<PAGE>
SCHEDULE 14C (RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THESECURITIES EXCHANGE ACT
OF 1934 (AMENDMENT NO. 2)
Check the appropriate box:
[_]Preliminary information statement
[X]Definitive information statement
AMERICAN HEALTHCARE MANAGEMENT, INC.
(NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
AMERICAN HEALTHCARE MANAGEMENT, INC.
(NAME OF PERSON(S) FILING THE INFORMATION STATEMENT)
Payment of filing fee (check the appropriate box):
[X]$125 per Exchange Act Rule 0-11(c)(1)(ii), or 14c-5(g).*
[_]Fee computed on the table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------------
(3) Per unit price of other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:/1/
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(4) Proposed maximum aggregate value of transaction:
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
----------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
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- --------
/1/ Set forth the amount on which the filing is calculated and state how it
was determined.
*Paid with original filing.
<PAGE>
INFORMATION STATEMENT
PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND REGULATION 14(C) AND SCHEDULE 14(C) THEREUNDER
AMERICAN HEALTHCARE MANAGEMENT, INC.
10% SENIOR SUBORDINATED NOTES DUE 2003
----------------
This Information Statement is being furnished by American Healthcare
Management, Inc. (the "Company") to holders of record as of the close of
business on January 12, 1994 (the "Record Date") of its 10% Senior Subordinated
Notes Due 2003 (the "AHM Notes") issued pursuant to the Indenture, dated as of
July 28, 1993 (the "Indenture") between the Company and NationsBank of
Tennessee, National Association, as trustee (the "Trustee"). This Information
Statement is being furnished in connection with the waiver of Section 1009 of
the Indenture, "Limitation on Layered and Junior Debt" (the "Waiver"), and the
amendments to Section 101 of the Indenture, "Definitions" and 1015 of the
Indenture, "Limitation of Certain Asset Dispositions" (the "Amendments"), that
have been agreed to by holders of a majority in principal amount of the
outstanding AHM Notes pursuant to a solicitation made by OrNda HealthCorp
("OrNda"). As of the Record Date, all $100,000,000 principal amount of the AHM
Notes was outstanding.
On November 18, 1993, the Company, AHM Acquisition Co., Inc. and OrNda
entered into an Agreement and Plan of Merger, as amended as of January 14,
1994, providing for the merger of the Company with and into OrNda (the "AHM
Merger"). On December 2, 1993 OrNda, SHL Acquisition Co. and Summit Health Ltd.
entered into an Agreement and Plan of Merger, as amended as of January 14,
1994, providing for the merger of SHL Acquisition Co. with and into Summit
Health Ltd. (the "Summit Merger") with the result that Summit Health Ltd. will
become a wholly-owned subsidiary of OrNda. The AHM Merger and the Summit Merger
(collectively, "the Mergers") are described in detail in the Proxy
Statement/Prospectus that is attached hereto as Annex A and incorporated herein
by reference. OrNda has entered into an agreement dated as of February 3, 1994
(the "Consent Agreement") with holders of a majority in principal amount of the
outstanding AHM Notes consenting to the Waiver and the Amendments. The Consent
Agreement also provides for OrNda, as successor in interest to the Company, to
(i) execute a supplemental indenture (the "Supplemental Indenture") upon
effectiveness of the AHM Merger (the "Closing Date"), pursuant to which OrNda
will assume the obligations of the Company under the Indenture and the AHM
Notes, (ii) make payments (the "Consent Payments") upon the Closing Date to the
Trustee for the benefit of each holder of record of the AHM Notes as of the
Record Date of $15.00 for each $1,000 principal amount of the AHM Notes held by
such holder on the Record Date, and (iii) pay interest on the AHM Notes at the
rate of 10 1/4% per annum from and after the Closing Date and execution of the
Supplemental Indenture.
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
The date of this Information Statement is March 18, 1994
<PAGE>
THE WAIVER
The Waiver of Section 1009 of the Indenture, "Limitation on Layered and
Junior Debt", excludes OrNda's $400,000,000 12 1/4% Senior Subordinated Notes
due 2002 (the "OrNda Notes") from the indebtedness prohibited by such Section.
Without the Waiver, Section 1009 would prohibit the AHM Merger and the
assumption by OrNda of the Company's obligations under the AHM Notes since the
OrNda Notes have a maturity date prior to the AHM Notes and are, for that
reason, excluded from the definition of Pari Passu Debt under the Indenture
even though the OrNda Notes are subordinated to senior indebtedness on
substantially the same basis as the AHM Notes.
The Waiver was granted by holders of a majority in principal amount of the
AHM Notes pursuant to Section 1021 of the Indenture which provides for the
waiver of certain conditions and covenants. The Consent Agreement provides that
the effectiveness of the Waiver is conditioned upon the consummation of the AHM
Merger.
THE AMENDMENTS
Pursuant to the Consent Agreement, OrNda has agreed with holders of a
majority in aggregate principal amount of the AHM Notes to implement the
Amendments. The first Amendment, which will amend the definition of
Consolidated Cash Flow Ratio in Section 101 of the Indenture, "Definitions",
has been entered into because OrNda believes that the Indenture as currently in
effect may be interpreted to prohibit the pro forma use of the Company and
Summit Health Ltd. cash flows when calculating the Consolidated Cash Flow Ratio
pursuant to the Indenture. This amendment will permit the pro forma use of cash
flows of the Company and Summit Health Ltd. when calculating such ratio.
The definition of Consolidated Cash Flow Ratio in Section 101 of the
Indenture will be amended by inserting the underlined language in such
definition as set forth below:
"Consolidated Cash Flow Ratio" means for any period the ratio of (i)
Consolidated Cash Flow Available for Fixed Charges of a Person for such period
to (ii) the sum of (A) Consolidated Interest Expense of such Person for such
period plus (B) the annual interest expense (including the amortization of debt
discount and all items which would be included in Consolidated Interest
Expense) with respect to any Debt Incurred or proposed to be Incurred by such
Person or its Consolidated Subsidiaries during such period or since the end of
such period to the extent not included in Clause (ii)(A) calculated as if
incurred at the beginning of such period (variable rate debt shall be assumed
to bear interest at the rate in effect or, in the case of proposed Debt, which
would be in effect, at the time of calculation) minus (C) Consolidated Interest
Expense of such Person with respect to any Debt that is no longer outstanding,
or will no longer be outstanding as a result of the Incurrence of the Debt
proposed to be Incurred, in each case to the extent included in Clause (ii)
(A). The Consolidated Cash Flow Ratio shall be calculated on the assumption
that the transactions or series of transactions pursuant to which any Debt had
been Incurred during such period or since the end of such period (including any
acquisition of the stock or assets of another Person consummated in connection
with the Incurrence of such Debt) shall have occurred on the first day of such
period.
The second Amendment, which will amend Section 1015 of the Indenture,
"Limitation on Certain Asset Dispositions", has been entered into to provide
OrNda with greater flexibility in pursuing future business opportunities by
permitting OrNda to engage in property for property exchanges and other
dispositions involving a substantial percentage of non-cash consideration.
Section 1015 of the Indenture will be amended by eliminating in its entirety
the following clause from Section 1015(a):
(ii) at least 50% (based on the fair market value, as determined in good
faith by the Board of Directors) of the aggregate consideration received by
the Company (or such Subsidiary) consists of
2
<PAGE>
cash or readily marketable cash equivalents or the assumption of Debt or
other obligations and release from all liability on such Debt or other
obligations;.
The Amendments will be effected pursuant to the Supplemental Indenture to be
executed on the Closing Date, and were authorized by holders of a majority in
principal amount of the AHM Notes pursuant to Section 902 of the Indenture
which provides for the modification of certain provisions of the Indenture
pursuant to a supplemental indenture.
Pursuant to Sections 801(2) and 901(1) of the Indenture, the Supplemental
Indenture will also provide for the assumption by OrNda of the due and punctual
payment of the principal of (and premium, if any) and interest on all the AHM
Notes and the performance of every covenant of the Indenture to be performed or
observed by the Company as if OrNda had been originally named in the Indenture
as the "Company" (as such term is defined in the Indenture).
CONSENT PAYMENTS AND INCREASED INTEREST RATE
OrNda will make Consent Payments on the Closing Date to the Trustee for the
benefit of each holder of record of AHM Notes on the Record Date of $15.00 for
each $1,000 principal amount of the AHM Notes held by such holder on the Record
Date. In addition, the Supplemental Indenture will provide that OrNda will pay
interest on the AHM Notes at the rate of $10 1/4% per annum from and after the
Closing Date.
ADDITIONAL INFORMATION
Questions or requests for additional information regarding this Information
Statement should be directed to the Company as follows:
American Healthcare Management, Inc.
660 American Avenue, Suite 200
King of Prussia, PA 19406
Attn: Robert M. Dubbs
Telephone Number: (215) 768-5900
3
<PAGE>
(LETTERHEAD OF AMERICAN HEALTHCARE MANAGEMENT, INC. APPEARS HERE)
March 14, 1994
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders (the
"Special Meeting") of American Healthcare Management, Inc. ("AHM") to be held
on April 19, 1994 at the New York Marriott East Side Hotel, 525 Lexington
Avenue, New York, New York 9:00 A.M., local time. Official Notice of the
Special Meeting, a Proxy Statement/Prospectus and a proxy card are enclosed
with this letter. All holders of Common Stock of AHM as of March 4, 1994 (the
"Record Date") will be entitled to notice of and to vote at the Special
Meeting.
At this meeting, you will be asked to consider and to vote upon a proposal to
approve and adopt an Agreement and Plan of Merger dated as of November 18,
1993, as amended as of January 14, 1994 (as amended the "AHM Merger
Agreement"), between OrNda HealthCorp ("OrNda") and AHM, pursuant to which (i)
AHM will be merged with and into OrNda and (ii) each outstanding share of
Common Stock of AHM will be converted into the right to receive 0.6 of a share
of Common Stock of OrNda (the "AHM Merger").
Consummation of the AHM Merger is subject to certain conditions, including
receipt of financing necessary to refinance the outstanding senior bank and
institutional indebtedness of OrNda and AHM to satisfy the change of control
repurchase rights of the holders of AHM's 10% Senior Subordinated Notes due
2003 arising by reason of the AHM Merger. to provide adequate working capital.
The enclosed Proxy Statement/Prospectus also describes the proposed merger
(the "Summit Merger") of a subsidiary of OrNda and Summit Health Ltd.
("Summit") pursuant to which Summit will become a wholly owned subsidiary of
OrNda and each outstanding share of Summit Common Stock will be converted into
the right to receive $5.50 in cash and 0.2157 of a share of Common Stock of
OrNda. The AHM Merger Proposal and the Summit Merger Proposal are being
presented to stockholders of OrNda as separate proposals. Consummation of the
AHM Merger is not conditioned upon consummation of the Summit Merger, nor is
consummation of the Summit Merger conditioned upon consummation of the AHM
Merger. No vote of AHM stockholders is necessary in connection with the Summit
Merger. Stockholders of AHM holding an aggregate of approximately 12,015,000
shares of AHM Common Stock (representing approximately 44% of the AHM Common
Stock as of the AHM Record Date) have informed AHM that they intend to vote
such shares in favor of the AHM Merger Agreement.
Details of the proposed mergers and other important information concerning
AHM, Summit and OrNda are set forth in the accompanying Proxy
Statement/Prospectus, which you are urged to read.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the AHM Merger. In addition, the Board of Directors has received
the opinion of its financial advisor, Donaldson, Lufkin & Jenrette Securities
Corporation, that the consideration proposed to be received by the stockholders
of AHM pursuant to the AHM Merger Agreement is fair to such stockholders from a
financial point of view. The Board of Directors has also received the opinion
of Donaldson, Lufkin & Jenrette that, whether or not the Summit Merger is
consummated, the consideration to be received by the AHM stockholders pursuant
to the AHM Merger Agreement remained fair to AHM's stockholders from a
financial point of view.
YOUR BOARD OF DIRECTORS, HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS
THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE AHM MERGER AGREEMENT.
The Board of Directors believes that the proposed merger will provide AHM
stockholders with a continuing equity interest in a combined larger enterprise
which will be better positioned to pursue growth opportunities in a competitive
healthcare environment.
<PAGE>
Whether or not you plan to attend the special meeting and regardless of the
number of shares you own, we urge you to complete, sign, date and return the
enclosed proxy card promptly in the accompanying prepaid envelope. You may, of
course, attend the Special Meeting and vote in person, even if you have
previously returned your proxy card.
Sincerely,
/s/ Steven L. Volla
Steven L. Volla
Chairman, President and
Chief Executive Officer
2
<PAGE>
AMERICAN HEALTHCARE MANAGEMENT, INC.
660 AMERICAN AVENUE
SUITE 200
KING OF PRUSSIA, PA 19406
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
APRIL 19, 1994
----------------
Notice is Hereby Given that a special meeting of stockholders of AMERICAN
HEALTHCARE MANAGEMENT, INC., a Delaware corporation ("AHM"), will be held at
the New York Marriott East Side Hotel, 525 Lexington Avenue, New York, New
York, on April 19, 1994 at 9:00 A.M. (local time), for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger dated as of November 18, 1993, as amended as of January
14, 1994 (as amended the "AHM Merger Agreement"), between OrNda HealthCorp
("OrNda") and AHM, pursuant to which (i) AHM will be merged with and into
OrNda and (ii) each outstanding share of Common Stock, par value $.01 per
share of AHM (the "AHM Common Stock") will be converted into the right to
receive 0.6 of a share of Common Stock, par value $.01 per share, of OrNda.
2. To transact such other and further business as may properly come
before the meeting or any postponement or adjournment thereof.
Holders of record of shares of AHM Common Stock at the close of business on
March 4, 1994 are entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
/s/ Robert M. Dubbs
ROBERT M. DUBBS
Secretary
King of Prussia, Pennsylvania
March 14, 1994
YOUR VOTE IS IMPORTANT
YOUR PROXY CARD MUST BE SIGNED AND RETURNED TO BE VOTED. YOU ARE URGED TO
EXERCISE YOUR RIGHT TO VOTE BY INDICATING YOUR CHOICES ON THE ENCLOSED PROXY
CARD. PLEASE DATE, SIGN AND PROMPTLY RETURN YOUR PROXY CARD WHICH IS BEING
SOLICITED BY THE BOARD OF DIRECTORS OF AHM IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY NEVERTHELESS VOTE IN PERSON IF YOU ATTEND THE SPECIAL
MEETING.
<PAGE>
AMERICAN HEALTHCARE ORNDA HEALTHCORP SUMMIT HEALTH LTD.
MANAGEMENT, INC. 3401 WEST END AVENUE 2600 W. MAGNOLIA
660 AMERICAN AVENUE, SUITE 700 BLVD.
SUITE 200 NASHVILLE, TN 37203 BURBANK, CA 91507
KING OF PRUSSIA, PA
19406
----------------
PROXY STATEMENT/PROSPECTUS
----------------
ANNUAL MEETING OF STOCKHOLDERS OF ORNDA HEALTHCORP TO BE HELD ON APRIL 19, 1994
----------------
SPECIAL MEETING OF STOCKHOLDERS OF AMERICAN HEALTHCARE MANAGEMENT, INC. TO BE
HELD ON APRIL 19, 1994
----------------
SPECIAL MEETING OF STOCKHOLDERS OF SUMMIT HEALTH LTD. TO BE HELD ON APRIL 19,
1994
----------------
This Proxy Statement/Prospectus constitutes the Proxy Statement of OrNda
HealthCorp ("OrNda"), American Healthcare Management, Inc. ("AHM"), and Summit
Health Ltd. ("Summit") to be used in connection with the solicitation of
proxies from their respective stockholders in connection with the proposed
mergers of (i) AHM with and into OrNda (the "AHM Merger") and (ii) SHL
Acquisition Co., a wholly owned subsidiary of OrNda, with and into Summit (the
"Summit Merger" and together with the AHM Merger, the "Mergers"). This Proxy
Statement/Prospectus also constitutes the Prospectus of OrNda with respect to
the shares of OrNda Common Stock, par value $.01 per share (the "OrNda Common
Stock"), to be issued in connection with the Mergers. OrNda has filed a
Registration Statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission
(the "Commission") covering a maximum of 27,857,447 shares of OrNda Common
Stock to be issued in connection with the Mergers.
This Proxy Statement/Prospectus is first being mailed to OrNda, AHM and
Summit stockholders on or about March 17, 1994.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND, IF SO
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THOSE TO WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT/PROSPECTUS NOR THE SALE OF ANY SECURITIES HEREUNDER SHALL IMPLY
THAT THE INFORMATION CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THEREOF.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN MATTERS WHICH SHOULD BE
CONSIDERED BY THE STOCKHOLDERS OF ORNDA, AHM AND SUMMIT WITH RESPECT TO THE
MERGERS.
----------------
THE SHARES OF ORNDA COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS MARCH 14, 1994.
<PAGE>
AVAILABLE INFORMATION
OrNda has filed a Registration Statement on Form S-4 (the "Registration
Statement") with the Commission under the Securities Act of 1933, as amended
(the "Securities Act"). This Proxy Statement/Prospectus does not contain all
the information set forth in the Registration Statement, certain portions of
which are omitted in accordance with the Rules and Regulations of the
Commission. For further information pertaining to OrNda and the shares of OrNda
Common Stock offered hereby, reference is made to the Registration Statement
and the exhibits thereto, which may be inspected without charge at the office
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies
of which may be obtained from the Commission at prescribed rates.
In addition, each of OrNda, AHM and Summit are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and, in accordance therewith, file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copies made at the public reference facilities
of the Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549;
and its regional offices located at 7 World Trade Center, 13th Floor, New York,
New York 10048 and 500 West Madison, Chicago, Illinois 60661; and copies of
such materials can be obtained from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, material filed by OrNda and Summit can be inspected at the
offices of the National Association of Securities Dealers, Inc. at 1735 K
Street, Washington, D.C. 20006. The material filed by AHM can be inspected at
the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005.
INCORPORATION OF DOCUMENTS BY REFERENCE
This Proxy Statement/Prospectus incorporates by reference certain documents
relating to OrNda, AHM and Summit which are not delivered herewith. These
documents (other than the exhibits to such documents, unless such exhibits are
specifically incorporated by reference into such documents) are available
without charge, on oral or written request by any person to whom this Proxy
Statement/Prospectus is delivered, from OrNda, 3401 West End Avenue, Suite 700,
Nashville, TN 37203, telephone number (615) 383-8599, Attention: James H.
Johnson; or AHM, 660 American Avenue, Suite 200, King of Prussia, PA 19406,
telephone number (215) 768-5900, Attention: Robert M. Dubbs; or Summit, 2600 W.
Magnolia Blvd., Burbank, CA 91507, telephone number (818) 841-8750, Attention:
Frank S. Osen. In order to ensure timely delivery of the documents, any request
should be made by April 8, 1994.
The following OrNda documents are incorporated by reference herein:
1. Annual Report on Form 10-K for the fiscal year ended August 31, 1993
as amended by Form 10-K/A No. 1, filed on December 23, 1993, 10-K/A No. 2,
filed on January 19, 1994, 10-K/A No. 3, filed on March 11, 1994 and 10-K/A
No. 4, filed on March 14, 1994 (the "OrNda 10-K").
2. Current Report on Form 8-K filed on December 10, 1993.
3. The description of OrNda's common stock contained in its Registration
Statement on Form 10 (as filed with the Commission on May 16, 1990),
including any amendment or report filed for the purpose of amending such
description.
4. Quarterly Report on Form 10-Q for the quarterly period ended November
30, 1993 as amended by Form 10-Q/A No. 1, filed on March 11, 1994.
5. Current Report on Form 8-K filed on July 15, 1993 as amended by Form
8-K/A No. 1, filed on September 13, 1993, Form 8-K/A No. 2, filed on
February 7, 1994 and Form 8-K/A No. 3, filed on March 11, 1994.
6. Current Report on Form 8-K filed on March 10, 1994.
The following AHM documents are incorporated by reference herein:
1. Annual Report on Form 10-K for the year ended December 31, 1992, as
amended by a Form 8 dated March 30, 1993, and a Form 10-K/A No.1 filed on
February 7, 1994 (the "AHM 10-K").
2. Quarterly Reports on Form 10-Q for the quarterly periods ended March
31, 1993, June 30, 1993 and September 30, 1993, each as amended by a Form
10-Q/A filed on February 7, 1994.
3. Current Report on Form 8-K filed on December 7, 1993.
2
<PAGE>
The following Summit documents are incorporated by reference herein:
1. Annual Report on Form 10-K for the fiscal year ended June 30, 1993
(the "Summit 10-K").
2. Quarterly Reports on Form 10-Q for the quarterly periods ended
September 30, 1993 and December 31, 1993.
3. Current Report on Form 8-K dated December 2, 1993.
All documents and reports subsequently filed by OrNda, Summit or AHM pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof
and prior to the date of the OrNda Meeting, the AHM Meeting and the Summit
Meeting shall be deemed to be incorporated by reference herein, and shall be a
part hereof from the date of filing of such documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein, or
contained in this Proxy Statement/Prospectus, shall be deemed to be modified or
superseded for purposes of this Proxy Statement/Prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is
deemed to be incorporated herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to constitute a part of
this Proxy Statement/Prospectus, except as so modified or superseded.
3
<PAGE>
ORNDA HEALTHCORP
AMERICAN HEALTHCARE MANAGEMENT, INC.
SUMMIT HEALTH LTD.
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION............... 2
INCORPORATION OF DOCUMENTS BY REFER-
ENCE............................... 2
SUMMARY............................. 6
General........................... 6
The Companies..................... 6
The Meetings...................... 7
The Mergers....................... 8
Comparative Stock Prices and Divi-
dends............................ 13
Risk Factors...................... 15
Recent Events..................... 15
OrNda HealthCorp and Subsidiaries
Selected Historical Financial Da-
ta............................... 16
American Healthcare Management,
Inc. Selected Historical Finan-
cial Data........................ 17
Summit Health Ltd. Selected His-
torical Financial Data........... 18
OrNda HealthCorp, American
Healthcare Management, Inc., and
Summit Health Ltd. Selected Unau-
dited Pro Forma Combined Finan-
cial Data........................ 19
Comparative Per Share Data........ 20
INTRODUCTION........................ 21
OrNda Annual Meeting.............. 21
AHM Special Meeting............... 22
Summit Special Meeting............ 22
VOTING RIGHTS AND PROXIES........... 23
RISK FACTORS........................ 25
Health Care Reform................ 25
Certain Financial Considerations.. 25
Factors Affecting Market Price of
OrNda Common Stock............... 26
Shares Eligible for Future Issu-
ance and Sale.................... 25
Potential Summit Income Tax Lia-
bility........................... 26
Limits on Reimbursement........... 26
Extensive Regulation.............. 27
Dependence on Key Personnel and
Physicians....................... 27
Liability and Insurance........... 27
THE MERGERS......................... 27
Background of the AHM Merger...... 27
Recommendation of OrNda Board of
Directors; Reasons for the AHM
Merger........................... 29
Opinion of Kidder, Peabody & Co.
Incorporated Concerning the AHM
Merger........................... 30
Recommendation of AHM Board of Di-
rectors; Reasons for the AHM
Merger........................... 38
Opinion of Donaldson, Lufkin &
Jenrette Securities Corporation.. 40
Background of the Summit Merger... 43
Recommendation of OrNda Board of
Directors; Reasons for the Summit
Merger........................... 44
Opinion of Kidder, Peabody & Co.
Incorporated Concerning the Sum-
mit Merger....................... 45
Recommendation of Summit Board of
Directors; Reasons for the Summit
Merger .......................... 53
Opinion of Smith Barney Shearson.. 54
Terms of the AHM Merger........... 58
Effective Time of the AHM Merg-
er............................. 58
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Conversion of AHM Common Stock
in the AHM Merger.............. 58
Exchange of Certificates........ 58
Fractional Shares............... 59
Conversion of Stock Options and
Warrants....................... 59
General Provisions.............. 59
Representations and Warranties.. 59
Directors of OrNda.............. 59
Registration Rights............. 59
Conditions...................... 59
Consent Solicitation............ 60
Business of AHM and OrNda Pend-
ing the AHM Merger............. 60
Irrevocable Proxies............. 61
Termination..................... 61
Indemnification................. 62
Amendment and Waiver............ 62
Expenses........................ 62
Termination Fee................. 63
Federal Income Tax Consequences of
the AHM Merger................... 63
Accounting Treatment of the AHM
Merger........................... 64
Interests of Certain Persons in
the AHM Merger................... 64
No Dissenters' Rights in the AHM
Merger........................... 65
Terms of the Summit Merger........ 65
Effective Time of the Summit
Merger......................... 65
Conversion of Summit Common
Stock in the Summit Merger..... 66
Exchange of Certificates........ 66
Fractional Shares............... 66
Conversion of Stock Options..... 66
General Provisions.............. 67
Representations and Warranties.. 67
Real Estate Purchase............ 67
Directors of OrNda.............. 67
Registration Rights............. 67
Conditions...................... 68
Dissenting Shares............... 68
Business of Summit and OrNda
Pending the Merger............. 68
Stockholder Approval............ 69
Termination..................... 69
Indemnification................. 70
Voting Agreements............... 70
Amendment and Waiver............ 71
Expenses........................ 71
Federal Income Tax Consequences of
the Summit Merger................ 71
Accounting Treatment of the Summit
Merger........................... 72
Interests of Certain Persons in
the Summit
Merger........................... 72
Dissenters' Rights in the Summit
Merger........................... 76
Regulatory Approval............... 77
Consent Solicitation.............. 78
Pro Forma Financial Information... 79
Comparative Rights of Stockhold-
ers.............................. 104
Description of Certain Indebted-
ness............................. 106
ELECTION OF ORNDA DIRECTORS......... 109
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
MANAGEMENT......................... 110
Directors, Director Nominees and
Executive Officers.............. 110
Committees of the OrNda Board of
Directors and Meetings.......... 113
Management of OrNda following the
Mergers......................... 114
RATIFICATION OF THE ORNDA
HEALTHCORP INCENTIVE BONUS PLAN... 115
General.......................... 115
Summary of Plan.................. 115
Certain Federal Income Tax Conse-
quences of the Bonus Plan....... 115
Vote Required For Approval....... 116
RATIFICATION OF THE 1994 MANAGEMENT
EQUITY PLAN....................... 116
General.......................... 116
Summary of the Plan and Amend-
ment............................ 116
Certain Federal Income Tax Conse-
quences......................... 118
Vote Required for Approval....... 119
APPROVAL OF AMENDMENT TO ORNDA'S
RESTATED CERTIFICATE OF INCORPORA-
TION.............................. 119
Vote Required for Approval....... 120
EXECUTIVE COMPENSATION............. 121
Summary Compensation Table....... 121
Compensation Committee Report on
Executive Compensation.......... 122
</TABLE>
<TABLE>
<CAPTION>
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<S> <C>
Comparison of Five-Year Cumula-
tive Total Returns.............. 123
Martin Employment Agreement...... 124
Indemnification Agreements and
Trust........................... 125
CERTAIN TRANSACTIONS............... 125
JLL Fund Stock Purchase Agree-
ment............................ 125
PAH Exchange Agreement........... 126
Stockholders Agreement........... 126
Marsal Termination Agreement..... 127
Other............................ 127
PRINCIPAL STOCKHOLDERS AND SECURITY
OWNERSHIP OF MANAGEMENT OF ORNDA.. 128
SECURITY OWNERSHIP OF CERTAIN BENE-
FICIAL OWNERS AND MANAGEMENT OF
AHM............................... 130
SECURITY OWNERSHIP OF CERTAIN BENE-
FICIAL OWNERS AND MANAGEMENT OF
SUMMIT............................ 132
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF
1934.............................. 133
RELATIONSHIP WITH INDEPENDENT PUB-
LIC ACCOUNTANTS................... 133
LEGAL MATTERS...................... 133
EXPERTS............................ 133
STOCKHOLDER PROPOSALS FOR THE 1995
ANNUAL MEETING OF STOCKHOLDERS.... 133
</TABLE>
Annex A --Amended and Restated Agreement and Plan of Merger dated as of
January 14, 1994, by and between OrNda HealthCorp and American
Healthcare Management, Inc.
Annex B --Agreement and Plan of Merger dated as of December 2, 1993 by and
between OrNda HealthCorp, SHL Acquisition Co., and Summit Health
Ltd., as amended by Amendment No. 1, dated as of January 14, 1994
Annex C --Opinion of Kidder, Peabody & Co. Incorporated
Annex D --Opinion of Kidder, Peabody & Co. Incorporated
Annex E --Opinion of Donaldson, Lufkin & Jenrette Securities Corporation
Annex F --Opinion of Smith Barney Shearson Inc.
Annex G --California General Corporation Law--Chapter 13--Dissenters' Rights
Annex H --OrNda HealthCorp Incentive Bonus Plan
Annex I --Amendment to Article Four of Restated Certificate of Incorporation
of OrNda HealthCorp
Annex J --OrNda HealthCorp 1994 Management Equity Plan
5
<PAGE>
SUMMARY
The following is a brief summary of certain information contained, or
incorporated by reference, elsewhere in this Proxy Statement/Prospectus. This
summary is not intended to be complete and is qualified in its entirety by
reference to the more detailed information appearing, or incorporated by
reference, elsewhere herein. Stockholders are urged to review the entire Proxy
Statement/Prospectus, the Annexes hereto and the documents incorporated herein
by reference.
GENERAL
This Proxy Statement/Prospectus relates to the solicitation of proxies in
connection with (i) the proposed merger (the "AHM Merger") of American
Healthcare Management, Inc., a Delaware corporation ("AHM"), with and into
OrNda HealthCorp, a Delaware corporation ("OrNda"), and (ii) the proposed
merger (the "Summit Merger" and together with the AHM Merger, the "Mergers") of
SHL Acquisition Co. ("Merger Sub"), a newly formed, wholly owned subsidiary of
OrNda, with and into Summit Health Ltd., a California corporation ("Summit").
In addition, this Proxy Statement/Prospectus is furnished in connection with
the solicitation by the Board of Directors of OrNda of proxies to be voted at
the annual meeting of stockholders of OrNda (the "OrNda Meeting"). Upon
effectiveness of the AHM Merger, each outstanding share of common stock, $0.01
par value per share, of AHM ("AHM Common Stock") will be converted into the
right to receive 0.6 of a share of common stock, $0.01 par value per share, of
OrNda ("OrNda Common Stock"). As a result of the AHM Merger, AHM will be merged
with and into OrNda. Upon effectiveness of the Summit Merger, each outstanding
share of common stock, no par value, of Summit ("Summit Common Stock") will be
converted into the right to receive $5.50 in cash and 0.2157 of a share of
OrNda Common Stock. As a result of the Summit Merger, Summit will become a
wholly owned subsidiary of OrNda.
The AHM Merger will be effected pursuant to an Agreement and Plan of Merger
dated as of November 18, 1993, as amended as of January 14, 1994 (as amended
the "AHM Merger Agreement"), by and between OrNda and AHM, a copy of which, as
amended and restated, is attached hereto as Annex A. The Summit Merger will be
effected pursuant to an Agreement and Plan of Merger dated as of December 2,
1993, as amended as of January 14, 1994 (the "Summit Merger Agreement"), by and
among OrNda, Merger Sub and Summit, a copy of which is attached hereto as Annex
B. See "The Mergers."
THE COMPANIES
OrNda. OrNda is a hospital-based health care services company that owns and
operates acute care hospitals and related health care facilities. Through its
subsidiaries and affiliated partnerships, OrNda owns or operates 18 acute care
medical-surgical hospitals with 4,073 licensed beds, including one managed for
another, and two psychiatric hospitals with 138 licensed beds. The average size
of OrNda's acute care hospitals is 226 beds with a range of 92 to 495 beds.
OrNda's hospitals are located in California, Florida, Georgia, Indiana,
Mississippi, Missouri, Tennessee, Texas and Wyoming. OrNda also owns 43% of
Horizon Mental Health Services, Inc., which operates one psychiatric hospital
with 60 licensed beds and 53 specialty psychiatric and chemical dependency
units with 1,101 licensed beds.
AHM. AHM is a health care services company engaged in the operation of 16
general acute care hospitals with a total of 2,028 licensed beds. AHM owns 14
of these hospitals and operates two under leases. The average size of the
hospitals operated by AHM is 126 licensed beds with a range of 91 to 209
licensed beds. AHM's hospitals are located in California, Oregon, Washington,
Nevada, Texas, Louisiana, Tennessee, West Virginia and Florida. AHM's hospitals
provide a range of medical/surgical inpatient and outpatient services,
including obstetrics, pediatrics and minimally invasive and routine surgeries.
Summit. Summit is a health care company, which offers a broad range of
primary health care services in both inpatient and outpatient settings, with an
increasing emphasis on outpatient services and alternative
6
<PAGE>
site care. Summit has facilities located in California, Texas, Arizona and
Iowa. Summit owns or operates 12 acute care hospitals with 1,611 licensed beds
and four free-standing outpatient surgery centers with a total of 62 surgery
suites. Through its subsidiary Health Choice Arizona Inc., a Medicaid HMO,
Summit has an enrollment of approximately 21,000 in the state of Arizona.
Summit also provides health care services through its majority-owned
subsidiary, Summit Care Corporation, which operates 20 skilled nursing centers
with 2,534 licensed beds and four retirement centers with 468 beds.
THE MEETINGS
OrNda. The OrNda Meeting will be held on April 19, 1994, at 9:00 A.M. (local
time) at The Rihga Royal Hotel, 151 West 54th Street, New York, New York. At
the OrNda Meeting, holders of shares of OrNda Common Stock will be asked to
consider and vote upon (i) the approval and adoption of the AHM Merger
Agreement (the "AHM Merger Proposal"); (ii) the issuance of up to 9,892,102
shares of OrNda Common Stock pursuant to the Summit Merger Agreement (the
"Summit Merger Proposal"); (iii) the election of two Class I directors as
members of the Board of Directors to serve until the 1997 annual meeting of
stockholders or until their respective successors are duly elected and
qualified; (iv) the adoption of the OrNda HealthCorp Incentive Bonus Plan; (v)
the adoption of the OrNda HealthCorp 1994 Management Equity Plan (the
"Management Equity Plan"); and (vi) an amendment to OrNda's Certificate of
Incorporation to increase the number of authorized shares of OrNda Common Stock
from 100,000,000 shares to 200,000,000 shares. Approval and adoption of the AHM
Merger Agreement shall also constitute approval of the issuance of up to
17,965,345 shares of OrNda Common Stock in connection with the AHM Merger. The
AHM Merger Proposal and the Summit Merger Proposal are being presented to
stockholders as separate proposals. Consummation of the AHM Merger is not
conditioned upon consummation of the Summit Merger, nor is consummation of the
Summit Merger conditioned upon consummation of the AHM Merger.
Only holders of record of OrNda Common Stock at the close of business on
February 25, 1994 (the "OrNda Record Date") are entitled to notice of and to
vote at the OrNda Meeting. Holders of record of OrNda Common Stock are entitled
to one vote per share on any matter which may properly come before the OrNda
Meeting. The presence, in person or by proxy, of the holders of at least a
majority of the shares entitled to vote at the OrNda Meeting is necessary to
constitute a quorum. The affirmative vote of the holders of a majority of the
voting power of the shares of the OrNda Common Stock present in person or by
proxy at the OrNda Meeting is required to approve the Summit Merger. The
affirmative vote of the holders of a majority of the outstanding shares of
OrNda Common Stock is required to approve the AHM Merger. See "Voting Rights
and Proxies." Any proxy may be revoked by any stockholder who attends the OrNda
Meeting and gives oral notice of his or her intention to vote in person without
compliance with any other formalities. In addition, any OrNda stockholder may
revoke a proxy at any time before it is voted by executing a subsequent proxy
or by delivering a written notice to the Secretary of OrNda stating that the
proxy is revoked.
Stockholders of OrNda holding an aggregate of 9,036,744 shares of OrNda
Common Stock (representing approximately 49% of the OrNda Common Stock
outstanding as of the OrNda Record Date) have granted irrevocable proxies to
AHM pursuant to which such stockholders have agreed to vote in favor of the
approval of the AHM Merger. (Such proxies are herein referred to as the "AHM
Irrevocable Proxies"). See "The Mergers--Terms of the AHM Merger--Irrevocable
Proxies."
Stockholders of OrNda holding an aggregate of 9,036,744 shares of OrNda
Common Stock (representing approximately 49% of the OrNda Common Stock
outstanding as of the OrNda Record Date) have agreed with Summit to vote such
shares of stock in favor of the Summit Merger Agreement. (Such agreements are
herein referred to as the "Summit Voting Agreements".) See "The Mergers--Terms
of the Summit Merger--Voting Agreements."
7
<PAGE>
In addition, the directors and executive officers of OrNda, who collectively
owned 9,140,334 shares of OrNda Common Stock as of the OrNda Record Date, have
advised OrNda that they intend to vote such shares in favor of the AHM Merger
Proposal, the Summit Merger Proposal, the election of the Class I directors,
the adoption of the OrNda HealthCorp Incentive Bonus Plan, the adoption of the
Management Equity Plan and the adoption of the amendment to the OrNda Restated
Certificate of Incorporation.
AHM. A special meeting of stockholders of AHM (the "AHM Meeting"), will be
held on April 19, 1994, at 9:00 A.M. (local time), at the New York Marriott
East Side Hotel, 525 Lexington Avenue, New York, New York. At the AHM Meeting,
holders of shares of AHM Common Stock will be asked to consider and vote upon a
proposal to approve and adopt the AHM Merger Agreement. Only holders of record
of AHM Common Stock at the close of business on March 4, 1994 (the "AHM Record
Date") are entitled to notice of and to vote at the AHM Meeting. Holders of
record on the AHM Record Date are entitled to one vote per share on any matter
that may properly come before the AHM Meeting. The presence, in person or by
proxy, of the holders of a majority of the shares of AHM Common Stock entitled
to vote at the AHM Meeting is necessary to constitute a quorum. The affirmative
vote of the holders of a majority of the outstanding shares of AHM Common Stock
is necessary to approve and adopt the AHM Merger Agreement. Any proxy may be
revoked by any stockholder who attends the AHM Meeting and gives oral notice of
his or her intention to vote in person without compliance with any other
formalities. In addition, any AHM stockholder may revoke a proxy at any time
before it is voted by executing a subsequent proxy or by delivering a written
notice to the Secretary of AHM stating that the proxy is revoked. On the AHM
Record Date, there were 27,491,715 shares of AHM Common Stock issued and
outstanding and each share is entitled to one vote. Stockholders of AHM holding
an aggregate of 12,015,000 shares of AHM Common Stock (representing
approximately 44% of the AHM Common Stock outstanding as of the AHM Record
Date) have informed AHM that they intend to vote such shares in favor of the
AHM Merger Agreement.
Summit. A special meeting of stockholders of Summit (the "Summit Meeting"),
will be held on April 19, 1994, at 9:00 A.M. (local time), at The Rihga Royal
Hotel, 151 West 54th Street, New York, New York. At the Summit Meeting, holders
of shares of Summit Common Stock will be asked to consider and vote upon a
proposal to approve and adopt the Summit Merger Agreement. Only holders of
record of Summit Common Stock at the close of business on February 25, 1994
(the "Summit Record Date") are entitled to notice of and to vote at the Summit
Meeting. Holders of record on the Summit Record Date are entitled to one vote
per share on any matter that may properly come before the Summit Meeting. The
presence, in person or by proxy, of the holders of a majority of the shares of
Summit Common Stock entitled to vote at the Summit Meeting is necessary to
constitute a quorum. The affirmative vote of the holders of a majority of the
outstanding shares of Summit Common Stock is necessary to approve and adopt the
Summit Merger Agreement. Any proxy may be revoked by any stockholder who
attends the Summit Meeting and gives oral notice of his or her intention to
vote in person without compliance with any other formalities. In addition, any
Summit stockholder may revoke a proxy at any time before it is voted by
executing a subsequent proxy or by delivering a written notice to the Secretary
of Summit stating that the proxy is revoked.
Stockholders of Summit holding an aggregate of 20,176,100 shares of Summit
Common Stock (representing approximately 62% of the Summit Common Stock
outstanding as of the Summit Record Date) have agreed with OrNda to vote such
shares of stock in favor of the Summit Merger Agreement. As a result, approval
and adoption of the Summit Merger Agreement is assured without any other
affirmative votes. (Such agreements are herein referred to as the "OrNda Voting
Agreements.") See "The Mergers--Terms of the Summit Merger--Voting Agreements."
THE MERGERS
General. Pursuant to the AHM Merger Agreement, AHM will be merged with and
into OrNda. As a result of the Merger, each outstanding share of AHM Common
Stock will be converted into 0.6 of a share of
8
<PAGE>
OrNda Common Stock (the "AHM Exchange Ratio"). The terms of the AHM Merger
Agreement are more fully described in "The Mergers--Terms of the AHM Merger."
Pursuant to the Summit Merger Agreement, Merger Sub will be merged with and
into Summit. As a result of the Summit Merger, Summit will become a wholly
owned subsidiary of OrNda and each outstanding share of Summit Common Stock
will be converted into the right to receive $5.50 in cash and 0.2157 of a share
of OrNda Common Stock (collectively, the "Summit Exchange Ratio"). The terms of
the Summit Merger Agreement are more fully described in "The Mergers--Terms of
the Summit Merger."
Effective Time of the AHM Merger. The AHM Merger will be consummated at the
time and on the date that a certificate of merger is filed with the Delaware
Secretary of State or such later time as is specified in the certificate of
merger (the "AHM Effective Time"). It is presently contemplated that the AHM
Effective Time will occur as soon as practicable after the requisite approvals
of the stockholders of OrNda and AHM have been obtained and the other
conditions specified in the AHM Merger Agreement are satisfied or waived.
Effective Time of the Summit Merger. The Summit Merger will be consummated at
the time and on the date that an agreement of merger and certain officers'
certificates are filed with and accepted by the California Secretary of State
(the "Summit Effective Time" and together with the AHM Effective Time, the
"Effective Time"). It is presently contemplated that the Summit Effective Time
will occur as soon as practicable after the requisite approvals of the
stockholders of OrNda and Summit have been obtained and other conditions
specified in the Summit Merger Agreement are satisfied or waived.
Exchange of AHM and Summit Stock Certificates. As soon as practicable after
the Effective Time, instructions with regard to the surrender of stock
certificates, together with a letter of transmittal to be used for this
purpose, will be furnished to all AHM and Summit stockholders for use in
exchanging their stock certificates for the consideration they will be entitled
to receive as a result of the Mergers. STOCKHOLDERS OF AHM AND SUMMIT SHOULD
NOT SUBMIT THEIR STOCK CERTIFICATES FOR EXCHANGE UNTIL SUCH INSTRUCTIONS AND
LETTER OF TRANSMITTAL ARE RECEIVED.
Conditions to the AHM Merger; Financing; Consent Solicitation. In addition to
approval by the stockholders of AHM and OrNda, the obligations of the parties
to consummate the AHM Merger are subject to the satisfaction of certain
conditions, including, among other things, any waiting period applicable to the
consummation of the AHM Merger under the HSR Act (as defined below) having
expired or been terminated, and the receipt by OrNda and AHM of financing in an
amount sufficient to (i) refinance the outstanding senior and institutional
indebtedness of OrNda and AHM; (ii) provide adequate working capital; and (iii)
satisfy the change of control repurchase rights of the holders of AHM's 10%
Senior Subordinated Notes due 2003 (the "AHM Notes") arising by reason of the
AHM Merger. See "The Mergers--Terms of the AHM Merger--Conditions" and "--
Description of Certain Indebtedness."
The obligations of OrNda and AHM to consummate the AHM Merger are also
conditioned upon, among other things, the receipt by AHM of such consents and
waivers from the holders of the AHM Notes as OrNda, AHM and their senior
institutional and bank lenders shall agree are reasonably required. Pursuant to
a Waiver and Consent Agreement by and among OrNda and the holders of a majority
in principal amount of the outstanding AHM Notes, OrNda has agreed, upon
consummation of the AHM Merger, to make certain consent payments and to
increase the interest rate on the AHM Notes in exchange for the agreement of
such holders to the amendment and waiver of certain terms of the AHM Notes. See
"The Mergers--Terms of the AHM Merger--Conditions" and "--Consent
Solicitation."
Conditions to the Summit Merger; Financing; Real Estate Purchase. In addition
to the approval by the stockholders of OrNda and Summit, the obligations of the
parties to consummate the Summit Merger are subject to the satisfaction of
certain conditions, including, among other things, any waiting period
applicable to the consummation of the Summit Merger under the HSR Act having
expired or been terminated, and the receipt by OrNda and Summit of financing in
an amount sufficient to (i) finance the transactions contemplated by the Summit
Merger Agreement; (ii) if necessary, finance the Real Estate Purchase (as
defined below); (iii)
9
<PAGE>
refinance the outstanding senior and institutional indebtedness of OrNda and
Summit; (iv) provide adequate working capital; and (v) satisfy the change in
control repurchase rights of the holders of Summit's 7 1/2% Exchangeable
Subordinated Notes due 2003 (the "Summit Notes") arising by reason of the
Summit Merger. See "The Mergers--Terms of the Summit Merger--Conditions" and
"--Description of Certain Indebtedness."
Pursuant to the Summit Merger Agreement, OrNda agreed to negotiate in good
faith with Sierra Land Group, Inc. ("Sierra") and Summit Properties ("SP")
concerning the purchase by either OrNda or a third party for an aggregate
purchase price of $85.4 million of certain real property and improvements
currently owned by Sierra or SP and leased to Summit (the "Real Estate
Purchase"). Sierra and SP are affiliates of Don Freeberg, the Chairman of the
Board of Summit and the beneficial owner of 55.4% of the outstanding Summit
Common Stock. OrNda currently intends to purchase approximately $57 million of
such real estate and to seek a third party purchaser for the remaining real
estate. The obligations of OrNda and Summit to consummate the Summit Merger as
well as the obligations of the Summit stockholders party to the OrNda Voting
Agreements to vote for the Summit Merger are conditioned upon either such
transaction having been consummated or all conditions to the consummation of
such transactions having been satisfied or waived. See "The Mergers--Terms of
the Summit Merger--Real Estate Purchase" and "--Voting Agreements" and
"Interests of Certain Persons in the Summit Merger."
Antitrust Matters. The Mergers are subject to the requirements of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations thereunder (the "HSR Act"), which provides that certain acquisition
transactions (including the Mergers) may not be consummated until certain
information has been furnished to the Antitrust Division of the Department of
Justice (the "Division") and the Federal Trade Commission (the "FTC") and
unless certain waiting period requirements are met. On December 10, 1993, the
Notification and Report Forms for the AHM Merger required pursuant to the HSR
Act were filed by both OrNda and AHM and on January 7, 1994, the Notification
and Report Forms for the Summit Merger required pursuant to the HSR Act were
filed by both OrNda and Summit. OrNda and AHM have received notice of early
termination of the HSR Act waiting period and the HSR Act waiting period has
expired with respect to the Summit Merger. See "The Mergers--Regulatory
Approval," "--Terms of the AHM Merger--Conditions" and "--Terms of the Summit
Merger--Conditions."
Management of OrNda After the Mergers. It is anticipated that after
consummation of the Mergers, the Board of Directors of OrNda will consist of 13
members. Pursuant to the AHM Merger Agreement, three of such directors will be
current directors of AHM. It is currently expected that such AHM designees will
be Steven L. Volla, currently Chairman, President and Chief Executive Officer
of AHM and John F. Nickoll and John J. O'Shaugnessy each of whom is currently a
director of AHM. OrNda has agreed to cause Donald J. Amaral, currently
President and Chief Executive Officer of Summit, and one designee of Don
Freeberg, currently Chairman of the Board of Summit, to be appointed to the
OrNda Board of Directors. It is also anticipated that after consummation of the
Mergers, Charles N. Martin, Jr. will continue to serve as Chairman of the Board
and Chief Executive Officer of OrNda, Steven L. Volla will serve as Chairman of
the Executive Committee of the Board of Directors of OrNda and Donald J. Amaral
will serve as President and Chief Operating Officer of OrNda. See "The
Mergers--Terms of the AHM Merger--Directors of OrNda", "The Mergers--Terms of
the Summit Merger--Directors of OrNda", "--Interests of Certain Persons in the
AHM Merger" and "--Interests of Certain Persons in the Summit Merger."
Interests of Certain Persons in the Mergers. In considering the
recommendation of the Board of Directors of AHM with respect to the AHM Merger
Agreement and the transactions contemplated thereby, AHM stockholders should be
aware that certain members of the management of AHM and the Board of Directors
of AHM have certain interests in the AHM Merger that are in addition to the
interests of stockholders of AHM generally. See "The Mergers--Interests of
Certain Persons in the AHM Merger." In
10
<PAGE>
considering the recommendation of the Board of Directors of Summit with respect
to the Summit Merger Agreement and the transactions contemplated thereby,
Summit stockholders should be aware that certain members of the management of
Summit and the Board of Directors of Summit have certain interests in the
Summit Merger that are in addition to the interests of stockholders of Summit
generally. See "The Mergers--Interests of Certain Persons in the Summit
Merger."
Termination. The AHM Merger Agreement may be terminated at any time prior to
the AHM Effective Time whether before or after stockholder approval: (i) by
mutual written consent of OrNda and AHM, (ii) by OrNda, on the one hand, and
AHM, on the other hand, if the AHM Merger has not been consummated on or before
July 31, 1994, or (iii) by OrNda or AHM, if any of the conditions precedent to
their respective obligations under the AHM Merger Agreement have not been met
or waived prior to or at such time such condition can no longer be satisfied.
See "The Mergers--Terms of the AHM Merger--Termination."
The Summit Merger Agreement may be terminated at any time prior to the Summit
Effective Time whether before or after stockholder approval: (i) by mutual
written consent of OrNda, Summit and Merger Sub, (ii) by either OrNda or Merger
Sub, on the one hand, and Summit, on the other hand, if the Merger has not been
consummated on or before July 31, 1994, (iii) by either OrNda or Summit, if any
of the conditions precedent to their respective obligations under the Summit
Merger Agreement have not been met or waived prior to or at such time such
condition can no longer be satisfied or (iv) by Summit on or after March 31,
1994 if OrNda has not received commitments for the requisite financing. See
"The Mergers--Terms of the Summit Merger--Termination."
Termination Fees. If prior to the AHM Meeting, AHM receives a competing
acquisition proposal relating to AHM, and either (i) the AHM stockholders fail
to approve the AHM Merger at the AHM Meeting or (ii) AHM breaches its covenant
to recommend acceptance of the AHM Merger to its stockholders, and such
acquisition proposal is thereafter consummated within 12 months of the date of
termination of the AHM Merger Agreement, AHM (or the successor thereto) must
pay OrNda a fee in cash equal to $5 million. See "The Mergers--Terms of the AHM
Merger--Termination Fee."
In the event that OrNda is unable to obtain the requisite financing to effect
the Summit Merger, the Real Estate Purchase and the refinancing of outstanding
debt of OrNda and Summit, OrNda will pay as liquidated damages $1.5 million to
Summit, if such inability is not due to a material breach by Summit of any
agreement, representation or warranty in the Summit Merger Agreement or the
agreement relating to the Real Estate Purchase. See "The Mergers--Terms of the
Summit Merger--Expenses."
Federal Income Tax Consequences of the AHM Merger. OrNda and AHM will each
receive at or prior to the AHM Effective Time an opinion of counsel that for
Federal income tax purposes the Merger will constitute a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and that no gain or loss will be recognized by any AHM
stockholder upon the receipt solely of OrNda Common Stock pursuant to the AHM
Merger (except to the extent that cash is received in lieu of a fractional
share interest) nor will OrNda or AHM recognize income, gain or loss as a
result of the Merger. See "The Mergers--Federal Income Tax Consequences of the
AHM Merger."
Federal Income Tax Consequences of the Summit Merger. The receipt by Summit
stockholders of cash and OrNda Common Stock in exchange for the Summit Common
Stock in the Summit Merger (or the receipt of cash upon the exercise of
dissenters' rights) will be a taxable transaction for Federal income tax
purposes under the Code and may be taxable under state, local or foreign tax
laws as well. A Summit stockholder will recognize gain or loss equal to the
difference between the tax basis for the Summit Common Stock surrendered in the
Summit Merger and the sum of the (i) cash and (ii) fair market value of the
OrNda Common Stock received in the Summit Merger. Such gain or loss will be
capital gain or loss if the Summit Common Stock exchanged in the Merger was a
capital asset in the hands of the Summit stockholder and will be long-term gain
or loss if the holding period for the Summit Common Stock is more than one
year. See "The Mergers--Federal Income Tax Consequences of the Summit Merger."
11
<PAGE>
Dissenters' Rights. Holders of shares of AHM Common Stock are not entitled to
appraisal rights of dissenting stockholders under Delaware Law with respect to
the transactions contemplated by the AHM Merger Agreement. See "The Mergers--No
Dissenters' Rights in the AHM Merger." Holders of Summit Common Stock who vote
against the Summit Merger may, subject to certain conditions, be entitled to
dissenters' rights under California Law in connection with the Summit Merger.
The Summit Merger Agreement provides that OrNda's obligation to consummate the
Summit Merger is subject to the condition that the holders of fewer than 5.0%
of the number of shares of Summit Common Stock outstanding shall have validly
exercised dissenters' rights. See "The Mergers--Dissenters' Rights in the
Summit Merger."
Accounting Treatment. Both OrNda and AHM believe that the AHM Merger will
qualify as a pooling- of-interests for accounting and financial reporting
purposes and have been so advised by Ernst & Young, their independent public
accountants. Consummation of the AHM Merger is conditioned upon the receipt by
each of OrNda and AHM of a letter from Ernst & Young stating that the AHM
Merger will qualify for pooling of interests accounting treatment. It is
contemplated that the Summit Merger will be accounted for as a purchase
transaction. See "The Mergers--Terms of the AHM Merger--Conditions" and "--
Accounting Treatment of the AHM Merger" and "--Accounting Treatment of the
Summit Merger."
Recommendation of the Boards of Directors. The Board of Directors of OrNda
has unanimously approved the Merger Agreements and unanimously recommends that
OrNda stockholders vote FOR the AHM Merger Proposal and FOR the Summit Merger
Proposal. The Board of Directors of AHM has unanimously approved the AHM Merger
Agreement and unanimously recommends a vote FOR approval and adoption of the
AHM Merger Agreement by the stockholders of AHM. The Board of Directors of
Summit has unanimously approved the Summit Merger Agreement and unanimously
recommends a vote FOR approval and adoption of the Summit Merger Agreement by
the stockholders of Summit.
For a discussion of the factors considered by the respective Boards of
Directors in reaching their decisions, see "The Mergers--Recommendation of
OrNda Board of Directors; Reasons for the AHM Merger," "--Recommendation of
OrNda Board of Directors; Reasons for the Summit Merger," "--Recommendation of
AHM Board of Directors; Reasons for the AHM Merger" and "--Recommendation of
Summit Board of Directors; Reasons for the Summit Merger."
Opinions of Financial Advisors. On November 18, 1993, Kidder, Peabody & Co.
Incorporated ("Kidder, Peabody") delivered its oral opinion to OrNda's Board of
Directors to the effect that, as of the date of such opinion, the AHM Exchange
Ratio was fair, from a financial point of view, to OrNda. Kidder, Peabody
subsequently confirmed its earlier oral opinion and delivered to OrNda's Board
of Directors its written opinion dated as of March 14, 1994, to the effect
that, as of such date, the AHM Exchange Ratio is fair, from a financial point
of view, to OrNda. A copy of this opinion is attached hereto as Annex C.
OrNda's shareholders are urged to read this opinion in its entirety for a
description of the assumptions made, procedures followed, matters considered,
limitations on and the scope of review by Kidder, Peabody. See "The Mergers--
Opinion of Kidder, Peabody & Co. Incorporated Concerning the AHM Merger."
On November 18, 1993, Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") delivered its oral opinion to AHM's Board of Directors to the effect
that, based upon various considerations and assumptions, the consideration to
be received by the holders of AHM Common Stock pursuant to the AHM Merger was
fair from a financial point of view. On December 2, 1993, DLJ delivered its
oral opinion to AHM's Board of Directors to the effect that, as of such date,
whether or not the Summit Merger is consummated, the consideration to be
received by the holders of AHM Common Stock remained fair from a financial
point of view to AHM's stockholders. DLJ subsequently confirmed such oral
opinions in writing. A copy of this opinion is attached hereto as Annex E.
On December 2, 1993, Kidder, Peabody delivered its oral opinion to OrNda's
Board of Directors to the effect that, as of the date of such opinion, the
Summit Exchange Ratio was fair, from a financial point of view, to OrNda.
Kidder, Peabody subsequently confirmed its earlier oral opinion and delivered
to OrNda's
12
<PAGE>
Board of Directors its written opinion dated as of March 14, 1994, to the
effect that, as of such date, the Summit Exchange Ratio is fair, from a
financial point of view, to OrNda. A copy of this opinion is attached hereto as
Annex D. OrNda's shareholders are urged to read this opinion in its entirety
for a description of the assumptions made, procedures followed, matters
considered, limitations on and the scope of review by Kidder, Peabody. See "The
Mergers--Opinion of Kidder, Peabody & Co. Incorporated Concerning the Summit
Merger."
On December 2, 1993, Smith Barney Shearson Inc. ("Smith Barney Shearson")
delivered its oral opinion (subsequently confirmed by a written opinion dated
such date) to Summit's Board of Directors to the effect that, as of the date of
such opinion and based upon and subject to certain considerations and
assumptions, the Summit Exchange Ratio was fair, from a financial point of
view, to the holders of Summit Common Stock. Smith Barney Shearson subsequently
confirmed such opinion by delivery of a written opinion dated the date hereof.
A copy of this opinion is attached hereto as Annex F.
Copies of the full texts of the written opinions of Kidder, Peabody, DLJ and
Smith Barney Shearson, which set forth the assumptions made, procedures
followed, matters considered and limits of their respective reviews are
attached to this Proxy Statement/Prospectus as Annexes C, D, E and F and should
be read carefully in their entirety. See "The Mergers--Opinion of Kidder,
Peabody & Co. Incorporated Concerning the AHM Merger," "--Opinion of Donaldson,
Lufkin & Jenrette Securities Corporation," "--Opinion of Kidder, Peabody & Co.
Incorporated Concerning the Summit Merger," and "--Opinion of Smith Barney
Shearson."
COMPARATIVE STOCK PRICES AND DIVIDENDS
OrNda Common Stock is traded on the NASDAQ National Market System under the
symbol ORND. AHM Common Stock is traded on the New York Stock Exchange (NYSE)
under the symbol AHI. Summit Common Stock is traded on the NASDAQ National
Market System under the symbol SUMH. Prior to being listed on the NYSE in April
1993, AHM Common Stock was listed and traded on the American Stock Exchange
(AMSE).
The following table sets forth, for the calendar periods indicated, the high
and low closing prices per share of OrNda Common Stock and Summit Common Stock
as reported by the NASDAQ National Market System, and cash dividends declared
by Summit. Also set forth below, for the calendar periods indicated, are the
high and low closing prices per share of AHM Common Stock on the NYSE Composite
Tape for periods subsequent to April 1993 and on the AMSE for periods prior to
April 1993. Neither OrNda nor AHM has paid dividends on its Common Stock in the
past three years.
<TABLE>
<CAPTION>
SUMMIT
------------------------
ORNDA AHM
COMMON STOCK COMMON STOCK COMMON STOCK CASH
-------------- ------------- -------------- DIVIDENDS
HIGH LOW HIGH LOW HIGH LOW DECLARED
------- ------ ------ ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1991
Third Quarter.......................... $ 12.50 $ 6.75 $3.375 $ 2.00 $ 4.125 $3.125 --
Fourth Quarter......................... 14.75 10.25 4.875 2.625 6.25 3.625 --
1992
First Quarter.......................... $14.625 $11.50 $ 6.00 $ 4.00 $ 8.625 $ 5.50 --
Second Quarter......................... 11.75 9.25 5.50 4.125 7.00 5.00 $.02
Third Quarter.......................... 9.50 7.25 5.125 3.875 7.25 4.50 --
Fourth Quarter......................... 9.50 6.00 5.375 3.50 6.25 3.625 $.03
1993
First Quarter.......................... $ 9.00 $ 5.50 $6.125 $ 4.25 $ 9.50 $5.125 --
Second Quarter......................... 9.00 5.50 5.125 4.00 7.00 5.00 $.03
Third Quarter.......................... 14.75 9.00 5.875 4.75 8.75 6.00 --
Fourth Quarter ........................ 15.75 12.00 9.125 5.50 9.00 7.38 $.04
1994
First Quarter (through March 11, 1994). $ 20.50 $14.75 $11.75 $8.625 $ 9.69 $8.125 --
</TABLE>
13
<PAGE>
OrNda has never paid dividends on the OrNda Common Stock. OrNda's Board of
Directors currently intends to retain earnings for further development of
OrNda's business and, therefore, does not intend to pay cash dividends on its
Common Stock in the foreseeable future. OrNda's existing senior credit
agreement and the Indenture relating to OrNda's Senior Subordinated Notes (the
"OrNda Notes") contain significant restrictions on the payment of dividends on
shares of OrNda Common Stock. Moreover, the Indenture relating to the AHM
Notes, which will be assumed by OrNda as a result of the AHM Merger, will also
contain significant restrictions on the payment of such dividends. Also, OrNda
expects that the new credit facility currently being sought will contain
similar restrictions on dividends. See "The Mergers--Description of Certain
Indebtedness."
Holders of AHM Stock are entitled to receive dividends when and as declared
by the Board of Directors. Under the terms of a Credit Agreement between AHM
and its principal lenders, AHM may pay dividends after July 22, 1994. However,
dividends in any fiscal year may not exceed the lesser of ten percent of net
income or $3.0 million. The Indenture relating to the AHM Notes also contains
significant restrictions on the payment of dividends on AHM Common Stock.
Holders of Summit Common Stock are entitled to receive dividends when and as
declared by Summit's Board of Directors. Under the terms of a Credit Agreement
between Summit and its principal lenders, Summit may not pay dividends (other
than dividends of its capital stock) in excess of 50% of net income if any
indebtedness is outstanding under such credit facility or related letters of
credit.
Pursuant to the Merger Agreements, each of OrNda, AHM and Summit have agreed
not to declare, set aside or pay any dividend or other distribution in cash,
stock or other property prior to the Effective Time, other than a dividend
declared by Summit on November 22, 1993 of $.04 per share to holders of record
of Summit Common Stock on December 16, 1993.
The reported closing sale price of OrNda Common Stock on the NASDAQ National
Market System on November 18, 1993, the last full day of trading for OrNda
Common Stock prior to the announcement by OrNda and AHM of the execution of the
AHM Merger Agreement, was $14.125 per share. The closing sale price of AHM
Common Stock on the NYSE Composite Tape on such date was $7.00 per share. On an
equivalent per share basis calculated by multiplying the closing sale price in
OrNda Common Stock on that day by 0.6, the AHM Exchange Ratio, the value of
OrNda shares to be received by holders of AHM Common Stock was $8.475 per AHM
share.
The reported closing sale price of OrNda Common Stock on the NASDAQ National
Market System on December 1, 1993, the last full day of trading for OrNda
Common Stock prior to the announcement by OrNda and Summit of the execution of
the Summit Merger Agreement, was $12.75 per share. The closing sale price of
Summit Common Stock on the NASDAQ National Market System on such date was $9.00
per share, and the average closing sale price of Summit Common Stock on the
NASDAQ National Market System for the 30 trading days prior to the announcement
by OrNda and Summit of the execution of the Summit Merger Agreement was $7.05
per share. On an equivalent per share basis calculated by multiplying the
closing sale price of OrNda Common Stock on December 1, 1993 by 0.2157 and
adding $5.50, the Summit Exchange Ratio, the value of the merger consideration
to be received by holders of Summit Common Stock was $8.25 per Summit share.
On March 11, 1994, the last full day of trading prior to the printing of this
Proxy Statement/Prospectus, the reported closing sale prices of OrNda Common
Stock and Summit Common Stock in the NASDAQ National Market System were $18.00
per share and $9.00 per share respectively, and the reported closing sales
price of AHM on the NYSE was $10.25 per share.
14
<PAGE>
Because each of the AHM Exchange Ratio and the Summit Exchange Ratio is fixed
and because the market price of OrNda Common Stock is subject to fluctuation,
the market value of the shares of OrNda Common Stock that holders of AHM Common
Stock and Summit Common Stock will receive in the Mergers may increase or
decrease prior to and following the Mergers. Stockholders are urged to obtain
current market quotations.
RISK FACTORS
Certain factors should be considered in evaluating the Mergers and the
ownership of the OrNda Common Stock to be issued in the Mergers. See "Risk
Factors."
RECENT EVENTS
On March 7, 1994, OrNda announced that based on discussions with the staff of
the Commission, it has restated (the "Restatement") its financial statements
for the fiscal years ended August 31, 1990, 1991, 1992 and 1993 and for the
quarter ended November 30, 1993 as a result of a change in the application of
the equity method of accounting to combine all of its investments in Houston
Northwest Medical Center, Inc. ("HNW") in applying the equity method. The
Restatement reduced previously reported earnings by an aggregate amount of
$48.3 million and reduced assets and shareholders' equity by $49.9 million at
November 30, 1993. In addition, OrNda announced that it had adopted Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS No. 115"). The adoption of SFAS No. 115
caused OrNda to record an increase of approximately $81.7 million in assets and
shareholders' equity at September 1, 1993. The net effect resulting from both
accounting changes is an increase in assets and shareholders' equity of $35.6
million at November 30, 1993. See "OrNda HealthCorp and Subsidiaries Selected
Historical Financial Data" and Notes 1 and 5 of OrNda's consolidated financial
statements included in OrNda's August 31, 1993 Form 10-K/A No. 4 incorporated
by reference in this Proxy Statement/Prospectus.
15
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected historical financial data and other
operating information of OrNda HealthCorp. The selected historical financial
data for the five years ended August 31, 1993 are derived from the consolidated
financial statements of OrNda HealthCorp. The historical financial data for the
three months ended November 30, 1993 and 1992 is derived from unaudited
financial statements. The data should be read in conjunction with the
consolidated financial statements and related notes incorporated by reference
in this Proxy Statement/Prospectus. The statements of operations and operating
data for the year ended 1989 and the first eight months of the year ended
August 31, 1990, and the balance sheet data as of August 31, 1989, present
information for REPH Acquisition Company ("REPH"), the former parent
corporation of OrNda. On April 16, 1990, REPH merged with and into OrNda as
part of a "pre-packaged" plan of reorganization ("the Reorganization").
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED NOVEMBER 30, FOR THE YEARS ENDED AUGUST 31,
-------------------- -------------------------------------------------
1993 1992 1993 1992 1991 1990 1989
--------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERA-
TIONS:
Total Revenue (1)....... $ 182,952 $ 142,521 $624,847 $501,770 $461,871 $ 507,668 $496,317
Costs and Expenses
Operating expenses..... 142,796 116,459 495,437 427,829 378,650 426,278 398,060
Provision for doubtful
accounts.............. 13,853 7,847 42,976 34,629 26,673 29,860 29,726
Depreciation and amor-
tization.............. 9,346 6,645 28,944 22,753 15,749 23,148 32,010
Interest expense....... 15,108 13,455 55,330 31,800 40,161 52,650 96,764
Interest income........ (318) (1,050) (3,380) (3,226) (3,541) (5,316) (3,500)
Minority interest...... 574 504 4,601 7,610 3,955 5,315 8,289
Special executive com-
pensation(2).......... -- -- -- 6,140 -- -- --
Severance agreements... -- -- -- 5,090 -- -- --
Loss (gain) on disposal
of
hospitals/investments. -- -- -- 44,903 -- 74,299 (536)
Costs associated with
1990 recapitalization. -- -- -- -- -- 6,245 5,124
Corporate office relo-
cation expense........ -- -- -- 1,800 -- -- --
--------- --------- -------- -------- -------- --------- --------
1,593 (1,339) 939 (77,558) 224 (104,811) (69,620)
Income (loss) from in-
vestments in Houston
Northwest Medical Cen-
ter.................... (1,820) (1,506) 173 (8,210) (6,147) (1,834) --
--------- --------- -------- -------- -------- --------- --------
Income (loss) before in-
come tax expense and
extraordinary item..... (227) (2,845) 1,112 (85,768) (5,923) (106,645) (69,620)
Income tax expense...... 217 43 342 87 123 22 --
--------- --------- -------- -------- -------- --------- --------
Income (loss) before ex-
traordinary item....... (444) (2,888) 770 (85,855) (6,046) (106,667) (69,620)
Extraordinary item...... -- -- -- (5,904) -- -- --
--------- --------- -------- -------- -------- --------- --------
Net income (loss)....... (444) (2,888) 770 (91,759) (6,046) (106,667) (69,620)
Preferred stock dividend
requirements........... 431 410 (1,699) (1,363) -- (3,931) (12,182)
--------- --------- -------- -------- -------- --------- --------
Net income (loss) appli-
cable to common and
common equivalent
shares................. $ (875) $ (3,298) $ (929) $(93,122) $ (6,046) $(110,598) $(81,802)
========= ========= ======== ======== ======== ========= ========
Net income (loss) per
common and common
equivalent share before
extraordinary item..... $ (0.05) $ (0.19) $ (0.05) $ (6.00) $ (1.03) (3) (3)
========= ========= ======== ======== ========
Net income (loss) per
common and common
equivalent share....... $ (0.05) $ (0.19) $ (0.05) $ (6.40) $ (1.03) (3) (3)
========= ========= ======== ======== ========
Net income (loss) per
common and common
equivalent share before
extraordinary item as-
suming full dilution... (4) (4) (4) (4) (4) (3) (3)
Net income (loss) per
common and common
equivalent share assum-
ing full dilution...... (4) (4) (4) (4) (4) (3) (3)
Shares used in earnings
per common and common
equivalent share compu-
tations (in thousands). 18,273 17,143 17,612 14,543 5,860 (3) (3)
OPERATING DATA:
EBDAIT (5).............. $ 26,303 $ 18,215 $ 86,434 $ 39,312 $ 56,548 $ 51,530 $ 68,531
Number of hospitals
owned at period end.... 19 17 19 16 11 16 17
Licensed beds at period
end.................... 4,086 3,275 4,086 3,182 2,543 3,336 3,429
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31,
NOVEMBER 30, -----------------------------------------------
1993 1993 1992 1991 1990 1989
------------ -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $ 8,194 $ 9,996 $ 60,619 $ 14,394 $ 23,739 $ 38,979
Working capital (6)..... 39,429 1,905 43,441 (8,704) (37,043) (594,028)
Net property, plant and
equipment.............. 531,479 531,910 408,354 311,224 310,989 316,363
Total assets............ 922,610 830,564 649,322 515,606 562,977 555,271
Long-term debt (exclud-
ing current maturities)
(6).................... 566,519 536,947 422,550 289,727 359,286 94,471
Preferred stock......... 16,077 18,062 16,363 -- -- --
Total shareholders' eq-
uity (deficit)......... 164,002 78,287 61,172 45,102 33,875 (421,957)
</TABLE>
- --------
(1) Total revenue is comprised of patient revenue, net of contractual
adjustments, and other revenue.
(2) Special executive compensation includes: (i) $3.0 million of compensation
expense related to the Company's sale of Common Stock and granting of
options to Mr. Martin on January 15, 1992 and (ii) a non-cash reserve of
$1.9 million established for payments to be made in connection with the
termination of employment with the Company of Mr. Marsal and Mr. Bondi in
1992. The payments related to the Marsal and Bondi terminations will be
made monthly through October 1994.
(3) Per share information for the years August 31, 1990 and 1989 is not
presented because a different capital structure existed prior to the
Reorganization.
(4) Result is anti-dilutive.
(5) Earnings before depreciation, amortization, interest, minority interest,
income (loss) from investments in Houston Northwest Medical Center, income
taxes and non-recurring items. While EBDAIT should not be construed as a
substitute for income from operations or a better indicator of liquidity
than cash flow from operating activities, which are determined in
accordance with generally accepted accounting principles, it is included
herein to provide additional information with respect to the ability of
OrNda to meet its future debt service, capital expenditure and working
capital requirements.
(6) Long-term debt of $493,510 is classified as current at August 31, 1989.
16
<PAGE>
AMERICAN HEALTHCARE MANAGEMENT, INC.
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected historical financial data and other
operating information of American Healthcare Management, Inc. The selected
historical financial data for the five years ended December 31, 1992, are
derived from the consolidated financial statements of American Healthcare
Management, Inc. The historical financial data for the nine months ended
September 30, 1993 and 1992 is derived from unaudited financial statements. The
data should be read in conjunction with the consolidated financial statements
and related notes of American Healthcare Management, Inc. incorporated by
reference in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
FOR NINE
MONTHS ENDED
SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
------------------ ------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
-------- -------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERA-
TIONS:
Total Revenue(1)........ $256,065 $232,314 $313,197 $289,466 $ 298,833 $292,498 $319,320
Costs and Expenses
Operating expenses..... 203,526 186,710 253,490 232,289 248,094 248,362 258,171
Provision for doubtful
accounts.............. 16,759 13,012 17,184 17,142 17,074 20,554 22,040
Depreciation and amor-
tization.............. 14,118 12,759 17,366 16,452 17,182 16,816 17,051
Interest expense,
net(2)................ 10,596 6,667 9,401 15,267 19,871 19,361 9,663
Special items--write
down of assets and
other charges(3)...... -- -- -- -- 11,412 17,466 8,201
-------- -------- -------- -------- ---------- -------- --------
Income (loss) before
income tax expense and
extraordinary item..... 11,066 13,166 15,756 8,316 (14,800) (30,061) 4,194
Income tax expense...... 746 208 249 280 70 96 1,654
-------- -------- -------- -------- ---------- -------- --------
Income (loss) before ex-
traordinary item....... 10,320 12,958 15,507 8,036 (14,870) (30,157) 2,540
Extraordinary Item...... (3,842) 55,571 55,571 -- -- 30,455 1,295
-------- -------- -------- -------- ---------- -------- --------
Net income (loss)....... $ 6,478 $ 68,529 $ 71,078 $ 8,036 $ (14,870) $ 298 $ 3,835
======== ======== ======== ======== ========== ======== ========
Net income (loss) per
common and common
equivalent share before
extraordinary item..... $ 0.36 $ 0.45 $ 0.54 $ 0.43 $ (0.98) (5) (5)
======== ======== ======== ======== ========== ======== ========
Net income (loss) per
common and common
equivalent share....... $ 0.23 $ 2.40 $ 2.49 $ 0.43 $ (0.98) (5) (5)
======== ======== ======== ======== ========== ======== ========
Shares used in earnings
per common and common
equivalent share compu-
tations (in thousands). 28,617 28,566 28,548 18,811 15,160 (5) (5)
OPERATING DATA:
EBDAIT(6)............... $ 35,780 $ 32,592 $ 42,523 $ 40,035 $ 33,665 $ 23,582 $ 39,109
Number of hospitals at
period end............. 16 16 16 16 17 18 23
Licensed beds at period
end.................... 2,028 2,028 2,028 2,028 2,187 2,353 2,753
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------------------------
1993 1992 1991 1990 1989 1988
------------- ------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $15,918 $ -- (7) $ 15,749 $ 11,649 $21,551 $29,383
Working capital......... 24,268 2,800(7) 19,361 17,263 21,414 25,828
Net property, plant, and
equipment.............. 272,084 268,284 261,963 263,589 287,914 317,955
Total assets 357,705 337,836 334,931 353,731 399,820 463,723
Long-term debt (exclud-
ing current maturi-
ties).................. 168,478 143,822 227,275 274,248 290,972 395,153
Total shareholders' eq-
uity (deficit)......... 134,662 128,084 56,840 22,325 37,195 (18,229)
</TABLE>
- --------
(1) Total revenue is comprised of patient revenue, net of contractual
adjustments, and other revenue.
(2) For the years ended December 31, 1990 and 1991 and for the nine months
ended September 30, 1993, long-term debt issued in connection with a debt
restructuring following the Company's emergence from bankruptcy on December
29, 1989 was accounted for under Financial Accounting Standards Board
Statement No. 15 "Accounting by Debtors and Creditors for Troubled Debt
Restructurings," which rules had the effect of reducing reported interest
expense by $7.0 million, $8.7 million, and $5.9 million, respectively.
(3) Special items for 1988, 1989 and 1990 include net noncash write downs of
assets and other charges of $8.2 million, $17.5 million and $11.4 million,
respectively. These adjustments primarily resulted from a provision for
pre-disposition losses and adjustments in 1988 to the net value of assets
held for disposal, a valuation adjustment in 1989 to notes receivable
received in connection with previously disposed operations and management's
decision in the fourth quarter of 1990 (i) to dispose of three
subsidiaries, including two hospitals, and (ii) to recognize diminution in
value of two hospitals where the Company was in process of disposition
negotiations.
(4) Extraordinary items consist of utilization of tax loss carryforwards in
1988, a gain on troubled debt restructuring in 1989, a gain on early
extinguishment of debt in 1992 and a loss on early extinguishment of debt
in 1993.
(5) Per share information for the years December 31, 1989 and 1988 is not
presented because a different capital structure existed.
(6) Earnings before depreciation, amortization, interest, income taxes and
nonrecurring items. While EBDAIT should not be construed as a substitute
for income from operations or a better indicator of liquidity than cash
flow from operating activities, which are determined in accordance with
generally accepted accounting principles, it is included herein to provide
additional information with respect to the ability of AHM to meet its
future debt service, capital expenditure and working capital requirements.
(7) Indebtedness under the AHM Senior Revolving Facility is recorded as long-
term debt. Short-term obligations are funded therefrom and cash on hand is
used to reduce the AHM Senior Revolving Facility. At any given time, AHM
has bank checks outstanding that will be funded by the AHM Senior Revolving
Facility upon presentation for payment. Consequently, there is no cash
reported on the balance sheet and bank checks outstanding, less cash in
bank, are reported as a current liability.
17
<PAGE>
SUMMIT HEALTH LTD.
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected historical financial data and other
operating information of Summit Health Ltd. The selected historical financial
data for the five years ended June 30, 1993, are derived from the consolidated
financial statements of Summit Health Ltd. The historical financial data for
the six months ended December 31, 1993 are derived from unaudited financial
statements. The data should be read in conjunction with the consolidated
financial statements and related notes incorporated by reference in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
FOR SIX
MONTHS ENDED FOR THE YEARS ENDED JUNE 30,
DECEMBER 31, ------------------------------------------------
1993 1993 1992 1991 1990 1989
------------ -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERA-
TIONS:
Total Revenue (1)....... $263,129 $508,504 $475,218 $ 415,667 $ 393,566 $ 394,064
Costs and Expenses
Operating expenses.... 216,084 425,242 406,632 355,631 344,842 358,559
Provision for doubtful
accounts............. 11,179 23,113 23,584 23,389 18,278 18,240
Depreciation and amor-
tization............. 10,420 19,185 14,620 13,940 13,379 17,066
Interest expense, net. 3,525 5,772 8,291 10,819 12,838 14,489
Minority interest..... 1,409 2,421 519 -- -- --
-------- -------- -------- --------- --------- ---------
Income (loss) before
income tax expense and
extraordinary item (2). 20,512 32,771 21,572 11,888 4,229 (14,290)
Income tax expense (ben-
efit).................. 9,517 14,201 8,629 4,703 1,848 (5,904)
-------- -------- -------- --------- --------- ---------
Income (loss) before
extraordinary item..... 10,995 18,570 12,943 7,185 2,381 (8,386)
Extraordinary item, net
of taxes (3)........... -- -- (1,779) -- -- --
-------- -------- -------- --------- --------- ---------
Net income (loss)....... $ 10,995 $ 18,570 $ 11,164 $ 7,185 $ 2,381 $ (8,386)
======== ======== ======== ========= ========= =========
Net income (loss) per
common and common
equivalent share before
extraordinary item..... $ 0.33 $ 0.56 $ 0.40 $ 0.23 $ 0.08 $ (0.27)
======== ======== ======== ========= ========= =========
Net income (loss) per
common and common
equivalent share....... $ 0.33 $ 0.56 $ 0.34 $ 0.23 $ 0.08 $ (0.27)
======== ======== ======== ========= ========= =========
Shares used in earnings
per common and common
equivalent share
computations (in
thousands)............. 33,751 33,201 32,750 31,251 31,250 31,250
OPERATING DATA:
EBDAIT (4).............. $ 35,866 $ 60,149 $ 45,002 $ 36,647 $ 32,765 $ 19,347
Number of hospitals at
period end............. 12 12 12 12 12 21
Licensed beds at period
end.................... 1,618 1,611 1,629 1,648 1,648 2,855
<CAPTION>
JUNE 30,
DECEMBER 31, ------------------------------------------------
1993 1993 1992 1991 1990 1989
------------ -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $ 25,915 $ 40,857 $ 24,937 $ 5,766 $ 3,727 $ 8,049
Working capital......... 17,503 10,057 1,138 21,788 23,364 45,837
Net property, plant, and
equipment.............. 229,133 221,945 187,051 175,577 171,822 174,352
Total assets............ 394,710 394,559 353,568 296,566 299,019 323,514
Long-term debt (exclud-
ing current maturi-
ties).................. 88,848 84,711 62,300 101,302 112,457 136,676
Total shareholders' eq-
uity................... 125,636 114,123 98,628 79,169 71,956 69,575
</TABLE>
- --------
(1) Total revenue is comprised of patient revenue, net of contractual
adjustments, and other revenue.
(2) Net of losses of $15,532,000 and $1,056,000 in fiscal 1989 and 1990,
respectively, resulting principally from the closure of a 76-bed hospital
located in Lubbock, Texas and the sale of a 78-bed hospital located in
Levelland, Texas, the closure of a 122-bed hospital located in Colorado
Springs, Colorado, and the sale of a partnership interest involving eight
hospitals which were managed in the Kingdom of Saudi Arabia.
(3) Net of income tax benefit of $1,186,000 from the redemption and retirement
of the 14% Senior Subordinated Debentures due 2005.
(4) Earnings before depreciation, amortization, interest, minority interest and
income taxes. While EBDAIT should not be construed as a substitute for
income from operations or a better indicator of liquidity than cash flow
from operating activities, which are determined in accordance with
generally accepted accounting principles, it is included herein to provide
additional information with respect to the ability of Summit to meet its
future debt service, capital expenditure and working capital requirements.
18
<PAGE>
ORNDA HEALTHCORP, AMERICAN HEALTHCARE MANAGEMENT, INC. AND SUMMIT HEALTH LTD.
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The following table presents selected pro forma condensed combined financial
data derived from the unaudited pro forma condensed combined financial
statements included elsewhere in this Proxy Statement/Prospectus. (See pages 79
through 83 for pro forma combined data giving effect to the combination of
OrNda with AHM and pages 84 through 92 for pro forma combined data giving
effect to the combination of OrNda with Summit.) The selected pro forma
condensed combined financial data gives effect to the following transactions
and events as if they had occurred on September 1, 1992, for purposes of the
pro forma statement of operations and operating data for the three months ended
November 30, 1993 and for the year ended August 31, 1993, and on November 30,
1993, for purposes of the pro forma condensed combined balance sheet data: (i)
the June 30, 1993 acquisition of Florida Medical Center by OrNda, (ii) the AHM
Merger (applying the pooling-of-interests method of accounting) and (iii) the
Summit Merger (applying the purchase method of accounting). The selected pro
forma statement of operations and operating data for the year ended August 31,
1993 includes OrNda's historical results of operations for the fiscal year
ended August 31, 1993, Summit's historical results of operations for the fiscal
year ended June 30, 1993, and AHM's historical results of operations for the
twelve-months ended September 30, 1993. The selected pro forma statement of
operations and operating data for the three months ended November 30, 1993
includes OrNda's historical results of operations for the three months ended
November 30, 1993, Summit's historical results of operations for the three
months ended September 30, 1993, and AHM's historical results of operations for
the three months ended September 30, 1993. The unaudited pro forma condensed
combined balance sheet data presents the historical balance sheet of OrNda as
of November 30, 1993, the historical balance sheet of AHM as of September 30,
1993, and the historical balance sheet of Summit as of September 30, 1993. The
following selected unaudited pro forma financial data does not reflect cost
savings, if any, which may be realized by OrNda after consummation of the
Mergers.
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS YEAR ENDED
ENDED NOVEMBER 30, AUGUST 31,
1993 1993
------------------ ----------
<S> <C> <C>
STATEMENT OF OPERATIONS:
Total Revenue(1)................................ $ 374,991 $1,485,175
Costs and Expenses
Operating expenses............................ 294,827 1,184,407
Provision for doubtful accounts............... 26,975 92,309
Depreciation and amortization................. 21,278 78,920
Interest expense.............................. 24,634 97,525
Interest income............................... (791) (5,086)
Minority interest............................. 574 4,601
---------- ----------
7,494 32,499
Income (loss) from investments in Houston North-
west Medical Center............................ (1,820) 173
---------- ----------
Income from continuing operations............... 5,674 32,672
Income tax expense.............................. 2,726 8,666
---------- ----------
Income from continuing operations............... 2,948 24,006
Preferred stock dividend requirements........... (431) (1,699)
---------- ----------
Income from continuing operations applicable to
common and common equivalent shares............ $ 2,517 $ 22,307
========== ==========
Earnings per common and common equivalent share
from continuing operations..................... $ 0.06 $ 0.52
========== ==========
Shares used in earnings per common and common
equivalent share computations (in thousands)... 43,671 42,560
OPERATING DATA:
EBDAIT(2)....................................... $ 53,189 $ 208,459
Number of hospitals owned at period end......... 47 47
Licensed beds at period end..................... 7,725 7,725
<CAPTION>
NOVEMBER 30, 1993
BALANCE SHEET DATA: ------------------
<S> <C> <C>
Total assets.................................... $1,806,593
Working capital................................. 45,843
Long-term debt, including amounts due within one
year........................................... 1,037,887
Total stockholders' equity...................... 395,212
</TABLE>
- --------
(1) Total revenue is comprised of patient revenue, net of contractual
adjustments, and other revenue.
(2) Earnings before depreciation, amortization, interest, minority interest,
income (loss) from investments in Houston Northwest Medical Center and income
taxes. While EBDAIT should not be construed as a substitute for income from
operations or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with generally accepted
accounting principles, it is included herein to provide additional
information with respect to the ability of OrNda to meet its future debt
service, capital expenditure and working capital requirements.
19
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table sets forth for the OrNda Common Stock, the AHM Common
Stock and the Summit Common Stock certain historical, pro forma and pro forma
equivalent per share financial data. The pro forma data does not purport to be
indicative of the results of future operations or the results that would have
occurred had the Mergers been consummated at the beginning of the periods
presented. The information presented herein should be read in conjunction with
the unaudited pro forma combined financial information, including the notes
thereto, appearing elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
ORNDA/ AHM ORNDA/
ORNDA AHM SUMMIT AHM EQUIVALENT SUMMIT PRO FORMA
HISTORICAL HISTORICAL HISTORICAL PRO FORMA PRO FORMA(1) PRO FORMA COMBINED(2)
---------- ---------- ---------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings per common
share from continuing
operations:
Years ended August
31 (3):
1991................. $(1.03) $(0.73) -- $(1.15) $(0.69) -- $(1.15)
1992................. (6.00) 0.58 -- (2.23) $(1.34) -- (2.23)
1993................. (0.05) 0.45 $0.56 0.50 $ 0.30 $0.37 0.52
Three months ended No-
vember 30, 1993 (4)... (0.05) 0.05 0.15 0.01 0.08 0.05 0.06
Book value per common
share as of:
August 31, 1993 (3).... 4.31 4.96 3.56 6.18 3.71 6.97 7.48
November 30, 1993 (4).. 8.87 4.96 3.71 8.58 5.15 10.25 9.48
</TABLE>
- --------
(1) The AHM equivalent pro forma per share amounts are calculated by
multiplying the respective OrNda/AHM Pro Forma per share amount by the AHM
Exchange Ratio of 0.6.
(2) The unaudited pro forma combined earnings per common share from continuing
operations and the other unaudited pro forma combined per share data are
based on the combined average number of common shares of OrNda Common
Stock, Summit Common Stock and Options and AHM Common Stock outstanding for
each period and on the Exchange Ratios of 0.2157 and 0.6 of a share of
OrNda Common Stock for each share of Summit Common Stock and Options and
AHM Common Stock, respectively.
(3) The historical data for AHM and Summit are for the year ended September 30
and June 30, respectively.
(4) The historical data for AHM and Summit are for the three months ended
September 30, 1993.
20
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to the stockholders of
OrNda HealthCorp ("OrNda"), American Healthcare Management, Inc. ("AHM") and
Summit Health Ltd. ("Summit") in connection with (i) the proposed merger (the
"AHM Merger") of AHM with and into OrNda and (ii) the proposed merger (the
"Summit Merger" and together with the AHM Merger, the "Mergers") of SHL
Acquisition Co. ("Merger Sub"), a newly formed, wholly owned subsidiary of
OrNda, with and into Summit, and for the purposes set forth below. The AHM
Merger will be effected on the terms and conditions described elsewhere in this
Proxy Statement/Prospectus pursuant to an Agreement and Plan of Merger, dated
as of November 18, 1993, and amended as of January 14, 1994 (as amended the
"AHM Merger Agreement"), by and between OrNda and AHM, a copy of which is
annexed hereto as Annex A and incorporated herein by reference. The Summit
Merger will be effected on the terms and conditions described elsewhere in this
Proxy Statement/Prospectus pursuant to an Agreement and Plan of Merger, dated
as of December 2, 1993 and amended as of January 14, 1993 (as amended the
"Summit Merger Agreement" and together with the AHM Merger Agreement, the
"Merger Agreements"), by and among OrNda, Summit and Merger Sub, a copy of
which is annexed hereto as Annex B and incorporated herein by reference. See
"The Mergers."
The information herein concerning OrNda has been supplied by OrNda. The
information herein concerning AHM has been supplied by AHM. The information
herein concerning Summit has been supplied by Summit.
This Proxy Statement/Prospectus and the enclosed form of proxy will first be
mailed to stockholders of OrNda, AHM and Summit on or about March 14, 1994.
This Proxy Statement/Prospectus also constitutes the Prospectus of OrNda with
respect to the shares of common stock, par value $0.01 per share, of OrNda (the
"OrNda Common Stock") to be issued in the Mergers.
ORNDA ANNUAL MEETING
This Proxy Statement/Prospectus is being furnished to the stockholders of
OrNda in connection with the solicitation of proxies by the Board of Directors
of OrNda from the holders of the OrNda Common Stock, for use at an Annual
Meeting of Stockholders of OrNda (the "OrNda Meeting"), to be held on April 19,
1994, at 9:00 A.M. (local time), at The Rihga Royal Hotel, 151 West 54th
Street, New York, New York, and at any meeting held upon adjournment or
postponement thereof.
At the OrNda Meeting, the stockholders of OrNda will be asked to consider and
vote upon (i) the approval and adoption of the AHM Merger Agreement (the "AHM
Merger Proposal"); (ii) the issuance of up to 9,892,102 shares of OrNda Common
Stock pursuant to the Summit Merger Agreement (the "Summit Merger Proposal");
(iii) the election of two Class I directors as members of the Board of
Directors to serve until the 1997 annual meeting of stockholders or until their
respective successors are duly elected and qualified; (iv) the adoption of the
OrNda HealthCorp Incentive Bonus Plan (the "Bonus Plan"); (v) the adoption of
the OrNda HealthCorp 1994 Management Equity Plan (the "Management Equity
Plan"); and (vi) an amendment to OrNda's Certificate of Incorporation to
increase the number of authorized shares of OrNda Common Stock from 100,000,000
shares to 200,000,000 shares. Approval and adoption of the AHM Merger Agreement
shall also constitute approval of the issuance of shares of OrNda Common Stock
in connection with the AHM Merger.
The AHM Merger Proposal and the Summit Merger Proposal are being presented to
OrNda stockholders as separate proposals. Consummation of the AHM Merger is not
conditioned upon consummation of the Summit Merger, nor is consummation of the
Summit Merger a condition to the consummation of the AHM Merger.
Representatives of Ernst & Young, OrNda's principal independent public
accountants are expected to be present at the Annual Meeting, will have the
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
The presence, in person or by proxy, of holders of record of a majority of
the shares entitled to vote constitutes a quorum for action at the OrNda
Meeting.
21
<PAGE>
ORNDA'S BOARD OF DIRECTORS BELIEVES THAT THE AHM MERGER AND THE SUMMIT MERGER
ARE FAIR TO AND IN THE BEST INTERESTS OF ORNDA AND ITS STOCKHOLDERS, HAS
UNANIMOUSLY APPROVED THE AHM MERGER AND THE SUMMIT MERGER AND UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS OF ORNDA VOTE IN FAVOR OF THE AHM MERGER
PROPOSAL AND THE SUMMIT MERGER PROPOSAL.
AHM SPECIAL MEETING
This Proxy Statement/Prospectus is also being furnished to stockholders of
AHM in connection with the solicitation of proxies by the Board of Directors of
AHM from the holders of common stock, $0.01 par value per share, of AHM (the
"AHM Common Stock"), for use at the Special Meeting of Stockholders of AHM (the
"AHM Meeting") to be held on April 19, 1994, at 9:00 o'clock A.M. (local time),
at the New York Marriott East Side Hotel, 525 Lexington Avenue, New York, New
York, and at any meeting held upon adjournment or postponement thereof.
At the AHM Meeting, the stockholders of AHM will be asked to approve and
adopt the AHM Merger Agreement. In the AHM Merger, each outstanding share of
AHM Common Stock will be converted into the right to receive 0.6 of a share of
OrNda Common Stock (the "AHM Exchange Ratio"). See "The Mergers--Terms of the
AHM Merger." As a result of the AHM Merger, AHM will be merged with and into
OrNda.
Representatives of Ernst & Young, independent public accountants to AHM are
expected to be present at the AHM Meeting, will have the opportunity to make a
statement if they so desire, and will be available to respond to appropriate
questions.
The presence, in person or by proxy, of holders of record of a majority of
the shares entitled to vote constitutes a quorum for action at the AHM Meeting.
AHM'S BOARD OF DIRECTORS BELIEVES THAT THE AHM MERGER IS FAIR TO AND IN THE
BEST INTERESTS OF AHM AND ITS STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE AHM
MERGER AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF AHM VOTE FOR APPROVAL
AND ADOPTION OF THE AHM MERGER AGREEMENT.
SUMMIT SPECIAL MEETING
This Proxy Statement/Prospectus is also being furnished to stockholders of
Summit in connection with the solicitation of proxies by the Board of Directors
of Summit from the holders of common stock, no par value, of Summit ("Summit
Common Stock"), for use at the Special Meeting of Stockholders of Summit (the
"Summit Meeting" and together with the OrNda Meeting and the AHM Meeting, the
"Meetings") to be held on April 19, 1994, at 9:00 o'clock A.M. (local time), at
The Rihga Royal Hotel, 151 West 54th Street, New York, New York and at any
meeting held upon adjournment or postponement thereof.
At the Summit Meeting, the stockholders of Summit will be asked to approve
and adopt the Summit Merger Agreement. In the Summit Merger, each outstanding
share of Summit Common Stock (other than shares as to which appraisal rights
have been validly exercised and other than shares held by OrNda or any
subsidiary of OrNda) will be converted into the right to receive $5.50 in cash
and 0.2157 of a share of OrNda Common Stock (collectively, the "Summit Exchange
Ratio"). See "The Mergers--Terms of the Summit Merger." As a result of the
Summit Merger, Summit will become a wholly owned subsidiary of OrNda.
Representatives of Ernst & Young, independent public accountants to Summit
are expected to be present at the Summit Meeting, will have the opportunity to
make a statement if they so desire, and will be available to respond to
appropriate questions.
The presence, in person or by proxy, of holders of record of a majority of
the shares entitled to vote constitutes a quorum for action at the Summit
Meeting.
SUMMIT'S BOARD OF DIRECTORS BELIEVES THAT THE SUMMIT MERGER IS FAIR TO AND IN
THE BEST INTERESTS OF SUMMIT AND ITS STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE
SUMMIT MERGER AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL AND
ADOPTION OF THE SUMMIT MERGER AGREEMENT.
22
<PAGE>
VOTING RIGHTS AND PROXIES
Holders of record of OrNda Common Stock at the close of business on February
25, 1994 (the "OrNda Record Date") will be entitled to notice of and to vote at
the OrNda Meeting. As of the OrNda Record Date, there were outstanding
18,517,584 shares of OrNda Common Stock held of record by approximately 257
holders. Each share of OrNda Common Stock is entitled to one vote at the OrNda
Meeting.
Stockholders of OrNda holding an aggregate of 9,036,744 shares of OrNda
Common Stock (representing approximately 49% of the OrNda Common Stock
outstanding as of the OrNda Record Date), have granted irrevocable proxies to
AHM (the "AHM Proxies") pursuant to which AHM has the power to vote such shares
of stock in favor of the AHM Merger Proposal. As of the OrNda Record Date, the
directors and officers of OrNda collectively owned 9,140,334 shares of OrNda
Common Stock. Each of the directors and executive officers of OrNda that have
not previously granted AHM an AHM Proxy has advised OrNda that he or she
intends to vote all of such shares in favor of each of the AHM Merger Proposal
and the Summit Merger Proposal. See "The Mergers--Terms of the AHM Merger--
Irrevocable Proxies." In addition, stockholders of OrNda holding an aggregate
of 9,036,744 shares of OrNda Common Stock (representing approximately 49% of
the OrNda Common Stock outstanding as of the OrNda Record Date) have entered
into Voting Agreements with Summit (the "Summit Voting Agreements") pursuant to
which they have agreed with Summit to vote such shares of stock in favor of the
Summit Merger Agreement. See "The Mergers--Terms of the Summit Merger--Voting
Agreements."
Holders of record of AHM Common Stock at the close of business on March 4,
1994 (the "AHM Record Date") will be entitled to notice of, and to vote at, the
AHM Meeting. As of the AHM Record Date, there were outstanding 27,491,715
shares of AHM Common Stock held of record by approximately 585 holders. Each
share of AHM Common Stock is entitled to one vote at the AHM Meeting. As of the
AHM Record Date, the directors and officers of AHM collectively beneficially
owned 6,851,012 shares of AHM Common Stock, exclusive of shares of which they
have the right to acquire under presently exercisable options and warrants.
Each of the directors and executive officers of AHM has advised AHM that he or
she intends to vote all of such shares in favor of the approval and adoption of
the AHM Merger Agreement.
Holders of record of Summit Common Stock at the close of business on February
25, 1994 (the "Summit Record Date") will be entitled to notice of, and to vote
at, the Summit Meeting. As of the Summit Record Date, there were outstanding
32,510,670 shares of Summit Common Stock held of record by approximately 1,070
holders. Each share of Summit Common Stock is entitled to one vote at the
Summit Meeting. As of the Summit Record Date, the directors and executive
officers of Summit collectively owned 20,241,100 shares of Summit Common Stock.
Each of the directors and executive officers of Summit has advised Summit that
he or she intends to vote all of such shares in favor of the approval and
adoption of the Summit Merger Agreement.
Stockholders of Summit holding an aggregate of 20,176,100 shares of common
stock (representing approximately 62% of the Summit Common Stock outstanding as
of the Summit Record Date) have entered into Voting Agreements with OrNda (the
"OrNda Voting Agreements") pursuant to which they have agreed with OrNda to
vote such shares of stock in favor of the Summit Merger Agreement. The shares
of Summit Common Stock subject to the OrNda Voting Agreements represent a
sufficient percentage of the outstanding shares of Summit Common Stock to
approve and adopt the Summit Merger Agreement regardless of the vote of any
other Summit stockholder. See "The Mergers--Terms of the Summit Merger --Voting
Agreements."
All proxies in the enclosed form that are properly executed and returned to
OrNda, AHM or Summit, as the case may be, will be voted at the applicable
Meeting or any adjournments or postponements thereof, in accordance with any
specifications thereon, or, if no specifications are made will be voted (i) in
the case of OrNda, FOR approval of the AHM Merger Proposal, the Summit Merger
Proposal, the Class I directors,
23
<PAGE>
the Bonus Plan, the Management Equity Plan and the Charter Amendment; (ii) in
the case of AHM, FOR approval and adoption of the AHM Merger Agreement, and
(iii) in the case of Summit, FOR approval and adoption of the Summit Merger
Agreement. Any proxy may be revoked by any stockholder who attends his or her
respective Meeting and gives oral notice of his or her intention to vote in
person without compliance with any other formalities. In addition, any OrNda,
AHM or Summit stockholder may revoke a proxy at any time before it is voted by
executing a subsequent proxy or by delivering a written notice to the Secretary
of OrNda, AHM or Summit, as applicable, stating that the proxy is revoked.
The Boards of Directors of each of OrNda, AHM and Summit do not know of any
matters other than those set forth herein which may come before the respective
Meetings. If any other matters are properly presented to any Meeting for
action, it is intended that the persons named in the applicable form of proxy
and acting thereunder will vote in accordance with their best judgment on such
matters.
The cost of solicitation of the stockholders of OrNda, AHM and Summit will be
paid by the party incurring such cost. In addition to the use of the mails,
proxies may be solicited by directors and officers and regular employees of
OrNda, AHM or Summit and such companies may also request brokerage firms,
nominees, custodians and fiduciaries to forward proxy materials to beneficial
owners of shares of OrNda Common Stock, AHM Common Stock or Summit Common Stock
held of record and will provide reimbursement for their reasonable expenses in
so doing. OrNda and AHM each independently regularly retain Corporate
Communications, Inc. as their respective investor relations counsel. Corporate
Communications, Inc. will assist in the solicitation of proxies from
stockholders of OrNda and AHM and it is estimated that approximately $3,000 of
the normal retainer paid by each of OrNda and AHM will be attributable to such
proxy solicitation services.
The Class I directors of OrNda shall be elected at the OrNda Meeting by a
plurality of the votes cast in the election of directors. Under applicable
Delaware law, in tabulating the vote, broker non-votes will be disregarded and
will have no effect on the outcome of the vote.
Approval of each of the Summit Merger Proposal, the Incentive Bonus Plan and
the Management Equity Plan at the OrNda Meeting requires the affirmative vote
of a majority of stockholders of OrNda Common Stock present, in person or by
proxy, at the Annual Meeting at which there is a quorum. For each proposal,
under applicable Delaware law, in determining whether the particular proposal
has received the requisite number of affirmative votes, abstentions and broker
non-votes will have the same effect as a vote against the proposal.
Approval of each of the AHM Merger Proposal and the amendment to OrNda's
Restated Certificate of Incorporation at the OrNda Meeting requires the
affirmative vote of a majority of the outstanding shares of OrNda Common Stock
entitled to vote thereon. Under applicable Delaware law, in determining whether
the particular proposal has received the requisite number of affirmative votes,
abstentions and broker non-votes will have the same effect as a vote against
the proposal.
Approval of the AHM Merger Proposal at the AHM Meeting requires the
affirmative vote of a majority of the outstanding shares of AHM Common Stock
entitled to vote thereon. Under applicable Delaware law, in determining whether
the proposal has received the requisite number of affirmative votes,
abstentions and broker non-votes will have the same effect as a vote against
the proposal.
Approval of the Summit Merger Proposal at the Summit Meeting requires the
affirmative vote of the holders of a majority of the outstanding shares of
Summit Common Stock entitled to vote thereon. Under applicable California law,
in determining whether the proposal has received the requisite number of votes,
abstentions and broker non-votes will have the same effect as a vote against
the proposal.
24
<PAGE>
RISK FACTORS
The following are certain factors which should be considered by the
stockholders of OrNda, AHM and Summit in evaluating the Mergers as well as an
investment in OrNda Common Stock after the Mergers.
HEALTH CARE REFORM
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the health care system, either nationally or at the
state level. Among the proposals under consideration are cost controls on
hospitals, insurance market reforms to increase the availability of group
health insurance to small businesses, requirements that all businesses offer
health insurance coverage to their employees and the creation of a single
government health insurance plan that would cover all citizens. President
Clinton has stated that one of his primary objectives is to reform the nation's
health care system to insure universal coverage and address the rising costs of
care. In early 1993, President Clinton appointed Hillary Rodham Clinton to lead
a health care reform task force with the objective of developing a health care
reform proposal which could be submitted by the President. On September 22,
1993, before a Joint Session of Congress, President Clinton outlined the basic
principles of his upcoming health care reform proposal. President Clinton's
health care reform bill, introduced as legislation on November 22, 1993,
includes certain measures that could be viewed as advancing the scope of
government regulation on the health care industry. Key elements in the
President's proposal include various insurance market reforms, the requirement
that businesses provide health insurance coverage for their full-time and part-
time employees, significant reductions in future Medicare and Medicaid payments
to providers, and stringent government cost controls that would directly
control insurance premiums and indirectly effect the fees of hospitals,
physicians and other health care providers. In addition to the President's
reform proposal, several other health care reform bills have recently been
introduced, including the Managed Competition Act of 1993, Affordable
HealthCare Now Act of 1993 and Health Equity & Access Reform Today. Neither
OrNda, AHM nor Summit can predict whether any such proposals will be adopted,
or if adopted what effect, if any, such proposals would have on their
respective businesses or their combined business after consummation of the
Mergers.
CERTAIN FINANCIAL CONSIDERATIONS
The obligations of the parties to the AHM Merger Agreement to consummate the
AHM Merger are conditioned upon, among other things, receipt of financing
necessary to (i) refinance the outstanding senior bank and institutional
indebtedness of OrNda and AHM; (ii) provide adequate working capital; and (iii)
satisfy the change of control repurchase rights of the holders of the AHM 10%
Senior Subordinated Notes due 2003 (the "AHM Notes") arising by reason of the
AHM Merger. The obligations of the parties to the Summit Merger Agreement to
consummate the Summit Merger are conditioned upon, among other things, receipt
of financing necessary to (i) finance the cash component of the Summit Merger
Consideration; (ii) if necessary, finance the Real Estate Purchase (as defined
below); (iii) refinance the outstanding senior and institutional indebtedness
of OrNda and Summit; (iv) provide adequate working capital; and (v) satisfy the
change in control repurchase rights (if any) of the holders of Summit's 7 1/2%
Exchangeable Subordinated Notes due 2003 (the "Summit Notes") arising by reason
of the Summit Merger. See "The Mergers--Description of Certain Indebtedness."
In connection with the consummation of the Mergers, OrNda intends to replace
its existing $160 million credit facilities (the "Existing Credit Facilities"),
AHM's existing $122.5 million credit facility (the "AHM Credit Facility") and
Summit's existing $25 million credit facility (the "Summit Credit Facility")
with a new credit facility (the "New Credit Facility"). The Bank of Nova Scotia
("Scotiabank") and Citicorp USA ("Citicorp") have committed to provide OrNda
with a $325 million term loan facility, a $75 million delayed term loan
facility and $300 million in revolving credit facilities, subject to certain
specified conditions. OrNda expects that the New Credit Facility will include
among other things various affirmative, negative and financial covenants
including, limits on the sale of assets, the making of acquisitions and other
investments, capital expenditures, the incurrence of additional debt and liens,
the payment of dividends and a minimum consolidated tangible net worth
requirement and certain ratio coverage tests and financial covenants. In
addition, OrNda anticipates that the New Credit Facility will contain customary
events of default. See "The Mergers--Description of Certain Indebtedness."
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Accordingly, OrNda will remain highly leveraged following consummation of the
Mergers. As of November 30, 1993, OrNda's long-term indebtedness was 77.5% of
its total capitalization. As adjusted on a pro forma basis to give effect to
(i) the AHM Merger (and the requisite financing), OrNda's long-term
indebtedness would have been 71.1% of its total capitalization, (ii) the Summit
Merger (and the requisite financing), OrNda's long-term indebtedness would have
been 76.6% of its total capitalization and (iii) the AHM Merger and the Summit
Merger (and the requisite financing), OrNda's long-term indebtedness would have
been 72.1% of its total capitalization. Such leverage may adversely affect
OrNda's ability to finance its future operations and capital needs and may
limit its ability to pursue other business opportunities that may be in the
interests of OrNda and its stockholders.
FACTORS AFFECTING MARKET PRICE OF ORNDA COMMON STOCK
Because each of the AHM Exchange Ratio and Summit Exchange Ratio is fixed and
because the market price of OrNda Common Stock is subject to fluctuation, the
market value of the shares of OrNda Common Stock that holders of AHM Common
Stock and Summit Common Stock will receive in the Mergers may increase or
decrease prior to and following the Mergers. There can be no assurance that at
or after the effective times of the Mergers such shares of OrNda Common Stock
will maintain or equal the prices at which such shares have traded in the past.
The prices at which OrNda Common Stock trades after the Mergers may be
influenced by many factors, including, among others, the liquidity of the
market for OrNda Common Stock, investor perceptions of OrNda and the industry
in which it operates, the operating results of OrNda and its subsidiary
companies, OrNda's dividend policy and general economic and market conditions.
Similar factors affect the prices at which AHM Common Stock and Summit Common
Stock currently trade. See "Summary--Comparative Stock Prices and Dividends."
SHARES ELIGIBLE FOR FUTURE ISSUANCE AND SALE
At the OrNda Record Date, 18,517,584 shares of OrNda Common Stock were
outstanding and 1,249,612 shares of OrNda preferred stock were outstanding, and
3,420,341 shares of OrNda Common Stock were reserved for issuance in connection
with the exercise of outstanding options, warrants and conversion rights. In
addition to the 23,507,581 shares of OrNda Common Stock proposed to be issued
in the Mergers and the 4,349,866 shares of OrNda Common Stock to be reserved
for issuance to the holders of the AHM and Summit stock options that may be
converted into options to acquire OrNda Common Stock pursuant to the Merger
Agreements, OrNda may issue additional shares of OrNda Common Stock and
preferred stock in the future in connection with acquisitions, corporate
combinations, financing activities or employee compensation plans, including
the employee benefit plans being submitted to the OrNda stockholders for
approval at the OrNda Meeting. Sales of substantial amounts of OrNda Common
Stock in the open market or the availability of such shares for sale could
adversely affect the market for OrNda Common Stock.
POTENTIAL SUMMIT INCOME TAX LIABILITY
The Internal Revenue Service (the "IRS") is currently engaged in an
examination of Summit's Federal income tax returns for fiscal years 1984, 1985
and 1986. The IRS has challenged the propriety of certain accounting methods
utilized at that time for tax purposes, as well as certain other issues. The
most significant area of dispute involves the cash method of accounting used by
certain of Summit's subsidiaries prior to fiscal year 1988. Although Summit's
management believes that the cash method of accounting for tax purposes was
appropriate for use at such time, if the IRS prevails in its challenges,
approximately $29.5 million of income tax and interest would have to be paid,
of which $19.5 million has previously been provided for in Summit's financial
statements.
LIMITS ON REIMBURSEMENT
There are increasing pressures from many payor sources to control health care
costs. In addition, there are increasing pressures from public and private
payors to limit increases in reimbursement rates for medical services.
Significant decreases in utilization and limits on reimbursement could have an
adverse effect on the results of operations of the combined companies.
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EXTENSIVE REGULATION
The health care industry, including hospitals, is subject to extensive
federal, state and local regulation relating to licensure, conduct of
operations, ownership of facilities, addition of facilities and services and
prices for services, and there can be no assurance that future regulatory
changes will not have an adverse impact on the combined companies. In
particular, Medicare and Medicaid antifraud and abuse amendments codified under
Section 1128B(b) of the Social Security Act (the "Antifraud Amendments")
prohibit certain business practices and relationships that might affect the
provision and cost of health care services reimbursable under Medicare and
Medicaid. Sanctions for violating the Antifraud Amendments include criminal
penalties and civil sanctions, including fines and possible exclusion from the
Medicare and Medicaid programs. Pursuant to the Medicare and Medicaid Patient
and Program Protection Act of 1987, the Department of Health and Human Services
has issued regulations which describe some of the conduct and business
relationships permissible under the Antifraud Amendments ("Safe Harbors"). Each
of OrNda, AHM and Summit believes its business arrangements comply with
applicable law in all material respects. However, as a result of not complying
with the applicable Safe Harbors, certain of such business arrangements risk
scrutiny by enforcement authorities and may be subject to enforcement action.
OrNda, AHM and Summit are unable to predict the future course of federal, state
and local regulation or legislation, including Medicare and Medicaid statutes
and regulations. Further changes in the regulatory framework could have an
adverse impact on the combined companies results of operations.
DEPENDENCE ON KEY PERSONNEL AND PHYSICIANS
OrNda's operations are dependent on the efforts, ability and experience of
Charles N. Martin, Jr. and its other key executive officers. In addition, since
physicians generally control the majority of hospital admissions, the success
of the combined companies, in part, is dependent upon the number and quality of
physicians on its hospitals' medical staffs. The loss of some or all of these
key personnel or an inability to attract and retain sufficient numbers of
qualified physicians could have an adverse impact on the combined company's
future results of operations.
LIABILITY AND INSURANCE
As is typical in the health care industry, OrNda is subject to claims and
legal actions by patients and others in the ordinary course of business. OrNda
is partially self-insured for its professional liability risks and maintains an
unfunded reserve for such risks. While OrNda's professional and other liability
insurance have been adequate in the past to provide for liability claims, there
can be no assurance that adequate insurance will continue to be available at
current price levels. OrNda's reserves for self-insured liabilities have been
adequate in the past to provide for such self-insured liabilities, and believes
that it has adequately provided for future self-insured liabilities and
incurred but not reported liabilities. However, if actual payments of claims
with respect to OrNda's self-insured liabilities exceed projected payments of
claims, the results of operations of OrNda could be adversely affected.
THE MERGERS
Pursuant to the AHM Merger Agreement, it is contemplated that AHM will be
merged with and into OrNda, effective upon the filing of an executed
certificate of merger with the Delaware Secretary of State (the "AHM Effective
Time"). Pursuant to the Summit Merger Agreement, it is contemplated that Merger
Sub will merge with and into Summit, effective upon the filing with and
acceptance by the California Secretary of State of an executed agreement of
merger and certain officers' certificates and the filing with the Delaware
Secretary of State of an executed certificate of merger (the "Summit Effective
Time" and together with the AHM Effective Time, the "Effective Time"). Upon
consummation of the Summit Merger, Summit will become a wholly owned subsidiary
of OrNda.
BACKGROUND OF THE AHM MERGER
The terms of the AHM Merger Agreement are the result of arm's length
negotiations between representatives of OrNda and AHM. The following is a brief
discussion of the background of these negotiations, the AHM Merger and related
transactions.
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In April 1993, Steven L. Volla, Chairman, President and Chief Executive
Officer of AHM, met with Charles N. Martin, Jr., the Chairman, Chief Executive
Officer and President of OrNda at an industry conference. At that time, Mr.
Volla described to Mr. Martin some of AHM's centralized hospital management
information systems ("MIS") capabilities. In April and May of 1993, various
members of OrNda management visited AHM's headquarters to learn of AHM's MIS
capabilities, with the objective of contracting with AHM for MIS support. OrNda
subsequently concluded that for various business reasons it would be
impractical to implement such an arrangement at that time. On May 27, 1993
OrNda and AHM entered into a confidentiality agreement.
In late July 1993, Mr. Martin met with Mr. Volla at AHM's headquarters and
indicated that OrNda management believed that some form of business alliance or
combination between OrNda and AHM might be in the best interests of the
shareholders of both OrNda and AHM. However, there was no discussion of what
the terms or conditions of any such transaction would be. AHM was also, during
that period, pursuing other acquisition possibilities and not interested in an
alliance with OrNda on terms likely to be satisfactory to OrNda.
In September 1993, Mr. Volla held an informal discussion with Donald J.
Amaral, President and Chief Executive Officer of Summit regarding a possible
business combination transaction. They agreed to gather and exchange further
information on each company's operations. On October 15, 1993, Mr. Volla and
Mr. Amaral met and reviewed with each other such additional information and
decided to have their respective investment bankers commence discussions with
each other. In addition, Mr. Volla and Mr. Amaral had further telephone
discussions on November 5, 1993 and November 9, 1993. On November 11, 1993, Mr.
Volla had a telephone discussion with representatives of Smith Barney Shearson
Inc. ("Smith Barney Shearson"), Summit's financial advisor, in order to review
potential options with respect to a merger of AHM and Summit.
On October 14, 1993, October 27, 1993 and November 5, 1993, Mr. Volla and Mr.
Martin met or held telephone conversations to discuss a possible business
combination of OrNda and AHM. On November 12, 1993, Mr. Volla, Mr. Martin and
certain advisers to AHM, met and discussed specific terms on which a business
combination between OrNda and AHM might be effected.
On November 16, 1993, Mr. Martin and other representatives of and advisers to
OrNda met with Mr. Volla and other representatives of and advisers to AHM to
discuss various aspects of the proposed combination in a effort to resolve
various open issues. On November 17, 1993, representatives of OrNda and AHM
continued to meet to discuss and finalize the terms of the AHM Merger Agreement
and the related transactions. On November 17, 1993, the Board of Directors of
AHM met at length and discussed the terms of the proposed transaction and its
benefits for the AHM stockholders. On November 18, 1993, the Board of Directors
met again and after considering various factors and receiving the oral opinion
of Donaldson Lufkin & Jenrette Securities Corporation ("DLJ") to the effect
that the AHM Exchange Ratio was fair, from a financial point of view, to the
AHM stockholders, the Board of Directors of AHM unanimously approved the AHM
Merger Agreement and the related transactions. The Board of Directors of OrNda
also met on November 18, 1993 to discuss the proposed transaction. After
receiving the oral opinion of Kidder, Peabody & Co. Incorporated ("Kidder,
Peabody") to the effect that the AHM Exchange Ratio was fair, from a financial
point of view, to OrNda, the Board of Directors of OrNda unanimously approved
the AHM Merger Agreement and the related transactions. On November 18, 1993,
OrNda and AHM executed and delivered the Merger Agreement, which was
subsequently amended on January 14, 1994 to provide that AHM merge with and
into OrNda, rather than into a wholly owned subsidiary of OrNda as contemplated
by the AHM Merger Agreement prior to the January 14 amendment.
On December 1, 1993 and December 2, 1993, the Board of Directors of AHM met
to consider the Summit Merger Agreement, which pursuant to the terms of the AHM
Merger Agreement was subject to AHM's consent. At the meeting on December 2,
1993, after receiving the oral opinion of DLJ to the effect that, as of such
date, whether or not the Summit Merger was consummated, the consideration to be
received
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by the holders of AHM Common Stock under the AHM Merger Agreement remained fair
from a financial point of view to the AHM stockholders, the AHM Board of
Directors unanimously approved and consented to the execution and delivery by
OrNda of the Summit Merger Agreement.
On March 7, 1994, OrNda announced that based on discussions with the staff of
the Commission, it has restated (the "Restatement") its financial statements
for the fiscal years ended August 31, 1990, 1991, 1992 and 1993 and for the
quarter ended November 30, 1993 as a result of a change in the application of
the equity method of accounting to combine all of its investments in Houston
Northwest Medical Center, Inc. ("HNW") in applying the equity method. The
Restatement reduced previously reported earnings by an aggregate amount of
$48.3 million and reduced assets and shareholders' equity by $49.9 million at
November 30, 1993. In addition, OrNda announced that it had adopted Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS No. 115"). The adoption of SFAS No. 115
caused OrNda to record an increase of approximately $81.7 million in assets and
shareholders' equity at September 1, 1993. The net effect resulting from both
accounting changes is an increase in assets and shareholders' equity of $35.6
million at November 30, 1993. See "OrNda HealthCorp and Subsidiaries Selected
Historical Financial Data" and Notes 1 and 5 of OrNda's consolidated financial
statements included in OrNda's August 31, 1993 Form 10-K/A No. 4 incorporated
by reference in this Proxy Statement/Prospectus. On March 7, 1994, the AHM
Board of Directors met to consider the effect, if any, of such accounting
changes on the AHM Merger Agreement and the terms of the AHM Merger. After the
receipt of DLJ's oral opinion to the effect that, subject only to its review of
the final financial data contained herein, the Restatement would not cause DLJ
to change the conclusions reached by it in its opinions of November 18, 1993
and December 2, 1993, that, as of such dates, the consideration to be received
by the AHM stockholders pursuant to the terms of the AHM Merger Agreement was
fair to the stockholders of AHM from a financial point of view, whether or not
the Summit Merger was effected, the AHM directors resolved that, subject to the
receipt of DLJ's written opinion following its final review of the financial
data appearing herein, AHM proceed with the AHM Merger under the terms of the
AHM Merger Agreement. After its review of the financial data contained herein,
DLJ confirmed its oral advice to the AHM Board in a letter dated March 14,
1994.
RECOMMENDATION OF ORNDA BOARD OF DIRECTORS; REASONS FOR THE AHM MERGER
THE BOARD OF DIRECTORS OF ORNDA HAS APPROVED THE AHM MERGER AND RECOMMENDS
THAT STOCKHOLDERS OF ORNDA VOTE FOR APPROVAL OF THE AHM MERGER. THE BOARD OF
DIRECTORS OF ORNDA BELIEVES THAT THE AHM MERGER WILL RESULT IN AN ORGANIZATION
WITH THE COMPETITIVE STRENGTH REQUIRED BY THE INCREASING CONSOLIDATION
AFFECTING THE HEALTH CARE INDUSTRY.
In reaching its determination, the OrNda Board of Directors consulted with
OrNda management as well as its financial and legal advisors, and considered a
number of factors, including, without limitation, the following:
(i) by providing OrNda with the opportunity to combine with a company
having a substantial portfolio of hospitals known for high quality of care
and strong financial performance, the AHM Merger will support a major
strategic objective of OrNda to become a significant provider of healthcare
services in targeted communities throughout the United States;
(ii) based on the relative earnings of both companies and the AHM
Exchange Ratio, the AHM Merger should be accretive to OrNda's current
stockholders, assuming certain reductions in corporate overhead are
achieved;
(iii) the market capitalization of the combined company will be almost
double that of OrNda's current market capitalization, providing enhanced
liquidity for OrNda's stockholders;
(iv) the AHM Merger will diversify OrNda's hospital portfolio, making
OrNda's overall results of operations less affected by fluctuations in the
operating performance of individual hospitals;
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(v) information with respect to the financial condition, business,
operations and prospects of both OrNda and AHM on both a historical and
prospective basis, including certain information reflecting the two
companies on a pro forma combined basis;
(vi) the potential efficiencies and synergies expected to be realized by
the combined operations of OrNda and AHM, which are expected to result from
the integration of office facilities, support functions and the increased
purchasing power of the combined companies;
(vii) the oral opinion of Kidder, Peabody to the effect that, as of
November 18, 1993 (and confirmed in writing as of March 14, 1994), the AHM
Exchange Ratio was fair, from a financial point of view, to OrNda (See "--
Opinion of Kidder, Peabody & Co. Incorporated Concerning the AHM Merger");
(viii) the terms of the AHM Merger Agreement; and
(ix) the treatment of the AHM Merger as a "pooling-of-interests"
transaction for accounting purposes--which would not require a revaluation
of the amounts recorded for AHM's assets and liabilities or the potential
recording of goodwill to reflect the allocation of the consideration paid
by OrNda in the AHM Merger, and would thus increase the accretive effect of
the AHM Merger upon earnings per share for the holders of OrNda Common
Stock.
These factors were considered collectively by the OrNda Board of Directors,
without giving specific weight to any particular factor.
OPINION OF KIDDER, PEABODY & CO. INCORPORATED CONCERNING THE AHM MERGER
Kidder, Peabody has acted as the financial advisor to OrNda in connection
with the AHM Merger and has assisted the Board of Directors of OrNda in its
examination of the fairness, from a financial point of view, of the AHM
Exchange Ratio to OrNda.
On November 18, 1993, Kidder, Peabody rendered its oral opinion to the Board
of Directors to the effect that, as of the date of such opinion, the AHM
Exchange Ratio was fair, from a financial point of view, to OrNda. Kidder,
Peabody subsequently rendered a written opinion confirming its earlier oral
opinion that, as of March 14, 1994, the AHM Exchange Ratio is fair, from a
financial point of view, to OrNda. THE FULL TEXT OF THE WRITTEN OPINION OF
KIDDER, PEABODY WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED, LIMITATIONS ON AND THE SCOPE OF THE REVIEW BY KIDDER,
PEABODY IN RENDERING ITS OPINION IS ATTACHED AS ANNEX C TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. ORNDA
STOCKHOLDERS ARE URGED TO READ KIDDER, PEABODY'S OPINION IN ITS ENTIRETY.
In connection with its opinion, Kidder, Peabody reviewed, among other things,
the AHM Merger Agreement and in connection with its written opinion dated March
14, 1994, the Summit Merger Agreement and the Proxy Statement/Prospectus as
filed with the Commission. Kidder, Peabody also reviewed certain financial and
other information of OrNda, AHM and Summit that was publicly available or
furnished to Kidder, Peabody by or on behalf of OrNda, AHM and Summit,
including certain financial analyses, financial forecasts, reports and other
information prepared by their respective managements and representatives.
Kidder, Peabody held discussions with various members of management of OrNda,
AHM and Summit concerning each company's historical and current operations,
financial condition and prospects, as well as the strategic and operating
benefits anticipated from the AHM Merger and the Summit Merger. In addition,
Kidder, Peabody: (i) reviewed the price and trading history of the OrNda Common
Stock and the AHM Common Stock and compared such prices and trading histories
with those of publicly traded companies it deemed relevant for purposes of its
opinion; (ii) compared the financial positions and operating results of OrNda
and AHM with those of publicly traded companies it deemed relevant for purposes
of its opinion; (iii) compared certain financial terms of the AHM Merger to
certain financial terms of selected other business combinations it deemed
relevant for purposes of its opinion; (iv) reviewed the potential pro forma
financial effects of the AHM Merger and the Summit Merger on OrNda; and (v)
conducted such other financial studies, analyses and investigations and
reviewed such other factors as it deemed appropriate for purposes of its
opinion.
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In rendering its opinion, Kidder, Peabody relied, without independent
verification, on the accuracy and completeness of all financial and other
information reviewed by Kidder, Peabody that was publicly available or
furnished to it by or on behalf of OrNda, AHM and Summit. Kidder, Peabody
assumed that the financial forecasts which it examined were reasonably prepared
on bases reflecting the best currently available estimates and good faith
judgments of the respective managements of OrNda, AHM and Summit. Kidder,
Peabody also assumed, with OrNda's consent, that: (i) certain strategic and
operating benefits will result from the AHM Merger; (ii) the AHM Merger will be
treated as a tax-free reorganization; (iii) the AHM Merger will be accounted
for under the pooling-of-interests method of accounting; (iv) no adjustment
will be made to the AHM Exchange Ratio; and (v) in connection with its written
opinion dated March 14, 1994, all material assets and liabilities (contingent
and otherwise, known or unknown) of OrNda, AHM and Summit are as set forth in
the consolidated financial statements of OrNda, AHM and Summit, respectively,
contained in the Proxy Statement/Prospectus. Kidder, Peabody was not requested
to, and did not, participate in the structuring or negotiation of the AHM
Merger. Kidder, Peabody did not make an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of OrNda, AHM or Summit nor
was Kidder, Peabody furnished with any such evaluations or appraisals. Kidder,
Peabody's opinion is based upon the economic, monetary and market conditions
existing on the date of such opinion. Furthermore, Kidder, Peabody expressed no
opinion as to the range at which shares of the OrNda Common Stock will trade
following the AHM Merger or the Mergers. The AHM Exchange Ratio was determined
by OrNda and AHM in arm's-length negotiations. OrNda did not place any
limitations upon Kidder, Peabody with respect to the procedures followed or
factors considered by Kidder, Peabody in rendering its opinion.
Kidder, Peabody believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all factors and analyses, could create a misleading view of
the processes underlying its opinion. The preparation of a fairness opinion is
a complex process and is not necessarily susceptible to partial analysis or
summary description. In its analyses, Kidder, Peabody made numerous assumptions
with respect to industry performance, general business, regulatory and economic
conditions and other matters, many of which are beyond the control of OrNda,
AHM and Summit. Any estimates contained therein are not necessarily indicative
of future results or actual values, which may be significantly more or less
favorable than such estimates. Estimates of values of companies or assets do
not purport to be appraisals or necessarily reflect the prices at which
companies or assets may actually be sold. Because such estimates are inherently
subject to uncertainty, none of OrNda, AHM, Summit, Kidder, Peabody or any
other person assumes responsibility for their accuracy.
In connection with rendering its oral opinion and preparing its oral
presentation to the Board of Directors of OrNda, Kidder, Peabody performed a
variety of financial analyses, including those summarized below. The summary
set forth below does not purport to be a complete description of the analyses
performed by Kidder, Peabody in this regard.
Analyses Relating to AHM
Comparative Company Analysis. Kidder, Peabody compared the historical,
current and relevant projected financial and operating results of AHM with that
of such financial and operating results of selected publicly traded hospital
management companies it deemed relevant (the "AHM Comparative Companies"). The
AHM Comparative Companies were chosen based upon conversations with OrNda
management as to companies which possess general business, operating and
financial characteristics representative of the industry in which AHM operates.
The AHM Comparative Companies consisted of Community Health Systems, Inc.,
Health Management Associates, Inc., OrNda, and Universal Health Services, Inc.
In addition, Kidder, Peabody compared the historical, current and relevant
projected financial and operating results of AHM with that of such financial
and operating results of selected large capitalization hospital management
companies it deemed relevant which included American Medical Holdings, Inc.,
Columbia Healthcare Corporation (pro forma for the pending acquisition of HCA--
Hospital Corporation of America) and Healthtrust, Inc.--The Hospital Company
(the "Large Capitalization Hospital Management Companies"). However, Kidder,
Peabody accorded less weight to the analysis relating to the Large
Capitalization Hospital
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Management Companies primarily due to the size differential between AHM and the
Large Capitalization Hospital Management Companies.
In order to measure AHM's current operating performance with that of the AHM
Comparative Companies, Kidder, Peabody considered, among other things, that:
(i) AHM's 1990 to latest four quarters compounded annual growth rate in net
revenues was 4.5% compared with a median 1990 to latest four quarters
compounded annual growth rate in net revenues for the AHM Comparative Companies
of 12.7%; (ii) AHM's 1990 to latest four quarters compounded annual growth rate
in earnings before interest, taxes, depreciation and amortization ("EBITDA")
was 12.6% compared with a median 1990 to latest four quarters compounded annual
growth rate in EBITDA for the AHM Comparative Companies of 22.4%; (iii) AHM's
1990 to latest four quarters compounded annual growth rate in earnings before
interest and taxes ("EBIT") was 19.6% compared with a median 1990 to latest
four quarters compounded annual growth rate in EBIT for the AHM Comparative
Companies of 27.2%; (iv) AHM's projected one-year growth rate in net income (as
per the Institutional Brokers Estimate Service; "IBES") was 20.4% compared with
a median projected one-year growth rate in net income (as per IBES) for the AHM
Comparative Companies of 22.4%; and (v) AHM's projected five-year compounded
annual growth rate in net income (as per IBES) was 13.5% compared with a median
projected five-year compounded annual growth rate in net income (as per IBES)
for the AHM Comparative Companies of 20.0%
In order to measure AHM's profitability with that of the AHM Comparative
Companies, Kidder, Peabody considered, among other things, that: (i) AHM's 1990
to latest four quarters average EBITDA margin was 13.1% compared with a median
1990 to latest four quarters average EBITDA margin for the AHM Comparative
Companies of 14.8%; (ii) AHM's 1990 to latest four quarters average EBIT margin
was 7.4% compared with a median 1990 to latest four quarters average EBIT
margin for the AHM Comparative Companies of 10.1%; (iii) AHM's 1990 to latest
four quarters average net income margin was 2.5% compared with a median 1990 to
latest four quarters average net income margin for the AHM Comparative
Companies of 3.4%; (iv) AHM's 1990 to latest four quarters average return on
assets (tax-effected EBIT divided by average total assets; "ROA") was 4.0%
compared with a median 1990 to latest four quarters average ROA for the AHM
Comparative Companies of 6.2%; and (v) AHM's 1990 to latest four quarters
average return on equity (net income divided by average total equity; "ROE")
was 11.9% compared with a median 1990 to latest four quarters average ROE for
the AHM Comparative Companies of 18.2%.
In order to assess the relative public market valuations of AHM and the AHM
Comparative Companies, Kidder, Peabody performed a market analysis of AHM and
the AHM Comparative Companies. With respect to such analysis, Kidder, Peabody
calculated a range of market multiples for each of the AHM Comparative
Companies based on dividing: (i) the market capitalization (total common shares
outstanding times closing market price per share on November 16, 1993 plus
latest reported total debt, capitalized leases and preferred stock, minus cash
and cash equivalents; the "Market Capitalization") of each of the AHM
Comparative Companies by such company's latest four quarters net revenues,
EBITDA and EBIT; (ii) the market price (the closing market price per share on
November 16, 1993 for the analysis performed in connection with the AHM Merger
or the closing market price per share on December 1, 1993 for the analysis
performed in connection with the Summit Merger; the "Market Price") of each of
the AHM Comparative Companies by such company's latest four quarters earnings
per share ("EPS") and estimated calendar 1993 and calendar 1994 EPS (as per
IBES); and (iii) the market value (total common shares outstanding times Market
Price; the "Market Value") of each of the AHM Comparative Companies by such
company's latest reported book value. The range of market multiples for the AHM
Comparative Companies included: (i) Market Capitalization to latest four
quarters net revenues multiples of 0.49x to 2.24x; (ii) Market Capitalization
to latest four quarters EBITDA multiples of 4.7x to 10.7x; (iii) Market
Capitalization to latest four quarters EBIT multiples of 9.2x to 13.2x; (iv)
Market Price to latest four quarters EPS multiples of 16.3x to 37.4x; (v)
Market Price to estimated calendar 1993 EPS (as per IBES) multiples of 12.7x to
21.8x; (vi) Market Price to estimated calendar 1994 EPS (as per IBES) multiples
of 10.9x to 17.5x; and (vii) Market Value to latest reported book value
multiples of 1.22x to 4.08x. Based on the above measures, Kidder, Peabody then
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compared AHM's market multiples, based on its Market Price, with the AHM
Comparative Companies' median market multiples in order to establish the
relationship between AHM's market multiples and those of the AHM Comparative
Companies. With respect to such review, Kidder, Peabody noted that: (i) AHM's
Market Capitalization to latest four quarters net revenues multiple was 0.99x
compared with a median Market Capitalization to latest four quarters net
revenues multiple of 1.36x for the AHM Comparative Companies; (ii) AHM's Market
Capitalization to latest four quarters EBITDA multiple was 7.1x compared with a
median Market Capitalization to latest four quarters EBITDA multiple of 8.1x
for the AHM Comparative Companies; (iii) AHM's Market Capitalization to latest
four quarters EBIT multiple was 12.3x compared with a median Market
Capitalization to latest four quarters EBIT multiple of 11.6x for the AHM
Comparative Companies; (iv) AHM's Market Price to latest four quarters EPS
multiple was 14.2x compared with a median Market Price to latest four quarters
EPS multiple of 25.9x for the AHM Comparative Companies; (v) AHM's Market Price
to estimated calendar 1993 EPS (as per IBES) multiple was 13.0x compared with a
median Market Price to estimated calendar 1993 EPS (as per IBES) multiple of
17.6x for the AHM Comparative Companies; (vi) AHM's Market Price to estimated
calendar 1994 EPS (as per IBES) multiple was 10.8x compared with a median
Market Price to estimated calendar 1994 EPS (as per IBES) multiple of 12.4x for
the AHM Comparative Companies; and (vii) AHM's Market Value to latest reported
book value multiple was 1.29x compared with a median Market Value to latest
reported book value multiple of 2.60x for the AHM Comparative Companies.
Using such information, Kidder, Peabody derived a range of implied enterprise
values (a theoretical aggregate valuation of a corporate entity before
adjustments for non-operating assets and liabilities) for AHM of $312.0 million
to $456.7 million by applying the aforementioned market multiples of the AHM
Comparative Companies to the appropriate financial statistics of AHM. The range
of implied enterprise values of AHM was then adjusted for non-operating assets
and liabilities, where relevant, including: (i) total debt of $174.9 million as
of September 30, 1993; (ii) cash and cash equivalents of $15.9 million as of
September 30, 1993; and (iii) proceeds from the assumed exercise of the options
exercisable as of October 31, 1993, at an average exercise price of $2.38 per
share, of $6.6 million to yield implied equity values for AHM of $159.6 million
to $356.6 million. A hypothetical change of control premium of 55.9%, derived
from the precedent described in Comparative Transaction Analysis below, was
applied to such figures to yield implied equity values of $248.8 to $555.8
million. The range of implied equity values of AHM was then divided by
29,942,242 fully diluted shares of AHM Common Stock outstanding as of October
31, 1993 (representing 27,174,730 shares of AHM Common Stock outstanding and
2,767,512 shares of AHM Common Stock issuable upon exercise of warrants and
options) to yield implied values of $8.31 to $18.56 per fully diluted share.
Discounted Cash Flow Analysis. A discounted cash flow analysis is a
traditional valuation methodology used to derive a valuation of a corporate
entity by capitalizing the estimated future earnings and calculating the
estimated future free cash flows of such corporate entity and discounting such
aggregated results back to the present. Kidder, Peabody performed a discounted
cash flow analysis of AHM based on the fiscal 1994 to 1998 financial forecast
for AHM provided by AHM management (the "AHM Financial Forecast"). Using the
information set forth in the AHM Financial Forecast, Kidder, Peabody calculated
the estimated "free cash flow" based on projected unleveraged net income
(earnings before interest and after taxes; "EBIAT") adjusted for: (i) certain
projected non-cash items (i.e., depreciation and amortization); (ii) projected
capital expenditures; and (iii) projected non-cash working capital investment.
Kidder, Peabody analyzed the AHM Financial Forecast and discounted the stream
of free cash flows provided in such projections back to December 31, 1993 using
discount rates of 10.0% to 14.0%. To estimate the residual value of AHM at the
end of the AHM Financial Forecast period, Kidder, Peabody applied terminal
multiples of 5.0x to 7.0x to the projected fiscal 1998 EBITDA and discounted
such value estimates back to December 31, 1993 using discount rates of 10.0% to
14.0%. Kidder, Peabody then summed the present values of the free cash flows
and the present values of the residual values to derive a range of implied
enterprise values for AHM of $299.5 million to $456.0 million. The range of
implied enterprise values of
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AHM was then adjusted for non-operating assets and liabilities including: (i)
total debt of $173.4 million as of December 31, 1993 (as per the AHM Financial
Forecast); (ii) cash and cash equivalents of $15.1 million as of December 31,
1993 (as per the AHM Financial Forecast); and (iii) proceeds from the assumed
exercise of the options exercisable as of October 31, 1993, at an average
exercise price of $2.38 per share, of $6.6 million to yield implied equity
values of AHM of $147.8 million to $304.3 million. The range of implied equity
values of AHM was divided by the 29,942,242 fully diluted shares of AHM Common
Stock outstanding as of October 31, 1993 (representing 27,174,730 shares of AHM
Common Stock outstanding and 2,767,512 shares of AHM Common Stock issuable upon
exercise of warrants and options) to yield implied values of $4.94 to $10.16
per fully diluted share.
Comparative Transaction Analysis. Kidder, Peabody compared certain financial
and operating statistics of AHM with such financial and operating statistics of
selected relevant hospital management companies (the "Acquired Comparative
Companies") immediately prior to being acquired. The transactions involving the
Acquired Comparative Companies were chosen based upon conversations with OrNda
management as to acquired companies which possessed general business, operating
and financial characteristics representative of the companies in the industry
in which AHM operates. The selected acquisition transactions involving the
Acquired Comparative Companies, which occurred or were announced between
January 1, 1992 and November 1, 1993, included (acquiror/acquired company):
Columbia Healthcare Corporation/HCA-- Hospital Corporation of America
(acquisition pending), Columbia Hospital Corporation/Galen Health Care, Inc.,
Columbia Hospital Corporation/Basic American Medical, Inc., OrNda
HealthCorp/SAFECARE Health Services, Inc. and PSG Acquisition Group/Hospital
Group of America, Inc.
In order to measure AHM's current operating performance and profitability
with that of the Acquired Comparative Companies immediately prior to being
acquired, Kidder, Peabody considered, among other things, that: (i) AHM's
latest four quarters EBITDA margin was 13.8% compared with a median latest four
quarters EBITDA margin for the Acquired Comparative Companies immediately prior
to being acquired of 17.5%; (ii) AHM's latest four quarters EBIT margin was
8.0% compared with a median latest four quarters EBIT margin for the Acquired
Comparative Companies immediately prior to being acquired of 11.2%; (iii) AHM's
latest four quarters net income margin was 3.8% compared with a median latest
four quarters net income margin for the Acquired Comparative Companies
immediately prior to being acquired of 5.0%; (iv) AHM's latest four quarters
ROA was 4.9% compared with a median latest four quarters ROA for the Acquired
Comparative Companies immediately prior to being acquired of 7.9%; and (v)
AHM's latest four quarters ROE was 9.9% compared with a median latest four
quarters ROE for the Acquired Comparative Companies immediately prior to being
acquired of 18.8%.
Kidder, Peabody also performed an analysis of the multiples paid in the
selected acquisition transactions involving the Acquired Comparative Companies
in which it analyzed the adjusted purchase price (the Equity Cost, as defined
below, plus latest reported total debt and capitalized leases, minus cash, cash
equivalents and cash proceeds from the assumed exercise of in-the-money
options; "Adjusted Purchase Price") for each of the Acquired Comparative
Companies and divided such amount by each of such company's respective latest
four quarters net revenues, EBITDA and EBIT immediately prior to being acquired
to give a range of purchase price multiples. Kidder, Peabody also analyzed the
equity cost (offer price per share multiplied by total common shares
outstanding; the "Equity Cost") for each of the Acquired Comparative Companies
acquired in the selected transactions and divided such amount by each of such
company's respective latest four quarters net income and book value immediately
prior to being acquired to give a range of purchase price multiples.
Additionally Kidder, Peabody analyzed the premium paid over the pre-
announcement stock price (the percent increase of the offer price per share
over the pre-announcement closing market price; the "Premium over Stock Price")
for each of the Acquired Comparative Companies acquired in the selected
transactions. The range of purchase price multiples and Premium over Stock
Price paid in the selected acquisition transactions involving the Acquired
Comparative Companies included: (i) Adjusted Purchase Price to latest four
quarters (pre-acquisition) net revenues multiples of 0.98x to 1.52x; (ii)
Adjusted Purchase Price to latest four quarters (pre-acquisition) EBITDA
multiples of 4.6x to 7.6x; (iii) Adjusted Purchase Price
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to latest four quarters (pre-acquisition) EBIT multiples of 5.3x to 10.2x; (iv)
Equity Cost to latest four quarters (pre-acquisition) net income multiples of
7.1x to 22.2x; (v) Equity Cost to latest reported (pre-acquisition) book value
multiples of 0.97x to 9.01x; and (vi) Premium over Stock Price of 26.6% to
61.6%.
Using such information, Kidder, Peabody derived a range of implied enterprise
values for AHM of $193.9 million to $442.7 million by applying the
aforementioned purchase price multiples and Premium over Stock Price paid in
the selected acquisition transactions involving the Acquired Comparative
Companies to the appropriate financial statistics of AHM. The range of implied
enterprise values of AHM was then adjusted for non-operating assets and
liabilities, where relevant, including: (i) total debt of $174.9 million as of
September 30, 1993; (ii) cash and cash equivalents of $15.9 million as of
September 30, 1993; and (iii) proceeds from the assumed exercise of the options
exercisable as of October 31, 1993, at an average exercise price of $2.38 per
share, of $6.6 million to yield implied equity values for AHM of $104.2 million
to $449.3 million. The range of implied equity values of AHM was then divided
by the 29,942,242 fully diluted shares of AHM Common Stock outstanding as of
October 31, 1993 (representing 27,174,730 shares of AHM Common Stock
outstanding and 2,767,512 shares of AHM Common Stock issuable upon exercise of
warrants and options) to yield implied values of $3.48 to $15.00 per fully
diluted share.
Using such information, Kidder, Peabody also compared the implied purchase
price multiples and Premium over Stock Price of the AHM Exchange Ratio to the
median purchase price multiples and Premium over Stock Price paid in the
aforementioned acquisition transactions. Such analysis illustrated that: (i)
the implied Adjusted Purchase Price to the latest four quarters net revenues
multiple of the AHM Exchange Ratio was 1.20x compared with a median latest four
quarters net revenues multiple of 1.13x in the selected transactions; (ii) the
implied Adjusted Purchase Price to latest four quarters EBITDA multiple of the
AHM Exchange Ratio was 8.7x compared with a median latest four quarters EBITDA
multiple of 6.4x in the selected transactions; (iii) the implied Adjusted
Purchase price to latest four quarters EBIT multiple of the AHM Exchange Ratio
was 15.0x compared with a median latest four quarters EBIT multiple of 9.5x in
the selected transactions; (iv) the implied Equity Cost to latest four quarters
net income multiple of the AHM Exchange Ratio was 19.0x compared with a median
latest four quarters net income multiple of 15.1x in the selected transactions;
(v) the implied Equity Cost to latest reported book value multiple of the AHM
Exchange Ratio was 1.82x compared with a median latest reported book value
multiple of 3.29x in the selected transactions; and (vi) the Premium over Stock
Price of the AHM Exchange Ratio was 40.0% compared with a median Premium over
Stock Price of 55.9% in the selected transactions.
Other Factors. In rendering its opinion, Kidder, Peabody considered certain
other factors of which the material factors included: (i) a review of AHM's
business and operations and the industry in which AHM operates to increase its
understanding of AHM's business and its position within the industry in which
it operates; (ii) a review of AHM's historical operating results and the AHM
Financial Forecast to increase its understanding of the financial performance
and prospects of AHM's business; (iii) a review of the current book value of
AHM; and (iv) a review of the stock price performance of AHM, the AHM
Comparative Companies and selected market indices over a one-year and five-year
period to provide perspective on current and historical public market
valuations and stock price performance of AHM relative to selected market
indices.
Analyses Relating to OrNda
Comparative Company Analysis. Kidder, Peabody compared the historical,
current and relevant projected financial and operating results of OrNda with
that of such financial and operating results of selected publicly traded
hospital management companies it deemed relevant (the "OrNda Comparative
Companies"). The OrNda Comparative Companies were chosen based on conversations
with OrNda management as to companies which possess general business, operating
and financial characteristics representative of companies in the industry in
which OrNda operates. The OrNda Comparative Companies consisted of AHM,
Community Health Systems, Inc., Health Management Associates, Inc. and
Universal Health Services, Inc. In addition, Kidder, Peabody compared the
historical, current and relevant projected financial and operating
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results of OrNda with that of such financial and operating results of the Large
Capitalization Hospital Management Companies. However, Kidder, Peabody accorded
less weight to the analysis relating to the Large Capitalization Hospital
Management Companies primarily due to the size differential between OrNda and
the Large Capitalization Hospital Management Companies.
In order to measure OrNda's current operating performance with that of the
OrNda Comparative Companies, Kidder, Peabody considered, among other things,
that: (i) OrNda's 1990 to latest four quarters compounded annual growth rate in
net revenues was 7.5% compared with a median 1990 to latest four quarters
compounded annual growth rate in net revenues for the OrNda Comparative
Companies of 11.2%; (ii) OrNda's 1990 to latest four quarters compounded annual
growth rate in EBITDA was 22.6% compared with a median 1990 to latest four
quarters compounded annual growth rate in EBITDA for the OrNda Comparative
Companies of 17.4%; (iii) OrNda's 1990 to latest four quarters compounded
annual growth rate in EBIT was 33.1% compared with a median 1990 to latest four
quarters compounded annual growth rate in EBIT for the OrNda Comparative
Companies of 21.3% (iv) OrNda's 1990 to latest four quarters compounded annual
growth rate in net income was not meaningful due to a net loss in 1990 compared
with a median 1990 to latest four quarters compounded annual growth rate in net
income for the OrNda Comparative Companies of 57.8%; (v) OrNda's projected one-
year growth rate in net income (as per IBES) was 76.7% compared with a median
projected one-year growth rate in net income (as per IBES) for the OrNda
Comparative Companies of 20.6%; and (vi) OrNda's projected five-year compounded
annual growth in net income (as per IBES) was 20.0% compared with a median
projected five year compounded annual growth rate in net income (as per IBES)
for the OrNda Comparative Companies of 16.8%.
In order to measure OrNda's profitability with that of the OrNda Comparative
Companies, Kidder, Peabody considered, among other things, that: (i) OrNda's
1990 to latest four quarters average EBITDA margin was 11.1% compared with a
median 1990 to latest four quarters average EBITDA margin for the OrNda
Comparative Companies of 15.8%; (ii) OrNda's 1990 to latest four quarters
average EBIT margin was 6.8% compared with a median 1990 to latest four
quarters average EBIT margin for the OrNda Comparative Companies of 10.3%;
(iii) OrNda's 1990 to latest four quarters average net income margin was (4.9%)
compared with a median 1990 to latest four quarters average net income margin
for the OrNda Comparative Companies of 3.7%; (iv) OrNda's 1990 to latest four
quarters average ROA was 3.6% compared with a median 1990 to latest four
quarters average ROA for the OrNda's Comparative Companies of 6.2%; and (v)
OrNda's 1990 to latest four quarters average ROE was 14.0% compared with a
median 1990 to latest four quarters average ROE for the OrNda Comparative
Companies of 17.2%.
In order to assess the relative public market valuations of OrNda and the
OrNda Comparative Companies, Kidder, Peabody performed a market analysis of
OrNda and the OrNda Comparative Companies. With respect to such analysis,
Kidder, Peabody calculated a range of market multiples for each of the OrNda
Comparative Companies based on dividing: (i) the Market Capitalization of each
of the OrNda Comparative Companies by such company's latest four quarters net
revenues, EBITDA and EBIT; (ii) the Market Price of each of the OrNda
Comparative Companies by such company's latest four quarters EPS and estimated
calendar 1993 and calendar 1994 EPS (as per IBES); and (iii) the Market Value
of each of the OrNda Comparative Companies by such company's latest reported
book value. The range of market multiples for the OrNda Comparative Companies
included: (i) Market Capitalization to latest four quarters net revenues
multiples of 0.49x to 2.24x; (ii) Market Capitalization to latest four quarters
EBITDA multiples of 4.7x to 10.7x; (iii) Market Capitalization to latest four
quarters EBIT multiples of 9.2x to 13.2x; (iv) Market Price to latest four
quarters EPS multiples of 14.2x to 37.4x; (v) Market Price to estimated
calendar 1993 EPS (as per IBES) multiples of 12.7x to 21.8x; (vi) Market Price
to estimated calendar 1994 EPS (as per IBES) multiples of 10.8x to 17.5x; and
(vii) Market Value to latest reported book value multiples of 1.22x to 4.08x.
Based on the above measures, Kidder, Peabody then compared OrNda's market
multiples, based on its Market Price, with the OrNda Comparative Companies'
median market multiples in order to establish the relationship between OrNda's
market multiples and those of the OrNda Comparative Companies. With respect to
such review, Kidder, Peabody noted that: (i) OrNda's Market Capitalization to
latest four quarters
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net revenues multiple was 1.27x compared with a median Market Capitalization to
latest four quarters net revenues multiple of 1.21x for the OrNda Comparative
Companies; (ii) OrNda's Market Capitalization to latest four quarters EBITDA
multiple was 8.8x compared with a median Market Capitalization to latest four
quarters EBITDA multiple of 7.3x for the OrNda Comparative Companies; (iii)
OrNda's Market Capitalization to latest four quarters EBIT multiple was 12.9x
compared with a median Market Capitalization to latest four quarters EBIT
multiple of 11.3x for the OrNda Comparative Companies; (iv) OrNda's Market
Price to latest four quarters EPS multiple was 26.9x compared with a median
Market Price to latest four quarters EPS multiple of 20.6x for the OrNda
Comparative Companies; (v) OrNda's Market Price to estimated calendar 1993 EPS
(as per IBES) multiple was 19.2x compared with a median Market Price to
estimated calendar 1993 EPS (as per IBES) multiple of 14.6x for the OrNda
Comparative Companies; (vi) OrNda's Market Price to estimated calendar 1994 EPS
(as per IBES) multiple was 10.9x compared with a median Market Price to
estimated calendar 1994 EPS (as per IBES) multiple of 12.4x for the OrNda
Comparative Companies; and (vii) OrNda's Market Value to latest reported book
value multiple was 2.45x compared with a median Market Value to latest reported
book value multiple of 2.02x for the OrNda Comparative Companies.
Pro Forma Merger Analysis of AHM Merger. Kidder, Peabody's analysis of the
potential pro forma financial effects of the AHM Merger on OrNda was based
principally upon the fiscal 1994 to 1998 financial forecast for OrNda provided
by OrNda management (the "OrNda Financial Forecast") and the AHM Financial
Forecast. Kidder, Peabody's pro forma financial analysis included AHM Merger-
related fees and expenses assumed to be $15.0 million and also assumed, among
other things, that the AHM Merger: (i) will provide 0.6 of a share of OrNda
Common Stock in exchange for each share of AHM Common Stock; (ii) will be
accounted for under the pooling-of-interests method of accounting; (iii) will
be treated as a tax free reorganization; and (iv) will result in the
realization of certain strategic and operating benefits. Among other things,
Kidder, Peabody's pro forma analysis is dependent upon the ability of both AHM
and OrNda to realize the projected operating performance assumptions of the
OrNda Financial Forecast and the AHM Financial Forecast.
Using the data and other information referred to above, Kidder, Peabody's pro
forma financial analysis suggested that the AHM Merger should result in
accretion to OrNda's earnings per share on a tax-normalized basis (applying a
40% tax rate to the combined company's pre-tax income thereby effectively
ignoring any net operating loss carryforwards; "Tax-Normalized EPS") in each of
fiscal years 1994 to 1998 with such accretion declining in each year over the
same period. Kidder, Peabody's pro forma financial analysis also suggested
that: (i) OrNda's total debt as a percent of total capitalization should
decrease as a result of the AHM Merger; and (ii) OrNda's EBITDA coverage
(EBITDA divided by net interest expense; "EBITDA Coverage") should increase as
a result of the AHM Merger.
In connection with its written opinion dated March 14, 1994, Kidder, Peabody
performed an analysis of the pro forma effects of the Mergers on OrNda. See
"The Mergers--Opinion of Kidder, Peabody & Co. Incorporated Concerning the
Summit Merger--Analyses Related to OrNda--Pro Forma Analysis of Mergers."
Other Factors. In rendering its opinion, Kidder, Peabody considered certain
other factors of which the material factors included: (i) a review of OrNda's
business and operations and the industry in which OrNda operates to increase
its understanding of OrNda's business and its position within the industry in
which it operates; (ii) a review of OrNda's historical operating results and
the OrNda Financial Forecast to increase its understanding of the financial
performance and prospects of OrNda's business; (iii) a review of the current
book value of OrNda; and (iv) a review of the stock price performance of OrNda
and the OrNda Comparative Companies and selected market indices over a one-year
period to provide perspective on current and historical public market
valuations and stock price performance of OrNda and the OrNda Comparative
Companies relative to selected market indices.
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In connection with its written opinion dated March 14, 1994, Kidder, Peabody
confirmed the appropriateness of its reliance on the analyses used to render
its oral opinion by performing procedures to update certain of such analyses
and by reviewing the assumptions on which such analyses were based and the
factors considered herewith.
Kidder, Peabody is a nationally recognized investment banking firm and as
part of its investment banking business, Kidder, Peabody is regularly engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements and valuations for estate,
corporate and other purposes. OrNda selected Kidder, Peabody as its financial
advisor to render a fairness opinion because of Kidder, Peabody's experience in
transactions similar to the AHM Merger as well as Kidder, Peabody's prior
relationship and familiarity with OrNda. Since 1990, Kidder Peabody has
provided investment banking services, from time to time, to OrNda including
acting as underwriter in connection with one financing and acting as financial
advisor in other matters unrelated to the Mergers. Kidder, Peabody has received
customary compensation for such services. Kidder, Peabody may provide
investment banking and financial advisory services to OrNda in the future.
As compensation for its services as financial advisor to OrNda, OrNda has
agreed to pay Kidder, Peabody a fee of $400,000. OrNda has also agreed to
reimburse Kidder, Peabody for its out-of-pocket expenses, including the fees
and expenses of its legal counsel, and to indemnify Kidder, Peabody and its
affiliates against certain liabilities, including liabilities under the Federal
securities laws, relating to, arising out of or in connection with its
engagement. In the ordinary course of its business, Kidder, Peabody actively
trades the debt and equity securities of OrNda for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities. As of March 4, 1994, Kidder, Peabody held,
for its own account, 69 shares of OrNda Common Stock and approximately $0.8
million principal amount of OrNda Senior Subordinated Notes.
RECOMMENDATION OF AHM BOARD OF DIRECTORS; REASONS FOR THE AHM MERGER
AT A MEETING HELD ON NOVEMBER 18, 1993, THE BOARD OF DIRECTORS OF AHM
UNANIMOUSLY APPROVED THE AHM MERGER AGREEMENT AND THE AHM PROXIES, UNANIMOUSLY
CONCLUDED THAT THE AHM MERGER WAS FAIR TO AND IN THE BEST INTERESTS OF THE
STOCKHOLDERS OF AHM AND UNANIMOUSLY RECOMMENDED THAT THE STOCKHOLDERS OF AHM
APPROVE AND ADOPT THE AHM MERGER AGREEMENT.
In reaching its determination, the AHM Board of Directors consulted with its
financial and legal advisors and with AHM Management, and considered a number
of factors, including, without limitation, the following:
(i) the immediate and potential long-term benefits to AHM's stockholders
inherent in the terms of the merger and the long-term prospects for the
combined entities;
(ii) the opinion of DLJ that the consideration to be received by the
holders of AHM Common Stock pursuant to the AHM Merger was fair, from a
financial point of view, to the AHM stockholders;
(iii) a conclusion that further consolidations in the proprietary acute
care hospital industry were inevitable, that AHM could be at a competitive
disadvantage as a stand-alone entity in such an environment, and that
market conditions were favorable to a transaction in the current time
frame;
(iv) a conclusion that AHM and OrNda had similar management philosophies
with a common emphasis on low-cost, efficient primary care delivery systems
in an increasingly fixed reimbursement, managed care environment;
(v) the potential cost savings in management and general and
administrative expenses;
(vi) the potential to realize economies and increased margins in OrNda's
facilities with the application of AHM's centralized management information
and quality outcome measurement systems and cost savings techniques;
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(vii) the ability of the combined enterprise to offer a broader range of
services in their respective markets;
(viii) the diversification of market risks inherent in the combination of
the two hospital portfolios;
(ix) the relative prospects for growth and growth in shareholder values,
as a stand-alone entity and a part of a substantially larger organization
operating in economically diversified trading areas;
(x) the relative prospects for raising capital in current industry
conditions as a stand-alone entity and as part of a larger organization;
(xi) the tax-free nature of the transaction to AHM stockholders and the
advantageous effects on the combined enterprise as treating the transaction
as a pooling for accounting purposes;
(xii) the larger market capitalization of the combined entity as
providing potentially greater market liquidity for AHM stockholders than
they presently have in AHM as a stand-alone entity;
(xiii) the effect of the AHM Merger on the future utilization of AHM's
tax loss carryforwards; and
(xiv) the terms of the AHM Merger Agreement.
The reasons for the AHM Board's approval of the Summit Merger Agreement
included the following:
(i) the enhancement that Summit's portfolio of hospitals gave to the
combined OrNda/AHM competitive position in various markets;
(ii) the opinion of DLJ that, whether or not the Summit Merger is
consummated, the consideration to be received by the holders of AHM Common
Stock remained fair, from a financial point of view, to the AHM
stockholders;
(iii) the value to the combined enterprise of Summit's expertise in
managed care contract administration, particularly in the context of
Summit's contractual arrangements with the State of Arizona; and
(iv) the terms of the Summit Merger Agreement.
All of the factors listed above on which the AHM Board based its approval of
the AHM Merger Agreement and the Summit Merger Agreement were considered
without assigning special weight to any particular factor.
On March 7, 1994, OrNda announced the adoption of SFAS No. 115 and the
Restatement. See "--Background of the AHM Merger." On March 3, 1994, prior to
such announcement, the AHM Board met to discuss the accounting issues then
causing OrNda to consider such action and whether such issues had any effect on
the AHM Merger Agreement. On March 7, 1994, following OrNda's announcement of
the adoption of such accounting changes, the AHM Board of Directors met again
to consider the effect, if any, of such accounting changes on the AHM Merger
and the terms of the AHM Merger Agreement. In such deliberations, the AHM Board
was advised as to accounting matters by Ernst & Young and as to financial
matters by DLJ. The AHM Board conducted a thorough discussion of the
consequences of such changes in accounting, including the fact that such
changes had no effect on OrNda's historic net increases or decreases in cash or
on the anticipated cash flows from the combined enterprises. DLJ expressed its
oral opinion that, after analyzing the effects of such accounting changes on
the work performed by it in connection with its opinions of November 18, 1993
and December 2, 1993, and subject only to its review of the final financial
data appearing herein, such accounting changes would not cause DLJ to change
the conclusions reached by it in such opinions that, as of such dates, the
consideration to be received by the AHM stockholders pursuant to the terms of
the AHM Merger Agreement was fair to the stockholders of AHM from a financial
point of view, whether or not the Summit Merger was effected. Based on such
review and opinion, the AHM directors resolved that, subject to the receipt of
DLJ's written opinion following its final review of the financial data
appearing herein, AHM proceed with the AHM Merger under the terms of the AHM
Merger Agreement. After its review of the financial data contained herein, DLJ
confirmed its oral advice to the Board in a letter dated March 14, 1994.
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OPINION OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
AHM retained DLJ to act as exclusive financial advisor in connection with the
proposed merger of AHM with OrNda and to render an opinion as to the fairness,
from a financial point of view, to the stockholders of AHM of the consideration
to be received by such stockholders pursuant to the AHM Merger Agreement. On
November 18, 1993, pursuant to AHM's request, DLJ delivered its oral opinion to
the Board of Directors of AHM (the "AHM Board") to the effect that, as of such
date, the consideration to be received by such stockholders pursuant to the AHM
Merger Agreement was fair, from a financial point of view, to the AHM
stockholders. Subsequently, as a result of the proposed acquisition of Summit
by OrNda, the AHM Board requested that DLJ reaffirm its opinion. On December 2,
1993, DLJ delivered its oral opinion to the AHM Board to the effect that, as of
such date, whether or not the Summit Merger Agreement is consummated, the
consideration to be received by such stockholders pursuant to the AHM Merger
Agreement remained fair, from a financial point of view, to the AHM
stockholders. DLJ's opinions were subsequently confirmed in writing. DLJ's
opinions were necessarily based on economic, market and financial and other
conditions as they existed on the dates DLJ delivered its opinions, the
information made available to DLJ as of such dates and the review and analysis
conducted by DLJ as of such dates. AHM did not request that DLJ update or
reaffirm its opinions as of any date subsequent to December 2, 1993, and DLJ
has not performed the review or analysis necessary to reaffirm or update the
opinion and has not reaffirmed or updated such opinion.
A COPY OF DLJ'S DECEMBER 2, 1993 OPINION IS ATTACHED HERETO AS ANNEX E. AHM
STOCKHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY FOR ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY
DLJ. THE SUMMARY OF THE OPINION OF DLJ SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION. DLJ'S OPINION WAS PREPARED FOR THE AHM BOARD OF DIRECTORS, IS
DIRECTED ONLY TO THE FAIRNESS TO THE STOCKHOLDERS OF AHM AS OF DECEMBER 2, 1993
FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED BY SUCH
STOCKHOLDERS PURSUANT TO THE AHM MERGER AGREEMENT AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY AHM STOCKHOLDERS AS TO HOW TO VOTE AT THE AHM MEETING.
In arriving at its opinion, DLJ reviewed the AHM Merger Agreement, the terms
and conditions of the Summit Merger and financial and other information that
was publicly available or furnished to DLJ by AHM, OrNda and Summit including
information provided during discussions with their respective managements.
Included in the information provided during discussions with the respective
managements were certain financial projections of AHM for the period beginning
January 1, 1993 and ending December 31, 2000 prepared by the management of AHM,
certain financial projections of OrNda for the period beginning September 1,
1993 and ending August 31, 1997 prepared by the management of OrNda, certain
financial projections of Summit for the period beginning July 1, 1993 and
ending June 30, 1998 prepared by the management of Summit and certain financial
projections for the combined entity prepared jointly by the managements of AHM,
OrNda and Summit. These financial projections have not been disseminated to any
party other than the managements of AHM, OrNda and Summit and their respective
financial advisors. In addition, DLJ compared certain financial and securities
data of AHM with various other publicly traded companies it deemed relevant,
reviewed prices paid in other business combinations and conducted such other
financial studies, analyses and investigations as DLJ deemed appropriate for
purposes of its opinion.
In rendering its opinions, DLJ relied upon and assumed, without independent
verification, the accuracy, completeness and fairness of all of the financial
and other information that was available to it from public sources, that was
provided to it by AHM, OrNda and Summit or their representatives, or that was
otherwise reviewed by DLJ. These estimates and judgments are, in many
instances, based on assumptions that are inherently uncertain, and actual
results of operations may be substantially different than those projected.
Neither the projections nor DLJ's use of them in connection with its opinion
implies any assurance as to the future performance of AHM, OrNda or Summit. DLJ
did not make any independent evaluation of AHM assets or liabilities nor did
DLJ verify any of the information reviewed by it. DLJ has relied as to all
legal matters on advice of counsel to AHM.
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The following is a summary of certain financial analyses performed by DLJ in
arriving at its opinion dated December 2, 1993 and discussed with the AHM
Board.
1. Contribution Analysis. DLJ reviewed certain historical and estimated
future operating and financial information (including, among other things,
revenue, earnings before depreciation, amortization, interest and taxes
("EBDAIT"), pretax income, net income, book value and total assets) for AHM,
OrNda and Summit and the pro forma combined company. Based on such review, DLJ
analyzed the contribution of each of AHM, OrNda and Summit to the pro forma
combined company assuming the terms and conditions described in the AHM Merger
Agreement and the Summit Merger Agreement. AHM stockholders, as a result of the
AHM Merger and the Summit Merger, would have an approximate interest of 39% in
the pro forma combined entity assuming exercise of all AHM, OrNda and Summit
stock options and AHM warrants. Such analysis indicated that, for the twelve
months ended September 30, 1993, AHM would have contributed 22.8% of revenues,
22.9% of EBDAIT, 17.5% of pretax income, 25.3% of net income, 37.4% of book
value and 22.1% of total assets. The results of this contribution analysis are
not necessarily indicative of the contributions that the respective businesses
might have in the future.
2. Pro Forma Merger Analysis. DLJ analyzed certain financial information for
the pro forma combined company resulting exclusively from the AHM Merger and
the pro forma combined company resulting from both the AHM Merger and the
Summit Merger based on the consensus financial forecasts for each of AHM,
OrNda, Summit and the respective pro forma combined companies. Such analysis
indicated that earnings per share ("EPS") for the pro forma combined company
would be approximately equal to the forecasted EPS for OrNda as a stand alone
entity. The results of the pro forma combination analysis are not necessarily
indicative of future operating results or financial position.
3. Selected Publicly Traded Companies Analysis. DLJ compared selected
historical and estimated earnings and operating and financial ratios for AHM to
the corresponding data and ratios of certain other publicly traded acute care
hospital management companies that it deemed relevant. These companies were
divided into two groups: large capitalization companies (the "Large Cap Group")
and small capitalization companies (the "Small Cap Group"). The Large Cap
Group, defined as those selected companies with a market capitalization in
excess of $1 billion, includes American Medical Holdings, Inc., HCA Hospital
Corporation of America, Healthtrust, Inc.--The Hospital Company, Columbia
Healthcare Corporation and National Medical Enterprises. The Small Cap Group,
defined as those selected companies with a market capitalization of less than
$1 billion, includes, in addition to AHM, OrNda and Summit, Community Health
Systems, Inc., Health Management Associates, Inc. and Universal Health
Services, Inc. Such data and ratios include, among other things, Enterprise
Value (market capitalization of common stock plus long-term debt less cash) to
latest twelve months ("LTM") revenues, EBDAIT, earnings before interest and
taxes ("EBIT") as well as current stock price to LTM EPS and fiscal year 1993
and 1994 estimated EPS (as estimated by research analysts and compiled by
Institutional Brokers Estimating Service), for the other publicly traded
companies, and based on information provided by the management of AHM for AHM.
Although DLJ used the companies named above for comparison purposes, none of
such companies are identical to AHM. Such analysis indicated that (i) for the
Large Cap Group, the mean values of Enterprise Value as a multiple of LTM
revenues, EBDAIT and EBIT were 1.1x, 5.9x and 8.2x, respectively, (ii) of the
Small Cap Group, the mean values of Enterprise Value as a multiple of LTM
revenues, EBDAIT and EBIT were 1.1x, 7.2x and 10.8x, (iii) for AHM, based on
the implied Enterprise Value indicated by OrNda's December 1, 1993 closing
price (the latest available closing price at the date of DLJ's opinion), the
revenue, EBDAIT and EBIT multiples were 1.1x, 7.8x and 13.1x, respectively,
(iv) for the Large Cap Group, the mean values of the LTM EPS, estimated 1993
EPS and estimated 1994 EPS price/earnings ratios were 17.9x, 13.9x and 11.6x,
respectively, (v) for the Small Cap Group, the mean values of the LTM EPS,
estimated 1993 EPS and estimated 1994 EPS price/earnings ratios were 17.5x,
13.1x and 11.3x, respectively, and (vi) for AHM, the LTM, estimated 1993 and
estimated 1994 price/earnings multiples were 22.5x, 15.6x and 13.0x.
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4. Selected Transaction Analysis. DLJ reviewed publicly available information
on certain mergers and acquisitions involving companies in the acute hospital
care industry that it deemed relevant. The transactions reviewed by DLJ were
the acquisitions of: (i) Rehab Systems Co. by Novacare, Inc.; (ii) SAFECARE
Health Services by OrNda; (iii) Hospital Group of America by Cooper Companies,
Inc.; (iv) Basic American Medical, Inc. by Columbia Hospital Corporation; (v)
Galen Health Care, Inc. by Columbia Hospital Corporation; and (vi) HCA by
Columbia Healthcare Corporation.
DLJ calculated multiples for each transaction based on the ratio of the offer
price to such acquired companies' respective pre-acquisition LTM EPS and the
ratio of the Adjusted Purchase Price (market capitalization of common stock at
the offer price plus long-term debt less cash) to such companies' respective
pre-acquisition LTM revenues, EBITDA and EBIT.
An analysis of the Adjusted Purchase Price to LTM revenues, EBDAIT and EBIT
and the per share offer price to LTM EPS indicated mean values of the foregoing
transactions of 1.0x, 6.3x, 8.9x and 16.3x, respectively, compared to the
implied multiples for AHM of 1.1x, 7.8x, 13.1x and 22.5x, respectively.
No company or transaction used in the analyses described above is directly
comparable to AHM, OrNda, Summit or the proposed transaction. Accordingly, an
analysis of the results of the foregoing is not mathematical nor necessarily
precise; rather, it involves complex considerations and judgments concerning
differences in financial and operating characteristics of companies and other
factors that could affect public trading values.
5. Discounted Cash Flow Analysis. DLJ also performed a discounted cash flow
analysis on AHM. In conducting its analysis, DLJ relied on certain projections
provided by AHM, OrNda and Summit management. Using the forecasted cash flows,
defined as forecasted EBDAIT, DLJ calculated the terminal value (the "Terminal
Value") of AHM for the years ended 1996, 1998 and 2000. The analysis assumes
that all interim cash flows are utilized to reduce indebtedness or are
reinvested. As used in DLJ's analysis, Terminal Value is defined as, for each
of the fiscal years mentioned above, EBDAIT multiplied by terminal multiples of
5.0x to 8.0x (as indicated by the selected publicly-traded companies analysis
and the selected transaction analysis). The net present value of the equity was
computed by subtracting from the Terminal Value AHM's net debt (ending long-
term debt balance less cash balance for each of the three periods mentioned
above) and discounting the difference using discount rates ranging from 15% to
20%. Based on this analysis, DLJ calculated per share equity values of AHM
ranging from: $5.05 to $10.76 for the analysis period ending December 31, 1996;
$5.41 to $11.27 for the analysis period ending December 31, 1998; and $5.29 to
$11.25 for the analysis period ending December 31, 2000.
On March 7, 1994, OrNda announced the adoption of SFAS No. 115 and the
Restatement. See "--Background of the AHM Merger." At the time of such
announcement, DLJ analyzed the effects of such accounting changes on the work
performed by it in connection with its opinions of November 18, 1993 and
December 2, 1993. DLJ concluded, and orally advised the AHM Board on March 7,
1994, that, subject only to its review of the final financial data appearing
herein, such accounting changes would not cause it to change the conclusions in
its opinions of November 18, 1993 and December 2, 1993 as to the fairness, as
of such dates, from a financial point of view, of the consideration to be
received by the AHM stockholders pursuant to the terms of the AHM Merger
Agreement. After its review of the financial data contained herein, DLJ
confirmed its oral advice to the Board in a letter dated March 14, 1994.
The summary set forth above does not purport to be a complete description of
the analyses performed by DLJ. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, notwithstanding the separate factors
summarized above, DLJ believes that its analyses must be considered as a whole
and that selecting portions of its analyses and the factors considered by it,
without considering the
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analyses and factors as a whole, could create an incomplete or misleading view
of the evaluation process underlying its opinion.
The analyses performed by DLJ are not necessarily indicative of actual values
of future results, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses do not purport to be appraisals or to reflect the prices at which a
business may actually be sold. DLJ is not opining as to the future trading
value of AHM or OrNda Common Stock.
Pursuant to an engagement letter dated October 11, 1993 between DLJ and AHM,
AHM has agreed to pay to DLJ fees totaling (assuming the AHM Merger was
consummated as of December 20, 1993) approximately $2.8 million, $300,000 of
which is payable for DLJ's opinion delivered to the AHM Board on November 18,
1993, $150,000 of which is payable for DLJ's opinion delivered to the AHM Board
on December 2, 1993, $250,000 of which is payable upon execution of the AHM
Merger Agreement, and the remainder of which is payable upon consummation of
the AHM Merger in connection with DLJ's acting as exclusive financial advisor
to AHM. AHM has agreed to reimburse DLJ for its out-of-pocket expenses,
including the reasonable fees and expenses of its legal counsel, and to
indemnify DLJ against certain liabilities, including liabilities under the
federal securities laws, arising out of or in connection with the services
rendered by DLJ under the engagement. The terms of the fee arrangement with
DLJ, which are customary in transactions of this nature, were negotiated at
arm's length between DLJ and AHM, and the AHM Board approved such arrangement.
DLJ is a nationally recognized investment banking firm. As part of its
investment banking business, DLJ is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated primary and secondary underwritings, private placements and
valuations for estate, corporate and other purposes. While DLJ has not
performed investment banking or other services for AHM in the past, it has
performed investment banking and other services for OrNda and Summit, including
managing an offering of $400 million of senior subordinated notes in 1992 for
OrNda, assisting with OrNda's restructuring and managing an offering of $37.4
million of exchangeable subordinated notes for Summit. DLJ was compensated for
such services. In addition, DLJ owns approximately 3% of the OrNda Common Stock
outstanding.
BACKGROUND OF THE SUMMIT MERGER
The terms of the Summit Merger Agreement are the result of arm's length
negotiations between representatives of OrNda and Summit. The following is a
brief discussion of the background of these negotiations, the Summit Merger and
the related transactions.
In July 1993, senior management of Summit, having reviewed the healthcare
climate, determined to explore the possibility of creating one or more
strategic alliances. Towards this end, Summit engaged Smith Barney Shearson as
its financial advisor in July 1993.
In the summer of 1993, Summit became aware that management of OrNda was
seeking acquisition candidates. On July 21, 1993, Charles N. Martin, Jr.,
Chairman, President and Chief Executive Officer of OrNda met with Donald J.
Amaral, President and Chief Executive Officer of Summit, at the offices of
Kidder, Peabody to discuss healthcare reform, consolidation within the industry
and a possible business combination between OrNda and Summit. On July 26, 1993,
OrNda and Summit entered into a confidentiality agreement. Following this
meeting, Mr. Martin and other representatives of OrNda, accompanied by Randolph
Speer, Senior Vice President and Treasurer of Summit, spent the next several
days conducting a due diligence investigation of the Summit facilities in Iowa,
Texas, Arizona and throughout California and met with various representatives
of Summit to explore further the possibility of a business combination between
Summit and OrNda.
From August until November 1993, representatives of OrNda and Summit had
further telephone discussions relating to a potential business combination.
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On November 5, 1993, Mr. Amaral received a call from Mr. Martin to discuss a
business combination. At that time, Mr. Martin proposed a merger whereby OrNda
would be the surviving entity.
On November 10 and November 11, 1993, Messrs. Martin and Amaral as well as
other representatives of Summit and OrNda met at a high yield bond conference
held in Las Vegas, Nevada. At that time, Mr. Martin indicated to Mr. Amaral
that OrNda management believed that a business combination between OrNda and
Summit might be in the best interests of the stockholders of both OrNda and
Summit. On November 18 and 19, the representatives of both OrNda, AHM and
Summit met again at another industry conference in Phoenix, Arizona and had
further more detailed discussions of the proposed terms of such a combination.
On November 21, 1993, representatives of OrNda, AHM and Summit, as well as
the legal advisors of OrNda and Summit and Summit's financial advisor, met in
Nashville, Tennessee. A preliminary draft of a merger agreement was circulated
at this meeting and the parties attempted to negotiate the terms of a proposed
agreement. The discussions in Nashville reached an impasse, however, over the
proposed exchange ratio.
On November 29, 1993, Messrs. Amaral and Martin resumed negotiations and on
November 30 through December 2, 1993, representatives of Summit, AHM and OrNda
as well as their respective legal and financial advisors met in New York to
discuss further the details of the proposed merger.
On December 2, 1993, the Boards of Directors of Summit and OrNda met to
discuss the proposed merger agreement and related transactions. After receiving
the oral opinion of Kidder, Peabody to the effect that the Summit Exchange
Ratio was fair, from a financial point of view, to OrNda, the OrNda Board of
Directors unanimously approved the Summit Merger Agreement and the related
transactions. At its meeting on December 2, 1993, the Summit Board of Directors
received the oral opinion of Smith Barney Shearson to the effect that, as of
such date, the Summit Exchange Ratio was fair, from a financial point of view,
to the holders of Summit Common Stock, and unanimously approved the Summit
Merger Agreement and the related transactions. See "--Background of the AHM
Merger" for a description of the AHM Board action with respect to the Summit
Merger.
On March 3, 1994, the Board of Directors of Summit met informally by
telephone to discuss preliminarily the Restatement. Over the next several days,
Summit management, together with Summit's financial and legal advisors, met
repeatedly with OrNda and AHM to discuss the Restatement and its impact on the
Mergers.
On March 8, 1994, the Summit Board of Directors met with its financial and
legal advisors to discuss the effect of the Restatement on the Mergers. At such
meeting, the Summit Board of Directors received the oral opinion of Smith
Barney Shearson to the effect that, as of such date, the Summit Exchange Ratio
remained fair from a financial point of view to the holders of Summit Common
Stock, and unanimously approved proceeding with the Summit Merger as originally
contemplated.
RECOMMENDATION OF ORNDA BOARD OF DIRECTORS; REASONS FOR THE SUMMIT MERGER
THE BOARD OF DIRECTORS OF ORNDA HAS APPROVED THE SUMMIT MERGER AND RECOMMENDS
THAT STOCKHOLDERS OF ORNDA VOTE FOR APPROVAL OF THE SUMMIT MERGER. THE BOARD OF
DIRECTORS OF ORNDA BELIEVES THAT THE SUMMIT MERGER WILL CREATE A COMPANY WITH
THE FINANCIAL RESOURCES NEEDED TO MORE EFFECTIVELY COMPETE IN THE DEVELOPING
HEALTH CARE MARKET.
In reaching its determination, the OrNda Board of Directors consulted with
OrNda management as well as its financial and legal advisors, and considered a
number of factors, including, without limitation, the following:
(i) the acquisition of the Summit hospital portfolio will support OrNda's
strategic objective to become a significant provider of healthcare services
in targeted communities throughout the United
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States, will enhance the geographic diversity of the OrNda hospital
portfolio and will enhance OrNda's market presence in certain important
markets;
(ii) based on the relative earnings of both companies and the Summit
Exchange Ratio, the Summit Merger would be accretive to OrNda's current
stockholders;
(iii) the significant expertise of Summit's management with the
administration of managed care contracts which the OrNda Board of Directors
believes will be valuable as OrNda adjusts to the changes affecting the
acute care hospital business;
(iv) information with respect to the financial condition, business,
operations and prospects of both OrNda and Summit on both a historical and
prospective basis, including certain information reflecting the two
companies on a pro forma combined basis;
(v) the potential efficiencies and synergies expected to be realized by
the combined operations of OrNda and Summit, which are expected to result
from the integration of office facilities, support functions and the
increased purchasing power of the combined companies;
(vi) the oral opinion of Kidder, Peabody to the effect that, as of
December 2, 1993, the Summit Exchange Ratio was fair, from a financial
point of view, to OrNda (See "--Opinion of Kidder, Peabody & Co.
Incorporated concerning the Summit Merger"); and
(vii) the terms of the Summit Merger Agreement.
These factors were considered collectively by the OrNda Board of Directors,
without giving specific weight to any particular factor.
OPINION OF KIDDER, PEABODY & CO. INCORPORATED CONCERNING THE SUMMIT MERGER
Kidder, Peabody has acted as financial advisor to OrNda in connection with
the Summit Merger and has assisted the Board of Directors of OrNda in its
examination of the fairness, from a financial point of view, of the Summit
Exchange Ratio to OrNda.
On December 2, 1993, Kidder, Peabody rendered its oral opinion to the Board
of Directors to the effect that, as of the date of such opinion, the Summit
Exchange Ratio was fair, from a financial point of view, to OrNda. Kidder,
Peabody subsequently rendered a written opinion confirming its earlier oral
opinion that, as of March 14, 1994, the Summit Exchange Ratio is fair, from a
financial point of view, to OrNda. THE FULL TEXT OF THE WRITTEN OPINION OF
KIDDER, PEABODY WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED, LIMITATIONS ON AND THE SCOPE OF THE REVIEW BY KIDDER,
PEABODY IN RENDERING ITS OPINION IS ATTACHED AS ANNEX D TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. ORNDA
STOCKHOLDERS ARE URGED TO READ KIDDER, PEABODY'S OPINION IN ITS ENTIRETY.
In connection with its opinion, Kidder, Peabody reviewed, among other things,
the AHM Merger Agreement, the Summit Merger Agreement and, in connection with
its written opinion dated March 14, 1994, the Proxy Statement/Prospectus as
filed with the Commission. Kidder, Peabody also reviewed certain financial and
other information of OrNda, AHM and Summit that was publicly available or
furnished to Kidder, Peabody by or on behalf of OrNda, AHM and Summit,
including certain financial analyses, financial forecasts, reports and other
information prepared by their respective managements and representatives.
Kidder, Peabody held discussions with various members of management of OrNda,
AHM and Summit concerning each company's historical and current operations,
financial condition and prospects, as well as the strategic and operating
benefits anticipated from each of the Mergers. In addition, Kidder, Peabody:
(i) reviewed the price and trading history of the Summit Common Stock and the
OrNda Common Stock and compared such prices and trading histories with those of
publicly traded companies it deemed relevant for purposes of its opinion; (ii)
compared the financial positions and operating results of OrNda and Summit with
those of publicly traded companies it deemed relevant for purposes of its
opinion; (iii) compared certain
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financial terms of the Summit Merger to certain financial terms of selected
other business combinations it deemed relevant for purposes of its opinion;
(iv) reviewed the potential pro forma financial effects of the Summit Merger
and the AHM Merger on OrNda; and (v) conducted such other financial studies,
analyses and investigations and reviewed such other factors as it deemed
appropriate for purposes of its opinion.
In rendering its opinion, Kidder, Peabody relied, without independent
verification, on the accuracy and completeness of all financial and other
information reviewed by Kidder, Peabody that was publicly available or
furnished to it by or on behalf of OrNda, AHM and Summit. Kidder, Peabody
assumed that the financial forecasts which it examined were reasonably prepared
on bases reflecting the best currently available estimates and good faith
judgments of the respective managements of OrNda, AHM and Summit. Kidder,
Peabody also assumed, with OrNda's consent, that: (i) certain strategic and
operating benefits will result from the Summit Merger; (ii) the Summit Merger
will be accounted for under the purchase method of accounting; (iii) no
adjustment will be made to the Summit Exchange Ratio; and (iv) in connection
with its written opinion dated March 14, 1994, all material assets and
liabilities (contingent and otherwise, known or unknown) of OrNda, AHM and
Summit are as set forth in the consolidated financial statements of OrNda, AHM
and Summit, respectively, contained in the Proxy Statement/Prospectus. Kidder,
Peabody did not make an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of OrNda, AHM or Summit nor was Kidder,
Peabody furnished with any such evaluations or appraisals. Kidder, Peabody's
opinion is based upon the economic, monetary and market conditions existing on
the date of such opinion. Furthermore, Kidder, Peabody expressed no opinion as
to the range at which shares of OrNda Common Stock will trade following the
Summit Merger or the Mergers. The Summit Exchange Ratio was determined by OrNda
and Summit in arm's-length negotiations. OrNda did not place any limitations
upon Kidder, Peabody with respect to the procedures followed or factors
considered by Kidder, Peabody in rendering its opinion.
Kidder, Peabody believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all factors and analyses, could create a misleading view of
the processes underlying its opinion. The preparation of a fairness opinion is
a complex process and is not necessarily susceptible to partial analysis or
summary description. In its analyses, Kidder, Peabody made numerous assumptions
with respect to industry performance, general business, regulatory and economic
conditions and other matters, many of which are beyond the control of OrNda,
AHM and Summit. Any estimates contained therein are not necessarily indicative
of future results or actual values, which may be significantly more or less
favorable than such estimates. Estimates of values of companies or assets do
not purport to be appraisals or necessarily reflect the prices at which
companies or assets may actually be sold. Because such estimates are inherently
subject to uncertainty, none of OrNda, AHM, Summit, Kidder, Peabody or any
other person assumes responsibility for their accuracy.
In connection with rendering its oral opinion and preparing its oral
presentation to the Board of Directors of OrNda, Kidder, Peabody performed a
variety of financial analyses, including those summarized below. The summary
set forth below does not purport to be a complete description of the analyses
performed by Kidder, Peabody in this regard and includes certain terms defined
in "--Opinion of Kidder, Peabody & Co. Incorporated concerning the AHM Merger."
Analyses Relating to Summit
Comparative Company Analysis. Kidder, Peabody compared the historical,
current and relevant projected financial and operating results of Summit with
that of such financial and operating results of selected publicly traded
hospital management companies it deemed relevant (the "Summit Comparative
Companies"). The Summit Comparative Companies were chosen based upon
conversations with OrNda management as to companies which possess general
business, operating and financial characteristics representative of the
industry in which Summit operates. The Summit Comparative Companies selected
consisted of AHM (utilizing its stock price prior to the announcement of the
AHM Merger), Community Health Systems, Inc., Health Management Associates,
Inc., OrNda (pro forma for the AHM Merger, where appropriate) and Universal
Health Services, Inc. In addition, Kidder, Peabody compared the historical,
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current and relevant projected financial and operating results of Summit with
that of such financial and operating results of the Large Capitalization
Hospital Management Companies. However, Kidder, Peabody accorded less weight to
the analysis relating to the Large Capitalization Hospital Management Companies
primarily due to the size differential between Summit and the Large
Capitalization Hospital Management Companies.
In order to measure Summit's current operating performance with that of the
Summit Comparative Companies, Kidder, Peabody considered, among other things,
that: (i) Summit's 1991 to latest four quarters compounded annual growth rate
in net revenues was 10.1% compared with a median 1990 to latest four quarters
compounded annual growth rate in net revenues for the Summit Comparative
Companies of 7.5%; (ii) Summit's 1991 to latest four quarters compounded annual
growth rate in EBITDA was 26.1% compared with a median 1990 to latest four
quarters compounded annual growth rate in EBITDA for the Summit Comparative
Companies of 22.2%; (iii) Summit's 1991 to latest four quarters compounded
annual growth rate in EBIT was 30.7% compared with a median 1990 to latest four
quarters compounded annual growth rate in EBIT for the Summit Comparative
Companies of 22.9%; (iv) Summit's 1991 to latest four quarters compounded
annual growth in net income was 56.4% compared with a median 1990 to latest
four quarters compounded annual growth rate in net income for the Summit
Comparative Companies of 57.8%, (v) Summit's projected one-year growth rate in
net income (as per IBES) was 14.8% compared with a median projected one-year
growth rate in net income (as per IBES) for the Summit Comparative Companies of
20.7%; and (vi) Summit's projected five-year compounded annual growth rate in
net income (as per IBES) was 17.5% compared with a median projected five-year
compounded annual growth rate in net income (as per IBES) for the Summit
Comparative Companies of 20.0%.
In order to measure Summit's profitability with that of the Summit
Comparative Companies, Kidder, Peabody considered, among other things, that:
(i) Summit's 1991 to latest four quarters average EBITDA margin was 10.1%
compared with a median 1990 to latest four quarters average EBITDA margin for
the Summit Comparative Companies of 13.1%; (ii) Summit's 1991 to latest four
quarters average EBIT margin was 6.7% compared with a median 1990 to latest
four quarters average EBIT margin for the Summit Comparative Companies of 7.4%,
(iii) Summit's 1991 to latest four quarters average net income margin was 2.8%
compared with a median 1990 to latest four quarters average net income margin
for the Summit Comparative Companies of 2.5%; (iv) Summit's 1991 to latest four
quarters average ROA was 5.8% compared with a median 1990 to latest four
quarters average ROA for the Summit Comparative Companies of 4.6%; and (v)
Summit's 1991 to latest four quarters average ROE was 14.1% compared with a
median 1990 to latest four quarters average ROE for the Summit Comparative
Companies of 14.0%.
In order to assess the relative public market valuations of Summit and the
Summit Comparative Companies, Kidder, Peabody performed a market analysis of
Summit and the Summit Comparative Companies. With respect to such analysis,
Kidder, Peabody calculated a range of market multiples for each of the Summit
Comparative Companies based on dividing: (i) the Market Capitalization of each
of the Summit Comparative Companies by such company's latest four quarters net
revenues, EBITDA and EBIT; (ii) the Market Price of each of the Summit
Comparative Companies by such company's latest four quarters EPS and estimated
calendar 1993 and calendar 1994 EPS (as per IBES); and (iii) the Market Value
of each Summit Comparative Company by such company's latest reported book
value. The range of market multiples for the Summit Comparative Companies
included: (i) Market Capitalization to latest four quarters net revenues
multiples of 0.49x to 2.21x; (ii) Market Capitalization to latest four quarters
EBITDA multiples of 4.6x to 10.6x; (iii) Market Capitalization to latest four
quarters EBIT multiples of 9.1x to 13.0x; (iv) Market Price to latest four
quarters EPS multiples of 14.2x to 36.9x; (v) Market Price to estimated
calendar 1993 EPS (as per IBES) multiples of 12.0x to 21.5x; (vi) Market Price
to estimated calendar 1994 EPS (as per IBES) multiples of 10.8x to 17.5x; and
(vii) Market Value to latest reported book value multiples of 1.20x to 4.02x.
Based on the above measures, Kidder, Peabody then compared Summit's market
multiples, based on its Market Price, with the Summit Comparative Companies'
median market multiples in order to establish the relationship between Summit's
market multiples and those of the Summit Comparative Companies. With
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respect to such review, Kidder, Peabody noted that: (i) Summit's Market
Capitalization to latest four quarters net revenues multiple was 0.73x compared
with a median Market Capitalization to latest four quarters net revenues
multiple of 1.18x for the Summit Comparative Companies; (ii) Summit's Market
Capitalization to latest four quarters EBITDA multiple was 6.1x compared with a
median Market Capitalization to latest four quarters EBITDA multiple of 7.7x
for the Summit Comparative Companies; (iii) Summit's Market Capitalization to
latest four quarters EBIT multiple was 9.0x compared with a median Market
Capitalization to latest four quarters EBIT multiple of 12.1x for the Summit
Comparative Companies; (iv) Summit's Market Price to latest four quarters EPS
multiple was 15.3x compared with a median Market Price to latest four quarters
EPS multiple of 20.1x for the Summit Comparative Companies; (v) Summit's Market
Price to estimated calendar 1993 EPS (as per IBES) multiple was 14.9x compared
with a median Market Price to estimated calendar 1993 EPS (as per IBES)
multiple of 16.8x for the Summit Comparative Companies; (vi) Summit's Market
Price to estimated calendar 1994 EPS (as per IBES) multiple was 12.9x compared
with a median Market Price to estimated calendar 1994 EPS (as per IBES)
multiple of 12.6x for the Summit Comparative Companies; and (vii) Summit's
Market Value to latest reported book value multiple was 2.45x compared with a
median Market Value to latest reported book value multiple of 1.85x for the
Summit Comparative Companies.
Using such information, Kidder, Peabody derived a range of implied enterprise
values for Summit of $219.8 million to $610.0 million by applying the
aforementioned market multiples of the Summit Comparative Companies to the
appropriate financial statistics of Summit. The range of implied enterprise
values of Summit was then adjusted for non-operating assets and liabilities,
where relevant, including: (i) total debt of $120.6 million as of September 30,
1993; (ii) cash and cash equivalents of $38.0 million as of September 30, 1993;
(iii) the Market Value of the minority interest in Summit Care Corporation
("Summit Care") of $42.3 million based on Summit Care's Market Price; and (iv)
proceeds from the assumed exercise of the options exercisable as of October 29,
1993, at an average exercise price of $3.85 per share, of $13.0 million to
yield implied equity values for Summit of $232.8 million to $498.0 million. A
hypothetical change of control premium of 55.9%, derived from the precedent
described in Comparative Transaction Analysis below, was applied to such
figures to yield implied equity values of $363.0 to $776.4. The range of
implied equity values of Summit was then divided by 35,429,150 fully diluted
shares of Summit Common Stock outstanding as of October 29, 1993 (representing
32,049,100 shares of Summit Common Stock outstanding and 3,380,050 shares of
Summit Common Stock issuable upon exercise of options) to yield implied values
of $10.24 to $21.91 per fully diluted share.
Discounted Cash Flow Analysis. Kidder, Peabody performed a discounted cash
flow analysis of Summit based on the fiscal 1994 to 1998 financial forecast for
Summit provided by Summit management (the "Summit Financial Forecast"). Using
the information set forth in the Summit Financial Forecast, Kidder, Peabody
calculated the estimated "free cash flow" based on projected unleveraged net
income (EBIAT) adjusted for: (i) certain projected non-cash items (i.e.,
depreciation and amortization); (ii) projected capital expenditures; and (iii)
projected non-cash working capital investment.
Kidder, Peabody analyzed the Summit Financial Forecast and discounted the
stream of free cash flows provided in such projections back to December 31,
1993 using discount rates of 10.0% to 14.0%. To estimate the residual value of
Summit at the end of the Summit Financial Forecast period, Kidder, Peabody
applied terminal multiples of 5.0x to 7.0x to the projected fiscal 1998 EBITDA
and discounted such value estimates back to December 31, 1993 using discount
rates of 10.0% to 14.0%. Kidder, Peabody then summed the present values of the
free cash flows and the present values of the residual values to derive a range
of implied enterprise values for Summit of $423.4 million to $619.6 million.
The range of implied enterprise values of Summit was then adjusted for non-
operating assets and liabilities including: (i) total debt of $120.6 million as
of September 30, 1993; (ii) cash and cash equivalents of $38.0 million as of
September 30, 1993; (iii) the Market Value of the minority interest in Summit
Care of $42.3 million based on Summit Care's Market Price; and (iv) proceeds
from the assumed exercise of the options exercisable as of October 29, 1993, at
an average exercise price of $3.85 per share, of $13.0 million to yield implied
equity values for Summit of $311.5 million
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to $507.7 million. The range of implied equity values for Summit was then
divided by 35,429,150 fully diluted shares of Summit Common Stock outstanding
as of October 29, 1993 (representing 32,049,100 shares of Summit common Stock
outstanding and 3,380,050 shares of Summit Common Stock issuable upon exercise
of options) to yield implied values of $8.79 to $14.33 per fully diluted share.
Comparative Transaction Analysis. Kidder, Peabody compared certain financial
and operating statistics of Summit with such financial and operating statistics
of selected relevant hospital management companies, the Acquired Comparative
Companies, immediately prior to being acquired. See "--Opinion of Kidder,
Peabody & Co. Incorporated Concerning the AHM Merger--Analyses Related to AHM--
Comparative Transaction Analysis."
In order to measure Summit's current operating performance and profitability
with that of the Acquired Comparative Companies immediately prior to being
acquired, Kidder, Peabody considered, among other things, that: (i) Summit's
latest four quarters EBITDA margin was 12.0% compared with a median latest four
quarters EBITDA margin for the Acquired Comparative Companies immediately prior
to being acquired of 17.5%; (ii) Summit's latest four quarters EBIT margin was
8.0% compared with a median latest four quarters EBIT margin for the Acquired
Comparative Companies immediately prior to being acquired of 11.2%; (iii)
Summit's latest four quarters net income margin was 3.8% compared with a median
latest four quarters net income margin for the Acquired Comparative Companies
immediately prior to being acquired of 5.0%; (iv) Summit's latest four quarters
ROA was 7.1% compared with a median latest four quarters ROA for the Acquired
Comparative Companies immediately prior to being acquired of 7.9%; and (v)
Summit's latest four quarters ROE was 17.7% compared with a median latest four
quarters ROE for the Acquired Comparative Companies immediately prior to being
acquired of 18.8%.
Kidder, Peabody also performed an analysis of the multiples paid in the
selected acquisition transactions involving the Acquired Comparative Companies
in which it analyzed the Adjusted Purchase Price for each of the Acquired
Comparative Companies and divided such amount by each of such company's
respective latest four quarters net revenues, EBITDA and EBIT immediately prior
to being acquired to give a range of purchase price multiples. Kidder, Peabody
also analyzed the Equity Cost for each of the Acquired Comparative Companies
acquired in the selected transactions and divided such amount by each of such
company's respective latest four quarters net income and book value immediately
prior to being acquired to give a range of purchase price multiples.
Additionally, Kidder, Peabody analyzed the Premium over Stock Price for each of
the Acquired Comparative Companies acquired in the selected transactions. The
range of purchase price multiples and Premium over Stock Price paid in the
selected acquisition transactions involving the Acquired Comparative Companies
included: (i) Adjusted Purchase Price to latest four quarters (pre-acquisition)
net revenues multiples of 0.98x to 1.52x; (ii) Adjusted Purchase Price to
latest four quarters (pre-acquisition) EBITDA multiples of 4.6x to 7.6x; (iii)
Adjusted Purchase Price to latest four quarters (pre-acquisition) EBIT
multiples of 5.3x to 10.2x; (iv) Equity Cost to latest four quarters (pre-
acquisition) net income multiples of 7.1x to 22.2x; (v) Equity Cost to latest
reported (pre-acquisition) book value multiples of 0.97x to 9.01x; and (vi)
Premium over Stock Price of 26.6% to 61.6%.
Using such information, Kidder, Peabody derived a range of implied enterprise
values for Summit of $296.1 million to $583.0 million by applying the
aforementioned purchase price multiples and Premium over Stock Price paid in
the selected acquisition transactions involving the Acquired Comparative
Companies to the appropriate financial statistics of Summit. The range of
implied enterprise values of Summit was then adjusted for non-operating assets
and liabilities, where relevant, including: (i) total debt of $120.6 million as
of September 30, 1993; (ii) cash and cash equivalents of $38.0 million as of
September 30, 1993; (iii) the Market Value of the minority interest in Summit
Care of $42.3 million based on Summit Care's Market Price; and (iv) proceeds
from the assumed exercise of the options exercisable as of October 29, 1993, at
an average exercise price of $3.85 per share, of $13.0 million to yield implied
equity values for Summit of $280.7 million to $471.1 million. The range of
implied equity values of Summit was then divided by 35,429,150 fully diluted
shares of Summit Common Stock outstanding as of October 29, 1993 (representing
32,049,100 shares of
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Summit Common Stock outstanding and 3,380,050 shares of Summit Common Stock
issuable upon exercise of options) to yield implied values of $7.92 to $13.30
per fully diluted share.
Using such information, Kidder, Peabody also compared the implied purchase
price multiples and Premium over Stock Price of the Summit Exchange Ratio to
the median purchase price multiples and Premium over Stock Price paid in the
aforementioned acquisition transactions. Such analysis illustrated that: (i)
the implied Adjusted Purchase Price to latest four quarters net revenues
multiple of the Summit Exchange Ratio was 0.70x compared with a median latest
four quarters net revenues multiple of 1.13x in the selected transactions; (ii)
the implied Adjusted Purchase Price to latest four quarters EBITDA multiple of
the Summit Exchange Ratio was 5.9x compared with a median latest four quarters
EBITDA multiple of 6.4x in the selected transactions; (iii) the implied
Adjusted Purchase Price to latest four quarters EBIT multiple of the Summit
Exchange Ratio was 8.7x compared with a median latest four quarters EBIT
multiple of 9.5x in the selected transactions; (iv) the implied Equity Cost to
latest four quarters net income multiple of the Summit Exchange Ratio was 14.2x
compared with a median latest four quarters net income multiple of 15.1x in the
selected transactions; (v) the implied Equity Cost to latest reported book
value multiple of the Summit Exchange Ratio was 2.35x compared with a median
latest reported book value multiple of 3.29x in the selected transactions; and
(vi) the Premium over Stock Price of the Summit Exchange Ratio was 20.0%
compared with a median Premium over Stock Price of 55.9% in the selected
transactions.
Other Factors. In rendering its opinion, Kidder, Peabody considered certain
other factors of which the material factors included: (i) a review of Summit's
business and operations and the industry in which Summit operates to increase
its understanding of Summit's business and its position within the industry in
which it operates; (ii) a review of Summit's historical operating results and
the Summit Financial Forecast to increase its understanding of the financial
performance and prospects of Summit's business; (iii) a review of the current
book value of Summit; and (iv) a review of the stock price performance of
Summit, the Summit Comparative Companies and selected market indices over a
one-year and a five-year period to provide perspective on current and
historical public market valuations and stock price performance of Summit
relative to selected market indices.
Analyses Relating to OrNda
Comparative Company Analysis. Kidder, Peabody compared the historical,
current and relevant projected financial and operating results of OrNda with
that of such financial and operating results of selected publicly traded
hospital management companies it deemed relevant, the OrNda Comparative
Companies which, for the purposes of the following analyses, includes Summit in
addition to the OrNda Comparative Companies as previously defined. See "--
Opinion of Kidder, Peabody & Co. Incorporated Concerning the AHM Merger--
Analyses Related to OrNda--Comparative Company Analysis." In addition, Kidder,
Peabody compared the historical, current and relevant projected financial and
operating results of OrNda with that of such financial and operating results of
the Large Capitalization Hospital Management Companies. However, Kidder,
Peabody accorded less weight to the analysis relating to the Large
Capitalization Hospital Management Companies primarily due to the size
differential between OrNda and the Large Capitalization Hospital Management
Companies.
In order to measure OrNda's current operating performance with that of the
OrNda Comparative Companies, Kidder, Peabody considered, among other things,
that: (i) OrNda's 1990 to latest four quarters compounded annual growth rate in
net revenues was 7.5% compared with a median latest four quarters to past three
fiscal years compounded annual growth rate in net revenues for the OrNda
Comparative Companies of 10.1%; (ii) OrNda's 1990 to latest four quarters
compounded annual growth rate in EBITDA was 22.6% compared with a median latest
four quarters to past three fiscal years compounded annual growth rate in
EBITDA for the OrNda Comparative Companies of 22.2%; (iii) OrNda's 1990 to
latest four quarters compounded annual growth rate in EBIT was 33.1% compared
with a median latest four quarters to past three fiscal years compounded annual
growth rate in EBIT for the OrNda Comparative Companies of 22.9%; (iv) OrNda's
1990 to latest four quarters compounded annual growth rate in net income was
not meaningful
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due to a net loss in 1990 compared with a median latest four quarters to past
three fiscal years compounded annual growth rate in net income for the OrNda
Comparative Companies of 57.1%; (v) OrNda's projected one-year growth rate in
net income (as per IBES) was 53.0% compared with a median projected one-year
growth rate in net income (as per IBES) for the OrNda Comparative Companies of
20.4%; and (vi) OrNda's projected five-year compounded annual growth rate in
net income (as per IBES) was 20.0% compared with a median projected five-year
compounded annual growth rate in net income (as per IBES) for the OrNda
Comparative Companies of 17.5%.
In order to measure OrNda's profitability with that of the OrNda Comparative
Companies, Kidder, Peabody considered, among other things, that: (i) OrNda's
1990 to latest four quarters average EBITDA margin was 11.1% compared with a
median latest four quarters to past three fiscal years average EBITDA margin
for the OrNda Comparative Companies of 13.1%; (ii) OrNda's 1990 to latest four
quarters average EBIT margin was 6.8% compared with a median latest four
quarters to past three fiscal years average EBIT margin for the OrNda
Comparative Companies of 7.4%; (iii) OrNda's 1990 to latest four quarters
average net income margin was (4.9%) compared with a median latest four
quarters to past three fiscal years average net income margin for the OrNda
Comparative Companies of 2.8%; (iv) OrNda's 1990 to latest four quarters
average ROA was 3.6% compared with a median latest four quarters to past three
fiscal years average ROA for the OrNda Comparative Companies of 5.8%; and (v)
OrNda's 1990 to latest four quarters average ROE was 14.0% compared with a
median latest four quarters to past three fiscal years average ROE for the
OrNda Comparative Companies of 14.1%.
In order to assess the relative public market valuations of OrNda and the
OrNda Comparative Companies, Kidder, Peabody performed a market analysis of
OrNda and the OrNda Comparative Companies. With respect to such analysis,
Kidder, Peabody calculated a range of market multiples for each of the OrNda
Comparative Companies based on dividing: (i) the Market Capitalization of each
of the OrNda Comparative Companies by such company's latest four quarters net
revenues, EBITDA and EBIT; (ii) the Market Price of each of the OrNda
Comparative Companies by such company's latest four quarters EPS and estimated
calendar 1993 and calendar 1994 EPS (as per IBES); and (iii) the Market Value
of each of the OrNda Comparative Companies by such company's latest reported
book value. The range of market multiples for the OrNda Comparative Companies
included: (i) Market Capitalization to latest four quarters net revenues
multiples of 0.49x to 2.21x; (ii) Market Capitalization to latest four quarters
EBITDA multiples of 4.6x to 10.6x; (iii) Market Capitalization to latest four
quarters EBIT multiples of 9.0x to 13.0x; (iv) Market Price to latest four
quarters EPS multiples of 14.2x to 36.9x; (v) Market Price to estimated
calendar 1993 EPS (as per IBES) multiples of 12.0x to 21.5x; (vi) Market Price
to estimated calendar 1994 EPS (as per IBES) multiples of 10.8x to 17.5x; and
(vii) Market Value to latest reported book value multiples of 1.20x to 4.02x.
Based on the above measures, Kidder, Peabody then compared OrNda's market
multiples, based on its Market Price and financial data pro forma for the AHM
Merger, where appropriate, with the OrNda Comparative Companies' median market
multiples in order to establish the relationship between OrNda's market
multiples and those of the OrNda Comparative Companies. With respect to such
review, Kidder, Peabody noted that: (i) OrNda's Market Capitalization to latest
four quarters net revenues multiple was 1.18x compared with a median Market
Capitalization to latest four quarters net revenues multiple of 0.99x for the
OrNda Comparative Companies; (ii) OrNda's Market Capitalization to latest four
quarters EBITDA multiple was 8.0x compared with a median Market Capitalization
to latest four quarters EBITDA multiple of 7.1x for the OrNda Comparative
Companies; (iii) OrNda's Market Capitalization to latest four quarters EBIT
multiple was 12.1x compared with a median Market Capitalization to latest four
quarters EBIT multiple of 10.5x for the OrNda Comparative Companies; (iv)
OrNda's Market Price to latest four quarters EPS multiple was 20.1x compared
with a median Market Price to latest four quarters EPS multiple of 17.0x for
the OrNda Comparative Companies; (v) OrNda's Market Price to estimated calendar
1993 EPS (as per IBES) multiple was 19.2x compared with a median Market Price
to estimated calendar 1993 EPS (as per IBES) multiple of 14.9x for the OrNda
Comparative Companies; (vi) OrNda's Market Price to estimated calendar 1994 EPS
(as per IBES) multiple was 12.6x compared with a median Market Price to
estimated calendar 1994 EPS (as per IBES) multiple of 12.9x for the OrNda
Comparative Companies; and (vii) OrNda's Market Value to latest
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reported book value multiple was 1.85x compared with a median Market Value to
latest reported book value multiple of 2.45x for the OrNda Comparative
Companies.
Pro Forma Merger Analysis of Summit Merger. Kidder, Peabody's analysis of the
potential pro forma financial effects of the Summit Merger on OrNda was based
principally upon the OrNda Financial Forecast and the Summit Financial
Forecast. Kidder, Peabody's pro forma financial analysis included Summit
Merger-related fees and expenses assumed to be $10.0 million (excluding
financing fees) and also assumed, among other things, that the Summit Merger:
(i) will provide 0.2157 of a share of OrNda Common Stock and $5.50 in cash for
each share of Summit Common Stock; (ii) will be accounted for under the
purchase method of accounting; and (iii) will result in the realization of
certain strategic and operating benefits. Among other things, Kidder, Peabody's
pro forma analysis is dependent upon the ability of both Summit and OrNda to
realize the projected operating performance assumptions of the OrNda Financial
Forecast and the Summit Financial Forecast.
Using the data and other information referred to above, Kidder, Peabody's pro
forma financial analysis suggested that the Summit Merger should result in
accretion to OrNda's Tax-Normalized EPS in each of fiscal years 1994 to 1998
with such accretion declining in each year over the same period. Kidder,
Peabody's pro forma financial analysis also suggested that: (i) OrNda's total
debt as a percent of total capitalization should decrease as a result of the
Merger; and (ii) OrNda's EBITDA Coverage should increase as a result of the
Merger.
Pro Forma Merger Analysis of Mergers. Kidder, Peabody's analysis of the
potential pro forma financial effects of the Summit Merger on OrNda assuming
consummation of the AHM Merger was based principally upon the OrNda Financial
Forecast, the AHM Financial Forecast and the Summit Financial Forecast. Kidder,
Peabody's pro forma financial analysis included Summit Merger-related fees and
expenses, in aggregate, assumed to be $10.0 million and also assumed, among
other things, that the Summit Merger: (i) will provide 0.2157 of a share of
OrNda Common Stock and $5.50 in cash in exchange for each share of Summit
Common Stock; (ii) will be accounted for under the purchase method of
accounting; and (iii) will result in the realization of certain strategic and
operating benefits. Among other things, Kidder, Peabody's pro forma analysis is
dependent upon the ability of AHM, Summit and OrNda to realize the projected
operating performance assumptions of the OrNda Financial Forecast, the AHM
Financial Forecast and the Summit Financial Forecast.
Using the data and other information referred to above, Kidder, Peabody's pro
forma financial analysis suggested that the Summit Merger should result in
accretion to OrNda's (pro forma for the AHM Merger) Tax-Normalized EPS in each
of fiscal years 1994 to 1998 with such accretion declining in each year over
the same period. Kidder, Peabody's pro forma financial analysis also suggested
that (i) OrNda's (pro forma for the AHM Merger) total debt as a percent of
total capitalization should not change by a material amount as a result of the
Summit Merger and (ii) that OrNda's (pro forma for the AHM Merger) EBITDA
Coverage should increase as a result of the Summit Merger.
Other Factors. In rendering its opinion, Kidder, Peabody considered certain
other factors of which the material factors included: (i) a review of OrNda's
business and operations and the industry in which OrNda operates to increase
its understanding of OrNda's business and its position within the industry in
which it operates; (ii) a review of OrNda's historical operating results and
the OrNda Financial Forecast to increase its understanding of the financial
performance and prospects of OrNda's business; (iii) a review of the current
book value of OrNda; and (iv) a review of the stock price performance of OrNda
and the OrNda Comparative Companies and selected market indices over a one-year
period to provide perspective on current and historical public market
valuations and stock price performance of OrNda and the OrNda Comparative
Companies relative to selected market indices.
In connection with its written opinion dated March 14, 1994, Kidder, Peabody
confirmed the appropriateness of its reliance on the analyses used to render
its oral opinion by performing procedures to
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update certain of such analyses and by reviewing the assumptions on which such
analyses were based and the factors considered herewith.
Kidder, Peabody is a nationally recognized investment banking firm and as
part of its investment banking business, Kidder, Peabody is regularly engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements and valuations for estate,
corporate and other purposes. OrNda selected Kidder, Peabody as its financial
advisor in connection with the Summit Merger because of Kidder, Peabody's
experience in transactions similar to the Summit Merger as well as Kidder,
Peabody's prior relationship and familiarity with OrNda. Since 1990, Kidder,
Peabody has provided investment banking services, from time to time, to OrNda,
including acting as underwriter in connection with one financing and acting as
financial advisor in other matters unrelated to the Mergers. Kidder, Peabody
received customary compensation for such services. Kidder, Peabody may provide
investment banking and financial advisory service to OrNda in the future.
As compensation for its services as financial advisor to OrNda, OrNda has
agreed to pay Kidder, Peabody a fee of $400,000 payable upon delivery of its
oral opinion with respect to the Summit Merger and a fee of 0.40% of the
aggregate consideration (the aggregate value, whether in cash, securities, the
assumption of (or purchase subject to) debt or liabilities paid or payable or
otherwise assumed by OrNda in connection with the Summit Merger), less the
$400,000 fee paid to Kidder, Peabody. OrNda has also agreed to reimburse
Kidder, Peabody for its out-of-pocket expenses, including the fees and expenses
of its legal counsel, and to indemnify Kidder, Peabody and its affiliates
against certain liabilities, including liabilities under the Federal securities
laws, relating to, arising out of or in connection with its engagement. In the
ordinary course of its business, Kidder, Peabody actively trades the debt and
equity securities of OrNda and its affiliates for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities. As of March 4, 1994, Kidder, Peabody held,
for its own account, 69 shares of OrNda Common Stock and approximately $0.8
million principal amount of OrNda Senior Subordinated Notes.
RECOMMENDATION OF SUMMIT BOARD OF DIRECTORS; REASONS FOR THE SUMMIT MERGER
The Summit Board of Directors believes that the terms of the Summit Merger
Agreement and the transactions contemplated thereby are fair to and in the best
interests of Summit and its stockholders. Accordingly, Summit's Board has
unanimously approved the Summit Merger Agreement and recommends approval
thereof by the stockholders of Summit. In reaching its determination, the
Summit Board of Directors consulted with Summit management, as well as its
legal counsel and its financial advisors, and considered a number of factors,
including, without limitation, the following:
(i) Summit's strategic alternatives, including remaining a separate
company;
(ii) information concerning the financial performance, condition and
business operations of OrNda and Summit;
(iii) the opportunities for economies of scale and operating efficiencies
that should result from the Summit Merger, particularly in terms of the
integration of office facilities, data centers, support functions and the
combined purchasing power of the two corporations;
(iv) the combined entity will be better positioned to develop a new
comprehensive integrated healthcare delivery network with physicians and
other healthcare providers in certain of Summit's markets and to deal with
uncertainties which may face the industry due to healthcare reform,
including increased competition and continued consolidation of competition
in the industry;
(v) the management strengths of OrNda and Summit;
(vi) the merger consideration provided for in the Summit Merger Agreement
and recent trading prices for Summit Common Stock and OrNda Common Stock;
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(vii) the Summit Merger would provide the holders of Summit Common Stock
with an opportunity to receive a premium over the market price for their
shares (the Summit Merger Consideration represents a premium of
approximately 17% over the average closing sales price of $7.05 per share
of Summit Common Stock between October 20, 1993 and December 1, 1993, the
last trading day prior to the announcement of the Summit Merger, based upon
$5.50 in cash plus 0.2157 times the average closing sales price per share
of OrNda Common Stock ($14.14) during such period); and
(viii) the oral opinion of Smith Barney Shearson on December 2, 1993 to
the effect that, as of such date and based upon and subject to certain
considerations and assumptions, the Summit Exchange Ratio was fair, from a
financial point of view, to the holders of Summit Common Stock.
The Board of Directors of Summit believes that the Summit Merger offers the
opportunity to create a combined company with greater financial resources,
competitive strengths and business opportunities than would be possible for
Summit alone.
In view of the wide variety of factors considered in connection with its
evaluation of the proposed Summit Merger, the Summit Board of Directors did not
quantify or otherwise attempt to assign relative weights to the specific
factors considered in reaching its determination.
After review of OrNda's restated financial statements, the Summit Board of
Directors resolved to proceed with the Summit Merger as originally contemplated
under the Summit Merger Agreement. In making such determination, the Summit
Board of Directors considered at a meeting of the Summit Board of Directors on
March 8, 1994, the recommendation of Summit management that the Summit Merger
be consummated and the oral opinion of Smith Barney Shearson to the effect
that, as of such date, the Summit Exchange Ratio remained fair from a financial
point of view to the holders of Summit Common Stock. The Summit Board of
Directors also consulted Summit's other advisors and was advised that the
accounting changes reflected in the Restatement would have no material effect
on the future cash flows or the future financial performance of the combined
company. The Summit Board of Directors concluded, based in part on the
foregoing and without giving any quantifiable weight to any one factor, that
the substantial benefits to be derived from the Summit Merger remain unchanged
and that the Summit Merger continues to be in the best interest of Summit and
its stockholders.
THE BOARD OF DIRECTORS OF SUMMIT HAS UNANIMOUSLY APPROVED THE SUMMIT MERGER
AND UNANIMOUSLY RECOMMENDS THAT SUMMIT STOCKHOLDERS VOTE TO APPROVE AND
ADOPT THE SUMMIT MERGER AGREEMENT.
OPINION OF SMITH BARNEY SHEARSON
Smith Barney Shearson was retained by Summit to act as its financial advisor
in connection with the Summit Merger. In connection with such engagement,
Summit requested that Smith Barney Shearson evaluate the fairness, from a
financial point of view, to the stockholders of Summit of the consideration to
be received by such stockholders in the Summit Merger. On December 2, 1993,
Smith Barney Shearson rendered to the Board of Directors of Summit an oral
opinion (subsequently confirmed by a written opinion dated such date) to the
effect that, as of such date and based upon and subject to certain
considerations and assumptions, the Summit Exchange Ratio was fair, from a
financial point of view, to the holders of Summit Common Stock. Smith Barney
Shearson subsequently confirmed such opinion by delivery of a written opinion
dated the date hereof.
In arriving at its opinion, Smith Barney Shearson reviewed the Summit Merger
Agreement and held discussions with certain senior officers, directors and
other representatives and advisors of Summit and certain senior officers and
other representatives and advisors of OrNda concerning the business, operations
and prospects of Summit and OrNda. Smith Barney Shearson examined certain
publicly available business and financial information relating to Summit and
OrNda as well as certain financial forecasts and other data for
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Summit and OrNda which were provided to Smith Barney Shearson by the respective
managements of Summit and OrNda, including information relating to certain
strategic implications and operational benefits anticipated from the Summit
Merger. Smith Barney Shearson reviewed the financial terms of the Summit Merger
as set forth in the Summit Merger Agreement in relation to, among other things:
current and historical market prices and trading volumes of the Summit Common
Stock and OrNda Common Stock; the historical and projected earnings of Summit
and OrNda; and the capitalization and financial condition of Summit and OrNda.
Smith Barney Shearson considered, to the extent publicly available, the
financial terms of certain other similar transactions recently effected which
Smith Barney Shearson considered comparable to the Summit Merger and analyzed
certain financial, stock market and other publicly available information
relating to the businesses of other companies whose operations Smith Barney
Shearson considered comparable to those of Summit and OrNda. Smith Barney
Shearson also evaluated the pro forma financial impact of the Summit Merger on
OrNda. Smith Barney Shearson also considered, without independent verification,
certain publicly available business and financial information relating to AHM
as well as certain financial forecasts and other data relating to AHM provided
to Smith Barney Shearson by AHM and OrNda in connection with its review of the
Summit Merger. In addition to the foregoing, Smith Barney Shearson conducted
such other analyses and examinations and considered such other financial,
economic and market criteria as Smith Barney Shearson deemed necessary to
arrive at its opinion. Smith Barney Shearson noted that its opinion was
necessarily based upon financial, stock market and other conditions and
circumstances existing and disclosed to Smith Barney Shearson as of the date of
its opinion. Although Smith Barney Shearson, in its evaluation of OrNda and the
Summit Merger, reviewed certain financial and other information relating to
AHM, Smith Barney Shearson's opinion was not conditioned upon the consummation
of the AHM Merger.
In rendering its opinion, Smith Barney Shearson assumed and relied, without
independent verification, upon the accuracy and completeness of the financial
and other information publicly available or furnished to or otherwise discussed
with Smith Barney Shearson. With respect to financial forecasts and other
information provided to or otherwise discussed with Smith Barney Shearson,
Smith Barney Shearson assumed that such forecasts and other information were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the respective managements of Summit, OrNda and AHM as to the
expected future financial performance of Summit, OrNda and AHM. Smith Barney
Shearson did not express any opinion as to what the value of the OrNda Common
Stock actually will be when issued to Summit stockholders pursuant to the
Summit Merger or the price at which the OrNda Common Stock will trade
subsequent to the Summit Merger. In addition, Smith Barney Shearson did not
make or obtain an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Summit, OrNda or AHM nor did Smith
Barney Shearson make any physical inspection of the properties or assets of
Summit, OrNda or AHM. Although Smith Barney Shearson evaluated the financial
terms of the Summit Merger, Smith Barney Shearson was not asked to and did not
recommend the specific consideration to be paid by OrNda in the Summit Merger.
No other limitations were imposed by Summit on Smith Barney Shearson with
respect to the investigations made or procedures followed by Smith Barney
Shearson in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY SHEARSON DATED THE DATE
HEREOF, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX F TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. SUMMIT
STOCKHOLDERS ARE URGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. SMITH
BARNEY SHEARSON'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE SUMMIT
EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW AND HAS BEEN PROVIDED SOLELY FOR
THE USE OF THE SUMMIT BOARD OF DIRECTORS IN ITS EVALUATION OF THE SUMMIT
MERGER, DOES NOT ADDRESS ANY OTHER ASPECT OF THE SUMMIT MERGER OR ANY RELATED
TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SUMMIT STOCKHOLDER
AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE SUMMIT MEETING. THE SUMMARY OF
THE OPINION OF SMITH BARNEY SHEARSON SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In preparing its opinion to the Board of Directors of Summit, Smith Barney
Shearson performed a variety of financial and comparative analyses, including
those described below. The summary of such analyses
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does not purport to be a complete description of the analyses underlying Smith
Barney Shearson's opinion. The preparation of a fairness opinion is a complex
analytic process involving various determinations as to the most appropriate
and relevant methods of financial analyses and the application of those methods
to the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. In arriving at its opinion, Smith Barney
Shearson did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, Smith Barney Shearson
believes that its analyses must be considered as a whole and that selecting
portions of its of its analyses and factors, without considering all analyses
and factors, could create a misleading or incomplete view of the processes
underlying such analyses and its opinion. In its analyses, Smith Barney
Shearson made numerous assumptions with respect to Summit, OrNda and AHM,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Summit,
OrNda and AHM. The estimates contained in such analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than those suggested by such
analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty.
Comparable Company Analysis. Using publicly available information, Smith
Barney Shearson analyzed, among other things, the market values and trading
multiples of Summit, AHM, OrNda and selected hospital companies, including:
American Medical Holdings, Inc.; Columbia Healthcare Corp.; Community Health
Systems, Inc.; Hallmark Healthcare Corporation; Health Management Associates,
Inc.; Healthtrust, Inc.--The Hospital Company; National Medical Enterprises,
Inc.; and Universal Health Services, Inc. (collectively, the "Comparable
Companies"). Smith Barney Shearson compared market values as multiples of,
among other things, historical net income and projected calendar 1994 net
income. The multiples of latest 12 months net income and projected calendar
1994 net income of the Comparable Companies were between the following ranges:
(i) latest 12 months net income: 6.6x to 44.2x (with a mean of 20.8x and a
median of 19.9x); and (ii) projected calendar 1994 net income: 7.8x to 23.4x
(with a mean and median of 15.8x). The Summit Exchange Ratio, based on a
closing sale price for OrNda Common Stock on March 7, 1994 of $18.75, equated
to multiples of Summit net income for the latest 12 months and projected
calendar 1994 net income of 17.3x and 13.6x, respectively.
Smith Barney Shearson compared adjusted market values (equity market value,
plus the book value of debt and preferred stock, less cash and cash
equivalents) to, among other things, historical net revenues and earnings
before interest, taxes, depreciation and amortization ("EBITDA"). The multiples
of latest 12 months net revenues and EBITDA of the Comparable Companies were
between the following ranges: (i) latest 12 months net revenues: 0.6x to 2.8x
(with a mean and median of 1.3x); and (ii) latest 12 months EBITDA: 5.0x to
12.8x (with a mean of 7.7x and a median of 7.4x). The Summit Exchange Ratio,
based on a closing sale price for OrNda Common Stock of $18.75, equated to
multiples of Summit net revenues and EBITDA for the latest 12 months of 0.8x
and 6.3x, respectively.
Smith Barney Shearson also compared the profit margins, debt to
capitalization ratios, historic revenue growth and projected earnings per share
("EPS") growth of the Comparable Companies with those of Summit and OrNda. All
projected EPS figures for the Comparable Companies were based on the consensus
net income estimates of selected investment banking firms and all EPS estimates
for Summit, AHM and OrNda were based on internal estimates of the respective
companies. All multiples were based on closing stock prices as of March 7,
1994.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Smith Barney Shearson analyzed the purchase prices and
implied transaction multiples in the following selected mergers and acquisition
transactions in the hospital industry: Healthtrust, Inc. -- The Hospital
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Company/Epic Holdings, Inc.; OrNda/AHM; Columbia Healthcare Corp./HCA Hospital
Corporation of America; Columbia Healthcare Corp./Galen Health Care, Inc.;
Columbia Healthcare Corp./Basic American Medical, Inc.; SAFECARE Health
Services/OrNda; and Health Management Associates, Inc./HMA Acquisition Corp.
(the "Selected Acquisitions"). Smith Barney Shearson compared purchase prices
as multiples of net income and projected net income of the Selected
Acquisitions and transaction values as multiples of revenues, EBITDA and
earnings before interest and taxes ("EBIT") of the Selected Acquisitions and
compared these multiples to the multiples of Summit's performance implied by
the Summit Merger Consideration as set forth above under "Comparable Company
Analysis." The multiples of net income and projected net income of the Selected
Acquisitions were between the following ranges: (i) net income: 15.4x to 20.5x
(with a mean of 18.2x and a median of 18.8x); and (ii) projected net income:
12.1x to 17.4x (with a mean of 15.1x and a median of 15.3x). The multiples of
revenues, EBITDA and EBIT of the Selected Acquisitions were between the
following ranges: (i) revenues: 0.88x to 1.52x (with a mean of 1.14x and a
median of 1.06x); (ii) EBITDA: 5.6x to 8.7x (with a mean of 6.7x and a median
of 6.3x); and (iii) EBIT: 9.0x to 14.8x (with a mean of 10.4x and a median of
9.5x). All projected net income multiples were based on the consensus net
income estimates of selected investment banking firms.
No company, transaction or business used in the comparable company and
selected merger and acquisition transactions analyses as a comparison is
identical to Summit, OrNda or the Summit Merger. Accordingly, an analysis of
the results of the foregoing is not entirely mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the acquisition
or public trading value of the comparable companies or the business segment or
company to which they are being compared.
Discounted Cash Flow Analysis. Smith Barney Shearson performed a discounted
cash flow analysis of the projected free cash flow of Summit for the fiscal
year ended June 30, 1994 through fiscal year 1998, assuming, among other
things, discount rates of 13.0%, 15.0% and 17.0% and terminal multiples of net
income of 10.0x to 16.0x. Smith Barney Shearson performed this analysis based
on two different sets of operating projections prepared by Summit management, a
"Plan Case" reflecting management's current operating plan and a "Conservative
Case" reflecting more conservative assumptions for Summit's projected
performance and general market conditions. These analyses resulted in the
following ranges of values per share of the Summit Common Stock: (i) Plan Case:
$7.04 to $11.90; and (ii) Conservative Case: $5.74 to $9.63.
Pro Forma Merger Analysis. Smith Barney Shearson analyzed certain pro forma
effects resulting from the Summit Merger (considering OrNda both having
completed and not having completed the proposed AHM Merger), including the
impact of the Summit Merger on OrNda's projected EPS for fiscal years ended
August 31, 1994 and 1995. Based upon the estimates of the respective
managements of OrNda, Summit and AHM, the results of the pro forma merger
analysis suggest that the Summit Merger will be accretive to OrNda's EPS in
fiscal years 1994 and 1995. The actual results achieved by the combined company
may vary from projected results and the variations may be material.
Other Factors and Comparative Analyses. In rendering its opinion, Smith
Barney Shearson considered certain other factors and conducted certain other
comparative analyses, including, among other things, a review of (i) Summit,
OrNda and AHM historical and projected financial results; (ii) the history of
trading prices for Summit Common Stock, OrNda Common Stock and AHM Common Stock
and the relationship between movements of such common stock, movements of the
common stock of comparable companies and movements in the S&P 400 Industrial
Index; (iii) the implied value of the consideration to be paid by OrNda in the
Summit Merger and the relationship between the Summit Exchange Ratio and
historical trading prices of Summit Common Stock; and (iv) the pro forma
ownership of the combined company.
Pursuant to the terms of Smith Barney Shearson's engagement, Summit has
agreed to pay Smith Barney Shearson for its services in connection with the
Summit Merger an aggregate financial advisory fee equal to 0.4% of the total
consideration to be paid in the Summit Merger for the Summit Common Stock, plus
the
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liabilities of Summit to be assumed in the Summit Merger. Summit also has
agreed to reimburse Smith Barney Shearson for travel and other out-of-pocket
expenses incurred by Smith Barney Shearson in performing its services,
including the reasonable fees and expenses of its legal counsel, and to
indemnify Smith Barney Shearson and related persons against certain
liabilities, including liabilities under the federal securities laws, arising
out of Smith Barney Shearson's engagement.
Smith Barney Shearson has advised Summit that, in the ordinary course of
business, it may actively trade the equity and debt securities of Summit, OrNda
and AHM for its own account or for the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, Smith Barney Shearson has provided Summit and its affiliates with
financial advisory and investment banking services in the past, including
acting as lead manager for a public offering by Summit in March 1993 of 7 1/2%
Exchangeable Subordinated Notes Due 2003, and has received customary fees from
Summit for such services.
Smith Barney Shearson is a nationally recognized investment banking firm and
was selected by Summit based on Smith Barney Shearson's experience and
expertise. Smith Barney Shearson regularly engages in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive bids, secondary distributions of listed
and unlisted securities, private placements and valuations for estate,
corporate and other purposes.
TERMS OF THE AHM MERGER
Set forth below is a brief description of certain terms of the AHM Merger
Agreement. This description does not purport to be complete and is qualified in
its entirety by reference to the AHM Merger Agreement which is attached as
Annex A and is incorporated herein by reference.
Effective Time of the AHM Merger. Upon the satisfaction or waiver of certain
conditions, AHM will be merged with and into OrNda, and OrNda will continue as
the surviving corporation and the separate existence of AHM will cease.
The AHM Merger will become effective upon the filing by the surviving
corporation with the Delaware Secretary of State of a duly executed certificate
of merger. It is currently anticipated that the filing of the certificate of
merger will be made as soon as practicable after the date on which the later to
occur of AHM's and OrNda's stockholders' meetings shall have occurred. Such
filing will be made, however, only upon satisfaction or, if permissible, waiver
of the conditions contained in the AHM Merger Agreement.
Conversion of AHM Common Stock in the AHM Merger. At the AHM Effective Time
(i) each share of AHM Common Stock issued and outstanding immediately prior to
the Effective Time will be converted into the right to receive 0.6 shares of
OrNda Common Stock; and (ii) each share held in the treasury of AHM immediately
prior to the AHM Effective Time shall be cancelled and retired and cease to
exist.
Exchange of Certificates. Shortly after the AHM Effective Time, an exchange
agent to be appointed by OrNda (the "Exchange Agent") will send transmittal
forms to the former AHM stockholders, to be used in forwarding their
certificates representing shares of AHM Common Stock for surrender and exchange
for (i) certificates representing the number of shares of OrNda Common Stock
into which their shares of AHM Common Stock were converted in the AHM Merger
and (ii) cash for any fractional share interests in OrNda Common Stock to which
such holders otherwise would be entitled. Until such surrender, certificates
representing shares of AHM Common Stock will be deemed to represent the number
of shares of OrNda Common Stock into which such AHM shares were converted in
the AHM Merger, except that holders of AHM certificates will not be entitled to
receive dividends or any other distribution from OrNda until such certificates
are so surrendered. When such certificates are surrendered, the holders of the
OrNda certificates issued in exchange therefor will be paid, without interest,
any dividends or other distributions which may have become payable with respect
to such shares of OrNda Common Stock since the AHM Effective Time.
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Fractional Shares. No certificates or scrip representing a fractional share
interest in OrNda Common Stock will be issued, and no OrNda dividends, stock
split or other change in the capital structure of OrNda will relate to any
fractional share interest. A fractional share interest will not entitle the
owner thereof to vote or to any rights of a stockholder of OrNda. In lieu of
any such fractional share interest, each holder of AHM Common Stock who
otherwise would be entitled to receive a fractional share interest in OrNda
Common Stock in the AHM Merger will be paid cash upon surrender of shares of
AHM Common Stock in an amount equal to the product of such fraction multiplied
by the closing sale price of OrNda Common Stock on the NASDAQ National Market
System on the day of the AHM Effective Time, or if OrNda Common Stock is not so
traded on such day, such closing sale price on the next preceding day on which
such stock was traded on the NASDAQ National Market System.
Conversion of Stock Options and Warrants. At the AHM Effective Time each
outstanding option to purchase shares of AHM Common Stock (an "AHM Stock
Option") granted under AHM's director and employee stock option plans and under
certain executive employment agreements of AHM, whether or not exercisable,
shall be converted into an option to acquire shares of OrNda Common Stock (an
"OrNda Stock Option"). The shares subject to the AHM Stock Option shall be a
number of shares of AHM Common Stock determined by multiplying the number of
shares of AHM Common Stock covered by such AHM Stock Option by 0.6 and rounding
down to the nearest whole number, and the exercise price per share for the
OrNda Stock Option shall be determined by dividing the exercise price per share
of such AHM Stock Option by 0.6 and rounding up to the nearest whole cent. At
the AHM Effective Time, each outstanding warrant to purchase shares of AHM
Common Stock will be converted into a warrant to purchase OrNda Common Stock on
the same basis as will be applied to the AHM Stock Options.
General Provisions. The AHM Merger Agreement contains various customary
general provisions relating to, among other things, the survival of
representations and warranties and agreements, brokers, notices, governing law
and certain definitions.
Representations and Warranties. The AHM Merger Agreement contains various
customary representations and warranties relating to, among other things, (a)
each of AHM's and OrNda's and certain of their respective subsidiaries,
organization and similar corporate matters; (b) each of AHM's and OrNda's
capital structure; (c) authorization, execution, delivery, performance and
enforceability of the AHM Merger Agreement and related matters; (d) conflicts
under certificates of incorporation or by-laws, required consents or approvals
and violations of any instruments or law; (e) documents filed by each of OrNda
and AHM with the Commission and the accuracy of the information contained
therein; (f) the accuracy of information supplied by each of OrNda and AHM in
connection with the Registration Statement and the Proxy Statement/Prospectus;
(g) absence of certain specified material changes or events, brokers or finders
and undisclosed liabilities and compliance with applicable law, litigation and
employee plans; (h) in the case of OrNda, the receipt of an opinion of Kidder,
Peabody that the AHM Exchange Ratio is fair to OrNda from a financial point of
view, and (i) in the case of AHM, the receipt of an opinion of DLJ that the
consideration to be received by the AHM stockholders is fair to such
stockholders from a financial point of view.
Directors of OrNda. Promptly after the AHM Effective Time, OrNda will take
such action as may be necessary to enable three of the present directors of AHM
to be appointed to the OrNda Board of Directors. OrNda shall use its best
efforts to cause the OrNda Board of Directors to consist of eleven members.
Registration Rights. OrNda has agreed in the AHM Merger Agreement to
negotiate in good faith with each of John W. Gildea and John F. Nicholl an
agreement providing for registration rights covering the shares of OrNda Common
Stock owned at the AHM Effective Time by Messrs. Gildea and Nicholl and their
affiliates.
Conditions. The respective obligations of AHM and OrNda to effect the AHM
Merger are subject to the following conditions: (a) the approval and adoption
of the AHM Merger Agreement and the transactions contemplated thereby by the
requisite vote of AHM and OrNda stockholders, (b) the effectiveness of the
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Registration Statement and the absence of a stop order in effect at the AHM
Effective Time, (c) the receipt by OrNda and AHM of the requisite consents from
governmental entities, (d) the absence of a preliminary or permanent injunction
or other order by any Federal or state court in the United States prohibiting
consummation of the AHM Merger, (e) the receipt by OrNda and AHM of financing
in an amount sufficient to refinance the outstanding senior bank and
institutional indebtedness of OrNda and AHM and the AHM Notes, (f) the receipt
by AHM of consents relating to the AHM Notes and (g) the receipt by OrNda and
AHM of a letter from Ernst & Young stating that the AHM Merger will qualify as
a "pooling-of-interests" transaction.
In addition, the obligations of AHM to effect the AHM Merger are subject to
the satisfaction at or prior to the AHM Effective Time of the conditions that:
(a) OrNda shall have performed in all material respects its obligations under
the AHM Merger Agreement required to be performed by OrNda at or prior to the
AHM Effective Time and the representations and warranties of OrNda contained in
the AHM Merger Agreement shall be true and correct in all material respects at
and as of the AHM Effective Time as if made at and as of such time, except as
contemplated by the AHM Merger Agreement and (b) the receipt by AHM of certain
opinions of counsel.
In addition, the obligations of OrNda to effect the AHM Merger are subject to
the satisfaction at or prior to the AHM Effective Time of the conditions that:
(a) AHM shall have performed in all material respects its obligations under the
AHM Merger Agreement required to be performed by it at or prior to the AHM
Effective Time and the representations and warranties of AHM contained in the
AHM Merger Agreement shall be true and correct in all material respects at and
as of the AHM Effective Time as if made at and as of such time, except as
contemplated by the AHM Merger Agreement, (b) the receipt by OrNda of certain
opinions of counsel and (c) the receipt by OrNda of a comfort letter from Ernst
& Young.
Consent Solicitation. The obligations of OrNda and AHM to consummate the AHM
Merger are conditioned upon, among other things, the receipt by AHM of such
consents and waivers from the holders of the AHM Notes as OrNda, AHM and their
senior institutional and bank lenders shall agree are reasonably required.
Pursuant to a Waiver and Consent Agreement by and among OrNda and the holders
of a majority in principal amount of the outstanding AHM Notes, OrNda has
agreed, upon consummation of the AHM Merger, to make certain consent payments
and to increase the interest rate on the AHM Notes in exchange for the
agreement of such holders to the amendment and waiver of certain terms of the
AHM Notes. See "--Consent Solicitation."
Business of AHM and OrNda Pending the AHM Merger. AHM has agreed that, among
other things, prior to consummation of the AHM Merger, unless OrNda shall
otherwise agree in writing or unless otherwise contemplated by the AHM Merger
Agreement, it will conduct its business and the businesses of its subsidiaries
only in the ordinary course and consistent with past practice and it will not:
sell, pledge or agree to sell or pledge any stock owned by it in any of its
subsidiaries; amend the AHM Certificate of Incorporation or By-Laws; or split,
combine or reclassify any shares of its outstanding capital stock or declare,
set aside or pay any dividends or other distributions payable in cash, stock or
property, or redeem or otherwise acquire any shares of its capital stock or
shares of the capital stock of any of its subsidiaries. AHM has further agreed
that neither it nor any of the subsidiaries shall authorize for issuance, issue
or sell or agree to issue or sell any additional shares of, or rights of any
kind to acquire any shares of, its capital stock of any class, except for
unissued shares of AHM Common Stock reserved for issuance upon the exercise of
employee stock options and warrants; acquire, dispose of or encumber any fixed
assets or any other substantial assets other than in the ordinary course of
business and consistent with past practices; incur, assume, or prepay any
indebtedness or any other material liabilities other than in the ordinary
course of business and consistent with past practices; authorize capital
expenditures in excess of the amounts currently contemplated therefor and as
previously disclosed to OrNda or its advisors; or enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing. AHM
has further agreed that neither it nor any of its subsidiaries will enter into
any new employment agreements with any of their respective officers or
employees or grant any increases in the compensation of their respective
officers and employees other than increases in
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the ordinary course of the business and consistent with past practice, or enter
into, adopt or amend any employee benefit plan.
OrNda has agreed that prior to the AHM Effective Time, unless AHM shall
otherwise agree in writing, it will conduct its businesses and the businesses
of its subsidiaries only in the ordinary course and consistent with past
practice and it will not: sell or pledge or agree to sell or pledge any stock
owned by it in any of its subsidiaries; amend its Certificate of Incorporation,
except to increase the number of shares of OrNda Common Stock authorized, or
By-Laws; split, combine or reclassify any shares of its outstanding capital
stock; declare, set aside or pay any dividend or other distribution payable in
cash, stock or property (other than dividends on OrNda's payable in kind
Convertible Preferred Stock (the "OrNda PIK Preferred"); or redeem or otherwise
acquire any shares of its capital stock or shares of the capital stock of any
subsidiary except for the repurchase of limited partnership interests in
Brotman Partners, L.P . OrNda has also agreed that neither it nor any of its
subsidiaries will, subject to certain exceptions (i) authorize for issuance,
issue or sell or agree to issue or sell any additional shares of, or rights of
any kind to acquire any shares of, its capital stock of any class (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), except to OrNda or a wholly
owned subsidiary of OrNda, except for unissued shares of OrNda Common Stock
reserved for issuance upon the exercise of certain specified stock options or
the OrNda PIK Preferred and except for the authorization for issuance of shares
of OrNda Common Stock and options and rights to acquire OrNda Common Stock
pursuant to the Management Equity Plan; (ii) incur, assume or prepay any
indebtedness or any other material liabilities, other than in the ordinary
course of business and consistent with past practices; (iii) assume, guarantee,
endorse or otherwise become liable or responsible for obligations of any other
person other than a subsidiary in the ordinary course of business and
consistent with past practice; or (iv) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing.
On December 2, 1993, AHM delivered a letter to OrNda pursuant to which AHM
consented to the execution and delivery by OrNda of the Summit Merger
Agreement.
Both OrNda and AHM have agreed that, during the period from November 18, 1993
until the AHM Effective Time, except as otherwise contemplated by the AHM
Merger Agreement, neither OrNda nor AHM will knowingly take or knowingly fail
to take any action which would jeopardize the treatment of the AHM Merger as a
"pooling-of-interests" for accounting purposes or as a reorganization within
the meaning of Section 368(a) of the Code.
Irrevocable Proxies. As an inducement and a condition to entering into the
AHM Merger Agreement, AHM was granted proxies (collectively, the "AHM Proxies"
and, individually, a "Proxy") by each of Joseph Littlejohn & Levy Fund, L.P.,
Charles N. Martin, Jr. and M. Lee Pearce, M.D. (the "Proxy Stockholders"). The
AHM Proxies entitle AHM to vote an aggregate of 9,036,744 shares of OrNda
Common Stock (the "Proxy Shares") (representing approximately 49% of the shares
entitled to vote at the OrNda Meeting as of the OrNda Record Date), in favor of
the AHM Merger Agreement and any transactions contemplated thereby, and, in
addition, except as agreed to by AHM and OrNda to vote against (but not in
favor of) any proposals for any merger (other than the AHM Merger),
consolidation, sale or purchase of any assets, reorganization,
recapitalization, liquidation or winding up of or by OrNda.
The Proxy Stockholders have agreed not to, directly or indirectly, sell,
transfer, further pledge or otherwise dispose of the Proxy Shares unless such
transferee agrees to be bound by the terms of the AHM Proxy. In addition, until
the AHM Proxies are terminated, the Proxy Stockholders have agreed not to
initiate or solicit any inquiries or proposals with respect to, or, subject to
fiduciary duties, engage in negotiations concerning or provide any confidential
information relating to, any acquisition, business combination or purchase of
all or any significant portion of the assets of, or any equity interest in
(other than the Proxy Shares), OrNda or any of its subsidiaries.
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Forms of the AHM Proxies are exhibits to the AHM Merger Agreement which is
annexed hereto as Annex A. Subsequent to the execution and delivery of the AHM
Proxies, each of the Proxy Stockholders executed letter agreements with AHM
consenting to the amendment to the AHM Merger Agreement and confirming that the
AHM Proxies relate to the AHM Merger as defined in the Amended and Restated
Agreement and Plan of Merger.
Termination. The AHM Merger Agreement may be terminated at any time prior to
the AHM Effective Time, whether before or after approval of the AHM Merger
Agreement by the stockholders of AHM or OrNda, (i) by mutual consent of OrNda
and AHM; (ii) by either OrNda or AHM if the AHM Merger has not been consummated
on or before July 31, 1994; or (iii) by either OrNda or AHM if any one of the
conditions to their respective obligations to effect the AHM Merger has not
been met or waived prior to or at such time as such condition can no longer be
satisfied.
Except as set forth below, under "Termination Fee," in the event of any such
termination, the AHM Merger Agreement shall forthwith become void, and, except
for a termination resulting from a willful breach by a party to the AHM Merger
Agreement, there shall be no liability on the part of any party or their
respective officers or directors, except with respect to the payment and
sharing of certain expenses.
Indemnification. The AHM Merger Agreement provides that for a period of six
years from and after the AHM Effective Time, OrNda will indemnify, and advance
expenses in matters that may be subject to indemnification to, persons who
served as directors and officers of AHM or any subsidiary of AHM on or before
the AHM Effective Time with respect to liabilities and claims (and related
expenses) made against them resulting from their service as such prior to the
AHM Effective Time with and subject to the requirements and other provisions of
the OrNda Certificate of Incorporation and By-laws in effect on the date of the
AHM Merger Agreement and applicable provisions of law to the same extent as
OrNda is obligated thereunder to indemnify and advance expenses to its own
directors and officers with respect to liabilities and claims made against them
resulting from their service for OrNda.
The AHM Merger Agreement also provides that OrNda shall cause to be
maintained in effect for a period ending not sooner than the sixth anniversary
of the AHM Effective Time directors' and officers' liability insurance
providing at least the same coverage with respect to AHM's officers and
directors as the policies maintained on behalf of directors and officers of AHM
as of the date hereof, and containing terms and conditions which are no less
advantageous, with respect to matters occurring on or prior to the AHM
Effective Time (to the extent such insurance is available with respect to such
matters). Notwithstanding the foregoing, from and after the third anniversary
of the AHM Effective Time, OrNda shall not be obligated to provide any greater
officers' and directors' liability insurance than that generally afforded to
officers and directors of OrNda under policies maintained by OrNda with respect
to its directors and officers.
Amendment and Waiver. Any of the provisions of the AHM Merger Agreement may
be amended by or pursuant to action of the respective parties at any time
before or after the approval of the AHM Merger Agreement by the OrNda and AHM
stockholders; provided however, that after any such approval, no amendment
shall be made which alters the AHM Exchange Ratio. Prior to the AHM Effective
Time, the parties may extend the time for performance of the obligations of the
other parties to the AHM Merger Agreement and may waive any inaccuracies in the
representations and warranties or compliance with any agreements or conditions
for their respective benefit contained in the AHM Merger Agreement.
Expenses. Whether or not the AHM Merger is consummated, all costs and
expenses incurred in connection with the AHM Merger Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
expenses, except that expenses incurred in connection with printing the
Registration Statement and the related Proxy Statement/Prospectus as well as
the filing fee relating to the Registration Statement will be shared equally by
OrNda and AHM.
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Termination Fee. If prior to the AHM Meeting, AHM receives a competing
acquisition proposal relating to AHM, and either (i) the AHM stockholders fail
to approve the AHM Merger at the AHM Meeting or (ii) AHM breaches its covenant
to recommend acceptance of the AHM Merger to its stockholders, and such
acquisition proposal is thereafter consummated within 12 months of the date of
termination of the AHM Merger Agreement, AHM (or the successor thereto) must
pay OrNda a fee in cash equal to $5 million.
FEDERAL INCOME TAX CONSEQUENCES OF THE AHM MERGER
Consequences to AHM Stockholders. The following is a summary of the principal
Federal income tax consequences of the AHM Merger to the stockholders of AHM.
The discussion set forth below is based on currently existing provisions of the
Code, Treasury Regulations thereunder, current administrative rulings and court
decisions. All of the foregoing are subject to change and any such change could
affect the continuing validity of this discussion. The Federal income tax
discussion set forth below is for general information only and may not apply to
particular categories of stockholders of AHM common stock, options, or warrants
subject to special treatment under the Code, such as foreign holders and
holders whose stock, options, or warrants, were acquired pursuant to the
exercise of an employee stock option or otherwise as compensation. In addition,
there may be relevant state, local or other tax consequences, none of which are
described below. AHM STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO
DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE AHM MERGER.
Consummation of the Merger is conditioned upon receipt by OrNda of an opinion
of Skadden, Arps, Slate, Meagher & Flom (the "Skadden Opinion") and receipt by
AHM of an opinion of Drinker Biddle & Reath (the "Drinker Opinion"), each dated
as of the AHM Effective Time. The Skadden Opinion and the Drinker Opinion will
be substantially to the effect that, on the basis of facts, representations and
assumptions set forth in such opinions, which are consistent with the facts
existing at the AHM Effective Time, the AHM Merger will be treated for Federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code, and that accordingly, (i) no gain or loss will be recognized by the
stockholders of AHM who exchange all their AHM Common Stock solely for OrNda
Common Stock pursuant to the AHM Merger (except to the extent that cash is
received in lieu of a fractional share interest), (ii) the aggregate basis of
the OrNda Common Stock received in the AHM Merger will be the same as the
aggregate basis of the AHM Common Stock surrendered in exchange therefor
(reduced by any amount allocable to a fractional share interest for which cash
is received), (iii) the holding period of the OrNda Common Stock received in
the AHM Merger will include the period during which the AHM Common Stock
surrendered in exchange therefor were held, provided the shares were held as a
capital asset at the AHM Effective Time, and (iv) no gain or loss will be
recognized by OrNda or AHM as a result of the AHM Merger.
Any cash received by the holders of AHM Common Stock in lieu of a fractional
share of OrNda Common Stock will be treated as having been received in
redemption of the fractional share interest, and will result in a taxable gain
or loss. The receipt of such cash generally should result in gain or loss in an
amount equal to the difference between the amount of cash received and the
basis of the fractional share interest surrendered in exchange therefor. Such
gain or loss will be capital gain or loss if the fractional share interest was
held as a capital asset at the AHM Effective Time, and such capital gain or
loss will be long-term capital gain or loss if the holding period for such
fractional share interest was greater than one year.
Consequences to OrNda and AHM. The AHM Merger will cause an "ownership
change" within the meaning of Section 382(g) of the Code with respect to both
OrNda and AHM. Consequently, OrNda's and AHM's net operating loss ("NOL") and
credit carryovers from periods before the AHM Merger will be
subject to annual limitations. Nonetheless, OrNda does not expect that these
annual limitations will have a material adverse effect on OrNda's or AHM's
ability to fully utilize NOLs existing as of the Effective Date of the AHM
Merger.
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ACCOUNTING TREATMENT OF THE AHM MERGER
Both OrNda and AHM believe that the AHM Merger will qualify as a pooling-of-
interests for accounting and financial reporting purposes and have been so
advised by Ernst & Young their independent public accountants. Consummation of
the AHM Merger is conditioned upon the receipt by each of OrNda and AHM of a
letter from Ernst & Young stating that the AHM Merger will qualify for pooling-
of-interests accounting treatment.
INTERESTS OF CERTAIN PERSONS IN THE AHM MERGER
Stock Options and Warrants. Directors and executive officers of AHM are the
beneficial owners of approximately 7,857,792 shares of AHM Common Stock.
Included within the foregoing are vested options to purchase approximately
1,006,780 shares of AHM Common Stock at prices from $1.00 to $5.63 per share
and warrants to purchase approximately 113 shares of AHM Common Stock at $2.67
per share at March 1, 1994. Under the AHM Merger Agreement, options and
warrants remaining unexercised at the AHM Effective Time will be converted into
options and warrants to purchase shares of OrNda Common Stock as more fully
described under "The Mergers--Terms of the AHM Merger--Conversion of Stock
Options and Warrants." In addition, on the AHM Record Date, the Foothill Group,
Inc., of which John F. Nickoll, a director of AHM, is the President and Co-
Chief Executive Officer, was the beneficial owner of approximately 6,550,726
shares, of which 3,610,511 shares are included in the 7,857,792 shares referred
to in the first sentence of this paragraph.
Officer and Director Indemnification and Insurance. Under the terms of the
AHM Merger Agreement, officers and directors of AHM are entitled to be
indemnified by OrNda subsequent to the AHM Effective Time and OrNda is required
to maintain directors and officers liability coverage for such persons for a
period of six years following the AHM Effective Time. See "The Mergers--Terms
of the AHM Merger--Indemnification."
Registration Rights. Under the AHM Merger Agreement, OrNda is obligated to
negotiate in good faith with John F. Nickoll and John W. Gildea, directors of
AHM, with respect to rights of entities with which they are affiliated to
obtain registration under the Securities Act of 1933 of shares of OrNda Common
Stock to be acquired by such entities in the AHM Merger. Such entities owned on
the AHM Record Date in the aggregate approximately 11,037,600 shares of AHM
Common Stock which will be converted into approximately 6,622,560 shares of
OrNda Common Stock in the AHM Merger. See "The Mergers--Terms of the AHM
Merger--Registration Rights."
Forgiveness of Indebtedness. In December, 1991, AHM provided certain key
employees an aggregate of $749,993 in interest free loans (of which an
aggregate of $698,198 was provided to executive officers) to enable them to
purchase shares of AHM's Common Stock. Under the terms of such loans which are
still outstanding at November 30, 1993, the principal amount thereof would have
been due and payable in December, 1995; provided that AHM was obligated to
forgive 29% of the principal amount thereof due from any employee who remained
employed on the maturity date. Under the terms of such loans, the entire
principal amount thereof is required to be forgiven by AHM upon a change of
control of AHM, as defined in such loans. The AHM Merger will constitute a
change in control of AHM under the terms of such loans and, accordingly, at the
AHM Effective Time, the entire principal amount of all such loans will be
forgiven by AHM.
Employment Agreement with Steven L. Volla. AHM is party to an employment
agreement with Steven L. Volla, the Chairman, President and Chief Executive
Officer of AHM, which provides for Mr. Volla to receive an initial base salary
of $550,000, to be increased annually by not less than the higher of: (i) such
amount as may be determined by AHM's Board of Directors; or (ii) the average
percentage increase in base compensation of other executive officers of AHM.
The agreement with Mr. Volla expires on March 26, 1997, and may be extended for
additional periods upon the written agreement of the parties. In addition to
base salary amounts, Mr. Volla is eligible to receive incentive cash
compensation in an amount approved by the
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AHM Board of Directors. Under his 1990 employment contract, Mr. Volla was
granted options to purchase 450,000 shares of the AHM Common Stock at $1.89 per
share. These options have fully vested and expire on April 5, 1995. Pursuant to
his 1992 amended and restated employment agreement, which was approved by the
AHM Board of Directors, Mr. Volla was granted a loan in the amount of $225,000.
The principal on this loan is due and payable on April 6, 1995, provided,
however, that AHM shall, prior to the due date, forgive the entire unpaid
amount of the loan at such time as Mr. Volla exercises the 450,000 options
granted him in 1990. The contract also provides that if Mr. Volla resigns
following a change in control, his loan is forgiven in full. If the options are
exercised in part, the unpaid amount of the loan shall be forgiven pro rata. In
February, 1993, Mr. Volla was granted 300,000 additional options at $5.375 per
share, 100,000 of which vested on February 2, 1994.
Mr. Volla's employment agreement provides that, under certain circumstances
in connection with a change in control, Mr. Volla will receive severance
payments following his voluntary resignation. These payments are based directly
upon the then remaining term of Mr. Volla's employment agreement, his initial
base salary and accrued incentive compensation for the year of termination. The
AHM Merger will constitute a change in control under Mr. Volla's employment
agreement, giving Mr. Volla the right to elect to resign and receive such
payments. No different contractual arrangements have been made for the
continued employment of Mr. Volla by OrNda. If Mr. Volla were to resign
immediately following the AHM Effective Time, he would be entitled to receive
an aggregate of approximately $1,700,000 in severance payments, payable over
three years, plus accrued incentive compensation in the year of his
resignation. See "Ratification of the 1994 Management Equity Plan--Summary of
Plan and Amendment" for a discussion of options that subject to certain
conditions may be granted to Mr. Volla upon consummation of the Mergers.
Change in Control Severance Contracts for Other Officers. The employment
agreements of Robert M. Dubbs, Senior Vice President, General Counsel and
Secretary of AHM, and William S. Harrigan, Senior Vice President, Chief
Financial Officer, and Treasurer of AHM, each provide that if a "change in
control," as defined in the agreements, occurs, the employee may terminate the
agreement within six months thereafter if his duties are increased or if his
compensation is decreased or if other actions specified therein are taken. The
AHM Merger will be a change of control under such agreements. In the event of
such termination by the employee, he would be entitled to severance pay equal
to one year, in the case of Mr. Dubbs, and six months, in the case of Mr.
Harrigan, of his base compensation plus all accrued incentive compensation and
an amount in respect of all unused vacation. At current compensation levels,
such amounts would approximate $167,000 for Mr. Dubbs and $78,000 for Mr.
Harrigan. In addition, unvested options with respect to 33,333 shares of AHM
Common Stock held by Mr. Harrigan would vest.
NO DISSENTERS' RIGHTS IN THE AHM MERGER
Holders of shares of AHM Common Stock are not entitled to appraisal rights of
dissenting stockholders under Delaware Law with respect to the transactions
contemplated by the AHM Merger Agreement.
TERMS OF THE SUMMIT MERGER
Set forth below is a brief description of certain terms of the Summit Merger
Agreement. This description does not purport to be complete and is qualified in
its entirety by reference to the Summit Merger Agreement which is attached as
Annex B and is incorporated herein by reference.
Effective Time of the Summit Merger. Upon the satisfaction or waiver of
certain conditions, Merger Sub will be merged with and into Summit, and Summit
will continue as the surviving corporation (the "Surviving Corporation") and
the separate existence of Merger Sub will cease.
The Merger will become effective upon the filing of and acceptance by the
California Secretary of State of the required officer's certificate and an
agreement of merger and the filing of a duly executed certificate of merger
with the Delaware Secretary of State. It is currently anticipated that such
filings will be made as promptly as practicable after the date on which the
later to occur of the Summit Meeting and the OrNda
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Meeting shall have occurred. Such filings will be made, however, only upon
satisfaction or, if permissible, waiver of the conditions contained in the
Summit Merger Agreement.
The Summit Merger Agreement provides that (i) the Articles of Incorporation
and the By-Laws of Summit shall be the Articles of Incorporation and the By-
Laws of the Surviving Corporation, (ii) the directors of Merger Sub at the
Summit Effective Time shall be the initial directors of the Surviving
Corporation, provided however that Mr. Don Freeberg and Mr. John Anderson will
remain directors of the Surviving Corporation for a period of not less than six
months commencing at the Summit Effective Time and (iii) the officers of Summit
at the Summit Effective Time shall be the initial officers of the Surviving
Corporation.
Conversion of Summit Common Stock in the Summit Merger. At the Summit
Effective Time (i) each share of Summit Common Stock issued and outstanding
immediately prior to the Summit Effective Time (other than shares held by OrNda
or any subsidiary of OrNda) will be converted into the right to receive 0.2157
shares of OrNda Common Stock and $5.50 cash; (ii) each share held in the
treasury of Summit and each share held by OrNda or any subsidiary of OrNda
immediately prior to the Summit Effective Time shall be cancelled and retired
and cease to exist; and (iii) each share of Common Stock, par value $.01 per
share, of Merger Sub issued and outstanding immediately prior to the Summit
Effective Time shall be converted into and exchangeable for one share of common
stock of the Surviving Corporation.
Exchange of Certificates. At or before the Summit Effective Time, OrNda shall
deposit in trust, with an exchange agent (the "Summit Exchange Agent") for the
benefit of holders of Summit Common Stock, immediately available funds in an
aggregate amount equal to the cash component of the Summit Exchange Ratio to be
paid to the holders of Summit Common Stock as provided by the Summit Merger
Agreement. Shortly after the Summit Effective Time, the Summit Exchange Agent
will send transmittal forms to the former Summit stockholders, to be used in
forwarding their certificates representing shares of Summit Common Stock for
surrender and exchange for (i) certificates representing the number of shares
of OrNda Common Stock into which their shares of Summit Common Stock were
converted in the Summit Merger; (ii) $5.50 cash per share of Summit Common
Stock surrendered; and (iii) cash for any fractional share interests in OrNda
Common Stock to which such holders otherwise would be entitled. Until such
surrender, certificates representing shares of Summit Common Stock will be
deemed to represent the number of shares of OrNda Common Stock into which such
Summit shares were converted in the Summit Merger, except that holders of
Summit certificates will not be entitled to receive dividends or any other
distribution from OrNda until such certificates are so surrendered. When such
certificates are surrendered, the holders of the OrNda certificates issued in
exchange therefor will be paid, without interest, any dividends or other
distributions which may have become payable with respect to such shares of
OrNda Common Stock since the Summit Effective Time.
Fractional Shares. No certificates or scrip representing a fractional share
interest in OrNda Common Stock will be issued, and no OrNda dividends, stock
split or other change in the capital structure of OrNda will relate to any
fractional share interest. A fractional share interest will not entitle the
owner thereof to vote or to any rights of a stockholder of OrNda. In lieu of
any such fractional share interest, each holder of Summit Common Stock who
otherwise would be entitled to receive a fractional share interest in OrNda
Common Stock in the Summit Merger will be paid cash upon surrender of shares of
Summit Common Stock in an amount equal to the product of such fraction
multiplied by the closing sale price of OrNda Common Stock on the NASDAQ
National Market System on the day of the Summit Effective Time (or if OrNda
Common Stock is not so traded on such day, such closing sale price on the next
preceding day on which such stock was traded in the NASDAQ National Market
System.)
Conversion of Stock Options. Immediately prior to the Summit Effective Time,
all outstanding options to purchase Summit Common Stock ("Summit Options")
shall vest. Each holder (other than officers, directors and beneficial owners
of more than 10% of any class of equity security of Summit registered under the
Exchange Act) of an option that is outstanding within ten days prior to the
Summit Effective Time shall elect to receive in lieu of the Summit Options
either (i) payment equal to the per share consideration under
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the Summit Merger Agreement less the exercise price of a share of Summit Common
Stock multiplied by the number of such shares subject to such option, provided
that the exercise price shall be applied first to reduce the cash portion of
the consideration under the Summit Merger Agreement, and then, to the extent
the exercise price exceeds $5.50, to reduce the OrNda Common Stock portion of
such consideration (valuing such shares at $12.75); or (ii) an option to
purchase shares of OrNda Common Stock under a stock option plan maintained by
OrNda, provided that the number of shares, exercise price and terms and
conditions of such an option (x) preserve the aggregate gain (or loss) on the
Summit Option prior to such substitution, and (y) preserve the ratio of
exercise price per share of Summit Common Stock to the fair market value of
such stock (as determined immediately prior to substitution). Officers,
directors and 10% beneficial owners of Summit securities will only be entitled
to receive such replacement options. Additionally, OrNda undertakes to file and
maintain effective a registration statement with respect to the shares subject
to such replacement options.
General Provisions. The Summit Merger Agreement contains various customary
general provisions relating to, among other things, the survival of
representations and warranties and agreements, brokers, notices, governing law
and certain definitions.
Representations and Warranties. The Summit Merger Agreement contains various
customary representations and warranties relating to, among other things, (a)
each of Summit's and OrNda's and certain of their respective subsidiaries'
organization and similar corporate matters; (b) each of Summit's and OrNda's
capital structure and the ownership of Merger Sub by OrNda; (c) authorization,
execution, delivery, performance and enforceability of the Summit Merger
Agreement and related matters; (d) conflicts under certificates of
incorporation or by-laws, required consents or approvals and violations of any
instruments or law; (e) documents filed by each of OrNda and Summit with the
Commission and the accuracy of the information contained therein; (f) the
accuracy of information supplied by each of OrNda and Summit in connection with
the Registration Statement and this Proxy Statement/Prospectus; (g) subject to
certain exceptions, absence of certain specified material changes or events,
brokers or finders and undisclosed liabilities and compliance with applicable
law, litigation and employee plans; (h) in the case of OrNda, the receipt of an
opinion of Kidder, Peabody to the effect that the consideration to be paid by
OrNda is fair to OrNda from a financial point of view; and (i) in the case of
Summit, the receipt of an opinion of Smith Barney Shearson to the effect that
the consideration to be received in the Summit Merger by the Summit
stockholders is fair to such stockholders from a financial point of view.
Real Estate Purchase. OrNda has agreed in the Summit Merger Agreement to
negotiate with Sierra Land Group, Inc. and its affiliates ("Sierra") and Summit
Properties ( with Sierra, the "Real Estate Sellers") concerning the purchase
(the "Real Estate Purchase") by either OrNda or a third party of certain real
estate currently owned by Sierra or Summit Properties and leased to Summit for
an aggregate purchase price of $85.4 million. Sierra and Summit Properties are
affiliates of Don Freeberg, the Chairman of the Board of Summit and the
beneficial owner of 55.4% of the outstanding Summit Common Stock. OrNda
currently intends to purchase approximately $57 million of such real estate and
to seek a third party purchaser for the remaining real estate. The obligations
of OrNda and Summit to consummate the Summit Merger as well as the obligations
of the Summit stockholders party to Voting Agreements with OrNda to vote for
the Summit Merger are conditioned upon either of such transactions having been
consummated or all conditions to the consummation of such transactions having
been satisfied or waived. See "Interests of Certain Persons in the Summit
Merger".
Directors of OrNda. Promptly after the Summit Effective Time, OrNda will take
such action as may be necessary to enable Donald J. Amaral and a designee of
Don Freeberg (for such time as Don Freeberg and John Anderson beneficially own
in the aggregate at least 5% of the outstanding shares of OrNda Common Stock)
to be appointed to the OrNda Board of Directors.
Registration Rights. Prior to the Summit Effective Time, OrNda will enter
into an agreement with each of Don Freeberg, John E. Anderson and Donald J.
Amaral granting them certain registration rights subject
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to certain conditions, as they will negotiate in good faith, taking into
account OrNda's obligation under the AHM Merger Agreement to negotiate a
mutually acceptable Registration Rights Agreement with John Nickoll and John
Gildea.
Conditions. The respective obligations of Summit and OrNda to effect the
Summit Merger are subject to the following conditions: (a) the approval and
adoption of the Summit Merger Agreement and the transactions contemplated
thereby by the requisite vote of Summit stockholders; (b) the effectiveness of
the Registration Statement and the absence of a stop order in effect at the
Summit Effective Time; (c) the receipt by OrNda of the requisite consents from
governmental entities; (d) the receipt by OrNda and Summit of financing in an
amount sufficient to finance the Real Estate Purchase, the outstanding senior
bank and institutional indebtedness of OrNda and Summit and the Summit Notes;
(e) the Real Estate Purchase shall have been consummated or all conditions to
the obligations of the parties to such transaction shall have been satisfied or
waived; (f) the absence of a preliminary or permanent injunction or other order
by any Federal or state court in the United States prohibiting consummation of
the Summit Merger and (g) any waiting period applicable to the consummation of
the Summit Merger under the HSR Act shall have expired or been terminated.
In addition, the obligations of Summit to effect the Summit Merger are
subject to the satisfaction at or prior to the Summit Effective Time of the
conditions that: (a) OrNda and Merger Sub each shall have performed in all
material respects their obligations under the Summit Merger Agreement required
to be performed by it at or prior to the Summit Effective Time and the
representations and warranties of OrNda and Merger Sub contained in the Summit
Merger Agreement shall be true and correct in all material respects at and as
of the Summit Effective Time as if made at and as of such time, except as
contemplated by the Summit Merger Agreement; (b) the receipt by Summit of
certain opinions of counsel; and (c) the receipt from Ernst & Young of a
comfort letter.
The obligations of OrNda and Merger Sub to effect the Summit Merger are
subject to the satisfaction at or prior to the Summit Effective Time of the
conditions that: (a) Summit shall have performed in all material respects its
obligations under the Summit Merger Agreement required to be performed by it at
or prior to the Summit Effective Time and the representations and warranties of
Summit contained in the Summit Merger Agreement shall be true and correct in
all material respects at and as of the Summit Effective Time as if made at and
as of such time, except as contemplated by the Summit Merger Agreement; (b) the
receipt by OrNda of certain opinions of counsel; (c) the receipt from Ernst &
Young of a comfort letter; and (d) Summit shall have, at OrNda's option, either
increased the size of the board of directors of Summit Care or secured the
resignations of such number of Summit Care directors as is necessary to enable
OrNda designees to be elected to constitute a majority of the Summit Care board
of directors.
Dissenting Shares. In addition to the foregoing, in the event that the number
of dissenting shares from whom a demand has been received that they intend to
seek dissenter's rights under California law exceeds 4.99% of the number of
shares outstanding as of the date of the Summit Meeting and immediately prior
to the Summit Effective Time, OrNda's obligations under the Summit Merger
Agreement will not mature.
Business of Summit and OrNda Pending the Merger. Summit has agreed that,
among other things, prior to consummation of the Summit Merger, unless OrNda
shall otherwise agree in writing or unless otherwise contemplated by the Summit
Merger Agreement, it will conduct its business and the businesses of its
subsidiaries only in the ordinary course and consistent with past practice and
it will not: sell, pledge or agree to sell or pledge any stock owned by it in
any of its subsidiaries; amend the Summit Articles of Incorporation or By-Laws;
or split, combine or reclassify any shares of its outstanding capital stock or
declare, set aside or except for the dividend declared on November 22, 1993,
pay any dividends or other distributions payable in cash, stock, property, or
redeem or otherwise acquire any shares of its capital stock or shares of the
capital stock of any of its subsidiaries. Summit has further agreed that
neither it nor any of the subsidiaries shall authorize for issuance, issue or
sell or agree to issue or sell any additional shares of, or rights of any kind
to acquire any shares of, its capital stock of any class, except for unissued
shares of Summit Common Stock
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reserved for issuance upon the exercise of employee stock options; acquire
dispose of or encumber any fixed assets or any other substantial assets other
than in the ordinary course of business and consistent with past practices;
incur, assume, or prepay any indebtedness or any other material liabilities
other than in the ordinary course of business and consistent with past
practices; authorize capital expenditures in excess of the amounts currently
contemplated therefor and as previously disclosed to OrNda or its advisors; or
enter into any contract, agreement, commitment or arrangement with respect to
any of the foregoing. Summit has further agreed that neither it nor any of its
subsidiaries will enter into any new employment agreements with any of their
respective officers or employees or grant any increases in the compensation of
their respective officers and employees other than increases in the ordinary
course of the business and consistent with past practice, or enter into, adopt
or amend any employee benefit plan.
OrNda has agreed that prior to the Summit Effective Time, unless Summit shall
otherwise agree in writing, it will conduct its businesses and the businesses
of its subsidiaries only in the ordinary course and consistent with past
practice and it will not: sell or pledge or agree to sell or pledge any stock
owned by it in any of its subsidiaries, amend its Certificate of Incorporation,
except to increase the number of shares of OrNda Common Stock authorized, or
By-Laws; split, combine or reclassify any shares of its outstanding capital
stock; declare, set aside or pay any dividend or other distribution payable in
cash, stock or property other than dividends on the OrNda PIK Preferred; or
redeem or otherwise acquire any shares of its capital stock or shares of the
capital stock of any subsidiary except for the repurchase of limited
partnership interests in Brotman Partners, L.P. OrNda has also agreed that
neither it nor any of its subsidiaries will, subject to certain exceptions (i)
authorize for issuance, issue or sell or agree to issue or sell any additional
shares of, or rights of any kind to acquire any shares of, its capital stock of
any class (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise), except for
unissued shares of OrNda Common Stock reserved for issuance upon the exercise
of certain specified stock options, warrants or the OrNda PIK Preferred,
dividends on the OrNda PIK Preferred payable in shares of the OrNda PIK
Preferred, the authorization of an additional 100 million shares of OrNda
Common Stock pursuant to the proposed amendment to the OrNda charter and the
authorization for issuance and issuance of shares of OrNda Common Stock and
certain options and rights to acquire OrNda Common Stock pursuant to the Bonus
Plan and the Management Equity Plan; (ii) incur, assume or prepay any
indebtedness or any other material liabilities, other than in the ordinary
course of business and consistent with past practices; (iii) assume, guarantee,
endorse or otherwise become liable or responsible for obligations of any other
person other than a subsidiary in the ordinary course of business and
consistent with past practices; or (iv) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing.
Pursuant to the Summit Merger Agreement, from the date of the Summit Merger
Agreement to the Summit Effective Time, Merger Sub will not engage in any
activities of any nature except as provided in or contemplated by the Summit
Merger Agreement.
Stockholder Approval. The Summit Merger Agreement provides that the
respective obligations of each party to effect the Summit Merger are subject to
the approval and adoption of the Summit Merger Agreement and the transactions
contemplated thereby by the requisite vote of the stockholders of each of
Summit and OrNda in accordance with applicable law.
Termination. The Summit Merger Agreement may be terminated at any time prior
to the Summit Effective Time, whether before or after approval of the Summit
Merger Agreement by the stockholders of OrNda or Summit, (i) by mutual consent
of OrNda, Summit and Merger Sub; (ii) by either OrNda and Merger Sub or Summit
if the Merger has not been consummated on or before July 31, 1994; (iii) by
either OrNda and Merger Sub or Summit if any one of the conditions to their
respective obligations to effect the Summit Merger has not been met or waived
prior to or at such time as such condition can no longer be satisfied, or (iv)
by Summit on or after March 31, 1994 if OrNda has not received commitments for
requisite financing.
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In the event of any such termination, the Summit Merger Agreement shall
forthwith become void, and, except for a termination resulting from a willful
breach by a party to the Summit Merger Agreement, there shall be no liability
on the part of any party or their respective officers or directors, except with
respect to the payment and sharing of certain expenses.
Indemnification. The Summit Merger Agreement provides that Summit shall, and
from and after the Summit Effective Time, OrNda shall, indemnify, defend and
hold harmless each person who is now, or has been at any time prior to the date
of the Summit Merger Agreement, an officer or director of Summit or any of its
subsidiaries (the "Indemnified Parties") against all losses, claims, damages,
costs, expenses or liabilities or in connection with any claim, action, suit,
proceeding or investigation arising out of the fact that such person is or was
a director or officer of Summit or any of its subsidiaries (or out of any
action taken by any such person on behalf of Summit), pertaining to any matter
existing or occurring at or prior to the Summit Effective Time (including,
without limitation, the transactions contemplated by the Summit Merger
Agreement), whether asserted or claimed prior to, or at or after, the Summit
Effective Time. In each case such indemnification shall be at the full extent a
corporation is permitted under the California GCL to indemnify its own
directors and officers, as the case may be.
The Summit Merger Agreement also provides that OrNda will cause the Surviving
Corporation to keep in effect in its Articles of Incorporation a provision for
a period of not less than six years from the Summit Effective Time (or, in the
case of matters occurring prior to the Summit Effective Time which have not
been resolved prior to the sixth anniversary of the Summit Effective Time,
until such matters are finally resolved) which provides for indemnification of
the past and present officers and directors of Summit to the fullest extent
permitted by the California GCL.
The Summit Merger Agreement also provides that OrNda will cause to be
maintained in effect for a period ending not sooner than the sixth anniversary
of the Summit Effective Time directors' and officers' liability insurance
providing at least the same coverage with respect to Summit's officers and
directors as the policies maintained on behalf of directors and officers of
Summit as of the date hereof, and containing terms and conditions which are no
less advantageous, with respect to matters occurring on or prior to the Summit
Effective Time (to the extent such insurance is available with respect to such
matters). Notwithstanding the foregoing, from and after the third anniversary
of the Summit Effective Time, OrNda shall not be obligated to provide any
greater officers' and directors' liability insurance than that generally
afforded to officers and directors of OrNda under policies maintained by OrNda
with respect to its directors and officers.
Voting Agreements. As a condition and inducement to entering into the Summit
Merger Agreement, OrNda and Summit have entered into voting agreements (in the
case of OrNda, the "OrNda Voting Agreements" and in the case of Summit, the
"Summit Voting Agreements" and together the "Voting Agreements") with certain
stockholders of Summit and OrNda respectively, whereby such stockholders have
agreed to vote their respective shares in favor of the Summit Merger at their
respective meetings. Joseph Littlejohn & Levy Fund, L.P., Charles Martin Jr.
and M. Lee Pearce, M.D. (the "OrNda Stockholders") have agreed to vote an
aggregate of 9,036,744, (representing approximately 49% of the shares entitled
to vote at the OrNda Meeting as of the OrNda Record Date), in favor of the
Summit Merger Agreement and the transactions contemplated thereby, and, in
addition, except as agreed to by OrNda and Summit to vote against (but not in
favor of) any proposals for any merger (other than the Mergers), consolidation,
sale or purchase of any assets, reorganization, recapitalization, liquidation
or winding up of OrNda. Don Freeberg, Don Freeberg as trustee under a Voting
Trust Agreement, Meridian Life Insurance Co., Sierra Land Development, L.P.,
Sierra Land Group, Inc., John E. Anderson and Topa Equities, Ltd., (the "Summit
Stockholders") have agreed to vote an aggregate of 20,176,100, (representing
approximately 62% of the shares entitled to vote at the Summit Meeting as of
the Summit Record Date), in favor of the Summit Merger Agreement and any
transactions contemplated thereby, and, in addition, except as agreed to by
OrNda and Summit to vote against (but not in favor of) any proposals for any
merger (other than the Summit Merger), consolidation, sale or purchase of any
assets, reorganization, recapitalization, liquidation or winding up of Summit.
The Summit Voting Agreements will not be effective and will not be deemed to
require the Summit
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Stockholders to vote their shares in favor of the Summit Merger unless OrNda or
a third party has entered into an agreement to purchase the Real Estate for an
aggregate purchase price of not less than $85.4 million. See "--Real Estate
Purchase."
The OrNda Stockholders and the Summit Stockholders have agreed not to,
directly or indirectly, sell, transfer, further pledge or otherwise dispose of
their shares unless such transferee agrees to be bound by the terms of the
Voting Agreement. The OrNda Stockholders and the Summit Stockholders have also
agreed not to grant any subsequent proxies with respect to their shares that
would be inconsistent with the terms of the Voting Agreements. In addition,
subject to certain exceptions, the OrNda Stockholders and the Summit
Stockholders have agreed not to initiate or solicit any inquiries or proposals
with respect to, or, subject to fiduciary duties, engage in negotiations
concerning or provide any confidential information relating to, any
acquisition, business combination or purchase of all or any significant portion
of the assets of, or any equity interest in (other than their shares), OrNda or
Summit, as the case may be, or any of their subsidiaries.
Forms of the Voting Agreements are filed as exhibits to the Summit Merger
Agreement which is annexed hereto as Annex B.
Amendment and Waiver. Any of the provisions of the Summit Merger Agreement
may be amended by or pursuant to action of the respective parties at any time
before or after the approval of the Summit Merger Agreement by the OrNda and
Summit stockholders; provided however, that after any such approval, no
amendment shall be made which alters the Summit Exchange Ratio. Prior to the
Summit Effective Time, the parties may extend the time for performance of the
obligations of the other parties to the Summit Merger Agreement and may waive
any inaccuracies in the representations and warranties or compliance with any
agreements or conditions for their respective benefit contained in the Summit
Merger Agreement.
Expenses. Whether or not the Summit Merger is consummated, all costs and
expenses incurred in connection with the Summit Merger Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
expenses, except that expenses incurred in connection with printing the
Registration Statement and this Proxy Statement/Prospectus as well as the
filing fee relating to the Registration Statement will be shared equally by
OrNda, Summit and AHM. In the event that OrNda and Summit are unable to obtain
the financing referred to in clause (d) of the first paragraph under "--
Conditions" above, OrNda will pay as liquidated damages $1.5 million to Summit,
provided such inability shall not be due to a material breach by Summit of any
agreement, representation or warranty in the Summit Merger Agreement or the
Real Estate Purchase Agreement.
FEDERAL INCOME TAX CONSEQUENCES OF THE SUMMIT MERGER
The following is for general information only and is based on currently
existing provisions of the Code, Treasury Regulations thereunder, current
administrative rulings and court decisions. The tax treatment of each Summit
stockholder will depend in part upon its particular situation. In addition,
there may be relevant state, local or other tax consequences, none of which are
described below. SUMMIT STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO
DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE SUMMIT MERGER.
The receipt by Summit stockholders of cash and OrNda Common Stock in exchange
for the Summit Common Stock in the Summit Merger (or the receipt of cash upon
the exercise of appraisal rights) will be a taxable transaction for federal
income tax purposes under the Code and may be taxable under state, local or
foreign tax laws as well.
A Summit stockholder will recognize gain or loss equal to the difference
between the tax basis for the Summit Common Stock surrendered in the Summit
Merger and the sum of the (i) cash and (ii) fair market value of the OrNda
Common Stock received in the Summit Merger. Gain or loss must be calculated
separately for each block of Summit Common Stock exchanged in the Summit Merger
(that is, Summit Common Stock acquired in the same transaction and at the same
price). Such gain or loss will be recognized
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by the Summit stockholder at the Summit Effective Time. Such gain or loss will
be capital gain or loss if the Summit Common Stock exchanged in the Summit
Merger was a capital asset in the hands of the Summit stockholder and will be
long-term gain or loss if the holding period for the Summit Common Stock is
more than one year.
Summit stockholders will take a basis in the OrNda Common Stock received in
the Summit Merger equal to its fair market value at the Summit Effective Time.
ACCOUNTING TREATMENT OF THE SUMMIT MERGER
It is contemplated that the Summit Merger will be accounted for as a purchase
transaction.
INTERESTS OF CERTAIN PERSONS IN THE SUMMIT MERGER
Real Estate Transactions. Summit currently leases the land and buildings
associated with many of its facilities (collectively, the "Summit Real Estate")
from Sierra Land Group, Inc. (or its subsidiaries) (collectively, "Sierra") and
Summit Properties, a general partnership ("SP"). Don Freeberg, Chairman of the
Board of Summit, owns approximately 93% of Sierra; the balance is owned by a
trust for the benefit of his adult sons, Daniel and James Freeberg, of which
Don Freeberg is trustee. Sierra is a principal shareholder of Summit. SP is
principally owned by Don Freeberg (who holds a 93% interest therein), and a
trust for the benefit of his adult sons, Daniel and James Freeberg, of which
Don Freeberg is trustee.
The terms of Summit's leases with SP and Sierra extend to July 31, 2003.
Through 2003, these leases provide for periodic rent increases based on the
Consumer Price Index; the leases with Sierra also provide, in some cases, for a
market rate adjustment in 1998. Each of the leases with SP and Sierra grants
Summit two ten-year extension options with periodic rent increases based on
increases in the Consumer Price Index or, at the option of the lessor, in an
amount equal to 5% of each leased facility's yearly increase in revenues. The
leases also provide Summit with a right of first refusal in the event that the
lessor proposes to sell a particular facility.
The following table summarizes the facilities leased to Summit or its
subsidiaries by Sierra during the fiscal year ended June 30, 1993 (including
facilities leased to Summit Care):
<TABLE>
<CAPTION>
AGGREGATE
MONTHLY
TYPE OF FACILITY NUMBER RENTAL
- ---------------- ------ ---------
<S> <C> <C>
Hospitals.............................................. 3 $248,072
Nursing care centers................................... 5(/1/)(/2/) 99,818
Retirement care centers................................ 4(/2/)(/3/) 34,653
Medical office buildings............................... 3 9,974
--- --------
Totals............................................... 15 $392,517
=== ========
</TABLE>
- --------
(1) Includes two facilities subleased by a subsidiary of Summit to unrelated
third parties.
(2) Leased by Summit Care until purchased by Summit Care in December 1992.
(3) Includes one facility subleased by a subsidiary of Summit to an unrelated
third party.
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The following table summarizes the facilities leased to Summit or its
subsidiaries by SP during the fiscal year ended June 30, 1993 (including
facilities leased to Summit Care):
<TABLE>
<CAPTION>
AGGREGATE
MONTHLY
TYPE OF FACILITY NUMBER(/1/) RENTAL
- ---------------- ----------- ---------
<S> <C> <C>
Hospitals............................................ 4(/1/) $560,188
Nursing care centers................................. 5(/1/)(/2/) 102,152
Medical office buildings............................. 6 285,319
Administrative offices............................... 2(/3/) 20,483
--- --------
Totals............................................. 17 $968,142
=== ========
</TABLE>
- --------
(1) Includes one hospital whose lease was terminated effective May 15, 1992 and
one nursing care facility that is subleased by a subsidiary of Summit to an
unrelated third party.
(2) Leased by Summit Care until purchased by Summit Care in December 1992.
(3) Includes the administrative office purchased by Summit Care in June 1993
for approximately $240,000.
Prior to the initial public stock offering by Summit in 1983, three
partnerships were formed among Summit and certain of its officers, directors
and employees to acquire or construct various administrative and medical office
buildings and to lease them to subsidiaries of Summit. These partnerships,
Lubbock Associates, Arizona Associates and Apache Trails Associates
(collectively, the "Partnerships"), each owned a medical office building that
was leased to a subsidiary of Summit. These partnerships were dissolved in June
1993 when the three properties were purchased by Summit. Summit was the general
partner of Lubbock Associates and Mr. Anderson and Mr. Clark McQuay, a director
of Summit, among others, were limited partners therein. Sierra was the general
partner of Arizona Associates and Messrs. Don Freeberg, Anderson and McQuay,
among others, were limited partners therein. A corporation owned by Mr.
Freeberg was the general partner of Apache Trails Associates, and Messrs.
Anderson and McQuay, among others, were limited partners therein. The monthly
rentals as of June 30, 1992 for the three buildings aggregated approximately
$27,015, on long-term leases expiring in or after 2003. The leases generally
required certain fair market rental adjustments and generally contained rights
of first refusal to purchase the property or renew the lease.
Under the Summit Merger Agreement, OrNda has agreed that it will negotiate in
good faith with Sierra and SP (collectively, the "Sellers") concerning the
purchase by either OrNda or a third party of the Summit Real Estate for an
aggregate purchase price of $85.4 million. Such purchase will be pursuant to
the terms and conditions of a Real Estate Purchase Agreement reasonably
satisfactory to OrNda and the Sellers. If OrNda purchases the Summit Real
Estate, OrNda's obligation will be subject to (i) the receipt by OrNda of
financing, the terms and conditions of which are satisfactory to OrNda, in an
amount sufficient to purchase the Real Estate and (ii) the closing of the
transactions contemplated by the Summit Merger Agreement. The consummation of
the transactions contemplated by the Real Estate Purchase Agreement and the
satisfaction (unless waived) of all obligations of the parties to the Real
Estate Purchase Agreement is a condition precedent to the effectiveness of the
Summit Merger under the Summit Merger Agreement and to each of Messrs. Freeberg
and Anderson's obligation to vote in favor of the Summit Merger. See "Terms of
the Summit Merger--Real Estate Purchase."
Insurance. Summit insures its general and professional liability and its
directors' and officers' liability with Meridian Insurance Ltd. ("Meridian"),
which is owned by SP. Summit insures its property and excess automobile
liability risks with Topa Insurance Company, a corporation owned by Mr.
Anderson. The rates for such coverage are established by the insurer and are
adjusted for Summit's loss experience.
Since January 1991, Topa Insurance Company has also insured the workers'
compensation risks for Summit's California operations and Summit Care's
California nursing care centers, retirement centers and pharmacy. Prior to that
time, similar risks were insured by a non-affiliated insurance company. In both
cases,
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such risks have been reinsured by an affiliated insurance company. The rates of
such workers' compensation insurance are set by a California rating agency and
are adjusted for the combined loss experience of Summit Care and Summit.
Premiums are allocated between Summit Care and Summit on the basis of employee
job classification.
Summit believes that the premiums it pays to affiliates are in the aggregate
no less favorable that would be the case if Summit insured such risks with
unaffiliated parties. For the year ended June 30, 1993, Summit paid directly or
indirectly through reinsurance, approximately $12.6 million in premiums to
affiliated companies. Of this amount, approximately $11.4 million in premiums
was paid to Meridian.
Directors and Officers of OrNda and Surviving Corporation. Under the Summit
Merger Agreement, OrNda has agreed that promptly after the Summit Effective
Time, OrNda will take such action as may be necessary to enable Donald J.
Amaral and one designee of Don Freeberg (the "Freeberg Designee") to be
appointed to the Board of Directors of OrNda. For so long as John E. Anderson
and Don Freeberg and their respective affiliates (the "Anderson-Freeberg
Group") will be the Beneficial Owner (as defined in Rule 13d-3(a) under the
Exchange Act) in the aggregate of not less than 5% of the issued and
outstanding OrNda Shares, OrNda will nominate such Freeberg Designee for
election to the Board of Directors of OrNda and will use its best efforts to
cause such Freeberg Designee to be elected; provided, however, that prior to
his election, such Freeberg Designee will agree to resign as a director in the
event the Anderson-Freeberg Group will be the Beneficial Owner of less than 5%
of the issued and outstanding OrNda Shares.
The Summit Merger Agreement further provides that the directors of Merger Sub
at the Summit Effective Time will be the initial directors of the Surviving
Corporation and will hold office from the Summit 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, provided, however that Mr. Don
Freeberg and Mr. John Anderson will remain directors of the Surviving
Corporation for a period of not less than six months commencing at the Summit
Effective Time. It further provides that the officers of Summit at the Summit
Effective Time will be the initial officers of the Surviving Corporation and
will hold office from the Summit 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. In addition, it is anticipated that after
consummation of the Summit Merger, Donald J. Amaral, the current Chief
Executive Officer and President of Summit, will become the President and Chief
Operating Officer of OrNda.
Stock Options. At the Summit Effective Time, each Summit Option granted by
Summit to purchase shares of Summit Common Stock pursuant to any stock option
plan or plans of Summit or otherwise (collectively the "Summit Stock Option
Plans") that is outstanding and unexercised immediately prior to the Summit
Effective Time, will become fully vested and immediately exercisable. Each
holder (other than officers, directors and beneficial owners of more than 10%
of any class of equity security of Summit registered under the Exchange Act) of
a Summit Option that is outstanding within 10 days prior to the Summit
Effective Time, must elect, within 10 days prior to the Summit Effective Time,
to receive, in lieu of each such Summit Option, either (1) a payment equal to
the Summit Exchange Ratio minus the exercise price of a share of Summit Common
Stock subject to such Summit Option times the number of shares of Summit Common
Stock subject to such option, provided that in determining the payment to be
made to such holder the exercise price will be applied first to reduce the cash
portion of the Summit Exchange Ratio and then, to the extent the exercise price
exceeds $5.50, to reduce the portion of the Summit Exchange Ratio payable in
OrNda Common Stock (valuing the shares of OrNda Common Stock at $12.75) or (2)
an option to purchase shares of OrNda Common Stock (a "Substituted Option")
under a stock option plan maintained by OrNda, in an amount and at an exercise
price as determined below. Officers, directors and 10% beneficial owners of
Summit equity securities will only be entitled to receive Substituted Options.
Any holder who fails to make a timely election, will receive a Substituted
Option for each outstanding Summit Option (and otherwise subject to the terms
of Summit Stock Option Plans).
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The number of shares, the exercise price and the terms and conditions of a
Substituted Option will be determined in a manner that preserves both (1) the
aggregate gain (or loss) on the Summit Option immediately prior to the time of
substitution, and (2) the ratio of the exercise price per share of Summit
Common Stock subject to such Summit Option to the fair market value (determined
immediately prior to the time of substitution) per share subject to such Summit
Option; provided, however, that in the case of any Summit Option that is an
"incentive stock option" as defined in section 422 of the Code, the adjustment
described above will be, and is intended to be, effected in a manner that is
consistent with section 424(a) of the Code. The duration and other terms of the
new option will be the same as the original option, except that all references
to Summit will be deemed to be references to OrNda.
As of December 15, 1993, the following Summit Options have been granted and
remain outstanding and unexercised: options for 1,050,000 shares to Mr. Amaral;
options for 240,000 shares to Mr. Anderson; options for 800,000 shares to Mr.
Freeberg; an option for 31,800 shares to Randolph Speer, Senior Vice President
and Treasurer of Summit; an option for 78,000 shares to A. Dean Staley, Senior
Vice President and Chief Financial Officer of Summit; options for 2,037,100
shares in the aggregate to all current executive officers as a group; options
for 279,000 shares in the aggregate to all current directors who are not
executive officers as a group; and 590,150 shares in the aggregate to all
employees, including all current officers who are not executive officers or
directors, as a group. The exercise prices of all of the foregoing grants are
equal to the fair market value of Summit Common Stock on the date of the grant.
Indemnification and Insurance. The Summit Merger Agreement provides that
OrNda will cause the Surviving Corporation to keep in effect in its By-Laws a
provision for a period of not less than six years from the Summit Effective
Time (or, in the case of matters occurring prior to the Summit Effective Time
which have not been resolved prior to the sixth anniversary of the Summit
Effective Time, until such matters are finally resolved) which provides for
indemnification of the past and present officers and directors of Summit to the
fullest extent permitted by the California GCL. OrNda will cause to be
maintained in effect for a period ending not sooner than the sixth anniversary
of the Summit Effective Time directors' and officers' liability insurance
providing at least the same coverage with respect to Summit's officers and
directors as the policies maintained on behalf of directors and officers of
Summit as of the date hereof, and containing terms and conditions which are no
less advantageous, with respect to matters occurring on or prior to the Summit
Effective Time (to the extent such insurance is available with respect to such
matters). Notwithstanding the foregoing, from and after the third anniversary
of the Summit Effective Time, OrNda will not be obligated to provide any
greater officers' and directors' liability insurance than that generally
afforded to officers and directors of OrNda under policies maintained by OrNda
with respect to its directors and officers.
Registration Rights. The Summit Merger Agreement provides that prior to the
Summit Effective Time, OrNda will enter into an agreement with each of Don
Freeberg, John E. Anderson and Don Amaral covering their shares of OrNda Common
Stock, their Substituted Options and the shares of OrNda Common Stock subject
to such Substituted Options owned at the Summit Effective Time by Messrs.
Freeberg, Anderson and Amaral and their affiliates pursuant to which Messrs.
Freeberg and Anderson will be granted the right to three "demand" registration
requests and which will contain such other customary terms and conditions as
OrNda and Messrs. Freeberg, Anderson and Amaral will negotiate in good faith,
taking into account OrNda's obligations under the AHM Merger Agreement to
negotiate a mutually acceptable registration rights agreement with John Nickoll
and John Gildea. Such registration rights agreement will provide that one of
such demand registrations will require as a condition to the effectiveness
thereof the concurrence of Mr. Amaral.
Severance Agreements. The Summit Merger Agreement requires OrNda and Summit,
in consultation with AHM, to develop and implement a mutually acceptable
consulting and severance plan covering their respective employees. Such plan
will be applied consistently to the employees of all three companies.
75
<PAGE>
DISSENTERS' RIGHTS IN THE SUMMIT MERGER
Record holders of Summit Common Stock will have the right to dissent with
respect to the Summit Merger and, subject to certain conditions, receive a cash
payment equal to the fair market value of their shares under the California
GCL, but, except in the case of shares which are restricted by Summit, or
applicable law or regulation as to transfer, only if demand for payment is made
with respect to five percent or more of the outstanding shares of Summit Common
Stock. In order to perfect his or her dissenter's rights, a record holder of
Summit Common Stock must (i) vote his or her dissenting shares against the
Summit Merger, (ii) make written demand to purchase his or her dissenting
shares upon Summit not later than the date of the Summit Meeting, (iii) submit
the stock certificates representing his or her dissenting shares to Summit or
its transfer agent, for notation that they represent dissenting shares, within
30 days after the mailing by Summit to shareholders who voted against the
Summit Merger of a notice stating that the Summit Merger Agreement has been
approved and adopted by the shareholders (the "Approval Notice"), and (iv) file
an action in court within six months after the date on which notice stating
that the Summit Merger Agreement has been approved and adopted by the
shareholders is mailed to Summit shareholders who voted against the Summit
Merger Agreement, but only if Summit and the shareholder are unable to reach
agreement on the price to be paid for the dissenting shares, all as more
particularly described below. If demands for payment referred to in clause (ii)
above are not filed with respect to five percent or more of the outstanding
shares of Summit Common Stock, no shareholder of Summit, other than a holder of
shares which are restricted by Summit, or applicable law or regulation as to
transfer, will have dissenters' rights, even if all of the above conditions are
otherwise satisfied. However, completion of the Summit Merger is conditioned
upon, among other things, the aggregate number of shares of Summit Common Stock
with respect to which such demands are filed not exceeding 4.99% of the number
of shares of Summit Common Stock outstanding (i) as of the date of the Summit
Meeting and (ii) immediately prior to the closing of the Summit Merger.
Dissenters' rights cannot be validly exercised by persons other than the
record holders of Summit Common Stock, regardless of the beneficial ownership
thereof. Persons who are beneficial owners of Summit Common Stock but whose
shares are held of record by another person, such as a broker, a bank or a
nominee, should instruct the record holder to follow the procedure outlined
below if they wish to dissent from the Summit Merger with respect to any or all
of their shares.
Under Sections 1300 to 1312 of the California GCL, any shareholder of record
of Summit who votes any and all of his or her shares against the Summit Merger
and who intends to enforce his or her dissenter's rights must, on or before the
date of the Summit Meeting April 19, 1994, submit to Summit at its principal
executive offices, 2600 W. Magnolia Blvd., Burbank, California 91507 Attention:
President, or Summit's transfer agent, Chemical Bank, 300 South Grand Avenue,
Second Floor, Los Angeles California 90071. Attention: Maryanne McElroy, a
written demand that Summit purchase for cash some or all of his or her shares
voted against the Summit Merger, which demand shall state the number and class
of shares which he or she demands that Summit purchase and the amount which the
shareholder claims to be the fair market value of those shares as of December
1, 1993, the day before the first announcement of the terms of the proposed
Summit Merger, excluding any appreciation or depreciation in consequence of the
proposed Summit Merger.
Dissenters' rights may not be perfected with respect to any shares unless
such shares are voted against the Summit Merger. A record shareholder may vote
part of the shares which he or she is entitled to vote in favor of or in
abstention with respect to the Summit Merger without jeopardizing dissenters'
rights as to shares voted against the Summit Merger; however, if a record
shareholder votes part of the shares he or she is entitled to vote in favor of
the Summit Merger and fails to specify the number of shares he or she is voting
in favor of the Summit Merger, it is conclusively presumed under the California
GCL that his or her approving vote is with respect to all shares which he or
she is entitled to vote. A vote to abstain will not constitute a vote against
the Summit Merger for purposes of dissenters' rights. Further, voting against
the Summit Merger will not of itself, absent compliance with the provisions
summarized herein, satisfy the requirements of the California GCL for exercise
of dissenters' rights.
76
<PAGE>
If any shareholder of Summit has a right to require Summit to purchase his or
her shares for cash under the provisions of the California GCL, Summit will
mail to each such shareholder an Approval Notice within ten (10) days after
approval of the Summit Merger, stating the price determined by Summit to
represent the fair market value of the dissenting shares and briefly describing
the procedure to be followed if the shareholder desires to exercise his or her
dissenters' rights.
A dissenting shareholder must, within 30 days after Summit mails to him or
her the Approval Notice, submit to Summit or its transfer agent at the
addresses set forth above certificates representing the dissenting shares which
he or she demands that Summit purchase so that such certificates may be stamped
or endorsed with a statement that the shares are dissenting shares or exchanged
for certificates of appropriate denomination so stamped or endorsed. The
Approval Notice will specify the date by which the submission of certificates
for endorsement must be made to Summit and a submission made after such date
will not be effective for any purpose.
If Summit and a dissenting shareholder agree that the shares are dissenting
shares entitled to receive payment therefor and agree upon the price of such
shares, Summit, upon surrender of the certificates evidencing such shares, will
make payment of such amount (plus interest thereon from the date of such
agreement) within 30 days after such agreement. Any agreement fixing the fair
market value of any dissenting shares between a dissenting shareholder and
Summit shall be filed with the Secretary of Summit.
If Summit denies that the shares are dissenting shares entitled to receive
payment therefor, or Summit and the dissenting shareholder fail to agree
respecting the fair market value of the shares, the dissenting shareholder may,
within six months after the date on which the Approval Notice was mailed to the
shareholder, but not thereafter, file a complaint in the Superior Court of the
County of Los Angeles, State of California, requesting that the Court determine
whether the shares are dissenting shares and/or the fair market value of such
dissenting shares. The costs of the action will be assessed or apportioned as
the Court considers equitable, but, if the fair market value is determined to
exceed the price offered to the shareholder by Summit, Summit will be required
to pay the costs of the action and may be required to pay counsel fees.
A dissenting shareholder may not withdraw his or her dissent or demand for
payment without the consent of Summit by its Board of Directors. The rights of
dissenting shareholders to demand payment terminate if, among other things, the
Summit Merger is abandoned or if the shares are transferred prior to submission
for endorsement as dissenting shares.
The foregoing is a brief summary of the rights of dissenting shareholders,
does not purport to be a complete statement thereof and is qualified in its
entirety by reference to the applicable statutory provisions of the California
GCL which are set forth in Annex G hereto.
REGULATORY APPROVAL
Under the HSR Act, and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Mergers could not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and specified waiting period requirements have been satisfied.
OrNda and AHM each filed notification and report forms under the HSR Act with
the FTC and the Antitrust Division on December 10, 1993 with respect to the AHM
Merger. OrNda and Summit filed notification and report forms under the HSR Act
with the FTC and the Antitrust Division on January 7, 1994 with respect to the
Summit Merger. OrNda and AHM have received notice of early termination of the
HSR Act waiting period and the required waiting period expired on February 6,
1994 with respect to the Summit Merger. At any time before or after
consummation of the AHM Merger or the Summit Merger as
77
<PAGE>
the case may be, the Antitrust Division or the FTC could take such action under
the antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the consummation of the AHM Merger or the Summit
Merger as the case may be, or seeking divestiture of substantial assets of
OrNda, AHM or Summit. At any time before or after the AHM Effective Time or the
Summit Effective Time, as the case may be, and notwithstanding that the HSR Act
waiting period has expired, any state could take such action under the
antitrust laws as it deems necessary or desirable. Such action could include
seeking to enjoin the consummation of the AHM Merger or the Summit Merger as
the case may be, or seeking divestiture of OrNda, AHM or Summit. Private
parties may also seek to take legal action under the antitrust laws under
certain circumstances.
CONSENT SOLICITATION
Pursuant to the Waiver and Consent Agreement by and among OrNda and the
holders of a majority in principal amount of the outstanding AHM Notes (the
"AHM Holders"), dated as of February 3, 1994, the AHM Holders have agreed,
subject to the effectiveness of the AHM Merger, to the waiver of Section 1009
of the AHM Indenture, "Limitation on Layered and Junior Debt", to exclude the
OrNda Notes from the indebtedness otherwise prohibited by such section. In
addition, pursuant to the Waiver and Consent Agreement, the AHM Holders have
agreed to the amendment of (i) the definition of "Consolidated Cash Flow Ratio"
in Section 101 of the AHM Indenture to permit the pro forma use of certain cash
flows when calculating the Consolidated Cash Flow Ratio and (ii) Section 1015
of the AHM Indenture, "Limitation on Certain Asset Dispositions", to permit
OrNda to engage in property for property exchanges and other dispositions
involving a substantial amount of non-cash consideration (the "Amendments").
OrNda and the trustee of the AHM Notes (the "Trustee") will execute upon
consummation of the AHM Merger a supplemental indenture which will provide for
the Amendments, and which will also provide for the assumption by OrNda of the
due and punctual payment of the principal of (and premium, if any) and interest
on all the AHM Notes and the performance of every covenant of the AHM Indenture
to be performed or observed by AHM as if OrNda had been originally named in the
AHM Indenture as the "Company" (as such term is defined in the AHM Indenture).
OrNda will make consent payments on the closing date of the AHM Merger to the
Trustee for the benefit of each holder of record of AHM Notes as of the close
of business on January 12, 1994 (the "Consent Record Date") of $15.00 for each
$1,000 principal amount of the AHM Notes held by such holder on the Consent
Record Date. In addition, OrNda will pay interest on the AHM Notes at the rate
of 10 1/4% per annum following the consummation of the AHM Merger and execution
of a supplemental indenture.
78
<PAGE>
PRO FORMA FINANCIAL INFORMATION
ORNDA HEALTHCORP AND SUBSIDIARIES
AMERICAN HEALTHCARE MANAGEMENT, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
The pro forma condensed combined balance sheet gives effect to the AHM
Merger by combining the balance sheet of OrNda at November 30, 1993 with the
balance sheet of AHM at September 30, 1993 applying the pooling-of-interests
method of accounting. The pro forma condensed combined balance sheet should be
read in conjunction with the respective historical financial statements and
notes thereto of OrNda and AHM incorporated by reference in this Proxy
Statement/Prospectus. The pro forma condensed combined balance sheet assumes
that the AHM Merger was consummated on November 30, 1993 and gives effect to
the issuance of 0.6 of a share of OrNda Common Stock in exchange for each
outstanding share of AHM Common Stock. The pro forma condensed combined
balance sheet is presented for comparative purposes only and is not
necessarily indicative of what the combined financial position would have been
had the AHM Merger been consummated as of the date for which this pro forma
condensed combined balance sheet is presented.
The pro forma condensed combined balance sheet also assumes that AHM's $100
million aggregate principal amount of AHM Notes remain outstanding. The AHM
Merger will be a Change of Control allowing each AHM Noteholder to require AHM
to repurchase all or a portion of their AHM Notes at 101% of the principal
amount thereof. Based on current market conditions, OrNda does not expect AHM
Noteholders to exercise their repurchase rights. See "The Mergers--Description
of Certain Indebtedness."
<TABLE>
<CAPTION>
ORNDA AHM ORNDA/
NOVEMBER 30, SEPTEMBER 30, AHM
1993 1993 PRO FORMA
------------ ------------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............... $ 8,194 $ 15,918 $ 24,112
Patient accounts receivable, net of al-
lowance for uncollectibles............. 130,592 44,592 175,184
Supplies, at cost....................... 13,687 4,616 18,303
Other................................... 17,750 4,144 21,894
-------- -------- ----------
Total Current Assets.................. 170,223 69,270 239,493
Property Plant And Equipment, net of
accumulated depreciation................ 531,479 272,084 803,563
Other Assets............................. 220,908 16,351 237,259
-------- -------- ----------
Total Assets.......................... $922,610 $357,705 $1,280,315
======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accrued expenses and other liabilities.. $128,306 $ 38,579 $ 166,885
Current maturities of long-term debt.... 2,488 6,423 8,911
-------- -------- ----------
Total Current Liabilities 130,794 45,002 175,796
Long-Term Debt........................... 566,519 168,478 734,997
Other Liabilities........................ 61,295 9,563 70,858
Shareholders' Equity..................... 164,002 134,662 298,664
-------- -------- ----------
Total Liabilities And Shareholders'
Equity............................... $922,610 $357,705 $1,280,315
======== ======== ==========
</TABLE>
See notes to unaudited pro forma condensed combined balance sheet.
79
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
NOTE 1
The following tables outline OrNda's total common shares outstanding on
November 30, 1993 as adjusted for the conversion of AHM Common Stock, warrants
and options based on the exchange ratio of 0.6 shares of OrNda Common Stock,
warrant or option for each share of AHM Common Stock, warrant or option,
respectively. The AHM Merger should not affect the outstanding OrNda stock
options.
<TABLE>
<S> <C> <C>
OrNda shares outstanding on November 30, 1993..... 18,493,675
AHM shares outstanding on November 30, 1993....... 27,182,843
Conversion rate................................... 60.00%
----------
AHM shares outstanding converted to OrNda Shares.. 16,309,706
----------
Total outstanding............................. 34,803,381
==========
OrNda options outstanding on November 30, 1993.... 1,719,479
AHM options and warrants outstanding on November
30, 1993......................................... 2,759,399
Conversion Rate................................... 60.00%
----------
AHM options and warrants outstanding converted to
OrNda options and warrants ...................... 1,655,639
----------
Total outstanding............................. 3,375,118
==========
</TABLE>
NOTE 2
As a result of the AHM Merger, the combined company will be subject to
Section 382 annual limitations which will limit the combined company's ability
to claim net operating loss deductions. OrNda does not expect that these annual
limitations will have a material adverse effect on the combined company's
ability to fully utilize net operating loss carryforwards existing as of the
AHM Effective Time. Accordingly, the pro forma financial statements do not
reflect any adjustments to the deferred tax assets of the combined company.
80
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
AMERICAN HEALTHCARE MANAGEMENT, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The pro forma condensed combined income statements for the fiscal years ended
August 31, 1993, 1992 and 1991 give effect to the AHM Merger as if it occurred
at the beginning of the earliest period presented by combining the results of
operations of OrNda for the fiscal year ended August 31, (adjusted on a pro
forma basis to include the acquisition of Florida Medical Center as described
below) and the results of operations of AHM for the twelve months ended
September 30, applying the pooling-of-interests method of accounting. The pro
forma condensed combined income statements for the three months ended November
30, 1993 and 1992 give effect to the AHM Merger as if it occurred at the
beginning of the earliest period presented by combining the results of
operations of OrNda for the three months ended November 30, and the results of
operations of AHM for the three months ended September 30, applying the
pooling-of-interests method of accounting. These pro forma condensed combined
income statements should be read in conjunction with the historical financial
statements and notes thereto of OrNda and AHM incorporated by reference in this
Proxy Statement/Prospectus. These pro forma condensed combined income
statements are presented for comparative purposes only and are not necessarily
indicative of the combined results of operations in the future or of what the
combined results of operations would have been had the AHM Merger been
consummated during the period for which these statements are presented. Income
per common and common equivalent share and weighted average shares outstanding
give effect to the issuance of 0.6 of a share of OrNda Common Stock in exchange
for each outstanding share of AHM Common Stock. In addition, the pro forma
condensed combined income statements do not give effect to the cost savings, if
any, which may be realized by OrNda after consummation of the AHM Merger.
OrNda acquired Florida Medical Center on June 30, 1993 in a transaction
accounted for as a purchase. The OrNda pro forma condensed combined income
statement for the year ended August 31, 1993 reflects the operating results of
OrNda for the fiscal year ended August 31, 1993 as if the acquisition of
Florida Medical Center had occurred on September 1, 1992 (see Note 1).
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEARS ENDED
ENDED NOVEMBER 30, AUGUST 31,
---------------------- ------------------------------
1993 1992 1993 1992 1991
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Total Revenue............ $ 267,416 $ 218,329 $1,060,663 $808,524 $752,162
Costs and Expenses
Operating expenses..... 210,185 178,216 842,064 674,176 618,818
Provision for doubtful
accounts.............. 20,706 12,494 69,730 52,426 40,978
Depreciation and
amortization.......... 14,198 11,397 52,093 40,003 32,116
Interest expense....... 19,335 17,020 75,511 40,229 59,167
Interest income........ (521) (1,294) (3,380) (3,226) (3,541)
Minority interest...... 574 504 4,601 7,610 3,955
Special executive
compensation.......... -- -- -- 6,140 --
Severance agreements... -- -- -- 5,090 --
Loss on disposal of
hospitals/investments. -- -- -- 44,903 11,412
Corporate office
relocation expense.... -- -- -- 1,800 --
---------- ---------- ---------- -------- --------
2,939 (8) 20,044 (60,627) (10,743)
Income (loss) from
investments in Houston
Northwest Medical
Center.................. (1,820) (1,506) 173 (8,210) (6,147)
---------- ---------- ---------- -------- --------
Income (loss) from
continuing operations
before income tax
expense................. 1,119 (1,514) 20,217 (68,837) (16,890)
Income tax expense
(benefit)............... 265 (210) 1,129 425 306
---------- ---------- ---------- -------- --------
Income (loss) from
continuing operations... 854 (1,304) 19,088 (69,262) (17,196)
Preferred stock dividend
requirements............ (431) (410) (1,699) (1,363) --
========== ========== ========== ======== ========
Income (loss) from
continuing operations
applicable to common and
common equivalent shares $ 423 $ (1,714) $ 17,389 $(70,625) $(17,196)
========== ========== ========== ======== ========
Earnings (loss) per
common and common
equivalent share from
continuing operations $ 0.01 $ (0.05) $ 0.50 $ (2.23) $ (1.15)
========== ========== ========== ======== ========
Shares used in earnings
(loss) per common and
common equivalent share
computations (in
thousands).............. 36,099 34,244 34,987 31,615 15,014
</TABLE>
See notes to unaudited pro forma condensed combined income statements.
81
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED INCOME STATEMENTS
NOTE 1
After the AHM Merger, OrNda will continue to report its financial information
on a fiscal year basis ending on August 31. Accordingly, the AHM results of
operations, which are included in the accompanying unaudited pro forma
condensed combined income statements, have been presented on a fiscal year
basis ending on September 30.
OrNda acquired Florida Medical Center on June 30, 1993, for an aggregate
purchase price of $113.1 million. The unaudited pro forma condensed combined
income statement for the year ended August 31, 1993, reflects the pro forma
operations of OrNda as if its acquisition of Florida Medical Center had
occurred on September 1, 1992. The historical results of Florida Medical Center
have been adjusted using purchase accounting to give effect to the acquisition
by OrNda and to eliminate the effect of significant nonrecurring transactions.
The following combining unaudited pro forma condensed income statement for
the year ended August 31, 1993 presents the historical operations of OrNda, and
the incremental pro forma operations of Florida Medical Center as if the
acquisition of Florida Medical Center by OrNda had occurred on September 1,
1992.
ORNDA HEALTHCORP AND FLORIDA MEDICAL CENTER
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED AUGUST 31, 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FLORIDA ORNDA
ORNDA MEDICAL CENTER PRO FORMA
-------- -------------- ---------
<S> <C> <C> <C>
Total Revenue............................... $624,847 $98,867 $723,714
Costs and Expenses
Operating expenses........................ 495,437 76,322 571,759
Provision for doubtful accounts........... 42,976 5,822 48,798
Depreciation and amortization............. 28,944 4,424 33,368
Interest expense.......................... 55,330 6,851 62,181
Interest income........................... (3,380) -- (3,380)
Minority interest......................... 4,601 -- 4,601
-------- ------- --------
939 5,448 6,387
Income from investments in Houston Northwest
Medical Center............................. 173 -- 173
-------- ------- --------
Income from continuing operations before in-
come tax expense........................... 1,112 5,448 6,560
Income tax expense.......................... 342 -- 342
-------- ------- --------
Income from continuing operations........... 770 5,448 6,218
Preferred stock dividend requirements....... (1,699) -- (1,699)
-------- ------- --------
Income (loss) from continuing operations ap-
plicable to common and common equivalent
shares..................................... $ (929) $ 5,448 $ 4,519
======== ======= ========
Earnings (loss) per common and common equiv-
alent share from
continuing operations...................... $ (0.05) $ 0.25
======== ========
Shares used in earnings (loss) per common
and common equivalent share computations
(in thousands)............................. 17,612 17,834
</TABLE>
82
<PAGE>
NOTE 2
The table below sets forth information for the unaudited pro forma combined
revenues, income from continuing operations and earnings per common share from
continuing operations for the years ended August 31, 1993, 1992 and 1991 and
for the three months ended November 30, 1993 and 1992, respectively. Such
information is presented as if the AHM Merger had taken place at the beginning
of each period presented.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
ENDED NOVEMBER
30, FOR THE YEARS ENDED
------------------ -------------------------------
1993 1992 1993 1992 1991
-------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
OrNda historical....... $182,952 $142,521 $ 624,847 $ 501,770 $ 461,871
Florida Medical Center
pro forma........... -- -- 98,867 -- --
-------- -------- ---------- --------- ---------
OrNda pro forma........ 182,952 142,521 723,714 501,770 461,871
AHM historical......... 84,464 75,808 336,949 306,754 290,291
-------- -------- ---------- --------- ---------
Pro forma combined..... $267,416 $218,329 $1,060,663 $808,524 $752,162
======== ======== ========== ========= =========
Income (loss) from con-
tinuing operations:
OrNda historical....... $ (444) $ (2,888) $ 770 $ (85,855) $ (6,046)
Florida Medical Center
pro forma........... -- -- 5,448 -- --
-------- -------- ---------- --------- ---------
OrNda pro forma........ (444) (2,888) 6,218 (85,855) (6,046)
AHM historical......... 1,298 1,584 12,870 16,593 (11,150)
-------- -------- ---------- --------- ---------
Pro forma combined..... $ 854 $ (1,304) $ 19,088 $ (69,262) $ (17,196)
======== ======== ========== ========= =========
Earnings (loss) per
common share from
continuing operations:
OrNda historical....... $ (0.05) $ (0.19) $ (0.05) $ (6.00) $ (1.03)
Florida Medical Center
pro forma........... -- -- 0.30 -- --
-------- -------- ---------- --------- ---------
OrNda pro forma........ (0.05) (0.19) 0.25 (6.00) (1.03)
AHM historical......... 0.05 0.06 0.45 0.58 (0.73)
Pro forma combined..... 0.01 (0.05) 0.50 (2.23) (1.15)
</TABLE>
No provision has been reflected in the unaudited pro forma condensed combined
financial statements for expenses expected to be incurred by OrNda and AHM in
connection with the AHM Merger. These expenses, consisting primarily of amounts
related to the refinancing of the outstanding senior bank and institutional
indebtedness of OrNda and AHM, obtaining the consents and waivers from the
holders of the AHM Notes, investment advisory and professional fees, expenses
for printing and distributing proxy materials and certain severance and
relocation costs, are estimated at $10 million and will be charged as expense
upon completion of the AHM Merger. No provision has been reflected in the
unaudited pro forma condensed combined financial statements for the receipt by
OrNda and AHM of financing in an amount sufficient to refinance the outstanding
senior and institutional indebtedness of OrNda and AHM, which is approximately
$198.7 million at November 30, 1993, and satisfy the change of control
repurchase rights of the AHM Noteholders arising by reason of the AHM Merger.
See "The Mergers--Terms of the AHM Merger--Conditions" and "--Description of
Certain Indebtedness."
83
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
SUMMIT HEALTH LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
The pro forma condensed combined balance sheet gives effect to the Summit
Merger by combining the balance sheet of OrNda at November 30, 1993 with the
balance sheet of Summit at September 30, 1993, applying the purchase method of
accounting. The pro forma condensed combined balance sheet should be read in
conjunction with the respective historical financial statements and notes
thereto of OrNda and Summit incorporated by reference in this Proxy
Statement/Prospectus. The pro forma condensed combined balance sheet assumes
that the Summit Merger was consummated on November 30, 1993 and gives effect
to the payment of $5.50 in cash and the issuance of 0.2157 of a share of OrNda
Common Stock in exchange for each outstanding share of Summit Common Stock.
The pro forma condensed combined balance sheet is presented for comparative
purposes only and is not necessarily indicative of what the combined financial
position would have been had the Summit Merger been consummated as of the date
for which this pro forma condensed combined balance sheet is presented.
The pro forma condensed combined balance sheet also assumes that the Real
Estate Purchase is consummated and the $85.4 million purchase is financed by
OrNda. See "The Mergers--Terms of the Summit Merger--Real Estate Purchase" and
"--Interests of Certain Persons in the Summit Merger."
<TABLE>
<CAPTION>
ORNDA SUMMIT PRO ORNDA/
NOVEMBER 30, SEPTEMBER 30, FORMA SUMMIT
1993 1993 ADJUSTMENTS PRO FORMA
------------ ------------- ----------- ----------
ASSETS
<S> <C> <C> <C> <C>
Current Assets
Cash and cash
equivalents............. $ 8,194 $ 37,952 $167,513 (1) $ --
(183,720)(2)
(7,217)(2)
(22,722)(3)
Patient accounts
receivable net of
allowance
for uncollectibles...... 130,592 73,619 (9,912)(2) 194,299
Supplies, at cost ....... 13,687 9,843 (1,254)(2) 22,276
Other.................... 17,750 16,531 (2,388)(2) 31,893
-------- -------- -------- ----------
Total Current Assets... 170,223 137,945 (59,700) 248,468
Property Plant and
Equipment, net of
accumulated depreciation.. 531,479 219,591 85,400 (1) 784,428
(52,042)(2)
Other Assets............... 220,908 30,485 20,000 (1) 415,992
(32,048)(2)
176,647 (2)
-------- -------- -------- ----------
Total Assets........... $922,610 $388,021 $138,257 $1,448,888
======== ======== ======== ==========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current Liabilities
Accrued expenses and
other liabilities....... $128,306 $117,867 $(4,327)(2) $ 219,124
(22,722)(3)
Current maturities of
long-term debt.......... 2,488 6,628 (1,347)(2) 7,769
-------- -------- -------- ----------
Total Current
Liabilities........... 130,794 124,495 (28,396) 226,893
Long-Term Debt............. 566,519 82,137 272,913 (1) 855,217
(66,352)(2)
Other Liabilities.......... 61,295 62,368 (17,435)(2) 106,228
Shareholders' Equity....... 164,002 119,021 (119,021)(2) 260,550
96,548 (2)
-------- -------- -------- ----------
Total Liabilities and
Shareholders' Equity.. $922,610 $388,021 $138,257 $1,448,888
======== ======== ======== ==========
</TABLE>
See notes to unaudited pro forma condensed combined balance sheet.
84
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
NOTE 1
To record the incremental borrowing related to the Summit Merger as
follows:
<TABLE>
<S> <C>
Cash for acquisition of stock including conversion of options..... $183,720
Cash for financing and transaction costs.......................... 20,000
Cash for purchase of hospital properties currently under operating
lease............................................................ 85,400
Less Summit's cash, net of commercial paper....................... (8,013)
Less OrNda cash................................................... (8,194)
--------
Additional debt adjustment...................................... 272,913
Less cash for financing and transaction costs..................... (20,000)
Less cash for purchase of hospital properties..................... (85,400)
--------
Net cash adjustment............................................. $167,513
========
</TABLE>
The Summit Merger Agreement provides that holders of Summit Options (other
than officers, directors and beneficial owners of more than 10% of any class of
equity security of Summit registered under the Exchange Act (collectively, the
"Section 16 Insiders")) will have the right to convert such Options into either
(i) a payment equal to the per share Summit Exchange Ratio minus the per share
exercise price of such Option (the "Option Spread") times the number of Summit
shares subject to such Option or (ii) an option to purchase OrNda shares. Under
the Summit Merger Agreement, Section 16 Insiders will only be entitled to
receive such replacement options. See "The Merger--Terms of the Summit Merger--
Conversion of Stock Options." All holders of Summit Options (including Section
16 Insiders) will also have the right to exercise such Options prior to the
consummation of the Summit Merger and have the shares of Summit Common Stock so
received converted into the Summit Exchange Ratio. The pro forma balance sheet
assumes the holders of the outstanding Summit Options, including the Section 16
Insiders, elect to exercise their Options prior to the consummation of the
Summit Merger and receive the Summit Exchange Ratio. If holders of Summit
Options chose either to receive the Option Spread or to receive replacement
options to purchase OrNda shares, the impact on the pro forma balance sheet
would be to reduce the amount of borrowing necessary for the acquisition of
such options and reduce the excess cost of the net assets acquired over fair
market value. The impact on the pro forma income statement would not be
material.
The cash required for acquisition of Summit Common Stock and Summit Options
as noted above is calculated as follows:
<TABLE>
<S> <C>
Summit Common Stock outstanding on November 30, 1993............... 32,495
Cash exchange price per share...................................... $ 5.50
--------
$178,722
Net cash price for 2,906 Summit Options outstanding at November 30,
1993.............................................................. 4,998
--------
$183,720
========
</TABLE>
85
<PAGE>
NOTE 2
To record the purchase of Summit Common Stock including the adjustment of
Summit's balance sheet to reflect assets acquired by the Company.
<TABLE>
<S> <C> <C>
Cash used to acquire Summit Common Stock............... $183,720
Value of stock issued in exchange for Summit Common
Stock................................................. 96,548
--------
Acquisition price...................................... 280,268
Less adjustments of Summit's historical balances of as-
sets and liabilities including adjustments to account
for investment in Summit Care as if the Exchangeable
Notes are exchanged for Summit Care Common Stock as
described below:
Cash and cash equivalents............................ $ 7,217
Patient accounts receivable.......................... 9,912
Supplies............................................. 1,254
Other current assets................................. 2,388
Property, plant and equipment........................ 52,042
Other assets......................................... 32,048
Accrued expenses and other liabilities............... (4,327)
Current maturities of long-term debt................. (1,347)
Long-term debt....................................... (66,352)
Other liabilities.................................... (17,435)
Shareholders' equity................................. (119,021) (103,621)
-------- --------
To record excess cost of the net assets acquired from
Summit over fair market value......................... $176,647
========
</TABLE>
OrNda believes that the recorded value of Summit's assets and liabilities
approximates their estimated fair values.
Summit currently owns 51.8% of Summit Care Corporation ("Summit Care").
Summit has $37.4 million of 7 1/2% Exchangeable Subordinated Notes due April 1,
2003 (the "Exchangeable Notes") which are exchangeable, at the option of the
holders into Summit's 51.8% interest in Summit Care Common Stock on April 1,
1994. The pro forma condensed combined balance sheet at November 30, 1993 gives
effect to the investment in Summit Care as if the holders of the Exchangeable
Notes exchanged for the Summit Care Common Stock on November 30, 1993.
The Summit Merger will be a Repurchase Event allowing each Summit Noteholder
to require Summit to repurchase their Summit Notes at 100% of the principal
amount thereof unless for any five trading days within a period of ten
consecutive trading days ending immediately before the Summit Effective Time,
the Market Price (as defined in the Summit Indenture) of the Summit Care Common
Stock is at least equal to 105% of the Exchange Price (as defined in the Summit
Indenture). Because the common stock of Summit Care Corporation is trading at a
significant premium over the Exchange Price, it is unlikely the Summit Merger
will constitute a Repurchase Event. Moreover, because such common stock is
trading at a significant premium over the 100% principal amount a holder of
Summit Notes would receive if he exercised his repurchase rights, OrNda
believes it is unlikely that any Summit Noteholder would exercise such rights
(if any). See "The Mergers--Description of Certain Indebtedness."
NOTE 3
To record retirement of Summit commercial paper with excess cash.
NOTE 4
OrNda and Summit have entered into a non-binding letter of intent with a
third party purchaser for approximately $28 million of the Real Estate Purchase
discussed above. If such sale is consummated, OrNda would lease such real
estate from the third party under an operating lease agreement. If the
transaction is consummated, long-term debt and property, plant and equipment
would each be reduced by approximately $28 million dollars. There can be no
assurance such transaction will be consummated.
86
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
SUMMIT HEALTH LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The pro forma condensed combined income statement for the three months ended
November 30, 1993 gives effect to the Summit Merger as if it occurred on
September 1, 1992 by combining the results of operations for OrNda for the
three months ended November 30, 1993 and the results of operations of Summit
for the three months ended September 30, 1993 applying the purchase method of
accounting. This pro forma condensed combined income statement should be read
in conjunction with the historical financial statements and notes thereto of
OrNda and Summit incorporated by reference in this Proxy Statement/Prospectus.
This pro forma condensed combined income statement is presented for comparative
purposes only and is not necessarily indicative of the combined results of
operations in the future or of what the combined results of operations would
have been had the Summit Merger been consummated during the period for which
this statement is presented. Pro forma earnings per common and common
equivalent share and pro forma weighted average shares outstanding give effect
to the payment of $5.50 in cash and the issuance of 0.2157 of a share of OrNda
Common Stock for each outstanding share of Summit Common Stock. In addition,
the pro forma condensed combined income statement does not give effect to the
cost savings, if any, which may be recognized by OrNda after consummation of
the Summit Merger.
<TABLE>
<CAPTION>
ORNDA THREE MONTHS SUMMIT THREE MONTHS PRO
ENDED NOVEMBER 30, ENDED SEPTEMBER 30, PRO FORMA FORMA
1993 1993 ADJUSTMENTS COMBINED
------------------ ------------------- ----------- --------
<S> <C> <C> <C> <C>
Total Revenue........... $182,952 $129,684 $(22,109)(5) $290,527
Costs and Expenses
Operating expenses.... 142,796 106,112 (2,769)(4) 227,438
(18,701)(5)
Provision for doubtful
accounts............. 13,853 6,410 (141)(5) 20,122
Depreciation and amor-
tization............. 9,346 5,250 2,488 (1) 16,426
(658)(5)
Interest expense...... 15,108 2,641 3,852 (2) 20,407
(1,194)(5)
Interest income....... (318) (430) (83)(5) (588)
243 (2)
Minority interest..... 574 600 (600)(5) 574
-------- -------- -------- --------
1,593 9,101 (4,546) 6,148
Loss from investments in
Houston Northwest Medi-
cal Center............. (1,820) -- -- (1,820)
-------- -------- -------- --------
Income (loss) from con-
tinuing operations be-
fore income tax ex-
pense.................. (227) 9,101 (4,546) 4,328
Income tax expense...... 217 4,203 (887)(3)
(855)(5) 2,678
-------- -------- -------- --------
Income (loss) continuing
operations............. (444) 4,898 (2,804) 1,650
Preferred stock dividend
requirements........... (431) -- -- (431)
-------- -------- -------- --------
Income from continuing
operations applicable
to common and common
equivalent shares...... $ (875) $ 4,898 $ (2,804) $ 1,219
======== ======== ======== ========
Earnings per common and
common equivalent share
from continuing
operations............. $ (0.05) $ 0.15 $ 0.05
======== ======== ========
Shares used in earnings
per common and common
equivalent share
computations (in
thousands)............. 18,273 33,753 26,455
</TABLE>
See notes to unaudited pro forma condensed combined income statement.
87
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED INCOME STATEMENT
NOTE 1
<TABLE>
<S> <C>
To adjust depreciation and amortization as follows:
To record amortization related to the $191.6 million increase in
excess of costs of net assets acquired over fair value assuming a
30 year life...................................................... $1,597
To record amortization on the $6 million increase in deferred
financing costs assuming a 6 year life............................ 250
To record depreciation on the $85.4 million of properties to be
acquired assuming a 30 year life.................................. 641
------
$2,488
======
</TABLE>
The pro forma condensed combined income statement assumes that the net assets
acquired from Summit over fair market value will be amortized over 30 years.
The amortization period was determined based upon the estimated economic life
of the property, plant, and equipment acquired. OrNda evaluates the
amortization period of intangible assets on an annual basis.
NOTE 2
<TABLE>
<S> <C>
To record interest expense on borrowings of $272.9 million related
to the New Credit Facility (assumes 5.5% interest rate).......... $3,753
To record commitment fee on unused portion of the New Credit Fa-
cility........................................................... 286
To eliminate historical interest expense related to Summit commer-
cial paper....................................................... (187)
------
$3,852
======
To eliminate interest income on excess cash....................... $ 243
======
</TABLE>
OrNda has received a commitment from a group of lenders to provide, subject
to the fulfillment of certain customary conditions, the financing necessary
to consummate the proposed merger transactions. The commitment provides for
interest at the Base Rate + 1% or LIBOR +2%.
NOTE 3
To record pro forma provision for income taxes on the above transactions at a
statutory rate of 40%, except for goodwill amortization adjustments related
to excess costs of net assets acquired over fair value which will not be
deductible for tax purposes.
NOTE 4
To record effect of the Real Estate Purchase. The pro forma financial
statements assume OrNda acquires approximately $85.4 million of the
properties under lease. OrNda and Summit have entered into a non-binding
letter of intent with a third party purchaser for approximately $28 million
of the Real Estate Purchase. If such sale is consummated OrNda would lease
such real estate from the third party under an operating lease agreement. If
the transaction is consummated, rent expense will increase and depreciation
expense and interest expense will be reduced, resulting in a reduction of
net income of approximately $0.125 million per quarter. There can be no
assurance such transaction will be consummated.
88
<PAGE>
NOTE 5
To record the effect of accounting for the investment in Summit Care
Corporation as if the Exchangeable Notes are exchanged for Summit Care
Common Stock as described below:
<TABLE>
<S> <C>
Total revenue..................................................... $(22,109)
Operating expenses................................................ (18,701)
Provision for doubtful accounts................................... (141)
Depreciation and amortization..................................... (658)
Interest expense.................................................. (1,194)
Interest income................................................... (83)
Minority interest................................................. (600)
Income tax........................................................ (855)
</TABLE>
Summit currently owns 51.8% of Summit Care Corporation ("Summit Care").
Summit has $37.4 million of 7 1/2% Exchangeable Subordinated Notes due April
1, 2003 (the "Exchangeable Notes") which are exchangeable, at the option of
the holders, into Summit's 51.8% interest in Summit Care Common Stock, on
April 1, 1994. The pro forma condensed combined income statement for the
three months ended November 30, 1993 gives effect to the investment in
Summit Care as if the holders of the Exchangeable Notes exchanged for the
Summit Care Common Stock on September 1, 1992.
89
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
SUMMIT HEALTH LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED AUGUST 31, 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The pro forma condensed combined income statement for the fiscal year ended
August 31, 1993 gives effect to the Summit Merger as if it occurred on
September 1, 1992 by combining the results of operations for OrNda for the
fiscal year ended August 31, 1993 (adjusted on a pro forma basis to include the
acquisition of Florida Medical Center as described below) and the results of
operations of Summit for the fiscal year ended June 30, 1993 applying the
purchase method of accounting. This pro forma condensed combined income
statement should be read in conjunction with the historical financial
statements and notes thereto of OrNda and Summit incorporated by reference in
this Proxy Statement/Prospectus. This pro forma condensed combined income
statement is presented for comparative purposes only and is not necessarily
indicative of the combined results of operations in the future or of what the
combined results of operations would have been had the Summit Merger been
consummated during the period for which this statement is presented. Pro forma
earnings per common and common equivalent share and pro forma weighted average
shares outstanding give effect to the payment of $5.50 in cash and the issuance
of 0.2157 of a share of OrNda Common Stock for each outstanding share of Summit
Common Stock. In addition, the pro forma condensed combined income statement
does not give effect to the cost savings, if any, which may be recognized by
OrNda after consummation of the Summit Merger.
OrNda acquired Florida Medical Center on June 30, 1993 for approximately
$113.1 million in a transaction accounted for as a purchase. The OrNda pro
forma condensed combined income statement for the year ended August 31, 1993
reflects the operating results of OrNda for the fiscal year ended August 31,
1993 as if the acquisition of Florida Medical Center had occurred on September
1, 1992 (see Note 1).
<TABLE>
<CAPTION>
ORNDA PRO ORNDA /
PRO FORMA SUMMIT FORMA SUMMIT
AUGUST 31, 1993 JUNE 30, 1993 ADJUSTMENTS PRO FORMA
--------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Total Revenue........... $723,714 $508,504 $(83,992)(6) $1,148,226
Costs and Expenses
Operating expenses.... 571,759 425,242 (11,076)(5) 914,102
(71,823)(6)
Provision for doubtful
accounts............. 48,798 23,113 (534)(6) 71,377
Depreciation and amor-
tization............. 33,368 19,185 9,950 (2) 60,195
(2,308)(6)
Interest expense...... 62,181 7,377 15,407 (3) 83,529
(1,436)(6)
Interest income....... (3,380) (1,605) 973 (3) (4,420)
(408)(6)
Minority interest..... 4,601 2,421 (2,421)(6) 4,601
-------- -------- -------- ----------
6,387 32,771 (20,316) 18,842
Income from investments
in Houston Northwest
Medical Center......... 173 -- -- 173
-------- -------- -------- ----------
Income from continuing
operations before in-
come tax expense....... 6,560 32,771 (20,316) 19,015
Income tax expense...... 342 14,201 (3,547)(4) 7,879
(3,117)(6)
-------- -------- -------- ----------
Income from continuing
operations............. 6,218 18,570 (13,652) 11,136
Preferred stock dividend
requirements........... (1,699) -- -- (1,699)
-------- -------- -------- ----------
Income from continuing
operations applicable
to common and common
equivalent shares...... $ 4,519 $ 18,570 $(13,652) $ 9,437
======== ======== ======== ==========
Earnings per common and
common equivalent share
from continuing
operations............. $ 0.25 $ 0.56 $ 0.37
======== ======== ==========
Shares used in earnings
per common and common
equivalent share
computations (in
thousands)............. 17,834 33,201 25,407
</TABLE>
See notes to unaudited pro forma condensed combined income statement.
90
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED INCOME STATEMENT
NOTE 1
After the Summit Merger, OrNda will continue to report its financial
information on a fiscal year basis ending on August 31. Accordingly, the Summit
results of operations, which are included in the accompanying unaudited pro
forma condensed combined income statement has been presented on a fiscal year
basis ending on June 30.
OrNda acquired Florida Medical Center on June 30, 1993 for an aggregate
purchase price of $113.1 million. The unaudited pro forma condensed combined
income statement for the year ended August 31, 1993 reflects the pro forma
operations of OrNda as if its acquisition of Florida Medical Center had
occurred on September 1, 1992. The historical results of Florida Medical Center
have been adjusted using purchase accounting to give effect to the acquisition
by OrNda and to eliminate the effect of significant nonrecurring transactions.
The following combining unaudited pro forma condensed income statement for
the year ended August 31, 1993 presents the historical operations of OrNda, and
the incremental pro forma operations of Florida Medical Center as if the
acquisition of Florida Medical Center by OrNda had occurred on September 1,
1992.
ORNDA HEALTHCORP AND FLORIDA MEDICAL CENTER
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED AUGUST 31, 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FLORIDA
ORNDA MEDICAL CENTER ORNDA
HISTORICAL PRO FORMA PRO FORMA
---------- -------------- ---------
<S> <C> <C> <C>
Total Revenue.............................. $624,847 $98,867 $723,714
Costs and Expenses
Operating expenses....................... 495,437 76,322 571,759
Provision for doubtful accounts.......... 42,976 5,822 48,798
Depreciation and amortization............ 28,944 4,424 33,368
Interest expense......................... 55,330 6,851 62,181
Interest income.......................... (3,380) -- (3,380)
Minority interest........................ 4,601 -- 4,601
-------- ------- --------
939 5,448 6,387
Income from investments in Houston
Northwest Medical Center.................. 173 -- 173
-------- ------- --------
Income from continuing operations before
income tax expense........................ 1,112 5,448 6,560
Income tax expense......................... 342 - 342
-------- ------- --------
Income from continuing operations.......... 770 5,448 6,218
Preferred stock dividend requirements...... (1,699) -- (1,699)
-------- ------- --------
Income (loss) from continuing operations
applicable to common and common equivalent
shares.................................... $ (929) $ 5,448 $ 4,519
======== ======= ========
Earnings (loss) per common and common
equivalent share from continuing
operations................................ $ (0.05) $ 0.25
======== ========
Shares used in earnings per common and
common equivalent share computations (in
thousands)................................ 17,612 17,834
</TABLE>
NOTE 2
<TABLE>
<S> <C>
To adjust amortization as follows:
To record amortization related to the $191.6 million increase in
excess of costs of net assets acquired over fair value assuming a
30 year life...................................................... $6,388
To record amortization on the $6 million increase in deferred fi-
nancing costs assuming a 6 year life.............................. 1,000
To record depreciation on the $85.4 million of properties to be ac-
quired assuming a 30 year life.................................... 2,562
------
$9,950
======
</TABLE>
91
<PAGE>
The pro forma condensed combined income statement assumes that the net assets
acquired from Summit over fair market value will be amortized over 30 years.
The amortization period was determined based upon the estimated economic life
of the property, plant and equipment acquired. OrNda evaluates the amortization
period of intangible assets on an annual basis.
NOTE 3
<TABLE>
<S> <C>
To record interest expense on borrowings of $272.9 million related
to the New Credit Facility (assumes 5.5% interest rate).......... $15,010
To record commitment fee on unused portion of the New Credit Fa-
cility........................................................... 1,145
To eliminate historical interest expense related to Summit commer-
cial paper....................................................... (748)
-------
$15,407
=======
To eliminate interest income on excess cash....................... $ 973
=======
</TABLE>
OrNda has received a commitment from a group of lenders to provide, subject
to the fulfillment of certain customary conditions, the financing necessary
to consummate the proposed merger transactions. The commitment provides for
interest at the Base Rate + 1% or LIBOR + 2%.
NOTE 4
To record pro forma provision for income taxes on the above transactions at a
statutory rate of 40%, except for goodwill amortization adjustments related
to excess costs of net assets acquired over fair value which will not be
deductible for tax purposes.
NOTE 5
To record effect of the Real Estate Purchase. The pro forma financial
statements assume OrNda acquires approximately $85.4 million of the
properties currently under lease. OrNda and Summit have entered into a non-
binding letter of intent with a third party purchaser for approximately $28
million of the Real Estate Purchase. If such sale is consummated OrNda would
lease such real estate from the third party under an operating lease
agreement. If the transaction is consummated, rent expense will increase and
depreciation expense and interest expense will be reduced, resulting in a
reduction of net income of approximately $0.5 million per year. There can be
no assurance such transaction will be consummated.
NOTE 6
To record the effect of accounting for the investment in Summit Care
Corporation as if the Exchangeable Notes are exchanged for Summit Care
Common Stock as described below:
<TABLE>
<S> <C>
Total revenue..................................................... $(83,992)
Operating expenses................................................ (71,823)
Provision for doubtful accounts................................... (534)
Depreciation and amortization..................................... (2,308)
Interest expense.................................................. (1,436)
Interest income................................................... (408)
Minority interest................................................. (2,421)
Income tax........................................................ (3,117)
</TABLE>
Summit currently owns 51.8% of Summit Care Corporation ("Summit Care").
Summit has $37.4 million of 7 1/2% Exchangeable Subordinated Notes due April
1, 2003 (the "Exchangeable Notes") which are exchangeable, at the option of
the holders, into Summit's, 51.8% interest in Summit Care Common Stock, on
April 1, 1994. The pro forma condensed combined income statement for the
fiscal year ended August 31, 1993 gives effect to the investment in Summit
Care as if the holders of the Exchangeable Notes exchanged for the Summit
Care Common Stock on September 1, 1992.
92
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
AMERICAN HEALTHCARE MANAGEMENT, INC. AND SUBSIDIARIES
SUMMIT HEALTH LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
The pro forma condensed combined balance sheet gives effect to the Mergers
by combining (i) the balance sheet of OrNda at November 30, 1993 and the
balance sheet of AHM at September 30, 1993 applying the pooling-of-interests
method of accounting and (ii) the balance sheet of OrNda at November 30, 1993
and the balance sheet of Summit at September 30, 1993 applying the purchase
method of accounting. The pro forma condensed combined balance sheet should be
read in conjunction with the respective historical financial statements of
OrNda, AHM and Summit incorporated by reference in this Proxy
Statement/Prospectus. The pro forma condensed combined balance sheet gives
effect to the Mergers as if they had been consummated on November 30, 1993.
The pro forma condensed combined balance sheet is presented for comparative
purposes only and is not necessarily indicative of what the combined financial
position would have been had the Mergers been consummated as of the date for
which this pro forma condensed combined balance sheet is presented.
The pro forma condensed combined balance sheet also assumes that AHM's $100
million aggregate principal amount of AHM Notes remain outstanding. The AHM
Merger will be a Change of Control allowing each AHM Noteholder to require AHM
to repurchase all or a portion of their AHM Notes at 101% of the principal
amount thereof. Based on current market conditions, OrNda does not expect the
AHM Noteholders to exercise their repurchase rights. See "The Mergers--
Description of Certain Indebtedness."
The pro forma condensed combined balance sheet also assumes that the Real
Estate Purchase is consummated and the $85.4 million purchase is financed by
OrNda. See "The Mergers--Terms of the Summit Merger--Real Estate Purchase" and
"--Interests of Certain Persons in the Summit Merger."
<TABLE>
<CAPTION>
ORNDA AHM SUMMIT
NOVEMBER 30, SEPTEMBER 30, SEPTEMBER 30, PRO FORMA PRO FORMA
1993 1993 1993 ADJUSTMENTS COMBINED
------------ ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.................... $ 8,194 $ 15,918 $ 37,952 $167,513 (1) $ 15,918
(183,720)(2)
(7,217)(2)
(22,722)(3)
Patient accounts receivable net of allowance
for uncollectibles.......................... 130,592 44,592 73,619 (9,912)(2) 238,891
Supplies, at cost............................ 13,687 4,616 9,843 (1,254)(2) 26,892
Other........................................ 17,750 4,144 16,531 (2,388)(2) 36,037
-------- -------- -------- -------- ----------
Total Current Assets....................... 170,223 69,270 137,945 (59,700) 317,738
Property, Plant and Equipment, net of
accumulated depreciation..................... 531,479 272,084 219,591 85,400 (1) 1,056,512
(52,042)(2)
Other Assets.................................. 220,908 16,351 30,485 20,000 (1) 432,343
(32,048)
176,647 (2)
-------- -------- -------- -------- ----------
Total Assets............................... $922,610 $357,705 $388,021 $138,257 $1,806,593
======== ======== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accrued expenses and other liabilities....... $128,306 $ 38,579 $117,867 $ (4,327)(2) $ 257,703
(22,722)(3)
Current maturities of long-term debt......... 2,488 6,423 6,628 (1,347)(2) 14,192
-------- -------- -------- -------- ----------
Total Current Liabilities.................. 130,794 45,002 124,495 (28,396) 271,895
Long-Term Debt................................ 566,519 168,478 82,137 272,913 (1) 1,023,695
(66,352)(2)
Other Liabilities............................. 61,295 9,563 62,368 (17,435)(2) 115,791
Shareholders' Equity.......................... 164,002 134,662 119,021 (119,021)(2) 395,212
96,548 (2)
-------- -------- -------- -------- ----------
Total Liabilities and Shareholders' Equity. $922,610 $357,705 $388,021 $138,257 $1,806,593
======== ======== ======== ======== ==========
</TABLE>
See notes to unaudited pro forma condensed combined balance sheet.
93
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
NOTE 1
To record the incremental borrowing related to the Summit Merger as follows:
<TABLE>
<S> <C>
Cash for acquisition of stock including conversion of options..... $183,720
Cash for financing and transaction costs.......................... 20,000
Cash for purchase of hospital properties currently under operating
lease............................................................ 85,400
Less Summit's cash, net of commercial paper....................... (8,013)
Less OrNda cash................................................... (8,194)
--------
Additional debt adjustment...................................... 272,913
Less cash for financing and transaction costs..................... (20,000)
Less cash for purchase of hospital properties..................... (85,400)
--------
Net cash adjustment............................................. $167,513
========
</TABLE>
The Summit Merger Agreement provides that holders of Summit Options (other
than the Section 16 Insiders) will have the right to convert such options into
either (i) a payment equal to the Option Spread times the number of Summit
shares subject to such option or (ii) an option to purchase OrNda shares. Under
the Summit Merger Agreement Section 16 Insiders will only be entitled to
receive such replacement options. See "The Mergers--Terms of the Summit
Merger--Conversion of Stock Options." All holders of Summit Options (including
Section 16 Insiders) will also have the right to exercise such options prior to
the consummation of the Summit Merger and have the shares of Summit Common
Stock so received converted into the Summit Exchange Ratio. The pro forma
balance sheet assumes the holders of the outstanding Summit options, including
the Section 16 Insiders, elect to exercise their options prior to the
consummation of the Summit Merger and receive the Summit Exchange Ratio. If
holders of Summit Options chose either to receive the Option Spread or to
receive replacement options to purchase OrNda shares, the impact on the pro
forma balance sheet would be to reduce the amount of borrowing necessary for
the acquisition of such options and reduce the excess cost of the net assets
acquired over fair market value. The impact on the pro forma income statement
would not be material.
The cash required for acquisition of Summit Common Stock and Summit Options
as noted above is calculated as follows:
<TABLE>
<S> <C>
Summit Common Stock outstanding on November 30, 1993........... 32,495
Cash exchange price per share.................................. $ 5.50
--------
$178,722
Net cash price for 2,906 Summit Options outstanding at November
30, 1993...................................................... 4,998
--------
$183,720
========
</TABLE>
94
<PAGE>
NOTE 2
To record the purchase of Summit Common Stock including the adjustment of
Summit's balance sheet to reflect assets acquired by OrNda.
<TABLE>
<S> <C> <C>
Cash used to acquire Summit Common Stock............... $183,720
Value of stock issued in exchange for Summit Common
Stock................................................. 96,548
--------
Acquisition price...................................... 280,268
Less adjustments of Summit's historical balances of as-
sets and liabilities including adjustments to account
for investment in Summit Care as if the Exchangeable
Notes are exchanged for Summit Care Common Stock as
described below:
Cash and cash equivalents............................ $ 7,217
Patient accounts receivable.......................... 9,912
Supplies............................................. 1,254
Other current assets................................. 2,388
Property, plant and equipment........................ 52,042
Other assets......................................... 32,048
Accrued expenses and other liabilities............... (4,327)
Current maturities of long-term debt................. (1,347)
Long-term debt....................................... (66,352)
Other liabilities.................................... (17,435)
Shareholder's equity................................. (119,021) (103,621)
-------- --------
To record excess cost of the net assets acquired from
Summit over fair market value......................... $176,647
========
</TABLE>
OrNda believes that the recorded value of Summit's assets and liabilities
approximates their estimated fair values.
Summit currently owns 51.8% of Summit Care. Summit has $37.4 million of the
Exchangeable Notes which are exchangeable, at the option of the holders, into
Summit's 51.8% interest in Summit Care Common Stock on April 1, 1994. The pro
forma condensed combined balance sheet at November 30, 1993 gives effect to the
investment in Summit Care as if the holders of the Exchangeable Notes exchanged
for the Summit Care common stock on November 30, 1993.
The Summit Merger will be a Repurchase Event allowing each Summit Noteholder
to require Summit to repurchase their Summit Notes at 100% of the principal
amount thereof unless for any five trading days within a period of ten
consecutive trading days ending immediately before the Summit Effective Time,
the Market Price (as defined in the Summit Indenture) of the Summit Care Common
Stock is at least equal to 105% of the Exchange Price (as defined in the Summit
Indenture). Because the common stock of Summit Care Corporation is trading at a
significant premium over the Exchange Price, it is unlikely the Summit Merger
will constitute a Repurchase Event. Moreover, because such common stock is
trading at a significant premium over the 100% principal amount a holder of
Summit Notes would receive if he exercised his repurchase rights, OrNda
believes it is unlikely that any Summit Noteholder would exercise such rights
(if any).
NOTE 3
To record retirement of Summit commercial paper with excess cash.
NOTE 4
Of the pro forma long-term debt of approximately $1 billion, approximately
$49.8 million will mature variably over the next five years. The remaining
$973.9 million will mature in 1999 or later.
NOTE 5
As a result of the AHM Merger, the combined company will be subject to
Section 382 annual limitations which will limit the combined Company's
ability to claim net operating loss deductions. OrNda does not expect that
these annual limitations will have a material adverse effect on the combined
company's ability to fully utilize net operating loss carryforwards existing
as of the AHM Effective Time. Accordingly, the pro forma financial
statements do not reflect any adjustments to the deferred tax assets of the
combined company.
95
<PAGE>
NOTE 6
OrNda and Summit have entered into a non-binding letter of intent with a
third party purchaser for approximately $28 million of the Real Estate
Purchase. If such sale is consummated, OrNda would lease such real estate
from the third party under an operating lease agreement. If the transaction
is consummated, long-term debt and property, plant and equipment would each
be reduced by approximately $28 million dollars. There can be no assurance
such transaction will be consummated.
NOTE 7
As of November 30, 1993, OrNda had 1.1 million shares of $.01 par value
Payable In Kind Cumulative Redeemable Convertible Preferred Stock (the "PIK
Preferred") outstanding with an aggregate liquidation value of $16.1
million. Although OrNda has received a financing commitment to enable OrNda
to redeem the PIK Preferred, OrNda has not decided whether to redeem the PIK
Preferred. Moreover, the PIK Preferred is convertible into OrNda Common
Stock on a share for share basis. Accordingly, because the PIK Preferred
redemption price is $15 per share, OrNda believes that if the OrNda Common
Stock price exceeds $15 per share on the redemption date the PIK Preferred
shareholders will convert to OrNda Common Stock rather than accept the
redemption price. The current OrNda Common Stock price exceeds $15.
Consequently, even if OrNda were to redeem the PIK Preferred, OrNda believes
it is unlikely the loan commitment would be utilized.
If the financing commitment was utilized, pro forma long-term debt would
increase approximately $16.1 million and shareholders' equity would be
reduced $16.1 million. If PIK Preferred holders convert to OrNda Common
Stock, the components of shareholders' equity change but total pro forma
shareholders' equity would not change. The redemption of the PIK Preferred
or the conversion of the PIK Preferred into OrNda Common Stock would not
have a material impact on pro forma income.
96
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
AMERICAN HEALTHCARE MANAGEMENT, INC. AND SUBSIDIARIES
SUMMIT HEALTH LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The pro forma condensed combined income statement for the three months ended
November 30, 1993 gives effect to the Mergers as if they had occurred on
September 1, 1992 by combining (i) the results of operations of OrNda for the
three months ended November 30, 1993 and the results of operations of AHM for
the three months ended September 30, 1993 applying the pooling-of-interest
method of accounting and (ii) the results of operations of OrNda for the three
months ended November 30, 1993 and the results of operations of Summit for the
three months ended September 30, 1993 applying the purchase method of
accounting. This pro forma condensed combined income statement should be read
in conjunction with the historical financial statements and notes thereto of
OrNda, AHM and Summit incorporated by reference in this Proxy
Statement/Prospectus. This pro forma condensed combined income statement is
presented for comparative purposes only and is not necessarily indicative of
the combined results of operations in the future or of what the combined
results of operations would have been had the Mergers been consummated during
the period for which this statement is presented. Pro forma earnings per
common and common equivalent share and pro forma weighted average shares
outstanding give effect to the AHM Exchange Ratio and the Summit Exchange
Ratio. In addition, the pro forma condensed combined income statement does not
give effect to the cost savings, if any, which may be realized by OrNda after
consummation of the Mergers.
<TABLE>
<CAPTION>
ORNDA AHM SUMMIT
THREE THREE THREE
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
NOVEMBER SEPTEMBER SEPTEMBER
30, 30, 30, PRO FORMA PRO FORMA
1993 1993 1993 ADJUSTMENTS COMBINED
-------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Total Revenue............ $182,952 $84,464 $129,684 $(22,109)(5) $374,991
Costs and Expenses
Operating expenses..... 142,796 67,389 106,112 (2,769)(4) 294,827
(18,701)(5)
Provision for doubtful
accounts.............. 13,853 6,853 6,410 (141)(5) 26,975
Depreciation and amor-
tization.............. 9,346 4,852 5,250 2,488 (1) 21,278
(658)(5)
Interest expense....... 15,108 4,227 2,641 3,852 (2) 24,634
(1,194)(5)
Interest income........ (318) (203) (430) (83)(5) (791)
243 (2)
Minority interest...... 574 -- 600 (600)(5) 574
-------- ------- -------- -------- --------
1,593 1,346 9,101 (4,546) 7,494
Loss from investments in
Houston Northwest
Medical Center.......... (1,820) -- -- -- (1,820)
-------- ------- -------- -------- --------
Income (loss) from
continuing operations
before income tax
expense................. (227) 1,346 9,101 (4,546) 5,674
Income tax expense....... 217 48 4,203 (887)(3) 2,726
(855)(5)
-------- ------- -------- -------- --------
Income (loss) from
continuing operations... (444) 1,298 4,898 (2,804) 2,948
Preferred stock dividend
requirements............ (431) -- -- -- (431)
-------- ------- -------- -------- --------
Income (loss) from con-
tinuing operations ap-
plicable to common and
common equivalent
shares.................. $ (875) $ 1,298 $ 4,898 $ (2,804) $ 2,517
======== ======= ======== ======== ========
Earnings (loss) per
common and common
equivalent share from
continuing operations... $ (0.05) $ 0.05 $ 0.15 $ 0.06
======== ======= ======== ========
Shares used in earnings
(loss) per common share
and common equivalent
share computations
(in thousands).......... 18,273 28,693 33,753 43,671
</TABLE>
See notes to unaudited pro forma condensed combined income statement.
97
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED INCOME STATEMENT
NOTE 1
<TABLE>
<S> <C>
To adjust depreciation and amortization as follows:
To record amortization related to the $191.6 million increase in
excess of costs of net assets acquired over fair value assuming a
30 year life...................................................... $1,597
To record amortization on the $6 million increase in deferred fi-
nancing costs assuming a 6 year life.............................. 250
To record depreciation on the $85.4 million of properties to be ac-
quired assuming a 30 year life.................................... 641
------
$2,488
======
</TABLE>
The pro forma condensed combined income statement assumes that the net
assets acquired from Summit over fair market value will be amortized over
30 years. The amortization period was determined based upon the estimated
economic life of the property, plant and equipment acquired. OrNda
evaluates the amortization period of intangible assets on an annual basis.
NOTE 2
<TABLE>
<S> <C>
To record interest expense on borrowings of $272.9 million related
to the New Credit Facility (assumes 5.5% interest rate).......... $3,753
To record commitment fee on unused portion of the New Credit Fa-
cility........................................................... 286
To eliminate historical interest expense related to Summit commer-
cial paper....................................................... (187)
------
$3,852
======
To eliminate interest income on excess cash....................... $ 243
======
</TABLE>
OrNda has received a commitment from a group of lenders to provide, subject
to the fulfillment of certain customary conditions, the financing necessary
to consummate the proposed merger transactions. The commitment provides for
interest at the Base Rate + 1% or LIBOR +2%.
NOTE 3
To record pro forma provision for income taxes on the above transactions at a
statutory rate of 40%, except for goodwill amortization adjustments related
to excess costs of net assets acquired over fair value which will not be
deductible for tax purposes.
NOTE 4
To record effect of the Real Estate Purchase. The pro forma financial
statements assume OrNda acquires approximately $85.4 million of the
properties under lease. OrNda and Summit have entered into a non-binding
letter of intent with a third party purchaser for approximately $28 million
of the Real Estate Purchase. If such sale is consummated OrNda would lease
such real estate from the third party under an operating lease agreement. If
the transaction is consummated, rent expense will increase and depreciation
expense and interest expense will be reduced, resulting in a reduction of
net income approximately $0.5 million per year. There can be no assurance
such transaction will be consummated.
NOTE 5
To record the effect of accounting for the investment in Summit Care
Corporation as if the Exchangeable Notes are exchanged for Summit Care
Common Stock as described below:
<TABLE>
<S> <C>
Total revenue..................................................... $(22,109)
Operating expenses................................................ (18,701)
Provision for doubtful accounts................................... (141)
Depreciation and amortization..................................... (658)
Interest expense.................................................. (1,194)
Interest income................................................... (83)
Minority interest................................................. (600)
Income tax........................................................ (855)
</TABLE>
98
<PAGE>
Summit currently owns 51.8% of Summit Care. Summit has $37.4 million of the
Exchangeable Notes which are exchangeable, at the option of the holders,
into Summit's 51.8% interest in Summit Care Common Stock, on April 1, 1994.
The pro forma condensed combined income statement for the three months ended
November 30, 1993 gives effect to the investment in Summit Care as if the
holders of the Exchangeable Notes exchanged for the Summit Care Common Stock
on September 1, 1992.
NOTE 6
No provision has been reflected in the unaudited pro forma condensed combined
financial statements for expenses expected to be incurred by OrNda and AHM
in connection with the AHM Merger. These expenses, consisting primarily of
amounts related to the refinancing of the outstanding senior bank and
institutional indebtedness of OrNda, AHM and Summit, obtaining the consents
and waivers from the holders of the AHM Notes, investment advisory and
professional fees and expenses for printing and distributing proxy materials
and certain severance and relocation costs, are estimated at $10 million and
will be charged as expense upon completion of the AHM Merger. No provision
has been reflected in the unaudited pro forma condensed combined financial
statements for the receipt by OrNda and AHM of financing in an amount
sufficient to refinance the outstanding senior and institutional
indebtedness of OrNda and AHM, which is approximately $198.7 million at
November 30, 1993, and satisfy the change of control repurchase rights of
the AHM Noteholders arising by reason of the AHM Merger. See "The Mergers--
Terms of the AHM Merger--Conditions" and "--Description of Certain
Indebtedness."
99
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
AMERICAN HEALTHCARE MANAGEMENT, INC. AND SUBSIDIARIES
SUMMIT HEALTH LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED AUGUST 31, 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The pro forma condensed combined income statement for the fiscal year ended
August 31, 1993 gives effect to the Mergers as if they had occurred on
September 1, 1992 by combining (i) the results of operations of OrNda for the
fiscal year ended August 31, 1993 (adjusted on a pro forma basis to include
the acquisition of Florida Medical Center as described below) and the results
of operations of AHM for the twelve months ended September 30, 1993 applying
the pooling-of-interest method of accounting and (ii) the results of
operations of OrNda for the fiscal year ended August 31, 1993 (adjusted as
described below) and the results of operations of Summit for the fiscal year
ended June 30, 1993 applying the purchase method of accounting. This pro forma
condensed combined income statement should be read in conjunction with the
historical financial statements and notes thereto of OrNda, AHM and Summit
incorporated by reference in this Proxy Statement/Prospectus. This pro forma
condensed combined income statement is presented for comparative purposes only
and is not necessarily indicative of the combined results of operations in the
future or of what the combined results of operations would have been had the
Mergers been consummated during the period for which this statement is
presented. Pro forma earnings per common and common equivalent share and pro
forma weighted average shares outstanding give effect to the AHM Exchange
Ratio and the Summit Exchange Ratio. In addition, the pro forma condensed
combined income statement does not give effect to the cost savings, if any,
which may be realized by OrNda after consummation of the Mergers.
OrNda acquired Florida Medical Center on June 30, 1993 in a transaction
accounted for as a purchase. The OrNda pro forma condensed combined income
statement for the year ended August 31, 1993 reflects the operating results of
OrNda for the fiscal year ended August 31, 1993 as if the acquisition of
Florida Medical Center had occurred on September 1, 1992. (see Note 1).
<TABLE>
<CAPTION>
ORNDA
PRO
FORMA AHM
AUGUST SEPTEMBER SUMMIT
31, 30, JUNE 30, PRO FORMA PRO FORMA
1993 1993 1993 ADJUSTMENTS COMBINED
-------- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total Revenue........... $723,714 $336,949 $508,504 $(83,992)(6) $1,485,175
Costs and Expenses
Operating expenses.... 571,759 270,305 425,242 (11,076)(5) 1,184,407
(71,823)(6)
Provision for doubtful
accounts............. 48,798 20,932 23,113 (534)(6) 92,309
Depreciation and amor-
tization............. 33,368 18,725 19,185 9,950 (2) 78,920
(2,308)(6)
Interest expense...... 62,181 13,996 7,377 15,407 (3) 97,525
(1,436)(6)
Interest income....... (3,380) (666) (1,605) (408)(6) (5,086)
973 (3)
Minority interest..... 4,601 -- 2,421 (2,421)(6) 4,601
-------- -------- -------- -------- ----------
6,387 13,657 32,771 (20,316) 32,499
Income from investments
in Houston Northwest
Medical Center......... 173 -- -- -- 173
-------- -------- -------- -------- ----------
Income from continuing
operations before
income tax expense..... 6,560 13,657 32,771 (20,316) 32,672
Income tax expense...... 342 787 14,201 (3,547)(4) 8,666
(3,117)(6)
-------- -------- -------- -------- ----------
Income from continuing
operations............. 6,218 12,870 18,570 (13,652) 24,006
Preferred stock dividend
requirements........... (1,699) -- -- -- (1,699)
-------- -------- -------- -------- ----------
Income from continuing
operations applicable
to common and common
equivalent shares...... $ 4,519 $ 12,870 $ 18,570 $(13,652) $ 22,307
======== ======== ======== ======== ==========
Earnings per common and
common equivalent share
from continuing
operations............. $ 0.25 $ 0.45 $ 0.56 $ 0.52
======== ======== ======== ==========
Shares used in earnings
per common and common
equivalent share
computations (in
thousands)............. 17,834 28,586 33,201 42,560
</TABLE>
See notes to unaudited pro forma condensed combined income statement.
100
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED INCOME STATEMENT
NOTE 1
After the Mergers, OrNda will continue to report its financial information on
a fiscal year basis ending on August 31. Accordingly, the AHM and Summit
results of operations, which are included in the accompanying unaudited pro
forma condensed combined income statement, has been presented on a fiscal year
basis ending on September 30 and June 30, respectively.
OrNda acquired Florida Medical Center on June 30, 1993, has an aggregate
purchase price of $113.1 million. The unaudited pro forma condensed combined
income statement for the year ended August 31, 1993, reflects the pro forma
operations of OrNda as if its acquisition of Florida Medical Center had
occurred on September 1, 1992. The historical results of Florida Medical Center
have been adjusted using purchase accounting to give effect to the acquisition
by OrNda and to eliminate the effect of significant nonrecurring transactions.
The following combining unaudited pro forma condensed income statement for
the year ended August 31, 1993 presents the historical operations of OrNda, and
the incremental pro forma operations of Florida Medical Center as if the
acquisition of Florida Medical Center by OrNda had occurred on September 1,
1992.
ORNDA HEALTHCORP AND FLORIDA MEDICAL CENTER
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED AUGUST 31, 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FLORIDA
ORNDA MEDICAL CENTER ORNDA
HISTORICAL PRO FORMA PRO FORMA
---------- -------------- ---------
<S> <C> <C> <C>
Total Revenue.............................. $624,847 $98,867 $723,714
Costs and Expenses
Operating expenses....................... 495,437 76,322 571,759
Provision for doubtful accounts.......... 42,976 5,822 48,798
Depreciation and amortization............ 28,944 4,424 33,368
Interest expense......................... 55,330 6,851 62,181
Interest income.......................... (3,380) -- (3,380)
Minority interest........................ 4,601 -- 4,601
-------- ------- --------
939 5,448 6,387
Income from investments in Houston
Northwest Medical Center.................. 173 -- 173
-------- ------- --------
Income from continuing operations before
income tax expense........................ 1,112 5,448 6,560
Income tax expense......................... 342 -- 342
-------- ------- --------
Income from continuing operations.......... 770 5,448 6,218
Preferred stock dividend requirements...... (1,699) -- (1,699)
-------- ------- --------
Income (loss) from continuing operations
applicable to common and common equivalent
shares.................................... $ (929) $ 5,448 $ 4,519
======== ======= ========
Earnings (loss) per common and common
equivalent share from continuing opera-
tions..................................... $ (0.05) $ 0.25
======== ========
Shares used in earnings (loss) per common
and common equivalent share computation
(in thousands)............................ 17,612 17,834
</TABLE>
NOTE 2
<TABLE>
<S> <C>
To adjust amortization as follows:
To record amortization related to the $191.6 million increase in
excess of costs of net assets acquired over fair value assuming a
30 year life...................................................... $6,388
To record amortization on the $6 million increase in deferred fi-
nancing costs assuming a 6 year life.............................. 1,000
To record depreciation on the $85.4 million of properties to be ac-
quired assuming a 30 year life.................................... 2,562
------
$9,950
======
</TABLE>
101
<PAGE>
The pro forma condensed combined income statement assumes that the net assets
acquired from Summit over fair market value will be amortized over 30 years.
The amortization period was determined based upon the estimated economic life
of the property, plant, and equipment acquired. OrNda evaluates the
amortization period of intangible assets on an annual basis.
NOTE 3
<TABLE>
<S> <C>
To record interest expense on borrowings of $272.9 million related
to the New Credit Facility (assumes 5.5% interest rate).......... $15,010
To record commitment fee on unused portion of the New Credit Fa-
cility........................................................... 1,145
To eliminate historical interest expense related to Summit commer-
cial paper....................................................... (748)
-------
$15,407
=======
To eliminate interest income on excess cash....................... $ 973
=======
</TABLE>
OrNda has received a commitment from a group of lenders to provide, subject
to the fulfillment of certain customary conditions, the financing necessary
to consummate the proposed merger transactions. The commitment provides for
interest at the Base Rate +1% or LIBOR +2%.
NOTE 4
To record pro forma provision for income taxes on the above transactions at a
statutory rate of 40% except for amortization adjustments related to excess
costs of net assets acquired over fair value which will not be deductible
for tax purposes.
NOTE 5
To record effect of the Real Estate Purchase. The pro forma financial
statements assume, OrNda acquires approximately $85.4 million of the
properties currently under lease. OrNda and Summit have entered into a non-
binding letter of intent with a third party purchaser for approximately $28
million of the Real Estate Purchase. If such sale is consummated OrNda would
lease such real estate from the third party under an operating lease
agreement. If the transaction is consummated, rent expense will increase and
depreciation expense and interest expense will be reduced, resulting in a
reduction of net income of approximately $0.5 million per year. There can be
no assurance such transaction will be consummated.
NOTE 6
To record the effect of accounting for the investment in Summit Care
Corporation as if the Exchangeable Notes are exchanged for Summit Care
Common Stock as described below:
<TABLE>
<S> <C>
Total revenue..................................................... $(83,992)
Operating expenses................................................ (71,823)
Provision for doubtful accounts................................... (534)
Depreciation and amortization..................................... (2,308)
Interest expense.................................................. (1,436)
Interest income................................................... (408)
Minority interest................................................. (2,421)
Income tax........................................................ (3,117)
</TABLE>
Summit currently owns 51.8% of Summit Care. Summit has $37.4 million of the
Exchangeable Notes which are exchangeable, at the option of the holders,
into Summit's 51.8% interest in Summit Care Common Stock, on April 1, 1994.
The pro forma condensed combined income statement for the fiscal year ended
August 31, 1993 gives effect to the investment in Summit Care as if the
holders of the Exchangeable Notes exchanged for the Summit Care Common Stock
on September 1, 1992.
102
<PAGE>
NOTE 7
No provision has been reflected in the unaudited pro forma condensed combined
financial statements for expenses expected to be incurred by OrNda and AHM
in connection with the AHM Merger. These expenses, consisting primarily of
amounts related to the refinancing of the outstanding senior bank and
institutional indebtedness of OrNda, AHM and Summit, obtaining the consents
and waivers from the holders of the AHM Notes, investment advisory and
professional fees and expenses for printing and distributing proxy materials
and certain severance and relocation costs, are estimated at $10 million and
will be charged as expense upon completion of the AHM Merger. No provision
has been reflected in the unaudited pro forma condensed combined financial
statements for the receipt by OrNda and AHM of financing in an amount
sufficient to refinance the outstanding senior and institutional
indebtedness of OrNda and AHM, which is approximately $198.7 million at
November 30, 1993, and satisfy the change of control repurchase rights of
the AHM Noteholders arising by reason of the AHM Merger. See "The Mergers--
Terms of the AHM Merger--Conditions" and "--Description of Certain
Indebtedness."
103
<PAGE>
COMPARATIVE RIGHTS OF STOCKHOLDERS
As a result of the Mergers, holders of AHM Common Stock and holders of Summit
Common Stock will become stockholders of OrNda and the rights of all such
former AHM and Summit stockholders will thereafter be governed by the restated
certificate of incorporation of OrNda (the "OrNda Charter"), the by-laws of
OrNda (the "OrNda By-Laws") and the Delaware General Corporation Law ("Delaware
Law").
The following is a summary of certain material differences between the rights
of holders of AHM Common Stock, Summit Common Stock and OrNda Common Stock. The
discussion of certain of such differences does not purport to be complete and
is qualified in its entirety by reference to the certificate of incorporation
of AHM (the "AHM Charter"), the by-laws of AHM (the "AHM By-Laws"), the
articles of incorporation of Summit (the "Summit Charter"), the by-laws of
Summit (the "Summit By-Laws"), the OrNda Charter, and the OrNda By-Laws,
respectively. Copies of such documents may be obtained as described under
"Available Information."
Classification of Board and Director Removal. The OrNda Charter provides for
classification of the OrNda Board of Directors (the "OrNda Board") into three
classes of directors with each class containing an equal or approximately equal
number of directors, with each director elected for a three-year term. In
addition, the OrNda Charter provides that the number of directors constituting
the whole OrNda Board and the number of directors constituting each class can
be changed by a vote of the majority of the whole OrNda Board at the time of
the vote. The OrNda By-Laws provide for a minimum of 3 directors and a maximum
of 11 directors to constitute the entire OrNda Board. Delaware Law provides
that directors serving on a classified board may be removed only for cause
unless the corporation's charter provides otherwise. As the OrNda Charter
contains no provision concerning removal of directors, under Delaware Law,
OrNda stockholders representing a majority of the outstanding shares entitled
to vote at an election of directors ("Voting Stock") may remove an OrNda
director only for cause.
The AHM Charter provides for the classification of the AHM Board of Directors
(the "AHM Board") into two classes of directors with each class containing an
equal or approximately equal number of directors, with each director elected
for a two-year term. In addition, the AHM Charter provides that the number of
directors constituting the AHM Board shall not be less than seven nor more than
nine, and the AHM By-Laws provide that the number of directors is fixed at
seven. The AHM Charter further provides for the removal of directors for cause
by a majority of the outstanding shares of Voting Stock and removal of a
director without cause by a majority of the outstanding shares of Voting Stock
if the director is the Chief Executive Officer ("CEO") and if such CEO has been
terminated as an officer or employee of the company.
Neither the Summit Charter nor the Summit By-Laws provide for the
classification of the Summit Board of Directors (the "Summit Board"). The
Summit By-Laws provide that the number of directors constituting the Summit
Board shall not be less than five nor more than nine, with each director
elected for a one-year term. In addition, the Summit By-Laws provide that the
minimum and maximum number of directors stated above can be changed only by an
amendment to the Summit Charter or the Summit By-Laws which is approved by a
majority of the outstanding shares entitled to vote. The Summit By-Laws further
provide that any director or the entire Summit Board can be removed without
cause by an affirmative vote of a majority of the outstanding shares entitled
to vote, except that no director may be removed (unless the entire board is
removed) when the votes cast against removal, or not consenting in writing to
the removal, would be sufficient to elect the director if voted cumulatively at
an election at which the same total number of votes were cast (or, if the
action is taken by written consent, all shares entitled to vote were voted) and
the entire number of directors authorized at the time of the director's most
recent election were then being elected.
Director Elections. Pursuant to the OrNda Charter, all elections of directors
shall be decided by a plurality of the votes cast. In addition, the Summit By-
Laws provide for cumulative voting. The AHM By-Laws provide that the election
of directors shall be determined by a majority vote of the stockholders present
at any meeting at which there is a quorum. Following the AHM Merger, the OrNda
Charter will be the Certificate of Incorporation of the surviving corporation
and as such there will not be cumulative voting rights.
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Action Without A Meeting. Both the AHM By-Laws and the Summit By-Laws provide
that any action that may be taken at any annual or special meeting may be
taken, without a meeting and without prior notice, if a consent in writing,
which sets forth the action to be taken, is signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to take such action at a meeting at which all shares were present
and voted. The Summit By-Laws further provide that if the action to be taken is
the election of directors, then such consent must be signed by the holders of
all of the outstanding shares of Voting Stock; provided, however, that written
consent of only a majority of the outstanding shares entitled to vote for the
election of directors will be necessary to fill a vacancy on the board of
directors not filled by the directors.
The OrNda Charter provides that in order to effectuate any action without a
meeting, unanimous written consent of the stockholders is necessary.
Special Meetings of Shareholders. The OrNda By-Laws provide that a special
meeting of stockholders may be called by the OrNda Board, the Chairman of the
Board, the President or the Secretary and shall be called at the written
request of persons holding 20% of the capital stock of the corporation issued
and outstanding and entitled to vote thereat.
Pursuant to the AHM By-Laws, a special meeting of the stockholders may be
called by the AHM Board or the President, and shall be called by the President
or Secretary at the request, in writing, of a majority of the total number of
directors.
The Summit By-Laws provide that a special meeting of stockholders may be
called by the Summit Board, the Chairman of the Board, the President or one or
more stockholders holding in the aggregate shares entitled to cast not less
than 10% of the votes at any such meeting.
Amendment of the By-Laws. The OrNda Charter and the OrNda By-Laws provide
that the OrNda Board and stockholders of OrNda Common Stock may alter, amend,
repeal or adopt new by-laws. The AHM Charter and AHM By-Laws also provide that
the AHM Board and stockholders of AHM Common Stock may alter, amend, repeal or
adopt new by-laws.
Pursuant to the Summit By-Laws, the Summit Board and stockholders of Summit
Common Stock may alter, amend, repeal or adopt new by-laws, except that the
Summit Board may not amend the Summit By-laws to change the authorized number
of directors.
Special Voting Requirements. The AHM Charter requires, in addition to any
other action required by Delaware Law or the AHM Charter, the affirmative vote
of the holders of not less than 80% of the then outstanding shares of Voting
Stock for the approval of (i) any merger or consolidation of AHM with any
person who is the beneficial owner, directly or indirectly, of 10% or more of
the then outstanding shares of AHM's capital stock ("Interested Stockholder"),
(ii) any plan or proposal for the liquidation or dissolution of AHM proposed by
or on behalf of an Interested Stockholder or any affiliate of an Interested
Stockholder, or (iii) any sale of all or substantially all of AHM's assets or
property, or the assets or property of all or substantially all of the
subsidiaries of AHM.
Neither the OrNda Charter nor the Summit Charter contains comparable
provisions.
Special Repurchase Procedures. The AHM Charter provides that except for stock
repurchases made pursuant to (i) the exercise of statutory appraisal rights by
a stockholder of AHM or (ii) an offer made to all stockholders of AHM, AHM will
not purchase any of its outstanding shares of capital stock at a purchase price
in excess of the average daily closing prices of the Common Stock for 15
consecutive trading days commencing 20 trading days before the date of such
computation unless at least 50% of the outstanding shares of AHM Common Stock
(not including the shares held by the selling stockholder) approve the
purchase.
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Neither the OrNda Charter nor the Summit Charter contains comparable
provisions.
Resale Provision. The AHM Charter restricts the sale and purchase of AHM
Common Stock and warrants until such provision is terminated by the AHM Board.
The provision, subject to certain other restrictions, (i) restricts persons
from acquiring shares of AHM Common Stock or warrants if that acquisition would
increase the ownership of that person to five percent or more of the fair
market value, as defined in the AHM Charter (the "Fair Market Value"), of the
then outstanding shares of AHM Common Stock plus those shares deemed to be
outstanding and owned by such stockholder by reason of the assumed conversion
of such warrants, (ii) restricts any stockholder owning five percent or more
from increasing its ownership of AHM Common Stock or warrants, (iii) restricts
the sale or disposition, subject to certain exceptions set forth in the AHM
Charter, of AHM Common Stock or warrants to any person whose ownership
following such sale or disposition would equal or exceed five percent of the
Fair Market Value of the then outstanding shares of AHM Common Stock, including
conversion of such warrants, and (iv) restricts any stockholder owning five
percent or more from selling, assigning, transferring or granting warrants, an
amount of such stockholder's AHM Common Stock that exceeds 74% of the AHM
Common Stock, not including AHM Common Stock acquired upon the exercise of
warrants, received by such stockholder pursuant to the bankruptcy plan of
reorganization. However, this restriction does not apply to an acquisition of
AHM Common Stock or warrants if (i) such acquisition does not jeopardize AHM's
ability to preserve and utilize its net operating loss carryover, as defined in
the AHM Charter, or (ii) such acquisition of AHM Common Stock or warrants is
pursuant to any transaction, but not limited to, a merger or consolidation, in
which the AHM stockholders are offered cash for their shares and the acquiror
will own at least a majority of the outstanding shares.
Neither the OrNda Charter nor the Summit Charter contains comparable
provisions.
Indemnification. Delaware Law permits a corporation to indemnify officers,
directors, employees and agents for actions taken in good faith and in a manner
they reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. The Delaware Law provides that a
corporation may advance expenses of defense (upon receipt of a written
undertaking to reimburse the corporation if indemnification is not appropriate)
and must reimburse a successful defendant for expenses, including attorney's
fees, actually and reasonably incurred, and permits a corporation to purchase
and maintain liability insurance for its directors and officers. Delaware Law
further provides that indemnification may not be made for any claim, issue or
matter as to which a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation, unless and only to the extent a court determines that the person
is entitled to indemnity for such expenses as the court deems proper. The OrNda
Charter and OrNda By-Laws and the AHM Charter and AHM By-Laws provide for
indemnification to the maximum extent permitted under Delaware Law.
The California GCL provides for generally equivalent terms of
indemnification. The Summit By-Laws provide for indemnification to the maximum
extent permitted by the California GLC.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The New Credit Facility. The obligations of the parties to the AHM Merger
Agreement to consummate the AHM Merger are conditioned upon, among other
things, receipt of financing necessary to refinance the outstanding senior bank
and institutional indebtedness of OrNda and AHM and provide adequate working
capital as well as to finance the optional change of control redemption rights
of the holders of the AHM Notes arising as a result of the AHM Merger (the "AHM
Redemption Rights"). The obligations of the parties to the Summit Merger
Agreement to consummate the Summit Merger are conditioned, upon among other
things, receipt of financing necessary to finance the cash component of the
Summit Exchange Ratio, to finance the Real Estate Purchase (if OrNda purchases
such real estate), refinance the outstanding senior bank and institutional debt
of OrNda and Summit and provide adequate working capital as well as to finance
the
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redemption rights of the holders of the Summit Notes arising as a result of the
Summit Merger (the "Summit Redemption Rights").
In connection with the consummation of the Mergers, OrNda intends to replace
its $160 million of existing credit facilities (the "Existing Credit
Facilities"), AHM's existing $122.5 million credit facility (the "AHM Credit
Facility") and Summit's existing $25 million credit facility (the "Summit
Credit Facility") with a new credit facility. Scotiabank and Citicorp have
committed to provide OrNda with a $325 million term loan facility (the "Term
Facility"), a $75 million delayed term loan facility (the "Delayed Term
Facility") and $300 million in revolving credit facilities (collectively, the
"Revolving Facility" and together with the Term Facility and the Delayed Term
Facility, the "New Credit Facility"), subject to certain specified conditions
including the absence of a material adverse change in the consolidated
business, assets, financial condition, operations or prospects of OrNda, AHM
and Summit, taken as a whole. It is anticipated that the Revolving Facility
will be comprised of a tranche A revolving facility in the amount of $200
million (the "Tranche A Revolving Facility") and a tranche B revolving facility
in the amount of $100 million (the "Tranche B Revolving Facility"). OrNda also
expects that up to $30 million under the Tranche A Revolving Facility will be
available for standby and commercial letters of credit. Each of Scotiabank and
Citicorp will provide $350 million of the New Credit Facility and Scotiabank
will act as Administrative Agent for a syndicate of other lenders that will
participate in the New Credit Facility. The commitment of Scotiabank and
Citicorp with respect to the New Credit Facility will terminate on April 30,
1994, if definitive credit documentation has not been executed and delivered on
or prior to such date.
OrNda anticipates that (A) the proceeds of the Term Facility will be used (i)
to refinance OrNda's, AHM's and Summit's existing senior and institutional
indebtedness, (ii) to pay the cash portion of the Summit Exchange Ratio and
(iii) for certain other business purposes of OrNda, (B) the proceeds of the
Delayed Term Facility and borrowings under the Tranche A Revolving Facility may
be used to the extent necessary (i) to finance the AHM Redemption Rights, (ii)
to finance the Real Estate Purchase (if OrNda purchases such real estate),
(iii) to finance the Summit Redemption Rights and (iv) to redeem the OrNda PIK
Preferred, (C) borrowings under the Tranche A Revolving Facility will also be
used (i) to refinance OrNda's, AHM's and Summit's existing senior and
institutional indebtedness, (ii) to pay certain fees and expenses relating to
the Mergers and the New Credit Facility, (iii) to finance the working capital
and other business requirements of OrNda and (iv) for certain other business
purposes of OrNda and (D) borrowings under the Tranche B Revolving Facility may
be used to the extent necessary (i) to finance the AHM Redemption Rights, (ii)
to finance the Real Estate Purchase (if OrNda purchases such real estate),
(iii) to finance the Summit Redemption Rights and (iv) for certain other
business purposes of OrNda.
OrNda expects that loans under the New Credit Facility will bear interest, at
the option of OrNda, at a rate equal to either (i) the "alternate base rate"
plus 1.0% or (ii) LIBOR plus 2.0%, in each case subject to potential decreases
or increases dependant on OrNda's interest coverage and leverage ratios.
OrNda anticipates that the New Credit Facility will provide for an initial
commitment fee for the period from January 5, 1994 through the date of the
closing under the New Credit Facility, calculated at .25% per annum payable on
the date of the closing under the New Credit Facility. Thereafter, OrNda
expects that the New Credit Facility will provide for a commitment fee,
calculated at .50% per annum (subject to performance based step-downs), on the
unused portion of the commitment payable in arrears at the end of each quarter
and upon termination of the New Credit Facility and for standby letter of
credit fees, calculated at .25% per annum on the amount of such letter of
credit as well as a participation fee equal to the interest rate margin on
LIBOR loans discussed above payable to each lender in arrears at the end of
each quarter. In addition, the lenders will receive certain other fees in
connection with the New Credit Facility.
OrNda expects that its obligations under the New Credit Facility will be
secured by a pledge of the capital stock of substantially all of OrNda's
corporate subsidiaries, a pledge of substantially all of the partnership
interests of OrNda, a security interest in intercompany indebtedness as well as
guarantees by substantially all of OrNda's subsidiaries.
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OrNda further anticipates that the final maturity for the New Credit Facility
will be on the sixth anniversary of the closing date following the Mergers, and
that the New Credit Facility will require principal payments on the Term
Facility and the Delayed Term Facility in each of the six years and will
require mandatory commitment reductions for the Tranche B Revolving Facility in
certain of such years.
OrNda expect that the New Credit Facility will include among other things
various affirmative, negative and financial covenants including limits on the
sale of assets, the making of acquisitions and other investments, capital
expenditures, the incurrence of additional debt and liens, the payment of
dividends and a minimum consolidated tangible net worth requirement and certain
ratio coverage tests and financial covenants. OrNda also anticipates that the
New Credit Facility will contain customary or otherwise appropriate events of
default and conditions. In addition, OrNda expects that the obligations of
Scotiabank and Citicorp will be subject to the satisfaction of various
customary conditions including among others (i) the execution and delivery of
definitive credit documentation, (ii) the consummation of the Mergers shall
have occurred on terms and conditions acceptable to Scotiabank and Citicorp,
(iii) a satisfactory due diligence investigation by Scotiabank and Citicorp,
(iv) the absence of a material adverse change in the consolidated business,
assets, financial condition, operations or prospects of OrNda, AHM and Summit,
taken as a whole, from the date of their latest respective audited financial
statements, (v) the delivery to Scotiabank and Citicorp of a satisfactory
environmental assessment and (vi) the receipt of satisfactory closing opinions
of counsel and certificates.
The OrNda Senior Subordinated Notes. In addition to the New Credit Facility,
following consummation of the Mergers, OrNda will continue to be subject to the
provisions of the Indenture (the "OrNda Indenture") governing OrNda's $400
million of 12 1/4% Senior Subordinated Notes due 2002 (the "OrNda Notes"). The
OrNda Notes are subordinated to all Senior Debt (as defined in the OrNda
indenture) and will rank pari passu with the AHM Notes. The OrNda Notes are
redeemable after May 15, 1997, at OrNda's option at the premiums stated in the
OrNda Indenture. Upon a Change of Control (as defined in the OrNda Indenture),
each holder of the OrNda Notes has the right to require OrNda to repurchase
such holder's notes at 100% of the principal amount thereof. The OrNda
Indenture contains certain restrictive covenants that among other things limit
the amount and type of additional indebtedness OrNda can incur, the making of
dividend and other payments, the creation of liens securing indebtedness,
certain transactions with affiliates and mergers.
The AHM Senior Subordinated Notes. In addition to the New Credit Facility and
the OrNda Notes, following consummation of the Mergers, OrNda will assume and
become subject to the provisions of the Indenture (the "AHM Indenture")
governing AHM's $100 million of 10% Senior Subordinated Notes due 2003 (the
"AHM Notes"). Pursuant to a Waiver and Consent Agreement by and among OrNda and
the holders of a majority in principal amount of the outstanding AHM Notes,
OrNda has agreed, upon consummation of the AHM Merger, to make a consent
payment of $15.00 for each $1,000 principal amount of AHM Notes and to increase
the interest rate payable on the AHM Notes to 10 1/4% per annum, in exchange
for the agreement of such holders to the amendment and waiver of certain
provisions of the AHM Notes. See "The Mergers--Consent Solicitation."
The AHM Notes will be redeemable at the option of the issuer at any time on
or after August 1, 1998 at premiums stated in the AHM Indenture. In addition,
upon a Change of Control (as defined in the AHM Indenture), each holder of the
AHM Notes may require AHM to repurchase such holder's notes at 101% of the
principal amount thereof. Consummation of the AHM Merger will be a Change of
Control for purposes of the AHM Indenture. The AHM Indenture restricts among
other things the ability of the issuer and its subsidiaries to incur additional
indebtedness, make certain asset dispositions, engage in transactions with
affiliates, make certain distributions and to merge or dispose of all or
substantially all of their assets.
The Summit 7 1/2% Exchangeable Subordinated Notes Due 2003. Following
consummation of the Summit Merger, Summit, as the surviving corporation, will
remain subject to the provisions of the Indenture
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(the "Summit Indenture") governing Summit's $37,440,000 aggregate principal
amount of 7 1/2% Exchangeable Subordinated Notes due 2003 (the "Summit Notes").
The Summit Notes may be exchanged at any time after April 1, 1994 for shares
(the "Summit Care Common Stock") of common stock, without par value, of Summit
Care, at an exchange rate of 69.444 shares per $1,000 of principal amount or,
at the option of Summit, for an amount in cash at the date of exchange. The
shares of Summit Care Common Stock into which the Summit Notes are exchangeable
represent all of Summit's interest in Summit Care. In addition, the Summit
Notes may be redeemed by Summit at any time after April 1, 1996. The Summit
Notes are unsecured and are subordinated to all existing and future Senior
Indebtedness (as defined in the Summit Indenture). The Summit Indenture also
provides that upon the occurrence of certain events constituting Repurchase
Events (as defined in the Summit Indenture) the holders of the Summit Notes
will have the right to cause Summit to repurchase such holders' notes at a
price equal to 100% of the principal amount thereof, plus accrued interest.
Consummation of the Summit Merger will constitute a Repurchase Event for
purposes of the Summit Indenture unless for any five trading days within a
period of ten consecutive trading days ending immediately before the Summit
Effective Time, the Market Price (as defined in the Summit Indenture) of the
Summit Care Common Stock is at least equal to 105% of the Exchange Price (as
defined in the Summit Indenture). Because the Summit Care Common Stock, as of
the date hereof, is trading at a significant premium over the Exchange Price,
it is unlikely the Summit Merger will constitute a Repurchase Event. Moreover,
because such common stock is trading at a significant premium over the 100%
principal amount a holder of Summit Notes would receive if he exercised his
repurchase rights, OrNda believes it is unlikely that any Summit Noteholder
would exercise such rights (if any).
ELECTION OF ORNDA DIRECTORS
OrNda's Restated Certificate of Incorporation provides that the members of
the Board of Directors of the Company shall be divided into three classes of
equal or approximately equal number and that the number of directors
constituting the Board of Directors shall from time to time be fixed and
determined by a vote of a majority of the OrNda's whole Board of Directors
serving at the time of such vote. The Board of Directors is now comprised of
nine members, with Class I consisting of two members, Class II consisting of
four members and Class III consisting of three members. Mr. Jay Rodney Reese
has not been nominated to serve as a Class I director. The Board of Directors
has nominated Messrs. Paul S. Levy and Dr. M. Lee Pearce for election as Class
I directors at the Annual Meeting. Both of the nominees are currently serving
as Class I directors of OrNda.
THE ORNDA BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
ABOVE LISTED NOMINEES AS DIRECTORS
Directors shall be elected by a plurality of the votes cast at the Annual
Meeting. Stockholders of OrNda do not have cumulative voting rights with
respect to the election of directors. It is the intention of the persons named
in the enclosed form of proxy to vote such proxy FOR the election of the
nominees named below for Class I directorships unless authorization is withheld
on the proxy. Should any nominee be unable or unwilling to serve as a director,
which is not anticipated, it is intended that the named proxies will vote for
the election of such other person or persons as they, in their discretion, may
choose.
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MANAGEMENT
DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The following table provides information as of January 1, 1994, with respect
to each of OrNda's directors, director nominees, and executive officers.
DIRECTORS AND DIRECTOR NOMINEES
<TABLE>
<CAPTION>
SERVED AS
OFFICER OR
DIRECTOR OF THE
NAME AGE POSITION COMPANY SINCE
---- --- -------- ---------------
CLASS I--NOMINEES FOR TERMS EXPIRING AT THE 1997 ANNUAL MEETING OF STOCKHOLDERS
<C> <C> <S> <C>
Paul S. Levy............. 46 Director October 1991
M. Lee Pearce, M.D....... 62 Director March 1993
CLASS II--TERMS EXPIRING AT THE 1995 ANNUAL MEETING OF STOCKHOLDERS
Yvonne V. Cliff.......... 33 Director October 1991
Richard A. Gilleland..... 49 Director October 1991
Leonard Green............ 67 Director April 1992
Jack O'Callaghan......... 67 Director September 1990
CLASS III--TERMS EXPIRING AT THE 1996 ANNUAL MEETING OF STOCKHOLDERS
Peter A. Joseph.......... 41 Director October 1991
Angus C. Littlejohn, Jr.. 42 Director October 1991
Charles N. Martin, Jr.... 51 Chairman of the Board,
President and Chief Executive
Officer January 1992
OTHER EXECUTIVE OFFICERS
Executive Vice President and
Keith B. Pitts........... 36 Chief Financial Officer August 1992
Senior Vice President--
Beverly S. Anderson...... 41 Operations Improvement April 1992
Senior Vice President--
Stephen C. Brandt........ 47 Operations September 1992
Senior Vice President--
Raymond Denson........... 52 Operations September 1986
Senior Vice President--
Calvin K. Knight......... 42 Operations July 1992
Vice President and Chief
Paula Y. Eleazar......... 41 Information Officer April 1992
Jerry M. Eyler........... 41 Corporate Controller January 1988
Vice President, General
James H. Johnson......... 49 Counsel, and Secretary December 1985
Vice President and Chief
James Johnston........... 50 Administrative Officer June 1984
Douglas B. Lewis......... 52 Vice President February 1992
Max Liskin............... 35 Vice President February 1992
Russell F. Tonnies....... 39 Vice President and Treasurer April 1989
William V.B. Webb........ 41 Vice President February 1992
</TABLE>
In connection with the October 15, 1991 recapitalization of OrNda (the
"Recapitalization") and pursuant to the Amended and Restated Stock Purchase
Agreement dated as of May 14, 1991 and amended and restated as of August 6,
1991, as amended by the First Amendment thereto dated October 14, 1991 (the
"Stock Purchase Agreement") between the Joseph Littlejohn & Levy Fund, L.P.
(the "JLL Fund") and OrNda, OrNda agreed that upon consummation of the
Recapitalization the Board of Directors would consist of the following persons,
serving in the following classes: Class I--Messrs. Reese, Levy and David L.
Lee; Class II--Messrs. O'Callaghan and Gilleland and Ms. Cliff; Class III--
Messrs. Joseph, Littlejohn and Bryan P. Marsal. Mr. Marsal resigned as a
director of OrNda on July 29, 1992 and Mr. Lee resigned on November 22, 1993.
In addition, OrNda agreed pursuant to the Stock Purchase Agreement that so long
as the JLL Fund shall hold any of the Common Stock or Redeemable Convertible
Preferred Stock, par value $.01 per share (the "Redeemable Preferred"),
acquired in connection with the Recapitalization, the JLL Fund will
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have the right to nominate one director to the Board of Directors of OrNda.
Peter A. Joseph is currently serving as such nominee. See "Certain
Transactions--JLL Fund Stock Purchase Agreement." Mr. O'Callaghan has informed
OrNda that he intends to resign as a director effective with the consummation
of the AHM Merger.
Paul S. Levy has served as a director of OrNda since October 1991. Mr. Levy
has been a general partner of JLL Associates, L.P. ("JLL Associates") since
November 1990 and a partner of Joseph Littlejohn & Levy ("JLL") (and its
predecessors) since May 1988. Mr. Levy has served as Chairman of the Board of
Directors and Chief Executive Officer of Lancer Industries since July 1989. Mr.
Levy was a Managing Director of Drexel Burnham Lambert, Inc. from 1983 until
May 1988. Mr. Levy is a director of Doskocil Companies Incorporated
("Doskocil"), Fairfield Manufacturing Company, Inc. ("Fairfield") and Kendall
International, Inc. ("Kendall International").
M. Lee Pearce, M.D. has served as a director of OrNda since March 1993. Dr.
Pearce is a private investor. Dr. Pearce also serves as a director of IVAX
Corporation.
Yvonne V. Cliff has served as a director of OrNda since October 1991. Ms.
Cliff has been a general partner of JLL Associates since January 1992 and a
principal of JLL since June 1988. Ms. Cliff has served as Vice President--
Corporate Development of Lancer Industries, Inc. ("Lancer Industries") since
July 1989. From July 1985 until June 1988, Ms. Cliff was an associate at Drexel
Burnham Lambert, Inc. Ms. Cliff is a director of Doskocil.
Richard A. Gilleland has served as a director of OrNda since October 1991.
Mr. Gilleland has been the Chairman, President, and Chief Executive Officer of
Kendall International since July 1990. Mr. Gilleland served as Chairman,
President, and Chief Executive Officer of American Medical International, Inc.
from January 1989 to November 1989 and of Intermedics, Inc. from August 1986 to
January 1989.
Leonard Green has been President and Chief Executive Officer of Green
Management and Investment Co., a private investment management company, since
1985. From 1980 to 1985 Mr. Green served as President and Chief Executive
Officer of Yuma Management Corp., the general partner of Universal Home Health
Care Associates, which was subsequently merged into Quality Care, Inc., a home
health care company. From 1974 to 1980 Mr. Green served as Chairman and Chief
Executive Officer of Quality Care, Inc.
Jack O'Callaghan has served as a director of OrNda since September 1990.
Since January 1977, Mr. O'Callaghan has served as President of The O'Callaghan
Company, a private investment firm. Mr. O'Callaghan also serves as a director
of Savin Corporation. Mr. O'Callaghan has informed OrNda that he intends to
resign as a director effective with the consummation of the AHM Merger.
Peter A. Joseph has served as a director of OrNda since October 1991. Mr.
Joseph has been a general partner of JLL Associates, which is the general
partner of the JLL Fund, since November 1990 and a partner of JLL (and its
predecessors), a merchant banking firm and the sponsor of the JLL Fund, since
July 1987. Mr. Joseph has served as President of Lancer Industries since April
1992 and as Secretary and director of Lancer Industries since July 1989. Lancer
Industries is an industrial holding company and the limited partner of JLL
Associates. Lancer Industries also owns 100% of the capital stock of JLL Inc.,
which pursuant to contract manages the JLL Fund. Mr. Joseph was a Managing
Director of Quadrex Securities Corporation from November 1983 until July 1987.
Mr. Joseph is a director of Doskocil and Fairfield.
Angus C. Littlejohn, Jr. has served as a director of OrNda since October
1991. Mr. Littlejohn has been a general partner of JLL Associates since
November 1990 and a partner of JLL (and its predecessors) since
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July 1987. Mr. Littlejohn has served as Vice Chairman of Lancer Industries
since April 1992 and as Chief Financial Officer and director of Lancer
Industries since July 1989. From July 1989 until April 1992 Mr. Littlejohn
served as President of Lancer Industries. Mr. Littlejohn was a Managing
Director of Quadrex Securities Corporation from April 1984 until July 1987. Mr.
Littlejohn is a director of Doskocil and Fairfield.
Charles N. Martin, Jr. has served as Chairman of the Board of Directors,
Chief Executive Officer and President of OrNda since January 1992. Mr. Martin
was President and Chief Operating Officer of Healthtrust, Inc.--The Hospital
Company ("Healthtrust"), a hospital management company, from September 1987
until October 1991. From September 1980 to September 1987, Mr. Martin held a
number of executive positions at Hospital Corporation of America ("HCA"), and
from April 1987 to August 1987 served as a member of the Board of Directors of
HCA.
Keith B. Pitts has served as Executive Vice President and Chief Financial
Officer of OrNda since August 1992. From July 1991 to August 1992, Mr. Pitts
was a partner in Ernst & Young's Southeast Region Health Care Consulting Group,
and from January 1988 to July 1991 he was a partner and Regional Director in
Ernst & Young's Western Region Health Care Consulting Group. Mr. Pitts was a
Regional Vice President and Treasurer of Amherst Associates, a health care
consulting firm, from July 1986 until it merged into Ernst & Young in January
1988.
Beverly S. Anderson has served as Senior Vice President--Operations
Improvement of OrNda since April 1992. For more than five years prior to
joining the Company, Ms. Anderson was a partner and Senior Manager in Ernst &
Young's Southern Region Health Care Consulting Group.
Stephen C. Brandt has served as Senior Vice President--Operations of OrNda
since September 1992 and is responsible for OrNda's operations in Florida,
Tennessee, Mississippi and Indiana. From September 1987 until September 1992,
Mr. Brandt was employed by Healthtrust as a Regional Vice President. Mr. Brandt
was employed by HCA for approximately ten years prior to joining Healthtrust.
Raymond Denson has served as Senior Vice President--Operations of OrNda since
April 1990 and is responsible for OrNda's operations in Missouri, Georgia and
Texas and for one California facility. Mr. Denson served as a Vice President--
Operations of the Company from September 1986 until April 1990. From January
1985 to September 1986, Mr. Denson served as Vice President and Regional
Director of Republic Health Management Company, a subsidiary of OrNda.
Calvin K. Knight has served as Senior Vice President--Operations of OrNda
since July 1992 and is responsible for OrNda's operations in California and
Wyoming, for one facility in Texas and for a hospital managed by OrNda in
Arkansas. From January 1989 to July 1992, Mr. Knight was employed by Safecare
Health Services, Inc., a hospital management company. From June 1987 to January
1989, Mr. Knight was Chief Executive Officer of a hospital operated by
Amerihealth, Inc., a hospital management company. From September 1982 to June
1987, Mr. Knight was employed by National Medical Enterprises, Inc., a hospital
management company, most recently as Chief Executive Officer of NME Hollywood
Medical Center, Hollywood, Florida.
Paula Y. Eleazar has served as Vice President and Chief Information Officer
of OrNda since April 1992. For more than five years prior to joining OrNda, Ms.
Eleazar was employed by HCA, principally in its information systems division
and most recently as the Assistant Administrator of Henrico Doctors Hospital,
Richmond, Virginia.
Jerry M. Eyler has served as Corporate Controller of OrNda since January
1988. Mr. Eyler served as Director of Corporate Accounting of OrNda from
January 1984 until January 1988.
James H. Johnson has served as Vice President, General Counsel, and Secretary
of OrNda since December 1985.
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James Johnston has served as Vice President and Chief Administrative Officer
of OrNda since August 1992. Mr. Johnston served as Vice President--Corporate
Resources of the Company from November 1987 until August 1992 and as Vice
President--Human Resources of OrNda from June 1984 until November 1987.
Douglas B. Lewis joined OrNda in January 1992 and is responsible for
coordinating the acquisition and development opportunities of OrNda. From 1987
until October 1991, Mr. Lewis was employed by the LINC Group, Inc., a health
care financing and medical equipment leasing company. Prior to joining the LINC
Group, Inc., Mr. Lewis was a Vice President of HCA, where he served as a member
of its corporate development and acquisition staff from 1977 to 1987. Mr. Lewis
joined HCA as a hospital administrator in 1973.
Max Liskin joined OrNda in January 1992 and is responsible for coordinating
its investment and financing activities. Most recently, Mr. Liskin was employed
by Prudential Securities, Inc., which he joined in 1988, as a Vice President in
the High Yield Sales and Trading Group. Prior to joining Prudential Securities,
Inc., Mr. Liskin was a Vice President in the Mergers and Acquisition Group of
Drexel Burnham Lambert, Inc.
Russell F. Tonnies has served as Vice President and Treasurer of OrNda since
April 1989. From February 1984 until April 1989, Mr. Tonnies served as
Director, Corporate Tax for OrNda.
William V. B. Webb joined OrNda in January 1992 and is responsible for
coordinating the joint venture activities of OrNda. From September 1990 until
January 1992, Mr. Webb was employed by the Heritage Group, Inc., an owner and
operator of ambulatory surgery centers, where he served as Vice President of
Development. His activities included structuring and marketing joint ventures
primarily between physicians and hospitals. From 1984 to 1990, Mr. Webb was the
President of Freeman Webb Securities where his activities also focused on
health care joint ventures.
In August 1986, REPH Acquisition Company ("REPH") acquired OrNda in a
leveraged buyout. None of the current directors or executive officers of OrNda
either individually or in the aggregate had a significant participation in the
acquisition of OrNda by REPH. On December 15, 1989, OrNda and REPH,
substantially as a result of the leveraged buyout by REPH, filed for
reorganization under Chapter 11 of the United States Bankruptcy Code, under a
"pre-packaged plan" pursuant to which REPH's debt holders approved the
reorganization prior to the filing. The Bankruptcy Court confirmed the
reorganization on April 16, 1990, and OrNda substantially consummated the plan
on April 30, 1990. Messrs. Denson, Eyler, Johnson, Johnston and Tonnies were
executive officers of the Company or REPH on December 15, 1989.
COMMITTEES OF THE ORNDA BOARD OF DIRECTORS AND MEETINGS
OrNda has established an Executive Committee, a Compensation Committee and an
Audit Committee.
Ms. Cliff and Messrs. Gilleland and Martin are members of the Executive
Committee, which is empowered to take any action which could otherwise be taken
by the Board of Directors of OrNda subject to the limitations provided under
the Delaware General Corporation Law. The Executive Committee held four
meetings during the year ended August 31, 1993.
Messrs. Gilleland and Joseph are members of the Compensation Committee, which
reviews and approves all compensation of the officers and directors of OrNda,
and administers OrNda's stock option and other employee benefit plans (other
than OrNda's Management Equity Plan). The Compensation Committee held four
meetings during the year ended August 31, 1993.
Messrs. Littlejohn, O'Callaghan and Reese are members of the Audit Committee,
which recommends to the Board of Directors the independent public accountants
to be used by OrNda and reviews the scope and results of OrNda's accounting
procedures and the adequacy of OrNda's system of internal accounting controls.
The Audit Committee held six meetings during the year ended August 31, 1993.
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OrNda has no standing nominating committee.
The Board of Directors of OrNda held a total of seven regular and special
meetings during the fiscal year ended August 31, 1993. No director attended
fewer than 75% of the aggregate of all meetings of the Board of Directors and
of the committees of the Board on which he or she served.
MANAGEMENT OF ORNDA FOLLOWING THE MERGERS
As set forth in the AHM Merger Agreement, OrNda has agreed to take such
action as may be necessary to appoint three of AHM's directors to the OrNda
Board of Directors. It is currently expected that such designees will be Steven
L. Volla, John F. Nickoll and John J. O'Shaugnessy. In addition, OrNda has
agreed in the Summit Merger Agreement to take all such action as shall be
necessary to enable Donald J. Amaral and one designee of Don Freeberg to be
appointed to the OrNda Board of Directors.
It is anticipated that following consummation of the Mergers, Charles N.
Martin, Jr. will continue to serve as Chairman of the Board and Chief Executive
Officer of OrNda, Steven L. Volla will serve as Chairman of the Executive
Committee of the Board of Directors of OrNda and Donald J. Amaral will serve as
President and Chief Operating Officer of OrNda.
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RATIFICATION OF THE ORNDA HEALTHCORP INCENTIVE BONUS PLAN
GENERAL
On October 27, 1993 the Board of Directors of OrNda adopted the OrNda
HealthCorp Incentive Bonus Plan (the "Bonus Plan") and directed that such
adoption be submitted to OrNda's stockholders for ratification. The Bonus Plan
is designed to create an incentive for key employees of OrNda, to enable OrNda
to achieve high levels of annual operating performance and to attract and
retain top quality, high performing key executives.
SUMMARY OF PLAN
The principal terms of the Bonus Plan are described below, and the full text
of such Plan is set forth as Annex H to this Proxy Statement/Prospectus. The
description in this Proxy Statement/Prospectus of the principal terms of the
Bonus Plan is a summary, does not purport to be complete, and is qualified in
its entirety by the full text of the Bonus Plan attached hereto.
The Bonus Plan is administered by the Compensation Committee of the Board of
Directors of OrNda or such other committee as the Board of Directors may
designate for such purpose (the "Committee"). The Bonus Plan provides for the
payment to key employees of OrNda designated by the Committee as Participants
of annual bonuses (expressed as a percentage of salary) based upon the extent
to which OrNda achieves certain performance goals specified in advance by the
Committee. Participants are awarded the opportunity to earn varying, but
specified, bonuses (expressed as a percentage of salary) based upon the extent
to which OrNda achieves certain performance goals specified in advance by the
Committee. The amount of such bonuses actually earned will depend upon whether
OrNda achieves certain "threshold", "target" or "maximum" levels of performance
Such "threshold", "target" or "maximum" levels of performance are determined by
the Committee and may vary from year to year. Individual performance is
measured and also affects the amount of the bonus earned. If a bonus is earned,
the first $10,000 of such bonus is payable in cash and the remainder is paid
50% in cash and 50% in shares of OrNda Common Stock. One third of such shares
will be nonforfeitable and 50% of the remaining shares will become
nonforfeitable on the last day of each of the succeeding two years if the
Participant continues as an employee of OrNda on such dates. The Participant is
precluded from selling or otherwise disposing of such shares for one year after
the shares become nonforfeitable. Alternatively, the Participant may elect to
receive his entire bonus in OrNda Common Stock, in which event the shares are
immediately nonforfeitable but are subject to the one-year restriction on
transferability. OrNda has authorized 600,000 shares of OrNda Common Stock for
issuance pursuant to the Bonus Plan.
The Board of Directors of OrNda may amend the Bonus Plan in any respect,
provided that no such amendment may adversely affect any outstanding award
without the consent of the affected Participants. As of January 1, 1994,
approximately 100 individuals were eligible to participate in the Bonus Plan
but no awards had been made under the Bonus Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE BONUS PLAN
The following discussion is a brief summary of the principal United States
federal income tax consequences under current federal income tax laws relating
to awards under the Bonus Plan. This summary is not intended to be exhaustive
and, among other things, does not describe state, local or foreign income and
other tax consequences.
A Participant will not recognize taxable income upon the grant of an award
under the Bonus Plan and OrNda will not be entitled to a tax deduction with
respect thereto.
Upon the payment of an award, the amount of cash paid to the Participant plus
the fair market value of the nonforfeitable shares of OrNda Common Stock
transferred to the Participant will be taxable as compensation income to the
Participant and OrNda will be entitled to a tax deduction in the amount of such
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compensation income. The optionee's tax basis for such shares of OrNda Common
Stock will equal the amount of such compensation income. To the extent that the
shares of OrNda Common Stock are subject to a "substantial risk of forfeiture"
under Section 83 of the Code, compensation should be realized and subject to
federal income tax, and OrNda should be entitled to a tax deduction, at the
time the shares are no longer subject to such "substantial risk of forfeiture"
(unless an election is made pursuant to Section 83(b) of the Code to be taxed
at the time such shares are transferred to the Participant).
In the event of a sale of shares of OrNda Common Stock acquired under the
Bonus Plan, any appreciation or depreciation after the date such shares are no
longer subject to a "substantial risk of forfeiture" under Section 83 of the
Code generally will be taxed as capital gain or loss and will be long-term
capital gain or loss if the holding period for such shares of OrNda Common
Stock (from the date such shares were no longer subject to such "substantial
risk of forfeiture") was more than one year.
VOTE REQUIRED FOR APPROVAL
Ratification of the Bonus Plan requires the affirmative vote of the holders
of a majority of the OrNda Common Stock present, in person or by proxy, at the
OrNda Meeting.
THE ORNDA BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION
OF THE BONUS PLAN.
RATIFICATION OF THE 1994 MANAGEMENT EQUITY PLAN
GENERAL
On February 3, 1994 the Board of Directors of OrNda adopted the OrNda
HealthCorp 1994 Management Equity Plan (the "Management Equity Plan") and
directed that such adoption be submitted to OrNda's stockholders for
ratification. The Management Equity Plan is designed to help OrNda to attract
and retain skilled individuals for key positions within OrNda and its
subsidiaries by permitting the Company to offer such individuals the
opportunity to acquire an equity interest in the Company. The Management Equity
Plan will replace the 1992 Management Equity Plan (the "1992 Plan") which will
be terminated upon ratification of the Management Equity Plan. No awards have
been made under the 1992 Plan.
SUMMARY OF PLAN AND AMENDMENT
The principal terms of the Management Equity Plan are described below, and
the full text of the Management Equity Plan is set forth as Annex J to this
Proxy Statement/Prospectus. The description in this Proxy Statement/Prospectus
of the principal terms of the Management Equity Plan is a summary, does not
purport to be complete, and is qualified in its entirety by the full text of
the Management Equity Plan.
Pursuant to the Management Equity Plan, key employees and consultants of
OrNda will be eligible to receive awards of stock options, stock appreciation
rights or limited stock appreciation rights. Options granted under the Plan may
be "incentive stock options" ("ISOs"), within the meaning of Section 422 of the
Code, or nonqualified stock options ("NQSOs"). Stock appreciation rights
("SARs") and limited stock appreciation rights ("LSARs") may be granted
simultaneously with the grant of an option or (in the case of NQSOs), at any
time during its term.
OrNda has authorized 3,550,000 shares of OrNda Common Stock for issuance of
awards under the Management Equity Plan (subject to antidilution and similar
adjustments). The Management Equity Plan limits the number of shares with
respect to which awards may be granted to any individual under the Management
Equity Plan during any year to no more than 1,500,000.
The Management Equity Plan will be administered by the Compensation Committee
(the "Equity Plan Committee") of the Board of Directors of OrNda. Subject to
the provisions of the Management Equity Plan, the Equity Plan Committee will
determine the type of award, when and to whom awards will
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be granted, the number of shares covered by each award and the terms,
provisions and kind of consideration payable (if any), with respect to awards.
The Equity Plan Committee may interpret the Management Equity Plan and may at
any time adopt such rules and regulations for the Management Equity Plan as it
deems advisable.
In determining the persons to whom awards shall be granted and the number of
shares covered by each award the Equity Plan Committee shall take into account
the duties of the respective persons, their present and potential contribution
to the success of OrNda and such other factors as the Equity Plan Committee
shall deem relevant.
An option may be granted on such terms and conditions as the Equity Plan
Committee may approve, and generally may be exercised for a period of up to 10
years from the date of grant. Generally, ISOs will be granted with an exercise
price equal to the "Fair Market Value" (as defined in the Management Equity
Plan) on the date of grant. In the case of ISOs, certain limitations will apply
with respect to the aggregate value of option shares which can become
exercisable for the first time during any one calendar year, and certain
additional limitations will apply to ISOs granted to "Ten Percent Stockholders"
(as defined in the Management Equity Plan). The Equity Plan Committee may
provide for the payment of the option price in cash, by delivery of other OrNda
Common Stock having a Fair Market Value equal to such option price, by a
combination thereof or by any other method. Options granted under the
Management Equity Plan will become exercisable at such times and under such
conditions as the Equity Plan Committee shall determine, subject to
acceleration of the exercisability of options in the event of, among other
things, a "Change in Control" (as defined in the Management Equity Plan).
The Management Equity Plan also permits the Equity Plan Committee to grant
SARs and/or LSARs with respect to all or any portion of the shares of OrNda
Common Stock covered by options. Generally, SARs may be exercised only at such
time as the related option is exercisable and LSARs may be exercised only
during the 90 days immediately following an "Acceleration Date" (as defined in
the Management Equity Plan) except that in the case of an "Insider" (as defined
in the Management Equity Plan), (i) a SAR and a LSAR must be held for at least
six months before it becomes exercisable and (ii) a LSAR must automatically be
paid out in cash. LSARs will be exercisable only if, and to the extent, that
the option to which the LSARs relate is then exercisable, and if such option is
an ISO, only to the extent the Fair Market Value per share of OrNda Common
Stock exceeds the option price.
Upon exercise of a SAR, a grantee will receive for each share for which a SAR
is exercised, an amount in cash or OrNda Common Stock, as determined by the
Equity Plan Committee, equal to the excess, if any of (1) the Fair Market Value
of a share of OrNda Common Stock on the date the SAR is exercised over (2) the
exercise price per share of the option to which the SAR relates.
Upon exercise of a LSAR, a grantee will receive for each share for which a
LSAR is exercised, an amount in cash equal to the excess, if any, of (1) the
greater of (x) the highest Fair Market Value of OrNda Common Stock during the
90-day period ending on the date the LSARs is exercised, and (y) whichever of
the following is applicable: (i) the highest per share price paid in any tender
or exchange offer which is in effect at any time during the 90 days ending on
the date of exercise of the LSAR; (ii) the fixed or formula price for the
acquisition of shares of OrNda Common Stock in a merger in which OrNda will not
continue as the surviving corporation, or upon a consolidation, or a sale,
exchange or disposition of all or substantially all of OrNda's assets, approved
by OrNda's shareholders (if such price is determinable on the date of
exercise); and (iii) the highest price per share of OrNda Common Stock shown on
Schedule 13D, or any amendment thereto, filed by the holder of the specified
percentage of OrNda Common Stock the acquisition of which gives rise to the
exercisability of the LSAR over (2) the exercise price per share of the option
to which the LSAR relates. In no event, however, may the holder of an LSAR
granted in connection with an ISO receive an amount in excess of the maximum
amount which will enable the option to continue to qualify as an ISO.
When a SAR or LSAR is exercised, the option to which it relates will cease to
be exercisable to the extent of the number of shares with respect to which the
SAR or LSAR is exercised, but will be deemed to
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have been exercised for purposes of determining the number of shares available
for the future grant of awards under the Management Equity Plan.
The OrNda Board of Directors may at any time and from time to time suspend,
amend, modify or terminate the Management Equity Plan; provided however, that,
to the extent required by Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or any other law, regulation or
stock exchange rule, no such change shall be effective without the requisite
approval of OrNda's stockholders. In addition, no such change may adversely
affect any awards previously granted, except with the written consent of the
grantee.
No awards may be granted under the Management Equity Plan after February 3,
2004.
As of March 14, 1994 no awards had been granted under the Management Equity
Plan, although OrNda expects to satisfy certain obligations to Mr. Martin
pursuant to his employment agreement with an award of options to purchase
1,400,000 shares of OrNda Common Stock under the Management Equity Plan. See
"Executive Compensation--Martin Employment Agreement." It is currently
contemplated that subject to the consummation of the Mergers and to the
continued employment with OrNda of the respective individuals, awards under the
Management Equity Plan will be made to the following individuals in the
following amounts: Keith B. Pitts, options to purchase 250,000 shares of OrNda
Common Stock, Donald J. Amaral, options to purchase 400,000 shares of OrNda
Common Stock and Steven Volla, options to purchase 300,000 shares of OrNda
Common Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a brief summary of the principal United States
federal income tax consequences under current federal income tax laws relating
to awards under the Management Equity Plan. This summary is not intended to be
exhaustive and, among other things, does not describe state, local or foreign
income and other tax consequences.
An optionee will not recognize any taxable income upon the grant of a NQSO
and OrNda will not be entitled to a tax deduction with respect to such grant.
Upon exercise of a NQSO, the excess of the fair market value of the OrNda
Common Stock on the exercise date over the exercise price will be taxable as
compensation income to the optionee. OrNda will be entitled to a tax deduction
in the amount of such compensation income. The optionee's tax basis for the
OrNda Common Stock received pursuant to such exercise will equal the sum of the
compensation income recognized and the exercise price. If, however, the OrNda
Common Stock received is subject to a "substantial risk of forfeiture" under
Section 83 of the Code, compensation should be realized and subject to federal
income tax only at the time the shares are no longer subject to such
"substantial risk of forfeiture" (unless an election is made pursuant to
Section 83(b) of the Code to be taxed at the time of exercise of the NQSO).
Pursuant to the short-swing profit rules under the Exchange Act, the purchase
of OrNda Common Stock upon exercise of an option by an "insider" (generally a
director or an officer of the company) will not be deemed a purchase triggering
a six-month period of potential short-swing liability. Therefore, the shares
acquired pursuant to the exercise of an NQSO by an "insider" will not be
considered subject to a substantial risk of forfeiture under Section 83 of the
Code by reason of the short-swing profit rules, provided that such shares are
not disposed of during the six-month period following the date of the grant of
the option. Accordingly, the taxable event for the exercise of an NQSO that has
been outstanding for at least six months will ordinarily be the date of
exercise. If a NQSO is exercised within six months after the date of grant,
taxation would ordinarily be deferred until the date six months after the date
of grant, unless the insider files an election pursuant to Section 83(b) of the
Code to be taxed on the date of exercise.
In the event of a sale of OrNda Common Stock received upon the exercise of a
NQSO, any appreciation or depreciation after the exercise date generally will
be taxed as capital gain or loss and will be long-term capital gain or loss if
the holding period for such OrNda Common Stock was more than one year.
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Generally, an optionee should not recognize taxable income at the time of
grant or exercise of an ISO and OrNda should not be entitled to a tax deduction
with respect to such grant or exercise.
A sale or other disposition by an optionee of shares acquired upon the
exercise of an ISO more than one year after the transfer of the shares to such
optionee and more than two years after the date of grant of the ISO should
result in any difference between the net sale proceeds and the exercise price
being treated as long-term capital gain or loss to the optionee, with no
deduction being allowed to OrNda. The exercise of an ISO generally will give
rise to an item of tax preference that may result in alternative minimum tax
liability for the optionee. Upon a sale or other disposition of shares acquired
upon the exercise of an ISO within one year after the transfer of the shares to
the optionee or within two years after the date of grant of the ISO (including
the delivery of such shares in payment of the exercise price of another ISO
within such one-year period), any excess of (i) the lesser of (a) the fair
market value of the shares at the time of exercise of the option and (b) the
amount realized on such disqualifying sale or other disposition of the shares
over (ii) the exercise price of such shares, should constitute ordinary income
to the optionee and OrNda should be entitled to a deduction in the amount of
such income. The difference, if any, between the amount realized on a
disqualifying sale and the fair market value of the shares at the time of the
exercise of the option generally will constitute short-term or long-term
capital gain or loss, as the case may be, and will not be deductible by OrNda.
If an ISO is exercised at a time when it no longer qualifies as an ISO, the
option will be treated as a NQSO.
No income generally should be recognized by an optionee upon the grant of a
SAR (or LSAR) and OrNda will not be entitled to a tax deduction with respect
thereto. Upon the exercise of a SAR (or LSAR), the optionee should recognize
taxable income equal to the cash and the fair market value of any property paid
to the optionee with respect to such exercise and OrNda should be entitled to a
tax deduction for the same amount.
VOTE REQUIRED FOR APPROVAL
Ratification of the adoption of the Management Equity Plan requires the
affirmative vote of the holders of a majority of the OrNda Common Stock
present, in person or by proxy, at the OrNda Meeting.
THE BOARD OF DIRECTORS OF ORNDA RECOMMENDS THAT YOU VOTE "FOR" THE
RATIFICATION OF THE MANAGEMENT EQUITY PLAN.
APPROVAL OF AMENDMENT TO ORNDA'S RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors of OrNda has approved the proposed amendment to
OrNda's certificate of incorporation to increase the total number of authorized
shares of OrNda Common Stock from 100,000,000 to 200,000,000 (the "Charter
Amendment"). The Charter Amendment is set forth as Annex I to this Proxy
Statement/Prospectus.
As of the OrNda Record Date, the authorized capital stock of OrNda consisted
of 100,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock.
As of the OrNda Record Date there were 18,517,584 shares of Common Stock issued
and outstanding and an additional 3,420,341 shares of Common Stock reserved for
issuance pursuant to employee benefit plans of OrNda and upon conversion or
exercise of the PIK Preferred and the outstanding stock purchase warrants;
approximately 78,062,075 shares of OrNda Common Stock were authorized and
available for issuance. Assuming the Mergers are consummated, OrNda would have
approximately 42,025,165 shares of OrNda Common Stock outstanding and an
additional 11,920,207 shares of OrNda Common Stock reserved for issuance
pursuant to employee benefit plans or upon conversion or exercise of
outstanding convertible securities; approximately 46,054,628 shares of OrNda
Common Stock would be authorized and available for issuance.
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The Board of Directors of OrNda believes that it is in the best interests of
OrNda to increase the number of authorized shares of OrNda Common Stock. The
Charter Amendment will also provide OrNda with flexibility in the future by
assuring that there will be sufficient authorized but unissued shares of OrNda
Common Stock available for financing requirements, possible acquisitions, and
other corporate purposes without the necessity of further stockholder action at
any special or annual meeting. Other than pursuant to the Mergers there are no
current plans to issue any shares of OrNda Common Stock. From time to time,
however, OrNda reviews potential acquisition transactions, some of which could
involve the issuance of OrNda Common Stock as acquisition consideration.
When issued, the additional shares of OrNda Common Stock authorized by the
Charter Amendment will have the same rights and privileges as the shares of
OrNda Common Stock currently authorized and outstanding. Holders of OrNda
Common Stock have no preemptive rights and, accordingly, stockholders of OrNda
would not have any preferential right to purchase any of the additional shares
of OrNda Common Stock when such shares are issued.
Under the provisions of the Delaware General Corporation Law, a board of
directors generally may issue authorized but unissued shares of common stock
without stockholder approval. A substantial number of authorized but unissued
shares of OrNda's Common Stock not reserved for specific purposes allows OrNda
to take prompt action with respect to corporate opportunities that develop,
without the delay and expense of convening a special meeting of stockholders.
The issuance of additional shares of OrNda's Common Stock by OrNda may,
depending on the circumstances under which shares are issued, cause a dilution
of voting rights, net income, and net book value per share of Common Stock.
OrNda would receive valuable consideration for any such shares issued however,
thereby reducing or eliminating the economic effect to each shareholder of such
dilution. Should the Charter Amendment be adopted, it is not the present
intention of the Board of Directors to seek stockholder approval prior to any
issuance of additional shares of OrNda's Common Stock unless otherwise required
by law or the rules of any securities exchange or inter-dealer quotation system
on which the shares may be listed at the time. For example, the NASDAQ National
Market System, on which the Common Stock trades, currently requires specific
stockholder approval in several instances, including certain transactions where
the present or potential issuance of shares could result in an increase in the
number of shares of Common Stock outstanding by 20% or more.
VOTE REQUIRED FOR APPROVAL
In order for the stockholders to adopt the Charter Amendment, the holders of
a majority of the outstanding shares of OrNda Common Stock must vote for such
adoption.
THE ORNDA BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ADOPTION OF
THE CHARTER AMENDMENT.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by OrNda to the
individuals who, as of August 31, 1993 were the Chief Executive Officer and
OrNda's four other most highly compensated executive officers (the "Named
Executive Officers") with respect to services performed in such capacities
during the three previous fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------
AWARDS
----------------------------
NAME AND PRINCIPAL RESTRICTED OPTIONS/ ALL OTHER
POSITION YEAR SALARY BONUS($) STOCK AWARDS ($)/1/ SARS (#) COMPENSATIONS ($)/2/
------------------ ---- ------- -------- ------------------- -------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Charles N. Martin, Jr... 1993 500,000 250,000 -- -- --
Chairman of the Board,
President and Chief
Executive Officer 1992 333,333 -- -- 750,000 --
1991 -- -- -- -- --
Keith B. Pitts.......... 1993 300,000 151,273 -- -- --
Chief Financial Officer
and Executive Vice
President 1992 25,000 -- -- -- --
1991 -- -- -- -- --
Stephen C. Brandt....... 1993 275,000 164,386(3) -- -- --
Senior Vice President--
Operations 1992 -- -- -- -- --
1991 -- -- -- -- --
Raymond Denson.......... 1993 232,000 156,250 -- -- 1,750
Senior Vice President--
Operations 1992 212,000 -- 139,331 -- 1,750
1991 200,000 -- 30,583 17,000 1,750
Beverly S. Anderson..... 1993 203,333 76,250 -- -- --
Senior Vice President--
Operations Improvement 1992 63,333 -- -- --
1991 -- -- -- -- --
</TABLE>
- --------
(1) As of August 31, 1993, Mr. Denson held an aggregate of 2,160 restricted
shares with an aggregate value of such day of $22,140. Such shares vest two
years after the date of grant. Dividends are payable on such restricted
shares to the same extent dividends are paid on the OrNda's Common Stock.
(2) The amounts disclosed under All Other Compensation in the Summary
Compensation Table represent OrNda matching contributions made under OrNda's
401(k) Plan.
(3) Includes $114,386 related to the start of employment.
Stock Options. OrNda did not grant stock options to any of the Named
Executive Officers for the fiscal year ended August 31, 1993. The following
table provides information concerning exercisable and unexercisable stock
options held on August 31, 1993 by each of the Named Executive Officers. No
options were exercised by such executive officers for the fiscal year ended
August 31, 1993.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
AUGUST 31, 1993 AT AUGUST 31, 1993 ($)
------------------------- --------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Charles N. Martin, Jr..... 250,000 500,000 0 0
Keith B. Pitts............ -- -- -- --
Stephen C. Brandt......... -- -- -- --
Raymond Denson............ 61,734 5,666 378,536 29,747
Beverly S. Anderson....... -- -- -- --
</TABLE>
Each director who is neither an OrNda employee or officer or receiving
severance payments from OrNda is entitled to receive $20,000 per year and each
director is entitled to reimbursement for all out-of-pocket expenses to attend
meetings. In addition, each member of the Executive Committee, Compensation
Committee and the Audit Committee is entitled to receive $1,000 for each
committee meeting he or she attends that is not held in conjunction with a
meeting of the Board of Directors.
121
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of OrNda reviews and
approves the salaries and bonuses of the executive officers of OrNda and all
grants of options to purchase shares under OrNda's 1990 Stock Option Plan,
OrNda's 1991 Stock Option Plan and the 1992 Plan.
The goal of the Compensation Committee is to maintain executive compensation
at competitive levels which enable OrNda to attract and retain highly qualified
executives. Awards of incentive compensation in the form of cash bonuses and
grants of stock options are designed to reward individual initiative and
achievement and to motivate executives to increase shareholder value by
improving corporate performance and profitability.
Only Charles N. Martin, Jr. (OrNda's Chief Executive Officer and President)
is a party to an employment agreement with OrNda (the "Martin Agreement").
OrNda and Mr. Martin entered into the Martin Agreement on January 15, 1992.
Pursuant to the Martin Agreement, Mr. Martin receives an annual base salary of
$500,000. Mr. Martin's employment agreement permits, but does not require,
increases to his base salary as well as the award of an annual bonus. The
Compensation Committee reviews the base salary of Mr. Martin (as well as the
other executive officers including the Named Executive Officers) periodically,
considering factors such as individual and corporate performance (without
reference to any specific performance-related targets) and individual
experience and expertise. In determining Mr. Martin's overall compensation as
well as the compensation of the other executive officers, the Compensation
Committee also reviews certain compensation levels at other companies including
selected peer companies. Such other companies are not necessarily the same as
the companies in the peer group index in the performance graph section of this
Proxy Statement/Prospectus because the Compensation Committee believes that
OrNda competes for executive talent with companies in addition to those in its
peer group. The Compensation Committee does not attempt to set base salaries at
any particular level based on such surveys, but rather uses such surveys to
obtain an overview of compensation levels in general. No particular weight is
given by the Compensation Committee to any of the foregoing factors, and
decisions as to adjustments in base salaries are primarily subjective. For the
fiscal year ended August 31, 1993, the base salaries of each of the executive
officers, except for Mr. Martin, were increased and the Compensation Committee
granted Mr. Martin a bonus of $250,000. In addition to the factors reviewed by
the Compensation Committee in determining compensation levels in general, in
determining to grant Mr. Martin a bonus, the Compensation Committee
specifically considered subjective factors related to corporate and Mr.
Martin's individual performance that were not necessarily linked to any
specific performance-related targets or given any particular weight. In
addition, the Compensation Committee considered the fact that Mr. Martin had
not received an increase in base salary or a bonus during the prior year as
well as Mr. Martin's overall compensation relative to compensation levels of
Chief Executives of other comparable companies.
The Compensation Committee is authorized to grant incentive and nonqualified
stock options to key employees of OrNda, including executive officers. Such
option grants are intended to provide additional long-term incentive to
increase shareholder value. No specific formula is used to determine stock
option grants made to any particular person (including executive officers), but
grants are generally based upon factors such as the optionee's contribution
toward Company performance and expected contribution toward meeting long-term
strategic goals of OrNda. The Compensation Committee did not award any stock
options under the 1990 Stock Option Plan, 1991 Option Plan or the 1992 Plan
during the 1993 fiscal year.
The Compensation Committee
Peter A. Joseph, Chairman
Richard A. Gilleland
122
<PAGE>
<TABLE>
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG ORNDA HEALTHCORP, CRSP INDEX FOR NASDAQ STOCK MARKER, AND
CRSP INDEX FOR NASDAQ HEALTH SERVICES STOCK
<CAPTION>
CRSP Index CRSP Index
for Nasdaq for Nasdaq
Measurement period OrNda Stock Health Services
(Fiscal year Covered) HealthCorp Market Stock
- --------------------- ---------- -------- ---------------
<S> <C> <C> <C>
Measurement PT -
08/31/88 $ $ 72.2 $ 50.6
FYE 08/31/89 $ $ 99.5 $ 70.6
FYE 08/31/90 $ 62.5 $ 82.6 $ 93.7
FYE 08/31/91 $ 146.9 $ 117.1 $ 178.3
FYE 08/31/92 $ 106.2 $ 126.9 $ 203.0
FYE 08/31/93 $ 128.1 $ 167.2 $ 222.6
</TABLE>
123
<PAGE>
MARTIN EMPLOYMENT AGREEMENT
On January 15, 1992, OrNda entered into an employment agreement with Mr.
Martin (the "Martin Agreement") pursuant to which Mr. Martin agreed to serve as
Chairman of the Board and Chief Executive Officer of OrNda. The Martin
Agreement is for a five year term and is automatically extended thereafter for
additional one year terms unless either OrNda or Mr. Martin elects not to
extend the term.
The Martin Agreement provides that Mr. Martin will receive a base salary of
$500,000 per year (or such greater amount as the Board of Directors of OrNda
may determine), annual bonuses in such amounts as the Board of Directors of
OrNda may determine, reimbursement for certain expenses incurred by Mr. Martin
and pension, medical and other customary employee benefits.
Upon termination of Mr. Martin's employment with OrNda (i) by OrNda other
than for Cause or Disability (each as defined in the Martin Agreement) or (ii)
by Mr. Martin for Good Reason (as defined in the Martin Agreement), Mr. Martin
will continue to receive his base salary for the remainder of the term and
OrNda will continue to provide to Mr. Martin medical, life insurance and
certain other employee benefits for the remainder of the term. OrNda will also
pay to Mr. Martin in substantially equal monthly installments over the
remainder of the term an amount equal to the average of the annual bonuses
actually paid to Mr. Martin with respect to the 2 years immediately preceding
the year in which such termination of employment occurs.
Pursuant to the Martin Agreement (i) Mr. Martin purchased from OrNda
1,000,000 shares of OrNda Common Stock for a purchase price of $7.75 per share
($5.50 less than the closing price on such date) by delivering to OrNda $10,000
and a promissory note (the "Promissory Note") in the amount of $7,740,000 due
January 1993, bearing interest at the prime rate as announced by Citibank, N.A.
from time to time, (ii) OrNda adopted certain amendments to the 1991 Stock
Option Plan and granted to Mr. Martin an option (an "Option") thereunder to
purchase 750,000 shares of Common Stock at an exercise price per share of
$10.75, and (iii) OrNda adopted the 1992 Plan and agreed to grant to Mr.
Martin, upon his request, an option under the 1992 Plan to purchase up to 2.2
million shares of OrNda Common Stock at $20.00 per share. Upon stockholder
ratification of the Management Equity Plan, (See "Ratification of the 1994
Management Equity Plan"), the 1992 Plan will be terminated. OrNda expects to
satisfy its obligations to Mr. Martin in this regard by grant of options to
purchase up to 1,400,000 shares of OrNda Common Stock under the Management
Equity Plan. OrNda recorded a $4.2 million non-cash charge for the fiscal year
ended August 31, 1992 related to Mr. Martin's purchase of OrNda Common Stock
and the grant to Mr. Martin of stock options. On January 15, 1993, Mr. Martin
repaid the full amount of the Promissory Note plus accrued interest.
Generally, the Option will become exercisable as to one-third of the shares
covered thereby on each of the first three anniversaries of the date the Option
was granted, to the extent Mr. Martin continues to be employed by the Company
on such dates, and terminates on the tenth anniversary of such date of grant or
upon the earlier termination of Mr. Martin's employment with OrNda. Upon
termination of Mr. Martin's employment by OrNda in breach of the Agreement or
by Mr. Martin for Good Reason (as defined in the Martin Agreement) the
exercisability of all or a portion of the Option will be accelerated and the
expiration of the Option will be delayed until one year following such
termination of employment.
Pursuant to the Martin Agreement, at Mr. Martin's request, OrNda loaned to
Mr. Martin $1,375.000. Such loan is evidenced by two five-year promissory notes
bearing interest at a rate equal to the prime rate announced by Citibank, N.A.
from time to time. As of August 31, 1993, $1,176,617 was outstanding on such
loan. In addition, the Martin Agreement provides certain registration rights
with respect to such shares of Common Stock purchased by Mr. Martin pursuant to
the Martin Agreement, as well as the shares of Common Stock acquired by him
pursuant to the Option and the Employment Option. OrNda was obligated under the
Martin Agreement to reimburse Mr. Martin for up to $300,000 of reasonable
expenses incurred by Mr. Martin in connection with the business of The Martin
Companies during the period from September 1, 1991 until January 15, 1992 and
reasonable legal fees incurred by Mr. Martin in connection with the Martin
Agreement.
124
<PAGE>
INDEMNIFICATION AGREEMENTS AND TRUST
OrNda has entered into indemnification agreements with each of its directors
and officers (an "Indemnitee") to provide contractual right to indemnification,
to the maximum extent permitted by law, for expenses (including attorney's
fees), judgements, penalties, fines and amounts paid in settlement actually and
reasonably incurred by the Indemnitee in connection with any proceeding
(including, to the extent permitted by applicable law, any derivative action)
to which he or she is, or is threatened to be made, a party by reason of his or
her status as a director or officer. In addition, OrNda has entered into an
indemnification trust agreement with First City, Texas-Dallas, as trustee,
pursuant to which OrNda has deposited $1,450,000 in cash with the trustee and
has agreed to deposit $1,750,000 within two business days following a Change in
Control of OrNda (as defined below). The funds deposited in this trust are
available for distribution to the Indemnitee to satisfy claims made under the
indemnification agreements. The trust will terminate upon the earliest to occur
of (i) the termination of all indemnification agreements and the receipt by the
trustee of notice thereof from OrNda and certain representatives of the
Indemnitees, (ii) the execution and delivery to the trustee of a unanimous
written consent of all the Indemnitees to such effect, (iii) April 30, 1995,
provided no claims for payment out of the indemnification trust fund are
pending on such date, or (iv) if claims for payment out of the indemnification
trust fund are pending on such date, on the first day thereafter when no such
claims are pending. For purposes of the indemnification trust agreement, a
"Change in Control" of OrNda will be deemed to have occurred if, among other
things, (i) any person (but excluding any employee benefit plan or employee
stock plan of OrNda or any entity organized, appointed, established, or holding
securities of OrNda with voting power for or pursuant to the terms of any such
plan) is or becomes the beneficial owner, directly or indirectly, of securities
of OrNda's representing 35% or more of the combined voting power of OrNda's
then outstanding securities without the prior approval of at least two-thirds
of the members of the Board of Directors of OrNda in office immediately prior
to such person attaining such interest, (ii) OrNda is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter, or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by OrNda's stockholders was approved by a vote of at
least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors. The indemnification trust agreement was
amended prior to consummation of the Recapitalization to provide that the
Recapitalization shall not constitute a Change in Control for purposes of such
agreement.
CERTAIN TRANSACTIONS
JLL FUND STOCK PURCHASE AGREEMENT
On October 15, 1991, as part of the Recapitalization and pursuant to the
Stock Purchase Agreement between the JLL Fund and OrNda, the JLL Fund purchased
from OrNda 5,161,290 shares of Common Stock for $40,000,000 and 1,935,484
shares of the Redeemable Preferred for $15,000,000. The Redeemable Preferred
was convertible at any time following October 15, 1992 at the option of the
holder into an aggregate of 1,935,484 shares of Common Stock, subject to
adjustment upon the occurrence of certain events. Pursuant to a waiver
agreement between OrNda and the JLL Fund, on April 13, 1992, the JLL Fund
converted its shares of Redeemable Preferred into 1,935,484 shares of Common
Stock. Pursuant to the Stock Purchase Agreement, OrNda granted to the JLL Fund
certain demand and piggyback registration rights with respect to the shares of
OrNda Common Stock acquired by the JLL Fund.
Pursuant to the Stock Purchase Agreement, OrNda agreed that upon consummation
of the Recapitalization its Board of Directors would consist of the following
persons, serving in the following classes: Class I--Messrs. Reese, Levy and
Lee; Class II--Messrs. O'Callaghan and Gilleland and Ms. Cliff; Class III
125
<PAGE>
- --Messrs. Joseph, Marsal and Littlejohn, and that thereafter the Company will
use its best efforts to cause the Board of Directors to consist of at least
nine persons. In addition, OrNda agreed that for so long as the JLL Fund shall
hold any of the OrNda Common Stock or Redeemable Preferred acquired pursuant to
the Stock Purchase Agreement, the JLL Fund shall have the right to nominate one
director to the Board of Directors of OrNda and OrNda shall use its best
efforts to cause the election of such nominee. Peter A. Joseph is currently
serving as such nominee.
Messrs. Joseph, Littlejohn and Levy are partners of JLL and Ms. Cliff is a
principal of JLL. JLL is the sponsor of the JLL Fund. Messrs. Joseph,
Littlejohn and Levy and Ms. Cliff are each general partners of JLL Associates,
which is the general partner of the JLL Fund. In addition, Messrs. Joseph,
Littlejohn, Levy and Ms. Cliff are officers and/or directors of Lancer
Industries. Lancer Industries is the limited partner of JLL Associates and owns
100% of the capital stock of JLL Inc., which pursuant to contract manages the
JLL Fund. See "Management--Directors, Director Nominees and Executive
Officers."
PAH EXCHANGE AGREEMENT
On October 15, 1991, as part of the Recapitalization and pursuant to the
Amended and Restated Exchange Agreement dated as of August 6, 1991 and amended
and restated as of October 14, 1991 (the "Exchange Agreement") among OrNda,
Republic Health Capital Corporation, a Delaware corporation and a wholly owned
subsidiary of OrNda ("Capco"), and PAH, PAH surrendered to OrNda and Capco an
aggregate of $200,000,000 principal amount of OrNda's 10% Senior Subordinated
First Secured Refunding Reset Notes due February 28, 1994 in exchange for (i)
$120,000,000, (ii) 3,000,000 shares of OrNda Common Stock, and (iii) 1,000,000
shares of Preferred Stock designated as the Payable in Kind Cumulative
Redeemable Convertible Preferred Stock (the "PIK Preferred") with an aggregate
liquidation value of $15,000,000.
Pursuant to the Exchange Agreement, OrNda granted to PAH certain demand and
piggyback registration rights with respect to the shares of OrNda Common Stock
and PIK Preferred acquired by PAH. In addition, OrNda agreed to appoint a
designee of PAH reasonably acceptable to OrNda as a Class I director of OrNda
upon consummation of the Recapitalization and, thereafter, for so long as PAH
and its affiliates shall own one million shares of OrNda Common Stock
(including shares of Common Stock issuable upon conversion of the PIK
Preferred), to nominate a designee of PAH reasonably acceptable to OrNda as
part of the slate of Class I directors presented to OrNda's stockholders. David
L. Lee had been serving on the Board of Directors as PAH's designee until his
resignation on November 22, 1993. OrNda believes that PAH does not intend to
nominate a replacement for David Lee. Mr. Lee is associated with PAH.
Pursuant to the Registration Rights Agreement, dated as of October 15, 1991
between PAH and OrNda, on November 9, 1993, PAH exercised a demand registration
right with respect to its PIK Preferred and Common Stock. Pursuant to such
request, OrNda has agreed to file a shelf registration statement to register
the PIK Preferred and Common Stock held by PAH not later than the fifth
business day following the effectiveness of OrNda's S-4 Registration Statement
relating to the OrNda Common Stock to be issued in the Mergers. Certain other
stockholders of OrNda have piggyback registration rights, which if exercised
would allow the shares held by such stockholders to be included on the shelf
registration statement.
STOCKHOLDERS AGREEMENT
On March 23, 1993, OrNda acquired Golden Glades Regional Medical Center (the
"Golden Glades Acquisition") pursuant to the Agreement and Plan of Merger (the
"Merger Agreement") dated as of February 9, 1993, by and among OrNda, GGMRC
Acquisition Inc., Commonwealth Continental Health Care, Inc. ("CCHC"), Rudy J.
Noriega, the MLP Trust and M. Lee Pearce. As part of the transactions
contemplated by the Merger Agreement, Dr. Pearce received 940,000 shares of
OrNda Common Stock and Mr. Noriega received 60,000 shares of OrNda Common Stock
in exchange for all the issued and outstanding shares of capital stock of CCHC
subject to post closing adjustments. In connection with the Golden Glades
Acquisition, on February 9, 1993, OrNda, JLL and Messrs. Martin and Noriega and
Dr. Pearce entered into
126
<PAGE>
a Stockholders Agreement (the "Stockholders Agreement"). The Stockholders
Agreement provides, among other things, that during the term of the
Stockholders Agreement and for so long as Dr. Pearce remains the "beneficial
owner" (as defined in Rule 13d-3(a) under the Securities Exchange Act of 1934,
as amended) of not less than 5% of the issued and outstanding shares of OrNda
Common Stock, OrNda will nominate Dr. Pearce for election as a member of its
Board of Directors and will use its best efforts to cause Dr. Pearce to be so
elected. In addition, Mr. Martin and JLL agreed to vote at any meeting at which
Dr. Pearce stands for election as a member of the Board of Directors of OrNda,
all of the shares of OrNda Common Stock owned by them in favor of such
election. The Stockholders Agreement became effective on March 23, 1993 and
will terminate on March 23, 1996. Dr. Pearce is currently serving as a Class I
director of OrNda and has been nominated by the Board of Directors for election
as a Class I director.
MARSAL TERMINATION AGREEMENT
On January 15, 1992, OrNda, Mr. Marsal and Alvarez & Marsal entered into an
agreement (the "Termination Agreement") pursuant to which Mr. Marsal resigned
as President and Chief Executive Officer of OrNda. The Termination Agreement
provides that OrNda shall pay to Mr. Marsal $52,200 per month through October
15, 1994 with such payments to be backed by an unconditional, irrevocable
letter of credit. The Termination Agreement also provides for the termination
of the agreements between OrNda and Alvarez & Marsal (except for certain
indemnification obligations of OrNda thereunder); however, the registration
rights granted to Alvarez & Marsal will continue to be in force. Pursuant to
the Termination Agreement, the options granted to Alvarez & Marsal became
immediately exercisable and Mr. Marsal became vested in all otherwise unvested
matching shares credited to his account under OrNda's Stock Plan. For the
fiscal year ended August 31, 1993, OrNda paid approximately $626,400 to Mr.
Marsal pursuant to the Termination Agreement.
OTHER
On November 9, 1992, OrNda and Pacific Capital Group ("Pacific") entered into
a letter agreement pursuant to which Pacific will aid OrNda in exploring the
possibility of a specific business combination for one of OrNda's health care
facilities. Pacific is an affiliate of Gary Winnick who is the beneficial owner
of greater than five percent of OrNda's Common Stock. See "Principal
Stockholders and Security Ownership of Management." If a business combination
(as defined in the letter agreement) is concluded within twelve months from the
date of the letter agreement, OrNda will pay Pacific compensation as mutually
agreed to between the two parties which is customary and based upon the value
of the business combination actually consummated.
127
<PAGE>
PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT OF ORNDA
The following table sets forth certain information as of February 28, 1994
with respect to (a) each person known to OrNda to be the beneficial owner of
more than five percent of OrNda Common Stock, (b) each director and/or director
nominee of OrNda who owns OrNda Common Stock or currently exercisable options,
and (c) all directors and executive officers of OrNda as a group.
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME AND ADDRESS OF OF
OF BENEFICIAL OWNER SHARES CLASS (12)
------------------- --------- ----------
<S> <C> <C>
M.D. Sass Associates, Inc. ........................... 1,385,667(1) 7.48%
1133 Avenue of Americas
New York, New York 10036
Joseph Littlejohn & Levy Fund, L.P. .................. 7,096,774(2) 38.32%
126 East 56th Street
New York, New York 10022
Castle Pines, Inc. ................................... 1,876,868(3) 10.06%
150 El Camino Drive
Suite 204
Beverly Hills, California 90212
Gary Winnick.......................................... 2,821,292(4) 14.70%
150 El Camino Drive
Suite 204
Beverly Hills, California 90212
Charles N. Martin, Jr. ............................... 1,000,000(5) 5.40%
Paul S. Levy.......................................... 7,104,561(6) 38.37%
Peter A. Joseph....................................... 7,096,774(6) 38.32%
Angus C. Littlejohn, Jr. ............................. 7,096,774(6) 38.32%
Yvonne V. Cliff....................................... 7,096,744(6) 38.32%
Leonard Green......................................... 2,000(7) *
Jack O'Callaghan...................................... 7,000(8) *
Jay Rodney Reese...................................... 47,500(9) *
M. Lee Pearce, M.D. .................................. 940,000(10) 5.08%
All directors and officers as a group (23 persons).... 9,509,400(11) 50.35%
</TABLE>
- --------
* Less than 1%.
(1) Based on information set forth in the Schedule 13G filing dated February
10, 1994 made by M.D. Sass Associates, Inc. with the Securities and
Exchange Commission.
(2) Paul S. Levy, Peter A. Joseph, Angus C. Littlejohn, Jr. and Yvonne V.
Cliff may be deemed to beneficially own such shares. Each of such persons
has disclaimed beneficial ownership of such shares. See Note 9. By virtue
of the Stockholders Agreement, Charles N. Martin, Jr. may be deemed to
have a beneficial ownership interest in such shares. Mr. Martin has
disclaimed beneficial ownership of such shares.
(3) Based on information set forth in the Schedule 13D Amendment No. 5 filing
made by Castle Pines, Inc. and other reporting persons filed with the
Securities and Exchange Commission on August 17, 1993. Includes 372,372
shares of OrNda Common Stock issuable upon conversion of the PIK Preferred
held by Castle Pines, Inc. The PIK Preferred has no voting rights, except
as required by law. See "Certain Transactions--PAH Exchange Agreement."
Gary Winnick is an officer and director of Castle Pines, Inc.
(4) Based upon information set forth in the Schedule 13D Amendment No. 5
filing filed August 17, 1993, and the Form 4 filings dated July 27, 1992,
November 9, 1992 and February 7, 1994 made by Gary Winnick and other
reporting persons filed with the Securities and Exchange Commission.
Includes (i) 277,131 shares of OrNda Common Stock issuable upon conversion
of 277,131 shares of PIK Preferred owned directly by Mr. Winnick and (ii)
an aggregate of 1,932,262 shares of OrNda Common Stock (including therein
an aggregate of 403,798 shares of OrNda Common Stock issuable upon
conversion of 403,798 shares of PIK Preferred) owned by Castle Pines,
Inc., and certain other entities of which Mr. Winnick may be deemed to be
a controlling person. See Note 3 above.
(5) Does not include the 750,000 shares of OrNda Common Stock issuable upon
exercise of the Option granted pursuant to the Martin Agreement. See
"Executive Compensation--Martin Employment Agreement" By virtue of the
Stockholders Agreement, Dr. Pearce may be deemed to have a beneficial
ownership interest in such shares. Dr. Pearce has disclaimed beneficial
ownership of such shares.
128
<PAGE>
(6) Based on information set forth in the Schedule 13D Amendment No. 12
filing made by the JLL Fund and other reporting persons filed with the
Securities and Exchange Commission on December 2, 1993. All of such
shares, other than 7,787 shares beneficially owned by Mr. Levy, are owned
by the JLL Fund. Messrs. Joseph, Littlejohn and Levy and Ms. Cliff are
officers and, except for Ms. Cliff, directors of Lancer Industries,
limited partner of JLL Associates and the owner of 100% of the capital
stock of JLL Inc., which pursuant to contract manages the JLL Fund.
Messrs. Joseph, Littlejohn, Levy and Ms. Cliff are each general partners
of JLL Associates, which is the general partner of the JLL Fund. Except
with respect to 7,787 shares owned by Mr. Levy, Messrs. Joseph
Littlejohn, Levy and Ms. Cliff disclaim beneficial ownership of all such
shares. By virtue of the Stockholders Agreement, Dr. Pearce may be deemed
to have a beneficial ownership interest in such shares. Dr. Pearce has
disclaimed beneficial ownership of such shares.
(7) The 2,000 shares are owned by Mr. Green's wife and constitutes less than
1% of the shares of OrNda Common Stock outstanding. Mr. Green disclaims
beneficial ownership of the shares.
(8) The 7,000 shares are owned by Mr. O'Callaghan's wife and constitute less
than 1% of the OrNda Common Stock outstanding.
(9) Includes 3,000 shares held in trust for the benefit of Mr. Reese's
daughter.
(10) By virtue of the Letter Agreement dated February 9, 1993 between M. Lee
Pearce, Rudy Noriega and the JLL Fund, the JLL Fund, Messrs. Levy,
Joseph, Littlejohn and Ms. Cliff may be deemed to have a beneficial
ownership interest in such shares. Each of such persons has disclaimed
beneficial ownership of such shares.
(11) Includes shares held by the JLL Fund and Dr. Pearce. The JLL Fund has
four affiliates on the Board of Directors.
(12) Percentages are calculated based on 18,517,584 shares of OrNda Common
Stock outstanding as of February 28, 1994.
As of November 18, 1993, pursuant to irrevocable proxies granted by Joseph
Littlejohn & Levy Fund L.P., Charles N. Martin, Jr. and M. Lee Pearce, M.D. to
AHM in connection with the AHM Merger Agreement, AHM may be deemed to have
acquired beneficial ownership of approximately 49% of the OrNda Common Stock.
See "The Mergers--Terms of the AHM Merger--Irrevocable Proxies." As of
December 2, 1993, pursuant to voting agreements entered into by Joseph
Littlejohn & Levy Fund, L.P., Charles N. Martin, Jr. and M. Lee Pearce, M.D.
with Summit in connection with the Summit Merger Agreement, Summit may be
deemed to have acquired beneficial ownership of approximately 49% of the OrNda
Common Stock. See "The Mergers--Terms of the Summit Merger--Voting
Agreements."
129
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF AHM
The following table sets forth certain information with respect to beneficial
ownership of Common Stock of AHM as of March 1, 1994 (i) by each person known
by AHM to be the beneficial owner of five percent or more of the outstanding
shares of AHM Common Stock, (ii) by each of AHM's directors, (iii) by each of
the five most highly compensated executive officers of AHM, and (iv) by all of
AHM's directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
BENEFICIALLY OWNED(1)(2) CLASS(2)
------------------------ ----------
<S> <C> <C>
John F. Nickoll............................ 3,610,511(3) 13.15%
Suite 1500
11111 Santa Monica Blvd.
Los Angeles, CA 90025
The Foothill Group, Inc. .................. 6,550,726(4)(5) 23.80
Suite 1500
11111 Santa Monica Blvd.
Los Angeles, CA 90025
John W. Gildea............................. 2,806,429(6) 10.22
c/o Gildea Management Co.
90 Ferris Hill Road
New Canaan, CT 06840
The Network Company II Limited............. 2,762,929 10.06
c/o Gildea Management
Company
90 Ferris Hill Road
New Canaan, CT 06840
Leon Greeenblat............................ 2,450,399(7) 8.86
175 W. Jackson
Suite A243
Chicago, IL 60004
Steven L. Volla, Chairman, President and
Chief Executive Officer................... 785,816(8) 2.81
William S. Kiser, M.D., Director........... 6,000 *
John J. O'Shaughnessy, Director............ 60,000(9) *
C.A. Rundell, Jr., Director................ 60,000(9) *
Gerald L. Sauer, Ph.D., Director........... 60,000(9) *
Robert W. Fleming, Senior Vice President,
Operations................................ 171,270(10) *
William S. Harrigan, Senior Vice President,
Chief Financial Officer, and Treasurer.... 124,667(11) *
Robert M. Dubbs, Senior Vice President,
General Counsel, and Secretary............ 68,500(12) *
Bruce J. Colburn, Vice President and Con-
troller................................... 47,216(13) *
All executive officers and directors as a
group (14 persons)........................ 7,857,792(14) 27.61
</TABLE>
- --------
*Less than 1%.
(1) Except as set forth in Footnotes 3, 5, 11 and 6 below, the Stockholders
identified in this table have sole voting and investment power with regard
to the shares beneficially owned by them.
(2) Each named person and all directors and executive officers as a group are
deemed to be beneficial owners of securities that may be acquired within 60
days through the exercise of options and warrants, if any, and such
securities are deemed to be outstanding for the purpose of computing the
percentage of class beneficially owned by such person or group. Accordingly,
the indicated numbers of shares and percentages reflect shares issuable upon
exercise of options and warrants (including employee stock options) held by
such person or group. However, such shares are not deemed to be outstanding
for the
130
<PAGE>
purpose of computing the number of shares or percentage of class
beneficially owned by any other person or group. This tabulation includes
options granted to Non-Employee Directors under the Director Plan with
respect to 180,000 shares (at $1.38 per share) granted to the three Non-
Employee Directors.
(3) Mr. Nickoll is a Director of the Company. Includes 3,566,332 shares
beneficially owned by Foothill Partners, L.P. of which Mr. Nickoll is a
General Partner. Mr. Nickoll is also Co-Chief Executive Officer of The
Foothill Group, Inc. See Footnote 4 below. Mr. Nickoll disclaims beneficial
ownership of such shares in excess of his pecuniary interest therein. Mr.
Nickoll is also the beneficial owner of 44,179 shares of Common Stock.
(4) Includes 2,206,354 shares held by Foothill Capital Corporation (of which
The Foothill Group, Inc. is the parent corporation), 702,850 shares plus
warrants to acquire 75,190 shares held by The Foothill Group, Inc. and
3,566,332 shares held by Foothill Partners, L.P. (of which The Foothill
Group, Inc. is a general partner).
(5) Messrs. Dennis R. Asher, Don L. Gevirtz and Jeffrey T. Nikora, each with a
business address c/o The Foothill Group, Inc., are all also General Partners
of Foothill Partners, L.P. They disclaim beneficial ownership of shares held
by Foothill Partners, L.P. in excess of their pecuniary interest therein.
Mr. Gevirtz is also Co-Chief Executive Officer of The Foothill Group, Inc.
(6) Mr. Gildea is also a Director of the Company. Includes 2,762,929 shares
held by The Network Company II Limited, an offshore investment fund over
which Mr. Gildea, as a Director and the Managing Director, exercises sole
voting and investment power. Mr. Gildea disclaims beneficial ownership of
such shares. Also includes 25,000 shares owned by Mr. Gildea and 19,000 held
by Mr. Gildea's spouse as custodian for their minor children (with respect
to which Mr. Gildea disclaims beneficial ownership).
(7) Includes warrants to acquire 203,036 shares.
(8) Includes options and warrants to acquire 550,113 shares.
(9) Represents options to acquire 60,000 shares.
(10) Includes options to acquire 100,000 shares.
(11) Includes options to acquire 66,667 shares.
(12) Includes options to acquire 50,000 shares.
(13) Includes options to acquire 20,000 shares.
(14) Includes options and warrants to acquire 1,006,780 shares.
131
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SUMMIT
The following table sets forth certain information as to the shares of Common
Stock of Summit owned as of February 28, 1994, by (i) each person who, insofar
as Summit has been able to ascertain, beneficially owned more than five percent
of the outstanding shares of the Common Stock, (ii) each director, (iii) each
of the five most highly compensated executive officers of Summit, and (iv) all
directors and officers as a group.
<TABLE>
<CAPTION>
PERCENT
NAME OF BENEFICIAL OWNER OR NUMBER OF OF
IDENTITY OF GROUP(/1/) SHARES CLASS
--------------------------- ---------- -------
<S> <C> <C>
Don Freeberg............... 17,897,600(/2/)(/3/)(/4/)(/6/) 54.7%
John E. Anderson........... 2,558,500(/5/) 7.9%
Donald J. Amaral........... 275,000(/6/)(/7/) *
Clark D. McQuay............ 7,100(/1/) *
Howard P. Marguleas........ 9,100(/6/) *
William C. Scott........... 19,000(/6/) *
Randolph H. Speer.......... 14,200(/6/) *
A. Dean Staley............. 50,000(/6/) *
All directors and officers
as a group................ 20,816,600(/2/)(/3/)(/4/)(/5/)(/6/)(/7/) 62.9%
</TABLE>
- --------
* Less than 1%.
(1) Each person has sole voting and investment power over the Common Stock
shown as beneficially owned, subject to community property laws where
applicable and the information contained in Notes 2-7 to this table.
(2) Includes interest in 1,210,000 shares held by Meridian Life Insurance Co.
("Meridian"), a subsidiary of Sierra Orlando Properties, a limited
partnership in which Mr. Freeberg has a 89.4% interest and Mr. Freeberg's
adult son Daniel has a 10.6% interest. The entire 1,210,000 shares are
included in Mr. Freeberg's number of shares above based on his majority
ownership interest in the partnership. Mr. Freeberg disclaims beneficial
ownership of these shares.
(3) Includes 6,000,000 shares held by Sierra Land Development, L.P., a
California limited partnership ("Sierra L.P."). A wholly-owned subsidiary of
Sierra Land Group, Inc. ("Sierra") is the sole general partner, and Don
Freeberg and his adult son Daniel Freeberg are the limited partners of Sierra
L.P. Approximately 93% of Sierra is owned by Don Freeberg, and the balance is
owned by a trust for the benefit of his adult sons Daniel and James Freeberg,
as to which Don Freeberg is trustee and as such controls the trust.
(4) Includes 10,467,600 shares held in a voting trust, of which 8,767,600
shares are attributable to Sierra and 1,700,000 shares are attributable to
James Freeberg. Don Freeberg is trustee of the voting trust with sole voting
and investment power. The term of trust extends until December 1994, but can
be terminated by the trustee.
(5) Includes 438,500 shares held by a subsidiary of Topa Equities, Ltd., a
corporation wholly-owned by Mr. Anderson.
(6) Includes shares which such persons have the right to acquire within 60 days
pursuant to the exercise of outstanding stock options of which 210,000 shares
are attributable to Mr. Amaral, 220,000 shares are attributable to Mr.
Freeberg, 9,100 shares are attributable to Mr. Marguleas, 7,100 shares are
attributable to Mr. McQuay, 13,000 shares are attributable to Mr. Staley,
19,000 shares are attributable to Mr. Scott, 8,200 shares are attributable to
Mr. Speer and 575,500 shares are attributable to all directors and officers
as a group.
(7) Includes 20,000 shares held in a trust for Mr. Amaral's son and daughter.
132
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires OrNda's directors and executive
officers, and persons who own more than ten percent of a registered class of
OrNda's equity securities to file with the Commission initial reports of
ownership and reports of changes in ownership of OrNda's Common Stock and other
equity securities. Officers, directors and greater than ten percent
shareholders are required by Commission regulation to furnish OrNda copies of
all Section 16(a) forms they file.
To OrNda's knowledge, based solely on a review of the copies of such reports
furnished to OrNda for the fiscal year ended August 31, 1993, all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten-
percent beneficial owners were complied with, except that two reports each
covering one transaction were filed late by Mr. William Webb.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young served as OrNda's principal independent public accountants for
the year ended August 31, 1993 and is expected to be appointed to serve in such
capacity for the current fiscal year. Representatives of Ernst & Young are
expected to be present at the Annual Meeting, will have the opportunity to make
a statement if they so desire, and will be available to respond to appropriate
questions.
LEGAL MATTERS
The validity of the issuance of the shares of OrNda Common Stock being
offered hereby will be passed upon for OrNda by James H. Johnson, Esq., Vice
President, Secretary and General Counsel of OrNda. The federal income tax
consequences of the AHM Merger will be passed upon for OrNda by Skadden, Arps,
Slate, Meagher & Flom, New York, New York. The federal income tax consequences
in connection with the AHM Merger will be passed upon for AHM by Drinker Biddle
& Reath, Philadelphia, Pennsylvania. Certain matters will be passed upon for
Summit by Stroock & Stroock & Lavan, Los Angeles, California.
EXPERTS
The consolidated financial statements of each of OrNda, AHM and Summit,
appearing in their respective Annual Reports (Form 10-K/A No. 4, Form 10-K/A
No. 1, and Form 10-K, respectively) for the years ended August 31, 1993,
December 31, 1992 and June 30, 1993, respectively, incorporated by reference in
this Proxy Statement/Prospectus, which are referred to and made a part of this
Proxy Statement/Prospectus and Registration Statement, have been audited by
Ernst & Young, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
STOCKHOLDER PROPOSALS FOR THE 1995 ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders must be received by OrNda at its principal
executive offices at 3401 West End Avenue, Suite 700, Nashville, Tennessee
37203 by November 14, 1994 for inclusion in OrNda's Proxy Statement and form of
proxy relating to OrNda's 1995 annual meeting of stockholders.
133
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
ORNDA HEALTHCORP
AND
AMERICAN HEALTHCARE MANAGEMENT, INC.
DATED AS OF JANUARY 14, 1994
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I The Merger............................................. A-2
Section 1.1 The Merger............................................. A-2
Section 1.2 Effective Time of the Merger........................... A-2
ARTICLE II The Surviving Corporation.............................. A-2
Section 2.1 Certificate of Incorporation........................... A-2
Section 2.2 By-Laws................................................ A-2
Section 2.3 Directors and Officers of Surviving Corporation........ A-2
ARTICLE III Conversion of Shares................................... A-2
Section 3.1 Exchange Ratio......................................... A-2
Section 3.2 Exchange of Shares..................................... A-3
Section 3.3 Dividends; Transfer Taxes.............................. A-3
Section 3.4 No Fractional Securities............................... A-3
Section 3.5 Closing of AHM Transfer Books.......................... A-3
Section 3.6 Closing................................................ A-3
ARTICLE IV Representations and Warranties of OrNda................ A-4
Section 4.1 Organization........................................... A-4
Section 4.2 Capitalization......................................... A-4
Section 4.3 Subsidiaries........................................... A-4
Section 4.4 Authority Relative to this Agreement................... A-5
Section 4.5 Consents and Approvals; No Violations.................. A-5
Section 4.6 Reports and Financial Statements....................... A-5
Section 4.7 Absence of Certain Changes or Events................... A-5
Section 4.8 Litigation............................................. A-6
Section 4.9 Information in Disclosure Documents and Registration
Statement.............................................. A-6
Section 4.10 Absence of Undisclosed Liabilities..................... A-6
Section 4.11 No Default............................................. A-6
Section 4.12 Taxes.................................................. A-6
Section 4.13 Title to Properties; Encumbrances...................... A-7
Section 4.14 Compliance with Applicable Law......................... A-7
Section 4.15 Medicare Participation/Accreditation................... A-7
Section 4.16 Labor Matters.......................................... A-8
Section 4.17 Employee Benefit Plans; ERISA.......................... A-8
Section 4.18 Vote Required.......................................... A-8
Section 4.19 Opinion of Financial Advisor........................... A-8
ARTICLE V Representations and Warranties of The Company.......... A-8
Section 5.1 Organization........................................... A-8
Section 5.2 Capitalization......................................... A-8
Section 5.3 Subsidiaries........................................... A-9
Section 5.4 Authority Relative to this Agreement................... A-9
Section 5.5 Consents and Approvals; No Violations.................. A-9
Section 5.6 Reports and Financial Statements....................... A-9
Section 5.7 Absence of Certain Changes or Events................... A-10
Section 5.8 Litigation............................................. A-10
Section 5.9 Absence of Undisclosed Liabilities..................... A-10
Section 5.10 No Default............................................. A-10
Section 5.11 Taxes.................................................. A-10
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 5.12 Employee Benefit Plans; ERISA.......................... A-11
Section 5.13 Title to Properties; Encumbrances...................... A-11
Section 5.14 Compliance with Applicable Law......................... A-11
Section 5.15 Information in Disclosure Documents and Registration
Statement.............................................. A-11
Section 5.16 Opinion of Financial Advisor........................... A-12
Section 5.17 Vote Required.......................................... A-12
Section 5.18 Medicare Participation/Accreditation................... A-12
Section 5.19 Labor Matters.......................................... A-12
ARTICLE VI Conduct of Business Pending The Merger................. A-12
Section 6.1 Conduct of Business by AHM Pending the Merger.......... A-12
Section 6.2 Conduct of Business by OrNda Pending the Merger........ A-13
ARTICLE VII Additional Agreements.................................. A-14
Section 7.1 Access and Information................................. A-14
Section 7.2 Acquisition Proposals.................................. A-15
Section 7.3 Registration Statement................................. A-15
Section 7.4 Proxy Statements; Stockholder Approvals................ A-15
Section 7.5 Compliance with the Securities Act..................... A-15
Section 7.6 Antitrust Laws......................................... A-16
Section 7.7 Proxies................................................ A-16
Section 7.8 Employee Stock Options; Warrants....................... A-16
Section 7.9 Public Announcements................................... A-16
Section 7.10 By-Law Indemnification Provision....................... A-17
Section 7.11 Expenses............................................... A-17
Section 7.12 Additional Agreements.................................. A-17
Section 7.13 Directors of OrNda..................................... A-17
Section 7.14 Registration Rights.................................... A-17
ARTICLE VIII Conditions to Consummation of The Merger............... A-18
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger................................................. A-18
Section 8.2 Conditions to Obligation of AHM to Effect the Merger... A-18
Section 8.3 Conditions to Obligations of OrNda to Effect the
Merger................................................. A-20
ARTICLE IX Termination, Amendment and Waiver...................... A-21
Section 9.1 Termination............................................ A-21
Section 9.2 Effect of Termination.................................. A-22
Section 9.3 Amendment.............................................. A-22
Section 9.4 Waiver................................................. A-22
ARTICLE X General Provisions..................................... A-22
Section 10.1 Survival of Representations, Warranties and Agreements. A-22
Section 10.2 Brokers................................................ A-22
Section 10.3 Notices................................................ A-22
Section 10.4 Descriptive Headings................................... A-23
Section 10.5 Entire Agreement; Assignment........................... A-23
Section 10.6 Governing Law.......................................... A-23
Section 10.7 Specific Performance................................... A-23
Section 10.8 Counterparts........................................... A-23
</TABLE>
A-ii
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
Amended and Restated Agreement and Plan of Merger, dated as of January 14,
1994, by and between OrNda HealthCorp, a Delaware corporation ("OrNda"), and
American Healthcare Management, Inc. a Delaware corporation ("AHM").
BACKGROUND
1. OrNda, AHM and AHM Acquisition Co., Inc., a Delaware corporation and a
wholly-owned subsidiary of OrNda ("Sub"), entered into an Agreement and Plan of
Merger, dated as of November 18, 1993 (the "Original Agreement"), providing
for, inter alia, (i) the merger of Sub with and into AHM (with the result that
AHM would become a wholly-owned subsidiary of OrNda), and (ii) the exchange of
each issued and outstanding share of Common Stock of AHM, par value $.01 per
share, of AHM for 0.6 shares of the Common Stock of OrNda.
2. The Boards of Directors of OrNda, AHM and Sub have approved and authorized
for execution, and there has been executed and delivered, an Amendment No. 1 to
the Original Agreement, dated as of January 14, 1994 ("Amendment No. 1")
providing for (i) the merger of AHM with and into OrNda, rather than the merger
of Sub with and into AHM, (ii) the exchange of AHM shares for OrNda shares on
the same basis as in the Original Agreement, (iii) changes in the Original
Agreement as are necessary to effect, and incident to, the foregoing, and to
reflect changes in operative facts since the Original Agreement, (iv) the
deletion of Sub as a part to the Original Agreement, as amended by Amendment
No. 1, and the deletion of all references to Sub in the Original Agreement as
amended by Amendment No. 1, and (v) the execution and delivery by OrNda and AHM
of an Amended and Restated Agreement and Plan of Merger reflecting the terms of
the Original Agreement as amended by Amendment No. 1.
3. This Amended and Restated Agreement and Plan of Merger is the Amended and
Restated Agreement and Plan of Merger authorized by Section 6 of Amendment No.
1.
Whereas, The Boards of Directors of OrNda and AHM deem it advisable and in
the best interests of their respective stockholders that AHM merge with and
into OrNda, and such Boards of Directors have approved the merger (the
"Merger") of AHM with and into OrNda upon the terms and subject to the
conditions set forth herein; and
Whereas, in connection with the execution and delivery of the Original
Agreement, certain holders of shares of OrNda Common Stock, par value $.01 per
share (the "OrNda Common Stock"), granted AHM irrevocable proxies, in the form
attached thereto and hereto as Exhibit A (the "OrNda Stock Proxies"), to vote
such shares of OrNda Common Stock; and have confirmed in writing that the OrNda
Stock Proxies relate to the Merger as herein defined and
Whereas, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
Whereas, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests;
Now, Therefore, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the OrNda Stock Proxies, the parties hereto agree as follows:
A-1
<PAGE>
ARTICLE I
THE MERGER
Section 1.1 The Merger. At the Effective Time (as defined in Section 1.2
hereof), AHM shall be merged with and into OrNda and the separate existence of
AHM shall thereupon cease. The Merger shall have the effects set forth in
Section 259 of the General Corporation Law of the State of Delaware (the
"GCL").
Section 1.2 Effective Time of the Merger. The Merger shall become effective
when a properly executed Certificate of Merger is duly filed with the Secretary
of State of the State of Delaware, which filing shall be made as soon as
practicable after the closing of the transactions contemplated by this
Agreement in accordance with Section 3.6 hereof. When used in this Agreement,
the term "Effective Time" shall mean the date and time at which such
Certificate is so filed.
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 OrNda.
Section 2.2 By-Laws. Subject to Section 7.10 hereof, the By-Laws of OrNda as
in effect at the Effective Time shall be the By-Laws of the Surviving
Corporation.
Section 2.3 Directors and Officers of Surviving Corporation.
(a) The directors of OrNda at the Effective Time shall be the initial
directors of the Surviving Corporation 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.
(b) The officers of AHM at the Effective Time shall be the initial
officers of the Surviving Corporation 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 Exchange Ratio. 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 of AHM (the "Shares") issued and
outstanding immediately prior to the Effective Time (other than Shares held
by OrNda or any subsidiary of OrNda) shall be converted into the right to
receive 0.6 (the "Exchange Ratio") of a share of OrNda Common Stock ("OrNda
Shares"), payable upon the surrender of the certificate formerly
representing such Share;
(b) Each Share held in the treasury of AHM and each Share held by OrNda
or any subsidiary of OrNda immediately prior to the Effective Time shall be
cancelled and retired and cease to exist;
(c) Each share of OrNda Common Stock and OrNda Preferred Stock issued and
issued and outstanding immediately prior to the Effective Time shall, on
and after the Effective Time, continue to be issued and outstanding as an
identical share of OrNda Common Stock or OrNda Preferred Stock, as the case
may be;
A-2
<PAGE>
(d) Each share of OrNda Common Stock and OrNda Preferred Stock issued and
held in the treasury of OrNda as of the Effective Time, if any, shall, on
and after the Effective Date, continue to be issued and held in the
treasury of OrNda and unaffected by the Merger.
Section 3.2 Exchange of Shares. OrNda shall authorize one or more persons to
act as Exchange Agent hereunder (the "Exchange Agent"). As soon as practicable
after the Effective Time, OrNda shall make available, and each holder of Shares
will be entitled to receive, upon surrender to the Exchange Agent of one or
more certificates representing such Shares for cancellation, certificates
representing the number of OrNda Shares into which such Shares are converted in
the Merger. The OrNda Shares into which the Shares shall be converted in the
Merger shall be deemed to have been issued at the Effective Time.
Section 3.3 Dividends; Transfer Taxes. No dividends that are declared on
OrNda Shares will be paid to persons entitled to receive certificates
representing OrNda Shares until such persons surrender their certificates
representing Shares. Upon such surrender, there shall be paid to the person in
whose name the certificates representing such OrNda Shares shall be issued, any
dividends which shall have become payable with respect to such OrNda Shares
between the Effective Time and the time of such surrender. In no event shall
the person entitled to receive such dividends be entitled to receive interest
on such dividends. If any certificates for any OrNda Shares are to be issued in
a name other than that in which the certificate representing Shares surrendered
in exchange therefor is registered it shall be a condition of such exchange
that the person requesting such exchange shall pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of certificates for
such OrNda Shares in a name other than that of the registered holder of the
certificate surrendered or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable to a
holder of Shares for any OrNda Shares or dividends thereon or, in accordance
with Section 3.4 hereof, proceeds of the sale of fractional interests,
delivered to a public official pursuant to applicable escheat laws.
Section 3.4 No Fractional Securities. No certificates or scrip representing
fractional OrNda Shares shall be issued upon the surrender for exchange of
certificates representing Shares pursuant to this Article III and no dividend,
stock split-up or other change in the capital structure of AHM shall relate to
any fractional security, 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 securities, each holder of Shares who would otherwise have been
entitled to a fraction of a OrNda 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 closing
sale price of OrNda Shares on the National Association of Securities Dealers
Automated Quotations National Market System (the "NASDAQ") on the day of the
Effective Time, or, if the OrNda Shares are not so traded on such day, the
closing sale price on the next preceding day on which such stock was traded on
the NASDAQ.
Section 3.5 Closing of AHM Transfer Books. At the Effective Time, the stock
transfer books of AHM 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 certificates representing OrNda Shares.
Section 3.6 Closing. The Closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Skadden, Arps,
Slate, Meagher & Flom, 919 Third Avenue, New York, New York, at 10:00 a.m.,
local time, on the later of (a) the date of the stockholders' meetings referred
to in Section 7.4 hereof or (b) 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 OrNda and AHM shall agree.
A-3
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ORNDA
OrNda represents and warrants to AHM as follows:
Section 4.1 Organization. OrNda 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. OrNda 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 nature of its
activities make such qualification necessary, except where the failure to be so
qualified will not have a material adverse effect on OrNda and its subsidiaries
taken as a whole.
Section 4.2 Capitalization. The authorized capital stock of OrNda consists of
100,000,000 shares of Common Stock, par value $.01 per share, and 10,000,000
shares of Convertible Preferred Stock, par value $.01 per share ("OrNda
Preferred Stock"). As of August 31, 1993, (i) 18,184,594 OrNda Shares were
issued and outstanding, (ii) 1,193,896 shares of OrNda Preferred Stock were
issued and outstanding (iii) employee stock options to acquire 1,869,479 OrNda
Shares (the "OrNda Employee Stock Options") were outstanding under all stock
option plans of OrNda, (iv) 6,769,479 OrNda Shares were reserved for issuance
pursuant to all employee benefit plans of OrNda, (v) warrants to purchase
131,250 OrNda Shares (the "OrNda Warrants") were outstanding pursuant to the
Warrant Agreement dated as of April 30, 1990, between OrNda and Ameritrust
Texas National Association, and (vi) 1,193,896 OrNda Shares were reserved for
issuance upon the conversion of the OrNda Preferred Stock. All of the issued
and outstanding OrNda Shares are validly issued, fully paid and nonassessable
and free of preemptive rights. All of the OrNda Shares issuable 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.
Section 4.3 Subsidiaries. Except as set forth on Schedule 4.3 hereto, the
OrNda does not directly or indirectly own any interest in any other
corporation, partnership, joint venture or other business association or
entity, foreign or domestic. (Such corporations, partnerships, joint ventures
or other business entities of which OrNda or any of its other OrNda
Subsidiaries owns, directly or indirectly, greater than fifty percent of the
shares of capital stock or other equity interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
cast at least a majority of the votes that may be cast by all shares or equity
interests having ordinary voting power for the election of directors or other
governing body of such entity are hereinafter referred to as the "OrNda
Subsidiaries".) Each OrNda Subsidiary that is a corporation is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each OrNda Subsidiary that is a partnership is
duly formed and validly existing under the laws of its jurisdiction of
formation. Each OrNda Subsidiary has the corporate power or the partnership
power, as the case may be to carry on its business as it is now being conducted
or presently proposed to be conducted. Each OrNda Subsidiary that is a
corporation 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 nature of its activities makes such
qualification necessary except where the failure to be so qualified will not
have a material adverse effect on OrNda or such OrNda Subsidiary. Each OrNda
Subsidiary that is a partnership is duly qualified as a foreign partnership
authorized to do business, and is in good standing, in 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 will not have a material adverse effect on OrNda or such OrNda
Subsidiary. All of the outstanding shares of capital stock of the OrNda
Subsidiaries that are corporations are validly issued, fully paid and
nonassessable. Except as set forth on Schedule 4.3 hereto, all of the
outstanding shares of capital stock of, or other ownership interests in, each
of the OrNda Subsidiaries are owned by OrNda or by a OrNda Subsidiary free and
clear of any liens, claims, charges or encumbrances. There are not now, and at
the Effective Time there will not be, any outstanding options, warrants,
subscriptions, calls, rights, convertible securities or other agreements or
commitments obligating OrNda or any OrNda Subsidiary to issue, transfer or sell
any securities of any OrNda
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Subsidiary. Except as set forth on Schedule 4.3 hereto, there are not now, and
at the Effective Time there will not be, any voting trusts or other agreements
or understandings to which OrNda or any of the OrNda Subsidiaries is a party or
is bound with respect to the voting of the capital stock of OrNda or any of the
OrNda Subsidiaries.
Section 4.4 Authority Relative to this Agreement. OrNda has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement by OrNda and the consummation by
OrNda of the transactions contemplated hereby have been duly authorized by the
Board of Directors of OrNda, and, except for the approvals of OrNda's
stockholders to be sought at the stockholders' meeting contemplated by Section
7.4(b) hereof, no other corporate proceedings on the part of OrNda are
necessary to authorize this Agreement or the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by OrNda and
constitutes a valid and binding agreement of OrNda, enforceable against OrNda
in accordance with its terms.
Section 4.5 Consents and Approvals; No Violations. Except for applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), state or
foreign laws relating to takeovers, if applicable, state securities or blue sky
laws, certain state and local regulatory filings relating to health care
licensing and similar matters, and the filing and recordation of a Certificate
of Merger as required by the GCL, no filing with, and no permit, authorization,
consent or approval of, any public body or authority is necessary for the
consummation by OrNda of the transactions contemplated by this Agreement.
Neither the execution and delivery of this Agreement by OrNda nor the
consummation by OrNda of the transactions contemplated hereby, nor compliance
by OrNda with any of the provisions hereof will (a) conflict with or result in
any breach of any provisions of the Certificate of Incorporation or By-Laws of
OrNda, (b) except as set forth on Schedule 4.5 hereto, 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 or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, agreement or other instrument or
obligation to which OrNda or any of its subsidiaries is a party or by which any
of them or any of their properties or assets may be bound or (c) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
OrNda, any of its subsidiaries or any of their properties or assets, except in
the case of clauses (b) and (c) for violations, breaches or defaults which are
not in the aggregate material to OrNda and its subsidiaries taken as a whole.
Section 4.6 Reports and Financial Statements. OrNda has filed all reports
required to be filed with the Securities and Exchange Commission (the "SEC")
pursuant to the Exchange Act since January 1, 1991 (collectively, the "SEC
Reports"), and has previously furnished AHM with true and complete copies of
all such SEC Reports. None of such SEC Reports, as of their respective dates,
contained any untrue statement of a material fact or omitted 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. Each of the balance sheets (including the related notes) included
in the SEC Reports fairly presents the consolidated financial position of OrNda
and its subsidiaries as of the respective dates thereof, and the other related
statements (including the related notes) included therein fairly present the
results of operations and the changes in financial position of OrNda and its
subsidiaries for the respective periods or as of the respective dates set forth
therein, all in conformity with generally accepted accounting principles
consistently applied during the periods involved except as otherwise noted
therein.
Section 4.7 Absence of Certain Changes or Events. Except as set forth in
Schedule 4.7 hereto or in the SEC Reports, since May 30, 1993, neither OrNda
nor any of the OrNda Subsidiaries (as hereinafter defined) has: (a) taken any
of the actions set forth in Sections 6.2(b) or 6.2(c) hereof; (b) suffered any
material adverse change in the business, financial condition, results of
operations, properties, assets or liabilities of OrNda and the OrNda
Subsidiaries taken as a whole; or (c) subsequent to the date hereof, except as
permitted by Section 6.2 hereof, conducted its business and operations other
than in the ordinary course of business and consistent with past practices.
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Section 4.8 Litigation. Except for litigation disclosed in the notes to the
financial statements included in OrNda's Annual Report to Stockholders for the
year ended August 31, 1992 or in the SEC Reports there is no suit, action or
proceeding pending or, to the best knowledge of OrNda, threatened against or
affecting OrNda or any of its subsidiaries, the outcome of which, in the
reasonable judgment of OrNda, is likely to materially and adversely affect the
business, financial condition or results of operations of OrNda and its
subsidiaries taken as a whole; nor is there any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against OrNda or any of its
subsidiaries having, or which, insofar as can reasonably be foreseen, in the
future may have, any such effect.
Section 4.9 Information in Disclosure Documents and Registration
Statement. None of the information to be supplied by OrNda for inclusion in (a)
the Registration Statement to be filed with the SEC by OrNda on Form S-4 under
the Securities Act for the purpose of registering the OrNda Shares to be issued
in the Merger (the "Registration Statement") and (b) the joint proxy statement
to be distributed in connection with OrNda's and AHM's meeting of stockholders
to vote upon this Agreement (the "Proxy Statement") will in the case of the
Registration Statement, at the time it becomes effective and at the Effective
Time, or, in the case of the Proxy Statement or any amendments thereof or
supplements thereto, at the time of the mailing of the Proxy Statement and any
amendments or supplements thereto, and at the time of the meetings of
stockholders to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. The
Registration Statement will comply as to form in all material respects with the
provisions of the Securities Act, and the rules and regulations promulgated
thereunder.
Section 4.10 Absence of Undisclosed Liabilities. Except for liabilities or
obligations which are accrued or reserved against in OrNda's financial
statements (or reflected in the notes thereto) included in the OrNda SEC
Reports or which were incurred after May 30, 1993 in the ordinary course of
business and consistent with past practices, and except as disclosed in
Schedule 4.10 hereto, OrNda and the OrNda Subsidiaries do not have any
liabilities or obligations (whether absolute accrued contingent or otherwise)
of a nature required by generally accepted accounting principles to be
reflected in a corporate balance sheet (or reflected in the notes thereto).
Section 4.11 No Default. Except as disclosed in Schedule 4.11 hereof, neither
OrNda nor any of the OrNda Subsidiaries is in default or violation (and no
event has occurred which with notice or the lapse of time or both would
constitute a default or violation) of any term, condition or provision of (a)
its Certificate of Incorporation or By-Laws, (b) any note, bond, mortgage,
indenture, license, agreement, contract, lease, commitment or other obligation
to which OrNda or any of the OrNda Subsidiaries is a party or by which they or
any of their properties or assets may be bound, or (c) any order, writ,
injunction, decree, statute, rule or regulation applicable to OrNda or any of
the OrNda Subsidiaries, except in the case of clauses (b) and (c) above for
defaults or violations which would not have a material adverse affect on OrNda
and the OrNda Subsidiaries, taken as a whole.
Section 4.12 Taxes.
(a) OrNda has heretofore delivered or will make available to AHM true,
correct and complete copies of the consolidated federal, state, local and
foreign income, franchise, sales and other Tax Returns (as hereinafter defined)
filed by OrNda and the OrNda Subsidiaries for each of OrNda's years ended
August 31, 1988, 1989, 1990, 1991 and 1992 inclusive. OrNda has duly filed, and
each OrNda Subsidiary has duly filed, all material federal, state, local and
foreign income, franchise, sales and other Tax Returns required to be filed by
OrNda or the OrNda Subsidiaries. All such Tax Returns are true, correct and
complete, in all material respects, and OrNda and the OrNda Subsidiaries have
duly paid all Taxes (as hereinafter defined) required to be paid in respect of
the periods covered by such returns and has paid or made adequate provision for
payment of all accrued but unpaid Taxes in respect of all periods since the
periods covered by such Tax Returns. Except as
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set forth in Schedule 4.12 hereof, all deficiencies assessed as a result of any
examination of Tax Returns of OrNda or the OrNda Subsidiaries by federal,
state, local or foreign tax authorities have been paid, and deficiencies for
all Taxes which have been proposed or asserted against OrNda and the OrNda
Subsidiaries do not exceed $750,000 in the aggregate for all periods. Except as
disclosed in Schedule 4.12 hereof, no issue has been raised during the past
five years by any federal, state, local or foreign taxing authority which, if
raised with regard to any other period not so examined, could reasonably be
expected to result in a proposed deficiency for any other period not so
examined. Except as disclosed in Schedule 4.12 hereof, neither OrNda nor any of
the OrNda Subsidiaries has granted any extension or waiver of the statutory
period of limitations applicable to any claim for Taxes. Neither OrNda nor any
of the OrNda Subsidiaries is a party to any agreement, contract or arrangement
that would result, separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code.
OrNda and each of the OrNda Subsidiaries have complied (and until the Closing
will comply) in all material respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes (including,
without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of
the Code or similar provisions under any foreign laws) and have, within the
time and in the manner prescribed by law, withheld from employee wages and paid
over to the proper governmental authorities all amounts required to be so
withheld and paid over under all applicable laws.
(b) For purposes of this Agreement, the term "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, excise, property, sales, transfer, license, payroll,
withholding, capital stock and franchise taxes, imposed by the United States,
or any state, local or foreign government or subdivision or agency thereof,
including any interest, penalties or additions thereto. For purposes of this
Agreement, the term "Tax Return" shall mean any report, return or other
information or document required to be supplied to a taxing authority in
connection with Taxes.
Section 4.13 Title to Properties; Encumbrances.
Except as described in the following sentence, each of OrNda and the OrNda
Subsidiaries has good, valid and marketable title to, or a valid leasehold
interest in, all of its properties and assets (real, personal and mixed,
tangible and intangible), including, without limitation, all the properties and
assets reflected in the consolidated balance sheet of OrNda and the OrNda
Subsidiaries as of May 30, 1993 included in OrNda's Quarterly Report on Form
l0-Q for the period ended on such date (except for properties and assets
disposed of in the ordinary course of business and consistent with past
practices since May 30, 1993). None of such properties or assets are subject to
any liability, obligation, claim, lien, mortgage, pledge, security interest,
conditional sale agreement, charge or encumbrance of any kind (whether
absolute, accrued, contingent or otherwise), except (i) as set forth in
Schedule 4.13 hereto, and (ii) minor imperfections of title and encumbrance, if
any, which are not substantial in amount, do not materially detract from the
value of the property or assets subject thereto and do not impair the
operations of OrNda and the OrNda Subsidiaries.
Section 4.14 Compliance with Applicable Law. Each of OrNda and the OrNda
Subsidiaries is in compliance, with all applicable laws (whether statutory or
otherwise), rules, regulations, orders, ordinances, judgments or decrees of all
governmental authorities (federal, state, local, foreign or otherwise)
(collectively, the "Laws"), where the failure to be in such compliance would
have a material adverse effect on OrNda and the OrNda Subsidiaries, taken as a
whole.
Section 4.15 Medicare Participation/Accreditation. All of OrNda's hospitals
are certified for participation or enrollment in the Medicare and Medicaid
programs, have a current and valid provider contract with the Medicare and
Medicaid programs, are in substantial compliance with the conditions of
participation of such programs and have received all approvals or
qualifications necessary for capital reimbursement of OrNda's assets. Neither
OrNda nor any of the OrNda Subsidiaries has received notice from the regulatory
authorities which enforce the statutory or regulatory provisions in respect of
either the Medicare or the Medicaid program of any pending or threatened
investigations, and neither OrNda nor any of the OrNda Subsidiaries has any
reason to believe that any such investigations or surveys are pending,
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threatened or imminent which may have a material adverse effect on OrNda and
the OrNda Subsidiaries, taken as a whole. All of OrNda's hospitals are
accredited by the Joint Commission on Accreditation of Healthcare
Organizations.
Section 4.16 Labor Matters. Neither OrNda nor any of the OrNda 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 or,
to the knowledge of OrNda, threatened against OrNda or the OrNda Subsidiaries
relating to their business, except for any such preceding which would not have
a material adverse effect on OrNda and the OrNda Subsidiaries, taken as a
whole. To the knowledge of OrNda, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being made
or threatened involving employees of OrNda or any of the OrNda Subsidiaries.
Section 4.17 Employee Benefit Plans; ERISA. Schedule 4.17 hereto sets forth
certain representations and warranties of OrNda with respect to its employee
benefit plans.
Section 4.18 Vote Required. Approval of the Merger by the stockholders of
OrNda will require the affirmative vote of the holders of a majority of the
outstanding shares of OrNda at the stockholders' meeting referred to in Section
7.4.
Section 4.19 Opinion of Financial Advisor. The Board of Directors of OrNda
(at a meeting duly called and held) has unanimously determined that the
transactions contemplated hereby are fair to and in the best interest's of the
holders of the Common Stock. OrNda has received the oral opinion of Kidder
Peabody & Co., Inc., OrNda's financial advisor, substantially to the effect
that the Exchange Ratio is fair to AHM from a financial point of view.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AHM
AHM represents and warrants to OrNda as follows:
Section 5.1 Organization. AHM 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. AHM 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 nature of its
activities makes such qualification necessary, except where the failure to be
so qualified will not have a material adverse effect on AHM and its
subsidiaries taken as a whole.
Section 5.2 Capitalization. The authorized capital stock of AHM consists of
60,000,000 shares of Common Stock, par value $.01 per share. As of the date
hereof, 27,174,730 Shares were issued and outstanding, employee stock options
to acquire 1,601,667 Shares (the "Employee Stock Options") were outstanding
under all stock option plans and agreements of AHM and warrants to purchase
1,165,847 shares (the "Warrants") were outstanding pursuant to the Warrant
Agreement dated as of December 29, 1989, as amended as of September 1991
between AHM and First City, Texas (the "Warrant Agreement"). All of the issued
and outstanding Shares are validly issued, fully paid and nonassessable and
free of preemptive rights. Except as set forth above and as otherwise provided
for in this Agreement, there are not now, and at the Effective Time there will
not be, any shares of capital stock of AHM issued or outstanding or any
options, warrants, subscriptions, calls, rights, convertible securities or
other agreements or commitments obligating AHM to issue, transfer or sell any
shares of its capital stock. Except as provided in this Agreement, after the
Effective Time, AHM will have no obligation to issue, transfer or sell any
shares of its capital stock pursuant to any employee benefit plan or otherwise.
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Section 5.3 Subsidiaries. Except as set forth on Schedule 5.3 hereto, AHM
does not directly or indirectly own any interest in any other corporation,
partnership, joint venture or other business association or entity, foreign or
domestic. (Such corporations, partnerships, joint ventures or other business
entities of which AHM or any of its other Subsidiaries owns, directly or
indirectly, greater than fifty percent of the shares of capital stock or other
equity interests (including partnership interests) entitled (without regard to
the occurrence of any contingency) to cast at least a majority of the votes
that may be cast by all shares or equity interests having ordinary voting power
for the election of directors or other governing body of such entity are
hereinafter referred to as the "Subsidiaries".) Each Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has the corporate power to carry
on its business as it is now being conducted or presently proposed to be
conducted. Each Subsidiary 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 nature of its activities makes
such qualification necessary except where the failure to be so qualified will
not have a material adverse effect on AHM or such Subsidiary. Except as set
forth on Schedule 5.3 hereof, all of the outstanding shares of capital stock of
the Subsidiaries are validly issued, fully paid and nonassessable and are owned
by AHM or by a Subsidiary free and clear of any liens, claims, charges or
encumbrances. There are not now, and at the Effective Time there will not be,
any outstanding options, warrants, subscriptions, calls, rights, convertible
securities or other agreements or commitments obligating AHM or any Subsidiary
to issue, transfer or sell any securities of any Subsidiary. There are not now,
and at the Effective Time there will not be, any voting trusts or other
agreements or understandings to which AHM or any of the Subsidiaries is a party
or is bound with respect to the voting of the capital stock of AHM or any of
the Subsidiaries.
Section 5.4 Authority Relative to this Agreement. AHM has the corporate power
to enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement by AHM and the consummation by AHM of
the transactions contemplated hereby have been duly authorized by AHM's Board
of Directors and, except for the approval of its stockholders to be sought at
the stockholders meeting contemplated by Section 7.4 hereof, no other corporate
proceedings on the part of AHM are necessary to authorize this Agreement or the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by AHM and constitutes a valid and binding agreement of
AHM, enforceable against AHM in accordance with its terms.
Section 5.5 Consents and Approvals; No Violations. Except for applicable
requirements of the HSR Act, the Securities Act, the Exchange Act, state
securities or blue sky laws, certain state and local regulatory filings
relating to healthcare licensing and similar matters, and the filing and
recordation of a Certificate of Merger as required by the GCL, no filing with,
and no permit, authorization, consent or approval of, any public body or
authority is necessary for the consummation by AHM of the transactions
contemplated by this Agreement. Neither the execution and delivery of this
Agreement by AHM, nor the consummation by AHM of the transactions contemplated
hereby, nor compliance by AHM with any of the provisions hereof, will (a)
conflict with or result in any breach of any provisions of the Certificate of
Incorporation or By-Laws of AHM or any of the Subsidiaries, (b) except as set
forth on Schedule 5.5, 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 or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which AHM or any of
the Subsidiaries is a party or by which any of them or any of their properties
or assets may be bound or (c) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to AHM, any of the Subsidiaries or any
of their properties or assets, except in the case of clauses (b) and (c) for
violations, breaches or defaults which are not in the aggregate material to AHM
and the Subsidiaries taken as a whole.
Section 5.6 Reports and Financial Statements. AHM has filed all reports
required to be filed with the SEC pursuant to the Exchange Act since January 1,
1991 (such reports, together with AHM's Proxy Statement for its 1993 Annual
Meeting of Stockholders and its Prospectus dated July 21, 1993 relating to its
10% Senior Subordinated Notes, being hereinafter collectively referred to as
the "AHM SEC Reports"), and
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has previously furnished OrNda with true and complete copies of all such AHM
SEC Reports. None of such AHM SEC Reports, as of their respective dates,
contained any untrue statement of a material fact or omitted 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. Each of the balance sheets (including the related notes) included
in AHM SEC Reports fairly presents the consolidated financial position of AHM
and the Subsidiaries as of the respective dates thereof, and the other related
statements (including the related notes) included therein fairly present the
results of operations and the changes in financial position of AHM and the
Subsidiaries for the respective periods or as of the respective dates set forth
therein, all in conformity with generally accepted accounting principles
consistently applied during the periods involved, except as otherwise noted
therein.
Section 5.7 Absence of Certain Changes or Events. Except as set forth in
Schedule 5.7 hereto or in the AHM SEC Reports, since December 31, 1992, neither
AHM nor any of the Subsidiaries has: (a) taken any of the actions set forth in
Sections 6.1(b), 6.1(c) or 6.1(e) hereof; (b) suffered any material adverse
change in the business, financial condition, results of operations, properties,
assets or liabilities of AHM and the Subsidiaries taken as a whole; or (c)
except, subsequent the date hereof, as permitted by Section 6.1 hereof,
conducted its business and operations other than in the ordinary course of
business and consistent with past practices.
Section 5.8 Litigation. Except for litigation disclosed in the notes to the
financial statements included in AHM's Annual Report to Stockholders for the
year ended December 31, 1992 or in AHM SEC Reports there is no suit, action or
proceeding pending or, to the best knowledge of AHM, threatened against or
affecting AHM or any of its subsidiaries, the outcome of which, in the
reasonable judgment of AHM, is likely to materially and adversely affect the
business, financial condition or results of operations of AHM and its
subsidiaries taken as a whole; nor is there any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against AHM or any of its
subsidiaries having, or which, insofar as can reasonably be foreseen, in the
future may have, any such effect.
Section 5.9 Absence of Undisclosed Liabilities. Except for liabilities or
obligations which are accrued or reserved against in AHM's financial statements
(or reflected in the notes thereto) included in the AHM SEC Reports or which
were incurred after June 30, 1993 in the ordinary course of business and
consistent with past practices, and AHM and the Subsidiaries do not have any
liabilities or obligations (whether absolute accrued contingent or otherwise)
of a nature required by generally accepted accounting principles to be
reflected in a corporate balance sheet (or reflected in the notes thereto).
Section 5.10 No Default. Except as disclosed in Schedule 5.10 hereof, neither
AHM nor any of the Subsidiaries is in default or violation (and no event has
occurred which with notice or the lapse of time or both would constitute a
default or violation) of any term, condition or provision of (a) its
Certificate of Incorporation or By-Laws, (b) any note, bond, mortgage,
indenture, license, agreement, contract, lease, commitment or other obligation
to which AHM or any of the Subsidiaries is a party or by which they or any of
their properties or assets may be bound, or (c) any order, writ, injunction,
decree, statute, rule or regulation applicable to AHM or any of the
Subsidiaries, except in the case of clauses (b) and (c) above for defaults or
violations which would not have a material adverse effect on AHM and
Subsidiaries, taken as a whole.
Section 5.11 Taxes.
(a) AHM has heretofore delivered or will make available to OrNda true,
correct and complete copies of the consolidated federal, state, local and
foreign income, franchise sales and other Tax Returns (as hereinafter
defined) filed by AHM and the Subsidiaries for each of AHM's years ended
December 31, 1988, 1989, 1990, 1991 and 1992 inclusive. AHM has duly filed,
and each Subsidiary has duly filed, all material federal, state, local and
foreign income, franchise, sales and other Tax Returns required to be filed
by AHM or the Subsidiaries. All such Tax Returns are true, correct and
complete, in all material
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respects, and AHM and the Subsidiaries have duly paid, all Taxes (as
hereinafter defined) required to be paid in respect of the periods covered
by such returns and has made adequate provision for payment of all accrued
but unpaid Taxes anticipated in respect of all periods since the periods
covered by such Tax Returns. All deficiencies assessed as a result of any
examination of Tax Returns of AHM or the Subsidiaries by federal, state,
local or foreign tax authorities have been paid, and deficiencies for all
Taxes which have been proposed or asserted against AHM and the Subsidiaries
do not exceed $750,000 in the aggregate for all periods. Except as
disclosed in Schedule 5.11 hereof, no issue has been raised during the past
five years by any federal, state, local or foreign taxing authority which,
if raised with regard to any other period not so examined, could reasonably
be expected to result in a proposed deficiency for any other period not so
examined. Except as disclosed in Schedule 5.11 hereof, neither AHM nor any
of the Subsidiaries has granted any extension or waiver of the statutory
period of limitations applicable to any claim for Taxes. Except as set
forth on Schedule 5.11 hereof, neither AHM nor any of the Subsidiaries is a
party to any agreement, contract or arrangement that would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code. AHM and each of
the Subsidiaries have complied (and until the Closing will comply) in all
material respects with all applicable laws, rules and regulations relating
to the payment and withholding of Taxes (including, without limitation,
withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or
similar provisions under any foreign laws) and have, within the time an in
the manner prescribed by law, withheld from employee wages and paid over to
the proper governmental authorities all amounts required to be so withheld
and paid over under all applicable laws.
(b) For purposes of this Agreement, the term "Taxes" shall mean all
taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, transfer,
license, payroll, withholding, capital stock and franchise taxes, imposed
by the United States, or any state, local or foreign government or
subdivision or agency thereof, including any interest, penalties or
additions thereto. For purposes of this Agreement, the term "Tax Return"
shall mean any report, return or other information or document required to
be supplied to a taxing authority in connection with Taxes.
Section 5.12 Employee Benefit Plans; ERISA. Schedule 5.12 hereto sets forth
certain representations and warranties of AHM with respect to its employee
benefit plans.
Section 5.13 Title to Properties; Encumbrances.
Except as described in the following sentence, each of AHM and the
Subsidiaries has good, valid and marketable title to, or a valid leasehold
interest in, all of its properties and assets (real, personal and mixed,
tangible and intangible), including, without limitation, all the properties and
assets reflected in the consolidated balance sheet of AHM and the Subsidiaries
as of September 30, 1993 included in AHM's Quarterly Report on Form 10-Q for
the period ended on such date (except for properties and assets disposed of in
the ordinary course of business and consistent with past practices since
September 30, 1993). None of such properties or assets are subject to any
liability, obligation, claim, lien, mortgage, pledge, security interest,
conditional sale agreement, charge or encumbrance of any kind (whether
absolute, accrued, contingent or otherwise), except (i) as set forth in
Schedule 5.13 hereto, and (ii) minor imperfections of title and encumbrance, if
any, which are not substantial in amount, do not materially detract from the
value of the property or assets subject thereto and do not impair the
operations of AHM and the Subsidiaries.
Section 5.14 Compliance with Applicable Law. Each of AHM and the Subsidiaries
is in compliance with all applicable laws (whether statutory or otherwise),
rules, regulations, orders, ordinances, judgments or decrees of all
governmental authorities (federal, state, local, foreign or otherwise)
(collectively, the "Laws"), where the failure to be in such compliance would
have a material adverse effect on AHM and the Subsidiaries, taken as a whole.
Section 5.15 Information in Disclosure Documents and Registration
Statement. None of the information to be supplied by AHM for inclusion in the
Proxy Statement or the Registration Statement, other than the information to be
supplied by OrNda, will, in the case of the Registration Statement, at the time
it becomes effective and at the Effective Time, or, in the case of the Proxy
Statement or any amendments thereof
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or supplements thereto, at the time of the mailing of the Proxy Statement and
any amendments or supplements thereto, and at the time of the meeting of
stockholders of AHM to be held in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Proxy
Statement will comply as to form in all material respects with the provisions
of the Exchange Act, and the rules and regulations promulgated thereunder.
Section 5.16 Opinion of Financial Advisor. The Board of Directors of AHM (at
meetings duly called and held) has unanimously determined that the transactions
contemplated hereby are fair to and in the best interests of the holders of the
Shares. The Board of Directors of AHM has unanimously determined that the
"Termination Date" (as defined in AHM's Amended Certificate of Incorporation)
shall be deemed to have occurred immediately prior to the Effective Time and
such determination renders the transfer restriction provisions of Article Four
of AHM's Amended Certificate of Incorporation inapplicable to the Merger. AHM
has received the oral opinion of Donaldson, Lufkin & Jenrette Securities
Corporation, AHM's financial advisor, substantially to the effect that the
consideration to be received in the Merger by the holders of the Shares is fair
to such stockholders from a financial point of view.
Section 5.17 Vote Required. Approval of the Merger by the stockholders of AHM
will require the affirmative vote of the holders of a majority of the
outstanding Shares.
Section 5.18 Medicare Participation/Accreditation. All of AHM's hospitals are
certified for participation or enrollment in the Medicare and Medicaid
programs, have a current and valid provider contract with the Medicare and
Medicaid programs, are in substantial compliance with the conditions of
participation of such programs and have received all approvals or
qualifications necessary for capital reimbursement of AHM's assets. Neither AHM
nor any of its Subsidiaries has received notice from the regulatory authorities
which enforce the statutory or regulatory provisions in respect of either the
Medicare or the Medicaid program of any pending or threatened investigations or
surveys, and neither AHM nor any of its Subsidiaries has any reason to believe
that any such investigations are pending, threatened or imminent which may have
a material adverse effect on AHM and its Subsidiaries, taken as a whole. Except
for Eastmoreland General Hospital, all of AHM's hospitals are accredited by the
Joint Commission on Accreditation of Healthcare Organizations.
Section 5.19 Labor Matters. Except as set forth on Schedule 5.19, neither AHM
nor any of the 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 or, to the knowledge of AHM, threatened against
AHM or the Subsidiaries relating to their business, except for any such
preceding which would not have a material adverse effect on AHM and the
Subsidiaries, taken as a whole. To the knowledge of AHM, there are no
organizational efforts with respect to the formation of a collective bargaining
unit presently being made or threatened involving employees of AHM or any of
the Subsidiaries.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Conduct of Business by AHM Pending the Merger. Prior to the
Effective Time, unless OrNda shall otherwise agree in writing, or as otherwise
contemplated by this Agreement:
(a) the respective businesses of AHM and the Subsidiaries shall be
conducted only in the ordinary and usual course of business and consistent
with past practices, and there shall be no material changes in the conduct
of AHM's operations;
(b) AHM shall not (i) sell or pledge or agree to sell or pledge any stock
owned by it in any of the Subsidiaries; (ii) amend its certificate of
Incorporation or By-Laws; or (iii) split, combine or reclassify
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any shares of its outstanding capital stock or declare, set aside or pay
any dividend or other distribution payable in cash, stock or property, or
redeem or otherwise acquire any shares of its capital stock or shares of
the capital stock of any of the Subsidiaries;
(c) neither AHM nor any of the Subsidiaries shall (i) authorize for
issuance, issue or sell any additional shares of, or rights of any kind to
acquire any shares of, its capital stock of any class (whether through the
issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase or otherwise), except for unissued shares reserved for
issuance upon the exercise of Employee Stock Options or Warrants; (ii)
except for the transaction described in paragraph 1 of Schedule 5.7,
acquire, dispose of, transfer, lease, license, mortgage, pledge or encumber
any fixed or other assets other than in the ordinary course of business and
consistent with past practices; (iii) incur, assume or prepay any
indebtedness or any other material liabilities other than in the ordinary
course of business and consistent with past practices; (iv) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other
person other than a Subsidiary in the ordinary course of business and
consistent with past practices; (v) make any loans, advances or capital
contributions to, or investments in, any other person, other than to
Subsidiaries; (vi) authorize capital expenditures in excess of the amount
currently budgeted therefor; (vii) permit any insurance policy naming AHM
or any Subsidiary as a beneficiary or a loss payee to be cancelled or
terminated other than in the ordinary course of business; or (viii) enter
into any contract, agreement, commitment or arrangement with respect to any
of the foregoing;
(d) AHM shall use its best efforts to preserve intact the business
organization of AHM and the Subsidiaries, to keep available the services of
its and their present officers and key employees, and to preserve the
goodwill of those having business relationships with it and the
Subsidiaries;
(e) neither AHM nor any of the subsidiaries will enter into any new
employment agreements with any of their respective officers or employees or
grant any increases in the compensation of their respective officers and
employees other than increases in the ordinary course of business and
consistent with past practice, or enter into, adopt or amend any Plan (as
that term is defined in Schedule 5.12 hereto); and
(f) neither AHM nor any of the Subsidiaries shall (i) knowingly take or
allow to be taken any action which would jeopardize the treatment of
OrNda's acquisition of AHM as a pooling of interests for accounting
purposes; or (ii) knowingly take any action which would jeopardize
qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
Section 6.2 Conduct of Business by OrNda Pending the Merger. Prior to the
Effective Time, unless AHM shall otherwise agree in writing, or as otherwise
contemplated by this Agreement:
(a) the respective businesses of OrNda and the OrNda Subsidiaries shall
be conducted only in the ordinary and usual course of business and
consistent with past practices, and there shall be no material changes in
the conduct of OrNda's operations;
(b) OrNda shall not (i) sell or pledge or agree to sell or pledge any
stock owned by it in any of the OrNda Subsidiaries; (ii) amend its
certificate of Incorporation or By-Laws, except for the proposed
amendment to OrNda's Restated Certificate of Incorporation (the "OrNda
Charter Amendment"), providing for an increase in the number of shares of
OrNda Common Stock authorized to 200 million, to be submitted to OrNda
Stockholders for approval at the stockholders meeting contemplated by
Section 7.4; or (iii) split, combine or reclassify any shares of its
outstanding capital stock or declare, set aside or pay any dividend or
other distribution payable in cash, stock or property (other than dividends
on the OrNda Preferred Stock payable in additional shares of the OrNda
Preferred Stock), or redeem or otherwise acquire any shares of its capital
stock or shares of the capital stock of any of the Parent Subsidiaries,
except for the repurchase of limited partnership interests in Brotman
Partners, L.P. a California limited partnership, pursuant to the provisions
of the Brotman Partners, L.P. amended and restated limited partnership
agreement dated as of February 28, 1989;
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(c) neither OrNda nor any of the OrNda Subsidiaries shall (i) authorize
for issuance, issue or sell any additional shares of, or rights of any kind
to acquire any shares of, its capital stock of any class (whether through
the issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase or otherwise), except for (A) unissued shares of OrNda
Common Stock Reserved for issuance upon the exercise of OrNda Employee
Stock Options, OrNda Warrants or the OrNda Preferred Stock, (B) dividends
on the OrNda Preferred Stock payable in additional shares of OrNda
Preferred Stock, (C) the authorization of an additional 100 million shares
of OrNda Common Stock pursuant to the OrNda Charter Amendment and (D) the
authorization for issuance and the issuance of shares of OrNda Common Stock
and certain options and rights to acquire OrNda Common Stock pursuant to
the employee benefit plans of OrNda, described in OrNda's Proxy Statement
and to be submitted to the OrNda Stockholders for approval at the
stockholders meeting contemplated by Section 7.4; (ii) incur, assume or
prepay any indebtedness or any other material liabilities other than in the
ordinary course of business and consistent with past practices; (iii)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other person other than a OrNda Subsidiary in the ordinary course of
business and consistent with past practices; or (iv) enter into any
contract, agreement, commitment or arrangement with respect to any of the
foregoing;
(d) OrNda shall use its best efforts to preserve intact the business
organization of OrNda and the OrNda Subsidiaries, to keep available the
services of its and their present officers and key employees, and to
preserve the goodwill of those having business relationships with it and
the OrNda Subsidiaries; and
(e) neither OrNda nor any of the OrNda Subsidiaries shall (i) knowingly
take or allow to be taken any action which would jeopardize the treatment
of OrNda's acquisition of AHM as a pooling of interests for accounting
purposes; or (ii) knowingly take any action which would jeopardize
qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access and Information. AHM and OrNda shall each afford to the
other and to the other's financial advisors, legal counsel, accountants
consultants and other representatives full 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 may
reasonably request, provided that no investigation pursuant to this 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 material (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. OrNda and AHM each agree (a) that, except
for potential transactions which have been previously discussed by the parties
hereto and which would be pursued jointly, neither of them or their respective
subsidiaries will and each of them will use their best efforts to cause their
respective directors, officers, employees, financial advisors, legal counsel,
accountants and other agents and representatives not to, initiate or solicit,
directly or indirectly, any inquiries or the making of any proposal with
respect to, engage in negotiations concerning, provide any confidential
information or data to or have any discussions with, any person relating to,
any acquisition, business combination or purchase of all or any significant
portion of the assets of, or any equity interest in such party or any
subsidiary of such party (an
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"Acquisition Proposal"), other than the Merger, (b) that it will immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any person conducted heretofore with respect to any of the
foregoing, and (c) that it will notify the other party immediately in writing
if any such inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, it.
Section 7.3 Registration Statement. As promptly as practicable, OrNda and AHM
shall prepare and file with the SEC the Proxy Statement and OrNda shall prepare
and file with the SEC the Registration Statement. Each of OrNda and AHM shall
use its best efforts to have the Registration Statement declared effective.
OrNda shall also use its best efforts to take any action required to be taken
under state securities or blue sky laws in connection with the issuance of the
OrNda Shares pursuant hereto. AHM shall furnish OrNda with all information
concerning AHM and the holders of its capital stock and shall take such other
action as OrNda may reasonably request in connection with such Registration
Statement and issuance of OrNda Shares.
Section 7.4 Proxy Statements; Stockholder Approvals.
(a) AHM, acting through its Board of Directors, shall, in accordance with
applicable law and its Certificate of Incorporation and By-Laws:
(i) promptly and duly call, give notice of, convene and hold as soon as
practicable following the date upon which the Registration Statement
becomes effective a meeting of its stockholders for the purpose of voting
to approve and adopt this Agreement and shall use its best efforts to
obtain such stockholder approval; and
(ii) recommend approval and adoption of this Agreement by the
stockholders of AHM and include in the Proxy Statement such recommendation,
and take all lawful action to solicit such approval.
(b) OrNda, acting through its Board of Directors, shall, in accordance with
applicable law and its Certificate of Incorporation and By-Laws:
(i) promptly and duly call, give notice of, convene and hold as soon as
practicable following the date upon which the Registration Statement
becomes effective a meeting of its stockholders for the purpose of voting
to approve and adopt this Agreement and shall use its best efforts to
obtain such stockholder approval; and
(ii) recommend approval and adoption of this Agreement by the
stockholders of OrNda and include in the Proxy Statement such
recommendation, and take all lawful action to solicit such approval.
(c) OrNda and AHM, as promptly as practicable, shall cause the definitive
Proxy Statement to be mailed to their stockholders. At the stockholders'
meetings, each of OrNda and AHM shall vote or cause to be voted in favor of
approval and adoption of this Agreement all Shares as to which it holds proxies
at such time.
Section 7.5 Compliance with the Securities Act.
(a) Prior to the Effective Time AHM shall cause to be delivered to OrNda a
list identifying all persons who were, in its reasonable judgment, at the
record date for AHM stockholders' meeting convened in accordance with Section
7.4 hereof, "affiliates" of AHM as that term is used in paragraphs (c) and (d)
of Rule 145 under the Securities Act (the "Affiliates").
(b) AHM shall use its best efforts to cause each person who is identified as
an Affiliate in the opinion referred to above to deliver to OrNda at or prior
to the Effective Time a written agreement, in the form attached hereto as
Exhibit B (the "Affiliate Letters").
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Section 7.6 Antitrust Laws. As promptly as practicable, AHM and OrNda shall
make all filings and submissions under the HSR Act as may be reasonably
required to be made in connection with this Agreement and the transactions
contemplated hereby. Subject to Section 7.1 hereof, AHM will furnish to OrNda,
and OrNda will furnish to AHM, such information and assistance as the other may
reasonably request in connection with the preparation of any such filings or
submissions. Subject to Section 7.1 hereof, AHM will provide OrNda, and OrNda
will provide AHM, with copies of all 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.
Section 7.7 Proxies. Concurrently herewith, AHM is entering into the Proxies
with each of Joseph Littlejohn & Levy Fund, L.P. and Charles N. Martin
substantially in the form attached hereto as Exhibits A-1 and A-2.
Section 7.8 Employee Stock Options; Warrants. AHM has not since December 31,
1986 accelerated the vesting or exercisability of or otherwise modified and,
except as provided in this Section 7.8, from the date hereof AHM will not
accelerate the vesting or exercisability of or otherwise modify, the terms and
conditions applicable to the Employee Stock Options, whether set forth in the
governing stock option plans of AHM (the "Company Stock Option Plans"), option
agreement with the executive or otherwise. At the Effective Time, each of the
Employee Stock Options which is outstanding and unexercised both as of the date
hereof and at the Effective Time shall be converted automatically into an
option to purchase OrNda Shares in an amount and at an exercise price
determined as provided below (and otherwise subject to the terms of AHM's Stock
Option Plans):
(1) The number of OrNda Shares to be subject to the new option shall be
equal to the product of the number of Shares subject to the original option
and the Exchange Ratio, provided that any fractional OrNda Shares resulting
from such multiplication shall be rounded down to the nearest share; and
(2) The exercise price per OrNda Share under the new option shall be
equal to the exercise price per Share under the original option divided by
the Exchange Ratio, provided that such exercise price shall be rounded up
to the nearest cent.
The adjustment provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code")) shall be and is intended to be effected in a manner
which is consistent with Section 424(a) of the Code. The duration and other
terms of the new option shall be the same as the original option, except that
all references to AHM shall be deemed to be references to OrNda. OrNda shall
file with the SEC a registration statement on Form S-8 (or other appropriate
form) or a post-effective amendment to the Registration Statement as promptly
as practicable after the Effective Time, for purposes of registering all OrNda
Shares issuable after the Effective Time upon exercise of the Employee Stock
Options, and use all reasonable efforts to have such registration statement or
post-effective amendment become effective and to comply, to the extent
applicable, with state securities or blue sky laws with respect thereto at the
Effective Time.
(b) At or prior to the Effective Time, OrNda shall execute and deliver to
First City, Texas -Dallas (the "Warrant Agent") a supplemental warrant
agreement meeting the requirements of Subsection (I) of Section 8 of the
Warrant Agreement.
Section 7.9 Public Announcements. OrNda, on the one hand, and AHM, 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, except as may be required by law.
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Section 7.10 By-Law Indemnification Provision. (a) For a period of six years
from and after the Effective Time, OrNda shall indemnify, and advance expenses
in matters that may be subject to indemnification to, persons who served as
directors and officers of AHM or any AHM Subsidiary on or before the Effective
Time with respect to liabilities and claims (and related expenses) made against
them resulting from their service as such prior to the Effective Time with and
subject to the requirements and other provisions of OrNda's certificate of
incorporation and bylaws in effect on the date of this Agreement and applicable
provisions of law to the same extent as OrNda is obligated thereunder to
indemnify and advance expenses to its own directors and officers with respect
to liabilities and claims made against them resulting from their service for
OrNda.
(b) OrNda shall cause to be maintained in effect for a period ending not
sooner that the sixth anniversary of the Effective Time directors' and
officers' liability insurance providing at least the same coverage with respect
to the AHM's officers and directors as the policies maintained on behalf of
directors and officers of AHM as of the date hereof, and containing terms and
conditions which are no less advantageous, with respect to matters occurring on
or prior to the Effective Time (to the extent such insurance is available with
respect to such matters). Notwithstanding the foregoing, from and after the
third anniversary of the Effective Time, OrNda shall not be obligated to
provide any greater officers' and directors' liability insurance than that
generally afforded to officers and directors of OrNda under policies maintained
by OrNda with respect to its directors and officers.
Section 7.11 Expenses. Except as set forth in this Section 7.11, 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 Registration Statement and the related
Proxy Statement, as well as the filing fee relating to the Registration
Statement will be shared equally by OrNda and AHM.
(b) As a condition and inducement to OrNda's willingness to enter this
Agreement, if (A) prior to the meeting of AHM's stockholders contemplated by
Section 7.4(a) a competing Acquisition Proposal relating to AHM is received by
AHM, and (B) either the stockholders of AHM fail to approve the Merger at the
stockholders' meeting contemplated by Section 7.4(a), or AHM breaches its
covenant set forth in Section 7.4(a) and (c) such Acquisition Proposal (or any
revised transaction based on such Acquisition Proposal) is thereafter
consummated within 24 months of the date of the termination of this Agreement,
AHM (or the successor thereto) shall promptly upon such consummation pay to
OrNda in cash a fee of $5 million.
Section 7.12 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 and to effect all necessary registrations and
filings. 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 OrNda and AHM shall take all such necessary
action.
Section 7.13 Directors of OrNda. OrNda agrees that promptly after the
Effective Time, OrNda shall take such action as may be necessary to enable
three of the present directors of AHM to be appointed to the Board of Directors
of OrNda and shall use its best efforts to cause such Board of Directors to
consist of eleven members.
Section 7.14 Registration Rights. Prior to the Effective Time, OrNda will
negotiate in good faith with each of John W. Gildea and John F. Nickoll an
agreement providing registration rights covering the Shares owned at the
Effective Time by Messrs. Gildea and Nickoll and their affiliates.
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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.
(c) This Agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite vote of the stockholders of each
of AHM and OrNda in accordance with applicable law.
(d) No preliminary or permanent injunction or other order by any federal
or state court in the United States which prohibits the consummation of the
Merger shall have been issued and remain in effect.
(e) OrNda and AHM shall have obtained financing, the terms and conditions
of which are reasonably satisfactory to OrNda and AHM, in an amount
sufficient to refinance the outstanding senior bank and institutional
indebtedness of OrNda and AHM and AHM's 10% Senior Subordinated Notes due
2003 and provide adequate working capital (the "Subordinated Notes").
(f) AHM shall have received such consents or waivers from the holders of
the Subordinated Notes as OrNda, AHM and their senior bank and
institutional lenders shall agree are reasonably required.
(g) Each of AHM and OrNda shall have obtained such consents from third
parties and government instrumentalities in addition to pursuant to the HSR
Act as shall be required and which are material to OrNda and AHM and to
consummation of the transactions contemplated hereby.
(h) OrNda and AHM shall have each received a letter of Ernst & Young,
dated the Effective Time, addressed to OrNda and AHM stating that the
Merger will qualify as a pooling of interests transaction under Opinion No.
16 of the Accounting Principles Board.
Section 8.2 Conditions to Obligation of AHM to Effect the Merger. The
obligation of AHM to effect the Merger shall be subject to the satisfaction at
or prior to the Effective Time of the following additional conditions:
(a) OrNda 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 OrNda contained in
this Agreement shall be true and correct in all material respects at and as
of the Effective Time as if made at and as of such time, except as
contemplated by this Agreement, and AHM shall have received a certificate
of the Chairman of the Board, the President or an Executive Vice President
of OrNda as to the satisfaction of this condition.
(b) AHM shall have received an opinion of Drinker Biddle & Reath, counsel
to AHM, in form and substance reasonably satisfactory to AHM, dated as of
the Effective Time, substantially to the effect that the Merger will
constitute a reorganization for federal income tax purposes within the
meaning of Section 368(a) of the Code and that accordingly:
(i) No gain or loss will be recognized by the stockholders of AHM who
exchange their Shares solely for OrNda Shares pursuant to the Merger
(except to the extent that cash is received in lieu of a fractional
share interest);
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(ii) The aggregate basis of the OrNda Shares received by stockholders
in the Merger will be the same as the aggregate basis of the Shares
surrendered in exchange therefor (reduced by any amount allocable to a
fractional share interest for which cash is received); and
(iii) The holding period of the OrNda Shares received by stockholders
in the Merger will include the period during which the Shares
surrendered in exchange therefor were held, provided such Shares were
held as a capital asset at the Effective Time.
In rendering such opinion Drinker Biddle & Reath may require and rely
upon representations contained in certificates of officers of OrNda and AHM
and others as well as certificates of shareholders who beneficially own
five percent or more of the votes or value of any class of stock of OrNda
or AHM and others.
(C) AHM shall have received an opinion from James H. Johnson, Esq., Vice
President and General Counsel of OrNda, or from Skadden, Arps, Slate,
Meagher & Flom special counsel to OrNda, dated the Effective Time, to the
effect that:
(i) OrNda is a corporation duly organized and validly existing under
the laws of the State of Delaware.
(ii) OrNda has the corporate power to enter into this Agreement and
to consummate the transactions contemplated hereby; and the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by requisite corporate
action taken on the part of OrNda.
(iii) This Agreement has been executed and delivered by OrNda and is
a valid and binding obligation of OrNda, enforceable against OrNda in
accordance with its terms, except (A) as may be limited by or subject
to any bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights,
and (B) that the remedies of specific performance, injunction and other
forms of equitable relief are subject to certain tests of equity
jurisdiction, equitable defenses and the discretion of the court before
which any proceeding therefor may be brought.
(iv) Neither the execution and delivery of this Agreement by OrNda,
nor the consummation by OrNda of the transactions contemplated hereby,
will violate the Certificate of Incorporation or ByLaws of OrNda or, to
the best knowledge of such counsel, without having made any independent
investigation, will constitute a violation of or a default under
(except for any such violation or default as to which requisite waivers
or consents either shall have been obtained by OrNda prior to the
Effective Time or shall have been waived by AHM in writing) any
material contract, agreement or instrument to which OrNda is subject
and which has been specifically identified to such counsel by OrNda in
connection with rendering such opinion.
(v) The OrNda Shares to be issued in connection with the transactions
contemplated by this Agreement are duly authorized and reserved for
issuance and, when issued as contemplated by this Agreement will be
validly issued, fully paid and nonassessable.
(vi) To the best knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act.
(vii) While such counsel assumes no responsibility for any event,
occurrence or statement of fact relating to OrNda, or for the accuracy
completeness or fairness of any statements contained in or omitted from
the Registration Statement or the Proxy Statement and while such
counsel expresses no opinion as to the financial statements or other
financial or statistical data contained therein with respect to
information in the Registration Statement or the Proxy Statement
relating to OrNda and Sub:
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(A) The Registration Statement complies as to form in all material
respects with the requirements of the Securities Act, and the
applicable rules and regulations promulgated thereunder; and
(B) Such counsel has no reason to believe that the Registration
Statement or the Proxy Statement, as amended or supplemented to the
date of such opinion, contains any untrue statement of a material
fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein (in the case of
the Proxy Statement, in the light of the circumstances in which they
were made) not misleading.
(viii) The Merger has been effective under the GCL.
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 OrNda and
of public officials and opinions of local counsel, reasonably acceptable to
AHM.
Section 8.3 Conditions to Obligations of OrNda to Effect the Merger. The
obligations of OrNda to effect the Merger shall be subject to the satisfaction
at or prior to the Effective Time of the following additional conditions:
(a) AHM 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 AHM contained in
this Agreement shall be true and correct in all material respects at and as
of the Effective Time as if made at and as of such time except as
contemplated by this Agreement, and OrNda shall have received a Certificate
of the Chairman of the Board, the President or an Executive Vice President
of AHM as to the satisfaction of this condition.
(b) OrNda shall have received an opinion from Robert M. Dubbs, Senior
Vice President and General Counsel of AHM or Drinker Biddle & Reath,
counsel for AHM, dated the Effective Time, to the effect that:
(i) AHM is a corporation duly organized and validly existing under
the laws of the State of Delaware.
(ii) AHM has the corporate power to enter into this Agreement and to
consummate the transactions contemplated hereby; and the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by requisite corporate
action taken on the part of AHM.
(iii) This Agreement has been executed and delivered by AHM and is a
valid and binding obligation of AHM, enforceable against AHM in
accordance with its terms, except (A) as may be limited by or subject
to any bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights,
and (B) that the remedies of specific performance, injunction and other
forms of equitable relief are subject to certain tests of equity
jurisdiction, equitable defenses and the discretion of the court before
which any proceeding therefor may be brought.
(iv) Neither the execution and delivery of this Agreement by AHM, nor
the consummation by AHM of the transactions contemplated hereby, will
violate the Certificate of Incorporation or By-Laws of AHM or, to the
best knowledge of such counsel, without having made any independent
investigation, will constitute a violation of or a default under
(except for any such violation or default as to which requisite waivers
or consents either shall have been obtained by AHM prior to the
Effective Time or shall have been waived by the OrNda in writing) any
material contract, agreement or instrument to which AHM or any of the
Subsidiaries is subject and which has been specifically identified to
such counsel by AHM in connection with rendering such opinion.
(v) While such counsel assumes no responsibility for any event,
occurrence or statement of fact relating to AHM, or for the accuracy,
completeness or fairness of any statements contained in
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or omitted from the Registration Statement or the Proxy Statement, and
while such counsel expresses no opinion as to the financial statements
or other financial or statistical data contained therein, with respect
to information in the Registration Statement or the Proxy Statement
relating to AHM and the Subsidiaries:
(A) The Proxy Statement complies as to form in all material
respects with the requirements of the Exchange Act, and the
applicable rules and regulations promulgated thereunder; and
(B) Such counsel has no reason to believe that the Registration
Statement or the Proxy Statement, as amended or supplemented to the
date of such opinion, contains any untrue statement of a material
fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein (in the case of
the Proxy Statement in the light of the circumstances in which they
were made) not misleading.
(vii) The Merger has become effective under the GCL. 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 AHM
and of public officials and opinions of local counsel, reasonably
acceptable to OrNda.
(c) OrNda shall have received a letter from Ernst & Young, AHM's
independent accountants, dated the Effective Time and addressed to OrNda,
as to such matters reasonably requested by them.
(d) OrNda shall have received an opinion of Skadden, Arps, Slate, Meagher
& Flom, in form and substance reasonably satisfactory to OrNda, dated as of
the Effective Time, substantially to the effect that the Merger will
constitute a reorganization for federal income tax purposes within the
meaning of Section 368(a) of the Code and that accordingly:
(i) No gain or loss will be recognized by the stockholders of AHM who
exchange their Shares solely for OrNda Shares pursuant to the Merger
(except to the extent that cash is received in lieu of a fractional
share interest);
(ii) The aggregate basis of OrNda Shares received by stockholders in
the Merger will be the same as the aggregate basis of the Shares
surrendered in exchange therefor (reduced by any amount allocable to a
fractional share interest for which cash is received);
(iii) The holding period of the OrNda Shares received by stockholders
in the Merger will include the period during which the Shares
surrendered in exchange therefor were held, provided such Shares were
held as a capital asset at the Effective Time; and
(iv) No gain or loss will be recognized by AHM, or OrNda as a result
of the Merger.
In rendering such opinion, Skadden, Arps, Slate, Meagher & Flom may require
and rely upon representations contained in certificates of officers of OrNda,
AHM and others as well as certificates of shareholders who beneficially own
five percent or more of the votes or value of any class of stock of OrNda, AHM
and others.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval by the stockholders of
OrNda or AHM:
(a) by mutual consent of OrNda and AHM;
(b) by either OrNda or AHM, if the Merger shall not have been consummated
on or before July 31, 1994;
(c) by AHM if any of the conditions specified in Sections 8.1 and 8.2
hereof has not been met or waived by AHM prior to or at such time as such
condition can no longer be satisfied; or
(d) by OrNda if any of the conditions specified in Sections 8.1 and 8.3
hereof has not been met or waived by OrNda prior to or at such time as such
condition can no longer be satisfied.
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<PAGE>
Section 9.2 Effect of Termination. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become void and,
except for a termination resulting from a breach by a party of this Agreement,
there shall be no liability on the part of either OrNda or AHM or their
respective officers or directors (except as set forth in Section 7.1 hereof and
except for Sections 7.11 and 10.2 hereof which shall survive the termination).
Section 9.3 Amendment. This Agreement may be amended by action taken by OrNda
and AHM at any time before or after approval hereof by the stockholders of AHM
or OrNda, but, after any such approval, no amendment shall be made which alters
the ratio at which the Shares are to be converted into OrNda Shares as provided
in Section 3.1 hereof 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 9.4 Waiver. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties 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.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Survival of Representations, Warranties and Agreements. No
representations, warranties or agreements contained herein shall survive beyond
the Effective Time except that the agreements contained in Sections 3.1, 3.2,
3.3, 3.4, 3.5, 3.6, 7.9, 7.10, 7.11 and 10.2 hereof shall survive beyond the
Effective Time.
Section 10.2 Brokers. AHM represents and warrants that, (i) except for its
financial advisors, Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), no broker, finder or financial advisor is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of AHM and (ii) AHM's fee arrangements with DLJ have been disclosed
to OrNda. OrNda represents and warrants that, except for its financial advisor,
Kidder Peabody & Co. ("Kidder"), (i) no broker, finder or financial advisor is
entitled to any brokerage finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of OrNda and (ii) OrNda's fee arrangements
with Kidder have been disclosed to AHM.
Section 10.3 Notices. All notices, claims, demands and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or by telex or telegram or mailed by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to OrNda, to:
OrNda HealthCorp
3401 West End Avenue, Suite 700
Nashville, TN 37203
Attention: Charles N. Martin, Jr.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10044
Attention: Mark C. Smith, Esq.
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(b) if to AHM, to:
American Healthcare Management, Inc.
660 American Avenue
Suite 200
King of Prussia, PA 19406
Attention: Steven L. Volla
with a copy to:
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Attention: Henry S. Bryans
Section 10.4 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 10.5 Entire Agreement; Assignment. This Agreement (including the
Exhibits, Schedules and other documents and instruments referred to herein) (a)
constitutes the entire agreement 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) 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 OrNda may assign its rights and
obligations hereunder to a direct or indirect subsidiary of OrNda, but no such
assignment shall relieve OrNda, as the case may be, of its obligations
hereunder.
Section 10.6 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 10.7 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any of the provisions of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
Section 10.8 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.
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<PAGE>
In Witness Wherefore, each of OrNda HealthCorp and American Healthcare
Management, Inc. has caused this Agreement to be executed on its behalf by its
officers thereunto duly authorized, all as of the date first above written.
OrNda Healthcorp
/s/ Charles N. Martin, Jr.
By: _________________________________
Name: Charles N. Martin, Jr.
Title: Chairman, President & CEO
Attest: /s/ James H. Johnson
--------------------------
Name: James H. Johnson
Title:Secretary
American Healthcare Management, Inc.
/s/ Steven L. Volla
By: _________________________________
Name: Steven L. Volla
Title: Chairman, President & CEO
Attest: /s/ Robert M. Dubbs
--------------------------
Name: Robert M. Dubbs
Title: Secretary
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SCHEDULE 4.17
Employee Benefit Plans; ERISA
(a) Schedule 4.17(a) hereto 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 "OrNda Plans"), maintained
or contributed to or required to be contributed to by (i) OrNda, (ii) any OrNda
Subsidiary or (iii) any trade or business, whether or not incorporated (an
"ERISA Affiliate"), that together with OrNda would be deemed a "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"), for the benefit of any employee or former employee of
OrNda, any OrNda Subsidiary or any ERISA Affiliate. Schedule 4.17(a) hereto
identifies each of the OrNda 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 "OrNda ERISA Plans").
(b) With respect to each of the OrNda Plans, OrNda has heretofore delivered
or will deliver to AHM true and complete copies of each of the following
documents:
(i) a copy of the OrNda Plan (including all amendments thereto);
(ii) a copy of the annual report and actuarial report, if required under
ERISA, with respect to each such OrNda 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 such OrNda Plan;
(iv) if the OrNda 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 OrNda Plan intended to qualify under
section 401 of the Code.
(c) No liability under Title IV of ERISA has been incurred by OrNda, any
OrNda Subsidiary or any ERISA Affiliate since the effective date of ERISA that
has not been satisfied in full, and no condition exists that presents a
material risk to OrNda, any OrNda Subsidiary or any ERISA Affiliate of
incurring a liability under such Title. 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 ERISA Plans but also with respect to any employee
benefit plan, program, agreement or arrangement subject to Title IV of ERISA to
which OrNda, an OrNda Subsidiary or an ERISA Affiliate made, or was required to
make, contributions during the five-year period ending on the Effective Time.
(d) With respect to each OrNda ERISA Plan which is subject to Title IV of
ERISA, the present value of accrued benefits under such plan, based upon the
actuarial assumptions used for funding 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 OrNda 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 OrNda ERISA Plan ended prior to the Effective Time;
and all contributions required to be made with respect thereto (whether
pursuant to the term of any OrNda ERISA Plan or otherwise) on or prior to the
Effective Time have been timely made.
(f) No OrNda ERISA Plan is a "multiemployer pension plan," as defined in
Section 3(37) of ERISA, nor is any OrNda ERISA Plan a plan described in Section
4063(a) of ERISA.
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(g) Each OrNda ERISA Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified and the trusts maintained thereunder
are exempt from taxation under Section 501(a) of the Code.
(h) Each of the OrNda 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) No amounts payable under the OrNda Plans will fail to be deductible for
federal income tax purposes by virtue of Section 280G of the Code.
(j) No OrNda Plan provides benefits, including without limitation death or
medical benefits (whether or not insured), with respect to current or former
employees of OrNda, any OrNda Subsidiary or any ERISA Affiliate beyond their
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 OrNda, any OrNda
Subsidiary or any ERISA Affiliate or (iv) benefits the full cost of which is
borne by the current or former employee (or his beneficiary).
(k) The consummation of the transactions contemplated by this Agreement will
not
(i) entitle any current or former employee or officer of OrNda, any OrNda
Subsidiary or any 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
compensation due any such employee or officer, or
(iii) result in any prohibited transaction described in Section 406 of
ERISA or Section 4975 of the Code for which an exemption is not available.
(l) With respect to each OrNda Plan that is funded wholly or partially
through an insurance policy, there will be no liability of OrNda, any OrNda
Subsidiary or any 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 OrNda Plans, by any employee or beneficiary covered under any such
OrNda Plan, or otherwise involving any such OrNda Plan (other than routine
claims for benefits).
(n) Neither OrNda, any OrNda Subsidiary or any ERISA Affiliate, nor any of
the OrNda ERISA Plans, nor any trust created thereunder, nor any trustee or
administrator thereof has engaged in a transaction in connection with which
OrNda, any OrNda Subsidiary or any ERISA Affiliate, any of the OrNda ERISA
Plans, any such trust, or any trustee or administrator thereof, or any party
dealing with the OrNda ERISA Plans or any such trust could be subject to either
a material civil liability under section 409 of ERISA or Section 502(i) of
ERISA, or a material tax imposed pursuant to Section 4975 or 4976 of the Code.
SCHEDULE 5.12
Employee Benefit Plans; ERISA
(a) Schedule 5.12 hereto 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
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<PAGE>
arrangement, (the "Plans"), maintained or contributed to or required to be
contributed to by (i) AHM, (ii) any Subsidiary or (iii) any trade or business,
whether or not incorporated (an "ERISA Affiliate"), that together with AHM
would be deemed a "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"), for the benefit of any employee
or former employee of AHM, any Subsidiary or any ERISA Affiliate. Schedule
5.12(a) hereto identifies each of the 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 "ERISA Plans").
(b) With respect to each of the plans, AHM has heretofore delivered or will
deliver to OrNda true and complete copies of each of the following documents:
(i) a copy of the Plan (including all amendments thereto);
(ii) a copy of the annual report and actuarial report, if required under
ERISA, with respect to each such 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 such Plan;
(iv) if the 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 Plan intended to qualify under section
401 of the Code.
(c) No liability under Title IV of ERISA has been incurred by AHM, any
Subsidiary or any ERISA Affiliate since the effective date of ERISA that has
not been satisfied in full, and no condition exists that presents a material
risk to AHM, any Subsidiary or any ERISA Affiliate of incurring a liability
under such Title. 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
ERISA Plans but also with respect to any employee benefit plan, program,
agreement or arrangement subject to Title IV of ERISA to which AHM, a
Subsidiary or an ERISA Affiliate made, or was required to make, contributions
during the five-year period ending on the Effective Time.
(d) Except as disclosed in Schedule 5.12, with respect to each ERISA Plan
which is subject to Title IV of ERISA, the present value of accrued benefits
under such plan, based upon the actuarial assumptions used for funding 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) Except as disclosed in Schedule 5.12, no 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 ERISA Plan
ended prior to the Effective Time; and all contributions required to be made
with respect thereto (whether pursuant to the term of any ERISA Plan or
otherwise) on or prior to the Effective Time have been timely made.
(f) No ERISA Plan is a "multiemployer pension plan," as defined in section
3(37) of ERISA, nor is any ERISA Plan a plan described in Section 4063(a) of
ERISA.
(g) Each ERISA Plan intended to be "qualified" within the meaning of section
401(a) of the Code is so qualified and the trusts maintained thereunder are
exempt from taxation under section 501(a) of the Code.
(h) Each of the 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) No amounts payable under the Plans will fail to be deductible for federal
income tax purposes by virtue of Section 280G of the Code.
(j) No Plan provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
of AHM, any Subsidiary or any ERISA Affiliate beyond their 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 AHM, any Subsidiary or any
ERISA Affiliate or (iv) benefits the full cost of which is borne by the current
or former employee (or his beneficiary).
(k) Except as set forth on Schedule 5.12, the consummation of the
transactions contemplated by this Agreement will not
(i) entitle any current or former employee or officer of AHM, any
Subsidiary or any 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
compensation due any such employee or officer, or
(iii) result in any prohibited transaction described in Section 406 of
ERISA or Section 4975 of the Code for which an exemption is not available.
(l) With respect to each Plan that is funded wholly or partially through an
insurance policy, there will be no liability of AHM, any Subsidiary or any
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 Plans, by any employee or beneficiary covered under any such Plan,
or otherwise involving any such Plan (other than routine claims for benefits).
(n) Neither AHM, any Subsidiary or any ERISA Affiliate, nor any of the ERISA
Plans, nor any trust created thereunder, nor any trustee or administrator
thereof has engaged in a transaction in connection with which AHM, any
Subsidiary or any ERISA Affiliate, any of the ERISA Plans, any such trust, or
any trustee or administrator thereof, or any party dealing with the ERISA Plans
or any such trust could be subject to either a material civil liability under
Section 409 of ERISA or Section 502(i) of ERISA, or a material tax imposed
pursuant to Section 4975 or 4976 of the Code.
A-28
<PAGE>
EXHIBIT A-1
IRREVOCABLE PROXY
Irrevocable Proxy, dated as of November 18, 1993, by and between American
Healthcare Management, Inc., a Delaware corporation (the "Company"), and Joseph
Littlejohn & Levy Fund, L.P. (the "Stockholder").
Whereas, concurrently with the execution and delivery of this Agreement,
OrNda HealthCorp, a Delaware Corporation ("Parent"), AHM Acquisition Co., Inc.
a Delaware corporation and a wholly-owned subsidiary of Parent ("Sub"), and the
Company, are entering into an Agreement and Plan of Merger, dated as of
November 18, 1993 (the "Merger Agreement"), providing, among other things, for
the merger (the "Merger") of Sub with and into the Company, as a result of
which the outstanding shares of Common Stock, par value $.01 per share, of the
Company will be converted into the right to receive shares of the Common Stock,
par value $.01 per share, of Parent (the "Parent Common Stock"), and the
Company will become a wholly owned subsidiary of Buyer; and
Whereas, the Stockholder is the owner beneficially and of record of an
aggregate of 7,096,744 shares (the "Shares") of the Parent Common Stock; and
Whereas, as a condition to its willingness to enter into the Merger
Agreement, the Company has requested that the Stockholder agree, and the
Stockholder has agreed, to grant the Company an irrevocable proxy (the "Proxy")
with respect to the Shares, upon the terms and subject to the conditions
hereof;
Now, Therefore, to induce the Company to enter into the Merger Agreement and
in consideration of the afore said and the mutual representations, warranties,
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. The Stockholder hereby constitutes and appoints the Company, during the
term of this Agreement as the Stockholder's true and lawful proxy and attorney-
in-fact, with full power of substitution, to vote all of the Shares (and any
and all securities issued or issuable in respect thereof) which Stockholder is
entitled to vote, for and in the name, place and stead of the Stockholder, at
any annual, special or other meeting of the stockholders of Parent, and at any
adjournment or adjournments thereof, or pursuant to any consent in lieu of a
meeting or otherwise, in favor of any proposal to approve and adopt the Merger
Agreement and any transactions contemplated thereby and, in addition, other
than as may be agreed to by Parent and the Company, to vote against (but not in
favor of) any proposals for any merger agreement or merger (other than the
Merger Agreement and the Merger), consolidation, sale or purchase of any
assets, reorganization, recapitalization, liquidation or winding up of or by
the Parent. All power and authority hereby conferred is coupled with an
interest and is irrevocable. In the event that the Company is unable to
exercise such power and authority for any reason, the Stockholder agrees that
he will vote all the Shares in favor of approval and adoption of the Merger
Agreement and the transactions contemplated thereby, at any such meeting or
adjournment there of, or provide his written consent thereto.
2. The Stockholder hereby covenants and agrees that the Stockholder will
not, and will not agree to, directly or indirectly, sell, transfer, assign,
pledge, hypothecate, cause to be redeemed or otherwise dispose of any of the
Shares or grant any proxy or interest in or with respect to such Shares that
would be inconsistent with the terms of the proxy granted hereby or deposit
such Shares into a voting trust or enter into a voting agreement or arrangement
with respect to such Shares. The Stockholder further covenants and agrees that
the Stockholder will not initiate or solicit, directly or indirectly, any
inquiries or the making of any proposal with respect to, or except through
certain of its affiliates and then to the extent required in such affiliates'
A-29
<PAGE>
capacity as directors of Parent by fiduciary obligations under applicable law
as advised by counsel, engage in negotiations concerning, provide any
confidential information or data to, or have any discussions with, any person
relating to, any acquisition, business combination or purchase of all or any
significant portion of the assets of, or any equity interest in (other than the
Shares), Parent or any subsidiary thereof.
3. The Stockholder represents and warrants to the Company, in reliance upon
the advice of counsel, that the Shares consist of 7,096,744 shares of Parent
Common Stock owned beneficially and of record by the Stockholder on the date
hereof; such Shares are all of the securities of Parent owned of record or
beneficially by the Stockholder on the date hereof; the Stockholder owns the
Shares free and clear of all liens, charges, claims, encumbrances and security
interests of any nature whatsoever; and except as provided herein, the
Stockholder has not granted any proxy with respect to Shares or deposited such
Shares into a voting trust.
4. Any shares of Parent Common Stock issued to the Stockholder upon the
exercise of any stock options that are currently exercisable or become
exercisable during the term of this Agreement shall be deemed Shares for
purposes of this Agreement.
5. This Proxy 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.
6. This Proxy shall be binding upon, inure to the benefit of, and be
enforceable by the successors and permitted assigns of the parties hereto. This
Proxy and the rights hereunder may not be assigned or transferred by the
Company, except that the Company may assign its rights hereunder to any direct
or indirect subsidiary.
7. This Proxy shall terminate at the earlier of (i) the effectiveness of the
Merger, or (ii) the termination of the Merger Agreement in accordance with its
terms, or (iii) upon notice of termination given by the Company to the
Stockholder.
8. This Proxy is granted in consideration of the execution and delivery of
the Merger Agreement by the Company. The Stockholder agrees that such Proxy is
coupled with an interest sufficient in law to support an irrevocable power and
shall not be terminated by any act of the Stockholder, by lack of appropriate
power or authority or by the occurrence of any other event or events.
9. The parties acknowledge and agree that performance of their respective
obligations hereunder will confer a unique benefit on the other and that a
failure of performance will not be compensable by money damages. The parties
therefore agree that this Proxy shall be specifically enforceable and that
specific enforcement and injunctive relief shall be available to Buyer and the
Stockholder for any breach of any agreement, covenant or representation
hereunder. This Proxy shall revoke all prior proxies given by the Stockholder
at any time with respect to the Shares.
10. The Stockholder will, upon request, execute and deliver any additional
documents and take such actions as may reasonably be deemed by Buyer to be
necessary or desirable to complete the Proxy granted herein or to carry out the
provisions hereof.
11. If any term, provision, covenant, or restriction of this Proxy is held
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Proxy
shall remain in full force and effect and shall not in any way be affected,
impaired or invalidated.
12. This Proxy may be executed in two counterparts, each of which shall be
deemed to be an original but both of which together shall constitute one and
the same document.
A-30
<PAGE>
In Witness Whereof, the Company and the Stockholder have caused this Proxy to
be duly executed on the date first above written.
Dated: November 18, 1993
American Healthcare Management, Inc.
/s/ Robert M. Dubbs
By __________________________
Name:Robert M. Dubbs
Title:Senior Vice President,
General Counsel and
Secretary
Joseph Littlejohn & Levy Fund, L.P.
By JLL Associates, L.P.
--------------------------------
General Partner
By /s/ Yvonne Cliff
__________________________
Name: Yvonne Cliff
Title:
General Partner
A-31
<PAGE>
EXHIBIT A-2
IRREVOCABLE PROXY
Irrevocable Proxy, dated as of November 18, 1993, by and between American
Healthcare Management, Inc., a Delaware corporation (the "Company"), and
Charles N. Martin, Jr. (the "Stockholder").
Whereas, concurrently with the execution and delivery of this Agreement,
OrNda HealthCorp, a Delaware Corporation ("Parent"), AHM Acquisition Co., Inc.
a Delaware corporation and a wholly-owned subsidiary of Parent ("Sub"), and the
Company, are entering into an Agreement and Plan of Merger, dated as of
November 18, 1993 (the "Merger Agreement"), providing, among other things, for
the merger (the "Merger") of Sub with and into the Company, as a result of
which the outstanding shares of Common Stock, par value $.01 per share, of the
Company will be converted into the right to receive shares of the Common Stock,
par value $.01 per share, of Parent (the "Parent Common Stock"), and the
Company will become a wholly owned subsidiary of Buyer; and
Whereas, the Stockholder is the owner beneficially and of record of an
aggregate of 1,000,000 shares (the "Shares") of the Parent Common Stock; and
Whereas, as a condition to its willingness to enter into the Merger
Agreement, the Company has requested that the Stockholder agree, and the
Stockholder has agreed, to grant the Company an irrevocable proxy (the "Proxy")
with respect to the Shares, upon the terms and subject to the conditions
hereof;
Now, Therefore, to induce the Company to enter into the Merger Agreement and
in consideration of the afore said and the mutual representations, warranties,
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. The Stockholder hereby constitutes and appoints the Company, during the
term of this Agreement as the Stockholder's true and lawful proxy and attorney-
in-fact, with full power of substitution, to vote all of the Shares (and any
and all securities issued or issuable in respect thereof) which Stockholder is
entitled to vote, for and in the name, place and stead of the Stockholder, at
any annual, special or other meeting of the stockholders of Parent, and at any
adjournment or adjournments thereof, or pursuant to any consent in lieu of a
meeting or otherwise, in favor of any proposal to approve and adopt the Merger
Agreement and any transactions contemplated thereby and, in addition, other
than as may be agreed to by Parent and the Company, to vote against (but not in
favor of) any proposals for any merger agreement or merger (other than the
Merger Agreement and the Merger), consolidation, sale or purchase of any
assets, reorganization, recapitalization, liquidation or winding up of or by
the Parent. All power and authority hereby conferred is coupled with an
interest and is irrevocable. In the event that Parent is unable to exercise
such power and authority for any reason, the Stockholder agrees that he will
vote all the Shares in favor of approval and adoption of the Merger Agreement
and the transactions contemplated thereby, at any such meeting or adjournment
there of, or provide his written consent thereto.
2. The Stockholder hereby covenants and agrees that the Stockholder will
not, and will not agree to, directly or indirectly, sell, transfer, assign, or
otherwise dispose of any of the Shares or grant any proxy or interest in or
with respect to such Shares that would be inconsistent with the proxy granted
hereby or deposit such Shares into a voting trust or enter into a voting
agreement or arrangement with respect to such Shares. The Stockholder further
covenants and agrees that, except for potential transactions which have been
previously discussed by Parent and the Company and which would be pursued
jointly by Parent and the Company, the Stockholder will not initiate or
solicit, directly or indirectly, any inquiries or the making of any proposal
with respect to, or except to the extent required in his capacity as an officer
and director of Parent by fiduciary obligations under applicable law as advised
by counsel, engage in negotiations concerning,
A-32
<PAGE>
provide any confidential information or data to, or have any discussions with,
any person relating to, any acquisition, business combination or purchase of
all or any significant portion of the assets of, or any equity interest in
(other than the Shares), Parent or any subsidiary thereof.
3. The Stockholder represents and warrants to the Company, in reliance upon
the advice of counsel, that the Shares consist of 1,000,000 shares of Parent
Common Stock owned beneficially and of record by the Stockholder on the date
hereof, except for shares of Common Stock as to which the Stockholder holds
stock options; and except as provided herein, the Stockholder has not granted
any proxy with respect to Shares or deposited such Shares into a voting trust.
4. Any shares of Parent Common Stock issued to the Stockholder upon the
exercise of any stock options that are currently exercisable or become
exercisable during the term of this Agreement shall be deemed Shares for
purposes of this Agreement.
5. This Proxy 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.
6. This Proxy shall be binding upon, inure to the benefit of, and be
enforceable by the successors and permitted assigns of the parties hereto. This
Proxy and the rights hereunder may not be assigned or transferred by the
Company, except that the Company may assign its rights hereunder to any direct
or indirect subsidiary.
7. This Proxy shall terminate at the earlier of (i) the effectiveness of the
Merger, or (ii) the termination of the Merger Agreement in accordance with its
terms, or (iii) upon notice of termination given by the Company to the
Stockholder.
8. This Proxy is granted in consideration of the execution and delivery of
the Merger Agreement by the Company. The Stockholder agrees that such Proxy is
coupled with an interest sufficient in law to support an irrevocable power and
shall not be terminated by any act of the Stockholder, by lack of appropriate
power or authority or by the occurrence of any other event or events.
9. The parties acknowledge and agree that performance of their respective
obligations hereunder will confer a unique benefit on the other and that a
failure of performance will not be compensable by money damages. The parties
therefore agree that this Proxy shall be specifically enforceable and that
specific enforcement and injunctive relief shall be available to Buyer and the
Stockholder for any breach of any agreement, covenant or representation
hereunder. This Proxy shall revoke all prior proxies given by the Stockholder
at any time with respect to the Shares.
10. The Stockholder will, upon request, execute and deliver any additional
documents and take such actions as may reasonably be deemed by Buyer to be
necessary or desirable to complete the Proxy granted herein or to carry out the
provisions hereof.
11. If any term, provision, covenant, or restriction of this Proxy is held
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Proxy
shall remain in full force and effect and shall not in any way be affected,
impaired or invalidated.
A-33
<PAGE>
12. This Proxy may be executed in two counterparts, each of which shall be
deemed to be an original but both of which together shall constitute one and
the same document.
In Witness Whereof, the Company and the Stockholder have caused this Proxy to
be duly executed on the date first above written.
/s/ Charles N. Martin, Jr.
__________________________________________
Charles N. Martin, Jr.
American Healthcare Management, Inc.
By: /s/ Robert M. Dubbs
_______________________________________
Name: Robert M. Dubbs
Title:Senior Vice President, General
Counsel and Secretary
A-34
<PAGE>
EXHIBIT A-3
IRREVOCABLE PROXY
IRREVOCABLE PROXY, dated as of November 18, 1993, by and between American
Healthcare Management, Inc., a Delaware corporation (the "Company"), and M. Lee
Pearce, M.D. (the "Stockholder").
WHEREAS, concurrently with the execution and delivery of this Agreement,
OrNda HealthCorp, a Delaware Corporation ("Parent"), AHM Acquisition Co., Inc.
a Delaware corporation and a wholly-owned subsidiary of Parent ("Sub"), and the
Company, are entering into an Agreement and Plan of Merger, dated as of
November 18, 1993 (the "Merger Agreement"), providing, among other things, for
the merger (the "Merger") of Sub with and into the Company, as a result of
which the outstanding shares of Common Stock, par value $.01 per share, of the
Company will be converted into the right to receive shares of the Common Stock,
par value $.01 per share, of Parent (the "Parent Common Stock"), and the
Company will become a wholly owned subsidiary of Parent; and
WHEREAS, the Stockholder is the owner beneficially and of record of an
aggregate of 940,000 shares (the "Shares") of the Parent Common Stock; and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, the Company has requested that the Stockholder agree, and the
Stockholder has agreed, to grant the Company an irrevocable proxy (the "Proxy")
with respect to the Shares, upon the terms and subject to the conditions
hereof;
NOW, THEREFORE, to induce the Company to enter into the Merger Agreement and
in consideration of the afore- said and the mutual representations, warranties,
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. The Stockholder hereby constitutes and appoints the Company, during
the term of this Agreement as the Stockholder's true and lawful proxy and
attorney-in-fact, with full power of substitution, to vote all of the
Shares (and any and all securities issued or issuable in respect thereof)
which Stockholder is entitled to vote, for and in the name, place and stead
of the Stockholder, at any annual, special or other meeting of the
stockholders of Parent, and at any adjournment or adjournments thereof, or
pursuant to any consent in lieu of a meeting or otherwise, in favor of any
proposal to approve and adopt the Merger Agreement (but not any material
amendments thereto or modifications thereof) and any transactions
contemplated by the Merger Agreement (but not any material amendments
thereto or modifications thereof) and, in addition, other than as may be
agreed to by Parent and the Company, to vote against (but not in favor of)
any proposals for any merger agreement or merger (other than the Merger
Agreement and the Merger), consolidation, sale or purchase of any assets,
reorganization, recapitalization, liquidation or winding up of or by the
Parent. All power and authority hereby conferred is coupled with an
interest and is irrevocable. In the event that the Company is unable to
exercise such power and authority for any reason, the Stockholder agrees
that he will vote all the Shares in favor of approval and adoption of the
Merger Agreement (but not any material amendments thereto or modifications
thereof) and the transactions contemplated by the Merger Agreement (but not
any material amendments thereto or modifications thereof), at any such
meeting or adjournment there of, or provide his written consent thereto.
2. The Stockholder hereby covenants and agrees that the Stockholder will
not, and will not agree to, directly or indirectly, grant any proxy or
interest in or with respect to such Shares or deposit such Shares into a
voting trust or enter into a voting agreement or arrangement with respect
to such Shares in each case that would be inconsistent with the terms of
the proxy granted hereby and further covenants that the Stockholder will
not, and will not agree to, directly or indirectly, sell, transfer, assign,
pledge, hypothecate, cause to be redeemed or otherwise dispose of any of
the Shares unless this Proxy shall be binding upon any such transferee,
assigns or pledgee of the Stockholder. The Stockholder further covenants
and agrees that the Stockholder will not initiate or solicit, directly or
indirectly, any inquiries or the making of any proposal with respect to, or
except to the extent required in his capacity as a director of Parent by
fiduciary obligations under applicable law as advised by counsel, engage in
A-35
<PAGE>
negotiations concerning, provide any confidential information or data to,
or have any discussions with, any person relating to, any acquisition,
business combination or purchase of all or any significant portion of the
assets of, or any equity interest in (other than the Shares), Parent or any
subsidiary thereof.
3. The Stockholder represents and warrants to the Company, in reliance
upon the advice of counsel, that the Shares consist of 940,000 shares of
Parent Common Stock owned beneficially and of record by the Stockholder on
the date hereof; such Shares are all of the securities of Parent owned of
record or beneficially by the Stockholder on the date hereof; the
Stockholder owns the Shares free and clear of all liens, charges, claims,
encumbrances and security interests of any nature whatsoever; and except as
provided herein, the Stockholder has not granted any proxy with respect to
Shares or deposited such Shares into a voting trust.
4. Any shares of Parent Common Stock issued to the Stockholder upon the
exercise of any stock options that are currently exercisable or become
exercisable during the term of this Agreement shall be deemed Shares for
purposes of this Agreement.
5. This Proxy 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.
6. This Proxy shall be binding upon, inure to the benefit of, and be
enforceable by the successors and permitted assigns of the parties hereto.
This Proxy and the rights hereunder may not be assigned or transferred by
the Company, except that the Company may assign its rights hereunder to any
direct or indirect subsidiary.
7. This Proxy shall terminate at the earlier of (i) the effectiveness of
the Merger, or (ii) the termination of the Merger Agreement in accordance
with its terms, (iii) upon notice of termination given by the Company to
the Stockholder, or (iv) upon notice of termination given by the
Stockholder to the Company at any time after July 31, 1994.
8. This Proxy is granted in consideration of the execution and delivery
of the Merger Agreement by the Company. The Stockholder agrees that such
Proxy is coupled with an interest sufficient in law to support an
irrevocable power and shall not be terminated by any act of the
Stockholder, by lack of appropriate power or authority or by the occurrence
of any other event or events.
9. The parties acknowledge and agree that performance of their
respective obligations hereunder will confer a unique benefit on the other
and that a failure of performance will not be compensable by money damages.
The parties therefore agree that this Proxy shall be specifically
enforceable and that specific enforcement and injunctive relief shall be
available to the Company and the Stockholder for any breach of any
agreement, covenant or representation hereunder. This Proxy shall revoke
all prior proxies given by the Stockholder at any time with respect to the
Shares.
10. The Stockholder will, upon request, execute and deliver any
additional documents and take such actions as may reasonably be deemed by
the Company to be necessary or desirable to complete the Proxy granted
herein or to carry out the provisions hereof.
11. If any term, provision, covenant, or restriction of this Proxy is
held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Proxy shall remain in full force and effect and shall
not in any way be affected, impaired or invalidated.
12. This Proxy may be executed in two counterparts, each of which shall
be deemed to be an original but both of which together shall constitute one
and the same document.
A-36
<PAGE>
IN WITNESS WHEREOF, the Company and the Stockholder have caused this Proxy to
be duly executed on the date first above written.
Dated: November 18, 1993
AMERICAN HEALTHCARE MANAGEMENT, INC.
/s/ Robert M. Dubbs
By____________________________________
Name:Robert M. Dubbs
Title:Senior Vice President, General
Counsel and Secretary
/s/ M. Lee Pearce
By____________________________________
M. Lee Pearce, M.D.
A-37
<PAGE>
ANNEX B
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ORNDA HEALTHCORP,
SHL ACQUISITION CO.
AND
SUMMIT HEALTH LTD.
DATED AS OF DECEMBER 2, 1993
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I The Merger............................................... 1
Section 1.1 The Merger............................................... 1
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.......... 2
ARTICLE III Conversion of Shares..................................... 2
Section 3.1 Exchange Ratio........................................... 2
Section 3.2 Exchange of Shares....................................... 2
Section 3.3 Dividends; Transfer Taxes................................ 3
Section 3.4 No Fractional Securities................................. 3
Section 3.6 Closing of Company Transfer Books........................ 4
Section 3.7 Closing.................................................. 4
ARTICLE IV Representations and Warranties of Parent................. 4
Section 4.1 Organization............................................. 4
Section 4.2 Capitalization........................................... 4
Section 4.4 Authority Relative to this Agreement..................... 5
Section 4.5 Consents and Approvals; No Violations.................... 5
Section 4.6 Reports and Financial Statements......................... 6
Section 4.7 Absence of Certain Changes or Events..................... 6
Section 4.8 Litigation............................................... 6
Section 4.9 Information in Disclosure Documents and Registration
Statement............................................... 6
Section 4.10 Absence of Undisclosed Liabilities....................... 7
Section 4.11 No Default............................................... 7
Section 4.12 Taxes.................................................... 7
Section 4.13 Title to Properties; Encumbrances........................ 8
Section 4.14 Compliance with Applicable Law........................... 8
Section 4.15 Medicare Participation/Accreditation..................... 8
Section 4.16 Labor Matters............................................ 8
Section 4.17 Employee Benefit Plans; ERISA............................ 8
Section 4.18 Vote Required............................................ 8
Section 4.19 Opinion of Financial Advisor............................. 8
ARTICLE V Representations and Warranties of The Company............ 9
Section 5.1 Organization............................................. 9
Section 5.2 Capitalization........................................... 9
Section 5.3 Subsidiaries............................................. 9
Section 5.4 Authority Relative to this Agreement..................... 10
Section 5.5 Consents and Approvals; No Violations.................... 10
Section 5.6 Reports and Financial Statements......................... 10
Section 5.7 Absence of Certain Changes or Events..................... 10
Section 5.8 Litigation............................................... 10
Section 5.9 Absence of Undisclosed Liabilities....................... 11
Section 5.10 No Default............................................... 11
Section 5.11 Taxes.................................................... 11
Section 5.12 Employee Benefit Plans; ERISA............................ 12
Section 5.13 Title to Properties; Encumbrances........................ 12
Section 5.14 Compliance with Applicable Law........................... 12
</TABLE>
B-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 5.15 Information in Disclosure Documents and Registration
Statement.............................................. 12
Section 5.16 Opinion of Financial Advisor............................ 12
Section 5.17 Vote Required........................................... 12
Section 5.18 Medicare Participation/Accreditation.................... 12
Section 5.19 Labor Matters........................................... 13
ARTICLE VI Conduct of Business Pending the Merger.................. 13
Section 6.1 Conduct of Business by the Company Pending the Merger... 13
Section 6.2 Conduct of Business by Parent Pending the Merger........ 14
Section 6.3 Conduct of Business of Sub.............................. 14
ARTICLE VII Additional Agreements................................... 14
Section 7.1 Access and Information.................................. 14
Section 7.2 Acquisition Proposals................................... 15
Section 7.3 Registration Statement.................................. 15
Section 7.4 Proxy Statements; Stockholder Approvals................. 15
Section 7.5 Compliance with the Securities Act...................... 16
Section 7.6 Antitrust Laws.......................................... 16
Section 7.7 Voting Agreements....................................... 16
Section 7.8 Employee Stock Options; Warrants........................ 16
Section 7.9 Public Announcements.................................... 17
Section 7.10 By-Law Indemnification Provision........................ 17
Section 7.11 Expenses................................................ 17
Section 7.12 Additional Agreements................................... 17
Section 7.13 Directors of Parent..................................... 18
Section 7.14 Registration Rights..................................... 18
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger................................................. 18
Section 8.2 Conditions to Obligation of the Company to Effect the
Merger................................................. 19
Section 8.3 Conditions to Obligations of Parent and Sub to Effect
the Merger............................................. 20
ARTICLE IX Termination, Amendment and Waiver....................... 22
Section 9.1 Termination............................................. 22
Section 9.2 Effect of Termination................................... 22
Section 9.3 Amendment............................................... 22
Section 9.4 Waiver.................................................. 22
ARTICLE X General Provisions...................................... 23
Section 10.1 Survival of Representations, Warranties and Agreements.. 23
Section 10.2 Brokers................................................. 23
Section 10.3 Notices................................................. 23
Section 10.4 Descriptive Headings.................................... 23
Section 10.5 Entire Agreement; Assignment............................ 23
Section 10.6 Governing Law........................................... 24
Section 10.7 Specific Performance.................................... 24
Section 10.8 Counterparts............................................ 24
</TABLE>
B-ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger, dated as of December 2, 1993, by and among
OrNda HealthCorp, a Delaware corporation ("Parent"), SHL Acquisition Co., a
Delaware corporation and a wholly-owned subsidiary of Parent ("Sub"), and
Summit Health Ltd., a California corporation (the "Company").
Whereas, the Boards of Directors of Parent and Sub and the Company deem it
advisable and in the best interests of their respective stockholders that
Parent acquire the Company, and such Boards of Directors have approved the
merger (the "Merger") of Sub with and into the Company upon the terms and
subject to the conditions set forth herein; and
Whereas, Parent has heretofore entered into an Agreement and Plan of Merger
(the "AHM Merger Agreement") with American Healthcare Management, Inc. ("AHM")
and AHM Acquisition Co., Inc., a wholly owned subsidiary of Parent ("AHM Sub"),
dated as of November 18, 1993 which provides for the merger of AHM Sub with and
into AHM (the "AHM Merger"); and
Whereas, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the Company's willingness to enter into this
Agreement, certain holders of shares of Parent's Common Stock, par value $.01
per share (the "Parent Common Stock"), have entered into Voting Agreements with
the Company, in the form attached hereto as Exhibit A (the "Parent Voting
Agreements"); and
Whereas, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Parent's and Sub's willingness to enter into
this Agreement, certain holders of shares of the Company's Common Stock, no par
value (the "Common Stock"), have entered into Voting Agreements with Parent, in
the form attached hereto as Exhibit B (the "Company Voting Agreements" and
together with the Parent Voting Agreements, the "Voting Agreements");
Now, Therefore, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Proxies, the parties hereto agree as follows:
ARTICLE I
The Merger
Section 1.1 The Merger. At the Effective Time (as defined in Section 1.2
hereof), Sub shall be merged with and into the Company and the separate
existence of Sub shall thereupon cease, and the name of the Company, as the
surviving corporation in the Merger (the "Surviving Corporation"), shall by
virtue of the Merger be "Summit Health Ltd.". The Merger shall have the effects
set forth in Section 1107 of the General Corporation Law of the State of
California (the "GCL").
Section 1.2 Effective Time of the Merger. The Merger shall become effective
upon the filing of the Merger Agreement and the required officers' certificates
of each Constituent Corporation (as defined in the GCL) with the Secretary of
State of the State of California and when a properly executed Certificate of
Merger is duly filed with the Secretary of State of the State of Delaware,
which filings shall be made as soon as practicable after the closing of the
transactions contemplated by this Agreement in accordance with Section 3.6
hereof. When used in this Agreement, the term "Effective Time" shall mean the
date and time at which such Merger Agreement and officers' certificates are so
filed and accepted and when such certificate is so filed.
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ARTICLE II
The Surviving Corporation
Section 2.1 Certificate of Incorporation. The Articles of Incorporation of
the Surviving Corporation shall be the Certificate of Incorporation of Sub,
except as amended to change the name to Summit Health Ltd.
Section 2.2 By-Laws. Subject to Section 7.10 hereof, the By-Laws of Sub as in
effect at the Effective Time shall be the By-Laws of the Surviving Corporation.
Section 2.3 Directors and Officers of Surviving Corporation.
(a) The directors of Sub at the Effective Time shall be the initial
directors of the Surviving Corporation 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 Articles of
Incorporation and By-Laws of the Surviving Corporation or as otherwise
provided by law.
(b) The officers of the Company at the Effective Time shall be the
initial officers of the Surviving Corporation 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 Articles of
Incorporation and By-Laws of the Surviving Corporation, or as otherwise
provided by law.
ARTICLE III
Conversion of Shares
Section 3.1 Exchange Ratio. 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 Shares held by Parent
or any subsidiary of Parent and other than Dissenting Shares (as defined
below)) shall be converted into the right to receive (i) .2157 of a share
of Parent Common Stock ("Parent Shares") and (ii) $5.50 in cash (the
"Exchange Ratio"), payable upon the surrender of the certificate formerly
representing such Share (the cash and Parent Shares so deliverable being
herein referred to as the "Merger Consideration");
(b) Each Share held in the treasury 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;
(c) 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 exchangeable for one share of Common Stock of the Surviving
Corporation.
Section 3.2 Exchange of Shares. (a) Parent shall authorize one or more
persons to act as Exchange Agent hereunder (the "Exchange Agent"). At or before
the Effective Time, Parent or the Purchaser shall deposit with the Exchange
Agent in trust for the benefit of the holders of Shares immediately available
funds in an aggregate amount (the "Payment Fund") equal to the aggregate cash
component of the Merger Consideration to be paid to the holders of Shares
pursuant to Section 3.1 hereof. As soon as practicable after the Effective
Time, Parent shall make available, and each holder of Shares will be entitled
to receive, upon surrender to the Exchange Agent of one or more certificates
representing such Shares for cancellation, the Merger Consideration into which
such Shares are converted in the Merger. No interest will be paid or accrued on
the cash payable upon surrender of such certificates. The Parent Shares into
which the Shares shall be converted in the Merger shall be deemed to have been
issued at the Effective Time.
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(b) The Payment Fund shall be invested by the Exchange Agent, as directed by
Parent, in direct obligations of the United States of America, obligations for
which the full faith and credit of the United States of America is pledged to
provide for the payment of principal and interest, commercial paper rated of
the highest quality by Moody's Investors Services, Inc. or Standard & Poor's
Corporation, or certificates of deposit issued by a commercial bank having at
least $200,000,000 in assets; and any earnings with respect thereto shall be
paid to Parent as and when requested by Parent and Parent shall replace any
principal lost through any investment made pursuant to this Section 3.2(b).
(c) The Exchange Agent shall, pursuant to irrevocable instructions to be
given by Parent, make the payments referred to in Section 3.1 out of the
Payment Fund. Promptly following the date which is six months after the
Effective Time, the Exchange Agent shall deliver to Parent all cash,
certificates and other documents in its possession relating to the transactions
described in this Agreement, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of a certificate formerly representing a Share may
surrender such certificate to the Surviving Corporation or Parent and (subject
to applicable abandoned property, escheat and similar laws) receive in exchange
therefor the Merger Consideration, without any interest thereon, but shall have
no greater rights against the Surviving Corporation or Parent than may be
accorded to general creditors of the Surviving Corporation or Parent under
applicable law.
Section 3.3 Dividends; Transfer Taxes. No dividends that are declared on
Parent Shares will be paid to persons entitled to receive certificates
representing Parent Shares until such persons surrender their certificates
representing Shares. Upon such surrender, there shall be paid to the person in
whose name the certificates representing such Parent Shares shall be issued,
any dividends which shall have become payable with respect to such Parent
Shares between the Effective Time and the time of such surrender. In no event
shall the person entitled to receive such dividends be entitled to receive
interest on such dividends. If the Merger Consideration is to be delivered to a
person other than the person in whose name the certificate representing Shares
surrendered in exchange therefor is registered it shall be a condition of such
delivery that the person requesting such delivery shall pay to the Exchange
Agent any transfer or other taxes required by reason of the delivery of the
Merger Consideration to a person other than the registered holder of the
certificate surrendered or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable to a
holder of Shares for any cash, Parent Shares or dividends thereon or, in
accordance with Section 3.4 hereof, proceeds of the sale of fractional
interests, delivered to a public official pursuant to applicable escheat laws.
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-up or other change in the capital structure of the Company shall
relate to any fractional security, 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 securities, 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 closing sale price of Parent Shares on the National
Association of Securities Dealers Automated Quotations National Market System
(the "NASDAQ") on the day of the Effective Time, or, if the Parent Shares are
not so traded on such day, the closing sale price on the next preceding day on
which such stock was traded on the NASDAQ.
Section 3.5 Dissenting Shares. Notwithstanding the terms of Section 3.1, to
the extent that dissenters' rights are available under Chapter 13 of the GCL,
Shares outstanding immediately prior to the Effective Time and held by a holder
who has voted such shares against the Merger and who has properly demanded
payment therefor in accordance with Chapter 13 of the GCL ("Dissenting Shares")
shall not be converted into a right to receive the Merger Consideration as
provided in Section 3.1, unless and until such holder fails to perfect or
withdraws or otherwise loses such holder's right to require the purchase of his
Shares in accordance with
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such holder's right to require the purchase of his Shares in accordance with
such Chapter 13. If after the Effective Time such holder fails to perfect or
withdraws or loses such holder's right to require the purchase of his shares in
accordance with such Chapter 13 such Shares shall be treated as if they had
been converted as of the Effective Time into a right to receive the Merger
Consideration as provided in Section 3.1. The Company shall give Parent prompt
notice of any demands received by the Company for a purchase of Shares pursuant
to Chapter 13 of the GCL, and Parent shall have the right to participate in all
negotiations and proceedings with respect to any such demands. The Company
shall not, except with the prior written consent of Parent, make any payment
with respect to, or settle or offer to settle, any such demands.
Section 3.6 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.
Section 3.7 Closing. The Closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Skadden, Arps,
Slate, Meagher & Flom, 919 Third Avenue, New York, New York, at 10:00 a.m.,
local time, on the later of (a) the date of the stockholders' meetings referred
to in Section 7.4 hereof or (b) 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.
ARTICLE IV
Representations and Warranties of Parent
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 Delaware 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 nature of its
activities make such qualification necessary, except where the failure to be so
qualified will not have a material adverse effect on Parent and its
subsidiaries taken as a whole. 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.
Section 4.2 Capitalization; Registration Rights. (a) The authorized capital
stock of Parent consists of 100,000,000 shares of Common Stock, par value $.01
per share, and 10,000,000 shares of Convertible Preferred Stock, par value $.01
per share ("Parent Preferred Stock"). As of August 31, 1993, (i) 18,184,594
Parent Shares were issued and outstanding, (ii) 1,193,896 shares of Parent
Preferred Stock were issued and outstanding (iii) employee stock options to
acquire 1,869,479 Parent Shares (the "Parent Employee Stock Options") were
outstanding under all stock option plans of Parent, (iv) 6,769,479 Parent
Shares were reserved for issuance pursuant to all employee benefit plans of
Parent, (v) warrants to purchase 131,250 Parent Shares (the "Parent Warrants")
were outstanding pursuant to the Warrant Agreement dated as of April 30, 1990,
between Parent and Ameritrust Texas National Association, and (vi) 1,193,896
Parent Shares were reserved for issuance upon the conversion of the Parent
Preferred Stock. All of the issued and outstanding Parent Shares are validly
issued, fully paid and nonassessable and free of preemptive rights. All of the
Parent Shares issuable 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. The authorized capital stock of
Sub consists of 1,000 shares of Common Stock, par value $.01 per share, 1,000
shares of which are validly issued and outstanding, fully paid and
nonassessable and are owned by Parent.
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(b) Schedule 4.2(b) sets forth a complete list of the holders of registration
rights relating to Parent Preferred Stock and Parent Shares.
Section 4.3 Subsidiaries. Except as set forth on Schedule 4.3 hereto, the
Parent does not directly or indirectly own any interest in any other
corporation, partnership, joint venture or other business association or
entity, foreign or domestic. (Such corporations, partnerships, joint ventures
or other business entities of which Parent or any of its other Parent
Subsidiaries owns, directly or indirectly, greater than fifty percent of the
shares of capital stock or other equity interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
cast at least a majority of the votes that may be cast by all shares or equity
interests having ordinary voting power for the election of directors or other
governing body of such entity are hereinafter referred to as the "Parent
Subsidiaries".) Each Parent Subsidiary that is a corporation is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each Parent Subsidiary that is a partnership is
duly formed and validly existing under the laws of its jurisdiction of
formation. Each Parent Subsidiary has the corporate power or the partnership
power, as the case may be to carry on its business as it is now being conducted
or presently proposed to be conducted. Each Parent Subsidiary that is a
corporation 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 nature of its activities makes such
qualification necessary except where the failure to be so qualified will not
have a material adverse effect on Parent or such Parent Subsidiary. Each Parent
Subsidiary that is a partnership is duly qualified as a foreign partnership
authorized to do business, and is in good standing, in 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 will not have a material adverse effect on Parent or such Parent
Subsidiary. All of the outstanding shares of capital stock of the Parent
Subsidiaries that are corporations are validly issued, fully paid and
nonassessable. Except as set forth on Schedule 4.7 hereto, all of the
outstanding shares of capital stock of, or other ownership interests in, each
of the Parent Subsidiaries are owned by Parent or by a Parent Subsidiary free
and clear of any liens, claims, charges or encumbrances. There are not now, and
at the Effective Time there will not be, any outstanding options, warrants,
subscriptions, calls, rights, convertible securities or other agreements or
commitments obligating Parent or any Parent Subsidiary to issue, transfer or
sell any securities of any Parent Subsidiary. Except as set forth on Schedule
4.3 hereto, there are not now, and at the Effective Time there will not be, any
voting trusts or other agreements or understandings to which Parent or any of
the Parent Subsidiaries is a party or is bound with respect to the voting of
the capital stock of Parent or any of the Parent Subsidiaries.
Section 4.4 Authority Relative to this Agreement. Each of Parent and Sub has
the corporate power to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery 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 stockholder of Sub, and, except for the approvals of
Parent's stockholders to be sought at the stockholders' meeting contemplated by
Section 7.4(b) hereof, 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 4.5 Consents and Approvals; No Violations. Except for applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), state or
foreign laws relating to takeovers, if applicable, state securities or blue sky
laws, certain state and local regulatory filings relating to health care
licensing and similar matters, the filing of a Certificate of Merger as
required under the Delaware General Corporation Law ("DGCL") and the filing of
the Merger Agreement and officers' certificates as required by the GCL, no
filing with, and no permit, authorization, consent or approval of, any public
body or authority is necessary for the consummation by Parent and Sub of the
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transactions contemplated by this Agreement. Neither the execution and delivery
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 (a) conflict with or result in any breach of any
provisions of the Certificate of Incorporation or By-Laws of Parent or the
Certificate of Incorporation or By-Laws of Sub, (b) except as set forth on
Schedule 4.5 hereto, 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 or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which Parent or any of
its subsidiaries is a party or by which any of them or any of their properties
or assets may be bound or (c) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Parent, any of its subsidiaries or
any of their properties or assets, except in the case of clauses (b) and (c)
for violations, breaches or defaults which are not in the aggregate material to
Parent and its subsidiaries taken as a whole.
Section 4.6 Reports and Financial Statements. Parent has filed all reports
required to be filed with the Securities and Exchange Commission (the "SEC")
pursuant to the Exchange Act since January 1, 1991 (collectively, the "SEC
Reports"), and has previously furnished the Company with true and complete
copies of all such SEC Reports. None of such SEC Reports, as of their
respective dates, contained any untrue statement of a material fact or omitted
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. Each of the balance sheets (including the related notes)
included in the SEC Reports fairly presents the consolidated financial position
of Parent and its subsidiaries as of the respective dates thereof, and the
other related statements (including the related notes) included therein fairly
present the results of operations and the changes in financial position of
Parent and its subsidiaries for the respective periods or as of the respective
dates set forth therein, all in conformity with generally accepted accounting
principles consistently applied during the periods involved except as otherwise
noted therein.
Section 4.7 Absence of Certain Changes or Events. Except as set forth in
Schedule 4.7 hereto or in the SEC Reports, since August 31, 1993, neither
Parent nor any of the Parent Subsidiaries has: (a) taken any of the actions set
forth in Sections 6.2(b) or 6.2(c) hereof; (b) suffered any material adverse
change in the business, financial condition, results of operations, properties,
assets or liabilities of Parent and the Parent Subsidiaries taken as a whole;
or (c) subsequent to the date hereof, except as permitted by Section 6.2
hereof, conducted its business and operations other than in the ordinary course
of business and consistent with past practices.
Section 4.8 Litigation. Except for litigation disclosed in the notes to the
financial statements included in the SEC Reports there is no suit, action or
proceeding pending or, to the best knowledge of Parent, threatened against or
affecting Parent or any of its subsidiaries, the outcome of which, in the
reasonable judgment of Parent, is likely to materially and adversely affect the
business, financial condition or results of operations of Parent and the Parent
Subsidiaries taken as a whole; 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 4.9 Information in Disclosure Documents and Registration Statement.
None of the information to be supplied by Parent or Sub for inclusion in (a)
the Registration Statement to be filed with the SEC by Parent on Form S-4 under
the Securities Act for the purpose of registering the Parent Shares to be
issued in the Merger (the "Registration Statement") and (b) the joint proxy
statement to be distributed in connection with the Parent's and the Company's
meeting of stockholders to vote upon this Agreement (the "Proxy Statement")
will in the case of the Registration Statement, at the time it becomes
effective and at the Effective Time, or, in the case of the Proxy Statement or
any amendments thereof or supplements thereto, at the time of the mailing of
the Proxy Statement and any amendments or supplements thereto, and at the time
of the meeting of stockholders to be held in connection with the Merger,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
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statements therein, in light of the circumstances under which they are made,
not misleading. The Registration Statement will comply as to form in all
material respects with the provisions of the Securities Act, and the rules and
regulations promulgated thereunder.
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 August 31, 1993 in the ordinary course of
business and consistent with past practices, and Parent and the Parent
Subsidiaries do not have any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of a nature required by generally accepted
accounting principles to be reflected in a corporate balance sheet (or
reflected in the notes thereto).
Section 4.11 No Default. Neither Parent nor any of the Parent Subsidiaries is
in default or violation (and no event has occurred which with notice or the
lapse of time or both would constitute a default or violation) of any term,
condition or provision of (a) its Certificate of Incorporation or By-Laws, (b)
any note, bond, mortgage, indenture, license, agreement, contract, lease,
commitment or other 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 (c) any order, writ, injunction, decree, statute, rule or
regulation applicable to Parent or any of the Parent Subsidiaries, except in
the case of clauses (b) and (c) above for defaults or violations which would
not have a material adverse affect on Parent and the Parent Subsidiaries, taken
as a whole.
Section 4.12 Taxes.
(a) Parent has heretofore delivered or will make available to the Company
true, correct and complete copies of the consolidated federal, state, local and
foreign income, franchise, sales and other Tax Returns (as hereinafter defined)
filed by Parent and the Parent Subsidiaries for each of the Parent's years
ended August 31, 1988, 1989, 1990, 1991 and 1992 inclusive. Parent has duly
filed, and each Parent Subsidiary has duly filed, all material federal, state,
local and foreign income, franchise, sales and other Tax Returns required to be
filed by Parent or the Parent Subsidiaries. All such Tax Returns are true,
correct and complete, in all material respects, and Parent and the Parent
Subsidiaries have duly paid all Taxes (as hereinafter defined) required to be
paid in respect of the periods covered by such returns and has paid or made
adequate provision for payment of all accrued but unpaid Taxes in respect of
all periods since the periods covered by such Tax Returns. Except as set forth
in Schedule 4.12 hereof, all deficiencies assessed as a result of any
examination of Tax Returns of Parent or the Parent Subsidiaries by federal,
state, local or foreign tax authorities have been paid, and deficiencies for
all Taxes which have been proposed or asserted against Parent and the Parent
Subsidiaries do not exceed $750,000 in the aggregate for all periods. Except as
disclosed in Schedule 4.12 hereof, no issue has been raised during the past
five years by any federal, state, local or foreign taxing authority which, if
raised with regard to any other period not so examined, could reasonably be
expected to result in a proposed deficiency for any other period not so
examined. Except as disclosed in Schedule 4.12 hereof, neither Parent nor any
of the Parent Subsidiaries has granted any extension or waiver of the statutory
period of limitations applicable to any claim for Taxes. Neither Parent nor any
of the Parent Subsidiaries is a party to any agreement, contract or arrangement
that would result, separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code.
Parent and each of the Parent Subsidiaries have complied (and until the Closing
will comply) in all material respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes (including,
without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of
the Code or similar provisions under any foreign laws) and have, within the
time and in the manner prescribed by law, withheld from employee wages and paid
over to the proper governmental authorities all amounts required to be so
withheld and paid over under all applicable laws.
(b) For purposes of this Agreement, the term "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, excise, property, sales, transfer, license, payroll,
withholding, capital stock and franchise taxes, imposed by the United States,
or any state, local or foreign government or subdivision or agency thereof,
including any interest, penalties or additions thereto.
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For purposes of this Agreement, the term "Tax Return" shall mean any report,
return or other information or document required to be supplied to a taxing
authority in connection with Taxes.
Section 4.13 Title to Properties; Encumbrances. Except as described in the
following sentence, each of Parent and the Parent Subsidiaries has good, valid
and marketable title to, or a valid leasehold interest in, all of its
properties and assets (real, personal and mixed, tangible and intangible),
including, without limitation, all the properties and assets reflected in the
consolidated balance sheet of Parent and the Parent Subsidiaries as of August
31, 1993 included in Parent's Annual Report on Form l0-K for the period ended
on such date (except for properties and assets disposed of in the ordinary
course of business and consistent with past practices since August 31, 1993).
None of such properties or assets are subject to any liability, obligation,
claim, lien, mortgage, pledge, security interest, conditional sale agreement,
charge or encumbrance of any kind (whether absolute, accrued, contingent or
otherwise), except (i) as set forth in Schedule 4.13 hereto, and (ii) minor
imperfections of title and encumbrance, if any, which are not substantial in
amount, do not materially detract from the value of the property or assets
subject thereto and do not impair the operations of Parent and the Parent
Subsidiaries.
Section 4.14 Compliance with Applicable Law. Except as disclosed in the SEC
Reports, each of Parent and the Parent Subsidiaries is in compliance, with all
applicable laws (whether statutory or otherwise), rules, regulations, orders,
ordinances, judgments or decrees of all governmental authorities (federal,
state, local, foreign or otherwise) (collectively, the "Laws"), where the
failure to be in such compliance would have a material adverse effect on Parent
and the Parent Subsidiaries, taken as a whole.
Section 4.15 Medicare Participation/Accreditation. All of Parent's hospitals
are certified for participation or enrollment in the Medicare and Medicaid
programs, have a current and valid provider contract with the Medicare and
Medicaid programs, are in substantial compliance with the conditions of
participation of such programs and have received all approvals or
qualifications necessary for capital reimbursement of Parent's assets. 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 either the Medicare or the Medicaid program of any pending or
threatened investigations, and neither Parent nor any of the Parent
Subsidiaries has any reason to believe that any such investigations or surveys
are pending, threatened or imminent which may have a material adverse effect on
Parent and the Parent Subsidiaries, taken as a whole. All of Parent's hospitals
are accredited by the Joint Commission on Accreditation of Healthcare
Organizations.
Section 4.16 Labor Matters. 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 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 have a material adverse effect on Parent and the Parent Subsidiaries,
taken as a whole. 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.
Section 4.17 Employee Benefit Plans; ERISA. Schedule 4.17 hereto sets forth
certain representations and warranties of Parent with respect to its employee
benefit plans.
Section 4.18 Vote Required. Approval of the Merger by the stockholders of
Parent will require the approval of a majority of the total votes cast in
person or by proxy at the stockholders' meeting referred to in Section 7.4.
Section 4.19 Opinion of Financial Advisor. The Board of Directors of Parent
(at a meeting duly called and held) has unanimously determined that the
transactions contemplated hereby are fair to and in the best interests of
Parent's stockholders. Parent has received the opinion of Kidder Peabody & Co.,
Inc., Parent's
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financial advisor, substantially to the effect that the Exchange Ratio is fair
to the Company from a financial point of view.
ARTICLE V
Representations and Warranties of the Company
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 California
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 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 will not have a material adverse effect on the
Company and its subsidiaries taken as a whole.
Section 5.2 Capitalization. The authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock, no par value, and 2,000,000
shares of Preferred Stock, par value $1 per share (the "Preferred Stock"). As
of the date hereof, 32,479,100 Shares were issued and outstanding, employee
stock options to acquire 2,950,050 Shares (the "Employee Stock Options") were
outstanding under all stock option plans and agreements of the Company. There
are no outstanding shares of Preferred Stock. All of the issued and outstanding
Shares are validly issued, fully paid and nonassessable and free of preemptive
rights. Except as set forth above and as otherwise provided for in this
Agreement, there are not now, and at the Effective Time there will not be, any
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 or sell any
shares of its capital stock. Except as provided in this Agreement, 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. Except as set forth on Schedule 5.3 hereto and the
Company's ownership of 51.8% of the outstanding capital stock of Summit Care
Corporation, the Company does not directly or indirectly own any interest in
any other corporation, partnership, joint venture or other business association
or entity, foreign or domestic. (Such corporations, partnerships, joint
ventures or other business entities of which the Company or any of its other
Subsidiaries owns, directly or indirectly, greater than fifty percent of the
shares of capital stock or other equity interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
cast at least a majority of the votes that may be cast by all shares or equity
interests having ordinary voting power for the election of directors or other
governing body of such entity are hereinafter referred to as the
"Subsidiaries".) Each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the corporate power to carry on its business as it is now
being conducted or presently proposed to be conducted. Each Subsidiary 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 nature of its activities makes such qualification necessary except
where the failure to be so qualified will not have a material adverse effect on
the Company or such Subsidiary. Except as set forth on Schedule 5.3 hereof, all
of the outstanding shares of capital stock of the Subsidiaries are validly
issued, fully paid and nonassessable and are owned by the Company or by a
Subsidiary free and clear of any liens, claims, charges or encumbrances. There
are not now, and at the Effective Time there will not be, any outstanding
options, warrants, subscriptions, calls, rights, convertible securities or
other agreements or commitments obligating the Company or any Subsidiary to
issue, transfer or sell any securities of any Subsidiary. Except as set forth
in Schedule 5.3 hereof, there are not now, and at the Effective Time there will
not be, any voting trusts or other agreements or understandings to which the
Company or any of the Subsidiaries is a party or is bound with respect to the
voting of the capital stock of the Company or any of the Subsidiaries.
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Section 5.4 Authority Relative to this Agreement. The Company has the
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by the Company's Board of Directors and, except for the
approval of its stockholders to be sought at the stockholders meeting
contemplated by Section 7.4 hereof, no other corporate proceedings on the part
of the Company are necessary to authorize this Agreement or the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms.
Section 5.5 Consents and Approvals; No Violations. Except for applicable
requirements of the HSR Act, the Securities Act, the Exchange Act, state
securities or blue sky laws, certain state and local regulatory filings
relating to healthcare licensing and similar matters, the filing of the Merger
Agreement and officers' certificates as required by the GCL 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 public body or authority is
necessary for the consummation by the Company of the transactions contemplated
by this Agreement. Neither the execution and delivery 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
(a) conflict with or result in any breach of any provisions of the Articles of
Incorporation or By-Laws of the Company or any of the Subsidiaries, (b) except
as set forth on Schedule 5.5, 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 or acceleration) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, agreement or other instrument or obligation to which the
Company or any of the Subsidiaries is a party or by which any of them or any of
their properties or assets may be bound or (c) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, any
of the Subsidiaries or any of their properties or assets, except in the case of
clauses (b) and (c) for violations, breaches or defaults which are not in the
aggregate material to the Company and the Subsidiaries taken as a whole.
Section 5.6 Reports and Financial Statements. The Company has filed all
reports required to be filed with the SEC pursuant to the Exchange Act since
January 1, 1991 (such reports, together with the Company's Prospectus dated May
18, 1993 relating to its 7 1/2% Exchangeable Subordinated Notes, being
hereinafter collectively referred to as the "Company SEC Reports"), and has
previously furnished Parent with true and complete copies of all such Company
SEC Reports. None of such Company SEC Reports, as of their respective dates,
contained any untrue statement of a material fact or omitted 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. Each of the balance sheets (including the related notes) included
in the Company SEC Reports fairly presents the consolidated financial position
of the Company and the Subsidiaries as of the respective dates thereof, and the
other related statements (including the related notes) included therein fairly
present the results of operations and the changes in financial position of the
Company and the Subsidiaries for the respective periods or as of the respective
dates set forth therein, all in conformity with generally accepted accounting
principles consistently applied during the periods involved, except as
otherwise noted therein.
Section 5.7 Absence of Certain Changes or Events. Except as set forth in
Schedule 5.7 hereto or in the Company SEC Reports, since December 31, 1992,
neither the Company nor any of the Subsidiaries has: (a) taken any of the
actions set forth in Sections 6.1(b), 6.1(c) or 6.1(e) hereof; (b) suffered any
material adverse change in the business, financial condition, results of
operations, properties, assets or liabilities of the Company and the
Subsidiaries taken as a whole; or (c) except, subsequent the date hereof, as
permitted by Section 6.1 hereof, conducted its business and operations other
than in the ordinary course of business and consistent with past practices.
Section 5.8 Litigation. Except for litigation disclosed in the notes to the
financial statements included in the Company's Annual Report to Stockholders
for the year ended June 30, 1993 or in the Company SEC
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Reports or as disclosed in Schedule 5.8 hereof there is no suit, action or
proceeding pending or, to the best knowledge of the Company, threatened against
or affecting the Company or any of its subsidiaries, the outcome of which, in
the reasonable judgment of the Company, is likely to materially and adversely
affect the business, financial condition or results of operations of the
Company and its subsidiaries taken as a whole; 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 its subsidiaries having, or which, insofar as can reasonably
be foreseen, in the future may have, any such effect.
Section 5.9 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 SEC
Reports or which were incurred after June 30, 1993 in the ordinary course of
business and consistent with past practices, and the Company and the
Subsidiaries do not have any material liabilities or obligations (whether
absolute accrued contingent or otherwise) of a nature required by generally
accepted accounting principles to be reflected in a corporate balance sheet (or
reflected in the notes thereto).
Section 5.10 No Default. Neither the Company nor any of the Subsidiaries is
in default or violation (and no event has occurred which with notice or the
lapse of time or both would constitute a default or violation) of any term,
condition or provision of (a) its Articles of Incorporation or By-Laws, (b) any
note, bond, mortgage, indenture, license, agreement, contract, lease,
commitment or other obligation to which the Company or any of the Subsidiaries
is a party or by which they or any of their properties or assets may be bound,
or (c) any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any of the Subsidiaries, except in the case of
clauses (b) and (c) above for defaults or violations which would not have a
material adverse effect on the Company and Subsidiaries, taken as a whole.
Section 5.11 Taxes.
(a) The Company has heretofore delivered or will make available to Parent
true, correct and complete copies of the consolidated federal, state, local and
foreign income, franchise sales and other Tax Returns (as hereinafter defined)
filed by the Company and the Subsidiaries for each of the Company's years ended
December 31, 1988, 1989, 1990, 1991 and 1992 inclusive. The Company has duly
filed, and each Subsidiary has duly filed, all material federal, state, local
and foreign income, franchise, sales and other Tax Returns required to be filed
by the Company or the Subsidiaries. All such Tax Returns are true, correct and
complete, in all material respects, and the Company and the Subsidiaries have
duly paid, all Taxes (as hereinafter defined) required to be paid in respect of
the periods covered by such returns and has made adequate provision for payment
of all accrued but unpaid Taxes anticipated in respect of all periods since the
periods covered by such Tax Returns. Except as disclosed in Schedule 5.11(a)
hereof, all deficiencies assessed as a result of any examination of Tax Returns
of the Company or the Subsidiaries by federal, state, local or foreign tax
authorities have been paid, and deficiencies for all Taxes which have been
proposed or asserted against the Company and the Subsidiaries do not exceed
$750,000 in the aggregate for all periods. Except as disclosed in Schedule 5.11
hereof, no issue has been raised during the past five years by any federal,
state, local or foreign taxing authority which, if raised with regard to any
other period not so examined, could reasonably be expected to result in a
proposed deficiency for any other period not so examined. Except as disclosed
in Schedule 5.11 hereof, neither the Company nor any of the Subsidiaries has
granted any extension or waiver of the statutory period of limitations
applicable to any claim for Taxes. Except as disclosed in Schedule 5.11 hereof,
neither the Company nor any of the Subsidiaries is a party to any agreement,
contract or arrangement that would result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of Section
280G of the Code. The Company and each of the Subsidiaries have complied (and
until the Closing will comply) in all material respects with all applicable
laws, rules and regulations relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Sections 1441
and 1442 of the Code or similar provisions under any foreign laws) and have,
within the time an in the manner prescribed by law, withheld from employee
wages and paid over to the proper governmental authorities all amounts required
to be so withheld and paid over under all applicable laws.
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(b) For purposes of this Agreement, the term "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, excise, property, sales, transfer, license, payroll,
withholding, capital stock and franchise taxes, imposed by the United States,
or any state, local or foreign government or subdivision or agency thereof,
including any interest, penalties or additions thereto. For purposes of this
Agreement, the term "Tax Return" shall mean any report, return or other
information or document required to be supplied to a taxing authority in
connection with Taxes.
Section 5.12 Employee Benefit Plans; ERISA. Schedule 5.12 hereto sets forth
certain representations and warranties of the Company with respect to its
employee benefit plans.
Section 5.13 Title to Properties; Encumbrances.
Except as described in the following sentence, each of the Company and the
Subsidiaries has good, valid and marketable title to, or a valid leasehold
interest in, all of its properties and assets (real, personal and mixed,
tangible and intangible), including, without limitation, all the properties and
assets reflected in the consolidated balance sheet of the Company and the
Subsidiaries as of September 30, 1993 included in the Company's Quarterly
Report on Form 10-Q for the period ended on such date (except for properties
and assets disposed of in the ordinary course of business and consistent with
past practices since September 30, 1993). None of such properties or assets are
subject to any liability, obligation, claim, lien, mortgage, pledge, security
interest, conditional sale agreement, charge or encumbrance of any kind
(whether absolute, accrued, contingent or otherwise), except (i) as set forth
in Schedule 5.13 hereto, and (ii) minor imperfections of title and encumbrance,
if any, which are not substantial in amount, do not materially detract from the
value of the property or assets subject thereto and do not impair the
operations of the Company and the Subsidiaries.
Section 5.14 Compliance with Applicable Law. Except as disclosed in the
Company SEC Reports, each of the Company and the Subsidiaries is in compliance
with all applicable laws (whether statutory or otherwise), rules, regulations,
orders, ordinances, judgments or decrees of all governmental authorities
(federal, state, local, foreign or otherwise) (collectively, the "Laws"), where
the failure to be in such compliance would have a material adverse effect of
the Company and the Subsidiaries, taken as a whole.
Section 5.15 Information in Disclosure Documents and Registration Statement.
None of the information to be supplied by the Company for inclusion in the
Proxy Statement or the Registration Statement, other than the information to be
supplied by Parent or Sub, will, in the case of the Registration Statement, at
the time it becomes effective and at the Effective Time, or, in the case of the
Proxy Statement or any amendments thereof or supplements thereto, at the time
of the mailing of the Proxy Statement and any amendments or supplements
thereto, and at the time of the meeting of stockholders of the Company to be
held in connection with the Merger, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Exchange Act, and the rules and regulations promulgated thereunder.
Section 5.16 Opinion of Financial Advisor. The Board of Directors of the
Company (at meetings duly called and held) has unanimously determined that the
transactions contemplated hereby are fair to and in the best interests of the
holders of the Shares. The Company has received the opinion of Smith Barney
Shearson, the Company's financial advisor, substantially to the effect that the
consideration to be received in the Merger by the holders of the Shares is fair
to such stockholders from a financial point of view.
Section 5.17 Vote Required. Approval of the Merger by the stockholders of the
Company will require the affirmative vote of the holders of a majority of the
outstanding Shares.
Section 5.18 Medicare Participation/Accreditation. Except as disclosed in
Schedule 5.18 hereof, all of the Company's hospitals are certified for
participation or enrollment in the Medicare and Medicaid programs, have a
current and valid provider contract with the Medicare and Medicaid programs,
are in substantial compliance with the conditions of participation of such
programs and have received all approvals or
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qualifications necessary for capital reimbursement of the Company's assets.
Neither the Company nor any of its Subsidiaries has received notice from the
regulatory authorities which enforce the statutory or regulatory provisions in
respect of either the Medicare or the Medicaid program of any pending or
threatened investigations or surveys, and neither the Company nor any of its
Subsidiaries has any reason to believe that any such investigations are
pending, threatened or imminent which may have a material adverse effect on the
Company and its Subsidiaries, taken as a whole. All of the Company's hospitals
are accredited by the Joint Commission on Accreditation of Healthcare
Organizations.
Section 5.19 Labor Matters. Except as set forth on Schedule 5.19, neither the
Company nor any of the 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 or, to the knowledge of the Company, threatened
against the Company or the Subsidiaries relating to their business, except for
any such preceding which would not have a material adverse effect on the
Company and the Subsidiaries, taken as a whole. 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 Subsidiaries.
ARTICLE VI
Conduct of Business Pending the Merger
Section 6.1 Conduct of Business by the Company Pending the Merger. Except as
disclosed in Schedule 6.1 hereof, prior to the Effective Time, unless Parent
shall otherwise agree in writing, or as otherwise contemplated by this
Agreement:
(a) the respective businesses of the Company and the Subsidiaries shall
be conducted only in the ordinary and usual course of business and
consistent with past practices, and there shall be no material changes in
the conduct of the Company's operations;
(b) the Company shall not (i) sell or pledge or agree to sell or pledge
any stock owned by it in any of the Subsidiaries; (ii) amend its Articles
of Incorporation or By-Laws; or (iii) split, combine or reclassify any
shares of its outstanding capital stock or declare, set aside or pay any
dividend or other distribution payable in cash, stock or property, or
redeem or otherwise acquire any shares of its capital stock or shares of
the capital stock of any of the Subsidiaries;
(c) neither the Company nor any of the Subsidiaries shall (i) authorize
for issuance, issue or sell or agree to issue or sell any additional shares
of, or rights of any kind to acquire any shares of, its capital stock of
any class (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise), except for
unissued Shares reserved for issuance upon the exercise of Employee Stock
Options; (ii) acquire, dispose of, transfer, lease, license, mortgage,
pledge or encumber any fixed or other assets other than in the ordinary
course of business and consistent with past practices; (iii) incur, assume
or prepay any indebtedness or any other material liabilities other than in
the ordinary course of business and consistent with past practices; (iv)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other person other than a Subsidiary in the ordinary course of business and
consistent with past practices; (v) make any loans, advances or capital
contributions to, or investments in, any other person, other than to
Subsidiaries; (vi) authorize capital expenditures in excess of the amount
currently budgeted therefor; (vii) permit any insurance policy naming the
Company or any Subsidiary as a beneficiary or a loss payee to be cancelled
or terminated other than in the ordinary course of business; or (viii)
enter into any contract, agreement, commitment or arrangement with respect
to any of the foregoing;
(d) the Company shall use its best efforts to preserve intact the
business organization of the Company and the Subsidiaries, to keep
available the services of its and their present officers and key employees,
and to preserve the goodwill of those having business relationships with it
and the Subsidiaries; and
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(e) neither the Company nor any of the Subsidiaries will enter into any
new employment agreements with any of their respective officers or
employees or grant any increases in the compensation of their respective
officers and employees other than increases in the ordinary course of
business and consistent with past practice, or enter into, adopt or amend
any Plan (as that term is defined in Schedule 5.12 hereto).
Section 6.2 Conduct of Business by Parent Pending the Merger. Prior to the
Effective Time, unless the Company shall otherwise agree in writing, or as
otherwise contemplated by this Agreement or the AHM Merger Agreement:
(a) the respective businesses of Parent and the Parent Subsidiaries shall
be conducted only in the ordinary and usual course of business and
consistent with past practices, and there shall be no material changes in
the conduct of Parent's operations;
(b) Parent shall not (i) sell or pledge or agree to sell or pledge any
stock owned by it in any of the Parent Subsidiaries; (ii) amend its
Certificate of Incorporation or By-Laws; or (iii) split, combine or
reclassify any shares of its outstanding capital stock or declare, set
aside or pay any dividend or other distribution payable in cash, stock or
property (other than dividends on the Parent Preferred Stock payable in
additional shares of the Parent Preferred Stock), or redeem or otherwise
acquire any shares of its capital stock or shares of the capital stock of
any of the Parent Subsidiaries;
(c) neither Parent nor any of the Parent Subsidiaries shall (i) authorize
for issuance, issue or sell or agree to issue or sell any additional shares
of, or rights of any kind to acquire any shares of, its capital stock of
any class (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise), except for
(x) unissued shares of Parent Common Stock reserved for issuance upon the
exercise of Parent Employee Stock Options, Parent Warrants or the Parent
Preferred Stock and (y) other than dividends on the Parent Preferred Stock
payable in additional shares of Parent Preferred Stock; (ii) incur, assume
or prepay any indebtedness or any other material liabilities other than in
the ordinary course of business and consistent with past practices; (iii)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other person other than a Parent Subsidiary in the ordinary course of
business and consistent with past practices; or (iv) enter into any
contract, agreement, commitment or arrangement with respect to any of the
foregoing; and
(d) Parent shall use its best efforts to preserve intact the business
organization of the Parent and the Parent Subsidiaries, to keep available
the services of its and their present officers and key employees, and to
preserve the goodwill of those having business relationships with it and
the Parent Subsidiaries.
Section 6.3 Conduct of Business of Sub. During the period from the date of
this Agreement 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 and other representatives full 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 may
reasonably request, provided that no investigation pursuant to this 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,
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if this Agreement is terminated, each party will deliver to the other all
documents, work papers and other material (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. Parent and the Company each agree (a) that
neither of them or their respective subsidiaries will and each of them will use
their best efforts to cause their respective directors, officers, employees,
financial advisors, legal counsel, accountants and other agents and
representatives not to, initiate or solicit, directly or indirectly, any
inquiries or the making of any proposal with respect to, engage in negotiations
concerning, provide any confidential information or data to or have any
discussions with, any person relating to, any acquisition, business combination
or purchase of all or any significant portion of the assets of, or any equity
interest in such party or any subsidiary of such party (an "Acquisition
Proposal"), other than the Merger and the AHM Merger, (b) that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any person conducted heretofore with respect
to any of the foregoing, and (c) that it will notify the other party
immediately in writing if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it.
Section 7.3 Registration Statement. As promptly as practicable, Parent and
the Company shall prepare and file with the SEC the Proxy Statement and Parent
shall prepare and file with the SEC the Registration Statement. Each of Parent
and the Company shall use its best efforts to have the Registration Statement
declared effective. Parent shall also use its 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 may reasonably request
in connection with such Registration Statement and issuance of Parent Shares.
Section 7.4 Proxy Statements; Stockholder Approvals.
(a) The Company, acting through its Board of Directors, shall, in accordance
with applicable law and its Articles of Incorporation and By-Laws:
(i) promptly and duly call, give notice of, convene and hold as soon as
practicable following the date upon which the Registration Statement
becomes effective a meeting of its stockholders for the purpose of voting
to approve and adopt this Agreement and shall use its best efforts to
obtain such stockholder approval; and
(ii) recommend approval and adoption of this Agreement by the
stockholders of the Company and include in the Proxy Statement such
recommendation, and take all lawful action to solicit such approval.
(b) Parent, acting through its Board of Directors, shall, in accordance with
applicable law and its Certificate of Incorporation and By-Laws:
(i) promptly and duly call, give notice of, convene and hold as soon as
practicable following the date upon which the Registration Statement
becomes effective a meeting of its stockholders for the purpose of voting
to approve and adopt this Agreement and shall use its best efforts to
obtain such stockholder approval; and
(ii) recommend approval and adoption of this Agreement by the
stockholders of Parent and include in the Proxy Statement such
recommendation, and take all lawful action to solicit such approval.
(c) Parent and the Company, as promptly as practicable, shall cause the
definitive Proxy Statement to be mailed to their stockholders. At the
stockholders' meetings, each of Parent and the Company shall vote or cause to
be voted in favor of approval and adoption of this Agreement all Shares as to
which it holds proxies at such time.
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Section 7.5 Compliance with the Securities Act.
(a) Prior to the Effective Time the Company shall cause to be delivered to
Parent a list identifying all persons who were, in its reasonable judgment, at
the record date for the Company stockholders' meeting convened in accordance
with Section 7.4 hereof, "affiliates" of the Company as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act (the "Affiliates").
(b) The Company shall use its best efforts to cause each person who is
identified as a possible Affiliate in the opinion referred to above to deliver
to Parent at or prior to the Effective Time a written agreement, in the form
previously approved by the parties, that he will not offer to sell, sell or
otherwise dispose of any of the Parent Shares issued to him pursuant to the
Merger, except pursuant to an effective registration statement or in compliance
with Rule 145 or another exemption from the registration requirements of the
Securities Act.
Section 7.6 Antitrust Laws. As promptly as practicable, the Company, Parent
and Sub shall make all filings and submissions under the HSR Act as may be
reasonably required to be made in connection with this Agreement and the
transactions contemplated hereby. Subject to Section 7.1 hereof, the Company
will furnish to Parent and Sub, and Parent and Sub will furnish to the Company,
such information and assistance as the other may reasonably request in
connection with the preparation of any such filings or submissions. Subject to
Section 7.1 hereof, the Company will provide Parent and Sub, and Parent and Sub
will provide the Company, with copies of all 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.
Section 7.7 Voting Agreements. Concurrently herewith, the Company is entering
into the Parent Voting Agreements with each of the Joseph Littlejohn & Levy
Fund, L.P. and Charles N. Martin, Jr. substantially in the form attached hereto
as Exhibit A and Parent is entering into the Company Voting Agreements with
each of John E. Anderson, Topa Equities, Ltd., Don Freeberg, Don Freeberg, as
trustee under a Voting Trust Agreement dated July 1983, Meridian Life Insurance
Co., Sierra Land Development, L.P., and Sierra Land Group, Inc. substantially
in the form attached hereto as Exhibit B. Parent will use its best efforts to
obtain a similar voting agreement from M. Lee Pearce M.D.
Section 7.8 Employee Stock Options; Warrants.
(a) Except as provided in this Section 7.8, from the date hereof the Company
will not accelerate the vesting or exercisability of or otherwise modify, the
terms and conditions applicable to the Employee Stock Options, whether set
forth in the governing stock option plans of the Company (the "Company Stock
Option Plans"), option agreement with the executive or otherwise. At the
Effective Time, each option (each herein referred to as a "Company Option")
granted by the Company to purchase shares of Common Stock pursuant to any stock
option plan or plans of the Company or otherwise (collectively the "Company
Stock Option Plan") that is outstanding and unexercised immediately prior to
the Effective Time, shall become vested and immediately exercisable.
(b) Each holder of a Company Option that is outstanding within 10 days prior
to the Effective Time, shall elect, within 10 days prior to the Effective Time,
to receive, in lieu of each such Company Option, either (1) a payment equal to
the per Share Merger Consideration minus the exercise price of a Share subject
to such Company Option times the number of Shares subject to such option,
provided that in determining the payment to be made to such holder the exercise
price shall be applied first to reduce the cash portion of the Merger
Consideration and then, to the extent the exercise price exceeds $5.50, to
reduce the Parent Share portion of the Merger Consideration (valuing the Parent
Shares at $12.75) or (2) an option to purchase Parent Shares (a "Substituted
Option") under a stock option plan maintained by Parent, in an amount and at an
exercise price as determined below. Any holder who fails to make a timely
election, shall receive a Substituted Option for each outstanding Company
Option (and otherwise subject to the terms of the Company Stock Option Plans).
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(c) The number of shares, the exercise price and the terms and conditions of
a Substituted Option shall be determined in a manner that preserves both (1)
the aggregate gain (or loss) on the Company Option immediately prior to the
time of substitution, and (2) the ratio of the exercise price per share of
Common Stock subject to the Company Option to the fair market value (determined
immediately prior to the time of substitution) per share subject to the Company
Option; provided, however, that in the case of any Company Option that is an
"incentive stock option" as defined in section 422 of the Code, the adjustment
described above shall be, and is intended to be, effected in a manner that is
consistent with section 424(a) of the Code. The duration and other terms of the
new option shall be the same as the original option, except that all references
to the Company shall be deemed to be references to Parent. Parent shall file
with the SEC a registration statement on Form S-8 (or other appropriate form)
or a post-effective amendment to the Registration Statement as promptly as
practicable after the Effective Time, for purposes of registering all Parent
Shares issuable after the Effective Time upon exercise of the Substituted
Options, and use all reasonable efforts to have such registration statement or
post-effective amendment become effective and to comply, to the extent
applicable, with state securities or blue sky laws with respect thereto at the
Effective Time. Unless otherwise prohibited by law, such Form S-8 shall also
register the reoffer and resale by affiliates of Parent of the Parent Shares
issuable to such affiliates upon exercise of the Substituted Options. Parent
shall maintain the effectiveness under the Securities Act of such Form S-8
registration statement as long as any such affiliates' options remain
outstanding.
Section 7.9 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, except as may be required by law.
Section 7.10 By-Law Indemnification Provision. (a) Parent shall cause the
Surviving Corporation to keep in effect in its By-Laws a provision for a period
of not less than six years from the Effective Time (or, in the case of matters
occurring prior to the Effective Time which have not been resolved prior to the
sixth anniversary of the Effective Time, until such matters are finally
resolved) which provides for indemnification of the past and present officers
and directors of the Company to the fullest extent permitted by the GCL.
(b) Parent shall cause to be maintained in effect for a period ending not
sooner than the sixth anniversary of the Effective Time directors' and
officers' liability insurance providing at least the same coverage with respect
to the Company's officers and directors as the policies maintained on behalf of
directors and officers of the Company as of the date hereof, and containing
terms and conditions which are no less advantageous, with respect to matters
occurring on or prior to the Effective Time (to the extent such insurance is
available with respect to such matters). Notwithstanding the foregoing, from
and after the third anniversary of the Effective Time, Parent shall not be
obligated to provide any greater officers' and directors' liability insurance
than that generally afforded to officers and directors of Parent under policies
maintained by Parent with respect to its directors and officers.
Section 7.11 Expenses. (a) Except as set forth in this Section 7.11, 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 Registration Statement and the related
Proxy Statement, as well as the filing fee relating to the Registration
Statement will be shared equally by Parent, the Company and AHM.
Section 7.12 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, 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
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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.
Section 7.13 Directors of Parent. Parent agrees that promptly after the
Effective Time, Parent shall take such action as may be necessary to enable (i)
Donald J. Amaral and (ii) one designee of Don Freeberg to be appointed to the
Board of Directors of Parent (the "Freeberg Designee"). For so long as John E.
Anderson and Don Freeberg and their respective affiliates (the "Anderson-
Freeberg Group") shall be the Beneficial Owner (as defined in Rule 13d-3(a)
under the Exchange Act) of not less than 5% of the issued and outstanding
Parent Shares, Parent shall nominate such Freeberg Designee for election to the
Board of Directors of Parent and shall use its best efforts to cause such
Freeberg Designee to be elected; provided, however, that prior to his election,
such Freeberg Designee shall agree to resign as a director in the event the
Anderson-Freeberg Group shall be the Beneficial Owner of less than 5% of the
issued and outstanding Parent Shares.
Section 7.14 Registration Rights. Prior to the Effective Time, Parent will
enter into an agreement with each of Don Freeberg, John E. Anderson and Don
Amaral covering the Shares, the Substituted Options and the Parent Shares
subject to the Substituted Options owned at the Effective Time by Messrs.
Freeberg, Anderson and Amaral and their affiliates pursuant to which Messrs.
Freeberg and Anderson shall be granted the right to three "demand" registration
requests and shall contain such other customary terms and conditions as Parent
and Messrs. Freeberg, Anderson and Amaral shall negotiate in good faith, taking
into account Parent's obligations under the AHM Merger Agreement to negotiate a
mutually acceptable registration rights agreement with John Nickoll and John
Gildea. Such registration rights agreement shall provide that one of such
demand registrations shall require as a condition to the effectiveness thereof
the concurrence of Mr. Amaral.
Section 7.15 Real Estate Purchase. Parent agrees that it shall negotiate in
good faith with Sierra Land Group, Inc. and Summit Properties (collectively,
the "Sellers") concerning the purchase by either Parent or a third party of the
real property and improvements thereon set forth on Schedule 7.15 hereof (the
"Real Estate") for an aggregate purchase price of $85.4 million. Such purchase
shall be pursuant to the terms and conditions of a Real Estate Purchase
Agreement reasonably satisfactory to Parent and the Sellers. If Parent
purchases the Real Estate, Parent's obligation shall be subject to (i) the
receipt by Parent of financing, the terms and conditions of which are
satisfactory to Parent, in an amount sufficient to purchase the Real Estate and
(ii) the Closing of the transactions contemplated by this Agreement. The
Company currently has a valid leasehold interest in each of the properties
disclosed in Schedule 7.15 hereof and Schedule 7.15 sets forth the current
monthly rent and the annualized rent for each such property. None of such
properties are subject to any liability, obligation, claim, lien, mortgage,
pledge, security interest, conditional sale agreement, charge or encumbrance of
any kind (whether absolute, accrued, contingent or otherwise), except as set
forth in Schedule 7.15 hereto or Schedule 5.13 hereto.
Section 7.16 Severance. Parent and the Company in consultation with AHM shall
develop and implement a mutually acceptable consulting and severance plan
covering their respective employees. Such plan shall be applied consistently to
the employees of all three companies.
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.
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(b) The Registration Statement shall have become effective in accordance
with the provisions of the Securities Act.
(c) This Agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite vote of the stockholders of each
of the Company and Parent in accordance with applicable law.
(d) No preliminary or permanent injunction or other order by any federal
or state court in the United States which prohibits the consummation of the
Merger shall have been issued and remain in effect.
(e) Parent and the Company shall have obtained financing, the terms and
conditions of which are reasonably satisfactory to Parent and the Company,
in an amount sufficient to finance the transactions contemplated by this
Agreement, finance the purchase of the Real Estate, refinance the
outstanding senior bank and institutional indebtedness of Parent and the
Company and the Company's 7 1/2% Exchangeable Subordinated Notes and
provide adequate working capital.
(f) Each of the Company and Parent shall have obtained such consents from
third parties and government instrumentalities in addition to pursuant to
the HSR Act as shall be required and which are material to Parent and the
Company and to consummation of the transactions contemplated hereby.
(g) The transactions contemplated by the Real Estate Purchase Agreement
shall have been consummated or all conditions to the obligations of the
parties to the Real Estate Purchase Agreement (other than the consummation
of the transactions contemplated by this Agreement) shall have been
satisfied or waived.
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 shall be true and correct in all
material respects at and as of the Effective Time as if made at and as of
such time, except as contemplated by this Agreement, and the Company shall
have received a certificate of the Chairman of the Board, the President or
an Executive Vice President of Parent as to the satisfaction of this
condition.
(b) The Company shall have received a letter from Ernst & Young, Parent's
independent accountants, dated the Effective Time and addressed to the
Company, as to such matters reasonably requested by them.
(c) The Company shall have received an opinion from James H. Johnson,
Esq., Vice President and General Counsel of Parent, or from Skadden, Arps,
Slate, Meagher & Flom special counsel to Parent, dated the Effective Time,
to the effect that:
(i) Parent is a corporation duly organized and validly existing under
the laws of the State of Delaware; Sub is a corporation duly organized
and validly existing under the laws of the State of Delaware.
(ii) Each of Parent and Sub has the corporate power to enter into
this Agreement and to consummate the transactions contemplated hereby;
and the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by
requisite corporate action taken on the part of Parent and Sub,
respectively.
(iii) This Agreement has been executed and delivered by each of
Parent and Sub and is a valid and binding obligation of Parent and Sub,
enforceable against Parent and Sub in accordance with its terms, except
(A) as may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights, and (B) that the remedies of
specific performance, injunction and other forms of equitable relief
are subject
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to certain tests of equity jurisdiction, equitable defenses and the
discretion of the court before which any proceeding therefor may be
brought.
(iv) Neither the execution and delivery of this Agreement by Parent
or Sub, nor the consummation by Parent or Sub of the transactions
contemplated hereby, will violate the Certificate of Incorporation or
By-Laws of Parent or Sub or, to the best knowledge of such counsel,
without having made any independent investigation, will constitute a
violation of or a default under (except for any such violation or
default as to which requisite waivers or consents either shall have
been obtained by Parent and Sub prior to the Effective Time or shall
have been waived by the Company in writing) any material contract,
agreement or instrument to which Parent or Sub is subject and which has
been specif ically identified to such counsel by Parent or Sub in
connection with rendering such opinion.
(v) The Parent Shares to be issued in connection with the
transactions contemplated by this Agreement are duly authorized and
reserved for issuance and, when issued as contemplated by this
Agreement will be validly issued, fully paid and nonassessable.
(vi) To the best knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act.
(vii) While such counsel assumes no responsibility for any event,
occurrence or statement of fact relating to Parent or Sub, or for the
accuracy completeness or fairness of any statements contained in or
omitted from the Registration Statement or the Proxy Statement and
while such counsel expresses no opinion as to the financial statements
or other financial or statistical data contained therein with respect
to information in the Registration Statement or the Proxy Statement
relating to Parent and Sub:
(A) The Registration Statement complies as to form in all material
respects with the requirements of the Securities Act, and the
applicable rules and regulations promulgated thereunder; and
(B) Such counsel has no reason to believe that the Registration
Statement or the Proxy Statement, as amended or supplemented to the
date of such opinion, contains any untrue statement of a material
fact or omits to state any material fact relating to Parent or Sub
required to be stated therein or necessary to make the statements
therein (in the case of the Proxy Statement, in the light of the
circumstances in which they were made) not misleading.
(viii) The Merger has become effective under the applicable state
corporate law.
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 Parent and
Sub and of public officials and opinions of local counsel, reasonably
acceptable to the Company.
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 shall be true and correct in all material
respects at and as of the Effective Time as if made at and as of such time
except as contemplated by this Agreement, and Parent and Sub shall have
received a Certificate of the Chairman of the Board, the President or an
Executive Vice President of the Company as to the satisfaction of this
condition.
(b) Parent and Sub shall have received an opinion from Frank S. Osen,
General Counsel of the Company or Stroock & Stroock & Lavan, counsel for
the Company, dated the Effective Time, to the effect that:
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(i) The Company is a corporation duly organized and validly existing
under the laws of the State of California.
(ii) The Company has the corporate power to enter into this Agreement
and to consummate the transactions contemplated hereby; and the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by requisite
corporate action taken on the part of the Company.
(iii) This Agreement has been executed and delivered by the Company
and is a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except (A) as may be
limited by or subject to any bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights, and (B) that the remedies of specific performance,
injunction and other forms of equitable relief are subject to certain
tests of equity jurisdiction, equitable defenses and the discretion of
the court before which any proceeding therefor may be brought.
(iv) Neither the execution and delivery of this Agreement by the
Company, nor the consummation by the Company of the transactions
contemplated hereby, will violate the Articles of Incorporation or By-
Laws of the Company or, to the best knowledge of such counsel, without
having made any independent investigation, will constitute a violation
of or a default under (except for any such violation or default as to
which requisite waivers or consents either shall have been obtained by
the Company prior to the Effective Time or shall have been waived by
the Parent and Sub in writing) any material contract, agreement or
instrument to which the Company or any of the Subsidiaries is subject
and which has been specifically identified to such counsel by the
Company in connection with rendering such opinion.
(v) While such counsel assumes no responsibility for any event,
occurrence or statement of fact relating to the Company, or for the
accuracy, completeness or fairness of any statements contained in or
omitted from the Registration Statement or the Proxy Statement, and
while such counsel expresses no opinion as to the financial statements
or other financial or statistical data contained therein, with respect
to information in the Registration Statement or the Proxy Statement
relating to the Company and the Subsidiaries:
(A) The Proxy Statement as it relates to the Company complies as
to form in all material respects with the requirements of the
Exchange Act, and the applicable rules and regulations promulgated
thereunder; and
(B) Such counsel has no reason to believe that the Registration
Statement or the Proxy Statement as they relate to the Company, as
amended or supplemented to the date of such opinion, contains any
untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the
statements therein (in the case of the Proxy Statement in the light
of the circumstances in which they were made) not misleading.
(vii) The Merger has become effective under applicable state
corporate law.
As to any matter in such opinion which involves matters of fact or matters
relating to laws other than federal securities or California 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.
(c) Parent and Sub shall have received a letter from Ernst & Young, the
Company's independent accountants, dated the Effective Time and addressed
to Parent and Sub, as to such matters reasonably requested by them.
(d) Dissenting Shares. The aggregate number of Dissenting Shares held by
shareholders of the Company from whom demand has been received indicating
that they intend to seek dissenters' rights in accordance with the GCL, if
available, shall not exceed 4.99% of the number of Shares outstanding (i)
as of the date of the shareholders' meeting referred to in Section 7.4(a)
and (ii) immediately prior to the Closing.
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ARTICLE IX
Termination, Amendment and Waiver
Section 9.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval by the stockholders of
the Company:
(a) by mutual consent of Parent, Sub and the Company;
(b) by either Parent and Sub, on the one hand, or the Company, on the
other hand, if the Merger shall not have been consummated on or before July
31, 1994;
(c) by the Company if any of the conditions specified in Sections 8.1 and
8.2 hereof has not been met or waived by the Company prior to or at such
time as such condition can no longer be satisfied;
(d) by Parent and Sub if any of the conditions specified in Sections 8.1
and 8.3 hereof has not been met or waived by Parent and Sub prior to or at
such time as such condition can no longer be satisfied; or
(e) by the Company, on or after March 31, 1994, if Parent has not
received commitments, which may be subject to customary terms and
conditions, for the financing referred to in Section 8.1(e) hereof, for any
reason other than a material violation or material breach by the Company of
any representation, warranty or covenant contained in this Agreement.
Section 9.2 Effect of Termination. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become void and,
except for a termination resulting from a breach by a party of this Agreement,
there shall be no liability on the part of either Parent, Sub or the Company or
their respective officers or directors (except as set forth in Section 7.1
hereof and except for Sections 7.11 and 10.2 hereof which shall survive the
termination) provided, however that, in the event that Parent does not effect
the transactions contemplated hereby due to the condition set forth in Section
8.1(e) not being satisfied for any reason other than a material violation or
material breach by the Company of any agreement, representation, or warranty
contained in this Agreement, or a material violation or breach by the Sellers
of any agreement, representation or warranty contained in the Real Estate
Purchase Agreement, the parties hereto agree that, it being impossible to
ascertain the damages sustained by the Company by reason of the failure of
Parent to effect this transaction, as liquidated damages, the Company shall be
entitled to receive $1,500,000 (the "Damages") and, provided Parent has
complied with its obligations under Section 7.12 of this Agreement, such
payment shall be the exclusive remedy hereunder for such failure of Parent to
perform under this Agreement, and that upon such payment and delivery of the
Damages to the Company, no person shall have any further claim or rights
against Parent under this Agreement.
Section 9.3 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 Exchange Ratio 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 9.4 Waiver. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties 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.
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ARTICLE X
General Provisions
Section 10.1 Survival of Representations, Warranties and Agreements. No
representations, warranties or agreements contained herein shall survive beyond
the Effective Time except that the agreements contained in Sections 3.1, 3.2,
3.3, 3.4, 3.5, 3.6, 7.9, 7.10, 7.11, 9.2 and 10.2 hereof shall survive beyond
the Effective Time.
Section 10.2 Brokers. The Company represents and warrants that, (i) except
for its financial advisors, Smith Barney Shearson, no broker, finder or
financial advisor is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company and
(ii) the Company's fee arrangements with Smith Barney Shearson have been
disclosed to Parent. Parent represents and warrants that, except for its
financial advisor, Kidder Peabody & Co. ("Kidder"), (i) no broker, finder or
financial advisor is entitled to any brokerage finder's or other fee or
commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent or Sub
and (ii) Parent's fee arrangements with Kidder have been disclosed to Parent.
Section 10.3 Notices. All notices, claims, demands and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or by telex or telegram or mailed by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to Parent or Sub, to:
OrNda HealthCorp
3401 West End Avenue, Suite 700
Nashville, TN 37203
Attention: Charles N. Martin, Jr.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10044
Attention: Mark C. Smith, Esq.
(b) if to the Company, to:
Summit Health Ltd.
2600 W. Magnolia Blvd.,
Burbank, CA 91507-2100
Attention: Donald J. Amaral
with a copy to:
Stroock & Stroock & Lavan
Suite 1800
2029 Century Park East
Los Angeles, CA 90067
Attention: David L. Gersh, Esq.
Section 10.4 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 10.5 Entire Agreement; Assignment. This Agreement (including the
Exhibits, Schedules and other documents and instruments referred to herein) (a)
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral among the parties or any of them, with
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respect to the subject matter hereof; (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 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 10.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without giving effect to
the provisions thereof relating to conflicts of law.
Section 10.7 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any of the provisions of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
Section 10.8 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.
In Witness Wherefore, each of Parent, Sub and the Company has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
ORNDA HEALTHCORP
/s/ Charles N. Martin, Jr.
By:__________________________________
Name: Charles N. Martin, Jr.
Title: Chairman, President & CEO
SHL ACQUISITION CO.
/s/ Charles N. Martin, Jr.
By:__________________________________
Name: Charles N. Martin, Jr.
Title: Chairman, President & CEO
SUMMIT HEALTH LTD.
/s/ Donald J. Amaral
By:__________________________________
Name: Donald J. Amaral
Title: Chief Executive Officer
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Schedule 4.17
Employee Benefit Plans; ERISA
(a) Schedule 4.17(a) hereto 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 (an "ERISA Affiliate"), that together with Parent would be deemed
a "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"), for the benefit of any employee
or former employee of Parent, any Parent Subsidiary or any ERISA Affiliate.
Schedule 4.17(a) hereto 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
or will deliver 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 each such Parent 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 such Parent 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 Plan intended to qualify under
section 401 of the Code.
(c) No liability under Title IV of ERISA has been incurred by Parent, any
Parent Subsidiary or any ERISA Affiliate since the effective date of ERISA that
has not been satisfied in full, and no condition exists that presents a
material risk to Parent, any Parent Subsidiary or any ERISA Affiliate of
incurring a liability under such Title. 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 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 an ERISA Affiliate made, or was required
to make, contributions during the five-year period ending on the Effective
Time.
(d) With respect to each Parent ERISA Plan which is subject to Title IV of
ERISA, the present value of accrued benefits under such plan, based upon the
actuarial assumptions used for funding 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 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 Effective Time;
and all contributions required to be made with respect thereto (whether
pursuant to the term of any Parent ERISA Plan or otherwise) on or prior to the
Effective Time have been timely made.
(f) No Parent ERISA Plan is a "multiemployer 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.
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<PAGE>
(g) 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 the Company, no event has occurred nor does any condition exist
which would adversely affect such qualification and exemption.
(h) Except as disclosed in Schedule 5.12, 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.
(i) Except as disclosed in Schedule 5.12, no amounts payable under the Parent
Plans will fail to be deductible for federal income tax purposes by virtue of
Section 280G of the Code.
(j) Except as disclosed in Schedule 5.12, 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 ERISA Affiliate beyond their 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
ERISA Affiliate or (iv) benefits the full cost of which is borne by the current
or former employee (or his beneficiary).
(k) 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 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
compensation due any such employee or officer, or
(iii) result in any prohibited transaction described in Section 406 of
ERISA or Section 4975 of the Code for which an exemption is not available.
(l) Except as disclosed in Schedule 5.12, 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 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) Neither Parent, any Parent Subsidiary or any ERISA Affiliate, nor any of
the Parent ERISA Plans, nor any trust created thereunder, nor any trustee or
administrator thereof has engaged in a transaction in connection with which
Parent, any Parent Subsidiary or any 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 or Section 502(i)
of ERISA, or a material tax imposed pursuant to Section 4975 or 4976 of the
Code.
Schedule 5.12
Employee Benefit Plans; ERISA
(a) Schedule 5.12 hereto 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
B-26
<PAGE>
plan, program, agreement or arrangement, and each other employee benefit plan,
program, agreement or arrangement, (the "Plans"), maintained or contributed to
or required to be contributed to by (i) the Company, (ii) any Subsidiary or
(iii) any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with the Company would be deemed a "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"), for the benefit of any employee or former employee of the Company,
any Subsidiary or any ERISA Affiliate. Schedule 5.12(a) hereto identifies each
of the 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 "ERISA Plans").
(b) With respect to each of the plans, the Company has heretofore delivered
or will deliver to Buyer true and complete copies of each of the following
documents:
(i) a copy of the Plan (including all amendments thereto);
(ii) a copy of the annual report and actuarial report, if required under
ERISA, with respect to each such 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 such Plan;
(iv) if the 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 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 Subsidiary or any ERISA Affiliate since the effective date of ERISA that
has not been satisfied in full, and no condition exists that presents a
material risk to the Company, any Subsidiary or any ERISA Affiliate of
incurring a liability under such Title. 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 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 Subsidiary or an ERISA Affiliate made, or was required to
make, contributions during the five-year period ending on the Effective Time.
(d) Except as disclosed in Schedule 5.12, with respect to each ERISA Plan
which is subject to Title IV of ERISA, the present value of accrued benefits
under such plan, based upon the actuarial assumptions used for funding 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) Except as disclosed in Schedule 5.12, no 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 ERISA Plan
ended prior to the Effective Time; and all contributions required to be made
with respect thereto (whether pursuant to the term of any ERISA Plan or
otherwise) on or prior to the Effective Time have been timely made.
(f) No ERISA Plan is a "multiemployer pension plan," as defined in section
3(37) of ERISA, nor is any ERISA Plan a plan described in Section 4063(a) of
ERISA.
(g) Each ERISA Plan intended to be "qualified" within the meaning of section
401(a) of the Code is so qualified and the trusts maintained thereunder are
exempt from taxation under section 501(a) of the Code.
(h) Each of the Plans has been operated and administered in all material
respects in accordance with applicable laws, including, but not limited to,
ERISA and the Code.
B-27
<PAGE>
(i) No amounts payable under the Plans will fail to be deductible for federal
income tax purposes by virtue of Section 280G of the Code.
(j) No 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 Subsidiary or any ERISA Affiliate beyond their 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
Subsidiary or any ERISA Affiliate or (iv) benefits the full cost of which is
borne by the current or former employee (or his beneficiary).
(k) Except as set forth on Schedule 5.12, the consummation of the
transactions contemplated by this Agreement will not
(i) entitle any current or former employee or officer of the Company, any
Subsidiary or any 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
compensation due any such employee or officer, or
(iii) result in any prohibited transaction described in Section 406 of
ERISA or Section 4975 of the Code for which an exemption is not available.
(l) With respect to each Plan that is funded wholly or partially through an
insurance policy, there will be no liability of the Company, any Subsidiary or
any 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 Plans, by any employee or beneficiary covered under any such Plan,
or otherwise involving any such Plan (other than routine claims for benefits).
(n) Neither the Company, any Subsidiary or any ERISA Affiliate, nor any of
the ERISA Plans, nor any trust created thereunder, nor any trustee or
administrator thereof has engaged in a transaction in connection with which the
Company, any Subsidiary or any ERISA Affiliate, any of the ERISA Plans, any
such trust, or any trustee or administrator thereof, or any party dealing with
the ERISA Plans or any such trust could be subject to either a material civil
liability under Section 409 of ERISA or Section 502(i) of ERISA, or a material
tax imposed pursuant to Section 4975 or 4976 of the Code.
B-28
<PAGE>
EXHIBIT A-1
VOTING AGREEMENT
Voting Agreement, dated as of December 2, 1993, by and between Summit Health
Ltd., a California corporation (the "Company"), and Joseph Littlejohn & Levy
Fund, L.P. (the "Stockholder").
Whereas, concurrently with the execution and delivery of this Agreement,
OrNda HealthCorp, a Delaware corporation (the "Buyer"), SHL Acquisition Co., a
Delaware corporation and a wholly-owned subsidiary of Buyer ("Sub"), and the
Company, are entering into an Agreement and Plan of Merger (the "Merger
Agreement"), providing, among other things, for the merger (the "Merger") of
Sub with and into the Company, as a result of which the outstanding shares of
Common Stock, no par value, of the Company will be converted into the right to
receive cash and shares of the Common Stock, par value $.01 per share, of Buyer
(the "Buyer Common Stock"), and the Company will become a wholly-owned
subsidiary of Buyer; and
Whereas, the Stockholder is the owner beneficially and of record of an
aggregate of 7,096,744 shares (the "Shares") of the Buyer Common Stock; and
Whereas, as a condition to its willingness to enter into the Merger
Agreement, the Company has requested that the Stockholder agree, and the
Stockholder has agreed, to vote the Shares beneficially owned by it in favor of
the Merger, upon the terms and subject to the conditions hereof;
Now, Therefore, to induce the Company to enter into the Merger Agreement and
in consideration of the aforesaid and the mutual representations, warranties,
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. The Stockholder hereby agrees to vote all of the Shares (and any and all
securities issued or issuable in respect thereof) which the Stockholder is
entitled to vote (or to provide his or its written consent thereto), at any
annual, special or other meeting of the stockholders of the Buyer, and at any
adjournment or adjournments thereof, or pursuant to any consent in lieu of a
meeting or otherwise, in favor of any proposal to approve and adopt the Merger
Agreement and any transactions contemplated thereby and, in addition, to vote
against (but not in favor of) any proposals for any merger agreement or merger
(other than the Merger Agreement and the Merger), consolidation, sale or
purchase of any assets, reorganization, recapitalization, liquidation or
winding up of or by the Buyer, other than the transactions contemplated by the
Agreement and Plan of Merger dated as of November 18, 1993, by and among Buyer,
or wholly owned subsidiary of Buyer and American Healthcare Management, Inc.
2. The Stockholder hereby covenants and agrees that such Stockholder will
not, and will not agree to, directly or indirectly, sell, transfer, assign,
pledge, hypothecate, cause to be redeemed or otherwise dispose of any of the
Shares beneficially owned by it or grant any proxy or interest in or with
respect to such Shares or deposit such Shares into a voting trust or enter into
a voting agreement or arrangement with respect to such Shares. The Stockholder
further covenants and agrees that, the Stockholder will not initiate or
solicit, directly or indirectly, any inquiries or the making of any proposal
with respect to or, except through certain of its affiliates and then to the
extent required in such affiliates' capacity as a director of Buyer by
fiduciary obligations under applicable law as advised by counsel, engage in
negotiations concerning, provide any confidential information or data to, or
have any discussions with, any person relating to, any acquisition, business
combination or purchase of all or any significant portion of the assets of, or
any equity interest in (other than the Shares), the Buyer or any subsidiary
thereof.
3. The Stockholder represents and warrants to the Company, in reliance upon
the advice of counsel, that the Shares consist of 7,096,744 shares of Buyer
Common Stock owned beneficially and of record by the Stockholder on the date
hereof; the Stockholder owns such Shares free and clear of all liens, charges,
claims, encumbrances and security interests of any nature whatsoever; and
except as may be agreed to by the Company, the Stockholder has not granted any
proxy with respect to Shares or deposited such Shares into a voting trust.
B-29
<PAGE>
4. Any shares of Buyer Common Stock issued to the Stockholder upon the
exercise of any stock options or warrants that are currently exercisable or
become exercisable during the term of this Agreement shall be deemed Shares for
purposes of this Agreement.
5. 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.
6. This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by the successors and permitted assigns of the parties hereto. This
Agreement and the rights hereunder may not be assigned or transferred by the
Company, except that the Company may assign its rights hereunder to any direct
or indirect subsidiary.
7. This Agreement shall terminate at the earlier of (i) the effectiveness of
the Merger, or (ii) the termination of the Merger Agreement in accordance with
its terms, or (iii) upon notice of termination given by the Company to the
Stockholder.
8. This Agreement is granted in consideration of the execution and delivery
of the Merger Agreement by the Company.
9. The parties acknowledge and agree that performance of their respective
obligations hereunder will confer a unique benefit on the other and that a
failure of performance will not be compensable by money damages. The parties
therefore agree that this Agreement shall be specifically enforceable and that
specific enforcement and injunctive relief shall be available to the Company
and the Stockholder for any breach of any agreement, covenant or representation
hereunder. This Agreement shall revoke all prior proxies given by the
Stockholder at any time with respect to the Shares.
10. The Stockholder will, upon request, execute and deliver any additional
documents and take such actions as may reasonably be deemed by the Company to
be necessary or desirable to complete the Agreement granted herein or to carry
out the provisions hereof.
11. If any term, provision, covenant, or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall not in any way be
affected, impaired or invalidated.
12. This Agreement may be executed in two counterparts, each of which shall
be deemed to be an original but both of which together shall constitute one and
the same document.
B-30
<PAGE>
In Witness Whereof, the Company and the Stockholder have caused this
Agreement to be duly executed on the date first above written.
Summit Health Ltd.
/s/ Donald J. Amaral
By: _________________________________
Name: Donald J. Amaral
Title:Chief Executive Officer
THE STOCKHOLDER:
Joseph Littlejohn & Levy Fund, L.P.
JLL Associates, L.P.
By: _________________________________
General Partner
/s/ Peter A. Joseph
By: _________________________________
Name: Peter A. Joseph
Title:General Partner
B-31
<PAGE>
EXHIBIT A-2
VOTING AGREEMENT
Voting Agreement, dated as of December 2, 1993, by and between Summit Health
Ltd., a California corporation (the "Company"), and Charles N. Martin, Jr. (the
"Stockholder").
Whereas, concurrently with the execution and delivery of this Agreement,
OrNda HealthCorp, a Delaware corporation (the "Buyer"), SHL Acquisition Co., a
Delaware corporation and a wholly-owned subsidiary of the Buyer ("Sub"), and
the Company, are entering into an Agreement and Plan of Merger (the "Merger
Agreement"), providing, among other things, for the merger (the "Merger") of
Sub with and into the Company, as a result of which the outstanding shares of
Common Stock, no par value, of the Company will be converted into the right to
receive cash and shares of the Common Stock, par value $.01 per share, of Buyer
(the "Buyer Common Stock"), and the Company will become a wholly-owned
subsidiary of Buyer; and
Whereas, the Stockholder is the owner beneficially and of record of an
aggregate of 1,000,000 shares (the "Shares") of Buyer Common Stock; and
Whereas, as a condition to its willingness to enter into the Merger
Agreement, the Company has requested that the Stockholder agree, and the
Stockholder has agreed, to vote the Shares beneficially owned by him in favor
of the Merger, upon the terms and subject to the conditions hereof;
Now, Therefore, to induce the Company to enter into the Merger Agreement and
in consideration of the aforesaid and the mutual representations, warranties,
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. The Stockholder hereby agrees to vote all of the Shares (and any and all
securities issued or issuable in respect thereof) which the Stockholder is
entitled to vote (or to provide his written consent thereto), at any annual,
special or other meeting of the stockholders of the Buyer, and at any
adjournment or adjournments thereof, or pursuant to any consent in lieu of a
meeting or otherwise, in favor of any proposal to approve and adopt the Merger
Agreement and any transactions contemplated thereby and, in addition, to vote
against (but not in favor of) any proposals for any merger agreement or merger
(other than the Merger Agreement and the Merger), consolidation, sale or
purchase of any assets, reorganization, recapitalization, liquidation or
winding up of or by the Buyer, other than the transactions contemplated by the
Agreement and Plan of Merger dated as of November 18, 1993, by and among Buyer,
or wholly owned subsidiary of Buyer and American Healthcare Management, Inc.
2. The Stockholder hereby covenants and agrees that such Stockholder will
not, and will not agree to, directly or indirectly, sell, transfer, assign, or
otherwise dispose of any of the Shares or grant any proxy or interest in or
with respect to such Shares that would be inconsistent with this Agreement or
deposit such Shares into a voting trust or enter into a voting agreement or
arrangement with respect to such Shares. The Stockholder further covenants and
agrees that, except with respect to transactions previously discussed by Buyer
and the Company and which would be pursued jointly by Buyer and the Company,
the Stockholder will not initiate or solicit, directly or indirectly, any
inquiries or the making of any proposal with respect to or, except to the
extent required in his capacity as an officer and director of the Buyer by
fiduciary obligations under applicable law as advised by counsel, engage in
negotiations concerning, provide any confidential information or data to, or
have any discussions with, any person relating to, any acquisition, business
combination or purchase of all or any significant portion of the assets of, or
any equity interest in (other than the Shares), Buyer or any subsidiary
thereof.
3. The Stockholder represents and warrants to the Company in reliance upon
the advice of counsel, that the Shares consist of 1,000,000 shares of Buyer
Common Stock owned beneficially and of record by the
B-32
<PAGE>
Stockholder on the date hereof, except for shares of Buyer Common Stock as to
which the Stockholder holds stock options; and except as may be agreed to by
the Company, the Stockholder has not granted any proxy with respect to Shares
or deposited such Shares into a voting trust.
4. Any shares of Buyer Common Stock issued to the Stockholder upon the
exercise of any stock options or warrants that are currently exercisable or
become exercisable during the term of this Agreement shall be deemed Shares for
purposes of this Agreement.
5. 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.
6. This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by the successors and permitted assigns of the parties hereto. This
Agreement and the rights hereunder may not be assigned or transferred by the
Company, except that the Company may assign its rights hereunder to any direct
or indirect subsidiary.
7. This Agreement shall terminate at the earlier of (i) the effectiveness of
the Merger, or (ii) the termination of the Merger Agreement in accordance with
its terms, or (iii) upon notice of termination given by the Company to the
Stockholders.
8. This Agreement is granted in consideration of the execution and delivery
of the Merger Agreement by the Company.
9. The parties acknowledge and agree that performance of their respective
obligations hereunder will confer a unique benefit on the other and that a
failure of performance will not be compensable by money damages. The parties
therefore agree that this Agreement shall be specifically enforceable and that
specific enforcement and injunctive relief shall be available to the Company
and the Stockholder for any breach of any agreement, covenant or representation
hereunder. This Agreement shall revoke all prior proxies given by each
Stockholder at any time with respect to the Shares.
10. The Stockholder will, upon request, execute and deliver any additional
documents and take such actions as may reasonably be deemed by the Company to
be necessary or desirable to complete the Agreement granted herein or to carry
out the provisions hereof.
11. If any term, provision, covenant, or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall not in any way be
affected, impaired or invalidated.
12. This Agreement may be executed in two counterparts, each of which shall
be deemed to be an original but both of which together shall constitute one and
the same document.
B-33
<PAGE>
In Witness Whereof, the Company and the Stockholder have caused this
Agreement to be duly executed on the date first above written.
Summit Health Ltd.
/s/ Donald J. Amaral
By: _________________________________
Name: Donald J. Amaral
Title: Chief Executive Officer
/s/ Charles N. Martin, Jr.
- -------------------------------------
Charles N. Martin, Jr.
B-34
<PAGE>
EXHIBIT B-1
VOTING AGREEMENT
Voting Agreement, dated as of December 2, 1993, by and between OrNda
HealthCorp, a Delaware corporation ("Buyer"), and Don Freeberg, Don Freeberg,
as trustee under a Voting Trust Agreement dated July 1983 (the "Trust"),
Meridian Life Insurance Co., Sierra Land Development, L.P., and Sierra Land
Group, Inc. (the "Stockholders").
Whereas, concurrently with the execution and delivery of this Agreement,
Buyer, SHL Acquisition Co., a Delaware corporation and a wholly-owned
subsidiary of Buyer ("Sub"), and Summit Health Ltd., a California corporation
(the "Company"), are entering into an Agreement and Plan of Merger (the "Merger
Agreement"), providing, among other things, for the merger (the "Merger") of
Sub with and into the Company, as a result of which the outstanding shares of
Common Stock, no par value, of the Company (the "Common Stock") will be
converted into the right to receive cash and shares of the Common Stock, par
value $.01 per share, of Buyer, and the Company will become a wholly owned
subsidiary of Buyer; and
Whereas, the Stockholders are the owners beneficially and of record of an
aggregate of 17,677,600 shares (the "Shares") of the Common Stock; and
Whereas, as a condition to its willingness to enter into the Merger
Agreement, Buyer has requested that the Stockholders agree, and the
Stockholders have agreed, to vote the Shares beneficially owned by them in
favor of the Merger, upon the terms and subject to the conditions hereof;
Now, Therefore, to induce Buyer to enter into the Merger Agreement and in
consideration of the aforesaid and the mutual representations, warranties,
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. Each Stockholder hereby agrees to vote all of the Shares (and any and all
securities issued or issuable in respect thereof) which such Stockholder is
entitled to vote (or to provide his or its written consent thereto), at any
annual, special or other meeting of the stockholders of the Company, and at any
adjournment or adjournments thereof, or pursuant to any consent in lieu of a
meeting or otherwise, in favor of any proposal to approve and adopt the Merger
Agreement and any transactions contemplated thereby and, in addition, to vote
against (but not in favor of) any proposals for any merger agreement or merger
(other than the Merger Agreement and the Merger), consolidation, sale or
purchase of any assets, reorganization, recapitalization, liquidation or
winding up of or by the Company.
2. Each Stockholder hereby covenants and agrees that such Stockholder will
not, and will not agree to, directly or indirectly, sell, transfer, assign,
pledge, hypothecate, cause to be redeemed or otherwise dispose of any of the
Shares beneficially owned by it or him or grant any proxy or interest in or
with respect to such Shares or deposit such Shares into a voting trust or enter
into a voting agreement or arrangement with respect to such Shares. Each
Stockholder further covenants and agrees that, except with respect to
transactions previously discussed by Buyer and the Company and which would be
pursued jointly by Buyer and the Company, such Stockholder will not initiate or
solicit, directly or indirectly, any inquiries or the making of any proposal
with respect to or, except to the extent required of Don Freeberg in his
capacity as a director of the Company by fiduciary obligations under applicable
law as advised by counsel, engage in negotiations concerning, provide any
confidential information or data to, or have any discussions with, any person
relating to, any acquisition, business combination or purchase of all or any
significant portion of the assets of, or any equity interest in (other than the
Shares), the Company or any subsidiary thereof.
3. Each Stockholder represents and warrants to Buyer that on the date hereof
it is the beneficial and record owner of the number of shares of Common Stock
set forth opposite its or his name on Schedule A hereto; such Shares are all of
the securities of the Company owned of record or beneficially by such
Stockholder on the date hereof; each Stockholder owns such Shares free and
clear of all liens, charges, claims, encumbrances and security interests of any
nature whatsoever; and except as provided herein, each
B-35
<PAGE>
Stockholder has not granted any proxy with respect to Shares or deposited such
Shares into a voting trust (other than shares owned by the Trust).
4. Any shares of Common Stock issued to a Stockholder upon the exercise of
any stock options or warrants that are currently exercisable or become
exercisable during the term of this Agreement shall be deemed Shares for
purposes of this Agreement.
5. This Agreement shall be governed by and construed in accordance with the
laws of the State of California without giving effect to the provisions thereof
relating to conflicts of law.
6. This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by the successors and permitted assigns of the parties hereto. This
Agreement and the rights hereunder may not be assigned or transferred by Buyer,
except that Buyer may assign its rights hereunder to any direct or indirect
subsidiary.
7. This Agreement shall terminate at the earlier of (i) the effectiveness of
the Merger, or (ii) the termination of the Merger Agreement in accordance with
its terms, or (iii) upon notice of termination given by Buyer to the
Stockholders.
8. Notwithstanding any other provision to the contrary contained in this
Agreement, this Agreement shall not be effective and shall not be deemed to
require Stockholders to vote the Shares in favor of the Merger unless the
Parent or a third party shall have entered into a binding agreement to purchase
the Real Estate (as that term is defined in Section 7.15 of the Merger
Agreement), which may contain the conditions referred to in Section 7.15 of the
Merger Agreement, as well as other commercially reasonable terms and
conditions, reasonably satisfactory to the parties thereto for an aggregate
purchase price not less than $85.4 million and such agreement is in full force
and effect at the time of any stockholder vote subject to this Agreement.
9. This Agreement is granted in consideration of the execution and delivery
of the Merger Agreement by Buyer.
10. The parties acknowledge and agree that performance of their respective
obligations hereunder will confer a unique benefit on the other and that a
failure of performance will not be compensable by money damages. The parties
therefore agree that this Agreement shall be specifically enforceable and that
specific enforcement and injunctive relief shall be available to Buyer and the
Stockholders for any breach of any agreement, covenant or representation
hereunder. This Agreement shall revoke all prior proxies given by each
Stockholder at any time with respect to the Shares.
11. Each Stockholder will, upon request, execute and deliver any additional
documents and take such actions as may reasonably be deemed by Buyer to be
necessary or desirable to complete the Agreement granted herein or to carry out
the provisions hereof.
12. If any term, provision, covenant, or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall not in any way be
affected, impaired or invalidated.
13. This Agreement may be executed in two counterparts, each of which shall
be deemed to be an original but both of which together shall constitute one and
the same document.
B-36
<PAGE>
In Witness Whereof, Buyer and the Stockholder have caused this Agreement to
be duly executed on the date first above written.
ORNDA HEALTHCORP
/s/ Charles N. Martin, Jr.
By: _________________________________
Name: Charles N. Martin, Jr.
Title:Chairman, President & CEO
THE STOCKHOLDERS:
/s/ Don Freeberg
- -------------------------------------
Don Freeberg
/s/ Don Freeberg
- -------------------------------------
Don Freeberg, as trustee under a Voting Trust
Agreement dated July 1983
Meridian Life Insurance Co.
/s/ Don Freeberg
By: _________________________________
Name:
Title:
Sierra Land Development, L.P.
By: SIERRA LAND GROUP, INC.,
General Partner
/s/ Don Freeberg
By: _________________________________
Name: Don Freeberg
Title:
Sierra Land Group, Inc.
/s/ Don Freeberg
By: _________________________________
Name: Don Freeberg
Title:President
B-37
<PAGE>
EXHIBIT B-2
VOTING AGREEMENT
Voting Agreement, dated as of December 2, 1993, by and between OrNda
HealthCorp, a Delaware corporation ("Buyer"), and John E. Anderson and Topa
Equities, Ltd. (the "Stockholders").
Whereas, concurrently with the execution and delivery of this Agreement,
Buyer, SHL Acquisition Co., a Delaware corporation and a wholly-owned
subsidiary of Buyer ("Sub"), and Summit Health Ltd., a California corporation
(the "Company"), are entering into an Agreement and Plan of Merger (the "Merger
Agreement"), providing, among other things, for the merger (the "Merger") of
Sub with and into the Company, as a result of which the outstanding shares of
Common Stock, no par value, of the Company (the "Common Stock") will be
converted into the right to receive cash and shares of the Common Stock, par
value $.01 per share, of Buyer, and the Company will become a wholly owned
subsidiary of Buyer; and
Whereas, the Stockholders are the owners beneficially and of record of an
aggregate of 2,636,803 shares (the "Shares") of the Common Stock; and
Whereas, as a condition to its willingness to enter into the Merger
Agreement, Buyer has requested that the Stockholders agree, and the
Stockholders have agreed, to vote the Shares beneficially owned by them in
favor of the Merger, upon the terms and subject to the conditions hereof;
Now, Therefore, to induce Buyer to enter into the Merger Agreement and in
consideration of the aforesaid and the mutual representations, warranties,
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. Each Stockholder hereby agrees to vote all of the Shares (and any and all
securities issued or issuable in respect thereof) which such Stockholder is
entitled to vote (or to provide his or its written consent thereto), at any
annual, special or other meeting of the stockholders of the Company, and at any
adjournment or adjournments thereof, or pursuant to any consent in lieu of a
meeting or otherwise, in favor of any proposal to approve and adopt the Merger
Agreement and any transactions contemplated thereby and, in addition, to vote
against (but not in favor of) any proposals for any merger agreement or merger
(other than the Merger Agreement and the Merger), consolidation, sale or
purchase of any assets, reorganization, recapitalization, liquidation or
winding up of or by the Company.
2. Each Stockholder hereby covenants and agrees that such Stockholder will
not, and will not agree to, directly or indirectly, sell, transfer, assign,
pledge, hypothecate, cause to be redeemed or otherwise dispose of any of the
Shares beneficially owned by it or him or grant any proxy or interest in or
with respect to such Shares or deposit such Shares into a voting trust or enter
into a voting agreement or arrangement with respect to such Shares. Each
Stockholder further covenants and agrees that, except with respect to
transactions previously discussed by Buyer and the Company and which would be
pursued jointly by Buyer and the Company, such Stockholder will not initiate or
solicit, directly or indirectly, any inquiries or the making of any proposal
with respect to or, except to the extent required of John E. Anderson in his
capacity as a director of the Company by fiduciary obligations under applicable
law as advised by counsel, engage in negotiations concerning, provide any
confidential information or data to, or have any discussions with, any person
relating to, any acquisition, business combination or purchase of all or any
significant portion of the assets of, or any equity interest in (other than the
Shares), the Company or any subsidiary thereof.
3. Each Stockholder represents and warrants to Buyer that on the date hereof
it is the beneficial and record owner of the number of shares of Common Stock
set forth opposite its or his name on Schedule A hereto; such Shares are all of
the securities of the Company owned of record or beneficially by such
Stockholder on the date hereof; each Stockholder owns such Shares free and
clear of all liens, charges, claims, encumbrances and security interests of any
nature whatsoever; and except as provided herein, each Stockholder has not
granted any proxy with respect to Shares or deposited such Shares into a voting
trust.
B-38
<PAGE>
4. Any shares of Common Stock issued to a Stockholder upon the exercise of
any stock options or warrants that are currently exercisable or become
exercisable during the term of this Agreement shall be deemed Shares for
purposes of this Agreement.
5. This Agreement shall be governed by and construed in accordance with the
laws of the State of California without giving effect to the provisions thereof
relating to conflicts of law.
6. This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by the successors and permitted assigns of the parties hereto. This
Agreement and the rights hereunder may not be assigned or transferred by Buyer,
except that Buyer may assign its rights hereunder to any direct or indirect
subsidiary.
7. This Agreement shall terminate at the earlier of (i) the effectiveness of
the Merger, or (ii) the termination of the Merger Agreement in accordance with
its terms, or (iii) upon notice of termination given by Buyer to the
Stockholders.
8. Notwithstanding any other provision to the contrary contained in this
Agreement, this Agreement shall not be effective and shall not be deemed to
require Stockholders to vote the Shares in favor of the Merger unless the
Parent or a third party shall have entered into a binding agreement to purchase
the Real Estate (as that term is defined in Section 7.15 of the Merger
Agreement), which may contain the conditions referred to in Section 7.15 of the
Merger Agreement, as well as other commercially reasonable terms and
conditions, reasonably satisfactory to the parties thereto for an aggregate
purchase price not less than $85.4 million and such agreement is in full force
and effect at the time of any stockholder vote subject to this Agreement.
9. This Agreement is granted in consideration of the execution and delivery
of the Merger Agreement by Buyer.
10. The parties acknowledge and agree that performance of their respective
obligations hereunder will confer a unique benefit on the other and that a
failure of performance will not be compensable by money damages. The parties
therefore agree that this Agreement shall be specifically enforceable and that
specific enforcement and injunctive relief shall be available to Buyer and the
Stockholders for any breach of any agreement, covenant or representation
hereunder. This Agreement shall revoke all prior proxies given by each
Stockholder at any time with respect to the Shares.
11. Each Stockholder will, upon request, execute and deliver any additional
documents and take such actions as may reasonably be deemed by Buyer to be
necessary or desirable to complete the Agreement granted herein or to carry out
the provisions hereof.
12. If any term, provision, covenant, or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall not in any way be
affected, impaired or invalidated.
13. This Agreement may be executed in two counterparts, each of which shall
be deemed to be an original but both of which together shall constitute one and
the same document.
B-39
<PAGE>
In Witness Whereof, Buyer and the Stockholders have caused this Agreement to
be duly executed on the date first above written.
OrNda Healthcorp
/s/ Charles N. Martin, Jr.
By: ____________________________
Name: Charles N. Martin, Jr.
Title:
Chairman, President & CEO
The Stockholders:
/s/ John E. Anderson
- -------------------------------------
John E. Anderson
Topa Equities, Ltd.
/s/ John E. Anderson
By: _________________________________
Name: John E. Anderson
Title:
President
B-40
<PAGE>
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
Amendment No. 1 ("Amendment No. 1") dated as of January 14, 1994, amending
the Agreement and Plan of Merger (the "Merger Agreement"), dated as of December
2, 1993, by and among OrNda HealthCorp, a Delaware corporation ("Parent"), SHL
Acquisition Co., a Delaware corporation and a wholly owned subsidiary of Parent
("Sub"), and Summit Health Ltd., a California corporation (the "Company").
WHEREAS, the parties hereto desire to amend the Merger Agreement in certain
respects;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used herein and not otherwise defined
herein shall have the meanings provided therefor in the Merger Agreement.
2. Amendments to Merger Agreement. The Merger Agreement is hereby
amended as set forth in this Section 2.
(a) Section 2.1 of the Merger Agreement is hereby amended to read in
its entirety as follows:
"The Articles of Incorporation of the Surviving Corporation shall be
the Articles of Incorporation of the Company."
(b) Section 2.2 of the Merger Agreement is hereby amended to read as
follows:
"Subject to Section 7.10 hereof, the By-Laws of the Company as in
effect at the Effective Time shall be the By-Laws of the Surviving
Corporation."
(c) Paragraph (a) of Section 2.3 of the Merger Agreement is hereby
amended to read in its entirety as follows:
"(a) The directors of Sub at the Effective Time shall be the initial
directors of the Surviving Corporation 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
Articles of Incorporation and By-Laws of the Surviving Corporation
or as otherwise provided by law, provided however, that Mr. Don
Freeberg and Mr. John Anderson shall remain directors of the
Surviving Corporation for a period of not less than six (6) months
commencing at the Effective Time."
(d) Paragraph (b) of Section 6.1 of the Merger Agreement is hereby
amended by deleting clause (iii) in its entirety and adding the
following in lieu thereof:
"(iii) split, combine or reclassify any shares of its outstanding
capital stock or declare, set aside or pay any dividend or other
distribution payable in cash, stock or property, except for the
dividend of $.04 per share declared on November 22, 1993 to holders
of record of Common Stock on December 16, 1993, or redeem or
otherwise acquire any shares of its capital stock of any of the
Subsidiaries".
(e) Paragraph (b) of Section 6.2 of the Merger Agreement is hereby
amended by deleting clauses (ii) and (iii) in their entirety and adding
the following in lieu thereof:
"(ii) amend its Certificate of Incorporation or By-Laws, except for
the proposed amendment to Parent's Restated Certificate of
Incorporation (the "Parent Charter Amendment"), providing for an
increase in the number of shares of Parent Common Stock authorized
to 200 million, to be submitted to Parent Stockholders for approval
at the stockholders meeting contemplated by Section 7.4; or (iii)
split, combine or reclassify any shares of its outstanding capital
stock or declare, set aside or pay any dividend or other
distribution payable in cash, stock or property (other than
dividends on the Parent Preferred Stock payable in additional shares
of the Parent Preferred Stock), or redeem or otherwise acquire any
shares of its capital stock or shares of the capital stock of any of
the Parent Subsidiaries, except for the repurchase of limited
partnership interests in Brotman Partners, L.P. a California limited
partnership, pursuant to the provisions of the Brotman Partners,
L.P. amended and restated limited partnership agreement dated as of
February 28, 1989".
B-41
<PAGE>
(f) Paragraph (c) of Section 6.2 of the Merger Agreement is hereby
amended by deleting clause (i) thereof in its entirety and adding the
following in lieu thereof:
"(i) authorize for issuance, issue or sell any additional shares of,
or rights of any kind to acquire any shares of, its capital stock of
any class (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or
otherwise), except for (A) unissued shares of Parent Common Stock
reserved for issuance upon the exercise of Parent Employee Stock
Options, Parent Warrants or the Parent Preferred Stock, (B)
dividends on the Parent Preferred Stock payable in additional shares
of Parent Preferred Stock, (C) the authorization of an additional
100 million shares of Parent Common Stock pursuant to the Parent
Charter Amendment and (D) the authorization for issuance and the
issuance of shares of Parent Common Stock and certain options and
rights to acquire Parent Common Stock pursuant to the employee
benefit plans of Parent described in Parent's Proxy Statement and to
be submitted to the Parent Stockholders for approval at the
stockholders meeting contemplated by Section 7.4".
(g) Paragraph (b) of Section 7.8 is hereby amended to read in its
entirety as follows:
"(b) Each holder (other than a Section 16 Insider (as such term is
defined below)) of a Company Option that is outstanding within 10
days prior to the Effective Time, shall elect, within 10 days prior
to the Effective Time, to receive, in lieu of each such Company
Option, either (1) a payment equal to the per Share Merger
Consideration minus the exercise price of a Share subject to such
Company Option times the number of Shares subject to such option,
provided that in determining the payment to be made to such holder
the exercise price shall be applied first to reduce the cash portion
of the Merger Consideration (valuing the Parent Shares at $12.75) or
(2) an option to purchase Parent Shares (a "Substituted Option")
under a stock option plan maintained by Parent, in an amount and at
an exercise price as determined below. Any holder who fails to make
a timely election, shall receive a Substituted Option for each
outstanding Company Option (and otherwise subject to the terms of
the Company Stock Option Plans). Each Section 16 Insider who is a
holder of a Company Option that is outstanding at the Effective Time
shall receive in lieu of each such Company Option a Substituted
Option. "Section 16 Insider" means a person who is an officer or
director of the Company, or is directly or indirectly the beneficial
owner of more than 10 per centum of a class of equity security of
the Company registered under Section 12 of the Exchange Act, within
the meaning of Section 16 of the Exchange Act and the rules
promulgated thereunder."
(h) Section 8.3 of the Merger Agreement is hereby amended to add the
following paragraph at the end thereof:
(e) The Company shall have, at Parent's election, either increased
the size of the Board of Directors of Summit Care Corporation
("Summit Care"), or secured the resignations of such number of
Summit Care directors as is necessary to enable such number of
designees of Parent as shall constitute a majority of the whole
Board of Directors of Summit Care, to be elected to the Summit Care
board of directors and such designees shall have been so elected.
3. Financing. Parent and the Company agree that the terms and conditions of
financing which are consistent in all material respects with the Commitment
Letter and Term Sheet each dated as of December 30, 1993 from The Bank of Nova
Scotia and Citicorp U.S.A. Inc. to Parent shall be deemed reasonably
satisfactory for all purposes of Section 8.1(e) of the Merger Agreement.
4. Additional Representations and Warranties of Parent. Parent hereby
represents and warrants to the Company as follows: Parent has the corporate
power to enter into this Amendment No.1 and to carry out its obligations
hereunder. The execution and delivery of this Amendment No.1 by Parent and the
consummation by Parent of the transactions contemplated hereby have been duly
authorized by the Board of Directors of Parent and, except for the approval of
its stockholders to be sought at the stockholders' meeting contemplated by
Section 7.4(b) of the Merger Agreement, no other corporate proceedings on the
part of Parent are
B-42
<PAGE>
necessary to authorize this Amendment No.1 or the transactions contemplated
hereby. This Amendment No.1 has been duly and validly executed and delivered by
Parent and constitutes a valid and binding agreement of Parent, enforceable
against Parent in accordance with its terms.
5. Additional Representations and Warranties of the Company. The Company
hereby represents and warrants to Parent as follows: The Company has the
corporate power to enter into this Amendment and to carry out its obligations
hereunder. The execution and delivery of this Amendment 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 sought at the stockholders' meeting
contemplated by Section 7.4(a) of the Merger Agreement, no other corporate
proceedings on the part of the Company are necessary to authorize this
Amendment or the transactions contemplated hereby. This Amendment has been duly
and validly executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms.
6. Additional Representations and Warranties of Sub. Sub hereby represents
and warrants to Parent as follows: Sub has the corporate power to enter into
this Amendment and to carry out its obligations hereunder. The execution and
delivery of this Amendment No. 1 by Sub and the consummation by Sub of the
transactions contemplated hereby have been duly authorized by Sub's Board of
Directors and, no other corporate proceedings on the part of Sub are necessary
to authorize this Amendment No. 1 or the transactions contemplated hereby. This
Amendment No. 1 has been duly and validly executed and delivered by Sub and
constitutes a valid and binding agreement of Sub, enforceable against Sub in
accordance with its terms.
7. Voting Agreements. The Company agrees that the last sentence of Paragraph
9 of the Voting Agreements dated as of December 2, 1993 between each of Charles
N. Martin, Jr. and Joseph Littlejohn & Levy Fund, L.P. and the Company shall
not be deemed to apply to the Irrevocable Proxies dated as of November 18, 1993
between each of Charles N. Martin, Jr. and Joseph Littlejohn & Levy Fund, L.P.
and American Healthcare Management, Inc.
8. Amendments to Company Disclosure Schedules. Schedule 6.1 of the Company
Disclosure Schedule is hereby amended by deleting such schedule in its entirety
and adding Schedule 6.1 hereto in lieu thereof.
9. Miscellaneous. Except as expressly amended hereby, the terms and
conditions of the Merger Agreement shall continue in full force and effect.
This Amendment No. 1 is limited precisely as written and shall not be deemed to
be an amendment to any other term or condition of the Merger Agreement or any
of the documents referred to therein. Wherever the Merger Agreement is referred
to in the Merger Agreement or in any other agreements, documents and
instruments, such reference shall be to the Merger Agreement as amended hereby.
10. Counterparts. This Amendment No. 1 may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
11. Governing Law. THIS AMENDMENT NO. 1 SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO
THE PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW.
B-43
<PAGE>
In Witness whereof, each of Parent, Sub and the Company has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
ORNDA HEALTHCORP
/s/ Charles N. Martin, Jr.
By______________________________
Name: Charles N. Martin, Jr.
Title:Chairman, President & CEO
SHL ACQUISITION CO.
/s/ Charles N. Martin, Jr.
By______________________________
Name: Charles N. Martin, Jr.
Title:Chairman, President & CEO
SUMMIT HEALTH LTD.
/s/ Donald J. Amaral
By______________________________
Name: Donald J. Amaral
Title:Chairman, President & CEO
B-44
<PAGE>
ANNEX C
[LETTERHEAD OF KIDDER, PEABODY & CO. INCORPORATED]
March 14, 1994
Board of Directors
OrNda HealthCorp
3401 West End Avenue, Suite 700
Nashville, TN 37203-1042
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to OrNda HealthCorp ("OrNda") of the AHM Exchange Ratio (as hereinafter
defined) in the proposed merger (the "AHM Merger") pursuant to the Amended and
Restated Agreement and Plan of Merger dated as of January 14, 1994 (the "AHM
Merger Agreement"), between OrNda and American Healthcare Management, Inc.
("AHM"). Pursuant to the terms of the AHM Merger Agreement, at the AHM Effective
Date (as defined in the AHM Merger Agreement), AHM will be merged with and into
OrNda and each outstanding share of common stock, $0.01 par value per share, of
AHM (other than shares held by OrNda or its subsidiaries) will be converted into
the right to receive 0.6 of a share of common stock, $0.01 par value per share,
of OrNda (the "AHM Exchange Ratio"). The terms and conditions of the AHM Merger
are more fully set forth in the AHM Merger Agreement.
Kidder, Peabody & Co. Incorporated, as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. We
are currently acting as financial advisor to OrNda in connection with the AHM
Merger and will receive a fee for rendering this opinion. Kidder, Peabody has
performed other investment banking and financial advisory services for OrNda
from time to time for which we have received compensation. We may provide
investment banking and financial advisory services to OrNda in the future.
In connection with our opinion, we have reviewed, among other things, the AHM
Merger Agreement, the Agreement and Plan of Merger dated as of December 2, 1993
by and among OrNda, SHL Acquisition Co., a wholly owned subsidiary of OrNda
("Merger Sub") and Summit Health Ltd. ("Summit") pursuant to which Merger Sub
will be merged with and into Summit (the "Summit Merger" and, together with the
AHM Merger, the "Mergers"), the Proxy Statement/Prospectus relating to the
Mergers (the "Proxy Statement/Prospectus") as filed with the Securities and
Exchange Commission and certain financial and other information with respect to
OrNda, AHM and Summit that was publicly available or furnished to us by or on
behalf of OrNda, AHM and Summit including certain internal analyses, financial
forecasts, reports and other information prepared by their respective
managements and representatives. We held discussions with various members of
senior management of AHM, OrNda and Summit concerning each
C-1
<PAGE>
OrNda HealthCorp
March 14, 1994
Page 2
company's historical and current operations, financial condition and prospects,
as well as the strategic and operating benefits anticipated from each of the AHM
Merger and the Summit Merger. In addition, we (i) reviewed the price and trading
histories of the common stocks of AHM and OrNda and compared those prices and
trading histories with those of publicly traded companies we deemed relevant;
(ii) compared the financial positions and operating results of AHM and OrNda
with those of publicly traded companies we deemed relevant; (iii) compared
certain financial terms of the AHM Merger to certain financial terms of selected
other business combinations we deemed relevant; (iv) reviewed the potential pro
forma financial effects of the AHM Merger on OrNda; and (v) conducted such other
financial studies, analyses and investigations and reviewed such other factors
as we deemed appropriate for purposes of this opinion.
In rendering this opinion, we have relied, without independent
verification, on the accuracy and completeness of all financial and other
information reviewed by us that was publicly available or furnished to us by or
on behalf of OrNda, AHM and Summit. We have assumed that the financial forecasts
which we examined were reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments of the respective
managements of OrNda, AHM and Summit. We have also assumed, with your consent,
that: (i) OrNda will realize certain strategic and operating benefits presently
contemplated by OrNda's senior management from the AHM Merger; (ii) the AHM
Merger will be treated as a tax free reorganization; (iii) the AHM Merger will
be accounted for under the pooling-of-interests method of accounting; (iv) no
adjustment will be made to the AHM Exchange Ratio; and (v) all material assets
and liabilities (contingent and otherwise, known or unknown) of OrNda, AHM and
Summit are as set forth in the consolidated financial statements of OrNda, AHM
and Summit, respectively, contained in the Proxy Statement/Prospectus. We have
not (i) been requested to and did not participate in the structuring of the AHM
Merger or (ii) made an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of OrNda, AHM or Summit, nor were we
furnished with any such evaluations or appraisals. Our opinion is based upon
economic, monetary and market conditions existing on the date hereof.
Furthermore, we express no opinion as to the price or trading range at which
shares of the common stock of OrNda will trade following the AHM Merger or the
Mergers.
In the ordinary course of our business, we actively trade the equity and
debt securities of OrNda for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that this letter is for the information of the Board of
Directors of OrNda only and may not be used for any other purpose without our
prior written consent; however, this letter may be disclosed in the Proxy
Statement/Prospectus.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the AHM Exchange Ratio is fair, from a financial point of view,
to OrNda.
Very truly yours,
KIDDER, PEABODY & CO. INCORPORATED
C-2
<PAGE>
ANNEX D
[LETTERHEAD OF KIDDER, PEABODY & CO.]
March 14, 1994
Board of Directors
OrNda HealthCorp
3401 West End Avenue, Suite 700
Nashville, TN 37203-1042
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to OrNda HealthCorp ("OrNda") of the Summit Exchange Ratio (as hereinafter
defined) in the proposed merger (the "Summit Merger") pursuant to the Agreement
and Plan of Merger dated as of December 2, 1993, as amended (the "Summit Merger
Agreement") by and among OrNda, SHL Acquisition Co. ("Merger Sub") and Summit
Health Ltd. ("Summit"). Pursuant to the terms of the Summit Merger Agreement, at
the Summit Effective Time (as defined in the Summit Merger Agreement), Merger
Sub will be merged with and into Summit and each outstanding share of common
stock, no par value, of Summit (other than shares held by OrNda or its
subsidiaries or shares held by dissenters who perfect their dissenter's rights)
will be converted into the right to receive $5.50 in cash and 0.2157 of a share
of common stock, par value $0.01 per share, of OrNda (the "Summit Exchange
Ratio"). The terms and conditions of the Summit Merger are more fully set forth
in the Summit Merger Agreement.
Kidder, Peabody & Co. Incorporated, as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. We
are currently acting as financial advisor to OrNda in connection with the
Summit Merger and will receive a fee upon consummation of the Summit Merger.
Kidder, Peabody has performed other investment banking and financial advisory
services for OrNda from time to time for which we have received compensation.
We may provide investment banking and financial advisory services to OrNda in
the future.
In connection with our opinion, we have reviewed, among other things, the
Summit Merger Agreement, the Amended and Restated Agreement and Plan of Merger
dated as of January 14, 1994 (the "AHM Merger Agreement"), between OrNda and
American Healthcare Management, Inc. ("AHM") pursuant to which AHM will be
merged with and into OrNda (the "AHM Merger" and, together with the Summit
Merger, the "Mergers"), the Proxy Statement/Prospectus relating to the Mergers
(the "Proxy Statement/Prospectus") as filed with the Securities and Exchange
Commission and certain financial and other information with respect to OrNda,
Summit and AHM that was publicly available or furnished to us by or on behalf of
OrNda, Summit and AHM, including certain financial analyses, financial
forecasts, reports and other information prepared by
D-1
<PAGE>
their respective managements and representatives. We held discussions with
various members of senior management of Summit, OrNda and AHM concerning each
company's historical and current operations, financial condition and prospects,
as well as the strategic and operating benefits anticipated from each of the AHM
Merger and the Summit Merger. In addition, we (i) reviewed the price and trading
histories of the common stocks of Summit and OrNda and compared those prices and
trading histories with those of publicly traded companies we deemed relevant;
(ii) compared the financial positions and operating results of Summit and OrNda
with those of publicly traded companies we deemed relevant; (iii) compared
certain financial terms of the Summit Merger to certain financial terms of
selected other business combinations we deemed relevant; (iv) reviewed the
potential pro forma financial effects of the Summit Merger and AHM Merger on
OrNda; and (v) conducted such other financial studies, analyses and
investigations and reviewed such other factors as we deemed appropriate for
purposes of this opinion.
In rendering this opinion, we have relied, without independent verification,
on the accuracy and completeness of all financial and other information reviewed
by us that was publicly available or furnished to us by or on behalf of OrNda,
Summit and AHM. We have assumed that the financial forecasts which we examined
were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the respective managements of OrNda,
Summit and AHM. We have also assumed, with your consent, that: (i) OrNda will
realize certain strategic and operating benefits presently contemplated by
OrNda's senior management from the Summit Merger; (ii) the Summit Merger will be
accounted for under the purchase method of accounting; (iii) no adjustment will
be made to the Summit Exchange Ratio; and (iv) all material assets and
liabilities (contingent and otherwise, known or unknown) of OrNda, Summit and
AHM are as set forth in the consolidated financial statements of OrNda, Summit
and AHM respectively, contained in the Proxy Statement/Prospectus. We have not
made an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Summit, AHM or OrNda, nor were we furnished with
any such evaluations or appraisals. Our opinion is based upon economic, monetary
and market conditions existing on the date hereof. Furthermore, we express no
opinion as to the price or trading range at which shares of the common stock of
OrNda will trade following the Summit Merger or the Mergers.
In the ordinary course of our business, we actively trade the equity and debt
securities of OrNda for our own account and for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
It is understood that this letter is for the information of the Board of
Directors of OrNda only and may not be used for any other purpose without our
prior written consent; however, this letter may be disclosed in the Proxy
Statement/Prospectus.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Summit Exchange Ratio is fair, from a financial point of view,
to OrNda.
Very truly yours,
KIDDER, PEABODY & CO. INCORPORATED
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(LETTERHEAD OF DONALDSON, LUFKIN & JENRETTE APPEARS HERE)
ANNEX E
December 2, 1993
Board of Directors
American Healthcare Management, Inc.
600 American Avenue, Suite 200
King of Prussia, PA 19406
Attention: Steven L. Volla Chairman of the Board, President and Chief Executive
Officer
Gentlemen:
You have requested that we update our opinion delivered to you on November
18, 1993 as to the fairness from a financial point of view to the shareholders
of American Healthcare Management, Inc. (the "Company") of the consideration to
be received by such shareholders pursuant to the terms of the merger (the
"Merger") contemplated by the Agreement and Plan of Merger dated as of November
18, 1993, between OrNda HealthCorp ("OHC") and the Company (the "Agreement")
and you have further requested our opinion as to such fairness in light of the
proposed acquisition of Summit Health Ltd ("Summit") by OHC (the "Summit
Transaction").
Pursuant to the Agreement, each share of common stock of the Company will be
converted in the Merger into the right to receive 0.60 shares of common stock,
$0.01 par value per share, of OHC ("OHC Common Stock"). Pursuant to the terms
of the Summit Transaction, each share of common stock of Summit will be
converted into the right to receive 0.2157 shares of OHC Common Stock and $5.50
in cash.
In updating our opinion, we have reviewed the Agreement, the terms of the
Summit Transaction and financial and other information that was publicly
available or furnished to us by the Company, OHC and Summit including
information provided during discussions with the respective managements of such
companies. In addition, we have compared certain financial and securities data
of the Company, OHC and Summit with relevant data for various other companies
whose securities are traded in public markets, reviewed the historical stock
prices and trading volumes of the common stock of the Company, OHC and Summit,
reviewed certain forecast financial information for the Company, OHC, Summit
and the combined company provided to us, reviewed prices and premiums paid in
other business combinations and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion.
In rendering our opinion, we have relied upon and assumed, without
independent verification, the accuracy, completeness and fairness of all of the
financial and other information that was available to us from public sources,
that was provided to us by either the Company, OHC or Summit or any of their
representatives, or that was otherwise disclosed to or reviewed by us. With
respect to budget or forecast information supplied to us, we have assumed that
all such information has been reasonably derived on bases reflecting the best
currently available estimates and judgments of the Company's, OHC's and
Summit's respective managements as to the future operating and financial
performance of their respective companies. We did not make any independent
evaluation of the Company's assets or liabilities, and we relied, without
independent verification, on the accuracy of all information reviewed by us.
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Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which the common stock of OHC, the Company or Summit will trade at
any time. Our opinion does not constitute a recommendation to any shareholder
as to how such shareholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation, as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
While DLJ has not performed investment banking or other services for the
Company in the past, it has performed investment banking and other services for
OHC and Summit including managing an offering of $400 million of senior
subordinated notes in 1992 for OHC, assisting with OHC's restructuring and
managing an offering of $37.4 million of exchangeable subordinated notes for
Summit. DLJ was compensated for such services. In addition, DLJ owns
approximately 3% of the OHC shares outstanding.
Based upon the foregoing and such other factors as we deem relevant, we
continue to be of the opinion that the consideration to be received by the
shareholders of the Company in the Merger, pursuant to the Agreement, is fair
to such shareholders from a financial point of view whether or not the Summit
Transaction is consummated.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
/s/ Marsha Plotnitsky
Marsha Plotnitsky
Managing Director
E-2
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[LETTERHEAD OF SMITH BARNEY SHEARSON]
ANNEX F
March 14, 1994
The Board of Directors
Summit Health Ltd.
2600 West Magnolia Boulevard
Burbank, California 91507-2100
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of Summit Health Ltd. ("SHL") of the
consideration to be received by such holders pursuant to the terms and subject
to the conditions set forth in the Agreement and Plan of Merger, dated as of
December 2, 1993, as amended as of January 14, 1994 (the "Merger Agreement"),
by and among OrNda HealthCorp ("OrNda"), SHL Acquisition Co., a wholly owned
subsidiary of OrNda ("Sub"), and SHL. As more fully described in the Merger
Agreement, (i) Sub will be merged with and into SHL (the "Merger") and (ii)
each outstanding share of the common stock, no par value, of SHL (the "SHL
Common Stock") will be converted into the right to receive (A) 0.2157 of a
share of the common stock, par value $0.01 per share, of OrNda (the "OrNda
Common Stock" and such consideration, the "Stock Consideration") and (B) cash
in the amount of $5.50 (the "Cash Consideration" and, together with the Stock
Consideration, the "Merger Consideration").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of SHL and certain senior officers and other representatives and
advisors of OrNda concerning the business, operations and prospects of SHL and
OrNda. We examined certain publicly available business and financial
information relating to SHL and OrNda as well as certain financial forecasts
and other data for SHL and OrNda which were provided to us by the respective
managements of SHL and OrNda, including information relating to certain
strategic implications and operational benefits anticipated from the Merger. We
reviewed the financial terms of the Merger as set forth in the Merger Agreement
in relation to, among other things: current and historical market prices and
trading volumes of the OrNda Common Stock and SHL Common Stock; the respective
companies' historical and projected earnings; and the capitalization and
financial condition of SHL and OrNda. We considered, to the extent publicly
available, the financial terms of certain other similar transactions recently
effected which we considered comparable to the Merger and analyzed certain
financial and other publicly available information relating to the businesses
of other companies whose operations we considered comparable to those of SHL
and OrNda. We also evaluated the potential pro forma financial impact of the
Merger on OrNda. We also considered, without independent verification, certain
publicly available business and financial information relating to American
Healthcare Management ("AHM") as well as certain financial forecasts and other
data relating to AHM provided to us by AHM and OrNda in connection with our
review of the Merger.
[LETTERHEAD OF SMITH BARNEY SHEARSON]
F-1
<PAGE>
The Board of Directors
Summit Health Ltd.
2600 West Magnolia Boulevard
Burbank, California 91507-2100
Page 2
In addition to the foregoing, we conducted such other analyses and examinations
and considered such other financial, economic and market criteria as we deemed
necessary to arrive at our opinion. In rendering our opinion, we have assumed
and relied, without independent verification, upon the accuracy and completeness
of all financial and other information publicly available or furnished to or
otherwise discussed with us. With respect to financial forecasts and other
information provided to or otherwise discussed with us, we assumed that such
forecasts and other information were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the respective managements
of SHL, OrNda and AHM as to the expected future financial performance of SHL,
OrNda and AHM. We are not expressing any opinion as to what the value of the
OrNda Common Stock actually will be when issued to SHL stockholders pursuant to
the Merger or the price at which the OrNda Common Stock will trade subsequent to
the Merger. We have not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of SHL, OrNda
or AHM nor have we made any physical inspection of the properties or assets of
SHL, OrNda or AHM. Our opinion is necessarily based upon financial, stock
market and other conditions and circumstances existing and disclosed to us as
of the date hereof.
Smith Barney Shearson has been engaged to render financial advisory services to
SHL in connection with the Merger and will receive a fee for our services, a
significant portion of which is contingent upon the consummation of the Merger.
We also will receive a fee upon the delivery of this opinion. In the ordinary
course of our business, we may actively trade the equity and debt securities of
SHL, OrNda and AHM for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, Smith Barney Shearson has provided SHL and its affiliates with
financial advisory and investment banking services in the past, including
acting as lead manager for a public offering by SHL in March, 1993 of 7 1/2%
Exchangeable Subordinated Notes Due 2003, for which services we have received
customary fees.
Our advisory services and the opinion expressed herein are provided solely for
the use of the Board of Directors of SHL in its evaluation of the proposed
Merger and are not on behalf of, and are not intended to confer rights or
remedies upon, OrNda, any stockholder of SHL or OrNda, or any person other than
SHL's Board of Directors. Our opinion may not be published or otherwise used or
referred to, nor shall any public reference to Smith Barney Shearson be made,
without our prior written consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Merger Consideration is fair, from a
financial point of view, to the holders of SHL Common Stock.
Very truly yours,
/s/ SMITH BARNEY SHEARSON INC.
SMITH BARNEY SHEARSON INC.
F-2
<PAGE>
ANNEX G
CALIFORNIA GENERAL CORPORATION LAW CHAPTER 13 DISSENTERS' RIGHTS
(S) 1300. Right to Require Repurchase--"Dissenting Shares" and "Dissenting
Shareholder" Defined.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) of Section 1201, each shareholder of the corporation entitled to vote on
the transaction and each shareholder of a subsidiary corporation in a short-
form merger may, by complying with this chapter, require the corporation in
which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as
defined in subdivision (b). The fair market value shall be determined as of the
day before the first announcement of the terms of the proposed reorganization
or short-form merger, excluding any appreciation or depreciation in consequence
of the proposed action, but adjusted for any stock split, reverse stock split
or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (i) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(ii) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this Section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and, provided, further, that this provision does not apply to
any class of shares described in clause (i) or (ii) if demands for payment
are filed with respect to 5 percent or more of the outstanding shares of
that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (i) were not voted
in favor of the reorganization or, (ii) if described in clause (i) or (ii)
of paragraph (l) (without regard to the provisos in that paragraph), were
voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that clause (i)
rather than clause (ii) of this paragraph applies in any case where the
approval required by Section 1201 is sought by written consent rather than
at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
(S) 1301. Demand for Purchase.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this Section, a statement of the
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price determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such
Sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision
(b) of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (a) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (b) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
(S) 1302. Endorsement of Shares.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.
(S) 1303. Agreed Price; Time for Payment.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
(S) 1304. Dissenter's Action to Enforce Payment.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase
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of such shares as dissenting shares or any interested corporation, within six
months after the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed
to the shareholder, but not thereafter, may file a complaint in the superior
court of the proper county praying the court to determine whether the shares
are dissenting shares or the fair market value of the dissenting shares or both
or may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
(S) 1305. Appraisers' Report--payment--costs.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which
any dissenting shareholder who is a party, or who has intervened, is entitled
to require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including, in the
discretion of the court, attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of
Section 1301).
(S) 1306. Dissenting Shareholder's Status as Creditor.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
(S) 1307. Dividends Paid as Credit Against Payment.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
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(S) 1308. Continuing Rights and Privileges of Dissenting Shareholders.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
(S) 1309. Termination of Dissenting Shareholder Status.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
(S) 1310. Suspension of Proceedings for Payment Pending Litigation.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
(S) 1311. Exempt Shares.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
(S) 1312. Attacking Validity of Reorganization or Merger.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such
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shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-
form merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination
by the court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such shareholder
is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (a) a party to
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (b) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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ANNEX H
ORNDA HEALTHCORP
INCENTIVE BONUS PLAN
1. Purpose
The purpose of this Plan is to create an incentive for key employees of OrNda
HealthCorp (the "Company"), to enable the Company to achieve high levels of
annual operating performance and to attract and retain top quality, high
performing key executives.
2. Definitions
(a) Award. "Award" means an Award to a Participant based on the achievement
of the Performance Measurement Goals set forth in Paragraph 6(c) below.
(b) Award Level. "Award Level" means the minimum, threshold and maximum
payout levels established for each category of Participant established pursuant
to Paragraph 5 below.
(c) Board. "Board" means the Board of Directors of the Company.
(d) Change in Capitalization. "Change in Capitalization" means any increase,
reduction, or change or exchange of shares of Common Stock for a different
number or kind of shares or other securities of the Company by reason of a
reclassification, recapitalization, merger, consolidation, reorganization,
issuance of warrants or rights, stock dividend, stock split or reverse stock
split, combination or exchange of shares, repurchase of shares, change in
corporate structure or otherwise.
(e) Change in Control. "Change in Control" means (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting power
of the Company's then outstanding securities; or (ii) during any period of two
consecutive years or portion thereof (not including any period prior to the
date the Board adopts this Plan), individuals who at the beginning of such
period constitute the Board and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i) or (ii) of this Subsection) whose
election by the Board or nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds ( 2/3) of the directors then
still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute a majority thereof; or (iii) the shareholders of the
Company approve a merger or consolidation of the Company with any other
corporation (or similar transaction), other than a merger or consolidation (or
similar transaction) which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 75% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger, consolidation or similar transaction (either alone or in
combination with new or additional voting securities held by management of the
Company and its subsidiaries) or the shareholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
(f) Committee. "Committee" means the Compensation Committee of the Board of
Directors or such other committee of the Board as the Board shall designate.
(g) Common Stock. "Common Stock" means the shares of common stock, par value
$.01 per share, of the Company.
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(h) Disability. "Disability" shall mean Permanent Disability as defined in
the OrNda HealthCorp Long Term Disability Plan, as amended from time to time.
(i) Fair Market Value. "Fair Market Value" per share as of a particular date
shall mean (i) the closing sales price per share of Common Stock on the
national securities exchange on which the Common Stock is principally traded,
on such date or on the last preceding date on which there was a sale of such
Common Stock on such exchange, or (ii) if the shares of Common Stock are then
traded in an over-the-counter market, the average of the closing bid and asked
prices for the shares of Common Stock in such over-the-counter market on such
date or on the last preceding date on which there was a sale of such Common
Stock in such market, or (iii) if the shares of Common Stock are not then
listed on a national securities exchange or traded in an over-the-counter
market, such value as the Committee, in its sole discretion, shall determine.
(j) Involuntary Termination. "Involuntary Termination" means (i) the
termination of employment of the Participant by the Company other than a
Termination For Cause or (ii) the termination of employment by the Participant
within 60 days following any material change of the Participant's functions,
duties, responsibilities or compensation.
(k) Net Income. "Net Income" means the Company's net income for the Plan Year
as reported in the Company's audited financial statements.
(l) Participant. "Participant" shall mean an employee of the Company who has
been selected by the Committee to participate in the Plan with respect to a
particular Plan Year.
(m) Performance Measurement Goal. "Performance Measurement Goal" means the
criteria selected by the Committee pursuant to Paragraph 6(c) below to measure
Company and individual performance during the Plan Year.
(n) Plan. "Plan" means the OrNda HealthCorp Incentive Bonus Plan.
(o) Plan Year. "Plan Year" means the period from each September 1 to the
succeeding August 31.
(p) Pro Rata Award. "Pro Rata Award" means a fraction of a Total Award
calculated in accordance with Paragraph 7(c) below.
(q) Retirement. "Retirement" shall mean the termination of employment
following the Participant's Normal Retirement Date or Early Retirement Date,
whichever occurs earlier, as such terms are defined in the OrNda HealthCorp
401(k) plan, as amended from time to time.
(r) Salary. "Salary" shall mean a Participant's average rate of regular
compensation, exclusive of extra compensation of any kind, such as overtime
pay, bonuses or incentive pay, for the Plan Year or any partial Plan Year in
the case of an employee who becomes a Participant after the first day of a Plan
Year, as provided in Paragraph 4 below, or ceases to be a Participant prior to
the last day of a Plan Year.
(s) Termination For Cause. "Termination For Cause" means the termination of
employment of a Participant on account of the Participant's personal
dishonesty, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, or willful violation of
any law, rule or regulation (other than traffic violations or similar
offenses).
(t) Total Award. "Total Award" means the full amount of an Award, if any,
that would have been earned by a Participant in a Plan Year had (1)
participation continued until the end of such Plan Year and (2) the average
percentage rate of achievement of stated Performance Measurement Goals existing
on the date of termination been maintained until the end of such Plan Year.
(u) Voluntary Termination. "Voluntary Termination" means termination of
employment by a Participant, except under circumstances which would constitute
an Involuntary Termination.
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3. Plan Administration
(a) The Plan shall be administered by the Committee. The Committee shall have
the authority to, in its discretion, select the Participants, determine the
Award, if any, to be made to each Participant, determine threshold, target and
maximum Award Levels, establish Performance Measurement Goals, determine such
other terms, conditions and restrictions subject to which Awards shall be
granted, and interpret the Plan, establish any rules, and make any
determinations considered necessary or advisable for the administration of the
Plan.
(b) Decisions and determinations by the Committee shall be final and binding
upon all persons, including, but not limited to, the Company, Participants and
their personal representatives, heirs and assigns, and other employees of the
Company.
(c) All expenses and liabilities incurred by the Committee in the
administration of the Plan shall be borne by the Company. The Committee may
employ attorneys, consultants, accountants, or other persons to render services
in connection with the Plan. The Company, the Board, and the Committee shall be
entitled to rely upon the advice, opinions, and/or valuations of any such
persons. Neither the Company, the Board, the Committee, nor any member of the
Board or Committee nor any officer or employee of the Company shall be
personally liable for any action, determination, or interpretation taken or
made in good faith with respect to the Plan, and all members of the Board and
Committee and the officers and employees of the Company are hereby indemnified
by the Company with respect to any such liability to the fullest extent
permitted by applicable laws, rules and regulations.
4. Eligibility
Participation in the Plan is limited to key employees of the Company who have
received written notification from the Committee or a person designated by the
Committee. No employee of the Company shall have a right to be selected to
participate in the Plan unless such employee shall have received such written
notification. Participants may be added at any time during a Plan Year. Any
such Participant shall be entitled to a Pro Rata Award calculated in the manner
described in Paragraph 7(c) below.
5. Participation Levels
Eligible employees under the plan shall be divided into such categories as
the Committee shall deem appropriate for purposes of establishing threshold,
target and maximum Award Levels, Performance Measurement Goals, and such other
factors as it shall deem appropriate.
6. Determination of Awards
Grants of Awards pursuant to the Plan shall be subject to the following terms
and conditions:
(a) Agreement. Each Participant selected to participate in a Plan Year under
this Plan shall enter into an agreement with the Company which shall set forth
the terms and conditions of participation as set forth herein, and such other
terms and conditions as the Committee shall, in its sole discretion, determine
to be necessary to carry out the objectives of this Plan consistent with the
terms hereof.
(b) Award Levels. Awards under the Plan shall be established by the Committee
based on threshold, target, and maximum payout levels expressed as a percentage
of a Participant's Salary. In the event the Committee changes the Award Level
with respect to a Participant during a Plan Year, the Participant's Award for
the Plan Year, if any, shall be the sum of the fractional Awards earned by a
Participant for participation at each different Award Level. The numerator of
the fraction applicable to each Award earned at each such Award Level shall be
the period of time during that Plan Year that the Participant was included in
such Award Level and the denominator of the fraction shall be the period of
time during the Plan Year
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that the Participant was included in any Award Level. Notwithstanding a change
in Award Level, the Performance Measurement Goals established for an Award
Level must be achieved before an Award at such Award Level will be made.
(c) Performance Measurement Goals. Awards for a Plan Year shall be earned
based on the extent to which the Company achieved the Company-level Performance
Measurement Goals established by the Committee for such Plan Year, and the
Participant achieved the individual-level Performance Measurement Goals
established by the Committee for such Participant with respect to such Plan
Year. The Committee shall establish the relative weightings of the Company and
individual Performance Measurement Goals for purposes of determining the extent
to which Awards are earned pursuant to this Section 6(c).
(d) Calculation of Awards. The portion of an Award earned for a Plan Year
shall be equal to a Participant's target Award multiplied by the sum of the
Weighted Performance Factors which apply to such Participant. A "Weighted
Performance Factor" is equal to the percentage of the target Award earned as a
result of the percentage of achievement of a Company Performance Measurement
Goal or the level of achievement of an individual Performance Measurement Goal,
multiplied by the respective weights of such factors for such Participant.
Calculation of Awards under the Plan shall, to the extent necessary, be based
on interpolation.
(e) Maximum Awards. The Committee shall establish for each Plan Year a
maximum value of the aggregate Awards that may be earned by all Participants
for such Plan Year. Such maximum shall be based upon a percentage, to be
determined by the Committee, of the Company's Net Income for such Plan Year. To
the extent that the sum of the Awards otherwise earned for such Plan Year
exceed such maximum the Committee shall reduce all such Awards earned on a pro
rata basis such that the sum of the Awards earned, as so reduced, does not
exceed such maximum.
(f) Payment of Awards.
(i) An Award with respect to any Plan Year, to the extent earned, shall
be payable by the Company as soon as is practicable after the end of the
applicable Plan Year in accordance with the provisions of this paragraph
(f). The value of such Awards to be paid shall be determined as of the
final day of the Plan Year by the Committee in accordance with the Award
Levels, Performance Measurement Goals and other factors established by the
Committee for each Participant.
(ii) An amount equal to the lesser of (i) the amount of the Award earned
by the Participant or (ii) $10,000 plus one-half of the amount, if any, by
which the amount of the Award earned by the Participant exceeds $10,000,
shall be paid in cash. To the extent, if any, that the Award earned by the
Participant exceeds the amount determined pursuant to the preceding
sentence, such excess shall be converted to a number of whole shares of
Common Stock based upon the Fair Market Value of the Common Stock on the
last day of the Plan Year. A certificate representing such shares of Common
Stock shall be issued in the name of the Participant as soon as practicable
following the end of such Plan Year.
(iii) Such shares of Common Stock may not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of, except by will or the laws
of descent and distribution, for such period as the Committee shall
determine (the "Restricted Transfer Period"). The Committee may also impose
such other restrictions and conditions on such shares as it deems
appropriate. Certificates for shares of Common Stock issued pursuant hereto
shall bear an appropriate legend referring to such restrictions, and any
attempt to dispose of any such shares of stock in contravention of such
restrictions shall be null and void and without effect. During the
Restricted Transfer Period, such certificates shall be held in escrow by an
escrow agent appointed by the Committee. Unless the Committee otherwise
provides, the foregoing restrictions shall lapse with respect 1/3 of such
shares of Common Stock on each of the first three (3) anniversaries of the
last day of the Plan Year with respect to which such shares were earned or,
if earlier, upon the occurrence of a Change in Control.
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(iv) Subject to such exceptions as may be determined by the Committee, if
the Participant's employment with the Company shall terminate for any
reason other than death, Disability or Involuntary Termination prior to the
expiration of such period (the "Restricted Period") as the Committee shall
prescribe, any shares of Common Stock issued hereunder shall thereupon be
forfeited by the Participant and transferred to, and reacquired by, the
Company at no cost to the Company. Unless the Committee determines
otherwise, the foregoing restrictions shall lapse with respect to 1/3 of
such shares of Common Stock on the last day of the Plan Year with respect
to which they are issued and with respect to an additional 1/3 of such
shares on each of the 2 succeeding anniversaries of such date or, if
earlier, upon the occurrence of a Change in Control.
(v) Except as otherwise described in paragraphs (iii) and (iv), the
Participant shall at all times possess all incidents of ownership of the
shares of Common Stock issued hereunder, including the right to receive
dividends with respect to such shares and to vote such shares.
(vi) The Committee shall have the authority (and the Agreement may so
provide) to cancel all or any portion of any outstanding restrictions prior
to the expiration of the Restricted Transfer Period or the Restricted
Period with respect to any or all of the shares of Common Stock issued
hereunder on such terms and conditions as the Committee shall deem
appropriate.
(vii) Notwithstanding the foregoing, each Participant shall be entitled
to elect, on such form as the Committee shall prescribe, to receive the
entire value of the Award earned by such Participant with respect to any
Plan Year in shares of Common Stock with a Fair Market Value, determined as
of the last day of such Plan Year, equal to the full amount of the Award so
earned. In such event, the provisions of paragraph (iii) hereof shall apply
until the expiration of the first Plan Year following the Plan Year with
respect to which such shares were earned and the provisions of paragraph
(iv) hereof shall be inapplicable to such shares. Any such election shall
be made prior to the first day of the Plan Year to which it applies,
provided however, that any such election with respect to the Plan Year
commencing on September 1, 1993 may be made no later than December 31,
1993.
(g) Award Adjustments. Notwithstanding any provision of this Plan to the
contrary, the Committee, when calculating the Company's achievement of
Performance Measurement Goals and the maximum aggregate earned Awards under
paragraph (e) above, may, in its discretion exclude certain extraordinary
occurrences which have a significant positive or negative unintended effect on
the operating and/or financial results of the Company and are to a significant
extent unrelated to the business decisions made by Participants during a Plan
Year.
7. Termination of Employment
(a) In the event of a Participant's Voluntary Termination, Involuntary
Termination or Termination For Cause during any Plan Year, participation in the
Plan will cease and no Award will be earned for the Plan Year(s).
(b) In the event of a Participant's Retirement, Disability or death during
any Plan Year, the Participant shall be entitled to a Pro Rata Award for such
Plan Year, based on the time of participation during such Plan Year and
calculated in the manner described in Paragraph 7(c) below. In the event of the
death of a Participant as described above, the Participant's estate shall be
paid the Award(s) owed to the Participant under the Plan.
(c) A Participant's Pro Rata Award for a Plan Year shall be the Participant's
Total Award multiplied by a fraction the numerator of which is the number of
months the Participant has participated in the Plan during such Plan Year, and
the denominator of which is the number of months in the Plan Year.
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8. Stock
The maximum number of shares of Common Stock which shall be reserved for
issuance under the Plan shall be 600,000, subject to adjustment upon a Change
in Capitalization. If the total number of shares which the Company would
otherwise be required to issue with respect to a Plan Year exceeds the number
of shares then available under the Plan, the Committee shall make a pro rata
allocation of the shares remaining available among the Participants entitled
thereto and shall pay the balance of any Awards in cash. In the event of a
Change in Capitalization, the Committee shall conclusively determine the
appropriate adjustments, if any, to be made under the Plan, including without
limitation, adjustments to the number of shares of Common Stock authorized for
issuance under the Plan.
9. Withholding of Taxes
Whenever payments are to be made to a Participant in satisfaction of an
Award, such payments shall be net of an amount sufficient to pay any tax
required by law to be withheld and paid by the Company to a governmental
authority for the account of such Participant.
10. Change of Control
In the event there is a Change in Control during a Plan Year, participation
in such Plan Year shall cease and each Participant shall be entitled to any Pro
Rata Awards, calculated in accordance with Paragraph 7(c) above, earned by the
Participant with respect to such Plan Year.
11. No Rights to Employment
Nothing in the plan or in any Award granted hereunder shall confer upon any
employee of the Company the right to continue in the employ of the Company or
to be entitled to any remuneration or benefits not set forth in the Plan or
such Award or to interfere with or limit in any way the right of the Company to
terminate such employee's employment.
12. Transfer or Right to Award
An Award granted under this agreement shall not be transferable and may not
be sold, transferred, assigned, pledged, gifted, hypothecated or otherwise
disposed of by a Participant other than by will or the laws of descent and
distribution.
13. Miscellaneous
(a) Effective Date of the Plan. The effective date of the Plan shall be
September 1, 1993.
(b) Effect Upon Other Plan. The adoption of the Plan shall not affect any
other compensation or incentive plan in effect for the Company, and the Plan
shall not preclude the Board from establishing any other form of incentive,
bonus or other compensation for employees of the Company.
(c) Plan Termination. Subject to applicable law and the provisions of
Paragraph 10 above, the Board shall have the right to terminate the Plan at any
time; provided, that in the event a complete termination becomes effective
during a Plan Year, the Participants be entitled to a Pro Rata Award for such
Plan Year.
(d) Amendment of the Plan. The Board may modify or amend the Plan in any
respect, provided that any modification or amendment of the Plan shall not,
without the consent of the Participant, adversely affect any outstanding
Award(s).
(e) Assignability of Awards. No right to an Award shall be assignable or
transferable by a Participant except by will or by the laws of descent and
distribution.
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(f) Partial Invalidity. If any term or provision of this Plan or the
application thereof to any person or circumstances shall, to any extent, be
held invalid or unenforceable, the remainder of this Plan, or the application
of such term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall remain enforceable to the
fullest extent permitted by law.
(g) Governing Law. The Plan shall be governed by and construed in accordance
with the laws of the State of New York (without regard to the choice of law
provisions thereof).
(h) Designation and Change of Beneficiary. Each Participant shall file with
the Board a written designation of one or more persons as the Beneficiary who
shall be entitled to receive the amount, if any, payable under the Plan upon
the Participant's death. A Participant may, from time to time, revoke or change
his or her Beneficiary designation without the consent of any prior Beneficiary
by filing a new designation with the Board. The last such designation received
by the Board shall be controlling; provided, however, that no designation or
change or revocation thereof, shall be effective unless received by the Board
prior to the Participant's death, and in no event shall it be effective as of a
date prior to its receipt.
(i) Payment of Awards upon Death or Incapacity of Participant. If a
Participant to whom any amount is payable under the Plan is unable to care for
his or her affairs because of illness or accident, or has died without timely
designating a Beneficiary, then the Board of Directors shall make payment of
amounts due to a Participant or Participant's estate as the case may be, as
instructed by the Participant's legal representative or the executor of the
Participant's estate.
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ANNEX I
SHARE INCREASE AMENDMENT
Proposed First Paragraph of Article Four of the Restated Certificate of
Incorporation of OrNda HealthCorp
The text of the proposed First Paragraph of Article Four is as follows:
The total number of shares of stock which the Corporation shall have
authority to issue is 210,000,000 shares of capital stock, classified as
(i) 10,000,000 shares of preferred stock, par value $.01 per share
("Preferred Stock") and (ii) 200,000,000 shares of common stock par value
$.01 per share ("Common Stock").
<PAGE>
ANNEX J
ORNDA HEALTHCORP
1994 MANAGEMENT EQUITY PLAN
1. Purpose; Types of Awards; Construction.
The purpose of the OrNda HealthCorp 1994 Management Equity Plan (the "Plan")
is to afford an incentive to executive officers, other key employees and
consultants of OrNda HealthCorp (the "Company"), or any subsidiary of the
Company which now exists or hereafter is organized or acquired by the Company,
to acquire a proprietary interest in the Company, to continue as employees or
consultants, to increase their efforts on behalf of the Company and to promote
the success of the Company's business. The provisions of the Plan are intended
to satisfy the requirements of Section 16(b) of the Securities Exchange Act of
1934, and shall be interpreted in a manner consistent with the requirements
thereof, as now or hereafter construed, interpreted and applied by regulations,
rulings and cases.
2. Definitions.
As used in this Plan, the following words and phrases shall have the meanings
indicated:
(a) "Acceleration Date" shall have the meaning set forth in Section 11.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(d) "Committee" shall mean the Compensation Committee of the Board or
such other committee established by the Board to administer the Plan.
(e) "Common Stock" shall mean shares of common stock, par value $.01 per
share, of the Company.
(f) "Company" shall mean OrNda HealthCorp, a corporation organized under
the laws of the State of Delaware, or any successor corporation.
(g) "Disability" shall mean a Grantee's inability to perform his duties
with the Company or any of its affiliates by reason of any medically
determinable physical or mental impairment, as determined by a physician
selected by the Grantee and acceptable to the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted
and applied by regulations, rulings and cases.
(i) "Fair Market Value" per share as of a particular date shall mean (i)
the closing sales price per share of Common Stock on the national
securities exchange on which the Common Stock is principally traded for the
last preceding date on which there was a sale of such Common Stock on such
exchange, or (ii) if the shares of Common Stock are then traded in an over-
the-counter market, the average of the closing bid and asked prices for the
shares of Common Stock in such over-the-counter market for the last
preceding date on which there was a sale of such Common Stock in such
market, or (iii) if the shares of Common Stock are not then listed on a
national securities exchange or traded in an over-the-counter market, such
value as the Committee, in its sole discretion, shall determine.
(j) "Grantee" shall mean a person who receives a grant of Options, Stock
Appreciation Rights or Limited Rights under the Plan.
(k) "Incentive Stock Option" shall mean any option intended to be, and
designated as, an incentive stock option within the meaning of Section 422
of the Code.
(l) "Insider" shall mean a Grantee who is subject to the reporting
requirements of Section 16(a) of the Exchange Act.
(m) "Limited Right" shall mean a limited stock appreciation right granted
pursuant to Section 10 which, in general, may be exercised for cash
following an Acceleration Date.
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(n) "Option" or "Options" shall mean a grant to a Grantee of an option or
options to purchase shares of Common Stock. Options granted by the
Committee pursuant to the Plan shall constitute either Incentive Stock
Options or Non-qualified Stock Options.
(o) "Option Agreement" shall mean an agreement entered into between the
Company and a Grantee in connection with a grant under the Plan.
(p) "Option Price" shall mean the exercise price of the shares of Common
Stock covered by an Option.
(q) "Parent" shall mean any company (other than the Company) in an
unbroken chain of companies ending with the Company if, at the time of
granting an Option, each of the companies other than the Company owns stock
possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other companies in such chain.
(r) "Plan" means this OrNda HealthCorp 1994 Management Equity Plan, as
amended from time to time.
(s) "Rule 16b-3" shall mean Rule 16b-3, as from time to time in effect,
promulgated by the Securities and Exchange Commission under Section 16 of
the Exchange Act, including any successor to such Rule.
(t) "Stock Appreciation Right" shall mean the right, granted to a Grantee
under Section 9, to be paid an amount measured by the appreciation in the
Fair Market Value of Common Stock from the date of grant to the date of
exercise of the right, with payment to be made in cash or Common Stock as
specified in the award or determined by the Committee.
(u) "Subsidiary" shall mean any company (other than the Company) in an
unbroken chain of companies beginning with the Company if, at the time of
granting an Option, each of the companies other than the last company in
the unbroken chain owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
companies in such chain.
(v) "Ten Percent Stockholder" shall mean a Grantee who, at the time an
Incentive Stock Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or any Parent or Subsidiary.
3. Administration.
The Plan shall be administered by the Committee. The Committee shall have the
authority in its discretion, subject to and not inconsistent with the express
provisions of the Plan, to administer the Plan and to exercise all the powers
and authorities either specifically granted to it under the Plan or necessary
or advisable in the administration of the Plan, including, without limitation,
the authority to grant Options, Stock Appreciation Rights and Limited Rights;
to determine which Options shall constitute Incentive Stock Options and which
Options shall constitute Nonqualified Stock Options; to determine which Options
(if any) shall be accompanied by Limited Rights; to determine the purchase
price of the shares of Common Stock covered by each Option; to determine the
persons to whom, and the time or times at which awards shall be granted; to
determine the number of shares to be covered by each award; to interpret the
Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of the Option Agreements (which
need not be identical) and to cancel or suspend awards, as necessary; and to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
Committee may delegate to one or more of its members or to one or more agents
such administrative duties as it may deem advisable, and the Committee or any
person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan. All decisions, determination and
interpretations of the Committee shall be final and binding on all Grantees of
any awards under this Plan.
Board shall fill all vacancies, however caused, in the Committee. The Board
may from time to time appoint additional members to the Committee, and may at
any time remove one or more Committee members and substitute others. One member
of the Committee shall be selected by the Board as chairman. The
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Committee shall hold its meetings at such times and places as it shall deem
advisable. All determinations of the Committee shall be made by a majority of
its members either present in person or participating by conference telephone
at a meeting or by written consent. The Committee may appoint a secretary and
make such rules and regulations for the conduct of its business as it shall
deem advisable, and shall keep minutes of its meetings.
No member of the Board or Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any award granted
hereunder.
4. Eligibility.
Awards may be granted to executive officers and other key employees and
consultants of the Company or its Subsidiaries, including officers and
directors who are employees, except as proscribed by the Exchange Act or the
Code. In determining the persons to whom awards shall be granted and the number
of shares to be covered by each award, the Committee shall take into account
the duties of the respective persons, their present and potential contributions
to the success of the Company and such other factors as the Committee shall
deem relevant in connection with accomplishing the purpose of the Plan.
5. Stock.
The maximum number of shares of Common Stock reserved for the grant of awards
under the Plan shall be 3,550,000 subject to adjustment as provided in Section
11 hereof. Such shares may, in whole or in part, be authorized but unissued
shares or shares that shall have been or may be reacquired by the Company. The
maximum number of shares with respect to which awards may be granted during any
calendar year to any individual shall be 1,500,000.
If any outstanding award under the Plan should, for any reason expire, be
cancelled or be forfeited (other than in connection with the exercise of a
Stock Appreciation Right or Limited Right), without having been exercised in
full, the shares of Common Stock allocable to the unexercised, cancelled or
terminated portion of such award shall (unless the Plan shall have been
terminated) become available for subsequent grants of awards under the Plan.
6. Terms and Conditions of Options.
Each Option granted pursuant to the Plan shall be evidenced by an Option
Agreement, in such form and containing such terms and conditions as the
Committee shall from time to time approve. Each Option shall be subject to the
following terms and conditions, except to the extent otherwise specifically
provided in such Option Agreement:
(a) Number of Shares. Each Option Agreement shall state the number of
shares of Common Stock to which the Option relates.
(b) Type of Option. Each Option Agreement shall specifically state that
the Option constitutes an Incentive Stock Option or a Nonqualified Stock
Option.
(c) Option Price. Each Option Agreement shall state the Option Price,
which, in the case of an Incentive Stock Option, shall not be less than one
hundred percent (100%) of the Fair Market Value of the shares of Common
Stock covered by the Option on the date of grant. The Option Price shall be
subject to adjustment as provided in Section 11 hereof. The date as of
which the Committee adopts a resolution expressly granting an Option shall
be considered the day on which such Option is granted.
(d) Medium and Time of Payment. The Option Price shall be paid in full,
at the time of exercise, in cash or in shares of Common Stock having a Fair
Market Value equal to such Option Price or in a combination of cash and
Common Stock or in such other manner as the Committee shall determine
including a cashless exercise procedure through a broker-dealer.
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(e) Term and Exercisability of Options. Each Option Agreement shall
provide the exercise schedule for the Option as determined by the
Committee, provided, that, the Committee shall have the authority to
accelerate the exercisability of any outstanding Option at such time and
under such circumstances as it, in its sole discretion, deems appropriate.
The exercise period will be ten (10) years from the date of the grant of
the Option unless otherwise determined by the Committee; provided, however,
that in the case of an Incentive Stock Option, such exercise period shall
not exceed ten (10) years from the date of grant of such Option. The
exercise period shall be subject to earlier termination as provided in
Sections 6(f) hereof. An Option may be exercised, as to any or all full
shares of Common Stock as to which the Option has become exercisable, by
written notice delivered in person or by mail to the Secretary of the
Company, specifying the number of shares of Common Stock with respect to
which the Option is being exercised.
(f) Termination. Except as provided in this Section 6(f), an Option may
not be exercised unless the Grantee is then in the employ of or maintaining
a consultant relationship with the Company or a Subsidiary thereof (or a
company or a Parent or Subsidiary company of such company issuing or
assuming the Option in a transaction to which Section 424(a) of the Code
applies), and unless the Grantee has remained continuously so employed or
in the consultant relationship since the date of grant of the Option. In
the event that the employment or consultant relationship of a Grantee shall
terminate, all Options of such Grantee that are exercisable at the time of
such termination may, unless earlier terminated in accordance with their
terms, be exercised within thirty (30) days after the date of such
termination (or such longer period as the Committee shall prescribe) and
all Options that are nonexercisable at the time of such termination shall
terminate at such time.
(g) Other Provisions. The Option Agreements evidencing awards under the
Plan shall contain such other terms and conditions not inconsistent with
the Plan as the Committee may determine.
7. Nonqualified Stock Options.
Options granted pursuant to this Section 7 are intended to constitute
Nonqualified Stock Options and shall be subject only to the general terms and
conditions specified in Section 6 hereof.
8. Incentive Stock Options.
Options granted pursuant to this Section 8 are intended to constitute
Incentive Stock Options and shall be subject to the following special terms and
conditions, in addition to the general terms and conditions specified in
Section 6 hereof.
(a) Value of Shares. The aggregate Fair Market Value (determined as of the
date the Incentive Stock Option is granted) of the shares of Common Stock with
respect to which Incentive Stock Options granted under this Plan and all other
option plans of any subsidiary become exercisable for the first time by any
Grantee during any calendar year shall not exceed $100,000.
(b) Ten Percent Stockholder. In the case of an Incentive Stock Option granted
to a Ten Percent Stockholder, (i) the Option Price shall not be less than one
hundred ten percent (110%) of the Fair Market Value of the shares of Common
Stock on the date of grant of such Incentive Stock Option, and (ii) the
exercise period shall not exceed five (5) years from the date of grant of such
Incentive Stock Option.
9. Stock Appreciation Rights.
The Committee shall have authority to grant a Stock Appreciation Right to the
Grantee of any Option under the Plan with respect to all or some of the shares
of Common Stock covered by such related Option. A Stock Appreciation Right
shall, except as provided in this Section 9, be subject to the same terms and
conditions as the related Option. Each Stock Appreciation Right granted
pursuant to the Plan shall be evidenced by a written Agreement between the
Company and the Grantee in such form as the Committee shall time to time
approve.
(a) Time of Grant. A Stock Appreciation Right may be granted either at the
time of grant, or at any time thereafter during the term of the Option;
provided, however that Stock Appreciation Rights related to Incentive Stock
Options may only be granted at the time of grant of the related Option.
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(b) Payment. A Stock Appreciation Right shall entitle the holder thereof,
upon exercise of the Stock Appreciation Right or any portion thereof, to
receive payment of an amount computed pursuant to Section 9(d).
(c) Exercise. A Stock Appreciation Right shall be exercisable at such time or
times and only to the extent that the related Option is exercisable, and will
not be transferable except to the extent the related Option may be
transferable. A Stock Appreciation Right granted in connection with an
Incentive Stock Option shall be exercisable only if the Fair Market Value of a
share of Common Stock on the date of exercise exceeds the purchase price
specified in the related Incentive Stock Option.
(d) Amount Payable. Upon the exercise of a Stock Appreciation Right, the
Optionee shall be entitled to receive an amount determined by multiplying (i)
the excess of the Fair Market Value of a share of Common Stock on the date of
exercise of such Stock Appreciation Right over the Option Price under the
related Option, by (ii) the number of shares of Common Stock as to which such
Stock Appreciation Right is being exercised. Notwithstanding the foregoing, the
Committee may limit in any manner the amount payable with respect to any Stock
Appreciation Right by including such a limit at the time it is granted.
(e) Treatment of Related Options and Stock Appreciation Rights Upon
Exercise. Upon the exercise of a Stock Appreciation Right, the related Option
shall be cancelled to the extent of the number of shares of Common Stock as to
which the Stock Appreciation Right is exercised and upon the exercise of an
Option granted in connection with a Stock Appreciation Right, the Stock
Appreciation Right shall be cancelled to the extent of the number of shares of
Common Stock as to which the Option is exercised or surrendered.
(f) Method of Exercise. Stock Appreciation Rights shall be exercised by a
Grantee only by a written notice delivered in person or by mail to the
Secretary of the Company, specifying the number of shares of Common Stock with
respect to which the Stock Appreciation Right is being exercised. If requested
by the Committee, the Grantee shall deliver the Agreement evidencing the Stock
Appreciation Right being exercised and the Option Agreement evidencing any
related Option to the Secretary of the Company who shall endorse thereon a
notation of such exercise and return such Agreements to the Grantee.
(g) Form of Payment. Payment of the amount determined under Section 9(d), may
be made solely in whole shares of Common Stock in a number determined based
upon their Fair Market Value on the date of exercise of the Stock Appreciation
Right or, alternatively, at the sole discretion of the Committee, solely in
cash, or in a combination of cash and shares of Common Stock as the Committee
deems advisable. If the Committee decides to make full payment in shares of
Common Stock, and the amount payable results in a fractional share, payment for
the fractional share will be made in cash. Notwithstanding the foregoing, to
the extent required by Rule 16b-3 no payment in the form of cash may be made
upon the exercise of a Stock Appreciation Right pursuant to Section 9(d) to an
Insider, unless the exercise of such Stock Appreciation Right is made during
the period beginning on the third business day and ending on the twelfth
business day following the date of release for publication of the Company's
quarterly or annual statements of earnings.
10. Limited Stock Appreciation Rights.
The Committee shall have authority to grant a Limited Right to the Grantee of
any Option under the Plan with respect to all or some of the shares of Common
Stock covered by such related Option. Each Limited Right granted pursuant to
the Plan shall be evidenced by a written Agreement between the Company and the
Grantee, in such form as the Committee shall from time to time approve.
(a) Time of Grant. A Limited Right granted in tandem with a Nonqualified
Stock Option may be granted either at the time of grant of the related Option
or any time thereafter during its term. A Limited Right granted in tandem with
an Incentive Stock Option may only be granted at the time of grant of the
related Option.
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(b) Exercise. A Limited Right may be exercised only during the ninety-day
period beginning on an Acceleration Date. Each Limited Right shall be
exercisable only if, and to the extent that, the related Option is exercisable
and, in the case of a Limited Right granted in tandem with an Incentive Stock
Option, only when the Fair Market Value per share of Common Stock exceeds the
Option Price per share. Notwithstanding the provisions of the two immediately
preceding sentences, a Limited Right granted to a Grantee who is an Insider
must be (i) held by the Insider for at least six (6) months from the date of
grant of the Limited Right before it becomes exercisable and (ii) automatically
paid out in cash to the Insider on an Acceleration Date (provided such six (6)
month holding period requirement has been met).
(c) Amount Payable. Upon the exercise of a Limited Right, the Grantee thereof
shall receive in cash whichever of the following amounts is applicable:
(i) in the case of the realization of Limited Rights by reason of an
acquisition of Common Stock described in Section 11 (b)(i) below, an amount
equal to the Acquisition Spread as defined in Section 10(d)(ii) hereof; or
(ii) in the case of the realization of Limited Rights by reason of
shareholder approval of an agreement or plan described in Section 11(b)(ii)
below, an amount equal to the Merger Spread as defined in Section 10(d)(iv)
hereof; or
(iii) in the case of the realization of Limited Rights by reason of the
change in composition of the Board described in Section 11(b)(iii) or
shareholder approval of a plan or agreement described in Section 11(b)(iv)
below, an amount equal to the Spread as defined in Section 10(d)(v) hereof.
Notwithstanding the foregoing provisions of this Section 10(c), in the case
of a Limited Right granted in respect of an Incentive Stock Option, the Grantee
may not receive an amount in excess of the maximum amount that will enable such
option to continue to qualify as an Incentive Stock Option.
(d) Determination of Amounts Payable. The amounts to be paid to a Grantee
pursuant to Section 10(c) shall be determined as follows:
(i) The term "Acquisition Price per Share" as used herein shall mean,
with respect to the exercise of any Limited Right by reason of an
acquisition of Common Stock described in Section 12(b)(i) below, the
greatest of (A) the highest price per share shown on the Statement of
Schedule 13D or amendment thereto filed by the holder of 50% or more of the
voting power of the Company that gives rise to the exercise of such Limited
Right, (B) the highest price paid in any tender or exchange offer which is
in effect at any time during the ninety-day period ending on the date of
exercise of the Limited Right, or (C) the highest Fair Market Value per
share of Common Stock during the ninety-day period ending on the date the
Limited Right is exercised.
(ii) The term "Acquisition Spread" as used herein shall mean an amount
equal to the product computed by multiplying (A) the excess of (1) the
Acquisition Price per Share over (2) the Option Price per share of Common
Stock at which the Related LSAR Option is exercisable, by (B) the number of
shares of Common Stock with respect to which such Limited Right is being
exercised.
(iii) The term "Merger Price per Share" as used herein shall mean, with
respect to the exercise of any Limited Right by reason of shareholder
approval of an agreement described in Section 11(b)(ii) below, the greater
of (A) the fixed or formula price for the acquisition of shares of Common
Stock specified in such agreement, if such fixed or formula price is
determinable on the date on which such Limited Right is exercised, (B) the
highest price paid in any tender or exchange offer which is in effect at
any time during the ninety-day period ending on the date of exercise of the
Limited Right, or (C) the highest Fair Market Value per share of Common
Stock during the ninety-day period ending on the date on which such Limited
Right is exercised.
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(iv) The term "Merger Spread" as used herein shall mean an amount equal
to the product computed by multiplying (A) the excess of (1) the Merger
Price per Share over (2) the Option Price per share of Common Stock at
which the related Option is exercisable, by (B) the number of shares of
Common Stock with respect to which such Limited Right is being exercised.
(v) The term "Spread" as used herein shall mean, with respect to the
exercise of any Limited Right by reason of a change in the composition of
the Board described in Section 11(b)(iii) or shareholder approval of a plan
or agreement described in Section 11(b)(iv) below, an amount equal to the
product computed by multiplying (i) the excess of (A) the greater of (1)
the highest price paid in any tender or exchange offer which is in effect
at any time during the ninety-day period ending on the date of exercise of
the Limited Right or (2) the highest Fair Market Value per share of Common
Stock during the ninety-day period ending on the date the Limited Right is
exercised over (B) the Option Price per share of Common Stock at which the
related Option is exercisable, by (ii) the number of shares of Common Stock
with respect to which the Limited Right is being exercised.
(e) Treatment of Related Options and Limited Rights Upon Exercise. Upon the
exercise of a Limited Right, the related Option shall cease to be exercisable
to the extent of the shares of Common Stock with respect to which such Limited
Right is exercised, but shall be considered to have been exercised to that
extent for purposes of determining the number of shares of Common Stock
available for the grant of further awards pursuant to this Plan. Upon the
exercise or termination of a related Option, the Limited Right with respect to
such related Option shall terminate to the extent of the shares of Common Stock
with respect to which the related Option was exercised or terminated.
(f) Method of Exercise. To exercise a Limited Right, the Grantee shall (i)
deliver written notice to the Secretary of the Company specifying the number of
shares of Common Stock with respect to which the Limited Right is being
exercised, and (ii) if requested by the Committee, deliver the Agreement
evidencing the Limited Rights being exercised and, if applicable, the Option
Agreement evidencing the related Option to the Secretary of the Company, who
shall endorse thereon a notation of such exercise and return such Agreements to
the Grantee. The date of exercise of a Limited Right that is validly exercised
shall be deemed to be the date on which there shall have been delivered the
instruments referred to in the first sentence of this paragraph (f).
11. Effect of Certain Changes.
(a) In the event of any extraordinary dividend, stock dividend,
recapitalization, reclassification, merger, consolidation, stock split, warrant
or rights issuance, or combination or exchange of such shares, or other similar
transactions, the number of shares of Common Stock available for awards, the
number of such shares covered by outstanding awards, and the price per share of
Options or the applicable market value of Stock Appreciation Rights or Limited
Rights shall be equitably adjusted by the Committee to reflect such event and
preserve the value of such awards; provided, however, that any fractional
shares resulting from such adjustment shall be eliminated.
(b) If, while any awards remain outstanding under the Plan, any of the
following events shall occur (which events shall constitute a "Change in
Control of the Company")--
(i) any "person," as such term is used in Sections 13(d) and 14(d) of the
Exchange Act (other than (1) the Company, (2) any trustee or other
fiduciary holding securities under an employee benefit plan of the Company
or any of its Subsidiaries, or (3) any corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of Common Stock), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing more than
50% of the combined voting power of the Company's then outstanding voting
securities;
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(ii) during any period of not more than two consecutive years, not
including any period prior to the adoption of this Plan, individuals who at
the beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in clause (i),
(iii), or (iv) of this Section 11(b)) whose election by the Board or
nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds ( 2/3) of the directors then still in office
who either were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for any reason
to constitute at least a majority thereof;
(iii) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving or parent entity) 50% or more of the combined voting power of the
voting securities of the Company or such surviving or parent entity
outstanding immediately after such merger or consolidation or (B) a merger
or consolidation in which no "person" (as hereinabove defined) acquired 50%
or more of the combined voting power of the Company's then outstanding
securities; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets (or any
transaction having a similar effect)--
then from and after the date on which any such Change in Control shall have
occurred (the "Acceleration Date"), the award covered by such Agreement shall
be exercisable or otherwise nonforfeitable in full, whether or not otherwise
exercisable or forfeitable.
(c) In the event of a change in the Common Stock of the Company as presently
constituted that is limited to a change of all of its authorized shares of
Common Stock into the same number of shares with a different par value or
without par value, the shares resulting from any such change shall be deemed to
be the Common Stock within the meaning of the Plan.
12. Period During Which Awards May Be Granted.
Awards may be granted pursuant to the Plan from time to time within a period
of ten (10) years from the date the Plan is adopted by the Board.
13. Nontransferability of Awards.
Awards granted under the Plan shall not be transferable otherwise than by
will or by the laws of descent and distribution, and awards may be exercised or
otherwise realized, during the lifetime of the Grantee, only by the Grantee or
by his guardian or legal representative.
14. Approval of Shareholders.
The Plan shall take effect upon its adoption by the Board but the Plan (and
any grants of awards made prior to the shareholder approval mentioned herein)
shall be subject to the approval of the holder(s) of a majority of the issued
and outstanding shares of voting securities of the company entitled to vote,
which approval must occur within twelve months of the date the Plan is adopted
by the Board.
15. Agreement by Grantee Regarding Withholding Taxes.
If the Committee shall so require, as a condition of exercise of an Option,
Stock Appreciation Right or Limited Right (each a "Tax Event"), each Grantee
shall agree that no later than the date of the Tax Event, the Grantee will pay
to the Company or make arrangements satisfactory to the Committee regarding
payment
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of any federal, state or local taxes of any kind required by law to be withheld
upon the Tax Event. Alternatively, the Committee may provide that a Grantee may
elect, to the extent permitted or required by law, to have the Company deduct
federal, state and local taxes of any kind required by law to be withheld upon
the Tax Event from any payment of any kind due to the Grantee. The withholding
obligation may be satisfied by the withholding or delivery of Common Stock.
16. Amendment and Termination of the Plan.
The Board at any time and from time to time may suspend, terminate, modify or
amend the Plan; provided, however, that an amendment which requires stockholder
approval in order for the Plan to continue to comply with Rule 16b-3 or any
other law, regulation or stock exchange requirement shall not be effective
unless approved by the requisite vote of stockholders. Except as provided in
Section 11(a) hereof, no suspension, termination, modification or amendment of
the Plan may adversely affect any award previously granted without the written
consent of the Grantee.
17. Rights as a Shareholder.
A Grantee or a transferee of an award shall have no rights as a shareholder
with respect to any shares covered by the award until the date of the issuance
of a stock certificate to him for such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distribution of other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Section 11(a)
hereof.
18. No Rights to Employment.
Nothing in the Plan or in any award granted or Agreement entered into
pursuant hereto shall confer upon any Grantee the right to continue in the
employ of, or in a consultant relationship with, the Company or any Subsidiary
or to be entitled to any remuneration or benefits not set forth in the Plan or
such Agreement or to interfere with or limit in any way the right of the
Company or any such Subsidiary to terminate such Grantee's employment. Awards
granted under the Plan shall not be affected by any change in duties or
position of a Grantee as long as such Grantee continues to be employed by, or
in a consultant relationship with, the Company or any Subsidiary.
19. Beneficiary.
A Grantee may file with the Committee a written designation of a beneficiary
on such form as may be prescribed by the Committee and may, from time to time,
amend or revoke such designation. If no designated beneficiary survives the
Grantee, the executor or administrator of the Grantee's estate shall be deemed
to be the Grantee's beneficiary.
20. Governing Law.
The Plan and all determinations made and actions taken pursuant hereto shall
be governed by the laws of the State of New York.
21. Effective Date and Duration of the Plan.
This Plan shall be effective as of the date it is ratified by the
shareholders of the Company, and shall terminate on the later of (a) the tenth
anniversary of such date or (b) the last expiration of awards granted
hereunder.
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GRAPHICS APPENDIX LIST
PAGE WHERE
GRAPHIC
APPEARS DESCRIPTION OF GRAPHIC OR CROSS REFERENCE
- --------------------------------------------------------------------------------
123 This graph provides a graphic comparison of the performance of
OrNda common stock from 8/31/88 until 8/31/93 with the CRSP
Index for Nasdaq Stock (U.S. Companies) and the CRSP Index for
Nasdaq Health Services Stocks.
