ ------------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.38 $ (0.25)
------------ ------------
------------ ------------
Fully diluted:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . $ 0.36 $ 0.30
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . -- (0.88)
Change in accounting. . . . . . . . . . . . . . . . . . . . . . . . -- 0.33
------------ ------------
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.36 $ (0.25)
------------ ------------
------------ ------------
Cash dividends per common share. . . . . . . . . . . . . . . . . . . . $ -- $ 0.12
Weighted average shares and share equivalents
outstanding -- primary. . . . . . . . . . . . . . . . . . . . . . . . 168,460,943 166,108,461
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
4
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31, 1994 AND 1993
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by (used in) operating activities, including net
expenditures for discontinued operations and restructuring charges. . $(377,211) $ 79,226
--------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment. . . . . . . . . . . . . . (28,176) (21,516)
Purchases of new businesses, net of cash acquired . . . . . . . . . . (9,020) --
Proceeds from sales of facilities and other assets. . . . . . . . . . 149,958 27,051
Proceeds from sales of investments. . . . . . . . . . . . . . . . . . 7,656 25,006
Collections on notes . . . . . . . . . . . . . . . . . . . . . . . . 1,182 1,787
Increase in intangible and other assets . . . . . . . . . . . . . . . (10,741) (5,463)
Equity investments in partnerships. . . . . . . . . . . . . . . . . . (945) (2,808)
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,103) 400
--------- --------
Net cash provided by investing activities . . . . . . . . . . . . . 108,811 24,457
--------- --------
Cash flows from financing activities:
Net proceeds from (payments of) unsecured lines of credit . . . . . . 43,333 (22,526)
Proceeds from other borrowings . . . . . . . . . . . . . . . . . . . 77,851 10,300
Payments of other borrowings . . . . . . . . . . . . . . . . . . . . (57,095) (36,612)
Cash dividends paid to shareholders . . . . . . . . . . . . . . . . . -- (19,767)
Proceeds from stock options exercised . . . . . . . . . . . . . . . . 3,416 9
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (347)
--------- --------
Net cash provided by (used in) financing activities . . . . . . . . 67,505 (68,943)
--------- --------
Net increase (decrease) in cash and cash equivalents. . . . . . . . (200,895) 34,740
Cash and cash equivalents at beginning of year. . . . . . . . . . . 313,199 140,919
--------- --------
Cash and cash equivalents at end of period. . . . . . . . . . . . . $ 112,304 $175,659
--------- --------
--------- --------
Supplemental disclosures:
Interest paid, net of amounts capitalized . . . . . . . . . . . . . . $ 20,518 $ 13,852
Income taxes paid, net of refunds received. . . . . . . . . . . . . . 34,180 8,220
Notes received in connection with sales of facilities . . . . . . . . -- 2,000
Major effects of consolidating new businesses:
Assets acquired, primarily accounts receivable and property,
plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . $ 59,076 --
Liabilities assumed, primarily long-term debt. . . . . . . . . . . . 34,852 --
Major effects of excluding an unconsolidated affiliate from the
consolidated financial statements (Note 6):
Decrease in assets, primarily accounts receivable and
property, plant and equipment . . . . . . . . . . . . . . . . . . . $ (31,895) --
Decrease in liabilities, primarily long-term debt . . . . . . . . . (83,152) --
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
5
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial information furnished herein, in the opinion of
management, reflects all determinable adjustments which are necessary to
fairly state the Company's financial position, its cash flows and the
results of its operations for the periods indicated. All the adjustments
affecting income from continuing operations are of a normal recurring
nature.
The Company presumes that users of this interim financial information have
read or have access to the Company's audited financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the preceding fiscal year and that the adequacy of
additional disclosure needed for a fair presentation may be determined in
that context. Accordingly, footnotes and other disclosure which would
substantially duplicate the disclosure contained in the Company's most
recent annual report to security holders has been omitted. Income from
continuing operations is not necessarily representative of continuing
operations for a full year for various reasons, including levels of
occupancy, interest rates, facility acquisitions, disposals of facilities
and long-term assets, revenue allowance and discount fluctuations, the
timing of price changes and fluctuations in quarterly tax rates. These
same considerations apply to all year-to-year comparisons.
The Condensed Consolidated Statement of Operations for the three months
ended August 31, 1993 has been reclassified to show equity in earnings of
unconsolidated affiliates and minority interests in income of consolidated
subsidiaries as separate line items, to be comparable with the presentation
for the current period. Previously, these items were included in net
operating revenues and in operating and administrative expenses,
respectively.
2. The Company's net operating revenues from continuing operations consist
primarily of net patient service revenues, which are based on established
billing rates less applicable allowances and discounts. These allowances
and discounts, primarily for patients covered by Medicare, Medicaid and
other contractual programs, amounted to $666,411,000 and $683,909,000 for
the three-month periods ended August 31, 1994 and 1993.
3. The provision for doubtful accounts and notes receivable is included in
operating and administrative expenses net of any recoveries of previously
written-off accounts or notes. The net provisions related to continuing
operations for the three-month periods ended August 31, 1994 and 1993 were
$26,117,000 and $34,983,000, respectively.
4. At November 30, 1993, the Company decided to discontinue its psychiatric
hospital business and adopted a plan to dispose of its psychiatric
hospitals and substance abuse recovery facilities within one year. The
Condensed Consolidated Statements of Operations reflect the operating
results of the discontinued business separately from continuing operations.
Accordingly, prior periods have been restated.
6
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Operating results for the discontinued business for the three months ended
August 31, 1993 were:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Net operating revenues . . . . . . . . . . . . . $ 116,776
-----------
Loss before income taxes . . . . . . . . . . . . (264,629)
Income tax benefit . . . . . . . . . . . . . . . 111,000
-----------
Loss from operations . . . . . . . . . . . . . . $ (153,629)
-----------
-----------
</TABLE>
Operating results and gains or losses on disposals of facilities for
periods subsequent to November 30, 1993 have been charged to a provision
for estimated losses during the phase-out period.
As previously reported, the Company has been involved in significant legal
proceedings and investigations of an unusual nature related principally to
its psychiatric business and has settled the most significant of these
matters. The reserves related to discontinued operations in the
accompanying balance sheet include $75,103,000 for unusual litigation costs
and legal fees relating to matters that have not been settled as of August
31, 1994 and represent management's estimate of the net costs of the
ultimate disposition of these matters. However, there can be no assurance
that the ultimate liability will not exceed such estimates.
In June 1994, the Company sold 27 of 30 psychiatric hospitals pursuant to a
March 1994 asset sale agreement with Charter Medical Corporation (Charter)
for a sales price of approximately $129,000,000. The deadline for closing
the sales of the remaining three hospitals is October 31,1994, unless the
parties extend such deadline. In September 1994 amendments to another
March 1994 agreement with Charter reduced the number of other psychiatric
facilities to be sold from 17 to 11 and reduced the purchase price to
approximately $31,000,000. The agreement also has been amended to extend
the closing deadline to October 31, 1994, unless the parties extend such
deadline. The Company has agreed with the Federal Trade Commission not to
sell the other six hospitals to Charter. The Company believes these
hospitals can be sold to other parties.
In addition to the sales to Charter during the three months ended
August 31, 1994, seven psychiatric hospitals and five outpatient centers
were sold to various parties for an aggregate price of approximately
$14,000,000. In September 1994, two additional psychiatric hospitals were
sold for an aggregate price of approximately $8,000,000. The Company
currently has reached an agreement to sell or is negotiating with various
parties for the sale of its 14 remaining psychiatric hospitals, including
the six facilities which cannot be sold to Charter.
5. In January 1994, the Company sold 28 inpatient rehabilitation hospitals and
45 related satellite outpatient clinics. The Company retained six
rehabilitation hospitals on or near acute hospital campuses and in March
1994 sold its other remaining rehabilitation hospital. For the quarter
ended August 31, 1993, net operating revenues of the sold facilities were
$111,585,000 and pre-tax income, before general corporate overhead costs,
was $10,500,000.
7
<PAGE>
NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. On August 11, 1994, the Company completed the sale of a controlling
interest in Total Renal Care, Inc. (formerly Medical Ambulatory Care,
Inc.), the operator of the Company's outpatient renal dialysis centers, to
DLJ Merchant Banking Partners, L.P. and affiliated investment partnerships.
As part of the transaction, the Company received a $75,500,000 cash
distribution from Total Renal Care prior to the sale and retains an
approximate 25% minority interest. The transaction resulted in a
$32,000,000 gain to the Company in the quarter ended August 31, 1994.
7. During the 4th quarter of fiscal 1994, the Company initiated a plan to
significantly decrease overhead costs through a reduction in corporate and
division staffing levels and to review the resulting office space needs of
all corporate operations. In July 1994, the Company announced that
approximately 240 positions were being eliminated and other cost-saving
efficiencies were implemented. The Company also decided to sell its
corporate headquarters building and to lease substantially less office
space in that building or at an alternative site. Costs associated with
this plan were estimated to be approximately $77,000,000 and were expensed
in the quarter ended May 31, 1994. Of the $77,000,000 reserve, $61,100,000
represented the write-down of the corporate headquarters building to net
realizable value, based on independent appraisals; the estimated costs of
employee severance packages was $10,000,000, based on actual agreements
communicated to the employees involved; and $5,900,000 was for other
expenses related to the overhead reduction plan, including consulting fees
and employee outplacement costs. During the quarter ended August 31, 1994,
actual costs incurred and charged against the reserve were approximately
$2,970,000. The write-down of the corporate headquarters building has been
recorded as a reduction in the carrying value of property, plant and
equipment in the accompanying condensed consolidated balance sheet. The
rest of the reserve is included in other current liabilities and other
long-term liabilities.
8. Effective June 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The Company
recognized $60,121,000 as income in the quarter ended August 31, 1993, for
the cumulative effect on prior years of adopting this standard based on tax
rates in effect at June 1, 1993.
Management believes that the net deferred tax asset at August 31, 1994 will
be realized from offsetting tax provisions against future income or through
tax loss carrybacks.
9. On October 11, 1994, the Company announced the signing of a definitive
merger agreement with American Medical Holdings, Inc. ("AMH"). Under the
terms of the agreement, AMH shareholders will receive $19 in cash and
42/100 of a share of NME common stock for each share of AMH stock they own.
The transaction has been valued at more than $3.3 billion, including the
assumption of approximately $1.3 billion of AMH debt, and is expected to
close in the first part of calendar year 1995. It is subject to customary
regulatory approvals. NME plans to finance the transaction through a new
credit facility and public issuance of debt securities. Upon completion of
the acquisition, which will be accounted for as a purchase, the new company
will have 84 acute care hospitals in 13 states and four foreign countries.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at August 31, 1994 were
$112,304,000, a decrease of $200,895,000 from May 31, 1994. The decrease was
primarily due to expenditures relating to the resolution of unusual legal
proceedings and investigations associated with the discontinued psychiatric
division. The ratio of total debt to equity was 0.61:1, compared with 0.63:1 at
May 31, 1994. The working capital deficit at August 31, 1994 was $123,695,000
compared to a deficit of $196,313,000 at May 31, 1994. The principal reason for
the deficits in working capital at August 31 and May 31, 1994 was the fiscal
1994 increase in current portion of long-term debt. At August 31, 1994 the
current portion of long-term debt was $495,000,000 compared to $545,000,000 at
May 31, 1994.
The Company is having discussions with several banks regarding establishing
a new $2 billion credit facility (discussed below), a portion of which will be
utilized to repay the current portion of long-term debt, most of which matures
in April 1995, and believes that, based on these discussions, the new credit
facility will be available. The Company currently has no unused committed
domestic credit facilities.
Cash used in operating activities was $377,211,000 for the three months
ended August 31, 1994 compared to $79,226,000 provided in the same period last
year, including pre-tax expenditures of $405,383,000 and $18,441,000,
respectively, related to the discontinued psychiatric hospital business and for
restructuring charges. Of these pre-tax expenditures during the quarter ended
August 31, 1994, $379,600,000 were related to the payments of settlements of
investigations by federal and state government agencies.
Proceeds from the sales of facilities, investments and other assets were
$157,614,000 during the quarter ended August 31, 1994, compared with $52,057,000
in the year ago quarter. Sales during the quarter included two general
hospitals, 34 psychiatric hospitals and five outpatient psychiatric centers. The
Company expects to receive approximately $50,000,000 in its second quarter of
fiscal 1995 related to additional sales of psychiatric hospitals.
Cash payments for property and equipment were $28,176,000 for the three
months ended August 31, 1994 and $21,516,000 for the same period last year. The
estimated cost to complete major approved construction projects at wholly-owned
subsidiaries is approximately $102,556,000, all of which is related to
expansion, improvement and equipping of existing domestic hospital facilities,
and the significant portion of which will be spent over the next three years.
The Company expects to finance all such expenditures with either internally
generated funds or borrowed funds. The Company intends to continue to invest
domestically and internationally in existing and new facilities within its
existing health care business.
Management believes that patient volumes, cash flows and operating results
at the Company's principal health care businesses have been adversely affected
by the legal proceedings and investigations described in the annual report to
shareholders for the fiscal year ended May 31, 1994. The most significant of
these legal proceedings and investigations have now been resolved. The Company
has recorded reserves for the remaining legal proceedings not yet settled as of
August 31, 1994, and an estimate of the legal fees related to these matters to
be incurred subsequently, totaling approximately $75,103,000, of which
$63,062,000 is expected to be paid within one year. These reserves represent
management's estimate of the net costs of the ultimate disposition of these
matters. However, there can be no assurance that the ultimate liability will
not exceed such estimates.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
As of May 31, 1994 the Company recorded a $77,000,000 restructuring charge
and reserve in connection with an announced plan to reduce corporate and
division overhead costs (See Note 7). During the quarter ended August 31, 1994,
actual costs incurred and charged against the reserve were $2,970,000,
consisting principally of severance payments to terminated employees. The
Company expects to incur approximately $14,300,000 in additional payments
(principally severance) before May 31, 1995, all of which were included in the
May 1994 reserve. The Company expects its annual overhead savings from
implementation of this plan to approximate $32,000,000 and that the sale of its
corporate headquarters building, which may take at least two years to
consummate, should generate after-tax proceeds in excess of $40,000,000.
On October 11, 1994, the Company and American Medical Holdings, Inc.
("AMH") jointly announced the signing of a definitive merger agreement which is
expected to close in the first part of calendar year 1995. Under the terms of
the agreement, AMH shareholders will receive $19 in cash and 42/100 of a share
of NME common stock for each AMH share they own. The transaction is valued at
more than $3.3 billion, including the assumption of approximately $1.3 billion
of AMH debt. Based on AMH's current common stock outstanding, NME would pay
approximately $1.5 billion in cash. The Company plans to finance the
transaction through a new $2 billion bank credit facility and the issuance of
approximately $900 million in debt securities. The new credit facility also
will be available to repay the current portion of long-term debt maturing in
April 1995 and refinance certain other long-term debt, as well as for working
capital. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), the
Company's financial advisor in connection with the transaction, has delivered a
fairness opinion to the Company's board of directors and a letter stating it is
highly confident that DLJ can complete the sale of the debt securities.
The consolidation of the two companies is expected to result in
approximately $60 million in cost savings in the first full fiscal year of
operation. Management believes that the transaction will strengthen the Company
in its existing markets and enhance the Company's ability to deliver quality,
cost-effective health care. Upon completion of the acquisition , the new
company will have 84 acute care hospitals in 13 states and four foreign
countries.
The Company's liquidity, including cash proceeds from operating activities,
anticipated disposal of assets, the realization of tax benefits associated with
the expenditures and losses on sales of facilities related to the discontinued
psychiatric hospital business, the anticipated establishment of the new bank
credit facility and the sale of debt securities is believed to be adequate to
finance planned capital expenditures, known operating needs, including the
settlements of unusual legal proceedings referred to herein, and the AMH merger.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
Income from continuing operations before income taxes was $107,028,000 for
the quarter ended August 31, 1994, compared with $90,728,000 for the prior year
quarter. These results include pre-tax net gains on disposals of facilities and
long-term investments of $29,500,000 (approximately $.09 per share after taxes,
fully diluted) and $15,399,000 (approximately $0.05 per share after taxes, fully
diluted), respectively.
Net operating revenues from continuing operations for the quarter were
$662,835,000, compared with $771,554,000 in the prior year quarter. The
principal reason for the 14% decline in revenues is the sale of 28 physical
rehabilitation hospitals and 45 related outpatient clinics. The revenues and
expenses of these facilities are included in the Company's results of operations
through December 31, 1993. Operating profits from continuing operations before
interest for the quarter were $84,868,000, compared with $84,700,000 for the
prior year quarter. The operating profit margin increased for the current
quarter from 11.0% to 12.8%. The increase in the operating margin is primarily
due to effective cost control programs in the hospitals, initial benefits of the
overhead reductions implemented during the quarter and the sale of the
rehabilitation hospitals, which as a whole, had lower margins than the general
hospitals.
Selected statistics for the Company's domestic general hospital operations are
shown below:
<TABLE>
<CAPTION>
Three Months Ended
August 31,
-----------------------------------------
Increase
1994 1993 (Decrease)
---------- ---------- ----------
<S> <C> <C> <C>
Facilities owned or operated. . . . . . . . . . 33 34 (1)
Quarter-end licensed beds . . . . . . . . . . . 6,622 6,691 (1.0)%
Average licensed beds in period . . . . . . . . 6,764 6,731 0.5%
Average occupancy . . . . . . . . . . . . . . . 43.2% 44.7% (1.5)%*
Patient days. . . . . . . . . . . . . . . . . . 268,939 276,876 (2.9)%
Net inpatient revenue per patient day . . . . . $ 1,388 $ 1,352 2.7%
Admissions. . . . . . . . . . . . . . . . . . . 49,078 50,605 (3.0)%
Average length of stay (days) . . . . . . . . . 5.5 5.5 --
Net inpatient revenues (in thousands) . . . . . $ 373,378 $ 374,210 (0.2)%
Net outpatient revenues (in thousands). . . . . $ 144,144 $ 137,085 5.1%
Outpatient visits . . . . . . . . . . . . . . . 377,539 365,731 3.2%
% of net patient revenues from
Medicare and Medicaid. . . . . . . . . . . . . 42.4% 40.6% 1.8%*
<FN>
* These percentage changes are the differences between the 1994 and 1993
percentages (%'s) shown.
</TABLE>
Domestic hospital inpatient admissions decreased by 3.0% over the prior
year quarter and net inpatient revenues decreased by 0.2% over the prior year
quarter. Outpatient visits and outpatient revenues increased by 3.2% and 5.1%,
respectively, over the prior year quarter. There continue to be increases in
inpatient acuity and intensity of services as less intensive services shift from
an inpatient to an outpatient basis or to alternative health care delivery
services because of technology improvements and as cost controls by payors
become greater. Allowances and discounts are expected to continue to rise
because of increasing cost controls by government and group health payors and
because the percentage of business from managed care programs (and related
discounts) continues to grow.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
In August 1994, the Company sold two general hospitals (202 beds). Patient
days and admissions decreased by 2.8% and 2.3%, respectively, at the same 32
facilities owned during both the current quarter and the prior year quarter.
Outpatient visits at the same 32 facilities increased by 4% over the prior year
quarter.
The general hospital industry in the United States and the Company's
general hospitals continue to have significant unused capacity, and thus there
is substantial competition for patients. Inpatient utilization continues to be
negatively affected by payor-required pre-admission authorization and by payor
pressure to maximize outpatient and alternative health care delivery services
for less acutely ill patients. The Company offers discounts to private payor
groups, enters into capitation contracts in some service areas, upgrades
facilities and equipment and offers new programs and services. The Company has
been implementing various cost-control programs focused on reducing operating
costs. The Company's general hospitals have been successful in increasing
operating profits in a very competitive environment, due in large part to
enhanced cost controls and efficiencies being achieved throughout the Company.
In September 1993 the Company and Hillhaven substantially completed a
series of transactions that resulted in: 1) the Company selling to Hillhaven all
remaining leased long-term-care nursing facilities, and no longer being a lessor
to Hillhaven, but remaining a significant holder of Hillhaven common and
preferred stock; 2) all indebtedness owed to the Company from Hillhaven being
paid in full; and 3) reducing Hillhaven obligations guaranteed by the Company.
After reflecting these transactions, including the sale of long-term-care
facilities to Hillhaven, the Company's equity in Hillhaven's net income was
$3,237,000 for the three months ended August 31, 1994, compared with $1,280,000
for the three months ended August 31, 1993. The significant increase in equity
earnings is due to Hillhaven's improved overall earnings and the Company's
increasing its investment in Hillhaven in fiscal year 1994, from approximately
14% to approximately 33%.
In addition to the specific items mentioned above that continue to have an
impact on the Company's results of operations, there are a number of other
factors affecting our domestic business. Because of intense national, state and
private industry efforts to reform the health care delivery and payment systems
in this country, the health care industry as a whole faces increased
uncertainty. The Company is continuing to monitor these reform efforts and
analyze their potential impacts in order to formulate its business strategies
for the future.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Material Developments in Previously Reported Legal Proceedings:
NITA P. HECKENDORN VS. NATIONAL MEDICAL ENTERPRISES, INC., JEFFREY C.
BARBAKOW, RAYMOND A. HAY, MAURICE J. DEWALD AND PETER DE WETTER
Plaintiff's motion for summary judgment seeking judgment on her claim
for retaliatory discharge and defendant's cross-motion for summary
judgment on plaintiff's claims were heard on September 19, 1994.
Plaintiff's motion was denied and defendants' motions were granted in
part and denied in part. The trial of plaintiff's remaining claims is
set for mid-December, 1994. The Company believes that Ms. Heckendorn's
claims are without merit, but has agreed to engage in mediation.
JOHN C. BEDROSIAN VS. NATIONAL MEDICAL ENTERPRISES, INC., JEFFREY C.
BARBAKOW, MICHAEL H. FOCHT, SR., BERNICE B. BRATTER, MAURICE J. DEWALD,
PETER DE WETTER AND LESTER B. KORN
The Company is awaiting the referee's decision following the trial's
conclusion on July 29, 1994.
PSYCHIATRIC MALPRACTICE CASES
The Company has continued to resolve the lawsuits to which the Company
and its officers and directors are subject alleging the existence of a
corporate-wide conspiracy to commit wrongful acts, which lawsuits are
discussed in the Company's Form 10-K for the fiscal year ended
May 31, 1994. More of such lawsuits were filed during the quarter ended
August 31, 1994, and the Company expects that additional similar
lawsuits will be filed from time to time.
13
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
Items 2., 3. and 4. are not applicable.
Item 5. Other Events
The Company, AMH, and AMH Acquisition Co. ("NME Subsidiary"), a
wholly-owned subsidiary of the Company, have entered into an Agreement
and Plan of Merger, dated as of October 10, 1994 (the "Merger
Agreement"). Pursuant to the Merger Agreement, (i) NME Subsidiary will
be merged into AMH (the "Merger") and (ii) stockholders of AMH will
receive for each share of common stock of AMH ("AMH Common Stock")
issued and outstanding and held by them immediately prior to the merger
(A) 0.42 of a share of common stock of the Company, par value $0.075 per
share ("NME Common Stock") (subject to appropriate adjustment in the
event of certain dividends, stock splits and similar events), and (B)
$19.00 in cash, or if the Merger shall not have been consummated prior
to March 31, 1995, $19.25 in cash. The transactions contemplated by the
Merger Agreement are subject to review under the Hart-Scott Rodino
Antitrust Improvements Act and other customary conditions to closing.
In order to facilitate the Merger, stockholders of AMH owning a majority
of the shares of AMH capital stock have agreed to vote all of such
shares beneficially owned by them in favor of certain matters,
including, without limitation, the approval and adoption of the Merger,
as set forth in (i) the Stockholder Voting and Profit Sharing Agreement,
dated as of October 10, 1994, by and among the Company and GKH
Investments, L.P. and GKH Private Limited (the "GKH Stockholder
Agreement"), (ii) the Stockholder Voting and Profit Sharing Agreement,
dated as of October 10, 1994, by and among the Company and MB L.P. I,
1987 Merchant Banking Investment Partnership and CS First Boston (the
"MB Stockholder Agreement") and (iii) the Stockholder Voting and Profit
Sharing Agreement, dated as of October 10, 1994, by and among the
Company and First Plaza Group Trust (the "First Plaza Stockholder
Agreement" and, together with the GKH Stockholder Agreement and the MB
Stockholder Agreement, the "Stockholder Agreements"). In connection
therewith, the Stockholder Agreements grant to the Company an
irrevocable proxy to vote all shares covered thereby in the Company's
absolute, sole and binding discretion in the manner provided in the
voting agreement provisions thereof. In addition, if certain
transactions other than the Merger are consummated or agreed to by AMH,
pursuant to the Stockholder Agreements the Company is entitled to
receive a cash payment equal to the product of (a) the excess of the
highest price per share paid in any such transaction over $25.88, or if
an alternate transaction is consummated after March 31, 1995, $26.13,
times (y) the number of covered shares sold to the third party engaging
in such transaction (an "Alternate Transaction Payment"). The
Stockholder Agreements terminate upon the earlier to occur of (i)
June 30, 1995; (ii) the effective time of the Merger; or (iii)
immediately following the making of an Alternate Transaction Payment for
all of the shares covered thereby for the consideration set forth
therein.
The discussion of the Merger Agreement and the Stockholder Agreements is
qualified in its entirety by reference to the provisions thereof, copies
of which are attached hereto as Exhibits 2(A) and 2(B), respectively,
and are incorporated herein by this reference.
14
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(2) Plan of Acquisition, Reorganization, Agreement, Liquidation
or Succession.
(A) Agreement and Plan of Merger, dated as of
October 10, 1994, among the Company, AMH Acquisition
Co. and American Medical Holdings, Inc.
(B) Form of Stockholder Voting and Profit Sharing
Agreements, dated as of October 10, 1994, between the
Company and each of: (1) GKH Investments, L.P., (2)
GKH Private Limited, (3) MB L.P.I., (4) 1987 Merchant
Investment Partnership, (5) C.S. First Boston
Corporation and (6) First Plaza Group Trust.
(10) Material Contracts.
(A) Amendment No. 1 to Asset Sale Agreement (First
Facilities), dated as of September 12, 1994, between
the Company and Charter Medical Corporation.
(B) Amendment No. 1 to Asset Sale Agreement (Subsequent
Facilities), dated as of September 12, 1994, between
the Company and Charter Medical Corporation.
(11) (Page 17) Statement Re: Computation of Per Share Earnings
for the three months ended August 31, 1994 and 1993.
(27) Financial Data Schedule (included only in the EDGAR filing)
(b) Reports on Form 8-K: None.
15
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL MEDICAL ENTERPRISES, INC.
(Registrant)
Date: October 14, 1994 /s/ RAYMOND L. MATHIASEN
--------------------------------------
Raymond L. Mathiasen
Senior Vice President,
Chief Financial Officer
16
<PAGE>
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NATIONAL MEDICAL ENTERPRISES, INC.,
AMH ACQUISITION CO.
AND
AMERICAN MEDICAL HOLDINGS, INC.
DATED AS OF OCTOBER 10, 1994
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER............................................. 1
Section 1.1 THE MERGER....................................... 1
Section 1.2 EFFECTIVE TIME OF THE MERGER..................... 2
ARTICLE II THE SURVIVING CORPORATION........................ 2
Section 2.1 CERTIFICATE OF INCORPORATION..................... 2
Section 2.2 BY-LAWS.......................................... 2
Section 2.3 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.. 3
ARTICLE III CONVERSION OF SHARES................................... 3
Section 3.1 MERGER CONSIDERATION............................. 3
Section 3.2 EXCHANGE OF CERTIFICATES REPRESENTING SHARES..... 5
Section 3.3 DIVIDENDS........................................ 7
Section 3.4 NO FRACTIONAL SECURITIES......................... 8
Section 3.5 CLOSING OF COMPANY TRANSFER BOOKS................ 8
Section 3.6 UNCLAIMED AMOUNTS................................ 9
Section 3.7 LOST CERTIFICATES................................ 9
Section 3.8 DISSENTING SHARES................................ 10
Section 3.9 CLOSING.......................................... 10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT............... 11
Section 4.1 ORGANIZATION..................................... 11
Section 4.2 CAPITALIZATION; REGISTRATION RIGHTS.............. 12
Section 4.3 SUBSIDIARIES..................................... 14
Section 4.4 MATERIAL INVESTMENTS............................. 15
Section 4.5 AUTHORITY RELATIVE TO THIS AGREEMENT............. 17
Section 4.6 CONSENTS AND APPROVALS; NO VIOLATIONS............ 17
Section 4.7 PARENT SEC REPORTS............................... 19
Section 4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS............. 20
Section 4.9 LITIGATION....................................... 21
Section 4.10 ABSENCE OF UNDISCLOSED LIABILITIES............... 21
Section 4.11 NO DEFAULT....................................... 22
Section 4.12 TAXES............................................ 22
Section 4.13 TITLE TO CERTAIN PROPERTIES; ENCUMBRANCES........ 25
Section 4.14 MEDICARE PARTICIPATION/ACCREDITATION AND
RECAPTURE ..................................... 25
Section 4.15 LABOR MATTERS.................................... 27
Section 4.16 EMPLOYEE BENEFIT PLANS; ERISA.................... 28
i
<PAGE>
Section 4.17 PATENTS, LICENSES, FRANCHISES AND FORMULAS....... 34
Section 4.18 INSURANCE........................................ 34
Section 4.19 BOARD APPROVALS; OPINION OF FINANCIAL ADVISOR.... 34
Section 4.20 BROKERS.......................................... 35
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......... 35
Section 5.1 ORGANIZATION..................................... 35
Section 5.2 CAPITALIZATION................................... 36
Section 5.3 SUBSIDIARIES..................................... 37
Section 5.4 MATERIAL INVESTMENTS............................. 38
Section 5.5 AUTHORITY RELATIVE TO THIS AGREEMENT............. 40
Section 5.6 CONSENTS AND APPROVALS; NO VIOLATIONS............ 41
Section 5.7 COMPANY SEC REPORTS.............................. 42
Section 5.8 ABSENCE OF CERTAIN CHANGES OR EVENTS............. 44
Section 5.9 LITIGATION....................................... 44
Section 5.10 ABSENCE OF UNDISCLOSED LIABILITIES............... 44
Section 5.11 NO DEFAULT....................................... 45
Section 5.12 TAXES............................................ 46
Section 5.13 TITLE TO CERTAIN PROPERTIES; ENCUMBRANCES........ 48
Section 5.14 COMPLIANCE WITH APPLICABLE LAW................... 48
Section 5.15 MEDICARE PARTICIPATION/ACCREDITATION AND
RECAPTURE...................................... 48
Section 5.16 LABOR MATTERS.................................... 50
Section 5.17 EMPLOYEE BENEFIT PLANS; ERISA.................... 51
Section 5.18 PATENTS, LICENSES, FRANCHISES AND FORMULAS....... 57
Section 5.19 INSURANCE........................................ 57
Section 5.20 BOARD APPROVAL; OPINION OF FINANCIAL
ADVISOR........................................ 57
Section 5.21 BROKERS.......................................... 58
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER................. 58
Section 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING
THE MERGER..................................... 58
Section 6.2 CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. 61
Section 6.3 CONDUCT OF BUSINESS OF SUB....................... 64
ARTICLE VII ADDITIONAL AGREEMENTS.................................. 64
Section 7.1 ACCESS AND INFORMATION........................... 64
Section 7.2 ACQUISITION PROPOSALS............................ 65
Section 7.3 REGISTRATION STATEMENT........................... 67
Section 7.4 LISTING APPLICATION.............................. 69
Section 7.5 INFORMATION STATEMENT AND STOCKHOLDER
APPROVAL....................................... 69
ii
<PAGE>
Section 7.6 FILINGS; OTHER ACTION............................ 70
Section 7.7 PUBLIC ANNOUNCEMENTS............................. 71
Section 7.8 COMPANY INDEMNIFICATION PROVISION................ 71
Section 7.9 REGISTRATION STATEMENT FOR SECURITIES ACT
AFFILIATES..................................... 73
Section 7.10 CERTAIN BENEFITS................................. 73
Section 7.11 DIRECTORS OF PARENT.............................. 74
Section 7.12 SPECIAL DIVIDEND................................. 75
Section 7.13 ADDITIONAL AGREEMENTS............................ 75
ARTICLE VIII CONDITIONS TO CONSUMMATION OF THE MERGER............... 76
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER..................................... 76
Section 8.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO
EFFECT THE MERGER.............................. 77
Section 8.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO
EFFECT THE MERGER.............................. 79
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER...................... 81
Section 9.1 TERMINATION BY MUTUAL CONSENT.................... 81
Section 9.2 TERMINATION BY EITHER PARENT OR THE COMPANY...... 81
Section 9.3 TERMINATION BY THE COMPANY....................... 81
Section 9.4 TERMINATION BY PARENT............................ 82
Section 9.5 EFFECT OF TERMINATION AND ABANDONMENT............ 83
ARTICLE X GENERAL PROVISIONS..................................... 85
Section 10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS..................................... 85
Section 10.2 NOTICES.......................................... 85
Section 10.3 DESCRIPTIVE HEADINGS............................. 86
Section 10.4 ENTIRE AGREEMENT: ASSIGNMENT.................... 86
Section 10.5 GOVERNING LAW.................................... 87
Section 10.6 EXPENSES......................................... 87
Section 10.7 AMENDMENT........................................ 87
Section 10.8 WAIVER........................................... 87
Section 10.9 COUNTERPARTS; EFFECTIVENESS...................... 88
Section 10.10 SEVERABILITY; VALIDITY; PARTIES IN INTEREST...... 88
Section 10.11 ENFORCEMENT OF AGREEMENT......................... 89
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 10, 1994, by and
among National Medical Enterprises, Inc., a Nevada corporation ("Parent"), AMH
Acquisition Co., a Delaware corporation and a wholly owned subsidiary of Parent
("Sub"), and American Medical Holdings, Inc., a Delaware corporation (the
"Company").
WHEREAS, the Boards of Directors of Parent and Sub and the Company
have approved the merger upon the terms and subject to the conditions set forth
herein (the "Merger").
WHEREAS, in conjunction with the execution and delivery of this
Agreement and as an inducement to Parent's and Sub's willingness to enter into
this Agreement, certain holders of shares of the Company's common stock, par
value $.01 per share (the "Common Stock"), have agreed to and will enter into
Stockholder Voting and Profit Sharing Agreements with Parent, in the form
attached hereto as Exhibit A (the "Stockholder Voting and Profit Sharing
Agreements").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the
conditions hereof, at the Effective Time (as defined in Section 1.2 hereof), Sub
shall be merged with and into the Company and the
<PAGE>
separate corporate existence of Sub shall thereupon cease, and the Company shall
be the surviving corporation in the Merger (the "Surviving Corporation") and all
of its rights, privileges, powers, immunities, purposes and franchises shall
continue unaffected by the Merger. The Merger shall have the effects set forth
in Section 259 of the General Corporation Law of the State of Delaware (the
"DGCL").
Section 1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall
become effective when a properly executed Certificate of Merger meeting the
requirements of Section 251 of the DGCL is duly filed with the Secretary of
State of the State of Delaware or at such later time as the parties hereto shall
have designated in such filing as the Effective Time of the Merger (the
"Effective Time"), which filing shall be made as soon as practicable after the
closing of the transactions contemplated by this Agreement in accordance with
Section 3.9 hereof.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 CERTIFICATE OF INCORPORATION. The Certificate
of Incorporation of the Surviving Corporation shall be the Certificate of
Incorporation of Sub in effect immediately prior to the Effective Time.
Section 2.2 BY-LAWS. The By-Laws of Sub as in effect
immediately prior to the Effective Time shall be the By-Laws of the Surviving
Corporation.
2
<PAGE>
Section 2.3 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.
(a) The directors of Sub immediately prior to the Effective Time
shall be the directors of the Surviving Corporation as of the Effective Time.
(b) The officers of the Company immediately prior to the Effective
Time shall be the officers of the Surviving Corporation at the Effective Time
and shall hold office from the Effective Time until their respective successors
are duly elected or appointed and qualify in the manner provided in the
Certificate of Incorporation and By-Laws of the Surviving Corporation, or as
otherwise provided by law.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 MERGER CONSIDERATION. At the Effective Time, by
virtue of the Merger and without any action on the part of the holder thereof:
(a) Each share of Common Stock (the "Shares"), issued and
outstanding immediately prior to the Effective Time (other than Dissenting
Shares (as hereinafter defined) and Shares held in the treasury of the Company
or owned by Parent or any subsidiary of the Company or the Parent) shall be
converted into the right to receive (i) 0.42 of a share of Common Stock, par
value $.075 per share ("Parent Shares"), of Parent (holders of which shall
thereafter be entitled to issuance of Parent's Series A Junior Participating
3
<PAGE>
Preferred Stock issuable in connection with Parent's Preferred Stock Purchase
Rights (as hereinafter defined) in the circumstances specified in Parent's
Certificate of Designation relating thereto), subject to the right of holders of
Shares pursuant to Section 6.2(c) to elect, under certain circumstances, to
receive cash in lieu of such fraction of a Parent Share as set forth in such
Section 6.2(c); and (ii) $19.00 in cash or, if the Closing shall not have been
consummated on or before March 31, 1995, $19.25 in cash, all of which shall be
payable upon the surrender of the certificate(s) formerly representing such
Shares (the Parent Shares (or cash in lieu thereof as aforesaid) and cash so
deliverable being herein referred to collectively as the "Merger
Consideration"). As of the Effective Time, all such Shares shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such Shares shall cease
to have any rights with respect thereto, except to receive the Merger
Consideration, without interest.
(b) At the Effective Time, all options (individually, a "Company
Option" or collectively, the "Company Options") then outstanding under the
Company's Nonqualified Employee Stock Option Plan and the Company's Nonqualified
Performance Stock Option Plan for Key Employees, each as amended (collectively,
the "Company Stock Option Plans"), shall, by virtue of the Merger and without
any further action on the part of the Company or any holder of such Company
Options, unless otherwise agreed to in writing by the
4
<PAGE>
holder of a Company Option, be cancelled in consideration for payment by the
Surviving Corporation to holders of Company Options of cash in an amount equal
to (i)(A) the sum of (x) the cash component of the Merger Consideration, plus
(y) 0.42 times the Average Price (as hereinafter defined) of a Parent Share,
multiplied by (B) the Shares subject to Company Options, less (ii) the exercise
price of such Company Options.
(c) Each Share issued and held in the treasury of the Company or
owned by any subsidiary of the Company and each Share held by Parent or any
subsidiary of Parent immediately prior to the Effective Time shall be cancelled
and retired and cease to exist and no payment shall be made with respect
thereto.
(d) Each share of common stock, par value $.01 per share, of Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and become a fully paid and non-assessable share of Common Stock
of the Surviving Corporation.
Section 3.2 EXCHANGE OF CERTIFICATES REPRESENTING SHARES.
(a) As of the Effective Time, Parent shall deposit, or shall cause to be
deposited, with an exchange agent selected by Parent and reasonably satisfactory
to the Company (the "Exchange Agent"), for the benefit of the holders of Shares,
for exchange in accordance with this Article III, (i)(x) certificates
representing the number of Parent Shares issuable as part of the Merger
Consideration (subject to the election contained in Section 6.2(c)) and (y) cash
in an amount equal to the aggregate cash component of the Merger Consideration,
in each case to be paid in respect of all
5
<PAGE>
Shares outstanding immediately prior to the Effective Time and which are to be
exchanged pursuant to the Merger (exclusive of shares to be cancelled pursuant
to Section 3.1(c)), and (ii) cash to be paid in lieu of the issuance of
fractional shares as provided in Section 3.4 hereof (such cash and certificates
for Parent Shares, if any, together with dividends or distributions with respect
thereto being hereinafter referred to collectively as the "Exchange Fund").
(b) Promptly after the Effective Time, Parent shall cause the
Exchange Agent to mail (or deliver at its principal office) to each holder of
record of a certificate or certificates representing Shares (i) a letter of
transmittal which shall specify that delivery shall be effected, and risk of
loss and title to the certificates for Shares shall pass, only upon delivery of
the certificates for Shares to the Exchange Agent and shall be in such form and
have such other provisions, including appropriate provisions with respect to
back-up withholding, as Parent may reasonably specify, and (ii) instructions for
use in effecting the surrender of the certificates for Shares. Upon surrender
of a certificate for Shares for cancellation to the Exchange Agent, together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, the holder thereof shall be entitled to receive in
exchange therefor that portion of the Exchange Fund which such holder has the
right to receive pursuant to the provisions of this Article III, after giving
effect to any required withholding tax, and the certificate
6
<PAGE>
for Shares so surrendered shall forthwith be cancelled. No interest will be
paid or accrued on the cash to be paid as part of the Merger Consideration. In
the event of any transfer of ownership of Shares which has not been registered
in the transfer records of the Company, certificates representing the proper
number of Parent Shares, if any, together with a check in an amount equal to the
cash component of the Exchange Fund, will be issued to the transferee of the
certificate representing the transferred Shares presented to the Exchange Agent,
accompanied by all documents required to evidence and effect the prior transfer
thereof and to evidence that any applicable stock transfer taxes associated with
such transfer were paid.
Section 3.3 DIVIDENDS. No dividends or other distributions
with respect to securities of Parent constituting part of the Merger
Consideration shall be paid to the holder of any unsurrendered certificates
representing Shares until such certificates are surrendered as provided in
Section 3.1. Upon such surrender, all dividends and other distributions payable
in respect of such securities on a date subsequent to, and in respect of a
record date after the Effective Time, shall be paid, without interest, to the
person in whose name the certificates representing the securities of Parent into
which such Shares were converted are registered or as otherwise directed by that
person. In no event shall the person entitled to receive such dividends or
distributions be entitled to receive interest on any such dividends or
distributions.
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Section 3.4 NO FRACTIONAL SECURITIES. No certificates or
scrip representing fractional Parent Shares shall be issued upon the surrender
for exchange of certificates representing Shares pursuant to this Article III
and no dividend, stock split or other change in the capital structure of the
Company shall relate to any fractional interest, and such fractional interests
shall not entitle the owner thereof to vote or to any rights of a security
holder. In lieu of any such fractional interest, each holder of Shares who
would otherwise have been entitled to a fraction of a Parent Share upon
surrender of stock certificates for exchange pursuant to this Article III will
be paid cash upon such surrender in an amount equal to the product of such
fraction multiplied by the average closing sale price of Parent Shares on the
New York Stock Exchange over the ten (10) consecutive trading days immediately
preceding the Closing Date, as such closing sale price shall be reported in THE
WALL STREET JOURNAL or, if not available, such other authoritative publication
as may be reasonably selected by Parent (such average over such period being the
"Average Price").
Section 3.5 CLOSING OF COMPANY TRANSFER BOOKS. At the
Effective Time, the stock transfer books of the Company shall be closed and no
transfer of Shares shall thereafter be made. If, after the Effective Time,
certificates representing Shares are presented to the Surviving Corporation,
they shall be cancelled and exchanged for the Merger Consideration.
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Section 3.6 UNCLAIMED AMOUNTS. Any portion of the Exchange
Fund which is attributable to Dissenting Shares or which remains unclaimed by
the former stockholders of the Company one year after the Effective Time shall
be delivered by the Exchange Agent to the Parent. Any former stockholders of
the Company who have not theretofore complied with this Article III shall
thereafter look only to the Parent for payment of the Merger Consideration, cash
in lieu of fractional shares, and unpaid dividends and distributions in respect
of Parent Shares deliverable as part of the Merger Consideration as determined
pursuant to this Agreement, in all cases without any interest thereon. None of
Parent, the Surviving Corporation, the Exchange Agent or any other person will
be liable to any former holder of Shares for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
Section 3.7 LOST CERTIFICATES. In the event any certificate
evidencing Shares shall have been lost, stolen or destroyed, upon the making and
delivery of an affidavit of that fact by the person claiming such certificate to
have been lost, stolen or destroyed and, if required by Parent, the posting by
such person of a bond in such reasonable amount as Parent may direct as
indemnity against any claim that would be made against the Company or Parent
with respect to such certificate, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed certificate the portion of the Exchange Fund
deliverable in respect thereof pursuant to this Agreement.
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Section 3.8 DISSENTING SHARES. Notwithstanding anything in
this Agreement to the contrary, any issued and outstanding Shares held by a
stockholder (a "Dissenting Stockholder") who objects to the Merger and complies
with all the provisions of the DGCL concerning the right of holders of Shares to
dissent from the Merger and require appraisal of the Shares ("Dissenting
Shares") shall not be converted as described in Section 3.1 but shall become the
right to receive such consideration as may be determined to be due to such
Dissenting Stockholder pursuant to the DGCL. If, after the Effective Time, such
Dissenting Stockholder withdraws his demand for appraisal or fails to perfect or
otherwise loses his right of appraisal, in any case pursuant to the DGCL, or if
the Parent otherwise consents thereto, his Shares shall be deemed to be
converted as of the Effective Time into the right to receive the Merger
Consideration, without interest. The Company shall give Parent (a) prompt
notice of any demands for appraisal of Shares received by the Company and (b)
the opportunity to participate in and direct all negotiations and proceedings
with respect to any such demands. The Company shall not, without the prior
written consent of Parent, make any payment with respect to, or settle, offer to
settle or otherwise negotiate, any such demands.
Section 3.9 CLOSING. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Neal, Gerber & Eisenberg, 2 North LaSalle Street, Chicago, Illinois, at 10:00
a.m., local time, on the later of (a)
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twenty (20) business days after the mailing of the Information
Statement/Prospectus (as defined in Section 7.3 hereof), (b) the third business
day following notice from Parent to the Company that it has obtained the
proceeds from the financing necessary to provide for consummation of the Merger
(except that the foregoing shall not prejudice the rights of the Company under
Section 9.3(d) hereof) and (c) the day on which all of the conditions set
forth in Article VIII hereof are satisfied or waived, or at such other date,
time and place as Parent and the Company shall agree (the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as otherwise disclosed to the Company in a letter delivered
to it prior to the execution hereof (which letter shall contain appropriate
references to identify the representations and warranties herein to which the
information in such letter relates) (the "Parent Disclosure Letter"), the Parent
represents and warrants to the Company as follows:
Section 4.1 ORGANIZATION. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has the corporate power to carry on its business as it is now being
conducted or presently proposed to be conducted. Parent is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the
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nature of its activities make such qualification necessary, except where the
failure to be so qualified would not individually or in the aggregate have a
material adverse effect on the business, assets, liabilities, results of
operations or financial condition of Parent and the Parent Subsidiaries (as
defined below), taken as a whole (a "Parent Material Adverse Effect"). Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Sub has not engaged in any business since the date of
its incorporation other than in connection with this Agreement.
Section 4.2 CAPITALIZATION; REGISTRATION RIGHTS. The
authorized capital stock of Parent consists of 450,000,000 Parent Shares and
2,500,000 shares of preferred stock, par value $.15 per share ("Parent Preferred
Stock"). As of September 30, 1994, (i) 166,324,747 Parent Shares were issued
and outstanding, 19,262,919 Parent Shares were issued and held in treasury and
no shares of Parent Preferred Stock were outstanding, (ii) employee stock
options to acquire 15,107,151 Parent Shares (the "Parent Employee Stock
Options") were outstanding under all employee stock option plans of Parent,
(iii) non-employee director stock options to acquire 248,740 Parent Shares (the
"Parent Director Stock Options") were issued and outstanding under all
non-employee director stock option plans of Parent, (iv) 2,102 shares of Series
B Convertible Preferred Stock were reserved for issuance upon conversion of
Parent's Convertible Floating Rate Debentures due 1996, (v) 13,977,549 Parent
Shares were reserved for issuance upon conversion
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of Parent's Series B Convertible Preferred Stock, (vi) 500,000 Parent Shares
were reserved for issuance in connection with Parent's Deferred Compensation
Plan Trust, (vii) 1,000,000 Parent Shares were reserved for issuance in
connection with Parent's 1994 SERP Trust, and (viii) 225,000 shares of Parent
Series A Junior Participating Preferred Stock were reserved for issuance upon
the exercise of Parent's Preferred Stock Purchase Rights. All of the issued and
outstanding Parent Shares are validly issued, fully paid and nonassessable and
free of pre-emptive rights. All of the Parent Shares reserved for issuance in
exchange for Shares at the Effective Time in accordance with this Agreement will
be, when so issued, duly authorized, validly issued, fully paid and
nonassessable and free of pre-emptive rights. The authorized capital stock of
Sub consists of 1,000 shares of common stock, par value $.01 per share, all of
which shares are validly issued and outstanding, fully paid and nonassessable
and are owned by Parent. Except as set forth above or as specified in Section
4.2 of the Parent Disclosure Letter, as of the date of this Agreement there are
no shares of capital stock of Parent issued or outstanding or any options,
warrants, subscriptions, calls, rights, convertible securities or other
agreements or commitments obligating Parent to issue, transfer, sell, redeem,
repurchase or otherwise acquire any shares of its capital stock or securities,
or the capital stock or securities of Sub. Except as provided in this Agreement
or as disclosed in Section 4.2 of the Parent Disclosure Letter, after the
Effective Time Parent will have no obligation to issue, transfer or
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sell any shares of its capital stock pursuant to any employee benefit plan or
otherwise.
Section 4.3 SUBSIDIARIES. (a) The subsidiaries of Parent
that (i) directly or indirectly own or lease any interest in any hospitals,
health care facilities or medical office buildings, (ii) directly or indirectly
conduct any insurance activities or (iii) are otherwise material to Parent
(collectively, the "Parent Subsidiaries") are listed in Section 4.3(a) of the
Parent Disclosure Letter. Each Parent Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, except where the failure to be so organized, existing
and in good standing or to have such power and authority would not individually
or in the aggregate have a Parent Material Adverse Effect. Each Parent
Subsidiary is duly qualified or licensed and in good standing to do business in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing would not individually or in the
aggregate have a Parent Material Adverse Effect.
(b) Except as set forth in Section 4.3(b) of the Parent Disclosure
Letter, Parent is, directly or indirectly, the record and beneficial owner of
all of the outstanding shares of capital
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stock of each of the Parent Subsidiaries, there are no proxies with respect to
any such shares, and no equity securities of any Parent Subsidiary are or may
become required to be issued by reason of any options, warrants, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable or exercisable for, shares
of any capital stock of any Parent Subsidiary, and there are no contracts,
commitments, understandings or arrangements by which Parent or any Parent
Subsidiary is or may be bound to issue, redeem, purchase or sell additional
shares of its capital stock or securities convertible into or exchangeable or
exercisable for any such shares. All of such shares so owned by Parent are
validly issued, fully paid and nonassessable and are owned by it free and clear
of any claim, mortgage, deed of trust, pledge, lien, security interest, charge,
encumbrance or similar agreement of any kind or nature whatsoever ("Lien"),
restraint on alienation, or any other restriction with respect to the
transferability or assignability thereof (other than restrictions on transfer
imposed by federal or state securities laws).
Section 4.4 MATERIAL INVESTMENTS. Except as set forth in
Section 4.4 of the Parent Disclosure Letter, Parent 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
corporation (other than a subsidiary), partnership, joint venture or other
business association or entity that directly or indirectly owns or leases
15
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any interest in any hospital or health care facility, directly or indirectly
conducts any insurance activity, or which is otherwise material to Parent. With
respect to those entities indicated on Section 4.4 of the Parent Disclosure
Letter, Parent has heretofore delivered to the Company financial statements
(audited to the extent available) and interim unaudited financial statements of
each of such entities (through the most recently concluded fiscal quarter for
each of such persons) and, to the best knowledge of Parent, such financial
statements fairly present, in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis (except as may be indicated in
the notes thereto or in Section 4.4 of the Parent Disclosure Letter), the
financial condition of each thereof as at and the results of operations for the
periods so indicated (subject to normal year-end adjustments in the case of the
interim unaudited financial statements), and Parent's disclosures with respect
to its investment in each such entities otherwise included in the Parent SEC
Reports (as defined below) do not contain any untrue statements of material fact
or omit to state any material fact required to be stated therein or which are
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Except as set forth in Section 4.4
of the Parent Disclosure Letter, Parent (or, as indicated thereon, a Parent
Subsidiary) has good and marketable title to the securities evidencing its
investment in the entities indicated in Section 4.4 of the Parent Disclosure
Letter, which have been validly issued and
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are fully paid and non-assessable and are held by Parent or a Parent Subsidiary
free and clear of any Lien, restraint on alienation, or any other restriction
with respect of the transferability or assignability thereof (other than
restrictions on transfer imposed by federal or state securities laws).
Section 4.5 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of
Parent and Sub has the power to enter into this Agreement and to carry out its
obligations hereunder. The execution, delivery and performance of this
Agreement by Parent and Sub and the consummation by Parent and Sub of the
transactions contemplated hereby have been duly authorized by the Boards of
Directors of Parent and Sub, and by Parent as the sole shareholder of Sub, and
no other corporate proceedings on the part of Parent or Sub are necessary to
authorize this Agreement or the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by each of Parent and
Sub and constitutes a valid and binding agreement of each of Parent and Sub,
enforceable against Parent and Sub in accordance with its terms.
Section 4.6 CONSENTS AND APPROVALS; NO VIOLATIONS. Except
for applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (the HSR Act, Securities Act and Exchange Act, collectively, the
"Governmental Requirements"), state or foreign laws relating to takeovers, if
applicable, state securities or blue sky laws, state
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and local laws and regulations relating to the licensing and transfer of
hospitals and health care facilities and similar matters and the filing of the
Certificate of Merger as required by the DGCL, no filing with, and no permit,
authorization, consent or approval of, any court or tribunal or administrative,
governmental or regulatory body, agency or authority is necessary for the
execution, delivery and performance of this Agreement by Parent and Sub of the
transactions contemplated by this Agreement. Neither the execution, delivery
nor performance of this Agreement by Parent or Sub, nor the consummation by
Parent or Sub of the transactions contemplated hereby, nor compliance by Parent
or Sub with any of the provisions hereof, will (i) conflict with or result in
any breach of any provisions of the Articles of Incorporation or By-Laws of
Parent and Sub or the Articles or Certificate of Incorporation, as the case may
be, or By-Laws of any of the Parent Subsidiaries, (ii) except as set forth in
Section 4.6(ii) of the Parent Disclosure Letter, result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation, acceleration,
vesting, payment, exercise, suspension or revocation) under, any of the terms,
conditions or provisions of any note, bond, mortgage, deed of trust, security
interest, indenture, license, contract, agreement, plan or other instrument or
obligation to which Parent or any of the Parent Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound or affected,
(iii) except as set forth in Section
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4.6(iii) of the Parent Disclosure Letter, violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Parent, any Parent Subsidiary
or any of their properties or assets, (iv) except as set forth in Schedule
4.6(iv) of the Parent Disclosure Letter, result in the creation or imposition of
any Lien on any asset of Parent or any Parent Subsidiary, or (v) except as set
forth in Section 4.6(v) of the Parent Disclosure Letter, cause the suspension or
revocation of any certificates of need, accreditation, registrations, licenses,
permits and other consents or approvals of governmental agencies or
accreditation organizations, except in the case of clauses (ii), (iii), (iv) and
(v) for violations, breaches, defaults, terminations, cancellations,
accelerations, creations, impositions, suspensions or revocations which would
not individually or in the aggregate have a Parent Material Adverse Effect.
Section 4.7 PARENT SEC REPORTS. Parent has delivered to the
Company true and complete copies of each registration statement, report and
proxy or information statement, including, without limitation, its Annual
Reports to Shareholders incorporated in material part by reference in certain of
such reports, in the form (including exhibits and any amendments thereto)
required to be filed with the Securities and Exchange Commission ("SEC") since
June 1, 1992 (collectively, the "Parent SEC Reports"). Except as set forth in
Section 4.7 of the Parent Disclosure Letter, as of the respective dates such
Parent SEC Reports were filed or, if any such Parent SEC Reports were amended,
as of the date such amendment was
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filed, each of the Parent SEC Reports (i) complied in all material respects with
all applicable requirements of the Securities Act and the Exchange Act, and the
rules and regulations promulgated thereunder, and (ii) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Each of the
audited consolidated financial statements and unaudited consolidated interim
financial statements of Parent (including any related notes and schedules)
included (or incorporated by reference) in its Annual Reports on Form 10-K for
each of the three fiscal years ended May 31, 1992, 1993 and 1994 and Quarterly
Reports on Form 10-Q for all interim periods subsequent thereto fairly present,
in conformity with GAAP applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of the
Parent and the Parent Subsidiaries as of its date and the consolidated results
of operations and changes in financial position for the period then ended
(subject to normal year-end adjustments in the case of any unaudited interim
financial statements).
Section 4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since
May 31, 1994, except as set forth in Section 4.8 of the Parent Disclosure Letter
or in the Parent SEC Reports or as otherwise permitted in Section 6.2 hereof,
Parent and the Parent Subsidiaries have in all material respects conducted their
business in the ordinary course consistent with past practices.
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Section 4.9 LITIGATION. Except for litigation disclosed in
the notes to the financial statements included in the Parent SEC Reports or as
set forth in Section 4.9 of the Parent Disclosure Letter, there is no suit,
action or proceeding (whether at law or equity, before or by any federal, state
or foreign court, tribunal, commission, board, agency or instrumentality, or
before any arbitrator) pending or, to the best knowledge of Parent, threatened
against or affecting Parent or any of the Parent Subsidiaries, the outcome of
which, in the reasonably judgment of Parent, is likely individually or in the
aggregate to have a Parent Material Adverse Effect, nor is there any judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against Parent or
any of the Parent Subsidiaries having, or which, insofar as can reasonably be
foreseen, in the future may have, any such effect.
Section 4.10 ABSENCE OF UNDISCLOSED LIABILITIES. Except for
liabilities or obligations which are accrued or reserved against in Parent's
financial statements (or reflected in the notes thereto) included in the Parent
SEC Reports or which were incurred after May 31, 1994 in the ordinary course of
business and consistent with past practices or in connection with the
transactions contemplated by this Agreement, Parent and the Parent Subsidiaries
do not have any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of a nature required by
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GAAP to be reflected in a consolidated balance sheet (or reflected in the notes
thereto).
Section 4.11 NO DEFAULT. Except as set forth in Section
4.11 of the Parent Disclosure Schedule, neither Parent, Sub nor any of the
Parent Subsidiaries is in violation or breach of, or default under (and no event
has occurred which with notice or the lapse of time or both would constitute a
violation or breach of, or default under) any term, condition or provision of
(a) its Articles or Certificate of Incorporation, as the case may be, or
By-Laws, (b) any note, bond, mortgage, deed of trust, security interest,
indenture, license, agreement, plan, contract, lease, commitment or other
instrument or obligation to which Parent or any of the Parent Subsidiaries is a
party or by which they or any of their properties or assets may be bound or
affected, (c) any order, writ, injunction, decree, statute, rule or regulation
applicable to Parent or any of the Parent Subsidiaries or any of their
properties or assets, or (d) any certificate of need, accreditation,
registration, license, permit and other consent or approval of governmental
agencies or accreditation organization, except in the case of clauses (b), (c)
and (d) above for violations, breaches or defaults which would not individually
or in the aggregate have a Parent Material Adverse Affect.
Section 4.12 TAXES. Except as set forth in Section 4.12 of
the Parent Disclosure Letter:
(a) Parent and each of the Parent Subsidiaries has (i) timely
filed (or has had timely filed on its behalf) or will cause
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to be timely filed all material Tax Returns (as defined below) required by
applicable law to be filed by any of them for tax years ended prior to the date
of this Agreement and all such Tax Returns and amendments thereto are or will be
true, complete, and correct in all material respects, (ii) has paid (or has had
paid on its behalf) all Taxes due or has properly accrued or reserved for all
such Taxes for such periods and (iii) has accrued for all Taxes for periods
subsequent to the periods covered by such Tax Returns.
(b) There are no material liens for Taxes upon the assets of
Parent or any of the Parent Subsidiaries, except liens for Taxes not yet due.
(c) There are no material deficiencies or adjustments for Taxes
that have been proposed or assessed by any Tax Authority (as defined below)
against Parent or any of the Parent Subsidiaries and which remain unpaid.
(d) The Federal income tax returns of Parent and each of the
Parent Subsidiaries have been examined by the Internal Revenue Service for all
past taxable years and periods to and including the year ended May 31, 1985, and
all material deficiencies finally assessed as a result of such examinations have
been paid. Section 4.12 of the Parent Disclosure Letter sets forth (i) all
taxable years and periods of Parent and the Parent Subsidiaries that are
presently under Audit (as defined below) or in respect of which Parent or any of
the Parent Subsidiaries has been notified in writing by the relevant Tax
Authority that it will be Audited, (ii) the taxable years of Parent and the
Parent Subsidiaries in respect
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of which the statutory period of limitations for the assessment of Federal,
state and local income or franchise Taxes has expired, and (iii) all waivers
extending the statutory period of limitation applicable to any material Tax
Return filed by Parent or any of the Parent Subsidiaries for any taxable period
ending prior to the date of this Agreement.
(e) Prior to the date hereof, Parent and the Parent Subsidiaries
have disclosed all material Tax sharing, Tax indemnity, or similar agreements to
which Parent or any of the Parent Subsidiaries is a party to, is bound by, or
has any obligation or liability for Taxes.
(f) Parent and the Parent Subsidiaries have not paid, and do not
expect to pay, in any taxable year commencing on or after January 1, 1994,
remuneration that would result in a disallowance of any material amount of tax
deductions under section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"). There are no changes in the tax accounting methods subject to
section 481(a) of the Code which have an ongoing material effect on Parent or
any of the Parent Subsidiaries. No "consent" within the meaning of section
341(f) of the Code has been filed with respect to Parent or any of the Parent
Subsidiaries.
(g) As used in this Agreement, (i) "Audit" shall mean any audit,
assessment of Taxes, other examination by any Tax Authority, proceeding or
appeal of such proceeding relating to Taxes, (ii) "Taxes" shall mean all
Federal, state, local and foreign taxes, and other assessments of a similar
nature (whether
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imposed directly or through withholding), including any interest, additions to
tax, or penalties applicable thereto, (iii) "Tax Authority" shall mean the
Internal Revenue Service and any other domestic or foreign governmental
authority responsible for the administration of any Taxes, and (iv) "Tax
Returns" shall mean all Federal, state, local and foreign tax returns,
declarations, statements, reports, schedules, forms and information returns and
any amended Tax Return relating to Taxes.
Section 4.13 TITLE TO CERTAIN PROPERTIES; ENCUMBRANCES.
Except as set forth in Section 4.13 of the Parent Disclosure Letter, no person
has any contractual right or option to purchase or acquire, directly or
indirectly, any interest in, and there are no contracts pursuant to which the
Parent or any Parent Subsidiary is or may be bound to sell, lease, transfer or
otherwise dispose of, any of the hospitals owned by the Parent or any Parent
Subsidiary.
Section 4.14 MEDICARE PARTICIPATION/ACCREDITATION AND
RECAPTURE.
(a) All hospitals or significant health care facilities owned or
operated as continuing operations by the Parent or the Parent Subsidiaries (the
"Parent Facilities") are certified for participation or enrollment in the
Medicare, Medicaid and Civilian Health and Medical Program of the Uniformed
Services ("CHAMPUS") programs, have a current and valid provider contract with
the Medicare, Medicaid and CHAMPUS programs, are in substantial compliance with
the terms and conditions of participation of such
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programs and have received all approvals or qualifications necessary for capital
reimbursement of Parent's assets except where the failure to be so certified, to
have such contracts, to be in such compliance or to have such approvals or
qualifications would not individually or in the aggregate have a Parent Material
Adverse Effect. To the knowledge of Parent, the amounts established as
provisions for Medicare, Medicaid, or CHAMPUS adjustments and adjustments by any
other third party payors on the financial statements of Parent and the Parent
Subsidiaries are sufficient in all material respects to pay any amounts for
which Parent or any of the Parent Subsidiaries may be liable. Neither Parent
nor any of the Parent Subsidiaries has received notice from the regulatory
authorities which enforce the statutory or regulatory provisions in respect of
the Medicare, Medicaid or CHAMPUS programs of any pending or threatened
investigations, surveys (other than routine surveys conducted by accreditation
organizations) or decertification proceedings, and neither Parent nor any of the
Parent Subsidiaries has any reason to believe that any such investigations,
surveys or proceedings are pending, threatened or imminent which may
individually or in the aggregate have a Parent Material Adverse Effect. All
Parent Facilities eligible for such accreditation are accredited by the Joint
Commission on Accreditation on Healthcare Organizations, the Commission on
Accreditation of Rehabilitation or other appropriate accreditation agency.
Section 4.14(a) of the Parent Disclosure Letter sets forth a complete and
correct list of all hospitals and significant
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separately licensed health care facilities owned or operated by Parent and the
Parent Subsidiaries and their respective accreditation.
(b) Each such Parent Facility is licensed by the proper state
department of health to conduct its business in substantially the manner
conducted by such Parent Facility and is authorized to operate the number of
beds utilized therein. The Parent Facilities are presently in substantial
compliance with all of the terms, conditions and provisions of such licenses.
Parent has heretofore made available to the Company correct and complete copies
of all such licenses. The facilities, equipment, staffing and operations of the
Parent Facilities satisfy the applicable state hospital licensing requirements
in all material respects.
(c) No funds were received on behalf of the Parent or any of the
Parent Subsidiaries to construct, improve or acquire any of its facilities under
the "Hill-Burton" Act as a result of which Parent or any of the Parent
Subsidiaries are currently or will in the future be required to pay any amounts
for which there shall be any "recapture" as a result of the consummation of the
transactions contemplated by this Agreement.
Section 4.15 LABOR MATTERS. Except as set forth in Section
4.15 of the Parent Disclosure Letter, neither Parent nor any of the Parent
Subsidiaries is a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization. There is no unfair labor practice or labor arbitration proceeding
pending
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or, to the knowledge of Parent, threatened against Parent or the Parent
Subsidiaries relating to their business, except for any such proceeding which
would not individually or in the aggregate have a Parent Material Adverse
Effect. To the knowledge of Parent, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being made or
threatened involving employees of Parent or any of the Parent Subsidiaries.
There is no labor strike, dispute, slow down, work stoppage, or lockout actually
pending or, to the knowledge of Parent, threatened against Parent or the Parent
Subsidiaries. To the knowledge of Parent, there are no labor union or
organization claims to represent the employees of Parent or any of the Parent
Subsidiaries, nor does any question concerning the representation of such
employees by any labor union or organization exist.
Section 4.16 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 4.16(a) of the Parent Disclosure Letter contains a
true and complete list of each bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance or termination pay,
hospitalization or other medical, life or other insurance, supplemental
unemployment benefits, profit-sharing, pension, or retirement plan, program,
agreement or arrangement, and each other employee benefit plan, program,
agreement or arrangement (the "Parent Plans"), maintained or contributed to or
required to be contributed to by (i) Parent, (ii) any Parent Subsidiary or (iii)
any trade or business, whether or not incorporated, that together with Parent
would be deemed a
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"single employer" within the meaning of Section 4001 of the Employee Retirement
Income Security Act of 1974, as amended, and the rules and regulations
promulgated thereunder ("ERISA") (a "Parent ERISA Affiliate"), for the benefit
of any employee or former employee of Parent, any Parent Subsidiary or any
Parent ERISA Affiliate. Section 4.16(a) of the Parent Disclosure Letter
identifies each of the Parent Plans that is an "employee benefit plan," as that
term is defined in Section 3(3) of ERISA (such plans being hereinafter referred
to collectively as the "Parent ERISA Plans").
(b) With respect to each of the Parent Plans, Parent has
heretofore delivered to the Company true and complete copies of each of the
following documents: (i) a copy of the Parent Plan (including all amendments
thereto), (ii) a copy of the annual report and actuarial report, if required
under ERISA, with respect to the Parent ERISA Plan for the last two years, (iii)
a copy of the most recent Summary Plan Description, together with each Summary
of Material Modification, required under ERISA with respect to the Parent ERISA
Plan, (iv) if the Parent Plan is funded through a trust or any third party
funding vehicle, a copy of the trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof, and (v) the
most recent determination letter received from the Internal Revenue Service with
respect to each Parent ERISA Plan intended to qualify under Section 401 of the
Code.
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(c) No liability under Title IV of ERISA has been incurred by
Parent, any Parent Subsidiary or any Parent ERISA Affiliate since the effective
date of ERISA that has not been satisfied in full, and, except as set forth in
Section 4.16(c) of the Parent Disclosure Letter, no condition exists that
presents a material risk to Parent, any Parent Subsidiary or any Parent ERISA
Affiliate of incurring any liability under such Title (other than liability for
premiums due to the Pension Benefit Guaranty Corporation (the "PBGC"). To the
extent this representation applies to Sections 4064, 4069 or 4204 of Title IV of
ERISA, it is made not only with respect to the Parent ERISA Plans but also with
respect to any employee benefit plan, program, agreement or arrangement subject
to Title IV of ERISA to which Parent, a Parent Subsidiary or a Parent ERISA
Affiliate made, or was required to make, contributions during the five-year
period ending on the date of this Agreement.
(d) With respect to each Parent ERISA Plan which is subject to
Title IV of ERISA, except as set forth in Section 4.16(d) of the Parent
Disclosure Letter, the present value of accrued benefits under such plan, based
upon the actuarial assumptions used for financial reporting purposes in the most
recent actuarial report prepared by such plan's actuary with respect to such
plan, did not exceed, as of its latest valuation date, the then current value of
the assets of such plan allocable to such accrued benefits.
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(e) No Parent ERISA Plan or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, as of the last day of
the most recent fiscal year of each Parent ERISA Plan ended prior to the date of
this Agreement, and all contributions required to be made with respect thereto
(whether pursuant to the terms of any Parent ERISA Plan or otherwise) on or
prior to the date of this Agreement have been timely made.
(f) Except as set forth in Section 4.16(f) of the Parent
Disclosure Letter, no Parent ERISA Plan is a "multi-employer pension plan," as
defined in Section 3(37) of ERISA, nor is any Parent ERISA Plan a plan described
in Section 4063(a) of ERISA.
(g) Except as set forth in Section 4.16(g) of the Parent
Disclosure Letter, each Parent ERISA Plan intended to be "qualified" within the
meaning of Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified and the trusts maintained thereunder have
been determined to be exempt from taxation under Section 501(a) of the Code and,
to the best knowledge of Parent, no event has occurred nor does any condition
exist which would adversely affect such qualification and exemption.
(h) Except as set forth in Section 4.16(h) of the Parent
Disclosure Letter, each of the Parent Plans has been operated and administered
in all material respects in accordance with applicable laws, including, but not
limited to, ERISA and the Code.
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(i) Except as set forth in Section 4.16(i) of the Parent
Disclosure Letter, no amounts payable under the Parent Plans or any other
contract, arrangement or agreement will fail to be deductible for federal income
tax purposes by virtue of Section 280G of the Code.
(j) Except as set forth in Section 4.16(j) of the Parent
Disclosure Letter, no Parent Plan provides benefits, including without
limitation death or medical benefits (whether or not insured), with respect to
current or former employees of Parent, any Parent Subsidiary or any Parent ERISA
Affiliate beyond such employees' retirement or other termination of service,
other than (i) coverage mandated by applicable law, (ii) death benefits or
retirement benefits under any "employee pension plan," as that term is defined
in Section 3(2) of ERISA, (iii) deferred compensation benefits accrued as
liabilities on the books of Parent, any Parent Subsidiary or any Parent ERISA
Affiliate or (iv) benefits the full cost of which is borne by such employees or
their beneficiaries.
(k) Except as set forth in Section 4.16(k) of the Parent
Disclosure Letter, the consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer of
Parent, any Parent Subsidiary or any Parent ERISA Affiliate to severance pay,
unemployment compensation or any other payment, except as expressly provided by
this Agreement, (ii) accelerate the time of payment or vesting, or increase the
amount, of any compensation due any such employee or officer, or (iii) result in
any prohibited transaction described in
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Section 406 of ERISA or Section 4975 of the Code for which an exemption is not
available.
(l) With respect to each Parent Plan that is funded wholly or
partially through an insurance policy, there will be no liability of Parent, any
Parent Subsidiary or any Parent ERISA Affiliate, as of the Effective Time, under
any such insurance policy or ancillary agreement with respect to such insurance
policy in the nature of a retroactive rate adjustment, loss sharing arrangement
or other actual or contingent liability arising wholly or partially out of
events occurring prior to the closing.
(m) There are no pending, threatened or anticipated claims by or
on behalf of any of the Parent Plans, by any employee or beneficiary covered
under any such Parent Plan, or otherwise involving any such Parent Plan (other
than routine claims for benefits).
(n) None of Parent, any Parent Subsidiary, any Parent ERISA
Affiliate, any of the Parent ERISA Plans, any trust created thereunder or any
trustee or administrator thereof has engaged in a transaction in connection with
which Parent, any Parent Subsidiary or any Parent ERISA Affiliate, any of the
Parent ERISA Plans, any such trust, or any trustee or administrator thereof, or
any party dealing with the Parent ERISA Plans or any such trust could be subject
to either a material civil liability under Section 409 of ERISA, Section 502(i)
of ERISA, or Section 502(l) of ERISA or a material tax imposed pursuant to
Section 4975 or 4976 of the Code.
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Section 4.17 PATENTS, LICENSES, FRANCHISES AND FORMULAS. Each
of Parent and the Parent Subsidiaries owns all of the patents, trademarks,
service marks, copyrights, permits, trade names, licenses, franchises and
formulas, or rights with respect to the foregoing, and has obtained assignments
of all such rights and other rights of whatever nature, necessary for the
present conduct of its business, in each case except as would not individually
or in the aggregate have a Parent Material Adverse Effect.
Section 4.18 INSURANCE. Section 4.18 of the Parent
Disclosure Letter sets forth a complete and correct list of all material
insurance policies currently in force insuring against risks of Parent and the
Parent Subsidiaries. Parent previously has delivered to the Company true and
correct schedules listing the name of carrier, policy coverage, policy limits
and deductibles with respect to the policies listed in Section 4.18 of the
Parent Disclosure Letter. Parent and the Parent Subsidiaries are in compliance
with the terms of such policies and except as set forth in Section 4.18 of the
Parent Disclosure Letter, there are no claims by Parent or any of the Parent
Subsidiaries under any such policy as to which any insurance company is denying
liability or defending under a reservation of rights clause, in each case except
as would not individually or in the aggregate result in a Parent Material
Adverse Effect.
Section 4.19 BOARD APPROVALS; OPINION OF FINANCIAL ADVISOR.
Each of the Board of Directors of Parent and Sub (at meetings duly called and
held) has unanimously determined that the
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transactions contemplated hereby are fair to and in the best interests of Parent
and Sub. Parent has received the opinion of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), Parent's financial advisor, substantially to the
effect that the Merger Consideration to be paid by Parent in the Merger is fair
to Parent from a financial point of view.
Section 4.20 BROKERS. No broker, finder or investment banker
(other than DLJ) is entitled to any brokerage, finder's fee or other fee or
commission payable by Parent in connection with the transactions contemplated by
this Agreement based upon arrangements made by and on behalf of Parent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise disclosed to Parent and Sub in a letter
delivered to them prior to the execution hereof (which letter shall contain
appropriate references to identify the representations and warranties herein to
which the information in such letter relates) (the "Company Disclosure Letter"),
the Company represents and warrants to Parent and Sub as follows:
Section 5.1 ORGANIZATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power to carry on its business as it is
now being conducted or presently proposed to be conducted. The Company is duly
qualified as a foreign corporation to do business, and is in good standing, in
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each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified would not individually or in the aggregate
have a material adverse effect on the business, assets, liabilities, results of
operations or financial condition of the Company and the Company Subsidiaries
(as defined below), taken as a whole (a "Company Material Adverse Effect").
Section 5.2 CAPITALIZATION. The authorized capital stock of
the Company consists of 200,000,000 Shares and 5,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). As of September 30,
1994 (i) 77,563,054 Shares were issued and outstanding, (ii) Company Options to
acquire 3,081,005 Shares were outstanding under all stock option plans and
agreements of the Company, (iii) 6,306,601 Shares (including Shares issuable
upon exercise of the options identified in clause (ii) above) were reserved for
issuance pursuant to all employee plans of the Company, and (iv) there were no
shares of Preferred Stock outstanding. All of the issued and outstanding Shares
are validly issued, fully paid and nonassessable and free of preemptive rights.
Except as set forth above or as specified in Section 5.2 of the Company
Disclosure Letter, as of the date of this Agreement there are no shares of
capital stock of the Company issued or outstanding or any options, warrants,
subscriptions, calls, rights, convertible securities or other agreements or
commitments obligating the Company to issue, transfer, sell, redeem, repurchase
or otherwise
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acquire any shares of its capital stock or securities. Except as provided in
this Agreement or as set forth in Section 5.2 of the Company Disclosure Letter,
after the Effective Time the Company will have no obligation to issue, transfer
or sell any shares of its capital stock pursuant to any employee benefit plan or
otherwise.
Section 5.3 SUBSIDIARIES.
(a) The subsidiaries of the Company that (i) directly or
indirectly own or lease any interest in any hospitals, health care facilities or
medical office buildings, (ii) directly or indirectly conduct any insurance
activities, or (iii) are otherwise material to the Company (collectively, the
"Company Subsidiaries") are listed in Section 5.3(a) of the Company Disclosure
Letter. Each Company Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power and authority would not individually or in the aggregate have a
Company Material Adverse Effect. Each Company Subsidiary is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
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standing would not individually or in the aggregate have a Company Material
Adverse Effect.
(b) Except as set forth in Section 5.3(b) of the Company
Disclosure Letter, the Company is, directly or indirectly, the record and
beneficial owner of all of the outstanding shares of capital stock of each of
the Company Subsidiaries, there are no proxies with respect to any such shares,
and no equity securities of any Company Subsidiary are or may become required to
be issued by reason of any options, warrants, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable or exercisable for, shares of any capital stock
of any Company Subsidiary, and there are no contracts, commitments,
understandings or arrangements by which the Company or any Company Subsidiary
is or may be bound to issue, redeem, purchase or sell additional shares of its
capital stock or any Company Subsidiary or securities convertible into or
exchangeable or exercisable for any such shares. Except as set forth in Section
5.3(b) of the Company Disclosure Letter, all of such shares so owned by the
Company are validly issued, fully paid and nonassessable and are owned by it
free and clear of any Lien, restraint on alienation, or any other restriction
with respect to the transferability or assignability thereof (other than
restrictions on transfer imposed by federal or state securities laws).
Section 5.4 MATERIAL INVESTMENTS. Except as set forth in
Section 5.4 of the Company Disclosure Letter, the Company does
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not directly or indirectly own any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for any equity or
similar interest in, any corporation (other than a subsidiary), partnership,
joint venture or other business association or entity that directly or
indirectly owns or leases any interest in any hospital or health care facility,
directly or indirectly conducts any insurance activity, or which is otherwise
material to the Company. With respect to those entities listed on Section 5.4
of the Company Disclosure Letter, the Company has heretofore delivered to Parent
financial statements (audited to the extent available) and interim unaudited
financial statements of each of such entities (through the most recently
concluded fiscal quarter for each of such persons) and, to the best knowledge of
the Company, such financial statements fairly present, in conformity with GAAP
applied on a consistent basis (except as may be indicated in the notes thereto
or in Section 5.4 of the Company Disclosure Letter), the financial condition of
each thereof as at and the results of operations for the periods so indicated
(subject to normal year-end adjustments in the case of the interim unaudited
financial statements), and the Company's disclosures with respect to its
investment in each of such entities otherwise included in the Company SEC
Reports (as defined below) do not contain any untrue statements of material fact
or omit to state any material fact required to be stated therein or which are
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Except as set forth in
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Schedule 5.4 of the Company Disclosure Letter, the Company (or, as indicated
thereon, a Company Subsidiary) has good and marketable title to the securities
evidencing its investment in the entities listed on Section 5.4 of the Company
Disclosure Letter, which have been validly issued and are fully paid and
non-assessable and are held by the Company (or, as indicated thereon, a Company
Subsidiary) free and clear of any Lien, restraint on alienation, or any other
restriction with respect of the transferability or assignability thereof (other
than restrictions on transfer imposed by federal or state securities laws).
Section 5.5 AUTHORITY RELATIVE TO THIS AGREEMENT. The
Company has the power to enter into this Agreement and to carry out its
obligations hereunder. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by the Company's Board of
Directors and, except for the approval of its stockholders to be provided by
written consent pursuant to Section 7.5 hereof promptly but in any event within
ten (10) days after the execution of this Agreement and notification to all
stockholders of such action in accordance with the DGCL and Regulation 14C of
the Exchange Act, no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or the transactions contemplated hereby.
Subject to the foregoing, this Agreement has been duly and validly executed and
delivered by the Company and constitutes a valid and binding
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agreement of the Company, enforceable against the Company in accordance with its
terms.
Section 5.6 CONSENTS AND APPROVALS; NO VIOLATIONS.
Except for applicable requirements of the Governmental Requirements, state or
foreign laws relating to takeovers, if applicable, state securities or blue sky
laws, state and local laws and regulations relating to the licensing and
transfer of hospitals and health care facilities and similar matters and the
filing of a Certificate of Merger as required by the DGCL, no filing with, and
no permit, authorization, consent or approval of, any court or tribunal or
administrative, governmental or regulatory body, agency, public body or
authority is necessary for the execution, delivery and performance of this
Agreement by the Company of the transactions contemplated by this Agreement.
Neither the execution, delivery and performance of this Agreement by the
Company, nor the consummation by the Company of the transactions contemplated
hereby, nor compliance by the Company with any of the provisions hereof, will
(i) conflict with or result in any breach of any provisions of the Certificate
of Incorporation or By-Laws of the Company or the Certificate or Articles of
Incorporation, as the case may be, or By-Laws of any of the Company
Subsidiaries, (ii) except as set forth in Section 5.6(a)(ii) of the Company
Disclosure Letter, result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation, vesting, payment, exercise, acceleration,
suspension or revocation) under, any of the
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terms, conditions or provisions of any note, bond, mortgage, deed of trust,
security interest, indenture, license, contract, agreement, plan or other
instrument or obligation to which the Company or any of the Company Subsidiaries
is a party or by which any of them or any of their properties or assets may be
bound or affected, (iii) except as set forth in Section 5.6(a)(iii) of the
Company Disclosure Letter, violate any order, writ, injunction, decree, statute,
rule or regulation applicable to the Company, any of the Company Subsidiaries or
any of their properties or assets, (iv) except as set forth in Section
5.6(a)(iv) of the Company Disclosure Letter, result in the creation or
imposition of any Lien on any asset of the Company or any Company Subsidiary or
(v) except as set forth in Section 5.6(a)(v) of the Company Disclosure Letter,
cause the suspension or revocation of any certificates of need, accreditation,
registrations, licenses, permits and other consents or approvals of governmental
agencies or accreditation organizations, except in the case of clauses (ii),
(iii), (iv) and (v) for violations, breaches, defaults, terminations,
cancellations, accelerations, creations, impositions, suspensions or revocations
which would not individually or in the aggregate have a Company Material Adverse
Effect.
Section 5.7 COMPANY SEC REPORTS. The Company has
delivered to Parent true and complete copies of each registration statement,
report and proxy or information statement, including, without limitation, its
Annual Reports to Stockholders incorporated in material part by reference in
certain of such reports, in the
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form (including exhibits and any amendments thereto) required to be filed with
the SEC since September 1, 1992 (collectively, the "Company SEC Reports"). As
of the respective dates the Company SEC Reports were filed or, if any such
Company SEC Reports were amended, as of the date such amendment was filed, each
of the Company SEC Reports (i) complied in all material respects with all
applicable requirements of the Securities Act and Exchange Act, and the rules
and regulations promulgated thereunder, and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Each of the
audited consolidated financial statements and unaudited consolidated interim
financial statements of the Company (including any related notes and schedules)
included (or incorporated by reference) in its Annual Reports on Form 10-K for
each of the three fiscal years ended August 31, 1991, 1992 and 1993 and its
Quarterly Reports on Form 10-Q for all interim periods subsequent thereto fairly
present, in conformity with GAAP applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of the
Company and the Company Subsidiaries as of its date and the consolidated results
of operations and changes in financial position for the period then ended
(subject to normal year-end adjustments in the case of any unaudited interim
financial statements).
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Section 5.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since May
31, 1994, except as set forth in Section 5.8 of the Company Disclosure Letter or
in the Company SEC Reports or as otherwise permitted in Section 6.1 hereof, the
Company and the Company Subsidiaries have in all material respects conducted
their business in the ordinary course consistent with past practices.
Section 5.9 LITIGATION. Except for litigation disclosed in the
notes to the financial statements included in the Company SEC Reports or as set
forth in Section 5.9 of the Company Disclosure Letter, there is no suit, action
or proceeding (whether at law or equity, before or by any federal, state or
foreign commission, court, tribunal, board, agency or instrumentality, or before
any arbitrator) pending or, to the best knowledge of the Company, threatened
against or affecting the Company or any of the Company Subsidiaries, the outcome
of which, in the reasonable judgment of the Company, is likely individually or
in the aggregate to have a Company Material Adverse Effect, nor is there any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against the Company or any of the Company Subsidiaries having, or which, insofar
as can reasonably be foreseen, in the future many have, any such effect.
Section 5.10 ABSENCE OF UNDISCLOSED LIABILITIES. Except for
liabilities or obligations which are accrued or reserved against in the
Company's financial statements (or reflected in the notes thereto) included in
the Company's SEC Reports or which were
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incurred after August 31, 1993 in the ordinary course of business and consistent
with past practices, the Company and the Company Subsidiaries do not have any
material liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of a nature required by GAAP to be reflected in a consolidated
balance sheet (or reflected in the notes thereto).
Section 5.11 NO DEFAULT. Neither the Company nor any of the
Company Subsidiaries is in violation or breach of, or default under (and no
event has occurred which with notice or the lapse of time or both would
constitute a violation or breach of, or a default under) any term, condition or
provision of (a) its Articles or Certificate of Incorporation, as the case may
be, or By-Laws, (b) any note, bond, mortgage, deed of trust, security interest,
indenture, license, agreement, plan, contract, lease, commitment or other
instrument or obligation to which the Company or any of the Company Subsidiaries
is a party or by which they or any of their properties or assets may be bound or
affected, (c) any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any of the Company Subsidiaries or any of their
properties or assets, or (d) any certificate of need, accreditation,
registration, license, permit and other consent or approval of governmental
agencies or accreditation organizations, except in the case of clauses (b), (c)
and (d) above for breaches, defaults or violations which would not individually
or in the aggregate have a Company Material Adverse Effect.
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Section 5.12 TAXES. Except as set forth in Section 5.12 of the
Company Disclosure Letter,
(a) The Company and each of the Company Subsidiaries has (i) timely
filed (or has had timely filed on its behalf) or will cause to be timely filed
all material Tax Returns required by applicable law to be filed by any of them
for tax years ended prior to the date of this Agreement and all such Tax Returns
and amendments thereto are or will be true, complete, and correct in all
material respects, (ii) has paid (or has had paid on its behalf) all Taxes due
or has properly accrued or reserved for all such Taxes for such periods and
(iii) has accrued for all Taxes for periods commencing after the periods covered
by such Tax Returns and ending prior to the date hereof.
(b) There are no material liens for Taxes upon the assets of the
Company or any of the Company Subsidiaries, except liens for taxes not yet due.
(c) There are no material deficiencies or adjustments for Taxes
that have been proposed or assessed and which remain unpaid (except as
heretofore disclosed by the Company to Parent) by any Tax Authority against the
Company or any of the Company Subsidiaries.
(d) Set forth in Section 5.12 of the Company Disclosure Schedule is
a listing of the Federal income tax returns of the Company and each of the
Company Subsidiaries which are currently being examined by the Internal Revenue
Service or which are the subject of litigation. Section 5.12 of the Company
Disclosure
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Letter sets forth (i) all taxable years and periods of the Company and the
Company Subsidiaries that are presently under Audit or in respect of which the
Company or any of the Company Subsidiaries has been notified in writing by the
relevant Tax Authority that it will be Audited, (ii) the taxable years of the
Company and the Company Subsidiaries in respect of which the statutory period of
limitations for the assessment of material Federal, state and local income or
franchise Taxes has expired, and (iii) all waivers extending the statutory
period of limitation applicable to any material Tax Return filed by the Company
or any of the Company Subsidiaries for any taxable period ending prior to the
date of this Agreement.
(e) Prior to the date hereof, the Company and the Company
Subsidiaries have disclosed all material Tax sharing, Tax indemnity, or similar
agreements to which the Company or any of the Company Subsidiaries is a party
to, is bound by, or has any obligation or liability for Taxes.
(f) The Company and the Company Subsidiaries have not paid, and do
not expect to pay, in any taxable year commencing on or after January 1, 1994,
remuneration that would result in a disallowance of any material amount of tax
deductions under section 162(m) of the Code, PROVIDED, that certain plans must
be submitted to the Company's stockholders for approval by written consent or at
the next meeting of stockholders of the Company. There are no changes in the
tax accounting methods subject to section 481(a) of the Code which have an
ongoing material effect on the Company or
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any of the Company Subsidiaries. No "consent" within the meaning of section
341(f) of the Code has been filed with respect to the Company or any of the
Company Subsidiaries.
Section 5.13 TITLE TO CERTAIN PROPERTIES; ENCUMBRANCES. Except
as set forth in Section 5.13 of the Company Disclosure Letter, no person has any
contractual right or option to purchase or acquire, directly or indirectly, any
interest in, and there are no contracts pursuant to which the Company or any
Company Subsidiary is or may be bound to sell, lease, transfer or otherwise
dispose of, any hospital owned by the Company or any Company Subsidiary.
Section 5.14 COMPLIANCE WITH APPLICABLE LAW. Except as disclosed
in the Company SEC Reports, each of the Company and the Company Subsidiaries is
in compliance with all applicable Laws, except where the failure to be in such
compliance would not individually or in the aggregate have a Company Material
Adverse Effect.
Section 5.15 MEDICARE PARTICIPATION/ACCREDITATION AND
RECAPTURE.
(a) All hospitals and significant health care facilities owned or
operated by the Company and the Company Subsidiaries (the "Company Facilities")
are certified for participation or enrollment in the Medicare, Medicaid and
CHAMPUS programs, have a current and valid provider contract with the Medicare,
Medicaid and CHAMPUS programs, are in substantial compliance with the terms and
conditions of participation of such programs and have received all
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approvals or qualifications necessary for capital reimbursement of the Company's
assets except where the failure to be so certified, to have such contracts, to
be in such compliance or to have such approvals or qualifications would not
individually or in the aggregate have a Company Material Adverse Effect. To
the knowledge of the Company, the amount established as provisions for Medicare,
Medicaid or CHAMPUS adjustments and adjustments by any other third party payors
on the financial statements of the Company and the Company Subsidiaries are
sufficient in all material respects to pay any amounts for which the Company or
any of the Company Subsidiaries may be liable. Neither the Company nor any of
the Company Subsidiaries has received notice from the regulatory authorities
which enforce the statutory or regulatory provisions in respect of the Medicare,
Medicaid or CHAMPUS programs of any pending or threatened investigations,
surveys or decertification proceedings, and neither Company nor any of the
Company Subsidiaries has any reason to believe that any such investigations,
surveys (other than routine surveys conducted by accreditation organizations) or
proceedings are pending, threatened or imminent which may individually or in the
aggregate have a Company Material Adverse Effect. Except as set forth in
Section 5.15(a) of the Company Disclosure letter, all of the Company Facilities
eligible for such accreditation are accredited by the Joint Commission on
Accreditation of Healthcare Organizations, the Commission on Accreditation of
Rehabilitation or other appropriate accreditation agency. Section 5.15(a) of
the Company Disclosure
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Letter sets forth a complete and correct list of all hospitals and significant
separately licensed health care facilities owned and operated by the Company and
the Company Subsidiaries and their respective accreditation.
(b) Each Company Facility is licensed by the proper state
department of health to conduct its business in substantially the manner
conducted by such Company Facility and is authorized to operate the number of
beds utilized therein. The Company Facilities are presently in substantial
compliance with all of the terms, conditions and provisions of such licenses.
The Company has heretofore made available to Parent correct and complete copies
of all such licenses. The facilities, equipment, staffing and operations of
such Company Facilities satisfy the applicable state hospital licensing
requirements in all material respects.
(c) No funds were received on behalf of the Company or any of the
Company Subsidiaries to construct, improve or acquire any of its facilities
under the "Hill-Burton" Act as a result of which the Company or any of the
Company Subsidiaries are currently or will in the future be required to pay any
amounts for which there shall be any "recapture" as a result of the consummation
of the transactions contemplated by this Agreement.
Section 5.16 LABOR MATTERS. Except as set forth in Section 5.16
of the Company Disclosure Letter, neither the Company nor any of the Company
Subsidiaries is a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization. There is
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no unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of the Company, threatened against the Company or the Company
Subsidiaries relating to their business, except for any such proceeding which
would not have individually or in the aggregate have a Company Material Adverse
Effect. To the knowledge of the Company, there are no organizational efforts
with respect to the formation of a collective bargaining unit presently being
made or threatened involving employees of the Company or any of the Company
Subsidiaries. There is no labor strike, dispute, slow down, work stoppage, or
lockout actually pending or, to the knowledge of the Company, threatened against
the Company or the Company Subsidiaries. To the knowledge of the Company, there
are no labor union or organization claims to represent the employees of the
Company or any of the Company Subsidiaries, nor does any question concerning the
representation of such employees by any labor union or organization exist.
Section 5.17 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 5.17(a) of the Company Disclosure Letter contains a
true and complete list of each bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance or termination pay,
hospitalization or other medical, life or other insurance, supplemental
unemployment benefits, profit-sharing, pension, or retirement plan, program,
agreement or arrangement, and each other employee benefit plan, program,
agreement or arrangement (the "Company Plans"), maintained or contributed to or
required to be contributed to by (i) the Company,
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(ii) any Company Subsidiary or (iii) any trade or business, whether or not
incorporated, that together with the Company would be deemed a "single employer"
within the meaning of ERISA (a "Company ERISA Affiliate"), for the benefit of
any employee or former employee of the Company, any Company Subsidiary or any
Company ERISA Affiliate. Section 5.17(a) of the Company Disclosure Letter
identifies each of the Company Plans that is an "employee benefit plan," as that
term is defined in Section 3(3) of ERISA (such plans being hereinafter referred
to collectively as the "Company ERISA Plans").
(b) With respect to each of the Company Plans, the Company has
heretofore delivered to Parent true and complete copies of each of the following
documents: (i) a copy of the Company Plan (including all amendments thereto),
(ii) a copy of the annual report and actuarial report, if required under ERISA,
with respect to the Company ERISA Plan for the last two years, (iii) a copy of
the most recent Summary Plan Description, together with each Summary of Material
Modifications, required under ERISA with respect to the Company ERISA Plan, (iv)
if the Company Plan is funded through a trust or any third party funding
vehicle, a copy of the trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof, and (v) the
most recent determination letter received from the Internal Revenue Service with
respect to each Company ERISA Plan intended to qualify under Section 401 of the
Code.
(c) No liability under Title IV of ERISA has been incurred by the
Company, any Company Subsidiary or any Company
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ERISA Affiliate since the effective date of ERISA that has not been satisfied in
full, and except as disclosed in Section 5.17(c) of the Company Disclosure
Letter, no condition exists that presents a material risk to the Company, any
Company Subsidiary or any Company ERISA Affiliate of incurring any liability
under such Title (other than liability for premiums due to PBGC). To the extent
this representation applies to Sections 4064, 4069 or 4204 of Title IV of ERISA,
it is made not only with respect to the Company ERISA Plans but also with
respect to any employee benefit plan, program, agreement or arrangement subject
to Title IV of ERISA to which the Company, a Company Subsidiary or a Company
ERISA Affiliate made, or was required to make, contributions during the
five-year period ending on the date of this Agreement.
(d) With respect to each Company ERISA Plan which is subject to
Title IV of ERISA, except as set forth in Section 5.17(d) of the Company
Disclosure Letter, the present value of accrued benefits under such plan, based
upon the actuarial assumptions used for financial reporting purposes in the most
recent actuarial report prepared by such plan's actuary with respect to such
plan, did not exceed, as of its latest valuation date, the then current value of
the assets of such plan allocable to such accrued benefits.
(e) No Company ERISA Plan or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, as of the last day of
the most recent fiscal
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year of each Company ERISA Plan ended prior to the date of this Agreement, and
all contributions required to be made with respect thereto (whether pursuant to
the terms of any Company ERISA Plan or otherwise) on or prior to the date of
this Agreement have been timely made.
(f) Except as set forth in Section 5.17(f) of the Company
Disclosure Letter, no Company ERISA Plan is a "multi-employer pension plan," as
defined in section 3(37) of Company ERISA, nor is any ERISA Plan a plan
described in Section 4063(a) of ERISA.
(g) Except as set forth in Section 5.17(g) of the Company
Disclosure Letter, each Company ERISA Plan intended to be "qualified" within the
meaning of Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified and the trusts maintained thereunder have
been determined to be exempt from taxation under Section 501(a) of the Code and,
to the best knowledge of the Company, no event has occurred nor does any
condition exist which would adversely affect such qualification and exemption.
(h) Except as set forth in Section 5.17(h) of the Company
Disclosure Letter, each of the Company Plans has been operated and administered
in all material respects in accordance with applicable laws, including, but not
limited to, ERISA and the Code.
(i) Except as set forth in Section 5.17(i) of the Company
Disclosure Letter, no amounts payable under the Company
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Plans or any other contract, arrangement or agreement will fail to be deductible
for federal income tax purposes by virtue of Section 280G of the Code.
(j) Except as set forth in Section 5.17(j) of the Company
Disclosure Letter, no Company Plan provides benefits, including without
limitation death or medical benefits (whether or not insured), with respect to
current or former employees of the Company, any Company Subsidiary or any
Company ERISA Affiliate beyond such employees' retirement or other termination
of service, other than (i) coverage mandated by applicable law, (ii) death
benefits or retirement benefits under any "employee pension plan," as that term
is defined in Section 3(2) of ERISA, (iii) deferred compensation benefits
accrued as liabilities on the books of the Company, any Company Subsidiary or
any Company ERISA Affiliate or (iv) benefits the full cost of which is borne by
such employees or their beneficiaries.
(k) Except as set forth in Section 5.17(k) of the Company
Disclosure Letter, the consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer of the
Company, any Company Subsidiary or any Company ERISA Affiliate to severance pay,
unemployment compensation or any other payment, except as expressly provided in
this Agreement, (ii) accelerate the time of payment or vesting, or increase the
amount, of any compensation due any such employee or officer, or (iii) result in
any prohibited transaction described in
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Section 406 of ERISA or Section 4975 of the Code for which an exemption is not
available.
(l) With respect to each Company Plan that is funded wholly or
partially through an insurance policy, there will be no liability of the
Company, any Company Subsidiary or any Company ERISA Affiliate, as of the
Effective Time, under any such insurance policy or ancillary agreement with
respect to such insurance policy in the nature of a retroactive rate adjustment,
loss sharing arrangement or other actual or contingent liability arising wholly
or partially out of events occurring prior to the closing.
(m) There are no pending, threatened or anticipated claims by or
on behalf of any of the Company Plans, by any employee or beneficiary covered
under any such Company Plan, or otherwise involving any such Company Plan (other
than routine claims for benefits).
(n) None of the Company, any Company Subsidiary, any Company ERISA
Affiliate, any of the Company ERISA Plans, any trust created thereunder or any
trustee or administrator thereof has engaged in a transaction in connection with
which the Company, any Company Subsidiary or any Company ERISA Affiliate, any of
the Company ERISA Plans, any such trust, or any trustee or administrator
thereof, or any party dealing with the Company ERISA Plans or any such trust
could be subject to either a material civil liability under Section 409 of
ERISA, Section 502(i) of ERISA, or Section 502(l) of ERISA or a material tax
imposed pursuant to Section 4975 or 4976 of the Code.
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Section 5.18 PATENTS, LICENSES, FRANCHISES AND FORMULAS.
Each of the Company and the Company Subsidiaries owns all of the patents,
trademarks, service marks, copyrights, permits, trade names, licenses,
franchises and formulas, or rights with respect to the foregoing, and has
obtained assignments of all such rights and other rights of whatever nature,
necessary for the present conduct of its business, in each case except as would
not individually or in the aggregate have a Company Material Adverse Effect.
Section 5.19 INSURANCE. Section 5.19 of the Company
Disclosure Letter sets forth a complete and correct list of all material
insurance policies currently in force insuring against risks of the Company and
the Company Subsidiaries. The Company previously has delivered to Parent true
and correct schedules listing the name of carrier, policy coverage, policy
limits and deductibles with respect to the policies listed in Section 5.19 of
the Company Disclosure Letter. The Company and the Company Subsidiaries are in
compliance with the terms of such policies and except as set forth in Section
5.19 of the Company Disclosure Letter, there are no claims by the Company or any
of the Company Subsidiaries under any such policy as to which any insurance
company is denying liability or defending under a reservation of rights clause,
in each case except as would not individually or in the aggregate result in a
Company Material Adverse Effect.
Section 5.20 BOARD APPROVAL; OPINION OF FINANCIAL ADVISOR.
The Board of Directors of the Company (at a meeting duly
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called and held) has unanimously approved this Agreement and the transactions
contemplated hereby. The Board of Directors of the Company has received the
opinion of Salomon Brothers Inc ("SBI"), one of the Company's financial
advisors, substantially to the effect that the Merger Consideration to be
received in the Merger by the holders of the Shares is fair to such stockholders
from a financial point of view (the "Fairness Opinion").
Section 5.21 BROKERS. No broker, finder or investment banker
(other than SBI, CS First Boston and GKH Partners, L.P.) is entitled to any
brokerage, finder's fee or other fee or commission payable by the Company in
connection with the transactions contemplated by this Agreement based upon
arrangements made by and on behalf of the Company.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE
MERGER. From the date hereof until the Effective Time, unless Parent shall
otherwise agree in writing, or except as set forth in the Company Disclosure
Letter or as otherwise contemplated by this Agreement, the Company and the
Company Subsidiaries shall conduct their business in the ordinary course
consistent with past practice and shall use their reasonable best efforts to
preserve intact their business organizations and relationships with third
parties and to keep available the services of their present officers and key
employees, subject to the terms of this Agreement. Except as
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set forth in the Company Disclosure Letter or as otherwise provided in this
Agreement, from the date hereof until the Effective Time, without the prior
written consent of Parent, which consent shall not be unreasonably withheld:
(a) the Company will not adopt or propose any change in its
Certificate of Incorporation or By-Laws;
(b) the Company will not, and will not permit any Company
Subsidiary to, declare, set aside or pay any dividend or other distribution with
respect to any shares of capital stock of the Company (except as permitted by
Section 7.12 hereof), or any repurchase, redemption or other acquisition or
investment by the Company or any Company Subsidiary of any outstanding shares of
capital stock or other securities of, or other ownership interests in, the
Company or any Company Subsidiary;
(c) the Company will not, and will not permit any Company
Subsidiary to, merge or consolidate with any other person or acquire a material
amount of assets of any other person;
(d) the Company will not, and will not permit any Company
Subsidiary to, sell, lease, license or otherwise surrender, relinquish or
dispose of (i) any Company Facility or (ii) any assets or property which are
material to the Company and the Company Subsidiaries, taken as a whole, except
(i) pursuant to existing contracts or commitments (the terms of which have been
disclosed to Parent prior to the date hereof), or (ii) in the ordinary course of
business consistent with past practice;
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(e) the Company will not settle any material Audit, make or change
any material Tax election or file amended Tax Returns;
(f) the Company will not issue any securities (except pursuant to
existing obligations), enter into any amendment of any material term of any
outstanding security of the Company or of any Company Subsidiary, incur any
indebtedness except pursuant to existing credit facilities or arrangements, fail
to make any required contribution to any Company ERISA Plan, increase
compensation, bonus or other benefits payable to any employee or former employee
or enter into any settlement or consent with respect to any pending litigation,
except in the ordinary course of business consistent with past practice or as
otherwise permitted by this Agreement;
(g) the Company will not change any method of accounting or
accounting practice by the Company or any Company Subsidiary, except for any
such required change in GAAP;
(h) the Company will not, and will not permit any Company
Subsidiary to, agree or commit to do any of the foregoing; and
(i) except to the extent necessary to comply with the requirements
of applicable laws and regulations, the Company will not, and will not permit
any Company Subsidiary to (i) take, or agree or commit to take, any action that
would make any representation and warranty of the Company hereunder inaccurate
in any respect at, or as of any time prior to, the Effective Time or (ii) omit,
or agree or commit to omit, to take any action necessary
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to prevent any such representation or warranty from being inaccurate in any
respect at any such time, provided however that the Company shall be permitted
to take or omit to take such action which can (without any uncertainty) be cured
at or prior to the Effective Time.
Section 6.2 CONDUCT OF BUSINESS BY PARENT PENDING THE
MERGER. From the date hereof until the Effective Time, unless the Company
shall otherwise agree in writing, or except as set forth in the Parent
Disclosure Letter or as otherwise contemplated by this Agreement or previously
disclosed to the Company in writing, Parent and the Parent Subsidiaries shall
conduct their business in the ordinary course consistent with past practice and
shall use their best efforts to preserve intact their business organizations and
relationships with third parties and to keep available the services of their
present officers and key employees, subject to the terms of this Agreement.
Except as set forth in the Parent Disclosure Letter or as otherwise provided in
this Agreement, from the date hereof until the Effective Time, without the prior
written consent of the Company, which consent shall not be unreasonably
withheld:
(a) Parent will not adopt or propose any change in its Articles of
Incorporation or By-Laws which would have an adverse effect on the Merger
Consideration;
(b) Parent will not, and will not permit any Parent Subsidiary to,
declare, set aside or pay any dividend or other distribution with respect to any
shares of capital stock of Parent, or any repurchase, redemption or other
acquisition or investment by
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Parent or any Parent Subsidiary of any outstanding shares of capital stock or
other securities of, or other ownership interests in, Parent or any Parent
Subsidiary;
(c) Parent will not, and will not permit any Parent Subsidiary to,
merge or consolidate with any other person or acquire a material amount of
assets of any other person if, prior to the consummation of such transaction,
the Company is advised by SBI that, as a result of such transaction, SBI is
required to withdraw the Fairness Opinion unless Parent permits the Company's
stockholders to receive, at the election of the Company, $6.88 in cash in lieu
of the 0.42 of a Parent Share to be received as part of the Merger Consideration
and, if so elected, such cash consideration together with the balance of the
Merger Consideration is received prior to or simultaneously with the
consummation of such other transaction. The Company shall promptly notify
Parent of its election after receiving notice of any such transaction by Parent.
(d) Parent will not, and will not permit any Parent Subsidiary to,
sell, lease, license or otherwise surrender, relinquish or dispose of (i) any
Parent Facility or (ii) any assets or property which are material to Parent and
the Parent Subsidiaries, taken as a whole, except (x) pursuant to existing
contracts or commitments (the terms of which have heretofore been disclosed to
the Company prior to the date hereof), or (y) in the ordinary course of business
consistent with past practice;
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(e) Parent will not, and will not permit any Parent Subsidiary to,
settle any material Audit, make or change any material Tax election or file
amended tax returns;
(f) the Parent will not issue any securities or indebtedness
(except pursuant to existing obligations or in transactions permitted by Section
6.2(c) hereof), enter into any amendment of any material term of any outstanding
security or indebtedness of Parent or of any Parent Subsidiary which would have
an adverse effect on the Merger Consideration (or the ability of Parent to incur
indebtedness necessary to pay the Merger Consideration), incur any indebtedness
except pursuant to existing credit facilities or arrangements, fail to make any
required contribution to any Parent ERISA Plan, materially increase any
compensation or benefits payable to any employee or former employee or enter
into any settlement or consent with respect to any pending litigation, except in
the ordinary course of business consistent with past practice or as otherwise
contemplated or permitted by this Agreement;
(g) Parent will not change any method of accounting or accounting
practice by Parent or any Parent Subsidiary, except for any such required change
in GAAP;
(h) Parent will not, and will not permit any Parent Subsidiary to,
agree or commit to do any of the foregoing; and
(i) except to the extent necessary to comply with the requirements
of applicable laws and regulations, Parent will not, and will not permit any
Parent Subsidiary to (i) take, or agree or
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commit to take, any action that would make any representation and warranty of
Parent hereunder inaccurate in any respect at, or as of any time prior to, the
Effective Time or (ii) omit, or agree or commit to omit, to take any action
necessary to prevent any such representation or warranty from being inaccurate
in any respect at any such time, provided however that Parent shall be permitted
to take or omit to take such action which can (without any uncertainty) be cured
at or prior to the Effective Time.
Section 6.3 CONDUCT OF BUSINESS OF SUB. From the date
hereof to the Effective Time, Sub shall not engage in any activities of any
nature except as provided in or contemplated by this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS AND INFORMATION. The Company and Parent
shall each afford to the other and to the other's financial advisors, legal
counsel, accountants, consultants, financing sources, and other authorized
representatives access during normal business hours throughout the period prior
to the Effective Time to all of its books, records, properties, plants and
personnel and, during such period, each shall furnish promptly to the other (a)
a copy of each report, schedule and other document filed or received by it
pursuant to the requirements of federal or state securities laws, and (b) all
other information as such other party reasonably may request, provided that no
investigation pursuant to this
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Section 7.1 shall affect any representations or warranties made herein or the
conditions to the obligations of the respective parties to consummate the
Merger. Each party shall hold in confidence all nonpublic information until
such time as such information is otherwise publicly available and, if this
Agreement is terminated, each party will deliver to the other all documents,
work papers and other materials (including copies) obtained by such party or on
its behalf from the other party as a result of this Agreement or in connection
herewith, whether so obtained before or after the execution hereof.
Section 7.2 ACQUISITION PROPOSALS. (a) From the date
hereof until the termination hereof, the Company and the Company Subsidiaries
will not, and will cause their respective officers, directors, employees or
other agents not to, directly or indirectly, (i) take any action to solicit,
initiate or encourage any Acquisition Proposal (as hereinafter defined), (ii)
waive any provision of any standstill or similar agreements entered into by the
Company or the Company Subsidiaries, or (iii) engage in negotiations with, or
disclose any nonpublic information relating to the Company or Company
Subsidiaries, respectively, or afford access to their respective properties,
books or records to any person that may be considering making, or has made, an
Acquisition Proposal. Nothing contained in this Section 7.2 shall prohibit the
Company and its Board of Directors from (i) taking and disclosing a position
with respect to a tender offer by a third party pursuant to Rules 14d-9 and
14e-2(a) promulgated by the SEC under the
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Exchange Act, or (ii) furnishing information to, or entering into negotiations
with, any person or entity that makes an unsolicited bona fide proposal to
acquire the Company pursuant to a merger, consolidation, share exchange,
purchase of a substantial portion of the assets, business combination or other
similar transaction, if, and only to the extent that, (A) such Board of
Directors determines in good faith that such action is required for the Board of
Directors to comply with its fiduciary duties to stockholders imposed by law,
(B) prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, the Company provides written notice to
the other party to this Agreement to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such person
or entity, and (C) subject to any confidentiality agreement with such person or
entity (which such party determined in good faith was required to be executed in
order for the Board of Directors to comply with its fiduciary duties to
shareholders or stockholders imposed by law), the Company keeps Parent informed
of the status (but not the terms) of any such negotiations or discussions.
(b) The term "Acquisition Proposal" as used herein means any offer
or proposal for, or any indication of interest in, a merger or other business
combination involving the Company or any Company Subsidiary or the acquisition
of any equity interest in, or a substantial portion of the assets of, any such
party, other than the transactions contemplated by this Agreement.
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Section 7.3 REGISTRATION STATEMENT. As promptly as
practicable, Parent and the Company shall cooperate and promptly prepare and
file with the SEC the Information Statement and Parent shall prepare and file
with the SEC the Registration Statement (collectively, such Information
Statement and Registration Statement, being the "Information
Statement/Prospectus"). Parent shall use its reasonable best efforts, and the
Company will cooperate with Parent, to have the Registration Statement declared
effective by the SEC as promptly as practicable. Parent shall also use its
reasonable best efforts to take any action required to be taken under state
securities or blue sky laws in connection with the issuance of the Parent Shares
pursuant hereto. The Company shall furnish Parent with all information
concerning the Company and the holders of its capital stock and shall take such
other action as Parent reasonably may request in connection with such
Information Statement/Prospectus and issuance of the Parent Shares hereunder.
Parent agrees that the Information Statement/Prospectus and each amendment or
supplement thereto at the time of mailing thereof through twenty (20) business
days thereafter, or, in the case of the Registration Statement and each
amendment or supplement thereto, at the time it is filed or becomes effective,
will not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing shall not apply to the extent
that any such untrue
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statement of a material fact or omission to state a material fact was made by
Parent in reliance upon and in conformity with written information concerning
the Company furnished to Parent by the Company specifically for use in the
Information Statement/Prospectus. The Company agrees that the information
provided by it for inclusion in the Information Statement/Prospectus and each
amendment or supplement thereto, at the time of mailing thereof through twenty
(20) business days thereafter, or, in the case of information provided by the
Company for inclusion in the Registration Statement or any amendment or
supplement thereto, at the time it is filed or becomes effective, will not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Except
as otherwise required by law, no amendment or supplement to the Information
Statement/Prospectus will be made by Parent or the Company without the approval
of the other party, which approval will not be unreasonably withheld. Parent
will advise the Company, promptly after it receives notice thereof, of the time
when the Registration Statement has become effective or any supplement or
amendment has been filed, the issuance of any stop order, the suspension of the
qualification of Parent Shares issuable in connection with the Merger for
offering or sale in any jurisdiction, or any request by the SEC for amendment of
the Information Statement/Prospectus or
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the Registration Statement or comments thereon and responses thereto or requests
by the SEC for additional information.
Section 7.4 LISTING APPLICATION. Parent shall promptly
prepare and submit to each of the New York Stock Exchange and Pacific Stock
Exchange a listing application covering the Parent Shares to be issued in
connection with the Merger and this Agreement, and shall use its reasonable best
efforts to obtain, prior to the Effective Time, approval for the listing of such
Parent Shares, subject to official notice of issuance.
Section 7.5 INFORMATION STATEMENT AND STOCKHOLDER APPROVAL.
(a) The Company, acting through its Board of Directors, shall, in
accordance with applicable law and its Certificate of Incorporation and By-Laws
(i) promptly and duly, give notice of, as soon as practicable following the date
upon which the Registration Statement becomes effective, mail to stockholders of
the Company the Information Statement/Prospectus in accordance with the
requirements of the DGCL and Regulation 14C of the Exchange Act and take all
lawful action necessary to provide notification of the written consent of
stockholders of the Company of the approval of the Merger as contemplated by
Section 7.1(b) hereof.
(b) Promptly hereafter, but in no event later than ten (10) days
after the execution of this Agreement by the parties hereto, stockholders
representing the requisite number of Shares necessary to approve the Merger will
deliver written consents in accordance with Section 228 of the DGCL.
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Section 7.6 FILINGS; OTHER ACTION. Subject to the terms and
conditions herein provided, as promptly as practicable, the Company, Parent and
Sub shall: (i) promptly make all filings and submissions under the HSR Act as
reasonably may be required to be made in connection with this Agreement and the
transactions contemplated hereby, (ii) use all reasonable efforts to cooperate
with each other in (A) determining which filings are required to be made prior
to the Effective Time with, and which material consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
governmental or regulatory authorities of the United States, the several states
or District of Columbia, and foreign jurisdictions in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and (B) timely making all such filings and
timely seeking all such consents, approvals, permits or authorizations, and
(iii) use all reasonable efforts to take, or cause to be taken, all other action
and do, or cause to be done, all other things necessary or appropriate to
consummate the transactions contemplated by this Agreement. In connection with
the foregoing, the Company will provide Parent and Sub, and Parent and Sub will
provide the Company, with copies of correspondence, filings or communications
(or memoranda setting forth the substance thereof) between such party or any of
its representatives, on the one hand, and any governmental agency or authority
or members of their respective staffs, on the other hand, with respect to this
Agreement and the transactions contemplated hereby. Each of Parent
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and the Company acknowledge that certain actions may be necessary with respect
to the foregoing in making notifications and obtaining clearances, consents,
approvals, waivers or similar third party actions which are material to the
consummation of the transactions contemplated hereby, and each of Parent and the
Company agree to take such action as is necessary to complete such notifications
and obtain such clearances, approvals, waivers or third party actions, except
where such consequence, event or occurrence would have a Parent Material Adverse
Effect or Company Material Adverse Effect, as the case may be.
Section 7.7 PUBLIC ANNOUNCEMENTS. Parent and Sub, on the
one hand, and the Company, on the other hand, agree that they will not issue any
press release or otherwise make any public statement or respond to any press
inquiry with respect to this Agreement or the transactions contemplated hereby
without the prior approval of the other party (which approval will not be
unreasonably withheld), except as may be required by applicable law.
Section 7.8 COMPANY INDEMNIFICATION PROVISION. Parent
agrees that all rights to indemnification existing in favor of the present or
former directors, officers, employees, fiduciaries and agents of the Company or
any of the Company Subsidiaries (collectively, the "Indemnified Parties") as
provided in the Company's Certificate of Incorporation or By-Laws or the
certificate or articles of incorporation, by-laws or similar organizational
documents of any of the Company Subsidiaries as in
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effect as of the date hereof or pursuant to the terms of any indemnification
agreements entered into between the Company and any of the Indemnified Parties
with respect to matters occurring prior to the Effective Time shall survive the
Merger and shall continue in full force and effect (without modification or
amendment, except as required by applicable law or except to make changes
permitted by law that would enlarge the Indemnified Parties' right of
indemnification), to the fullest extent and for the maximum term permitted by
law, and shall be enforceable by the Indemnified Party against both the Company
and Parent (which shall also directly assume such obligations at the Effective
Time). Parent shall cause to be maintained in effect for not less than six
years from the Effective Time the current policies of the directors' and
officers' liability insurance maintained by the Company (provided that Parent
may substitute therefor policies of at least equivalent coverage containing
terms and conditions which are no less advantageous) with respect to matters
occurring prior to the Effective Time, provided that in no event shall Parent or
the Surviving Corporation be required to expend to maintain or procure insurance
coverage pursuant to this Section 7.8 any amount per annum in excess of 200% of
the aggregate premiums paid in 1994 on an annualized basis for such purpose. In
the event the payment of such amount for any year is insufficient to maintain
such insurance or equivalent coverage cannot otherwise be obtained, the
Surviving Corporation shall purchase as much insurance as may be purchased for
the amount indicated. The provisions of this Section 7.8 shall survive the
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consummation of the Merger and expressly are intended to benefit each of the
Indemnified Parties.
Section 7.9 REGISTRATION STATEMENT FOR SECURITIES ACT
AFFILIATES. Parent shall enter into a Registration Rights Agreement
substantially in the form attached as Exhibit B, providing for the registration
under the Securities Act covering the Parent Shares receivable by Securities Act
Affiliates (as therein defined), which registration statement will permit such
Securities Act Affiliates and their partners, shareholders, beneficiaries or
other similar persons to whom they may distribute Parent Shares through a
dividend, partnership distribution or other similar distribution (collectively,
the "Distributees") to sell such Parent Shares.
Section 7.10 CERTAIN BENEFITS.
(a) From and after the Effective Time, subject to applicable law
and except as contemplated hereby, Parent and the Parent Subsidiaries will
honor, in accordance with their terms, all Company Plans; provided, however,
that nothing herein shall preclude any change effected on a prospective basis in
any Company Plan from and after the Effective Time. Parent and the Parent
Subsidiaries will provide benefits to employees of the Company and the Company
Subsidiaries who become employees of Parent and the Parent Subsidiaries or
continue after the Effective Time as employees of the Company or the Company
Subsidiaries which will, in the aggregate, be no less favorable than those
provided to other similarly situated employees of Parent and the Parent
Subsidiaries
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from time to time. With respect to the Parent Plans, Parent and the Surviving
Corporation shall grant all employees of the Company and the Company
Subsidiaries from and after the Effective Time credit for all service with the
Company and the Company Subsidiaries, their affiliates and predecessors prior to
the Effective Time for all purposes for which such service was recognized by the
Company and the Company Subsidiaries. To the extent the Parent Plans provide
medical or dental welfare benefits after the Effective Time, such plans shall
waive any pre-existing conditions and actively-at-work exclusions and shall
provide that any expenses incurred on or before the Effective Time shall be
taken into account under deductible, coinsurance and maximum out-of-pocket
provisions.
(b) Parent agrees that it will cause the Company to comply with
the WARN Act, to the extent applicable to the Company and its subsidiaries, in
connection with actions taken after the Effective Time.
(c) The provisions of this Section 7.10 shall survive the
consummation of the Merger.
Section 7.11 DIRECTORS OF PARENT. Prior to the date of the
mailing of the Information Statement/Prospectus, the Company shall nominate
three persons who are acceptable to Parent in its reasonable judgment to serve
as directors of Parent in accordance with the policies for directors of Parent
and Parent shall take such action as is necessary to cause such persons to
become directors of Parent effective as of the Effective Time.
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Section 7.12 SPECIAL DIVIDEND. Notwithstanding anything
contained in this Merger Agreement to the contrary, the Board of Directors of
the Company on or prior to Closing shall declare a special dividend of $.10 per
share payable to holders of Shares on or prior to the Effective Time. Payment
of such dividend, which shall be made by the Company's transfer agent in
accordance with the requirements of applicable law and subject to the rules of
the New York Stock Exchange and the SEC, may be funded from the Company's
available cash or borrowings under the Company's Revolving Credit Agreement.
Section 7.13 ADDITIONAL AGREEMENTS. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using all reasonable efforts to obtain all necessary
waivers, consents and approvals in connection with the Governmental
Requirements, to effect all necessary registrations and filings and to obtain
all necessary financing. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and/or directors of Parent, Sub and the Company
shall take all such necessary action.
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ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER. The respective obligations of each party to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Any waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated, and no action
shall have been instituted by the Department of Justice or Federal Trade
Commission challenging or seeking to enjoin the consummation of this
transaction, which action shall have not been withdrawn or terminated.
(b) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall be in effect
and no proceeding for such purpose shall be pending before or threatened by the
SEC.
(c) This Agreement and the transactions contemplated hereby shall
have been approved and adopted by the requisite vote of the stockholders of the
Company respectively in accordance with and subject to applicable law and twenty
(20) business days shall have passed since the mailing of the Information
Statement/Prospectus to the Company's stockholders.
(d) No statute, rule, regulation, executive order, decree, ruling
or preliminary or permanent injunction shall have been enacted, entered,
promulgated or enforced by any federal or
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state court or governmental authority which prohibits, restrains, enjoins or
restricts the consummation of the Merger.
(e) Each of the Company and Parent shall have obtained such
permits, authorizations, consents, or approvals, required by the Governmental
Requirements to consummate the transactions contemplated hereby.
Section 8.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT
THE MERGER. The obligation of the Company to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
additional conditions:
(a) Each of Parent and Sub shall have performed in all material
respects its obligations under this Agreement required to be performed by it at
or prior to the Effective Time and the representations and warranties of Parent
and Sub contained in this Agreement which are qualified with respect to
materiality shall be true and correct in all respects, and such representations
and warranties that are not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and at and as
of the Effective Time as if made at and as of such time, except as contemplated
by the Parent Disclosure Letter or this Agreement, and the Company shall have
received a certificate of the Chairman of the Board, the President, an Executive
Vice President, a Senior Vice President or the Chief Financial Officer of Parent
as to the satisfaction of this condition.
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(b) The Company shall have received a "comfort" letter from KPMG
Peat Marwick, L.L.P., Parent's independent accountants, dated the Effective Time
and addressed to the Company, of the kind contemplated by the Statement on
Auditing Standards with respect to Letters to Underwriters promulgated by the
American Institute of Certified Public Accountants (the "AICPA Statement"), in
form reasonably acceptable to the Company, in connection with the procedures
undertaken by KPMG Peat Marwick, L.L.P., with respect to the financial
statements of Parent included in the Registration Statement and the other
matters contemplated by the AICPA Statement and customarily included in comfort
letters relating to transactions similar to the Merger.
(c) From the date of this Agreement through the Effective Time,
there shall not have occurred any change in the financial condition, business,
operations or prospects of Parent and the Parent Subsidiaries, taken as a whole,
that would have or would be reasonably likely to have a Parent Material Adverse
Effect, other than any such change that affects both Parent and the Company in a
substantially similar manner.
(d) The Company shall have received an opinion from Scott M.
Brown, Senior Vice President, Secretary and General Counsel of Parent, or from
Skadden, Arps, Slate, Meagher & Flom, special counsel to Parent, dated the
Effective Time, in substantially the form set forth as Exhibit C hereto. As to
any matter in such opinion which involves matters of fact or matters relating to
laws other than federal securities or Delaware
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corporate law, such counsel may rely upon the certificates of officers and
directors of Parent and Sub and of public officials and opinions of local
counsel, reasonably acceptable to the Company.
(e) The listing application referred to in Section 7.4 shall have
been approved by the New York Stock Exchange and the registration statement
referred to in Section 7.9 hereof shall have been declared effective and no stop
order shall have been issued with respect thereto.
Section 8.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO
EFFECT THE MERGER. The obligations of Parent and Sub to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following additional conditions:
(a) The Company shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior to
the Effective Time and the representations and warranties of the Company
contained in this Agreement which are qualified with respect to materiality
shall be true and correct in all respects, and such representations and
warranties that are not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement and at and as of the
Effective Time as if made at and as of such time, except as contemplated by the
Company Disclosure Letter or this Agreement, and Parent and Sub shall have
received a Certificate of the Chairman of the Board, the President, an Executive
Vice President, Senior Vice President or the Chief
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Financial Officer of the Company as to the satisfaction of this condition.
(b) Parent and Sub shall have received a letter from Price
Waterhouse & Co., the Company's independent accountants, dated the Effective
Time and addressed to Parent and Sub, in form and substance reasonably
satisfactory to Parent in connection with the procedures undertaken by them with
respect to the financial statements and other financial information of the
Company and the Company Subsidiaries contained in the Registration Statement and
the other matters contemplated by the AICPA Statement No. 72 and customarily
included in comfort letters relating to transactions similar to the Merger.
(c) Parent and Sub shall have received an opinion from Thomas J.
Sabatino, Jr., General Counsel of the Company, or from Neal Gerber & Eisenberg,
special counsel to the Company, dated the Effective Time, in substantially the
form set forth as Exhibit D hereto. As to any matter in such opinion which
involves matters of fact or matters relating to laws other than federal
securities or Delaware corporate law, such counsel may rely upon the
certificates of officers and directors of the Company and of public officials
and opinions of local counsel, reasonably acceptable to Parent and Sub.
(d) From the date of the Agreement through the Effective Time,
there should not have occurred any change in the financial condition, business,
operations or prospects of the Company and the Company's Subsidiaries, taken as
a whole, that would have or would
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be reasonably likely to have a Company Material Adverse Effect, other than any
such change that affects both the Company and Parent in a substantially similar
manner.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 TERMINATION BY MUTUAL CONSENT. This Agreement
may be terminated at any time prior to the Effective Time, whether before or
after approval by the stockholders of the Company by mutual written consent of
Parent and the Company.
Section 9.2 TERMINATION BY EITHER PARENT OR THE COMPANY.
This Agreement may be terminated and the Merger may be abandoned by action of
the Board of Directors of either Parent or the Company if (a) the Merger shall
not have been consummated on or before May 31, 1995, or (b) a United States
federal or state court of competent jurisdiction or United States federal or
state governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and non-appealable; provided, that the party seeking to terminate this
Agreement pursuant to this clause (b) shall have used all reasonable efforts to
remove such injunction, order or decree.
Section 9.3 TERMINATION BY THE COMPANY. This Agreement may
be terminated and the Merger may be abandoned at any
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time prior to the Effective Time, before or after the adoption and approval by
the stockholders of the Company referred to in Section 7.5(b), by action of the
Board of Directors of the Company, if (a) in the exercise of its good faith
judgment as to its fiduciary duties to its stockholders imposed by law, the
Board of Directors of the Company determines that such termination is required
by reason of an Acquisition Proposal having been made to it, or (b) there has
been a breach by Parent or Sub of any representation or warranty contained in
this Agreement which would have or would be likely to have a Parent Material
Adverse Effect, or (c) there has been a material breach of any of the covenants
or agreements set forth in this Agreement on the part of Parent, which breach is
not curable or, if curable, is not cured within thirty (30) days after written
notice of such breach is given by the Company to Parent or (d) Parent shall have
been unable to obtain prior to the Effective Time financing to provide for
consummation of the Merger other than as a result of a material breach by the
Company of any representation or warranty contained in this Agreement, the
nonsatisfaction of the condition contained in Section 8.3(d) or a material
breach of any of the covenants or agreements set forth in this Agreement on the
part of the Company.
Section 9.4 TERMINATION BY PARENT. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the Board of Directors of Parent, if (a) there has been a
breach by the Company of any representation or warranty contained in this
Agreement which would have or would
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be reasonably likely to have a Company Material Adverse Effect, or (b) there has
been a material breach of any of the covenants or agreements set forth in this
Agreement on the part of the Company, which breach is not curable or, if
curable, is not cured within thirty (30) days after written notice of such
breach is given by Parent to the Company.
Section 9.5 EFFECT OF TERMINATION AND ABANDONMENT.
(a) (i) If this Agreement is terminated by (A) the Company
pursuant to Sections 9.3 (b) through 9.3(d), then in any such event the Company
shall be entitled to receive from Parent the Termination Fee, and (ii) if this
Agreement is terminated by (A) Parent pursuant to Sections 9.4(a) and 9.4(b), or
(B) by the Company pursuant to Section 9.3(a), then in any such event Parent
shall be entitled to receive from the Company the Termination Fee, provided in
the case of a termination by the Company pursuant to Section 9.3(a) hereof, the
Termination Fee shall be reduced by the amount of any payments received by
Parent under the Stockholder Voting and Profit Sharing Agreements. If Parent
has received payment under the Stockholder Voting and Profit Sharing Agreement,
the Company agrees to promptly reimburse in full the persons making such
payments to Parent, but in any event such reimbursement shall not exceed
$75,000,000.
(b) Within three business days following any termination event
described in Section 9.5(a) above, the party entitled to compensation thereunder
shall receive a payment in the amount of $75,000,000 (less any amount received
by Parent under the
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Stockholder Voting and Profit Sharing Agreement as of such date) in the event
this Agreement is terminated pursuant to Section 9.3(a) or $150,000,000 in the
event this Agreement is terminated pursuant to any other termination event
described in Section 9.5(a) above (the "Termination Fee") from the party whose
action or failure to take action shall have given rise to the right to such
payment, it being understood and agreed by the parties hereto that the
Termination Fee is intended to constitute liquidated damages, except in the case
of fraud or a deliberate and wilful breach by a party hereto, since the actual
amount of damages which would be sustained by a non-breaching party hereunder as
a result of such termination is difficult, if not impossible, of ascertainment
and that the agreement of the parties with regard to the payment of the
foregoing sum as liquidated damages represents a good faith effort by each of
the parties to establish the reasonable amount of restitution necessary to
provide for recovery of all costs and expenses associated with efforts to
consummate the Merger, including, without limitation, opportunity costs.
(c) In the event of termination of the Agreement and the
abandonment of the Merger pursuant to this Article IX, all obligations of the
parties shall terminate, except the obligations of the parties pursuant to this
Section 9.5 and except for the provisions of Sections 4.20, 5.21, 10.4 and 10.6,
and the last sentence of Section 7.1 hereof.
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ARTICLE X
GENERAL PROVISIONS
Section 10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. No representations or warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive beyond the
Effective Time. This Section 10.1 shall not limit any covenant or agreement
after the Effective Time.
Section 10.2 NOTICES. All notices, claims, demands and other
communications hereunder shall be in writing and shall be deemed given upon (a)
confirmation of receipt of a facsimile transmission, (b) confirmed delivery by a
standard overnight carrier or when delivered by hand or (c) the expiration of
five business days after the day when mailed by registered or certified mail
(postage prepaid, return receipt requested), addressed to the respective parties
at the following addresses (or such other address for a party as shall be
specified by like notice):
(a) If to Parent or Sub, to:
National Medical Enterprises, Inc.
2700 Colorado Boulevard
Santa Monica, California 90404
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Brian J. McCarthy
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(b) if to the Company, to:
American Medical Holdings, Inc.
14001 Dallas Parkway
Dallas, Texas 75240
Attention: General Counsel
with a copy to:
Neal, Gerber & Eisenberg
Two LaSalle Street
Chicago, Illinois 60602
Attention: Charles Gerber
Section 10.3 DESCRIPTIVE 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 10.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement
(including the Exhibits, Parent Disclosure Letter, Company Disclosure Letter and
other documents and instruments referred to herein) (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings (other
than that certain confidentiality letter agreement between the parties dated
June 2, 1994, as thereafter supplemented by letter dated August 25, 1994, which
are hereby incorporated by reference herein), both written and oral among the
parties or any of them, with respect to the subject matter hereof, including,
without limitation, any transaction between or among the parties hereto; (b) is
not intended to confer upon any other person any rights or remedies hereunder;
and (c) shall not be assigned by operation of law or otherwise, provided that
Parent or Sub may assign its rights
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and obligations hereunder to a direct or indirect subsidiary of Parent, but no
such assignment shall relieve Parent or Sub, as the case may be, of its
obligations hereunder.
Section 10.5 GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware without
giving effect to the provisions thereof relating to conflicts of law.
Section 10.6 EXPENSES. Whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby and thereby shall be paid by the party
incurring such expenses, except that those expenses incurred in connection with
printing the Information Statement/Prospectus, as well as the filing fee
relating to the Registration Statement, will be shared equally by Parent and the
Company.
Section 10.7 AMENDMENT. This Agreement may be amended by
action taken by Parent, Sub and the Company at any time before or after approval
hereof by the stockholders of the Company, but, after any such approval, no
amendment shall be made which alters the Merger Consideration or which in any
way materially adversely affects the rights of such stockholders, without the
further approval of such stockholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
Section 10.8 WAIVER. At any time prior to the Effective
Time, the parties hereto may (a) extend the time for the
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performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
Section 10.9 COUNTERPARTS; EFFECTIVENESS. This Agreement may
be executed in two or more counterparts, each of which shall be deemed to be an
original but all of which shall constitute one and the same agreement. This
Agreement shall become effective with each party hereto shall have received
counterparts thereof signed by all of the other parties hereto.
Section 10.10 SEVERABILITY; VALIDITY; PARTIES IN INTEREST. If
any provision of this Agreement, or the application thereof to any person or
circumstance is held invalid or unenforceable, the remainder of this Agreement,
and the application of such provision to other persons or circumstances, shall
not be affected thereby, and to such end, the provisions of this Agreement are
agreed to be severable. Except as provided in Section 7.8 and the last sentence
of Section 9.5(a) hereof, nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
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Section 10.11 ENFORCEMENT OF AGREEMENT. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement was not performed in accordance with its specific
terms or was otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
Delaware Court, this being in addition to any other remedy to which they are
entitled at law or in equity.
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IN WITNESS WHEREFORE, each of Parent, Sub and the Company has caused
this Agreement to be executed on its behalf by its officers thereunder to duly
authorized, all as of the date first above written.
NATIONAL MEDICAL ENTERPRISES, INC.
By: /S/ Jeffrey Barbakow
--------------------------------------
Name: Jeffrey Barbakow
Title: Chairman and Chief
Executive Officer
AMH ACQUISITION CO.
By: /S/ Jeffrey Barbakow
--------------------------------------
Name: Jeffrey Barbakow
Title: Chairman and Chief
Executive Officer
AMERICAN MEDICAL HOLDINGS, INC.
By: /S/ Robert W. O'Leary
--------------------------------
Name: Robert W. O'Leary
Title: Chairman and Chief
Executive Officer
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EXHIBIT A
STOCKHOLDER VOTING AND PROFIT SHARING AGREEMENT
THIS STOCKHOLDER VOTING AND PROFIT SHARING AGREEMENT (this
"Agreement") is made and entered into as of this 10th day of October, 1994, by
and among National Medical Enterprises, Inc. a Nevada corporation ("Acquiror"),
and the stockholder named on the signature page hereto ("Stockholder"). On the
date hereof the Stockholder Beneficially Owns (as defined in Section 13(a)
hereof) the shares of common stock, par value $.01 per share (the "Company
Shares"), of American Medical Holdings, Inc., a Delaware corporation
("Company"), set forth next to the Stockholder's name on the signature page
hereto.
WHEREAS, Acquiror and the Company concurrently herewith are entering
into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), providing for, among other things, the merger (the "Merger") of a
wholly owned subsidiary of Acquiror with and into the Company with the Company
as the surviving corporation; and
WHEREAS, as an inducement to Acquiror's execution of the Merger
Agreement, Acquiror has requested that the Stockholder agree, and the Stock-
holder has agreed, to grant to Acquiror certain rights (i) to receive payment
from the Stockholder in the event that an Alternate Transaction (as defined in
Section 1(a) hereof) is consummated; and (ii) to vote (or consent with regard
to) all Company Shares as to which the Stockholder has voting power as provided
herein.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein and in
the Merger Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto, intending
to be legally bound hereby, agree as follows:
1. PAYMENTS TO ACQUIROR UPON CERTAIN EVENTS.
(a) ALTERNATE TRANSACTION PAYMENT. (i) If a person other than
Acquiror or its Affiliates (as defined in Section 13(c) hereof)(an "Acquiring
Person"):
(A) acquires Beneficial Ownership of any or all of the Stockholder
Shares (as hereinafter defined); or
(B) consummates a merger, consolidation or other business combination
with, or purchases all or substantially all of the assets of, the Company
(each transaction specified in the foregoing clause (A) or in this clause
(B), an "Alternate Transaction"),
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the Stockholder shall pay to Acquiror an amount (the "Alternate Transaction
Payment") equal to the product of (x) the excess of the Alternate Transaction
Price (as hereinafter defined), over $25.88, or, if the Alternate Transaction is
consummated after March 31, 1995, $26.13 (the "Base Price") times (y) the number
of Stockholder Shares, if any, sold or transferred by the Stockholder to an
Acquiring Person or received by a Stockholder by virtue of an Alternate
Transaction which is consummated, or with respect to which an agreement is
entered into, on or prior to June 30, 1995 (the "Outside Date"). Such payment
shall be made promptly following the transfer of Stockholder Shares to an
Acquiring Person. In the event that the consideration for the Stockholder
Shares consists in whole or in part of property other than cash, the Alternate
Transaction Payment shall be made by delivering to the Acquiror a percentage of
each type of property received determined by dividing the amount of the
Alternate Transaction Payment (expressed on a per share basis) by the Alternate
Transaction Price.
(ii) "Alternate Transaction Price" shall mean, with respect to any
Stockholder Shares, the price per share paid by any Acquiring Person after the
date hereof for such Stockholder Shares which shall include, if applicable, the
fair market value of securities or other property other than cash exchanged for
Stockholder Shares or received for the Company's assets, calculated as a per
share price, as determined by the investment banking firm retained by the
Company to evaluate such proposal.
(iii) "Stockholder Shares" shall mean the Shares of Company capital
stock (including without limitation the Company Shares) Beneficially Owned by
such Stockholder as of the date hereof.
(iv) For purposes of determining whether an Alternate Transaction
exists, an Acquiring Person shall be deemed to have acquired "Beneficial
Ownership" of any Stockholder Shares (x) which such person or any of its Affil-
iates or Associates (as defined in Section 13(c) hereof) Beneficially Owns, di-
rectly or indirectly; (y) which such person or any of its Affiliates or Associ-
ates has, directly or indirectly (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement, or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding; or (z) which are
Beneficially Owned, directly or indirectly, by any other person with which such
person or any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
Company Shares (other than the Company Shares owned by other persons that are
parties to the Amended and Restated Stockholder Agreement, dated as
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of July 30, 1991, among the Stockholder, the Company and certain other
stockholders (the "Stockholder Agreement").
(b) ADJUSTMENT UPON CERTAIN CHANGES IN CAPITALIZATION. In the event
of any change in the Company Shares by reason of a stock dividend, stock split,
split-up, recapitalization, combination, exchange of shares or similar
transaction, the type and number of shares or securities that constitute
Stockholder Shares hereunder, and the Base Price therefor, shall be adjusted
appropriately.
2. VOTING RIGHTS.
(a) VOTING AGREEMENT. The Stockholder agrees to vote all Stockholder
Shares on matters as to which the Stockholder is entitled to vote at a meeting
of the Stockholders of the Company, or by written consent without a meeting with
respect to all Stockholder Shares as follows: (i) in favor of approval and
adoption of the Merger Agreement and all related matters; (ii) against any
action or agreement that would result in a breach in any material respect of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement; and (iii) against any action or agreement
(other than the Merger Agreement or the transactions contemplated thereby) that
would impede, interfere with, delay, postpone or attempt to discourage the
Merger.
(b) GRANT OF PROXY. The Stockholder hereby appoints Acquiror, with
full power of substitution (Acquiror and its substitutes being referred to
herein as the "Proxy"), as attorneys and proxies to vote all Stockholder Shares
on matters as to which Stockholder is entitled to vote at a meeting of the
stockholders of the Company or to which they are entitled to express consent or
dissent to corporate action in writing without a meeting, in the Proxy's
absolute, sole and binding discretion on the matters specified in Section 2(a)
above. The Stockholder agrees that the Proxy may, in such Stockholder's name
and stead, (i) attend any annual or special meeting of the stockholders of the
Company and vote all Stockholder Shares at any such annual or special meeting as
to the matters specified in Section 2(a) above, and (ii) execute with respect to
all Stockholder Shares any written consent to, or dissent from, corporate action
respecting any matter specified in Section 2(a) above. The Stockholder agrees
to refrain from (A) voting at any annual or special meeting of the stockholders
of the Company, (B) executing any written consent in lieu of a meeting of the
stockholders of the Company, (C) exercising any rights of dissent with respect
to the Stockholder Shares, and (D) granting any proxy or authorization to any
person with respect to the voting of the Stockholder Shares, except pursuant to
this Agreement, or taking any action contrary to or in any manner inconsistent
with the terms of this Agreement. The Stockholder agrees that this grant of
proxy is irrevocable and coupled with an interest and
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agrees that the person designated as Proxy pursuant hereto may at any time name
any other person as its substituted Proxy to act pursuant hereto, either as to a
specific matter or as to all matters. The Stockholder hereby revokes any proxy
previously granted by it with respect to its Stockholder Shares as to the
matters specified in Section 2(a) above. In discharging its powers under this
Agreement, the Proxy may rely upon advice of counsel to Acquiror, and any vote
made or action taken by the Proxy in reliance upon such advice of counsel shall
be deemed to have been made in good faith by the Proxy.
3. DIVIDENDS. The Stockholder agrees that if a record date for any
dividend or distribution to be paid (whether in cash or property, including
without limitation securities) on the Stockholder Shares occurs during the term
hereof (other than the cash dividend of $.10 per share permitted by Section 7.12
of the Merger Agreement), Acquiror and the Stockholder shall enter into an
escrow arrangement pursuant to which any payment of any such dividend or
distribution shall be held in escrow. Upon consummation of any Alternate
Transaction, such dividend or distribution made on such Stockholder Shares shall
be delivered to Acquiror together with the Alternate Transaction Payment.
4. TERMINATION.
(a) This Agreement shall terminate upon the earlier to occur of (i)
the Outside Date, PROVIDED, that, if the Merger Agreement is terminated by the
Company in accordance with Section 9.3(b), (c) or (d) thereof, this Agreement
shall terminate on the effective date of such termination of the Merger
Agreement; (ii) the Effective Time of the Merger; and (iii) immediately
following the making of an Alternate Transaction Payment for all of the
Stockholder Shares; PROVIDED, that, in the case of any termination pursuant to
clause (i), this Agreement shall continue with respect to all Stockholder Shares
with respect to which an agreement is entered into prior to such termination
until payment of the Alternate Transaction Payment for such shares is made or
such agreement is terminated.
(b) Upon termination, this Agreement shall have no further force or
effect, except for Section 9 which shall continue to apply to any case, action
or proceeding relating to the enforcement of this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER. The Stockholder
hereby represents and warrants to Acquiror as follows:
(a) DUE AUTHORIZATION. The Stockholder has the legal capacity and
all necessary corporate, partnership and trust power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The Stockholder Beneficially Owns all of the Stockholder Shares listed
on the signature
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page hereof and specified as so owned with no restrictions on the voting rights
or rights of disposition pertaining thereto, except as set forth in the
Stockholder Agreement, which constitute all Company Shares Beneficially Owned by
such Stockholder. Assuming this Agreement has been duly and validly authorized,
executed and delivered by Acquiror, this Agreement constitutes a valid and
binding agreement of the Stockholder, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies.
(b) NO CONFLICTS. Neither the execution and delivery of this
Agreement nor the consummation by the Stockholder of the transactions
contemplated hereby will conflict with or constitute a violation of or default
under any contract, commitment, agreement, arrangement or restriction of any
kind to which the Stockholder is a party or by which the Stockholder is bound.
6. REPRESENTATIONS AND WARRANTIES OF ACQUIROR. Acquiror hereby
represents and warrants to the Stockholder as follows:
(a) DUE AUTHORIZATION. Acquiror has the requisite corporate power
and authority to enter into and perform this Agreement. This Agreement has been
duly authorized by all necessary corporate action on the part of Acquiror and
has been duly executed by a duly authorized officer of Acquiror. Assuming this
Agreement has been duly and validly executed and delivered by the Stockholder,
this Agreement constitutes a valid and binding agreement of Acquiror,
enforceable against it in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally or by the principles governing the
availability of equitable remedies.
7. NO TRANSFER.
(a) The Stockholder hereby agrees, without the prior written consent
of Acquiror, except pursuant to the terms hereof, not to (i) sell, transfer,
assign, pledge or otherwise dispose of or hypothecate any of its Stockholder
Shares; (ii) grant any proxies, deposit any Stockholder Shares into a voting
trust or enter into a voting agreement with respect to any Stockholder Shares as
to any matter specified in Section 2(a); or (iii) take any action that would
make any representation or warranty of the Stockholder contained herein untrue
or incorrect in any material respect or have the effect of preventing or
disabling the Stockholder from performing its obligations under this Agreement.
Any permitted transferee of Stockholder Shares must become a party to this
Agreement and any purported transfer of Stockholder Shares to a person or entity
that has not become a party hereto shall be null and void.
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(b) Until the earlier of the Outside Date and the termination of the
Merger Agreement in accordance with its terms, the Stockholder will not, and
will cause its officers, directors, employees and agents not to, directly or
indirectly, (i) take any action to solicit, initiate or encourage any
Acquisition Proposal (as defined in the Merger Agreement), or (ii) engage in
negotiations with, or disclose any nonpublic information relating to the Company
or its subsidiaries, or afford access to their respective properties, books or
records to, any person that may be considering making, or has made, an
Acquisition Proposal (but nothing in this Section 7(b) shall prohibit any such
person, solely in their capacity as a director of the Company, from
participating in deliberations at a meeting of the board of directors of the
Company or voting with respect to any Acquisition Proposal, provided, that no
representatives of any person making such Acquisition Proposal are present).
8. ENTIRE AGREEMENT. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof; (b) shall
not be assigned by operation of law or otherwise without the prior written
consent of the other parties hereto, except that Acquiror may assign, in its
sole discretion, all or any of its rights, interests and obligations hereunder
to any direct or indirect wholly owned subsidiary of Acquiror; (c) shall not be
amended, altered or modified in any manner whatsoever, except by a written
instrument executed by the parties hereto; and (d) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Delaware (without giving effect to the provisions thereof relating to
conflicts of law).
9. REMEDIES. The parties acknowledge that it would be impossible to
fix money damages for violations of this Agreement and that such violations will
cause irreparable injury for which adequate remedy at law is not available and,
therefore, this Agreement must be enforced by specific performance or injunctive
relief. The parties hereto agree that any party may, in its sole discretion,
apply to any court of competent jurisdiction for specific performance or
injunctive or such other relief as such court may deem just and proper in order
to enforce this Agreement or prevent any violation hereof and, to the extent
permitted by applicable law, each party waives any objection or defense to the
imposition of such relief. Nothing herein shall be construed to prohibit any
party from bringing any action for damages in addition to an action for specific
performance or an injunction for a breach of this Agreement.
10. LEGENDS ON CERTIFICATES. Until such time as this Agreement shall
terminate pursuant to Section 4 hereof, all
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certificates representing Stockholder Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS OF A STOCKHOLDER VOTING AND PROFIT SHARING AGREEMENT, DATED AS
OF OCTOBER 10, 1994, BY AND BETWEEN NATIONAL MEDICAL ENTERPRISES, INC.
AND THE STOCKHOLDER. ANY TRANSFEREE OF THESE SHARES TAKES SUBJECT TO
THE TERMS OF SUCH AGREEMENT, COPIES OF WHICH ARE ON FILE AT THE
OFFICES OF AMERICAN MEDICAL HOLDINGS, INC., 14001 DALLAS PARKWAY,
SUITE 200, DALLAS, TEXAS 76380.
11. PARTIES IN INTEREST. Subject to the provisions of Section 8(b)
hereof, this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors, permitted
assigns, heirs, executors, administrators and other legal representatives, and
nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Agreement.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
13. DEFINITIONS. Unless the context otherwise requires, the
following terms shall have the following respective meanings:
(a) "Beneficial Owner" has the meaning set forth in Rule 13d-3 of the
Rules and Regulations to the Exchange Act, and "Beneficially Owned" and
"Beneficially Owns" shall have correlative meanings; PROVIDED, HOWEVER, that for
purposes of this Agreement a person shall be deemed to be the Beneficial Owner
of Company Shares that may be acquired pursuant to the exercise of an option or
other right regardless of when such option is exercisable.
(b) "person" means a corporation, association, partnership, joint
venture, organization, business, individual, trust, estate or any other entity
or group (within the meaning of Section 13(d)(3) of the Exchange Act).
(c) The terms "Affiliates" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Exchange Act, as in
effect on the date hereof (the term "registrant" in said Rule 12b-2 meaning in
this case the Company).
14. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (which
is confirmed) or mailed by registered or certified mail (return receipt
requested) to the
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parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to Acquiror to:
National Medical Enterprises, Inc.
2700 Colorado Boulevard
Santa Monica, California 90404
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Telecopy No. (213) 687-5600
Attention: Thomas C. Janson, Jr.
(b) If to the Stockholder, to the address set forth on the signature
page, hereto.
15. INTERPRETATION. 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. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
16. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
17. FURTHER ASSURANCES. The Stockholder further agrees to execute
all additional writings, consents and authorizations as may be reasonably
requested by Acquiror to evidence the agreements herein or the powers granted to
the Proxy hereby or to enable the Proxy to exercise those powers.
18. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws thereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NATIONAL MEDICAL ENTERPRISES, INC.
By
------------------------------------
Name:
Title:
STOCKHOLDER:
By
------------------------------------
Name:
Title:
No. of Shares Beneficially Owned:
---------------------------------------
Address for Notices:
[ ]
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EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of October ___, 1994, by and among National Medical Enterprises,
Inc., a Nevada corporation (together with its permitted successors and assigns,
the "Company"), and the persons whose signatures appear on the execution pages
of this Agreement (the "Stockholders").
This Agreement is made pursuant to the Agreement and Plan of Merger by
and among the Company, AMH Acquisition Co. and American Medical Holdings, Inc.
dated as of October 10, 1994 (the "Merger Agreement"), pursuant to which the
Stockholders will receive shares of Common Stock (as defined below) of the
Company.
The parties hereto, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, intending to be bound hereby,
agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the follow-
ing meanings:
ADVICE: See Section 4 hereof.
AFFILIATE means, with respect to any specified person, any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control" when used with respect to any specified person means the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "CONTROLLING" and "CONTROLLED" have meanings
correlative to the foregoing.
BUSINESS DAY means any day that is not a Saturday, a Sunday or a legal
holiday on which banking institutions in the State of New York are not required
to be open.
COMMON STOCK means the Common Stock, par value $.075 per share, of the
Company, or any other shares of capital stock of the Company into which such
stock shall be reclassified or changed (by operation of law or otherwise). If
the Common Stock has been so reclassified or changed, or if the Company pays a
dividend or makes a distribution on its Common Stock in shares of capital stock,
or subdivides (or combines) its outstanding shares of Common Stock into a
greater (or smaller) number of shares of Common Stock, a share of Common Stock
shall be deemed to be such number of shares of capital stock and amount of other
securities to which a holder of a share of Common Stock outstanding immediately
prior
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to such reclassification, exchange, dividend, distribution, subdivision or
combination would be entitled.
DELAY PERIOD: See Section 2(b) hereof.
DISTRIBUTEE: See Section 6.4 hereof.
EFFECTIVENESS PERIOD: See Section 2(b) hereof.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
PERSON means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
PROSPECTUS means the prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Shares covered by such Registration Statement and all other
amendments and supplements to the prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
REGISTRABLE SHARES means the shares of Common Stock issued to the
Stockholders pursuant to the Merger Agreement or thereafter distributed by the
Stockholder to a Distributee, until in the case of any such share (i) it has
been effectively registered under Section 5 of the Securities Act and disposed
of pursuant to an effective registration statement under the Securities Act,
(ii) it has been transferred other than pursuant to Rule "4(1-1/2)" (or any
similar private transfer exemption) under the Securities Act or (iii) it may be
transferred by a holder without registration pursuant to Rule 144 under the
Securities Act or any successor rule without regard to the volume limitation
contained in such rule.
REGISTRATION STATEMENT means any registration statement of the Company
that covers any of the Registrable Shares pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
SEC means the Securities and Exchange Commission.
SECURITIES ACT means the Securities Act of 1933, as amended.
SHELF REGISTRATION: See Section 2(a) hereof.
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STOCKHOLDERS: See the introductory clauses hereof.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING means a registra-
tion in which securities of the Company are sold to or through one or more
underwriters for reoffering or sale to the public.
2. SHELF REGISTRATION.
(a) The Company shall file with, and shall cause to be declared effective
by, the SEC prior to the Effective Time (as defined in the Merger
Agreement), a Registration Statement under the Securities Act relating
to the Registrable Shares, which Registration Statement shall provide
for the sale by the holders thereof of the Registrable Shares from
time to time on a delayed or continuous basis pursuant to Rule 415
under the Securities Act (a "Shelf Registration").
(b) The Company agrees to use its best efforts to keep the Registration
Statement filed pursuant to this Section 2 continuously effective and
usable for the resale of Registrable Shares for a period ending on the
earlier of (i) two years from the Effective Time (as defined in the
Merger Agreement) and (ii) the first date on which all the Registrable
Shares covered by such Shelf Registration have been sold pursuant to
such Registration Statement. The foregoing notwithstanding, the
Company shall have the right in its sole discretion, based on any
valid business purpose (including without limitation to avoid the
disclosure of any corporate development that the Company is not
otherwise obligated to disclose or to coordinate such distribution
with other shareholders that have registration rights with respect to
any securities of the Company or with other distributions of the
Company (whether for the account of the Company or otherwise)), to
suspend the use of the Registration Statement for a reasonable length
of time (a "Delay Period") and from time to time; PROVIDED, that (i)
the aggregate number of days in all Delay Periods occurring in any
period of twelve consecutive months shall not exceed 90 and (ii) the
Company shall not have the right to commence any Delay Period prior to
the 90th day after the Effective Time. The Company shall provide
written notice to each holder of Registrable Shares covered by each
Shelf Registration of the beginning and end of each Delay Period and
such holders shall cease all disposition efforts with respect to
Registrable Shares held by them immediately upon receipt of notice of
the beginning of any Delay Period. The two year time period for which
the Company is required to maintain the effectiveness of the
Registration Statement shall be extended by the aggregate number of
days of all Delay Periods and such two year period or the extension
thereof required by the preceding sentence is hereafter referred to as
the "Effectiveness Period."
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(c) The Company may, in its sole discretion, include other securities in
such Shelf Registration (whether for the account of the Company or
otherwise, including without limitation any securities of the Company
held by security holders, if any, who have piggyback registration
rights with respect thereto) or otherwise combine the offering of the
Registrable Shares with any offering of other securities of the
Company (whether for the account of the Company or otherwise).
3. HOLD-BACK AGREEMENT.
Each holder of Registrable Shares agrees, if such holder is requested
by an underwriter in an underwritten offering for the Company (whether for the
account of the Company or otherwise), not to effect any public sale or distribu-
tion of any of the Company's equity securities, including a sale pursuant to
Rule 144 (except as part of such underwritten registration), during the 10-day
period prior to, and during the 80-day period beginning on, the closing date of
such underwritten offering; PROVIDED, that neither the Company nor any under-
writer may request a holder not to effect any such sales or distributions prior
to the 90th day after the Effective Time.
4. REGISTRATION PROCEDURES.
In connection with the registration obligations of the Company
pursuant to and in accordance with Section 2 hereof (and subject to the
Company's rights under Section 2), the Company will use its best efforts to
effect such registration to permit the sale of such Registrable Shares in
accordance with the intended method or methods of disposition thereof (other
than pursuant to any underwritten registration or underwritten offering), and
pursuant thereto the Company shall as expeditiously as possible:
(a) prepare and file with the SEC such amendments (including post-
effective amendments) to the Registration Statement, and such
supplements to the Prospectus, as may be required by the rules,
regulations or instructions applicable to the Securities Act or the
rules and regulations thereunder during the applicable period in
accordance with the intended methods of disposition by the sellers
thereof (other than pursuant to any underwritten registration or
underwritten offering) and cause the Prospectus as so supplemented to
be filed pursuant to Rule 424 under the Securities Act;
(b) notify the selling holders of Registrable Shares promptly and (if
requested by any such person) confirm such notice in writing, (i) when
a Prospectus or any Prospectus supplement or post-effective amendment
has been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of
any request by the SEC for amendments or supplements to a Registration
Statement or related Prospectus or for additional information
regarding such holder, (iii) of the issuance by the SEC
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of any stop order suspending the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose, (iv)
of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any
of the Registrable Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, and (v)
of the happening of any event that requires the making of any changes
in such Registration Statement, Prospectus or documents so that they
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading;
(c) use commercially reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement, or the
lifting of any suspension of the qualification or exemption from
qualification of any of the Registrable Shares for sale in any
jurisdiction in the United States;
(d) if requested by the selling holders, furnish to counsel for the
selling holders of Registrable Shares, without charge, one conformed
copy of each Registration Statement as declared effective by the SEC
and of each post-effective amendment thereto, in each case including
financial statements and schedules and all exhibits and reports
incorporated or deemed to be incorporated therein by reference; and
such number of copies of the preliminary prospectus, each amended
preliminary prospectus, each final Prospectus and each post-effective
amendment or supplement thereto, as the selling holders may reasonably
request in order to facilitate the disposition of the Registrable
Shares covered by each Registration Statement in conformity with the
requirements of the Securities Act;
(e) prior to any public offering of Registrable Shares register or qualify
such Registrable Shares for offer and sale under the securities or
Blue Sky laws of such jurisdictions in the United States as any
selling holder shall reasonably request in writing; and do any and all
other reasonable acts or things necessary or advisable to enable such
holders to consummate the disposition in such jurisdictions of such
Registrable Shares covered by the Registration Statement; PROVIDED,
HOWEVER, that the Company shall in no event be required to qualify
generally to do business as a foreign corporation or as a dealer in
any jurisdiction where it is not at the time so qualified or to
execute or file a general consent to service of process in any such
jurisdiction where it has not theretofore done so or to take any
action that would subject it to general service of process or taxation
in any such jurisdiction where it is not then subject;
(f) except during any Delay Period, upon the occurrence of any event
contemplated by paragraph 4(b)(ii) or 4(b)(v) above, prepare a
supplement or
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post-effective amendment to each Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Shares being
sold thereunder, such Prospectus will not contain an untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading; and
(g) cause all Registrable Shares covered by the Registration Statement to
be listed on each securities exchange, if any, on which similar
securities issued by the Company are then listed.
The Company may require each seller of Registrable Shares as to which
any registration is being effected to furnish such information regarding the
distribution of such Registrable Shares and as to such seller as it may from
time to time reasonably request. If any such information with respect to any
seller is not furnished prior to the filing of the Registration Statement, the
Company may exclude such seller's Registrable Shares from such Registration
Statement.
Each holder of Registrable Shares (including, without limitation, any
Distributee) agrees by acquisition of such Registrable Shares that, upon receipt
of any notice from the Company of the happening of any event of the kind
described in Section 4(b)(ii), 4(b)(iii), 4(b)(iv) or 4(b)(v) hereof or upon
notice of the commencement of any Delay Period, such holder shall forthwith
discontinue disposition of such Registrable Shares covered by such Registration
Statement or Prospectus until such holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 4(f) hereof, or until
it is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amended or
supplemented Prospectus or any additional or supplemental filings which are
incorporated, or deemed to be incorporated, by reference in such Prospectus and,
if requested by the Company, such holder shall deliver to the Company (at the
expense of the Company) all copies, other than permanent file copies then in
such holder's possession, of the Prospectus covering such Registrable Shares at
the time of receipt of such request.
Each holder of Registrable Shares further agrees not to utilize any
material other than the applicable current Prospectus in connection with the
offering of Registrable Shares pursuant to the Shelf Registration.
5. REGISTRATION EXPENSES.
Whether or not any Registration Statement becomes effective, the
Company shall pay all costs, fees and expenses incident to the Company's
performance of or compliance with this Agreement including, without limitation,
(i) all registration and filing fees, (ii) fees and
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expenses of compliance with securities or Blue Sky laws, (iii) printing expenses
(including, without limitation, expenses of printing of prospectuses if the
printing of prospectuses is requested by the holders of a majority of the
Registrable Shares included in any Registration Statement), (iv) fees and
disbursements of counsel for the Company, (v) fees and disbursements of all
independent certified public accountants of the Company and all other Persons
retained by the Company in connection with the Registration Statement and (vi)
the fees and expenses (not to exceed $50,000) for one counsel on behalf of all
of the holders of Registrable Shares. Notwithstanding the foregoing, the fees
and expenses of counsel to, or any other Persons retained by, any holder of
Registrable Shares, and any discounts, commissions, underwriting or advisory
fees, brokers' fees or fees of similar securities industry professional
(including any "qualified independent underwriter" retained for the purpose of
Section 3 of Schedule E of the By-laws of the National Association of Securities
Dealers, Inc.) relating to the distribution of the Registrable Shares, will be
payable by such holder and the Company will have no obligation to pay any such
amounts.
6. MISCELLANEOUS.
6.1 TERMINATION. This Agreement and the obligations of the Company hereunder
shall terminate on the earliest of (i) the first date on which no
Registrable Shares remain outstanding, and (ii) the close of business on
the last day of the Effectiveness Period.
6.2 AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of holders
representing a majority of the Registrable Shares. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter which relates exclusively to the rights of holders of
Registrable Shares whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of a holder whose securities are not being sold pursuant to such
Registration Statement may be given by holders of a majority of the
Registrable Shares being sold by such holders; PROVIDED, HOWEVER, that the
provision of this sentence may not be amended, modified, or supplemented
except in accordance with the provisions of the immediately preceding
sentence.
6.3 NOTICES. All notices, requests, demands and other communications required
or permitted hereunder shall be in writing and shall be deemed given: when
delivered personally; one Business Day after being deposited with a next-
day air courier; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back if telexed and when receipt
is acknowledged, if telecopied, 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; PROVIDED that notices of a change of address
shall be effective only upon receipt thereof):
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(i) if to a holder, at the most current address given by such holder to
the Company in accordance with the provisions of this Section 6.3,
which address initially is with respect to each holder, the address
set forth on the signature pages hereto; and
(ii) if to the Company, initially at 2700 Colorado Boulevard, Santa Monica,
California 90404, Attention: Scott Brown, Esq., with a copy to
Skadden, Arps, Slate, Meagher & Flom, 300 South Grand Avenue, Los
Angeles, California 90071, Attention: Thomas C. Janson, Jr.
6.4 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and
be binding upon the successors and assigns of each of the parties; PROVIDED
that the holders may not assign their rights hereunder except to an
Affiliate of such holder or a Distributee (as defined below) and no person
(other than any such Affiliate or Distributee) who acquires Registrable
Shares from a holder shall have any rights hereunder. For purposes of this
Agreement, the term "Distributee" shall mean any person that is a
stockholder or partner of a Stockholder, or any person that is a
stockholder or partner of a Distributee, to which Registrable Shares are
transferred or distributed by such Stockholder or Distributee. This
Agreement shall survive any transfer of Registrable Shares to a Distributee
and shall inure to the benefit of such Distributee.
6.5 COUNTERPARTS. This Agreement may be executed in any number of counterparts
and by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
6.6 HEADINGS. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
6.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT GIVING
EFFECT TO THE PROVISIONS THEREOF GOVERNING CONFLICT OF LAWS PRINCIPLES.
6.8 SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
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6.9 ENTIRE AGREEMENT. This Agreement is intended by the parties as a final
expression of their agreement and a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties
or undertakings, other than those set forth or referred to herein, with
respect to the registration rights granted by the Company with respect to
the Registrable Shares issued pursuant to the Merger Agreement. This
Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
6.10 CALCULATION OF TIME PERIODS. Except as otherwise indicated, all periods of
time referred to herein shall include all Saturdays, Sundays and holidays;
PROVIDED, that if the date to perform the act or give any notice with
respect to this Agreement shall fall on a day other than a Business Day,
such act or notice may be timely performed or given if performed or given
on the next succeeding Business Day.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
NATIONAL MEDICAL ENTERPRISES, INC.
By
-----------------------------------------
Name:
Title:
STOCKHOLDER:
--------------------------------------------
Name:
Address for
Notice:
Number of
Shares:
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EXHIBIT C
FORM OF LEGAL OPINION OF
SKADDEN, ARPS, SLATE, MEAGHER & FLOM,
COUNSEL FOR PARENT
1. Parent and each of the Parent Subsidiaries that is a "significant
subsidiary" within the meaning of Rule 1-01 of Regulation S-X under the Exchange
Act is a corporation validly existing and in good standing under the laws of its
respective jurisdiction of incorporation.
2. The shares of Parent common stock to be issued in the Merger
will, upon the issuance thereof in accordance with the terms of the Merger
Agreement, be validly issued, fully paid and nonassessable and free of pre-
emptive rights.
3. Each of the Parent and Sub has the corporate power and corporate
authority to enter into the Merger Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Merger Agreement by
each of Parent and Sub and the consummation of the transactions contemplated
thereby have been duly authorized by the requisite corporate action on the part
of each of Parent and Sub. The Merger Agreement has been executed and delivered
by each of Parent and Sub and (assuming it has been duly authorized, executed
and delivered by the Company) is a valid and binding obligation of each of
Parent and Sub, enforceable against Parent and Sub in accordance with its terms,
except (i) to the extent that enforcement thereof may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws not or
hereafter in effect relating to creditors' rights generally and (b) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity) and (ii) we express no opinion with respect to
the enforceability of Section 9.5 of the Merger Agreement.
4. The execution, delivery and performance of the Merger Agreement
by each of Parent and Sub will not result in a breach or violation of any provi-
sion of the charter or by-laws of either Parent or Sub.
5. The Registration Statement as of the effective date thereof and
as of the date hereof appeared on its face to be appropriately responsive in all
material respects to the applicable requirements of the Securities Act and the
rules and regulations thereunder, except that,
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in each case, we express no opinion or belief as to the financial statements,
schedules and other financial and statistical data included or incorporated, or
deemed to be incorporated, by reference therein or excluded therefrom, any
information to the extent it was furnished by or relates to the Company or the
exhibits to the Registration Statement, and we do not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement.
In addition, we have participated in conferences with officers and
other representatives of Parent, representatives of the independent public
accountants of Parent, officers and other representatives of the Company,
counsel for the Company and representatives of the independent public
accountants of the Company, at which the contents of the Registration Statement,
including the Prospectus included therein, and related matters were discussed
and, although we are not passing upon, and do not assume any responsibility for,
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus and have made no independent check or
verification thereof, on the basis of the foregoing, no facts have come to our
attention that have led us to believe that, insofar as it relates to Parent, the
Registration Statement, at the time it became effective, contained an untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that, insofar as it relates to Parent, the Prospectus, as of its date and the
date hereof, contained an untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that we express no opinion or belief with respect to (a)
the financial statements, schedules and other financial and statistical data
incorporated, or deemed to be incorporated, by reference in the Registration
Statement or the Prospectus, (b) statements in or omissions from any documents
or the information incorporated, or deemed to be incorporated, by reference in
the Registration Statement or the Prospectus or (c) information contained or
incorporated by reference in the Registration Statement or the Prospectus to the
extent such information was furnished by or relates to the Company.
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EXHIBIT D
FORM OF LEGAL OPINION OF
NEAL, GERBER & EISENBERG
COUNSEL FOR THE COMPANY
1. The Company and each of the Company Subsidiaries that is a
"significant subsidiary" within the meaning of Rule 1-01 of Regulation S-X under
the Exchange Act is a corporation validly existing and in good standing under
the laws of its respective jurisdiction of incorporation.
2. The Company has the corporate power and corporate authority to
enter into the Merger Agreement and to consummate the transactions contemplated
thereby. The execution and delivery of the Merger Agreement by the Company and
the consummation of the transactions contemplated thereby have been duly
authorized by all requisite corporate action on the part of the Company. The
Merger Agreement has been executed and delivered by the Company and (assuming it
has been duly authorized, executed and delivered by Parent and Sub) is a valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except (i) to the extent that enforcement thereof may
be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws not or hereafter in effect relating to creditors' rights generally
and (b) general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity), and (ii) we express no opinion
with respect to the enforceability of Section 9.5 of the Merger Agreement.
3. The execution, delivery and performance of the Merger Agreement
by the Company will not result in a breach or violation of any provision of the
charter or by-laws of the Company.
4. The Information Statement of the Company as of the date it was
mailed to stockholders of the Company and as of the date hereof appeared on its
face to be appropriately responsive in all material respects to the applicable
requirements of the Exchange Act and the rules and regulations thereunder,
except that, in each case, we express no opinion or belief as to the financial
statements, schedules and other financial and statistical data included or
incorporated, or deemed to be incorporated, by reference therein or excluded
therefrom or any information to the extent it was furnished by or relates to the
Parent,
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and we do not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Information Statement.
In addition, we have participated in conferences with officers and
other representatives of the Company, representatives of the independent public
accountants of the Company, officers and other representatives of the Parent,
counsel for the Parent and representatives of the independent public accountants
of the Parent, at which the contents of the Information Statement and related
matters were discussed and, although we are not passing upon, and do not assume
any responsibility for, the accuracy, completeness or fairness of the statements
contained in the Information Statement and have made no independent check or
verification thereof, on the basis of the foregoing, no facts have come to our
attention that have led us to believe that, insofar as it relates to the
Company, the Information Statement, as of its date and the date hereof,
contained an untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that we express no opinion or belief with respect to (a) the
financial statements, schedules and other financial and statistical data
included or incorporated, or deemed to be incorporated, by reference in the
Information Statement, (b) statements in or omissions from any documents or
information incorporated, or deemed to be incorporated, by reference in the
Information Statement or (c) information included or incorporated, or deemed to
be incorporated, by reference in the Information Statement to the extent such
information was furnished by or relates to the Parent.
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EXHIBIT 2.B
STOCKHOLDER VOTING AND PROFIT SHARING AGREEMENT
THIS STOCKHOLDER VOTING AND PROFIT SHARING AGREEMENT (this
"Agreement") is made and entered into as of this 10th day of October, 1994, by
and among National Medical Enterprises, Inc. a Nevada corporation ("Acquiror"),
and the stockholder named on the signature page hereto ("Stockholder"). On the
date hereof the Stockholder Beneficially Owns (as defined in Section 13(a)
hereof) the shares of common stock, par value $.01 per share (the "Company
Shares"), of American Medical Holdings, Inc., a Delaware corporation
("Company"), set forth next to the Stockholder's name on the signature page
hereto.
WHEREAS, Acquiror and the Company concurrently herewith are entering
into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), providing for, among other things, the merger (the "Merger") of a
wholly owned subsidiary of Acquiror with and into the Company with the Company
as the surviving corporation; and
WHEREAS, as an inducement to Acquiror's execution of the Merger
Agreement, Acquiror has requested that the Stockholder agree, and the
Stockholder has agreed, to grant to Acquiror certain rights (i) to receive
payment from the Stockholder in the event that an Alternate Transaction (as
defined in Section 1(a) hereof) is consummated; and (ii) to vote (or consent
with regard to) all Company Shares as to which the Stockholder has voting power
as provided herein.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein and in
the Merger Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto, intending
to be legally bound hereby, agree as follows:
1. PAYMENTS TO ACQUIROR UPON CERTAIN EVENTS.
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(a) ALTERNATE TRANSACTION PAYMENT. (i) If a person other than
Acquiror or its Affiliates (as defined in Section 13(c) hereof)(an "Acquiring
Person"):
(A) acquires Beneficial Ownership of any or all of the Stockholder
Shares (as hereinafter defined); or
(B) consummates a merger, consolidation or other business combination
with, or purchases all or substantially all of the assets of, the Company
(each transaction specified in the foregoing clause (A) or in this clause
(B), an "Alternate Transaction"),
the Stockholder shall pay to Acquiror an amount (the "Alternate Transaction
Payment") equal to the product of (x) the excess of the Alternate Transaction
Price (as hereinafter defined), over $25.88, or, if the Alternate Transaction is
consummated after March 31, 1995, $26.13 (the "Base Price") times (y) the number
of Stockholder Shares, if any, sold or transferred by the Stockholder to an
Acquiring Person or received by a Stockholder by virtue of an Alternate
Transaction which is consummated, or with respect to which an agreement is
entered into, on or prior to June 30, 1995 (the "Outside Date"). Such payment
shall be made promptly following the transfer of Stockholder Shares to an
Acquiring Person. In the event that the consideration for the Stockholder
Shares consists in whole or in part of property other than cash, the Alternate
Transaction Payment shall be made by delivering to the Acquiror a percentage of
each type of property received determined by dividing the amount of the
Alternate Transaction Payment (expressed on a per share basis) by the Alternate
Transaction Price.
(ii) "Alternate Transaction Price" shall mean, with respect to any
Stockholder Shares, the price per share paid by any Acquiring Person after the
date hereof for such Stockholder Shares which shall include, if applicable, the
fair market value of securities or other property other than cash exchanged for
Stockholder Shares or received for the Company's assets, calculated as a per
share price, as determined by the investment banking firm retained by the
Company to evaluate such proposal.
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(iii) "Stockholder Shares" shall mean the Shares of Company capital
stock (including without limitation the Company Shares) Beneficially Owned by
such Stockholder as of the date hereof.
(iv) For purposes of determining whether an Alternate Transaction
exists, an Acquiring Person shall be deemed to have acquired "Beneficial
Ownership" of any Stockholder Shares (x) which such person or any of its
Affiliates or Associates (as defined in Section 13(c) hereof) Beneficially Owns,
directly or indirectly; (y) which such person or any of its Affiliates or
Associates has, directly or indirectly (A) the right to acquire (whether such
right is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement, or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise, or (B)
the right to vote pursuant to any agreement, arrangement or understanding; or
(z) which are Beneficially Owned, directly or indirectly, by any other person
with which such person or any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of any Company Shares (other than the Company Shares owned by other
persons that are parties to the Amended and Restated Stockholder Agreement,
dated as of July 30, 1991, among the Stockholder, the Company and certain other
stockholders (the "Stockholder Agreement").
(b) ADJUSTMENT UPON CERTAIN CHANGES IN CAPITALIZATION. In the event
of any change in the Company Shares by reason of a stock dividend, stock split,
split-up, recapitalization, combination, exchange of shares or similar
transaction, the type and number of shares or securities that constitute
Stockholder Shares hereunder, and the Base Price therefor, shall be adjusted
appropriately.
2. VOTING RIGHTS.
(a) VOTING AGREEMENT. The Stockholder agrees to vote all Stockholder
Shares on matters as to which the Stockholder is entitled to vote at a meeting
of the Stockholders of the Company, or by written consent without a meeting with
respect to all Stockholder Shares as follows: (i) in favor of approval and
adoption of the Merger Agreement and all related matters; (ii) against
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any action or agreement that would result in a breach in any material respect of
any covenant, representation or warranty or any other obligation or agreement of
the Company under the Merger Agreement; and (iii) against any action or
agreement (other than the Merger Agreement or the transactions contemplated
thereby) that would impede, interfere with, delay, postpone or attempt to
discourage the Merger.
(b) GRANT OF PROXY. The Stockholder hereby appoints Acquiror, with
full power of substitution (Acquiror and its substitutes being referred to
herein as the "Proxy"), as attorneys and proxies to vote all Stockholder Shares
on matters as to which Stockholder is entitled to vote at a meeting of the
stockholders of the Company or to which they are entitled to express consent or
dissent to corporate action in writing without a meeting, in the Proxy's
absolute, sole and binding discretion on the matters specified in Section 2(a)
above. The Stockholder agrees that the Proxy may, in such Stockholder's name
and stead, (i) attend any annual or special meeting of the stockholders of the
Company and vote all Stockholder Shares at any such annual or special meeting as
to the matters specified in Section 2(a) above, and (ii) execute with respect to
all Stockholder Shares any written consent to, or dissent from, corporate action
respecting any matter specified in Section 2(a) above. The Stockholder agrees
to refrain from (A) voting at any annual or special meeting of the stockholders
of the Company, (B) executing any written consent in lieu of a meeting of the
stockholders of the Company, (C) exercising any rights of dissent with respect
to the Stockholder Shares, and (D) granting any proxy or authorization to any
person with respect to the voting of the Stockholder Shares, except pursuant to
this Agreement, or taking any action contrary to or in any manner inconsistent
with the terms of this Agreement. The Stockholder agrees that this grant of
proxy is irrevocable and coupled with an interest and agrees that the person
designated as Proxy pursuant hereto may at any time name any other person as its
substituted Proxy to act pursuant hereto, either as to a specific matter or as
to all matters. The Stockholder hereby revokes any proxy previously granted by
it with respect to its Stockholder Shares as to the matters specified in Section
2(a) above. In discharging its powers under this Agreement, the Proxy may rely
upon advice of counsel to Acquiror, and any vote
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made or action taken by the Proxy in reliance upon such advice of counsel shall
be deemed to have been made in good faith by the Proxy.
3. DIVIDENDS. The Stockholder agrees that if a record date for any
dividend or distribution to be paid (whether in cash or property, including
without limitation securities) on the Stockholder Shares occurs during the term
hereof (other than the cash dividend of $.10 per share permitted by Section 7.12
of the Merger Agreement), Acquiror and the Stockholder shall enter into an
escrow arrangement pursuant to which any payment of any such dividend or
distribution shall be held in escrow. Upon consummation of any Alternate
Transaction, such dividend or distribution made on such Stockholder Shares shall
be delivered to Acquiror together with the Alternate Transaction Payment.
4. TERMINATION.
(a) This Agreement shall terminate upon the earlier to occur of (i)
the Outside Date, PROVIDED, that, if the Merger Agreement is terminated by the
Company in accordance with Section 9.3(b), (c) or (d) thereof, this Agreement
shall terminate on the effective date of such termination of the Merger
Agreement; (ii) the Effective Time of the Merger; and (iii) immediately
following the making of an Alternate Transaction Payment for all of the
Stockholder Shares; PROVIDED, that, in the case of any termination pursuant to
clause (i), this Agreement shall continue with respect to all Stockholder Shares
with respect to which an agreement is entered into prior to such termination
until payment of the Alternate Transaction Payment for such shares is made or
such agreement is terminated.
(b) Upon termination, this Agreement shall have no further force or
effect, except for Section 9 which shall continue to apply to any case, action
or proceeding relating to the enforcement of this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER. The Stockholder
hereby represents and warrants to Acquiror as follows:
(a) DUE AUTHORIZATION. The Stockholder has the legal capacity and
all necessary corporate, partner-
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ship and trust power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The Stockholder Beneficially
Owns all of the Stockholder Shares listed on the signature page hereof and
specified as so owned with no restrictions on the voting rights or rights of
disposition pertaining thereto, except as set forth in the Stockholder
Agreement, which constitute all Company Shares Beneficially Owned by such
Stockholder. Assuming this Agreement has been duly and validly authorized,
executed and delivered by Acquiror, this Agreement constitutes a valid and
binding agreement of the Stockholder, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies.
(b) NO CONFLICTS. Neither the execution and delivery of this
Agreement nor the consummation by the Stockholder of the transactions
contemplated hereby will conflict with or constitute a violation of or default
under any contract, commitment, agreement, arrangement or restriction of any
kind to which the Stockholder is a party or by which the Stockholder is bound.
6. REPRESENTATIONS AND WARRANTIES OF ACQUIROR. Acquiror hereby
represents and warrants to the Stockholder as follows:
(a) DUE AUTHORIZATION. Acquiror has the requisite corporate power
and authority to enter into and perform this Agreement. This Agreement has been
duly authorized by all necessary corporate action on the part of Acquiror and
has been duly executed by a duly authorized officer of Acquiror. Assuming this
Agreement has been duly and validly executed and delivered by the Stockholder,
this Agreement constitutes a valid and binding agreement of Acquiror,
enforceable against it in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally or by the principles governing the
availability of equitable remedies.
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7. NO TRANSFER.
(a) The Stockholder hereby agrees, without the prior written consent
of Acquiror, except pursuant to the terms hereof, not to (i) sell, transfer,
assign, pledge or otherwise dispose of or hypothecate any of its Stockholder
Shares; (ii) grant any proxies, deposit any Stockholder Shares into a voting
trust or enter into a voting agreement with respect to any Stockholder Shares as
to any matter specified in Section 2(a); or (iii) take any action that would
make any representation or warranty of the Stockholder contained herein untrue
or incorrect in any material respect or have the effect of preventing or
disabling the Stockholder from performing its obligations under this Agreement.
Any permitted transferee of Stockholder Shares must become a party to this
Agreement and any purported transfer of Stockholder Shares to a person or entity
that has not become a party hereto shall be null and void.
(b) Until the earlier of the Outside Date and the termination of the
Merger Agreement in accordance with its terms, the Stockholder will not, and
will cause its officers, directors, employees and agents not to, directly or
indirectly, (i) take any action to solicit, initiate or encourage any
Acquisition Proposal (as defined in the Merger Agreement), or (ii) engage in
negotiations with, or disclose any nonpublic information relating to the Company
or its subsidiaries, or afford access to their respective properties, books or
records to, any person that may be considering making, or has made, an
Acquisition Proposal (but nothing in this Section 7(b) shall prohibit any such
person, solely in their capacity as a director of the Company, from
participating in deliberations at a meeting of the board of directors of the
Company or voting with respect to any Acquisition Proposal, provided, that no
representatives of any person making such Acquisition Proposal are present).
8. ENTIRE AGREEMENT. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof; (b) shall
not be assigned by operation of law or otherwise without the
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prior written consent of the other parties hereto, except that Acquiror may
assign, in its sole discretion, all or any of its rights, interests and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Acquiror; (c) shall not be amended, altered or modified in any manner
whatsoever, except by a written instrument executed by the parties hereto; and
(d) shall be governed in all respects, including validity, interpretation and
effect, by the laws of the State of Delaware (without giving effect to the
provisions thereof relating to conflicts of law).
9. REMEDIES. The parties acknowledge that it would be impossible to
fix money damages for violations of this Agreement and that such violations will
cause irreparable injury for which adequate remedy at law is not available and,
therefore, this Agreement must be enforced by specific performance or injunctive
relief. The parties hereto agree that any party may, in its sole discretion,
apply to any court of competent jurisdiction for specific performance or
injunctive or such other relief as such court may deem just and proper in order
to enforce this Agreement or prevent any violation hereof and, to the extent
permitted by applicable law, each party waives any objection or defense to the
imposition of such relief. Nothing herein shall be construed to prohibit any
party from bringing any action for damages in addition to an action for specific
performance or an injunction for a breach of this Agreement.
10. LEGENDS ON CERTIFICATES. Until such time as this Agreement shall
terminate pursuant to Section 4 hereof, all certificates representing
Stockholder Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS OF A STOCKHOLDER VOTING AND PROFIT SHARING AGREEMENT, DATED AS
OF OCTOBER 10, 1994, BY AND BETWEEN NATIONAL MEDICAL ENTERPRISES, INC.
AND THE STOCKHOLDER. ANY TRANSFEREE OF THESE SHARES TAKES SUBJECT TO
THE TERMS OF SUCH AGREEMENT, COPIES OF WHICH ARE ON FILE AT THE
OFFICES OF AMERICAN MEDICAL HOLDINGS, INC., 14001 DALLAS PARKWAY,
SUITE 200, DALLAS, TEXAS 76380.
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11. PARTIES IN INTEREST. Subject to the provisions of Section 8(b)
hereof, this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors, permitted
assigns, heirs, executors, administrators and other legal representatives, and
nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Agreement.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
13. DEFINITIONS. Unless the context otherwise requires, the
following terms shall have the following respective meanings:
(a) "Beneficial Owner" has the meaning set forth in Rule 13d-3 of the
Rules and Regulations to the Exchange Act, and "Beneficially Owned" and
"Beneficially Owns" shall have correlative meanings; PROVIDED, HOWEVER, that for
purposes of this Agreement a person shall be deemed to be the Beneficial Owner
of Company Shares that may be acquired pursuant to the exercise of an option or
other right regardless of when such option is exercisable.
(b) "person" means a corporation, association, partnership, joint
venture, organization, business, individual, trust, estate or any other entity
or group (within the meaning of Section 13(d)(3) of the Exchange Act).
(c) The terms "Affiliates" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Exchange Act, as in
effect on the date hereof (the term "registrant" in said Rule 12b-2 meaning in
this case the Company).
14. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (which
is confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the follow-
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ing addresses (or at such other address for a party as shall be specified by
like notice):
(a) If to Acquiror to:
National Medical Enterprises, Inc.
2700 Colorado Boulevard
Santa Monica, California 90404
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Telecopy No. (213) 687-5600
Attention: Thomas C. Janson, Jr.
(b) If to the Stockholder, to the address set forth on the signature
page, hereto.
15. INTERPRETATION. 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. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
16. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
17. FURTHER ASSURANCES. The Stockholder further agrees to execute
all additional writings, consents and authorizations as may be reasonably
requested by Acquiror to evidence the agreements herein or the powers granted to
the Proxy hereby or to enable the Proxy to exercise those powers.
10
<PAGE>
18. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws thereof.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NATIONAL MEDICAL ENTERPRISES, INC.
By /s/ Jeffrey C. Barbakow
------------------------------------
Name: Jeffrey C. Barbakow
Title: Chairman and Chief
Executive Officer
GKH Investments, L.P.
By: GKH Partners, L.P.
its general partner
By: HGM Associates, L.P.,
a general partner
By: HGM Corporation,
its general partner
By: /s/ Harold S. Handelsman
-----------------------------------
Name: Harold S. Handelsman
Title: Vice President
No. of Shares: 24,719,168
GKH Private Limited
By: GKH Partners, L. P.
By: HGM Associates, L.P.,
a general partner
By: HGM Corporation,
its general partner
By: /s/ Harold S. Handelsman
-----------------------------------
Name: Harold S. Handelsman
Title: Vice President
No. of Shares: 934,596
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NATIONAL MEDICAL ENTERPRISES, INC.
By /s/ Jeffrey C. Barbakow
------------------------------------
Name: Jeffrey C. Barbakow
Title: Chairman and Chief
Executive Officer
MB L.P.I
By: C.S. First Boston MBI, Inc.
By /s/ David DeNunzio
------------------------------------
Name: David DeNunzio
Title: Vice President
No. of Shares: 10,595,282
Address for Notices:
55 East 52nd Street
New York, New York 10055
Attention: David DeNunzio
1987 Merchant Investment
Partnership
By: Merchant G.P., Inc.
By /s/ David DeNunzio
------------------------------------
Name: David DeNunzio
No. of Shares: 710,168
Address for Notices:
55 East 52nd Street
New York, New York 10055
Attention: David DeNunzio
C.S. First Boston Corporation
By /s/ David DeNunzio
------------------------------------
Name: David DeNunzio
Title: Managing Director
No. of Shares: 345
Address for Notices:
55 East 52nd Street
New York, New York 10055
Attention: David DeNunzio
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NATIONAL MEDICAL ENTERPRISES, INC.
By /s/ Jeffrey C. Barbakow
------------------------------------
Name: Jeffrey C. Barbakow
Title: Chairman and Chief
Executive Officer
STOCKHOLDER: First Plaza Group Trust
By /s/ Walter T. Doc
------------------------------------
Name: Walter T. Doc
Title: Vice President
General Motors Investment
Management Corp. as
Investment Advisor to First
Plaza Group Trust
No. of Shares Beneficially Owned:
10,663,636
---------------------------------------
Address for Notices:
[ ]
14
<PAGE>
EXHIBIT 10(A)
AMENDMENT NO. 1
TO
ASSET SALE AGREEMENT
(FIRST FACILITIES)
THIS AMENDMENT NO. 1 TO ASSET SALE AGREEMENT (FIRST FACILITIES) (this
"AMENDMENT") is entered into as of the 12th day of September 1994 by and between
NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation ("SELLER"), and CHARTER
MEDICAL CORPORATION, a Delaware corporation ("BUYER"), with reference to the
following facts:
A. Buyer and Seller are parties to that certain Asset Sale Agreement
(First Facilities) between them dated as of March 29, 1994 (the "ASSET SALE
AGREEMENT").
B. Buyer and Seller wish to amend certain of the provisions of the Asset
Sale Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, do hereby agree as follows:
1. DEFINED TERMS (ARTICLE 1). Unless otherwise defined in this
Amendment, all capitalized terms herein shall have the meanings given to them in
the Asset Sale Agreement.
2. PURCHASE PRICE (SECTION 2.5). The dollar amount set forth in SECTION
2.5(a) of the Asset Sale Agreement is hereby amended to read "Ninety-One Million
One Hundred Thirty-Four Thousand Dollars ($91,134,000)."
3. ALLOCATION OF PURCHASE PRICE (SECTION 2.7). The Allocation Schedule
set forth in SCHEDULE 2.7, as modified in accordance with the second sentence of
SECTION 2.7, shall be further modified, as to Facilities Nos. 35, 36 and 53 as
set forth in SCHEDULE 2.7(A), attached hereto. The Allocation Schedule for all
purposes of the Asset Sale Agreement shall be SCHEDULE 2.7, as modified prior to
the date hereof, and as further modified by SCHEDULE 2.7(A).
<PAGE>
4. TERMINATION (SECTION 10.1(b). Section 10.1(b) of the Asset Sale
Agreement is hereby amended to add, after the last sentence thereof, the
following: "Notwithstanding the foregoing, the Termination Date as to Facilities
Nos. 35, 36 and 53 shall be October 31, 1994."
5. EFFICACY. This Amendment shall become effective upon its execution,
which may occur in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. Captions, paragraph headings and introductory language used herein
that do not actually amend the Asset Sale Agreement are used herein for
convenience only, are not a part of the Asset Sale Agreement as amended by this
Amendment, and shall not be used in construing the Asset Sale Agreement as
amended by this Amendment. Each reference to the Asset Sale Agreement in any
Related Agreement, whether or not accompanied by a reference to this Amendment,
shall be deemed a reference to the Asset Sale Agreement as amended by this
Amendment.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Amendment No.
1 to Asset Sale Agreement as of the date first above written.
Buyer:
CHARTER MEDICAL CORPORATION
By: /s/ Lawrence Drinkard
----------------------------------
Name: Lawrence W. Drinkard
-----------------------------
Title: Exec. V.P. and C.F.O.
------------------------------
Seller:
NATIONAL MEDICAL ENTERPRISES,
INC.
By: /s/ Donald W. Thayer
----------------------------------
Name: Donald W. Thayer
-----------------------------
Title: Vice President
------------------------------
-3-
<PAGE>
EXHIBIT 10(B)
AMENDMENT NO. 1
TO
ASSET SALES AGREEMENT
(SUBSEQUENT FACILITIES)
THIS AMENDMENT NO. 1 TO ASSET SALE AGREEMENT (SUBSEQUENT FACILITIES) (this
"AMENDMENT") is entered into as of the 12th day of September 1994 by and between
NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation ("SELLER"), and CHARTER
MEDICAL CORPORATION, a Delaware corporation ("BUYER"), with reference to the
following facts:
A. Buyer and Seller are parties to that certain Asset Sale Agreement
(Subsequent Facilities) between them dated as of March 29, 1994 (the "ASSET SALE
AGREEMENT").
B. Buyer and Seller wish to amend certain of the provisions of the Asset
Sale Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, do hereby agree as follows:
1. DEFINED TERMS (ARTICLE 1). Unless otherwise defined in this
Amendment, all capitalized terms herein shall have the meanings given to them in
the Asset Sale Agreement. The "SUBSEQUENT FACILITIES" or the "FACILITIES", as
set forth in RECITAL A of the Asset Sale Agreement shall be limited to the
following:
NME No. Name City State
- - ------- ---- ---- -----
4. Los Altos Hospital & Medical Center Long Beach CA
6. Yorba Hills Hospital and Mental Health Center Yorba Linda CA
11. Bay Harbor Residential Treatment Center Largo FL
14. Medfield Hospital Largo FL
15. Laurel Heights Hospital Atlanta GA
17. Brawner Midtown Mental Health System Atlanta GA
18. Arbor Hospital of Greater Indianapolis Indianapolis IN
19. Jefferson Hospital Jeffersonville IN
37. Northbrooke Hospital Brown Deer WI
38. New Beginnings at Lakewood Lakewood CA
50. Fenwick Hall Johns Island SC
<PAGE>
2. PURCHASE PRICE (SECTION 2.5). The dollar amount set forth in SECTION
2.5(a) of the Asset Sale Agreement is hereby amended to read "Thirty-One Million
Sixty Thousand Dollars ($31,060,000)."
3. ALLOCATION OF PURCHASE PRICE (SECTION 2.7). The Allocation Schedule
set forth in SCHEDULE 2.7, as modified prior to the date hereof, shall be
further modified as set forth in SCHEDULE 2.7(A) attached hereto. The
Allocation Schedule for all purposes of the Asset Sale Agreement shall be
SCHEDULE 2.7, as modified prior to the date hereof, and as further modified by
SCHEDULE 2.7(A).
4. EFFICACY. It is the intent of the parties hereto that SECTION 1 of
this Amendment shall operate to rescind the Asset Sale Agreement as it relates
to the following facilities which were originally included in such Asset Sale
Agreement:
NME No. Name City State
- - ------- ---- ---- -----
13. Laurel Oaks Hospital Orlando FL
16. Brawner South Mental Health System Stockbridge GA
32. MidSouth Hospital Memphis TN
34. Psychiatric Institute of Richmond Richmond VA
42. Brawner North Mental Health System Smyrna GA
59. Laurel Oaks Residential Treatment Center Orlando FL
This Amendment shall become effective upon its execution, which may occur
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. Captions,
paragraph headings and introductory language used herein that do not actually
amend the Asset Sale Agreement are used herein for convenience only, are not a
part of the Asset Sale Agreement as amended by this Amendment, and shall not be
used in construing the Asset Sale Agreement as amended by this Amendment. Each
reference to the Asset Sale Agreement in any Related Agreement, whether or not
accompanied by a reference to this Amendment, shall be deemed a reference to the
Asset Sale Agreement as amended by this Amendment.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Amendment No.
1 to Asset Sale Agreement as of the date first above written.
Buyer:
CHARTER MEDICAL CORPORATION
By: /s/ Lawrence Drinkard
----------------------------------
Name: Lawrence W. Drinkard
-----------------------------
Title: Exec. V.P. and C.F.O.
------------------------------
Seller:
NATIONAL MEDICAL ENTERPRISES,
INC.
By: /s/ Donald W. Thayer
----------------------------------
Name: Donald W. Thayer
-----------------------------
Title: Vice President
------------------------------
-3-
<PAGE>
Exhibit 11
NATIONAL MEDICAL ENTERPRISES, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS*
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
-------------------------
1994 1993
--------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
FOR PRIMARY EARNINGS PER SHARE
Shares outstanding at beginning of period......... 166,081 165,898
Shares issued upon exercise of stock options...... 93 1
Dilutive effect of outstanding stock options...... 2,287 209
--------- ---------
Weighted average number of shares and share
equivalents outstanding........................... 168,461 166,108
--------- ---------
--------- ---------
Income from continuing operations before
cumulative effect of a change in
accounting principle.............................. $ 64,028 $52,728
--------- ---------
--------- ---------
Earnings per share from continuing operations
before cumulative effect of a change in
accounting principle.............................. $0.38 $0.32
--------- ---------
--------- ---------
FOR FULLY DILUTED EARNINGS PER SHARE
Weighted average number of shares used in
primary calculation............................... 168,461 166,108
Additional dilutive effect of stock options....... 335 --
Assumed conversion of dilutive
convertible debentures............................ 11,357 13,978
--------- ---------
Fully diluted weighted average number of shares... 180,153 180,086
--------- ---------
--------- ---------
Income from continuing operations used in
primary calculation............................... $64,028 $52,728
Adjustments for interest expense,
contractual allowances and income taxes......... 1,470 1,086
--------- ---------
Adjusted income from continuing operations used
in fully diluted calculation...................... $65,498 $53,814
--------- ---------
--------- ---------
Earnings per share from continuing operations
before cumulative effect of a change in
accounting principle.............................. $0.36 $0.30
--------- ---------
--------- ---------
<FN>
- - --------------------
* All shares in these tables are weighted on the basis of the number of days
the shares were outstanding or assumed to be outstanding during each
period.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1994
<PERIOD-END> AUG-31-1994
<CASH> 112,304
<SECURITIES> 52,530
<RECEIVABLES> 711,669
<ALLOWANCES> 67,247
<INVENTORY> 53,943
<CURRENT-ASSETS> 1,054,565
<PP&E> 2,582,670
<DEPRECIATION> 788,174
<TOTAL-ASSETS> 3,336,346
<CURRENT-LIABILITIES> 1,178,260
<BONDS> 243,856
<COMMON> 13,919
0
0
<OTHER-SE> 1,374,245
<TOTAL-LIABILITY-AND-EQUITY> 3,336,346
<SALES> 0
<TOTAL-REVENUES> 662,835
<CGS> 0
<TOTAL-COSTS> 551,850
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 26,117
<INTEREST-EXPENSE> 17,660
<INCOME-PRETAX> 107,028
<INCOME-TAX> 43,000
<INCOME-CONTINUING> 64,028
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,028
<EPS-PRIMARY> .38
<EPS-DILUTED> .36
</TABLE>
