SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant [X]
Filed by a pay other than the registrant [ ]
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a- 11c) or Rule 14a-12
[ ] Confidential, For Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
Consolidated Health Care Associates, Inc.
(Name of Registrant as Specified in its Charter)
Consolidated Health Care Associates, Inc.
(Name of Person Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-
6(I)(1) and 0-11
(1) Title of each class of securities to which transaction
applies: N/A
(2) Aggregate number of securities to which transaction
applies: N/A
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: N/A
(4) Proposed maximum aggregate value of transaction: N/A
[ ] 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 number, or the form or schedule
and the date of its filing.
(1) Amount Previously Paid: N/A
(2) Form, Schedule or Registration Statement no: N/A
(3) Filing Party: Consolidated Health Care Associates, Inc.
(4) Date Filed: March 5, 1998
March 16, 1998
Dear Stockholder:
You are cordially invited to attend the Special Meeting of
Stockholders of Consolidated Health Care Associates, Inc., to be
held at 10:00 a.m. CST, on March 27, 1998 at the offices of San
Jacinto Securities, 5949 Sherry Lane, Dallas, Texas 75225
At the Special Meeting, you will be asked to consider and
vote upon a proposal to approve adopt an Asset Purchase
Agreement dated as of March 5, 1998 (the "Purchase Agreement")
by and among Consolidated Health Care Associates, Inc., a Nevada
corporation ("Consolidated"), PTS Rehab, Inc., a Connecticut
corporation and a wholly-owned subsidiary of Consolidated
("PTS"), NovaCare, Inc., a Delaware corporation ("NovaCare") and
RehabClinics (SPT), Inc., a Delaware corporation d/b/a NovaCare
Outpatient Rehabilitation ("Purchaser") and a wholly-owned
subsidiary of NovaCare. Pursuant to the Purchase Agreement, the
Purchaser will purchase substantially all of the assets of PTS
relating solely to the four outpatient clinics located in
Attleboro, Leominster, Pittsfield and West Bridgewater,
Massachusetts and the related leases, provider agreements,
service agreements and professional contracts, and assume
certain limited disclosed liabilities of PTS and Consolidated
related to such assets, for aggregate consideration of
approximately $1,600,000, consisting of $1,100,000, in cash and
a $500,000 6% subordinated, three year promissory note of the
Purchaser subject to offset for indemnification damages under
the Purchase Agreement (the "Purchaser's Note") (collectively,
the "Sale"). The Purchaser's Note will be guaranteed by
NovaCare.
At the special meeting of Consolidated's Stockholders held
on January 13, 1998, Stockholders considered and approved an
Asset Purchase Agreement dated as of November 20, 1997 with
Olympus Outpatient Services, Inc., a Massachusetts corporation
("Olympus Subsidiary") and a wholly-owned subsidiary of Olympus
Health Care Group, Inc., a Delaware corporation ("Olympus") (the
"Olympus Purchase Agreement"), pursuant to which substantially
all of the assets of PTS relating solely to the four outpatient
clinics located in Attleboro, Leominster, Pittsburgh and West
Bridgewater, Massachusetts and the related leases, provider
agreements, service agreements, service agreements or
professional contracts were to have been sold to the Olympus
Subsidiary for aggregate consideration of approximately
$1,700,000 in cash. Stockholders holding more than a majority
of the total outstanding shares of Common Stock of Consolidated
as well as 95% of the shares represented at that special meeting
voted in favor of the adoption of the proposed Olympus Purchase
Agreement. However, Olympus has not yet completed its financing
to obtain funds to pay the purchase price under the Olympus
Purchase Agreement. Accordingly, your Board of Directors
believes that termination of the Olympus Purchase Agreement and
consummation of the proposed sale of the PTS assets and Business
to the Purchaser and NovaCare is in the best interests of
Consolidated and its stockholders. At the Special Meeting, you
will be asked to consider and vote upon a proposal to ratify,
approve and confirm termination of, and revocation of approval
and adoption by the stockholders of, the Olympus Purchase
Agreement.
Your Board of Directors has carefully reviewed and
considered the terms and conditions of the Purchase Agreement
and has received the opinion (the "Fairness Opinion") of ]'he
Mayflower Group, Ltd. of Boston, Massachusetts, Consolidated's
financial advisor, that, as of March 5, 1998 and based on the
matters stated therein, the consideration to be received by
Consolidated in the Sale is fair to Consolidated from a
financial point of view. A copy of the Fairness Opinion is
attached as Annex B to the accompanying Proxy Statement. The
Board of Directors believes that the Sale is fair to, and in the
best interests of, Consolidated and its stockholders. The Board
has approved the terms of the Sale and recommends that you vote
to approve the Purchase Agreement. The Board has also
considered termination of the Olympus Purchase Agreement which,
is a condition precedent to consummation of the Purchase
Agreement with NovaCare and the Purchaser. Accordingly, the
Board recommends that you vote to approve ratification of such
termination.
In addition to approving the Purchase Agreement and
ratification of termination of the Olympus Purchase Agreement,
at the Special Meeting you will also be asked to consider and
vote upon a proposal to grant authority and power to the
President and the Treasurer and each other officer of
Consolidated as shall be designated by the President (each
individually, a "Proper Officer" and collectively, the "Proper
Officers") authority and power to exercise his sole discretion
in negotiating the definitive terms and conditions of the
Purchase Agreement and to execute and deliver the Purchase
Agreement and any other agreements, documents and instruments
contemplated thereby to effectuate the transactions contemplated
therein, with such changes therein and modifications and
amendments thereto as any such Proper Officer may in his
discretion approve, such execution and delivery thereof to be
conclusive evidence of his or their authority.
The accompanying Proxy Statement provides detailed
information concerning the proposed Sale and the related
proposals and additional information, which you are urged to
read carefully.
Whether or not you expect to attend the meeting, we urge
you to sign and date the enclosed proxy and return it promptly
in the envelope provided. You may attend the meeting and vote
in person even if you have previously returned your proxy.
Sincerely,
/s/ James Kenney
James Kenney
Chairman of the Board
Consolidated Health Care Associates, Inc.
38 Pond Street
Franklin, Massachusetts 02038
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Notice of Special Meeting of Stockholders
---------------------------------------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of the
Stockholders of Consolidated Health Care Associates, Inc., (the
"Company") will be held on March 27, 1998, at 10:00 am CST at
the offices of San Jacinto Securities, 5949 Sherry Lane, Dallas,
Texas 75225.
The meeting is called for the purpose of considering and
voting upon:
(1) A proposal (the "Sale Proposal") to approve and adopt
an Asset Purchase Agreement dated as of March 5, 1998 (the
"Purchase Agreement") among the Company, PTS Rehab, Inc., a
Connecticut corporation and a wholly-owned subsidiary of
Consolidated ("PTS"), NovaCare, Inc., a Delaware corporation
("NovaCare") and RehabClinics (SPT), Inc., a Delaware
corporation d/b/a NovaCare Outpatient Rehabilitation
("Purchaser") and a wholly-owned subsidiary of NovaCare.
Pursuant to the Purchase Agreement, the Purchaser will purchase
substantially all of the assets of PTS related solely to the
four outpatient clinics operated by PTS which are located in
Attleboro, Leominster, Pittsfield and West Bridgewater,
Massachusetts, and provide among other things, ancillary health
care and out patient rehabilitation services the "Business"),
the Leases therefor and related Provider Agreements, Service
Agreements and Professional Contracts with therapists, therapist
aides and aides serving the Business (the "Purchased Assets")
and assume certain limited disclosed liabilities of PTS and
Consolidated related to such assets, for aggregate consideration
of $1,600,000, consisting of $1,100,000 in cash and a $500,000
6% subordinated, three year promissory note of the Purchaser
subject to offset for indemnification damages under the Purchase
Agreement (the "Purchaser's Note") (collectively, the "Sale").
The Purchaser's Note will be guaranteed by NovaCare. A copy of
the Purchase Agreement and Promissory Note and Guaranty are
collectively attached as Annex A to the Proxy Statement
accompanying this Notice.
(2) A proposal (the "Termination Proposal") to ratify,
approve and confirm termination of, and revocation of approval
and adoption by stockholders of, that certain Asset Purchase
Agreement dated as of November 20, 1997 by and among
Consolidated and PTS and Olympus Outpatient Services, Inc., a
Massachusetts corporation ("Olympus Subsidiary") and a wholly-
owned subsidiary of Olympus Health Care Group, Inc., a Delaware
corporation ("Olympus") (the "Olympus Purchase Agreement"),
pursuant to which substantially all of the assets of PTS
relating solely to the four outpatient clinics located in
Attleboro, Leominster, Pittsburgh and West Bridgewater,
Massachusetts and the related business were to have been sold to
the Olympus Subsidiary.
(3) A proposal (the "Authorization Proposal") to grant
authority and power to the President and the Treasurer and each
other officer of Consolidated as shall be designated by the
President (each individually, a "Proper Officer" and
collectively, the "Proper Officers") authority and power to
exercise his sole discretion in negotiating the definitive terms
and conditions of the Purchase Agreement and to execute and
deliver the Purchase Agreement and any other agreements,
documents and instruments contemplated thereby to effectuate the
transactions contemplated therein, with such changes therein and
modifications and amendments thereto as any such Proper Officer
may in his discretion approve, such execution and delivery
thereof to be conclusive evidence of his or their authority
under this Authorization Proposal.
(4) Matters incident to the conduct of the Special Meeting
or any adjournments or postponements thereof.
The proposed Sale, the Termination Proposal and the
Authorization Proposal and related matters are more fully
described in the accompanying Proxy Statement and the Annexes
thereto.
The Board of Directors has fixed the close of business on
February 27, 1998, as the record date for determining the
stockholders entitled to notice of and to vote at the meeting
and any adjournment thereof.
If you would like to attend the meeting and your shares are
held by a broker, bank or other nominee, you must bring to the
meeting a recent brokerage statement or a letter from the
nominee confirming your beneficial ownership of the shares. You
must also bring a form of personal identification. In order to
vote your shares at the meeting, you must obtain from the
nominee a proxy issued in your name.
You can ensure that your shares are voted at the meeting by
signing and dating the enclosed proxy and returning it in the
envelope provided. Sending in a signed proxy will not affect
your right to attend the meeting and vote in person. You may
revoke your proxy at any time before it is voted by notifying
the Secretary of the Company in writing, or by executing a
subsequent proxy, which revokes your previously executed proxy.
Whether or not you expect to attend, WE URGE YOU TO SIGN
AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENVELOPE PROVIDED.
By Order of the Board of Directors
/s/ Raymond L. LeBlanc
Raymond L. LeBlanc, Secretary
Franklin, Massachusetts
March 16, 1998
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
PROXY STATEMENT
This Proxy Statement is being furnished to holders of
Common Stock, $.012 par value (the "Consolidated Common Stock")
of Consolidated Health Care Associates, Inc., a Nevada
corporation ("Consolidated" or the "Company"), in connection
with the solicitation of proxies by its Board of Directors for
use at a Special Meeting of Stockholders of the Company (the
"Special Meeting") scheduled to be held on March 27, 1998, at
10:00 am CST, at offices of San Jacinto Securities, 5949 Sherry
Lane, Dallas, Texas 75225, and at any adjournment or
postponement thereof.
At the Special Meeting, the holders of Consolidated Common
Stock will be asked to consider and vote upon a proposal (the
"Sale Proposal") to sell substantially all of the assets of PTS
Rehab, Inc., a Connecticut corporation and a wholly-owned
subsidiary of Consolidated ("PTS") related solely to the four
outpatient clinics operated by PTS which are located in
Attleboro, Leominster, Pittsfield and West Bridgewater,
Massachusetts, which provide among other things, ancillary
health care and out patient rehabilitation services ( the
"Business"), the Leases therefor and related Provider
Agreements, Service Agreements and Professional Contracts with
therapists, therapist aides and aides serving the Business (the
"Purchased Assets") to RehabClinics (SPT), Inc., a Delaware
corporation, d/b/a NovaCare Outpatient Rehabilitation
("Purchaser") and a wholly-owned subsidiary of NovaCare, Inc. a
Delaware corporation ("NovaCare"), pursuant to an Asset Purchase
Agreement dated as of March 5, 1998 (the "Purchase Agreement").
Under the Purchase Agreement, the Purchaser will assume certain
limited disclosed liabilities of PTS and Consolidated related to
the Purchased Assets and will pay an aggregate consideration of
approximately $1,600,000, consisting of $1,100,000 in cash and a
$500,000, 6% subordinated, three year promissory note of the
Purchaser, subject to offset for indemnification damages under
the Purchase Agreement (the "Purchaser's Note") (collectively,
the "Sale"). The Purchaser's Note will be guaranteed by
NovaCare.
At the special meeting of Consolidated's Stockholders held
on January 13, 1998, Stockholders considered and approved an
Asset Purchase Agreement dated as of November 20, 1997 with
Olympus Outpatient Services, Inc., a Massachusetts corporation
("Olympus Subsidiary") and a wholly-owned subsidiary of Olympus
Health Care Group, Inc., a Delaware corporation ("Olympus")
pursuant to which substantially all of the assets of PTS
relating solely to the four outpatient clinics located in
Attleboro, Leominster, Pittsburgh and West Bridgewater,
Massachusetts and the related leases, provider agreements,
service agreements, service agreements or professional contracts
were to have been sold to the Olympus Subsidiary for an
aggregate consideration of approximately $1,700,000 in cash.
Stockholders holding more than a majority of the total
outstanding shares of Common Stock of Consolidated as well as
95% of the shares represented at the meeting voted in favor of
the adoption of the proposed Olympus Purchase Agreement.
However, Olympus has not yet completed its financing to obtain
funds to pay the purchase price under the Olympus Purchase
Agreement. Accordingly, your Board of Directors believes that
termination of the Olympus Purchase Agreement and consummation
of the proposed sale of the PTS assets and business to the
Purchaser and NovaCare is in the best interests of Consolidated
and its stockholders. At the Special Meeting, you will be
asked to consider and vote upon a proposal (the "Termination
Proposal") to ratify, approve and confirm termination of, and
revocation of approval and adoption by stockholders of the
Olympus Purchase Agreement.
In addition to approving the Purchase Agreement and
ratification of termination of the Olympus Purchase Agreement,
at the Special Meeting stockholders will also be asked to
consider and vote upon a proposal (the "Authorization Proposal")
to grant to the President and the Treasurer and each other
officer of Consolidated as shall be designated by the President
(each individually, a "Proper Officer" and collectively, the
"Proper Officers") authority and power to exercise his sole
discretion in negotiating the definitive terms and conditions of
the Purchase Agreement and to execute and deliver the Purchase
Agreement and any other agreements, documents and instruments
contemplated thereby to effectuate the transactions contemplated
therein, with such changes therein and modifications and
amendments thereto as any such Proper Officer may in his
discretion approve, such execution and delivery thereof to be
conclusive evidence of his or their authority under the
Authorization Proposal.
For purposes of this Proxy Statement, the term "Other
Incidental Matters" shall mean the Termination Proposal and the
Authorization Proposal, taken together.
FOR A DESCRIPTION OF CERTAIN CONSIDERATIONS THAT SHOULD BE
CONSIDERED BY STOCKHOLDERS IN CONNECTION WITH THE SALE, SEE "THE
SALE OF ASSETS - RISK FACTORS." UNDER NEVADA LAW, HOLDERS OF
CONSOLIDATED COMMON STOCK WILL NOT HAVE DISSENTERS' RIGHTS OF
APPRAISAL IN CONNECTION WITH THE SALE. SEE "THE SALE --
DISSENTER'S RIGHTS."
A proxy in the form accompanying this Proxy Statement, when
properly executed and returned, will be voted in accordance with
the directions specified on the proxy. Any proxy which does not
withhold authority to vote or on which no other instructions are
given will be voted (a) FOR the Sale Proposal; (b) FOR the
Termination Proposal; and (c) FOR the Authorization Proposal.
Any proxy may be revoked at any time before it is voted by
delivering written notice of revocation to the Secretary of the
Company, by duly executing a proxy bearing a later date, or by
voting in person at the Special Meeting.
This Proxy Statement and the accompanying Notice and form
of proxy are being mailed to Stockholders on or about March 16,
1998.
The date of this Proxy Statement is March 16, 1998.
TABLE OF CONTENTS
AVAILABLE INFORMATION
INCORPORATION OF DOCUMENTS BY REFERENCE
CAUTIONARY STATEMENT
SUMMARY
The Special Meeting
Change of Vote
The Sale
Opinion of Financial Advisor
Interests of Certain Persons in the Sale
Federal Income Tax Consequences
Anticipated Accounting Treatment
Selected Historical and Pro Forma Financial Data
RISK FACTORS
CONSEQUENCES TO CONSOLIDATED SHOULD THE SALE PROPOSAL
NOT BE APPROVED
SPECIAL MEETING
Purpose of the Special Meeting
Record Date
Quorum
Required Vote
Voting Rights: Proxies
Solicitation of Proxies
THE SALE
Background of the Sale
Recommendation of the Board of Directors of Consolidated;
Reasons for the Sale
Business of Consolidated After the Sale
Opinion of Consolidated's Financial Advisor
Interests of Certain Persons in the Sale
Certain Federal Income Tax Consequences
Anticipated Accounting Treatment
Dividend Policy
Dissenter's Rights
Fees and Expenses
THE PURCHASE AGREEMENT
Terms of the Sale
Representations and Warranties
Certain Conditions to Closing the Sale
Indemnification and Other Post Closing Obligations
Post Closing Transitional Matters
No Solicitations and Standstill
Waiver of Conditions, Dispute Resolution
Additional Agreements
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
FOR CONSOLIDATED
BUSINESS - CONSOLIDATED
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY -
CONSOLIDATED
MANAGEMENT - CONSOLIDATED
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DESCRIPTION OF CONSOLIDATED SECURITIES
BUSINESS - NOVACARE
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS OF
CONSOLIDATED
OTHER RELATED MATTERS
Termination Of Olympus Purchase Agreement
Authorization Of Proper Officers
OTHER INCIDENTAL MATTERS
LEGAL MATTERS
EXPERTS
STOCKHOLDERS PROPOSALS
Annexes:
A. Purchase Agreement, Purchaser's Note and Guaranty
B. Opinion of Consolidated's Financial Advisor, The
Mayflower Group, Ltd.
AVAILABLE INFORMATION
Consolidated is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith files reports,
proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed may be inspected and
copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, DC 20549 and may be available at the following
Regional Offices of the Commission: Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 6066 1; and New York Regional Office, 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of
such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, DC 20549. Consolidated
makes filings of reports, proxy statements and other information
pursuant to the Exchange Act with the Commission electronically,
and such materials may be inspected and copied at the
Commission's Web site (http://www.sec.gov).
Statements contained herein concerning the provisions of
documents are necessarily summaries of such documents, and each
statement is qualified in its entirety by reference to the copy
of the applicable document filed with the Commission or attached
as an Annex hereto.
INCORPORATION OF DOCUMENTS BY REFERENCE
Consolidated hereby incorporates by reference into this
Proxy Statement the following documents previously filed with
the Commission pursuant to the Exchange Act:
1. Consolidated's Current Report(s) on Form 8-K filed on
December 12, 1997;
2. Consolidated's Quarterly Reports on Form 10-QSB for
the quarters ended March 31, 1997, June 30, 1997 and September
30, 1997;
3. Consolidated's Annual Report on Form 10-KSB for the
fiscal year ended December 3 1, 1996.
In addition, all reports and other documents filed by
Consolidated pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date hereof and prior to the
Special Meeting shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such
reports and documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes
of this Proxy Statement to the extent that a statement contained
herein (or in the case of any statement in such an incorporated
document), or in any other subsequently filed document that also
is incorporated or deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a pan of this Proxy
Statement.
This Proxy Statement incorporates documents by reference
which are not presented herein or delivered herewith. These
documents (other than exhibits to such documents unless such
exhibits are specifically incorporated by reference herein) arc
available, without charge, upon written or oral request by any
person to whom this Proxy Statement is delivered, including any
beneficial owner, to Consolidated Health Care Associates, Inc.,
38 Pond Street, Suite 305, Franklin, Massachusetts 02038.
Attention: Raymond L. LeBlanc, Secretary (telephone no. (508)
543-5055). In order to ensure timely delivery of the documents,
any request should be made before March 23, 1998.
CAUTIONARY STATEMENT
When used in this Proxy Statement with respect to Consolidated,
the words "estimate," to project," "intend," "expect" and
similar expressions are intended to identify forward-looking
statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the
date of this Proxy Statement. Such statements are subject to
risks and uncertainties that could cause actual results to
differ materially from those contemplated in such forward-
looking statements. Such risks and uncertainties include those
risks, uncertainties and risk factors identified under the
heading "Forward Looking Information Is Subject to Risk and
Uncertainty" accompanying 'Management's Discussion and Analysis
of Results of Operations, Financial Condition and Business
Environment" that is in the Consolidated Annual Report on Form
10-KSB for the fiscal year ended December 31, 1996.
Consolidated does not undertake any obligation to publicly
release any revisions to these forward-looking statements to
reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
SUMMARY
The following is a brief summary of certain information
contained elsewhere in this Proxy Statement and the Annexes
hereto. This summary does not contain a complete statement of
all material information relating to the Purchase Agreement and
the Sale and the Other Related Matters and is subject to, and is
qualified in its entirety by, the more detailed information and
financial statements contained or incorporated by reference in
this Proxy Statement. Stockholders of Consolidated should read
carefully this Proxy Statement in its entirety. Certain
capitalized terms used in this summary are defined elsewhere in
this Proxy Statement.
The Special Meeting
Time, Place and Date
The Special Meeting of Consolidated's stockholders will be
held on March 26, 1998, at 10:00 am CST at the offices of San
Jacinto Securities, 5949 Sherry Lane, Suite 960, Dallas, Texas
(including any and all adjournments or postponements thereof,
the "Special Meeting").
Purposes of the Special Meeting
At the Special Meeting, holders of Consolidated stock will
consider and vote upon the Sale Proposal, the Termination
Proposal and the Authorization Proposal. The assets to be
purchased by the Purchaser (the "Purchased Assets") consist
primarily of the four outpatient clinics operated by PTS as part
of the Business which are located in Attleboro, Leominster,
Pittsfield and West Bridgewater, Massachusetts, the Leases
therefor and related Provider Agreements, Service Agreements and
Professional Contracts with therapists, therapist aides and
aides serving the Business. See "The Sale - The Sale Purchased
Assets and Business."
At the special meeting of Consolidated's Stockholders held
on January 13, 1998, Stockholders considered and approved an
Asset Purchase Agreement dated as of November 20, 1997 with
Olympus Outpatient Services, Inc., a Massachusetts corporation
("Olympus Subsidiary") and a wholly-owned subsidiary of Olympus
Health Care Group, Inc., a Delaware corporation ("Olympus"),
pursuant to which substantially all of the assets of PTS
relating solely to the four outpatient clinics located in
Attleboro, Leominster, Pittsburgh and West Bridgewater,
Massachusetts and the Business were to be sold to the Olympus
Subsidiary for an aggregate consideration of approximately
$1,700,000 in cash. Stockholders holding more than a majority
of the total outstanding shares of common stock of Consolidated
as well as 95% of the shares represented at the meeting voted in
favor of the adoption of the proposed Olympus Purchase
Agreement. However, Olympus has not yet completed its financing
to obtain funds to pay the purchase price under the Olympus
Purchase Agreement. Accordingly, your Board of Directors
believes that termination of the Olympus Purchase Agreement and
consummation of the proposed sale of the PTS assets and business
to the Purchaser and NovaCare is in the best interests of
Consolidated and its stockholders. At the Special Meeting,
stockholders will be asked to consider and vote upon the
Termination Proposal to ratify, approve and confirm termination
of, and revocation of approval and adoption by stockholders of,
the Olympus Purchase Agreement.
The Board of Directors of Consolidated has approved the
Purchase Agreement and the Sale Proposal and recommends that
Consolidated stockholders vote FOR approval of the Sale
Proposal. See "The Sale -- Background of the Sale" and
"Recommendation of the Board of Directors of Consolidated;
Reasons for the Sale." The Board has also considered
termination of the Olympus Purchase Agreement which, is a
condition precedent to consummation of the Purchase Agreement
with NovaCare and the Purchaser. Accordingly, the Board
recommends that stockholders vote FOR approval of the
Termination Proposal to approve ratification of such
termination, and revocation of approval and adoption by
stockholders of, the Olympus Purchase Agreement.
In addition to approving the Purchase Agreement and
ratification of termination of the Olympus Purchase Agreement,
at the Special Meeting stockholders will also be asked to
consider and vote upon the Authorization Proposal to grant to
the President and the Treasurer and each other officer of
Consolidated as shall be designated by the President (each
individually, a "Proper Officer" and collectively, the "Proper
Officers") of authority and power to exercise his sole
discretion in negotiating the definitive terms and conditions of
the Purchase Agreement and to execute and deliver the Purchase
Agreement and any other agreements, documents and instruments
contemplated thereby to effectuate the transactions contemplated
therein, with such changes therein and modifications and
amendments thereto as any such proper officer may in his
discretion approve. The Board of Directors of Consolidated
believes that it is in the best interests of Consolidated and
its stockholders to grant such authority and power to the Proper
Officers to facilitate consummation of the Purchase Agreement
with NovaCare and the Purchaser. Accordingly, the Board
recommends that stockholders vote FOR approval of the
Authorization Proposal granting such authority and power.
Votes Required; Quorum; Record Date
Under Nevada law and Consolidated's Articles of
Incorporation, the Sale Proposal will require approval by the
affirmative vote of the holders of a majority of the votes cast
on this matter, provided that the total vote cast on this matter
represents more than 50% in interest of the shares of
Consolidated Common Stock outstanding and entitled to vote.
Approval of each of the Termination Proposal and of the
Authorization Proposal will require the affirmative vote of a
majority of the holders of the votes thereon. The presence in
person or by properly executed proxy of holders of a majority
of the shares of Consolidated Common Stock entitled to vote at
the Special Meeting will constitute a quorum for the transaction
of business. Each outstanding share of Consolidated Common
Stock is entitled to one vote. Only holders of Consolidated
Common Stock at the close of business on February 27, 1998 (the
"Record Date") will be entitled to notice of and to vote at the
Special Meeting. See "Special Meeting."
The directors and executive officers of Consolidated and
their affiliates own as a group approximately 7.04% of the
outstanding shares of Consolidated Common Stock. Holders of
approximately 40.14% of the Consolidated Common Stock
outstanding as of the date of the Purchase Agreement (including
the directors and executive officers of Consolidated and their
affiliates) have indicated in writing their intentions to vote
in favor of each of the Sale Proposal, the Termination Proposal
and the Authorization Proposal.
Change of Vote
Consolidated stockholders who have executed a proxy may
revoke the proxy at any time prior to its exercise at the
Special Meeting by giving written notice to Raymond L. LeBlanc,
Secretary, Consolidated Health Care Associates, Inc., 38 Pond
Street, Franklin, Massachusetts 02038, by signing and returning
a later dated proxy, or by voting in person at the Special
Meeting.
The Sale
The Sale; Purchased Assets; Business
Consolidated, through its wholly-owned subsidiary PTS,
operates four outpatient clinics located in Attleboro,
Leominster, Pittsfield and West Bridgewater, Massachusetts on
premises leased from third parties (the "Centers"), which
provide ancillary health care and outpatient rehabilitation
services (the "Business"). Pursuant to the Purchase Agreement,
the Purchaser will acquire substantially all of the assets of
PTS related solely to the Business (the "Purchased Assets") and
assume certain limited disclosed liabilities of PTS and
Consolidated related to such assets.
The Purchased Assets to be purchased by the Purchaser
consist among other things of (i) leases which will be assumed
by the Purchaser of the four Centers with third parties (the
"Leases"), (ii) provider agreements in effect for the benefit of
operation of the Business relating to rights of payment or
participation in third party payor programs (collectively, the
"Provider Agreements"), (iii) service, consulting or management
agreements pursuant to which PTS or professionals acting on its
behalf provide rehabilitation, therapy, health care management,
home health care or other services to customers (collectively,
the "Service Agreements"), (iv) employment, service or
management agreements pursuant to which PTS employs or otherwise
obtains the services of therapists, therapist aides and aides
(collectively, the "Professional Contracts") and (v) other
contract rights, patient records (to be acquired pursuant to the
Auxiliary Purchase Agreement), financial books and records and
goodwill of PTS used in or related to the Business, except for
vehicles, loans to or from stockholders or affiliates, cash and
cash equivalents and accounts receivable (collectively the
"Excluded Assets").
Sale Consideration
The Purchaser will pay PTS as aggregate consideration
$1,600,000 consisting of $1,100,000 in cash and the Purchaser's
Note in the principal amount of $500,000, subject to offset for
indemnification damages under the Purchaser Agreement (the
"Purchaser's Note). The Purchaser's Note will be guaranteed by
NovaCare, the corporate parent of the Purchaser. The Purchaser
will also assume certain disclosed accounts payable of PTS and
Consolidated related to the Purchased Assets up to an aggregate
of $75,000. See "The Purchase Agreement -- Terms of the Sale."
Conditions to the Sale
The obligations of the Purchaser and the Selling Group to
consummate the Sale are subject to various conditions, including
but not limited to: (1) obtaining requisite approval from
Consolidated stockholders; (ii) obtaining approvals or consents
of lessors under the Leases of the Centers to be assigned to the
Purchaser; (iii) obtaining approvals or consents as to the
assignment to the Purchaser of the Provider Agreements, Service
Agreements, Professional Contracts and other contracts requiring
consent; (iv) obtaining an agreement terminating the Olympus
Purchase Agreement and effecting a release of any and all claims
of Olympus against Consolidated, PTS and others; (v) the Company
entering into an agreement of purchase and sale with Mass.,
P.C., Inc., an Affiliate of NovaCare, with respect to patient
records and certain related assets to be transferred by PTS (the
"Auxiliary Purchase Agreement"); (vi) PTS having entered into a
Management Agreement (the "Management Agreement") in order to
permit Purchaser to continue to provide and bill for services
following the closing and until Purchaser has obtained all
necessary regulatory approvals and contracts assignments; and
(vii) other customary conditions, all or any of which conditions
may be waived in writing. See "The Purchase Agreement --
Conditions to the Sale."
Dividends
Consolidated is not in a position to declare, set aside,
make or pay any dividend or other distribution in respect of its
capital stock.
Dissenters' Rights
Under the General Corporation Law of the State of Nevada,
the holders of Consolidated Common Stock are not entitled to any
appraisal or dissenters' rights with respect to the Sale or the
Other Incidental Matters. See "The Sale - Dissenters' Rights."
Opinion of Financial Advisor
The Mayflower Group, Ltd. of Boston, Massachusetts
("Mayflower") delivered its written Fairness Opinion dated March
5, 1998 to the Board of Directors of Consolidated that, as of
such date, among other matters, the Sale of the Purchased Assets
to the Purchaser on the terms and conditions set forth in the
Purchase Agreement, is fair to Consolidated and its
stockholders, from a financial point of view.
For information on the assumptions made, matters considered
and limits of the review undertaken by Mayflower in rendering
its Fairness Opinion, see "The Sale -Opinion of Consolidated
Financial Advisor." Stockholders are urged to read in its
entirety the Fairness Opinion of Mayflower attached as Annex B
to this Proxy Statement.
Interests of Certain Persons in the Sale
In considering the recommendation of the Consolidated Board
of Directors with respect to the Sale Proposal, Consolidated
stockholders should be aware that certain members of
Consolidated management and the Consolidated Board of Directors
have certain interests in the Sale that are in addition to the
interests of stockholders of Consolidated generally.
In consideration of the employment of Mr. Robert M. Whitty,
President and Chief Executive Officer and Mr. Raymond L.
LeBlanc, Treasurer, Secretary and Chief Financial Officer, the
Board of Directors have confirmed that Mr. Whitty as key officer
of the Company shall be retained to complete any applicable SEC
filings along with any cost reports as may be required under
applicable law. In addition the Board of Directors have
acknowledged that all compensation due to Mr. Whitty and Mr.
LeBlanc pursuant to their respective Employment Agreements shall
be paid in accordance with the terms thereof
Robert M. Whitty, President of the Company, has provided
Capital Healthcare Financing, a division of Capital Factors,
Inc. ("Capital Factors") a personal guarantee on behalf of the
Company as part of the Factoring Agreement regarding the
accounts receivable of the Company. The guarantee is discharged
only upon the complete satisfaction of the indebtedness to
Capital Factors, Inc. (See "The Sale -- Interests of Certain
Persons in the Sale.")
Federal Income Tax Consequences
There will be no Federal income tax consequences to the
stockholders of Consolidated as a result of the Sale.
Anticipated Accounting Treatment
The transaction will be treated as a sale for cash of fixed
assets and related intangible assets, mainly goodwill, less
certain assumed liabilities. These assets and liabilities are
identified elsewhere in this document. The difference between
the cash received and the book value of the fixed assets and
related intangibles less the assumed liabilities, will be
accounted for as a nonoperating gain or loss. The unaudited pro
forma consolidated financial statements included herein indicate
that the transaction will generate a book loss.
Selected Historical and Pro Forma Financial Data
Referenced is made to the discussion under the heading
"Unaudited Pro Forma Condensed Consolidated Financial
Information" contained herein and to Consolidated's Quarterly
Reports on Form 10-QSB for the quarters ended March 31, 1997,
June 30, 1997 and September 30, 1997, and Consolidated's Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1996. See "Available Information."
RISK FACTORS
In considering whether to approve the Sale Proposal, the
stockholders of Consolidated should carefully consider the
following risk factors, in conjunction with the other
information included and incorporated by reference in this Proxy
Statement. These risk factors assume consummation of the Sale
Proposal and do not include matters that could prevent the
consummation of the Sale Proposal. For a discussion of risks
associated with failure to consummate the Sale Proposal, see
"Consequences to Consolidated Should the Sale Proposal not be
Approved."
Continued Financial Stress following the Sale. If the Sale
is approved by stockholders and consummated in accordance with
the Purchase Agreement, the Company will continue to experience
financial stress. The aggregate purchase price of $1,600,000,
consisting of $1,100,000 in cash and the Purchaser's Note in the
principal amount of $500,000 to be received in the Sale will not
permit the Company to satisfy all of its then remaining
obligations in full. In addition, the Company will not have
sufficient resources to continue operating to realize its non-
operating assets, including accounts receivable of the Business
which will be retained by the Company and PTS following the
Sale, to the full extent that may be practicable. As a
financially distressed organization and in the absence of
adequate resources, the Company may be forced to cease
operations, to liquidate or to consider other alternatives,
including seeking protection under the Federal Bankruptcy Code.
See "Consequence to Consolidated Should the Sale Proposed Not be
Approved."
Remaining Assets. After the Sale, Consolidated's assets
will consist primarily of (i) its accounts receivable and (ii)
the Purchaser's Promissory Note to be received upon consummation
of the Sale. For a discussion of the business of Consolidated
after the Sale, see "The Sale Business of Consolidated After the
Sale."
Uncollectability of the Purchaser's Note. The Purchaser's
Note to be received in connection with consummation of the Sale
will be subordinated to senior debt of the Purchaser, including
all indebtedness of the Purchaser in respect of borrowed money,
including the Purchaser's senior bank debt, liabilities in
respect of any note purchase or acceptance credit facility,
reimbursement obligations under any letter of credit, currency
swap agreement, interest rate swap or other interest rate
management devices, or other transactions having the commercial
effect of a borrowing of money or any guaranty of indebtedness
for borrowed money. In addition, the principal amount of and
interest accrued on the Purchaser's Note may be offset at any
time or from time to time to the extent of the full amount of
any Damages (as defined in the Purchase Agreement) in respect of
claims for indemnification in favor of the Purchaser as against
Consolidated and PTS in accordance with the terms thereof.
Accordingly, the possibility exists that the Company will not be
entitled to payments under the Purchaser's Note as a result of
the subordination provisions and/or the amount of Damages, if
any, asserted or to be asserted, as offsets thereunder.
Although Consolidated will hold the guaranty of NovaCare in
respect of payments due under the Purchaser's Note as the same
may at any time be or become due and payable at their stated due
dates, there can be no assurance that Consolidated will be
successful in collecting on such guaranty.
Compliance with Government Health Care Regulations. The
health care industry is subject to numerous federal, state, and
local regulations. Consolidated believes that its operations
are currently materially in compliance with applicable
regulations, that NovaCare will not inherit or confront any
compliance issues when it acquires the Centers and the Business
consummation of the Sale is subject to certain conditions of
Closing, including the Purchaser obtaining all consents,
approvals, permits from and notices to any and all governmental
authorities (as defined under the Purchase Agreement) necessary
or required by any and all Legal Requirements as defined in the
Purchase Agreement. Moreover, the possibility exists that the
Centers and/or the Business, before or after the Sale, could be
found in violation of one or more of such Legal Requirements.
Such a determination could prevent the Closing from being
consummated or could impose significant costs on Consolidated
and PTS to bring operation into compliance.
Although the Company does not anticipate that it or the
Purchaser will face any significant regulatory issues in
connection with obtaining said approvals, because health care
regulation at all levels is subject to constant change, and
because there is frequently no procedure for obtaining advisory
opinions from government officials, no assurance can be given
that all requisite approvals can be obtained on a timely basis,
if at all. See "Business - Consolidated - Regulation."
Indemnification Obligations Under the Purchase Agreement.
Pursuant to the provisions of the Purchase Agreement, after the
consummation of the Sale, the Company and PTS, jointly and
severally, will be obligated to indemnify the Purchaser against
Damages (as defined in the Purchase Agreement) sustained or
incurred by the Purchaser (i) by reason of the breach of any of
the obligations, covenants or provisions of, or the inaccuracy
of any of the representations or warranties made by, PTS or
Consolidated, or (ii) arising out of or relating to any
liabilities or obligations of PTS not assumed by the Purchaser
(or its designee) under the Purchase Agreement, including,
without limitation, (a) professional malpractice and other
professional liabilities relating to acts or omissions of PTS or
its employees, agents or independent contractors prior to the
closing; (b) liabilities of PTS for overpayments made to PTS and
any other matter, for all periods prior to closing, under the
Medicare or Medicaid programs and/or applicable workers'
compensation programs; (c) federal, state and local tax
liabilities, obligations, and withholding tax obligations of
PTS, except for federal and state income tax obligations arising
from the operation of the Business after the Effective Date (as
defined under the Purchase Agreement) which shall be the
responsibility of the Purchaser; (d) liabilities under PTS's
employee plans; (e) liabilities relating to or arising from any
litigation or other claim or obligation (including amounts and
claims payable), arising from acts or omissions prior to the
closing; and (f) any other debt, obligation or duty of PTS
arising prior to the closing date or relating to conduct or
activities occurring prior to the closing date, unless otherwise
specifically included as an Assumed Liability (as defined under
the Purchase Agreement). In addition to the right of the
Purchaser to indemnification under the Purchase Agreement, the
Purchaser has the right from time to time to set off the amount
of any of the Purchaser's Damages against any payments due under
the Purchaser's Note. Representations and warranties will
survive until the end of the applicable statue of limitations.
Payment of any indemnification claims under the Purchase
Agreement would have a material adverse effect on the Company
and would contribute substantially to its financial distress.
Furthermore, neither the Purchaser's Note nor the remaining
assets available to the Company after the Sale may be adequate
to fund any potential claims for indemnification. See. "The
Purchase Agreement - Indemnification and Other Post Closing
Obligations."
Departure of Key Management Personnel. Pursuant to current
employment and/or consulting agreements with Consolidated, Mr.
Robert M. Whitty, Consolidated's current President, and Mr.
Raymond L. LeBlanc, Consolidated's current Treasurer, Secretary,
and Chief Financial Officer, are entitled to leave the Company
during 1998. These departures may necessitate the installation
of new senior management at Consolidated, the effects of which
are at this time uncertain. New personnel, if any, who are
hired to manage post-Sale Consolidated may lack experience.
CONSEQUENCES TO CONSOLIDATED SHOULD THE
SALE PROPOSAL NOT BE APPROVED
Continued Financial Distress. If the Sale Proposal is not
approved by the Consolidated stockholders, the Purchase
Agreement will be terminated and the four Centers and the
related Business and the other Acquired Assets which would have
been sold, in addition to the related assets and all of the
Company's liabilities will remain with the Company. The
Company, has very recently experienced a slight revenue increase
due to its efforts to follow an austere budget and to improve
the efficiency of the billing process. However, the Company
sustained serious capital shortages, operating losses, and debt
repayment problems in 1994, 1995, 1996 and 1997. If the Company
is not acquired by another corporation, or the Company is not
successful in consummating alternative transactions to realize
on its assets, its history of substantial losses and accumulated
deficits may continue and force the Company out of business and
into bankruptcy. As a financially distressed organization, its
future salability and prospects for acquisition would be
uncertain at best.
SPECIAL MEETING
Purpose of the Special Meeting
At the Special Meeting, holders of Common Stock will
consider and vote upon the Sale Proposal, pursuant to which the
Purchaser, a wholly-owned subsidiary of NovaCare, will purchase
the Centers and the Business which comprise substantially all of
the assets of PTS related solely to the Business for an
aggregate Purchase Price of approximately $1,600,000, consisting
of $1,100,000 in cash and the Purchaser's Note in the principal
amount of $500,000. In addition, the Purchaser will assume
certain limited disclosed liabilities of PTS and Consolidated
related to such assets. See "The Purchase Agreement -- Terms of
the Sale."
The Board of Directors of Consolidated has approved the
Purchase Agreement and the Sale Proposal and recommends that
Consolidated stockholders vote FOR approval of the Sale
Proposal. See "The Sale -- Background of the Sale" and
"Recommendation of the Board of Directors of Consolidated;
Reasons for the Sale."
Other Incidental Matters
At the special meeting of Consolidated's Stockholders held
on January 13, 1998, Stockholders considered and approved an
Asset Purchase Agreement dated as of November 20, 1997 with
Olympus and the Olympus Subsidiary pursuant to which
substantially all of the assets of PTS relating solely to the
four outpatient clinics located in Attleboro, Leominster,
Pittsburgh and West Bridgewater, Massachusetts and the Business
were to have been sold to the Olympus Subsidiary for aggregate
consideration of approximately $1,700,000 in cash.
Stockholders holding more than a majority of the total
outstanding shares of common stock of Consolidated as well as
95% of the shares represented at the meeting voted in favor of
the adoption of the proposed Olympus Purchase Agreement. At the
Special Meeting, stockholders will be asked to consider and vote
upon the Termination Proposal to ratify, approve and confirm
termination of, and revocation of approval and adoption by
stockholders of, the Olympus Purchase Agreement.
In addition to approving the Purchase Agreement and
ratification of termination of the Olympus Purchase Agreement,
at the Special Meeting stockholders will also be asked to
consider and vote upon the Authorization Proposal to grant to
the President and the Treasurer and each of the Proper Officers
authority and power to exercise his sole discretion in
negotiating the definitive terms and conditions of the Purchase
Agreement and to execute and deliver the Purchase Agreement and
any other agreements, documents and instruments contemplated
thereby to effectuate the transactions contemplated therein,
with such changes therein and modifications and amendments
thereto as any such proper officer may in his discretion
approve.
Record Date
Only holders of Consolidated Common Stock at the close of
business on February 27, 1998 (the "Record Date") will be
entitled to notice of and to vote at the Special Meeting.
Quorum
The presence in person or by properly executed proxy of
holders of a majority of the shares of Consolidated Common Stock
entitled to vote at the Special Meeting will constitute a quorum
for the transaction of business.
Required Vote
Under Nevada law and Consolidated's Articles of
Incorporation, the Sale Proposal will require approval by the
affirmative vote of the holders of a majority of the votes cast
on this matter, provided that the total vote cast on this matter
represents more than 50% in interest of the shares of
Consolidated Common Stock outstanding and entitled to vote.
Approval of each of the Termination Proposal and of the
Authorization Proposal will require the affirmative vote of a
majority of the holders of the votes casts on each matter. Each
outstanding share of Consolidated Common Stock is entitled to
one vote.
The directors and executive officers of Consolidated and
their affiliates own as a group approximately 7.04% of the
outstanding shares of Consolidated Common Stock. Holders of
approximately 40.14% of the Consolidated Common Stock
outstanding as of the date of the Purchase Agreement (including
the directors and executive officers of Consolidated and their
affiliates) have indicated in writing their intentions to vote
in favor of each of the Sale Proposal, the Termination Proposal
and the Authorization Proposal.
Voting Rights; Proxies
All shares of Consolidated Common Stock represented by
properly executed proxies will, unless such proxies have been
previously revoked, be voted in accordance with the instructions
indicated in such proxies. ANY PROXY WHICH DOES NOT WITHHOLD
AUTHORITY TO VOTE OR ON WHICH NO OTHER INSTRUCTIONS ARE GIVEN
WILL BE VOTED FOR THE SALE PROPOSAL, THE TERMINATION PROPOSAL
AND THE AUTHORIZATION PROPOSAL. Consolidated stockholders who
have executed a proxy may revoke the proxy at any time prior to
its exercise at the Special Meeting by giving written notice to
Raymond L. LeBlanc, Secretary, Consolidated Health Care
Associates, Inc., 38 Pond Street, Franklin, Massachusetts 02038,
by signing and returning a later dated proxy, or by voting in
person at the Special Meeting. Accordingly, stockholders who
have executed and returned proxy cards in advance of the Special
Meeting may change their vote at any time prior to or at the
Special Meeting; however, mere attendance at the Special Meeting
will not by itself have the effect of revoking the proxy.
Votes cast either in person or by proxy at the Special
Meeting will be tabulated by The American Stock Transfer & Trust
Company, the Company's transfer agent. The election inspectors
will treat abstentions as a votes against the Sale Proposal.
Broker non-votes will not be counted as votes for or against the
Sale Proposal, and will not be included in counting the number
of votes necessary for approval of the Sale Proposal.
Abstentions and broker non-votes will not be counted for or
against the Termination Proposal or the Authorization Proposal.
Solicitation of Proxies
The cost of the solicitation of proxies will be borne by
the Company. In addition to the use of the mails, proxies may
be solicited by regular employees of the Company, either
personally or be telephone or telegraph. The Company does not
expect to pay any compensation. for the solicitation of proxies,
but may reimburse brokers, fiduciaries, nominees and others for
expenses in forwarding proxy materials to be beneficial owners
of stock held in their names and obtaining proxies of such
owners.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF
GREAT IMPORTANCE TO THE STOCKHOLDERS OF CONSOLIDATED.
ACCORDINGLY, STOCKHOLDERS ARE URGED TO READ AND CAREFULLY
CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT, AND
TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
THE SALE
Background of the Sale
As noted above, at the Special Meeting of Consolidated
stockholders held on January 13, 1998, stockholders considered
and approved the Olympus Purchase Agreement to sell
substantially all of the assets of PTS relating to the Clinics
and the Business to the Olympus Subsidiary. The Olympus Purchase
Agreement was originally scheduled to close on or about January
30, 1998. However, by that date, Olympus had not yet completed
its financing to obtain funds to pay the purchase price under
the Olympus Purchase Agreement. Consolidated and Olympus
negotiated on the language of an amendment to the Olympus
Purchase Agreement pursuant to which all or portions of an
initial $100,000 deposit would be paid to PTS and the closing
date would be extended to February 27, 1998, subject to further
extension under certain circumstances. During the subsequent
two week period following January 30th, Olympus had still not
obtained its necessary financing to complete the purchase. In
conversations between representatives of Consolidated and
Olympus, Consolidated advised Olympus that it had received a
contact from a representative of NovaCare expressing an interest
in possible purchase of the PTS Clinics and that given the lack
of financing available to Olympus, Consolidated intended to
pursue such contact. In accordance with the Olympus Purchase
Agreement, Consolidated notified Olympus and the Olympus
Subsidiary of the contact with NovaCare, including NovaCare's
request for confidential information.
The terms of the Purchase Agreement and the related
agreements are the result of arm's-length negotiations between
representatives, legal advisors and financial advisors of
Consolidated and NovaCare. The following is a brief discussion
of these negotiations.
On February 13, 1998 Raymond L. LeBlanc, Consolidated's
chief financial officer, received a phone call from a
representative of NovaCare. The purpose of the call was to
determine if the PTS clinics were still available for sale and
whether information could be provided to NovaCare. Upon
discussion and review with Mr. Robert M. Whitty. President of
Consolidated, Mr. LeBlanc notified the representative that
information could be obtained on the facilities in question.
On February 16, 1998 James Kenney, Robert M. Whitty, Sidney
Dworkin and Goodhue Smith, the Board of Directors of the
Company, reviewed the circumstances of a possible purchase of
the PTS Clinics by NovaCare and the current status of the
proposed Olympus transaction. Upon discussion and review, the
Board authorized Mr. Whitty to pursue negotiations with NovaCare
with the understanding that any transaction could only occur
upon the termination of the proposed Olympus transaction.
On February 16, 1998, the Company received a Letter of
Intent from NovaCare describing a proposed transaction to
purchase the Business for an aggregate a purchase price of
$1,600,000 upon completion of due diligence. Mr. Whitty in
discussions with NovaCare informed them that a pending
transaction was still proposed by Olympus, but that the Company
could entertain additional proposals.
On February 17, 1998, NovaCare began due diligence of the
proposed assets to be acquired. A representative of NovaCare
visited the facilities and completed due diligence on Friday,
February 20, 1998. During said due diligence, the Company
received, for its review, a proposed draft of an asset purchase
agreement.
On Thursday, February 19, 1998 Mr. James Kenney, Robert M.
Whitty, Sidney Dworkin and Goodhue Smith, the Board of Directors
of the Company, had a telephonic board meeting to review the
transaction proposed by NovaCare. Upon review and discussion,
the Board authorized Mr. Whitty to pursue the completion of the
negotiations and documentation of the proposed transaction,
understanding that if said negotiations were to result in the
completion of a proposal and documentation satisfactory to the
Company, that the Company should then terminate the Olympus
Purchase Agreement prior to entering into an agreement with
NovaCare.
On February 26, 1998, the Board of Directors had an
additional telephonic board meeting at which time the status of
the proposed NovaCare transaction was reviewed. Upon discussion
and review it was agreed that the transaction was in the best
interest of the Company and that subject to final review of the
proposed documentation, the Company was to proceed with the
transaction with NovaCare.
On March 2, 1998 the Company received a letter from Olympus
terminating the Olympus Purchase Agreement purportedly pursuant
to certain inspection rights which previously lapsed under the
Olympus Purchase Agreement. Nevertheless, the Company advised
Olympus that the Company was willing to enter into an amendment
or other agreement to terminate on a mutually agreeable basis
the Olympus Purchase Agreement, especially in view of Olympus'
inability to arrange for financing for its proposed purchase of
the Business. Upon verification of receipt and acknowledgment
of the termination of the Olympus Purchase Agreement, the
Company continued to pursue an agreement with NovaCare.
On March 4, 1998 The Board of Directors had a telephonic
board meeting to discuss the NovaCare proposal for a transaction
at a value of $1,600,000 for the assets of PTS together with the
assumption of no more than $75,000 in outstanding liabilities.
It was agreed that the transaction would be approved and
documentation was to be executed subject to final stockholder
approval. The members of the Board unanimously voted to
authorize Mr. Whitty to execute all related documentation and
file and complete proxy materials and all additional
documentation required by the SEC.
The Asset Purchase Agreement and other transaction
documents were executed as of approximately 5:00 PM EST on March
5, 1998 and the Sale was publicly announced on March 7, 1998.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF CONSOLIDATED;
REASONS FOR THE SALE
THE BOARD OF DIRECTORS OF CONSOLIDATED HAS UNANIMOUSLY
APPROVED THE SALE AND BELIEVES THAT THE SALE IS FAIR TO AND IN
THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
APPROVE THE SALE.
In reaching its decision to approve the Sale, the Board of
Directors of Consolidated considered numerous factors, including
without limitation: (i) the amount and nature of the
consideration to be received by the Company; (ii) the financial
results of the Company for the last three years and the
prospects for the Company; (iii) the debt of the Company; (iv)
the historical stock prices of the Company's Common Stock; (v)
the inability of Olympus to complete its financing to purchase
the Clinics and the Business on a timely basis and the resulting
mutual determination to terminate the Olympus Purchase
Agreement; (vi) the absence of any better firm offer; and (vii)
the opinion of the Company's independent investment banking firm
that the Sale is fair to the Company from a financial point of
view.
In evaluating NovaCare's offer, the Board of Directors of
the Company considered the following:
(A) Prospects for the Company. The Company has incurred
net losses for the years ended December 31, 1994, 1995 and 1996,
and net losses before extraordinary income for the nine months
ended September 30, 1997 and there is no assurance that the
Company will be profitable in the future to service all of the
Company's debt and accumulate equity for stockholders. At
September 30, 1997, the Company had an accumulated deficit of
approximately $8,016,478. The Company has not been able to pay
all of its obligations when due, with the result that the
Company has been required to restructure its debt in 1994, 1995,
1996 and 1997.
The Board of Directors determined that the Sale would allow
the Company to sell substantially all of its assets, to raise
funds to pay down debt and to give the Company additional time
to dispose of the remaining portion of its non-operational
assets, to eliminate additional Company debt and preserve to
some extent its stockholders equity.
(B) Limited Available Capital. The Company's capital
requirements have been and, if the Company were to continue
operations, will continue to be significant. The Company has
been substantially dependent upon private placements of its debt
and equity securities, on conversion of certain debt to equity,
on loans from its principal stockholder, and from time to time,
on short-term loans from its officers, directors and other
stockholders to fund requirements. The Company has no current
arrangements with respect to sources of additional financing and
there can be no assurance that the Company will be able to
obtain additional financing on terms acceptable to the Company.
Moreover, in May, 1997 the Company's principal stockholder
informed the Company that, other than a loan of $300,000 related
to expenses of the Sale, it was unwilling to advance additional
funds to the Company. During 1997, the Company also raised cash
and/or reduced debt pursuant to the sale of its four
Pennsylvania clinics, the return to a former owner the Company's
non-performing Florida clinic, and the sale of its three
Delaware clinics as noted below. See "Business - Consolidated -
Recent Divestitures." The Company's former independent auditors
have qualified its report dated April 5, 1997 on the Company's
financial statements that financing uncertainties raise
substantial doubt about the Company's ability to continue as a
going concern.
In recent years the health care industry in which the
Company operates has experienced substantial growth,
consolidation and increasing competition. To achieve the size
and obtain the resources the Company considers necessary to
become competitive against this background, the Company believes
that it would need to raise substantial additional capital,
which could be difficult or impossible to raise on satisfactory
terms and within the time frame required to permit the Company
to remain a going concern.
(C) The absence of any better firm offer. Prior to
entering into the Olympus Purchase Agreement, the Company had
attempted to solicit other potential buyers with respect to
acquiring the Company's assets. In the six (6) months prior to
approval of the Purchase Agreement by the Board, management of
the Company contacted certain companies in similar businesses to
solicit their interest in acquiring the Company. No other party
contacted indicated an interest in matching or exceeding
Olympus' offer, and no other party has approached the Company
with an offer equal to or greater than NovaCare's offer.
(D) The consideration to be paid. NovaCare will provide
consideration in the form of $1,100,000 in cash and the
Purchaser's Note in the principal amount of $500,000, subject to
offset under cetain circumstances. Although the Olympus
Purchase Agreement called for a slightly higher purchase price
than the Purchase Agreement with Novacare, all payable in cash
at closing, the inability of Olympus to arrange for its
financing to consummate the Olympus Purchase Agreement forced
the Company and the Board of Directors to consider the lower
aggregate dollar amount payable by the Purchaser as well as the
reduced amount of cash available at closing. Moreover, although
the Purchaser's Note is subject to offset to the extent of
Damages for indemnification claims asserted by NovaCare under
the Purchase Agreement, the aggregate amount for which claims
for indemnification can be made against the Purchaser's Note and
the Company and PTS, on a joint and several basis, is limited to
the aggregate amount of the purchase price of $1,600,000. There
was no such cap under the Olympus Purchase Agreement. The Board
also retained the services of Mayflower, which rendered its
opinion that the Sale and the consideration to be paid for the
Purchased Assets is fair from a financial point of view to the
Company.
The Board believes, therefore, that the NovaCare offer is
the best offer available to satisfy a portion of the Company's
obligations in addition to the disclosed limited liabilities of
PTS and Consolidated related to the Purchased Assets to be
assumed by the Purchaser, and to position the Company to pursue
in an orderly fashion the collection of the remaining assets of
the Company for a possible future return to its stockholders.
See "Business of Consolidated After the Sale" and "Unaudited Pro
Forma Condensed Consolidated Financial Information."
Business of Consolidated After the Sale
After the Sale is approved by stockholders and consummated,
the Company does not expect to remain an operating company or to
continue in the health care business or to diversify into other
lines of business. Since the Sale to NovaCare does not include
the Company's accounts receivable, after the Sale is approved by
stockholders and consummated, the Company will also be engaged
in collecting such receivables as well as the Purchaser's Note
and using the proceeds of such collections to further reduce
debt.
After the consummation of the Sale, the Board of Directors
of the Company will consider the available alternatives to the
Company. Such alternatives include the: (i) distribution of
any remaining assets to stockholders and/or creditors of the
Company (or to a liquidating trust for their benefit); (ii)
liquidation of the Company; or (iii) sale of the Company to a
third party.
Opinion of Consolidated's Financial Advisor
Consolidated engaged The Mayflower Group, Ltd. of Boston,
Massachusetts ("Mayflower") as its financial advisor to render
certain financial advisory services to Consolidated concerning
the Proposed Sale, including rendering an opinion with respect
to the fairness to Consolidated and its stockholders, from a
financial point of view, of the Proposed Sale and of the
Purchase Price to be received in connection therewith. At the
March 4, 1998 meeting of Consolidated's Board of Directors,
Mayflower rendered its oral opinion to the Board and since that
date has delivered a written confirmation of its opinion (i.e.,
the Fairness Opinion), a copy of which is included in this Proxy
Statement as Annex B. Mayflower has not made and does not intend
to make any review or analysis with respect to the proposed Sale
after the date of this Proxy Statement.
As noted above, the full text of the Fairness Opinion of
Mayflower dated March 5, 1998, which sets forth the matters
considered, the scope and limitations of the review undertaken
and the procedures followed by Mayflower in rendering its
opinion, is attached to this Proxy Statement as Annex B and is
incorporated herein by reference. Consolidated's stockholders
should read the Mayflower Fairness Opinion carefully in its
entirety. Consolidated's stockholders should note that the
opinion expressed by Mayflower was provided for the information
of the Board of Directors of Consolidated only in connection
with its consideration of the Sale.
Interests of Certain Persons in the Sale
In considering the recommendations of its Board of
Directors with respect to the Proposed Sale, stockholders should
be aware that certain members of Consolidated's management and
Board of Directors may have certain interests in the Sale that
are in addition to the interests of stockholders generally. The
Board of Directors of Consolidated was aware of these interests
and considered them, among other matters, in approving the Sale.
Employment and Related Agreements. Consolidated currently
has employment and related agreements with Robert M. Whitty,
President and Chief Executive Officer and Raymond L. LeBlanc,
Chief Financial Officer and Treasurer, respectively.
In November 1997, Consolidated and Mr. Whitty entered into
an agreement (the "Whitty Continuation Agreement") under which
Mr. Whitty agreed to continue his employment as President and
Chief Executive Officer of Consolidated for which he would be
entitled to receive compensation of approximately $12,500 per
month, payable through March 31, 1998. Upon agreement of all
parties, the agreement provides for the continuation beyond
March 31, 1998 if needed. Also, in September, 1997,
Consolidated and Mr. LeBlanc entered into an agreement (the
"LeBlanc Continuation Agreement") under which Mr. LeBlanc agreed
to continue in his position as Chief Financial Officer and
Treasurer for which he would be entitled to receive compensation
of approximately $9,167 per month, payable through March 31,
1998. Under the terms of both Agreements, Consolidated will
provide family health insurance through March 31, 1998.
Advisory Fees. In accordance with Consolidated's
engagement of Mayflower and in connection with its rendering its
Fairness Opinion, upon receipt and acceptance of the Fairness
Opinion, Mayflower will receive advisory fees of $25,000 in the
aggregate, less the amount of prior payments made by
Consolidated to Mayflower for its financial advisory services.
See " -- Opinion of Financial Advisor.
Certain Federal Income Tax Consequences
There will be material no Federal income tax consequences
to the stockholders of Consolidated as a result of the Sale.
Anticipated Accounting Treatment
The transaction will be treated as a sale for cash and a
promissory note for fixed assets and related intangible assets,
mainly goodwill, less certain assumed liabilities. These assets
and liabilities are identified elsewhere in this document. The
difference between the cash and promissory note received and the
book value of the fixed assets and related intangibles less the
assumed liabilities, will be accounted for as a non-operating
gain or loss. The unaudited pro forma consolidated financial
statements included herein indicate that the transaction will
generate a book loss.
Dividend Policy
The Company is not in a position, financial or otherwise,
to consider the payment of dividends on its capital stock. See
"Price Range of Common Stock and Dividend Policy -
Consolidated."
Dissenters' Rights
The Nevada General Corporation Law does not provide for
dissenters' rights to holders of Consolidated Common Stock or
Preferred Stock with respect to the Sale Proposal or any of the
Other Incidental Matters.
Fees and Expenses
Whether or not the transactions contemplated by the
Purchase Agreement are consummated, except for amounts payable
upon termination, each of the parties will bear its own expenses
incident to preparing, entering into and consummating the
Purchase Agreement and the Sale. See "The Purchase Agreement -
Certain Payments."
The Purchase Agreement
This portion of the Proxy Statement describes various
aspects of the Sale and provisions of the Purchase Agreement.
The following description does not purport to be complete and is
qualified in its entirety by reference to the Purchase Agreement
attached hereto as Annex A and incorporated herein by reference.
Stockholders of Consolidated are urged to read the Purchase
Agreement in its entirety.
Terms of the Sale
The Purchase Agreement provides that, subject to the
satisfaction or, waiver of certain conditions (including, among
other things, approval of the Purchase Agreement by the
stockholders of Consolidated, receipt of approval or consents of
lessors under the Leases of PTS), substantially all of the
assets of PTS will be sold to the Purchaser in exchange for the
aggregate purchase price of $1,600,000, of which approximately
$1,100,000 will be payable at closing and the balance will be
payable pursuant to the Purchaser's Note in the principal amount
of $500,000, subject to offset under certain circumstances. In
addition, the Purchaser will assume certain disclosed accounts
payable of PTS and Consolidated related to the Purchased Assets
up to an amount not to exceed $75,000 in the aggregate.
In addition to the Leases, Provider Agreements, Service
Agreements, Professional Contracts and other contract rights
that will be transferred to the Purchaser, the Purchased Assets
also include all tangible and intangible assets owned by PTS and
used in the Business, including computer programs and
documentation, if any, used in conducting the Business, an
assignment of the name "PTS Rehab" and all goodwill and going
concern value of the Business. The Excluded Assets which will
be retained by PTS will include cash, accounts receivable, notes
receivable, vehicles, and loans to or from stockholders or their
affiliates. The Purchaser will not assume, and PTS will remain
liable for, among other obligations, any liability for
professional malpractice and other acts or omissions of PTS or
its employees, agent, or independent contractors prior to the
closing, liabilities of PTS for overpayments made to PTS and any
other matter, for all periods prior to closing, under the
Medicare or Medicaid programs and/or applicable workers'
compensation programs, any liability for federal, state and
local income, sales, use, withholding or property taxes and
other taxes of any kind or description, all employee
compensation, employee benefits, severance and similar
obligations and tax liabilities incurred in connection with
their businesses that arose, accrued or were incurred prior to
the closing date, liabilities arising out of any threatened or
pending litigation and any other liability for any account,
accounts payable, note or note payable, whether due or to become
due, of PTS of any nature whatsoever other than those
liabilities specifically assumed by Purchaser pursuant to the
Purchase Agreement.
Representations and Warranties
The Purchase Agreement contains various representations and
warranties of Consolidated and PTS, on the one hand, and
NovaCare and the Purchaser on the other hand, relating, among
other things, to all or, in the case of NovaCare and the
Purchaser, some of the following:
(i) organization, existence, good standing, corporate
power, qualification to do business and similar corporate
matters and authority to execute, deliver and consummate the
Purchase Agreement;
(ii) the absence of conflicts, violations and defaults
under their charters and by-laws and certain other agreements
and documents;
(iii) the ownership and title to the Acquired Assets
free and clear of all liens except certain permitted liens;
(iv) the possession of all licenses, permits and approvals
to operate the Business and qualification as a provider
participant in the Medicaid program;
(v) the condition of the Acquired Assets;
(vi) the accuracy of financial statements;
(vii) the documents and reports filed with the SEC and
the accuracy and completeness of the information contained
therein-,
(viii) the absence of undisclosed liabilities;
(ix) compliance with laws, ordinances and regulations,
including, but not limited to, all Federal and state, fraud and
abuse, "anti-kickback" and "self-referral" laws and all laws,
rules and regulations of the Medicare, Medicaid and other
governmental healthcare programs;
(x) environmental matters;
(xi) employee benefit matters;
(xii) the absence of certain material changes or events
since January 31, 1998; and
(xiii) tax matters;
(xiv) the consents required to consummate the Sale;
(xv) the inventory and accounts payable of PTS;
(xvi) compensation, employee benefit plans and labor
relations in respect of each person employed by or independently
contracting with PTS with regard to compensation and related
matters;
(xvii) insurance policies maintained by PTS;
(xviii) the absence of restrictions from conducting the
Business in any location by agreement or court decree;
(xix) the absence of obligations outside of the
ordinary course of business to make allowances to any customers
with respect to the Business;
(xx) use of names;
(xxi) the absence of the grant of any powers of
attorney;
(xxii) licensure relating to each individual employed or
contracted by PTS to provide therapy services;
(xxiii) the status of litigation and disputes; and
(xxiv) rights to use all computer software and the
validity of third party licenses or any sub-licenses related
thereto.
As noted below under "Indemnification," the representations
and warranties of the parties survive the closing until the end
of the applicable statute of limitations.
Effective Date of the Sale
The closing of the purchase and sale of the Acquired Assets
is to be held on a day within five (5) business days after the
conditions to closing have been met or waived. Under the
Purchase Agreement, the Effective Date of the transaction will
be March 1, 1998.
Certain Conditions to Closing the Sale.
The closing and the Purchaser's obligations to consummate
the Sale are subject to customary closing conditions including,
among other things, the following: (i) the accuracy of
representations and warranties of the Company and PTS; (ii)
compliance with the requirements to make deliveries of certain
documents in accordance with the provisions of the Purchase
Agreement; (iii) PTS entering into the Auxillary Purchase
Agreement with Mass. P.C., Inc.; (iv) PTS entering into the
Management Agreement; and (v) PTS and Consolidated entering
into an agreement terminating the Olympus Purchase Agreement and
effecting a release of any and all claims of Olympus against
PTS, Consolidated and their respective officers, directors,
representatives and affiliates and the Purchaser, NovaCare and
their respective officers, directors, representatives and
affiliates arising or that may arise under or in connection with
the Olympus Purchase Agreement or the Purchase Agreement.
Indemnification and Other Post Closing Obligations
The representations and warranties of PTS and the Company
will survive until the end of the applicable statute of
limitations.
Consolidated and PTS, jointly and severally, have agreed to
indemnify the Purchaser against Damages (as defined in the
Purchase Agreement) sustained or incurred by the Purchaser
(i) by reason of the breach of any of the obligations, covenants
or provisions of, or the inaccuracy of any of the
representations or warranties made by, PTS or Consolidated, or
(ii) arising out of or relating to any liabilities or
obligations of PTS not assumed by the Purchaser (or its
designee) under the Purchase Agreement, including, without
limitation, (a) professional malpractice and other professional
liabilities relating to acts or omissions of PTS or its
employees, agents or independent contractors prior to the
closing; (b) liabilities of PTS for overpayments made to PTS and
any other matter, for all periods prior to closing, under the
Medicare or Medicaid programs and/or applicable workers'
compensation programs; (c) federal, state and local tax
liabilities, obligations, and withholding tax obligations of
PTS, except for federal and state income tax obligations arising
from the operation of the Business after the Effective Date (as
defined under the Purchase Agreement) which shall be the
responsibility of the Purchaser; (d) liabilities under PTS's
employee plans; (e) liabilities relating to or arising from any
litigation or other claim or obligation (including amounts and
claims payable), arising from acts or omissions prior to the
closing; and (f) any other debt, obligation or duty of PTS
arising prior to the closing date or relating to conduct or
activities occurring prior to the closing date, unless otherwise
specifically included as an Assumed Liability (as defined under
the Purchase Agreement). In addition to the right of the
Purchaser to indemnification under the Purchase Agreement, the
Purchaser has the right from time to time to set off the amount
of any of the Purchaser's Damages against any payments due under
the Purchaser's Note. Representations and warranties will
survive until the end of the applicable statue of limitations.
Generally, PTS and Consolidated are not obligated for any
indemnification obligation unless and until the aggregate amount
of such claims exceeds $10,000 and in no event shall PTS and
Consolidated be liable to the Purchaser for indemnification
claims in excess of $1,600,000.
The Purchaser has agreed to indemnify PTS and Consolidated
against losses incurred by them that are attributable to a
breach of the representations and warranties of the Purchaser
contained in the Purchase Agreement or in respect of the Assumed
Liabilities (as defined therein).
Post Closing Transitional Matters
Under the terms of the Purchase Agreement, Consolidated and
PTS have agreed to enter into the Management Agreement pursuant
to which the Purchaser would manage the provision of services by
PTS for a specified period of time following closing in order to
provide continuity of the provision and billing for services
until the Purchaser has obtained all necessary regulatory
approvals and contract assignments. In this regard, PTS is
required to continue its corporate existence for at least the
term of the Management Agreement.
Non-Competition Agreement
The Purchase Agreement provides that following the
consummation of the transaction neither the Company nor
Shareholder shall, (a) subsequent to the date of the Closing and
until seven years after the date of the Closing, directly or
indirectly, (1) engage, whether as principal, agent, investor,
distributor, representative, stockholder, employee, consultants,
volunteer, or otherwise, with or without pay, in any activity or
business venture, anywhere within a fifty (50) mile radius of
the existing business locations of the Business, which is
competitive with the Business, (ii) solicit or entice or
endeavor to solicit or entice away from any member of the
Purchaser Group (as hereinafter defined) any person who was a
director, officer, employee, agent or consultant of such member
of the Purchaser Group, either on the Company's or the
Shareholder's own account or for any person, firm, corporation
or other organization, whether or not such person would commit
any breach of such person's contract of employment by reason of
leaving the service of such member of the Purchaser Group. (iii)
solicit or entice or endeavor to solicit or entice awary any of
the clients or customers of the Business, either on the
Company's or the Shareholder's own account of for any other
person, firm, corporation or organization, or (iv) employ any
person who was a director, officer or employee of any member of
the Purchaser Group or any person who is or may be likely to be
in possession of any confidential information or trade secrets
relating to the business of any member of the Purchaser Group,
or (b) at any time, take any action or make any statement the
effect of which would be, directly or indirectly, to impair the
good will of any member of the Purchaser Group or the business
reputation or good name of any member of the Purchaser Group, or
be otherwise detrimental to the Purchaser, including any action
or statement intended, directly or indirectly, to benefit a
competitor of any member of the Purchaser Group. For purposes
of the foregoing agreement, the term "Purchaser Group" shall
mean, collectively, the Purchaser and its subsidiaries,
affiliates and parent entity operating in the same lines of
business.
Waiver of Conditions, Dispute Resolution
Waiver. The Purchase Agreement provides that either the
Purchaser or the Company may waive the conditions precedent to
closing or defer in whole or in part any of the conditions
precedent to closing, but only in writing.
Dispute Resolution.. The Purchase Agreement provides that
any controversy or claim arising out of or relating to the
Purchase Agreement or any breach thereof shall, with certain
exceptions, be settled by arbitration in accordance with the
National Health Lawyers Association Alternative Dispute
Resolution Services Rules of Procedure for Arbitration.
Additional Agreements
In addition to the Management Agreement to be entered into
in connection with the Sale, effective March 1, 1998, the
Company and PTS will enter into an agreement of purchase and
sale with Mass. P.C., Inc., a Massachusetts professional
corporation ("MassPC"), to be formed by NovaCare (the "Auxiliary
Purchase Agreement"), pursuant to which those assets of PTS that
cannot be transferred to an entity that is not appropriately
licensed in the Commonwealth of Massachusetts to provide medical
or therapeutic services, will be sold and assigned to MassPC for
a purchase price of $1.00 in cash and other good and valuable
consideration, the receipt of which has been acknowledged by the
parties. The assets to be transferred pursuant to the Auxiliary
Purchase Agreement consists primarily of the Company's patient
records and its managed care contracts and the assumed
liabilities to be transferred thereunder shall consist of and
shall be limited solely to the obligations of the Company under
such managed care contracts.
UNAUDITED PRO FORMA CONDENSED
FINANCIAL INFORMATION FOR CONSOLIDATED
The following Unaudited Pro Forma Consolidated Condensed
Balance Sheet and Unaudited Pro Forma Consolidated Statements of
Operations give effect to (i) the sale of three of the Company's
Pennsylvania clinics which was completed on February 28, 1997
(the "Pennsylvania Disposition"), (ii) the sale of one Florida
clinic which was completed in March, 1997 (the "Florida
Disposition"), (iii) the sale of three Delaware clinics and one
Pennsylvania clinic in January 1998 and (iv) the proposed Sale
of the operating assets of PTS pursuant to the provisions of the
Purchase Agreement. The proposed Sale includes the assets of
the Company's four Massachusetts outpatient clinics. See
"Business Consolidated - Recent Divestitures."
These Unaudited Pro Forma Consolidated Financial Statements
have been derived from the consolidated statements of operations
of the Company for the year ended December 31, 1996 and the nine
months ended September 30, 1997 included elsewhere in the Proxy
Statement. The Unaudited Pro Forma Consolidated Statements of
Operations give effect to the Pennsylvania Disposition, the
Florida Disposition, the Delaware and Pennsylvania Disposition
and the Sale as if each transaction had occurred at the
beginning of each of the periods presented.
The Unaudited Pro Forma Consolidated Financial Statements
should be read in conjunction with the notes thereto and the
Company's Consolidated Financial Statements and related notes
therein contained elsewhere in this Proxy Statement. See "Index
to Financial Statements." The Unaudited Pro Forma Consolidated
Financial Statements are presented for informational purposes
only and do not purport to be indicative of the results of
operations that actually would have resulted if the Pennsylvania
Disposition, the Florida Disposition, the Delaware and
Pennsylvania Disposition and the Sale had been consummated
previously nor which may result from future operations of the
Company.
Consolidated Health Care Associates, Inc.
Unaudited Pro Forma Consolidated Condensed Balance Sheet
September 30, 1997
----------------------------------------------------
ASSETS ACTUAL disposition disposition Pro Forma
Jan 1998 Mar 1998
Current assets:
Cash 44,575 829,510 (1) 1,110,000 (1) 1,974,085
Accounts Receivable,net 1,079,198 (389,006)(2) 0 690,192
Other current
receivable 907,068 0 100,000 (1) 1,007,068
Other current assets 64,469 0 0 64,469
--------- --------- --------- ---------
Total current assets 2,095,310 440,504 1,200,000 3,735,814
Property, plant and
equipment, net 326,924 (78,108)(2) (98,410) (2) 150,406
Goodwill, net 2,371,754 (81,389)(3) (2,288,438) 1,927
Deferred charges and
other assets, net 378,665 (18,773)(2) 400,000 (1) 759,892
--------- --------- --------- ---------
Total assets 5,172,653 262,234 (786,848) 4,648,039
========= ========= ========= =========
Liabilities and
Stockholders Equity
Current Liabilities
Current portion long-
term debt 277,350 0 0 277,350
Accounts payable 827,178 0 (19,538) 807,640
Accrued payroll, taxes
and benefits 409,176 (3,881)(2) (55,462) (2) 349,833
Accrued expenses 121,954 0 0 121,954
--------- --------- ------- --------
Total current
liabilities 1,635,658 (3,881) (75,000) 1,556,777
Long term debt 1,421,624 0 0 1,421,624
---------- -------- ------- ---------
Total liabilities 3,057,282 (3,881) (75,000) 2,978,401
Stockholders equity:
Preferred Stock:
10,000,000 shares
authorized
Issued: 1,727,305 1,727,305 0 0 1,727,305
Common Stock $0.012
par value, 50,000,000
Additional paid-in
shares authorized:
Issued: 16,273,500 198,715 0 0 198,715
Additional paid-in
capital 4,492,330 0 0 4,492,330
Accumulated deficit (4,215,479) 266,115(4) (698,942)(4) (4,648,306)
Less: treasury
stock 700,000 shares
at cost (87,500) 0 0 (87,500)
---------- -------- -------- ---------
Total
stockholders' equity 2,115,371 266,115 (698,942) 1,682,544
---------- -------- -------- ---------
Total liabilities
and stockholders' equity 5,172,653 262,234 (773,942) 4,660,945
========== ======== ======== =========
See Notes to Unaudited Pro Forma Consolidated Condensed Balance Sheet
(1) Adjustments to reflect proceeds to be received by the
Company from the Disposition(s).
January 1998 March 1998
Cash at closing $ 829,510 $1,100,000
Promissory note at closing $0 $500,000
--------- ----------
Total purchase price $ 829,510 $1,600,000
(2) Adjustments to reflect the exchange of certain assets and
liabilities pursuant to the Disposition(s) and related transactions.
The buyer in the January 1998 Disposition received $78,108 of net
fixed assets related to the outpatient clinics and assumed $3,881 of
accrued payroll and related benefits. The buyer in the February 1998
Disposition will receive $98,410 of net fixed assets related to the
outpatient clinics and assumed $75,000 of accrued payroll and related
expenses.
January 1998 February 1998
Fixed asset acquisition cost $204,519 $ 350,298
Accumulated depreciation ($126,411) ($ 251,888)
--------- ------------
$ 78,108 $ 98,410
========= ============
(3) Adjustment to reflect goodwill amortization expense that
will be expensed upon the completion of the Disposition.
January 1998 February 1998
Goodwill $1,047,658 $ 2,720,313
Accumulated amortization ($966,269) $ (413,875)
---------- -----------
Goodwill net $ 81,389 $ 2,288,438
========== ===========
(4) Adjustment to reflect the gain upon the Disposition.
Consolidated Health Care Associates, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
YEAR ENDED
DECEMBER 31, 1996
ADJUSTED
ACTUAL PA,DE,FL NOVACARE PRO FORMA
Revenue, net
Costs and
expenses $ 8,799,431 $4,267,551(1) $2,348,689(8) $ 2,183,191
Operating
costs 7,015,664 3,429,953(2) 1,448,796(9) 2,136,913
Admin. and
selling 1,771,723 42,464(3) 132,660(10) 1,596,599
Deprec.and
amount 242,454 101,217(4) 49,527(11) 91,710
--------- --------- --------- ------------
Ttl costs and
expenses 9,029,841 3,573,634 1,630,983 3,825,224
--------- --------- --------- -----------
Operating
income (loss) (230,410) 693,917 717,706 (1,642,033)
Interest expense
(net) 298,564 66,834(5,6) 99 231,631
Other (income)
expense (86,562) 100 0 (86,562)
------- ------- -------- ----------
Inc.(loss)before
taxes (442,412) 626,983 717,607 (1,787,002)
Provision for
taxes 30,830 0(7) 0(7) 30,830
Net income
(loss) (473,242) $626,983 $ 717,607 $(1,817,832)
======== ======== ======== ===========
Net income
(loss) per
share of
common stock $ (0.012)
Average number
of common
shares
outstanding 15,134,220
NINE MONTHS ENDED
SEPTEMBER 30, 1997
ADJUSTED
ACTUAL PA,DE,FL NOVACARE PRO FORMA
Revenue, net
Costs and
expenses $5,895,281 $1,379,030(1) $1,608,780(8) $ 2,907,471
Operating
costs 4,668,926 1,117,095(2) 1,190,250(9) 2,361,581
Admin. and
selling 1,755,718 29,275(3) 107,713(10) 1,618,730
Deprecand
amount 154,575 29,289(4) 72,792(11) 52,314
--------- -------- --------- ----------
Ttl costs and
expenses 6,579,219 1,175,659 1,370,935 4,032,625
--------- --------- --------- ----------
Operating
income (loss) (683,938) 203,371 237,845 (1,125,154)
Interest
expense (net) 211,773 54,474(5) (560) 157,759
Other (income)
expense (49,563) 0 (260) (49,303)
--------- --------- -------- ----------
Inc.(loss)
before taxes (846,148) 148,797 238,665 (1,233,610)
Provision for
taxes 717 0(7) 0(7) 717
--------- --------- -------- ---------
Net income
(loss) $ (846,865) $ 148,797 $238,665 $(1,234,327)
======== ========= ======= ==========
Net income
(loss) per
share of
common stock $ (0.07)
Average number
of common
shares
outstanding 15,722,833
See Notes to Unaudited Pro Forma Consolidated Statements of Operation
(1) Adjustment to eliminate actual net revenues for the periods
presented attributable to the assets previously disposed.
(2) Adjustment to eliminate direct actual and accrued expenses
relating to the assets previously disposed, which consist
principally of salaries, wages, fringe benefits and other
clinical costs.
(3) Assumes no reduction in the Company's administrative and
selling expenses resulting from the dispositions.
(4) Adjustment to eliminate actual depreciation and
amortization expense for the periods presented attributable
to the assets previously disposed of.
(5) In January 1997, the Company agreed to satisfy a note of
the Company held by the buyer in the amount of $413,259,
out of the proceeds of $484,000 in face amount of
receivable attributable the assets to be disposed of. The
pro forma adjustment eliminates actual and accrued interest
expense attributable to this note. Lower interest expense
resulting from the use of proceeds of the Sale to reduce
the Company's outstanding debt is not reflected in the pro
forma adjustments.
(6) In April 1997, the Company agreed to satisfy a note of the
Company held by the buyer in the amount of $49,000, out of
the proceeds of $50,000 in face amount of receivable
attributable to the assets to be disposed of. The pro forma
adjustment eliminates actual and accrued interest expense
attributable to this note.
(7) Excludes the gain on the Sale of the four Centers and the
Business as well as on the Pennsylvania and Florida
Dispositions. Accordingly, the pro forma adjustments do
not assume any change in Federal and State tax.
(8) Adjustment to eliminate actual net revenues for the periods
presented attributable to the assets to be disposed of.
(9) Adjustment to eliminate direct actual and accrued expenses
relating to the assets to be disposed of, which consist
principally of salaries, wages, fringe benefits and other
clinical costs.
(10) Adjustment to eliminate indirect actual and accrued
expenses relating to the assets to be disposed of, which
consist principally of salaries, wages, fringe benefits and
other general and selling expense.
(11) Adjustment to eliminate actual depreciation and
amortization expense for the periods presented attributable
to the assets to be disposed of.
BUSINESS - CONSOLIDATED
The Company provides outpatient rehabilitation services
through a network of outpatient clinics principally in the
Northeast and Mid-Atlantic regions. The Company owns and
operates eight clinics, four in Massachusetts (one additional
clinic had been closed in April 1997) one in Pennsylvania and
three in Delaware. The Company also provides managed
rehabilitation services through contract staffing, principally
in Massachusetts and New York. The executive offices of the
Company are located at 38 Pond Street, Suite 305, Franklin,
Massachusetts 02038 and its telephone number is (508)543-5055.
In 1992, following the Company's initial public offering,
the Company operated nine facilities. In 1993, the Company
acquired nine additional facilities. The Company returned one
clinic to is seller in 1995 and closed two clinics in each of
1995 and 1996 that were not achieving desired results. In
February 1997, the Company sold three of its Pennsylvania
clinics back to their former owner. In March 1997, the Company
returned one non-performing clinic in Florida to its former
owner. See "Recommendations of the Board of Directors of
Consolidated; Reasons for the Sale" and "Unaudited Pro Forma
Condensed Consolidated Financial Information."
In 1996, the Company had begun development of a program of
managed rehabilitation services ("MRS"), pursuant to which the
Company would furnish contract development, staffing,
administrative, payroll, billing, collection and management
services to local, independently-owned host clinics and
agencies, that in turn would provide or coordinate the actual
rehabilitative therapy services. Two agreements have been
executed and the Company terminated the MRS program.
Industry Background
Physical and occupational therapy is the process of aiding
in the restoration of individuals disabled by injury or disease
or recovering from surgery. Management believes that the
following factors are influencing the growth of outpatient
physical and occupational therapy services:
Economic Benefits of Physical and Occupational Therapy
Services. Purchasers and providers of health care services such
as insurance companies, health maintenance organizations,
business and industry, are seeking ways to save on traditional
health care services. Management believes physical and
occupational therapy services represent a cost-effective
service, by attempting to prevent short-term disabilities from
becoming chronic conditions, and by speeding the recovery from
surgery and musculoskeletal injuries.
Earlier Hospital Discharge. Changes in health insurance
reimbursement, both public and private, have encouraged the
early discharge of patients in order to contain and reduce
costs. Management believes early hospital discharge practices
foster greater numbers of individuals requiring outpatient
physical and occupational therapy services.
Outpatient Rehabilitation Services
The clinics provide pre- and post-operative care and
treatment for a variety of orthopedic-related disorders and
sports related injuries, treatment of neurologically related
injuries, rehabilitation of injured workers and preventative
care. A patient who is referred to one of the Company's
rehabilitation facilities undergoes an initial evaluation and
assessment process that results in the development of a
rehabilitation care plan designed specifically for that patient.
Rehabilitation services provided by the Company include the
following:
Conventional Clinical Services
All facilities provide routine acute clinical therapy
services. Services include preventive and rehabilitative
services for neuromuscular, musculoskeletal and cardiovascular
injury or disease. Patients treated are referred by physicians.
Licensed physical therapists evaluate each patient and initiate
a program of rehabilitation to achieve each individual patient's
rehabilitation goals. Treatments or modalities rendered may
include traction, ultrasound, electrical stimulation,
therapeutic exercise, heat treatment and hydrotherapy. The
Company's charge for its services is based upon the specific
treatments rendered. Patients requiring such services are
usually treated for one hour per day, three days per week over a
period of two to five weeks. Additionally, wherever
appropriate, post-treatment maintenance and exercise programs
are provided to patients to continue their recovery on a cost-
effective basis.
Occupational-Industrial Services
At several of the Company's facilities, specific programs
for the injured workers compensation patient are rendered.
Services unique to the injured worker are as follows:
Work Capacity Evaluation (WCE). WCE is an intensive,
objective evaluation of eh injured worker's physical condition
and capacity to perform the specific requirement of the worker's
employment. This evaluation is often used by insurers to
estimate the extent of rehabilitation treatment or as a basis
for settlement of disability claims.
Work Hardening. After the acute-care phase of an injury
and often as an outcome of a WE, there is a transitional need
for the injured worker to regain the physical capacity to safely
perform employment requirements. Work hardening provides
graduated exercise and work stimulation therapies to
rehabilitate the injured worker. Patients in the Company's work
hardening program gradually build up their treatment time from
three to seven hours per day, five days per week for a four- to
six-week period.
Marketing
At each clinical location, the Company focuses its
marketing efforts on physicians, mainly orthopedic surgeons,
neurosurgeons, psychiatrists, occupational medicine
practitioners, and general practitioners, which generally
account for the majority of physical and occupational therapy
referrals. In marketing to the physician community, the clinics
emphasize their commitment to quality patient care and
communication with physicians regarding patient progress. On a
regional and corporate level, the Company seeks to improve
and/or establish referral relationships with health maintenance
organizations, preferred provider organizations, industry and
case managers and insurance companies.
Sources of Revenue/Reimbursement
Payor sources for the Company's services are primarily
commercial health insurance, managed care programs, workers'
compensation insurance, Medicare and proceeds from personal
injury cases. Commercial health insurance and managed care
programs generally provide outpatient services coverage to
patients utilizing the clinics, and the patient is normally
required to pay an annual deductible and a co-insurance payment.
Workers' compensation is a statutorily defined employee benefit
which varies on a state by state basis. Workers' compensation
laws generally require employers to pay for employees' costs of
medical rehabilitation, lost wages, legal fees and other costs
associated with work-related injuries and disabilities and, in
certain jurisdictions, mandatory vocational rehabilitation.
These statutes generally require that these benefits be offered
to employees without any deductibles, co-payments of cost
sharing. Companies may provide such coverage to their employees
through either the purchase of insurance from private insurance
companies, participation in state-run funds or through self-
insurance. Treatments for patients who are parties to personal
injury cases are generally paid for from the proceeds of
settlements with insurance companies.
Two of the Company's clinics have been certified as
Medicare providers. Medicare reimbursement for outpatient
physical and/or occupational therapy furnished by a Medicare-
certified rehabilitation agency is equal to the lesser of the
providers's "reasonable cost" as allowed under Medicare
regulations or the providers's customary charges. Individual
beneficiaries, or their "Medigap" insurance carriers if such
coverage exists, are required to pay a deductible and co-payment
amount, so that governmental payments to the Company do not
exceed 80% of the reasonable costs of such services. The
Company files annual cost reports for each of its Medicare-
certified clinics. These cost reports serve as the basis for
determining the regulations require that a physician must
certify the need for physical and/or occupational therapy
services for each patient and the services must be provided in
accordance with an established plan of treatment which is
periodically revised. State Medicaid programs generally do not
provide coverage for outpatient physical and occupational
therapy, and, therefore, Medicaid is not and is not expected to
be a material payor for the Company.
The following table sets forth the Company Percentage
Revenues by category of payor for the fiscal years 1994, 1995
and 1996.
Sources of Revenue/Reimbursement 1994 1995 1996
Workers Compensation 25% 10% 28%
Health Maintenance Organization 10% 13% 25%
Motor Vehicle Insurance 9% 6% 18%
Medicare 7% 5% 8%
Commercial Health Insurance 17% 39% 7%
Blue Cross/Blue Shield 7% 5% 5%
Self Pay 9% 7% 4%
Other 14% 12% 3%
Medicaid 2% 3% 2%
Total 100% 100% 100%
Contract Services Division
The Company's Contract Services Division provides temporary
physical, occupational and speech therapist staffing, typically
under intermediate term contracts, to schools, hospitals,
nursing homes, assisted living facilities and home health care
companies. In addition to hiring therapists locally, the
staffing division has established international sources of
highly trained duly licensed therapists who may provide services
in the United States. Using these relationships, the staffing
division has been able to attract a growing supply of staff at
hourly rates below current market rates. The staffing division
has grown rapidly since its formation in September 1994.
Managed Rehabilitation Services
The Company has begun development of a program of managed
rehabilitation services ("MRS"), pursuant to which the Company
would enter into licensing arrangements with local,
independently owned host providers of rehabilitative therapy
("hosts"), such as outpatient clinics, small contract agencies
and independent home care agencies. Under these arrangements,
the hosts would be the actual provider or coordinator of
rehabilitative therapy services, while the Company would furnish
the hosts with contract development and management services.
The Company believes that HMOs and other managed care
payers are increasingly seeking providers that can deliver
multiple services in diverse settings and locations. Under the
MRS program, the Company would assist its licenses hosts to
develop a full range of rehabilitative therapies, including
physical, occupational, speech and respiratory services, and
delivery of these assisted living residences. Through its
contractual relationships with managed care payers, the Company
would direct contracts with such payers to its host licensees.
The Company would also furnish the hosts with administrative,
payroll, billing and collection services, assist the hosts with
staffing on an as-requested basis and advise the hosts on
contract management. For example, based upon experience in the
Company's own clinics and contract services division, the
Company would advise hosts on mix design -- establishing an
optimal balance between therapists and lesser paid therapist
assistants -- and employment of underutilized clinic staff to
perform therapy at off-site locations. Only one host would be
licensed in any given locality, but multiple hosts could
participate in contracts arranged by the Company with regional
or national managed care payers.
The MRS model would benefit the hosts by offering contract
opportunities that otherwise would likely not be available to
them and relieving them of complex and costly administrative
burdens. The model would benefit the Company by leveraging off
expertise developed in the company's clinics and contract
services operations and expanding the Company's operations into
new regional markets with relatively modest capital outlays.
The Company would be compensated by the hosts through direct
payment for certain services and profit participation in the
hosts' businesses. Two agreements have been executed to date.
The Company expects to discontinue development of MRS prior to
the closing of the Sale.
Regulation
The health care industry is subject to numerous federal,
state and local regulations. Although many states prohibit
commercial enterprises from engaging in the corporate practice
of medicine, the states in which the Company currently operates
do not prohibit the Company from providing physical therapy
services. There is a risk that the corporate practice of
medicine could be interpreted in those states to include the
practice of physical therapy also, or that the corporate
practice of physical therapy itself could be specifically
prohibited in some states. In the event that the Company is
found to be engaged in a prohibited practice in any state, the
Company would be required to restructure its operations so as to
be in compliance with applicable law. In addition, the Company
could be subject to fines and penalties. In addition, if the
Company were to seek to expand its operations to other states in
which physical therapy services could not be provided by a
corporation, it would be required to seek other arrangements in
such states, which could reduce profitability.
Certain states in which the Company operates have laws that
require facilities that employ health professionals and provide
health related services to be licensed. The Company believes
that the operations of its business, as presently conducted, do
not and will not require certificates of need or other approvals
and licenses. There can be no assurance, however, that existing
laws or regulations will not be interpreted or modified to
require the Company to obtain such approvals or licenses and, if
so, that such approvals or licenses could be obtained.
Two of the Company's clinics are certified Medicare
providers. In order to receive Medicare reimbursement, a clinic
must meet the applicable conditions or participation set forth
by the Department of Health and Human Services relating to the
type of facility, its equipment, record keeping, personnel and
standards of medical care as well as compliance with all state
and local laws. Clinics are subject to periodic inspections to
determine compliance.
The Social Security Act imposes criminal sanctions and/or
penalties upon persons who pay or receive any "remuneration" in
connection with the referral of Medicare or Medicaid patients.
The anti-kickback laws prohibit providers and others from
offering or paying (or soliciting or receiving), directly or
indirectly, any remuneration to induce or in return for making a
referral for, or ordering or recommending (or arranging for
ordering or recommending) a Medicare-covered service. Each
violation of these rules may be punished by a fine (of up to
$250,000 for individuals and $500,000 for corporations, or twice
the pecuniary gain to the defendant or loss to another from the
illegal conduct) and or imprisonment for up to five years. In
addition, a provider may be excluded from participation in
Medicaid or Medicare for violation of these prohibitions through
an administrative proceeding, without the need for any criminal
proceeding. Many states have similar laws, which apply whether
or not Medicare or Medicaid patients are involved.
Because the anti-kickback laws have been broadly
interpreted to apply where even one purpose (as opposed to a
sole or primary purpose) of a payment is to induce referrals,
they limit the relationships which the Company may have with
referral sources, including any ownership relationships. The
anti-kickback laws may also apply to the structure of
acquisitions by the Company of physician-owned physical therapy
clinics, to the extent that any portion of the purchase price or
terms of payment are deemed to be an inducement to the physician
to make referrals to the clinic which, under an interpretive
letter from the Office of Chief Counsel of the Department of
Health and Human Services Inspector General, could include
payments for goodwill. Management considers these anti-kickback
laws in planning its clinic acquisitions, marketing and other
activities, and believes its operations are and will continue to
be in compliance with applicable law, but no assurance can be
given regarding compliance in any particular factual situation,
as there is no procedure for obtaining advisory opinions from
government officials.
In addition, another federal law, known as the "Stark Law"
was expanded in 1993 to impose a prohibition on referrals of
Medicare or Medicaid patients for physical therapy services by
physicians who have a financial relationship with the provider
furnishing the services. With certain specified exceptions, the
referral prohibition will apply to any physician who has (or
whose immediate family member has) a direct or indirect
ownership or investment interest in, or compensation
relationship with, a provider of physical therapy services such
as the Company's clinics. This law also prohibits billing for
services rendered pursuant to prohibited referral. Penalties
for violation include denial of payment for the services,
significant civil monetary penalties, and exclusion from
Medicare and Medicaid. Several states have enacted laws similar
to the Stark law, but which cover all patients as well. The
Stark law covers any financial relationship between the Company
and referring physicians, including any financial transaction
resulting from a clinic acquisition. As with the anti-kickback
law, management will consider the Stark law in planning its
clinic acquisitions, marketing and other activities, and expects
that its operations will be in compliance with applicable law.
However, as noted above, no assurance can be given regarding
compliance in any particular factual situation, as there is not
procedure for obtaining advisory opinions from government
officials.
Competition
The health care industry generally and the physical and
occupational business in particular are highly competitive and
subject to continual changes in the manner in which providers
are selected. The competitive factors in the physical and
occupational therapy businesses are quality of care, cost
treatment outcomes, convenience of location, and relationships
with ability to meet the needs of referral and payor sources.
The Company's clinics compete directly or indirectly with the
physical and occupational therapy departments of acute care
hospitals, physician-owned physical therapy clinics, private
physical therapy clinics, and chiropractors.
Discontinued Operations
From inception, the Company provided diagnostic imaging
services and equipment under contracts to hospitals under both
mobile and fixed base arrangements. Through its merger in July
1991 with PTS, the Company began to provide inpatient and
outpatient rehabilitation services pursuant to contracts with
hospitals. Effective March 26, 1993, the Company's Board of
Directors approved and adopted a plan to discontinue its
diagnostic imaging services division and sold all related
assets, except accounts receivable, effective September 30,
1994.
Recent Divestitures
On February 28, 1997, the Company completed the sale of
three of its four Pennsylvania clinics for a purchase price of
$1,050,000 in cash and a note, subject to adjustment. The
clinics include those located in Millersburg, Pennsylvania,
Mechanicsburg, Pennsylvania and Shermansdale, Pennsylvania. The
Company had purchased these clinics from the buyer in 1993. The
cash portion of the transaction was $900,000 which at the
closing was reduced by the payment of certain operating expenses
due the buyer of $15,636. The buyer also assumed up to $230,000
in associated liabilities. Additionally, in January 1997 the
Company agreed to satisfy a note held by the buyer issued in
connection with the 1993 business acquisition in the approximate
amount of $413,000, by assigning and without guarantee as to the
amount of the collect ability to the note holder $484,000 in
face amount of accounts receivable, but only to the extent of
collections in the amount due under the note. The clinics sold
accounted for approximately 22% of the Company's total revenues
for the year ended December 31, 1996.
In March 1997, the Company returned one non-performing
clinic in Florida to its former owner. The Company assigned
approximately $64,000 of net trade receivables, approximately
$4,000 of prepaid assets and approximately $6,000 of net fixed
assets related to the returned clinic to the former owner. In
conjunction with the return of the clinic, the former owner
agreed to forgive the balance of a Company note held in the
amount of $48,000, forfeit accrued earned time benefits in the
approximate amount of $10,000, and assumed certain accounts
payable in the approximate amount of $13,000. The returned
clinic accounted for approximately 4.7% of the Company's total
net revenues for the period ended December 31, 1996. The sale of
the Pennsylvania clinics and the return of the Florida clinic
resulted in a net gain on sale of assets for the period ending
March 31, 1997 of $802,724.
In January, 1998, the Company completed the sale of four
clinics for a purchase price of $800,000 in cash, subject to
adjustment. The clinics include two located in Newark,
Delaware, one clinic located in Wilmington Delaware, and one
clinic located in Philadelphia, Pennsylvania. The Company had
purchased these clinics during 1992 and 1993. The cash portion
of the transaction was $800,000 which at the closing was reduced
by the payment of certain operating expenses. The purchase
price included gross trade receivables of approximately
$644,372. The buyer also assumed up to $3,900 in associated
liabilities. Additionally, in January 1998 the Company agreed
to fully satisfy a note held by the former owner of the Delaware
clinics issued in connection with the 1993 business acquisition
in the approximate amount of $617,000, through a lump sum
final payment of $150,000 from the proceeds of the transaction.
The four clinics sold accounted for approximately 25% of the
Company's total revenues for the year ended December 31, 1996.
Properties
The Company's principal executive offices are located at 38
Pond Street, Franklin, Massachusetts. This office contains
approximately 7,500 square feet of space which the Company
currently leases on five-year lease expiring January 2002. In
addition, the Company currently operates eight outpatient
rehabilitation facilities, all of which are leased facilities
typically located in a medical office building or shopping
center. The Company's typical clinic occupies approximately
1,200 to 7,500 square feet of space with an average of
approximately 3,200 square feet of space per location. Each
clinic employs one or more licensed physical and/or occupational
therapists, including a therapist who is the facility manager,
office personnel, aides and, at certain clinics, athletic
trainers, exercise physiologists and other appropriate
personnel.
Set forth below is certain information concerning the
Company's outpatient facilities as of September 30, 1997.
Outpatient Rehabilitation Facilities
LOCATION SQ. FT. YEAR OPENED
Attleboro, MA 2,800 1971
Leominster, MA 3,400 1990
Pittsfield, MA 2,500 1992
West Bridgewater, MA 3,500 1978
Philadelphia, PA 7,000 1992
Wilmington, DE 1,600 1993
Newark, DE 3,900 1993
Newark, DE 1,700 1993
Employees
As of September 30, 1997, the Company employed 145 full and
part-time persons, 128 of whom are licensed therapists,
assistants and aides at the Company's outpatient facilities, 10
of whom function in administrative capacities at such outpatient
facilities and 14 of whom are employed in the Company's
executive office. None of the Company's employees are
represented by a labor union, and the Company is not aware of
any current activities to unionize its employees. Management of
the Company considers the relationship between the Company and
its employees to be good.
In the states in which the Company's current clinics are
located, persons performing physical and occupational therapy
services are required to be licensed by the state. All persons
currently employed by the Company and its clinics who are
required to be licensed are licensed, and the Company intends
that all future employees who are required to be licensed will
be licensed. Management is not aware of any federal licensing
requirements applicable to its employees. The Company carries
professional liability insurance for its licensed personnel.
Legal Proceedings
The Company is a party to legal proceedings arising from
the normal business operations of the Company. Management
believes these proceedings will not have a material impact on
the financial condition and results of operations of the
Company.
PRICE RANGE OF COMMON STOCK AND
DIVIDEND POLICY - CONSOLIDATED
The Company's Common Stock is traded on the Nasdaq Small-
Cap Market under the symbol "CHCA." The following table sets
forth the high and low bid prices for the Common Stock, as
reported by the National Association of Securities Dealers, Inc.
For the quarters indicated. These prices represent quotations
between dealers, do not include retail markups, markdowns or
commissions and may not represent actual transactions.
1995 HIGH LOW
First Quarter $1.0625 $0.6250
Second Quarter $0.8125 $0.500
Third Quarter $0.5625 $0.3750
Fourth Quarter $0.3750 $0.1875
1996 HIGH LOW
First Quarter $0.5625 $0.2500
Second Quarter $0.6250 $0.3437
Third Quarter $0.5312 $0.3125
Fourth Quarter $0.4375 $0.2500
1997 HIGH LOW
First Quarter $0.3750 $0.2500
Second Quarter $0.2500 $0.1250
Third Quarter $0.3750 $0.1875
Fourth Quarter $0.2500 $0.1250
As of December 31, 1996, the number of stockholders of
record of the Company's Common Stock was approximately 600. The
Company believes that, in addition, there are in excess of 600
beneficial owners of its Common Stock whose shares are held in
"street name".
The Company has paid no cash dividends on its Common Stock
to date. The Company is not in a position, financially and
otherwise, to consider the payment of any dividends to
stockholders. Aside from an accumulated deficit of
approximately $4,200,000 on an actual basis and $4,800,000 on a
pro forma basis, respectively, at September 30, 1997, the
Company is subject to certain financial covenants in various
agreements (including the Purchase Agreement) which preclude the
payment of dividends on its Common Stock (and in some cases its
other classes of capital stock). Moreover, the shares of
Series A Preferred Stock and Series B Preferred Stock are prior
in right to the shares of Common Stock as to dividends.
MANAGEMENT - CONSOLIDATED
NAME AGE POSITION
James Kenney 55 Chairman of the Board (1)(3)
Robert M. Whitty 42 President
Joel Friedman* 56 Director (1)
Sidney Dworkin 76 Director (2)
Paul W. Frankel, M.D., 47 Director (1)(3)
Ph.D.*
Goodhue W. Smith, III 46 Director (1)(2)
Raymond L. LeBlanc 41 Treasurer, Secretary and
Chief Financial Officer
* Resigned as of October 1997.
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of Compensation Committee
James Kenney became a director in March 1993 and Chairman
of the Board of Directors on November 1, 1996. Mr. Kenney is
currently Executive Vice President of San Jacinto Securities in
Dallas, Texas. From February 1992 until June 1993, he had been
a partner of Renaissance Capital Group, Inc., a Dallas money
management firm. From 1989 to February 1992, Mr. Kenney was
Senior Vice President of Capital Institutional Services Inc., a
brokerage firm located in Dallas, Texas that provides third-
party financial and business research. Mr. Kenney is also a
director of Ameriship Corp., Coded Communications Corp.,
Industrial Holdings, Inc., Scientific Measurement Systems, Inc.,
Appoint Technologies, Inc., Technol Medical Products, and
Tricom, Inc.
Joel Friedman became a director of the Company in December
1981. He was Chairman and Chief Executive Officer from July
1994 to June of 1996. Mr. Friedman has been involved for the
past twenty five years in the financing and management of
several public and private companies and real estate ventures,
most recently, and for at least the past five years through
Friedman Enterprises, Inc. and Founders Capital Corporation.
Mr. Friedman is also a member of the Board of Directors of 3D
Geophysical, Inc. Mr. Friedman resigned as a director in October
1997.
Robert M. Whitty was elected President in November 1995 and
became a director of the Company in January 1997. Mr. Whitty
has been Vice President of the Company since 1994. Prior
thereto, Mr. Whitty provided consulting services for various
health care companies, which services included financial
planning, strategic planning, acquisitions and business
development. Mr. Whitty has over 20 years of experience in the
health care field.
Paul W. Frankel, M.D., Ph.D. has been a member of the Board
of Directors since July 1994. Dr. Frankel is currently, and has
been since August 1993, the President of Life Extension
Institute, Inc., a New York Company specializing in preventive
health services. From April 1992 to August 1993, Dr. Frankel was
a Partner and the National Medical Director of Coopers &
Lybrand. For the period May 1988 to February 1992, Dr. Frankel
served in various positions for Metropolitan Life Insurance
Company, ultimately serving as its Vice President and National
Medical Director. Dr. Frankel resigned as a director in October
1997.
Goodhue W. Smith, III has been a member of the Board of
Directors since July 1994. In 1978, Mr. Smith founded Duncan-
Smith Co., an investment banking firm in San Antonio, Texas and
has since such time served as its Secretary and Treasurer. Mr.
Smith is also a Director of Citizens National Bank of Milam
County, and Ray Ellison Mortgage Acceptance Co.
Sidney Dworkin was elected to the Board of Directors in
March 1996. Dr. Dworkin was a founder, former President, Chief
Executive Officer and Chairman of Revco, Inc. Between 1987 and
the present, Dr. Dworkin has also served as Chief Executive
Officer of Stonegate Trading, Inc., an importer and exporter of
various health and beauty aids, groceries and sundries. Between
1988 and the present, Dr. Dworkin has served as Chairman of the
Board of Advanced Modular Systems, which is engaged in the sale
of modular buildings. Between June 1993 and the present, Dr.
Dworkin has also served as Chairman of Global International,
Inc., which is involved in the sale and leasing of modular
buildings to hospitals and Chairman of the Board of Comtrex
Systems, which is engaged in the provision of data processing
services. Dr. Dworkin also serves on the Board of Directors of
CCA Industries, Inc., Interactive Technologies, Inc., and
Northern Technologies International Corporation, all of which
are publicly-traded companies.
Raymond L. LeBlanc has been Controller of the Company since
March 1996, Treasurer and Chief Financial Officer since June
1996, and Secretary since November 1, 1996. Previously, since
1987, Mr. LeBlanc was Treasurer of Luzo Foodservice Corporation,
a food manufacturer, retailer and distributor.
Renaissance Capital Partners II Ltd. ("Renaissance') is
currently entitled to designate two directors for nomination to
the Company's Board of Directors, including a director that it
is entitled to designate as the holder of a majority of the
Company's Series A Preferred Stock (See "Description of
Securities -- Preferred Stock -- Series A Preferred Stock").
Messrs. Kenney and Smith are designees of Renaissance.
Executive Compensation
The following summary compensation table sets forth, for
the three fiscal years ended December 31, 1996, the cash
compensation of each Executive Officer of the Company whose
total salary and bonuses exceed $100,000 (the " Named Executive
Officers").
Summary Compensation Table
Long Term Compensation
Annual Compensation Award
Payouts
Name and Other
Principal Annual Restric All
Position ted Options/S LTIP Other
Year Salary Bonus Compen Stock ARs Payouts Compen
sation Awards sation
Joel 1996 $53,366 0 0 0 787,667(4) 0 0
Friedman, 1995 75,000 0 0 0 1,250,000 0 0
Chairman of 1994 0 0 0 0 0
the Board
and Chief
Executive
Officer(1)
Alan 1995 120,000 0 0 0 787,667(4) 0 0
Mantell,
Chief
Executive
Officer(2)
Robert M. 1996 140,000 0 0 0 781,661 0 0
Whitty, 1995 106,000 0 0 0 0 0 0
President(3)
_________________________
(1) Joel Friedman was Chief Executive Officer of the Company
from July 1994 to June 1, 1996.
(2) Mr. Mantell was Chief Executive Officer of the Company from
June 1996 through November 1996.
(3) Mr. Whitty was elected President of the Company in November
1995.
(4) Options to acquire 500,000 shares awarded to each of
Messrs. Friedman and Mantell expired unexercised upon
termination of employment in November 1996.
The aggregate amount of any miscellaneous compensation not
set forth in the table or the description of benefit plans,
including any personal benefits valued at their incremental
cost to the Company, received in 1995 by any executive
officers included in the above table did not exceed 10% of
such person's 1995 cash compensation.
1989 Stock Incentive Plan
Under its 1989 Stock Incentive Plan (the "Plan"), the
Company grants awards of Common Stock to those persons
determined by the Board of Directors to be key employees who are
responsible for the management and growth of the Company. The
size of the award is generally determined on the basis of the
level of responsibility of the employee. Types of awards
include non-statutory stock options, incentive options
(qualifying under Section 422A of the Internal Revenue Code of
1986), restricted stock awards and stock appreciation rights
(SARs). Options and stock appreciation rights generally expire
ten years from the grant date and unless otherwise provided, are
exercisable on a cumulative basis with respect to 20% of the
optioned shares on each of the five anniversaries after the
grant date. Restrictions on restricted stock awards generally
lapse with respect to 20% of the shares subject to the award
after the expiration of each year following the grant date and
the portions of such awards for which restrictions have not
lapsed are subject to forfeiture upon termination of employment.
The Company may grant options to purchase an aggregate of
500,000 shares of Common Stock under the Plan, 380,000 of which
are currently available for grant. No stock options or other
awards under the Plan were granted during 1996, nor were any
options exercised by the individuals named in the Summary
Compensation Table during 1996.
1994 Stock Option Plan
The Company adopted the 1994 Stock Option Plan (the "1994
Plan") effective November 3, 1994. The terms and conditions of
the 1994 Plan are substantially identical to the 1989 Plan,
except that the 1994 Plan does not provide for granting of
SAR's. In September 1996, the Company accepted the surrender of
options to acquire 833,333 shares under the 1994 Plan that the
holder had earlier agreed to return and issued options to
acquire 2,250,000 shares, as set forth in the table below.
Options to acquire 1,000,000 shares in September 1996 expired
unexercised in November 1996. As of December 31, 1996, options
to acquire 1,449,999 were available for grant under the 1994
Plan.
The following table sets forth information concerning
grants of options by the Company in 1996:
Option/SAR Grants in Last Fiscal Year
Number of Percentage Exercise Expiration
Securities of Total or Base
Underlying Options Price
Options Granted Granted to Per
Employees Share
in Fiscal
Year
Name
J.Friedman 37,667 34% $.28 2/01/01
750,000(1) .38 9/01/06
A.Mantell 37,667 34% .28 2/01/01
750,000(1) .38 9/01/06
M.Whitty 31,666 32% .28 2/01/01
750,000(1) .38 9/01/06
________________________
(1) Granted under the 1994 Plan. Of the 750,000 options
granted, 250,000 vested immediately and the remaining
500,000 were to vest as determined by the Board of
Directors. The unvested options of Messrs. Friedman and
Mantell expired unexercised upon their termination of
employment with the Company in November 1996.
The following table sets forth information concerning any
exercise of stock options during the Company's fiscal year ended
December 31, 1996 by the Named Executive Officers, the number of
options owned by the named individuals and the value of any in-
the-money unexercised stock options as of December 31, 1996:
Aggregate Option Exercises in Last Fiscal Year
Number of Value of
Unexercised Unexercised In-
Options held at the-Money
12/31/96 Options at
12/31/96(1)
Shares
Acquire Value
d on Reali Exercisa Unexerci Exercis Unexercis
Exercise zed ble sable able able
J.Friedman 35,714 $3,571 251,912 0 $ 191 --
A.Mantell 0 0 287,666 0 3,766 --
R.M.Whitty 0 0 281,666 500,000 3,166 0
___________________________
(1) Based on the average bid and ask price on the Nasdaq Small-
Cap Market of the Company's common stock on that date
($0.38).
Compensation of Directors
Non-employee directors are entitled to receive $500 per
meeting of the Board of Directors attended, which fees were
waived during 1996. In September 1996, the Board of Directors
made stock awards to its outside directors at a rate of 25,000
shares for each year of service since 1993. Pursuant to such
awards, Messrs. Kenney, Frankel, Smith and Dworkin received
100,000 shares, 100,000 shares, 75,000 shares and 25,000 shares
respectively.
Under the Company's stock option plans, directors who are
not employees of the Company (other than directors who are
members of the Stock Option Committee of the particular plan)
are eligible to be granted non-qualified options under such
plan. The Board of Directors or the Stock Option Committee (the
"Committee") of each plan, as the case may be, has discretion to
determine the number of shares subject to each non-qualified
option (subject to the number of shares available for grant
under the particular plan), the exercise price thereof (provided
such price is not less than the par value of the underlying
shares of Common Stock), the term thereof (but not in excess of
10 years from the date of grant, subject to earlier termination
in certain circumstances), and the manner in which the option
becomes exercisable (amounts, intervals and other conditions).
Directors who are employees of the Company (but not members of
the Committee of the particular plan) are eligible to be granted
incentive stock options under such plans. The Board or
Committee of each plan, as the case may be, also has discretion
to determine the number of shares subject to each incentive
stock option ("ISO"), the exercise price and other terms and
conditions thereof, but their discretion as to the exercise
price, the term of each ISO and the number of ISO's that may
vest in any year is limited by the Internal Revenue Code of
1986, as amended.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective June 30, 1994, certain holders of the Company's
convertible debt, converted certain promissory notes from the
Company into Common Stock of the Company and into a newly
issued, Series A Preferred Stock. Directors and affiliates of
the Company who participated in the conversion were as follows:
Renaissance Capital Partners II, Ltd. ("Renaissance"):
Convertible debt and accrued interest of $3,695,984 was
converted into 5,000,000 shares of Common Stock and
1,195,984 shares of Series A Preferred Stock. The Series A
Preferred Stock may be converted at any time, at the option
of the holder thereof, into Common Stock at a conversion
price of $.57 per share of Common Stock, subject to
adjustment, on the basis of the par value of the Series A
Preferred Stock of $1.00 per share. See "Description of
Securities -- Preferred Stock -- Series A Preferred Stock."
Joel Friedman (the Company's former Chairman and Chief
Executive Officer): Convertible debt and accrued interest
of $51,375 was converted into 71,429 shares of Common Stock
and 15,661 shares of Series A Preferred Stock. Mr.
Friedman's children collectively converted an identical
amount of debt and accrued interest on identical terms.
Christopher Harkins (the Company's former President):
Convertible debt and accrued interest of $25,688 was
converted into 51,375 shares of Common Stock of the
Company.
Diedre Benson (see below): Convertible debt and accrued
interest of $555,722 was converted into 1,111,444 shares of
Common Stock of the Company.
On September 8, 1994, effective November 11, 1994, the
Company entered into a Termination Agreement with Arnold E.
Benson (the "Termination Agreement"), the former Chairman of the
Board and Chief Executive Officer of the Company. In November
1994, Mr. Benson and his wife Diedre Benson sold an aggregate of
2,500,000 shares of Common Stock owned by Diedre Benson for an
aggregate of $1,075,000. Mr. Benson received a payment from the
Company of $175,000 as severance in consideration of the
termination of his Employment Agreement.
The Company granted to Health Care Partners, Inc., a
designee of Mr. Benson, on the Effective Date of the Termination
Agreement, an option to purchase up to an aggregate of 400,000
shares of Common Stock for $.50 per share for a period of three
years. The Company also agreed to provide Mr. Benson with other
benefits, including the payment of health, life and disability
insurance costs through November 1996 and certain expenses in
connection with the negotiation of the Termination Agreement.
Mr. Benson and Mrs. Benson entered into a non-competition
agreement with the Company with respect to certain activities
effective for a period of two years from the effective date of
the agreement. Mr. Benson resigned from the Board of Directors
of the Company on November 11, 1994.
On September 8, 1994, Renaissance loaned the Company
$100,000 pursuant to a convertible promissory note, convertible
at the option of Renaissance into Common Stock at a conversion
price of $0.33 per share. On October 24, 1994, the Company
exchanged the convertible promissory note for 100,000 shares of
Series B Preferred Stock. Additionally, Renaissance invested
$400,000 to acquire 400,000 shares of Series B Preferred Stock.
The Series B Preferred Stock may be converted at any time, at
the option of the holder thereof, into Common Stock at a
conversion price of $0.25 per share, subject to adjustment, on
the basis of the par value of the Series B Preferred Stock of
$1.00 per share. See "Description of Securities -- Preferred
Stock -- Series B Preferred Stock." James Kenney, now Chairman
of the Board and a Director of the Company, was, until June 1993
a general partner of Renaissance. Renaissance has the right to
designate two members for nomination to the Board of Directors
of the Company. Mr. Kenney and Goodhue W. Smith, III are
currently the designees of Renaissance to the Board.
Under the terms of the Series A Preferred Stock and the
Series B Preferred Stock, the Company has agreed that it will
not issue in excess of 1,500,000 additional shares of Common
Stock in any single transaction or related series of
transactions without the consent of the majority holder of the
Series A Preferred Stock and the Series B Preferred Stock.
Renaissance owns a substantial majority of the Series A
Preferred Stock and is the sole holder of the outstanding shares
of Series B Preferred Stock of the Company.
In January 1995, Sidney Dworkin, a director of the Company,
loaned the Company $100,000 pursuant to a convertible promissory
note and received warrants to purchase 50,000 shares of Common
Stock for $0.75 per share. In August 1995, Mr. Dworkin
exchanged the note for 80,000 shares of Common Stock and a
convertible promissory note in the principal amount of $80,000.
In addition, a partnership in which Mr. Dworkin is a partner
loaned the Company $50,000 under the same terms and received a
warrant to purchase 25,000 shares of Common Stock for $0.75 per
share. In August 1995, the note was exchanged for 40,000 shares
of Common Stock and a convertible promissory note in the amount
of $40,000.
In November 1995, Joel Friedman, then the Chairman and
Chief Executive of the Company, and Robert M. Whitty, the
President of the Company, jointly and severally guaranteed those
accounts receivable of the Company that were pledged to Capital
Factors, Inc., a lender to the Company. The amount of the line
of credit secured by the Company's accounts receivable is
$500,000. In January 1996, additional guarantees were provided
by Messrs, Friedman and Whitty in connection with an additional
line of credit secured by receivables in the amount of $750,000.
Subsequent to Mr. Friedman's resignation on November 1, 1996 as
the Company's Chairman and as an officer of the Company, Mr.
Friedman's guarantees were released.
At the end of December 1995, Joel Friedman and Alan
Mantell, then Chief Operating Officer of the Company, each
loaned the Company $30,000 to fund certain obligations of the
Company. The loans were repaid at the beginning of January
1996.
In April of 1996, the Company executed a promissory note in
favor of Renaissance in connection with a $500,000 line of
credit. Pursuant to the promissory note, the Company is
obligated to pay interest on the unpaid monthly balance of the
line of credit at the rate of 10% per annum, computed in
arrears, with the entire principal balance plus any unpaid
interest due in full on April 17, 1999. As of December 31,
1996, $340,000 had been advanced to the Company under these
arrangements. Of this amount, $265,000 was loaned by
Renaissance, and the balance by the following persons
participating in the loan: Alan Mantell, $15,000; Joel
Friedman, $15,000; Goodhue Smith, a member of the Board of
Directors, $20,000; and Duncan-Smith Co., an entity affiliated
with Mr. Smith, $25,000. In September and December 1996, the
Company issued to Renaissance and the other participants in the
Renaissance credit line shares of Common Stock in consideration
of their loans to the Company, as follows: Renaissance, 159,000
shares; Mr. Mantell, 9,000 shares; Mr. Friedman, 9,000 shares;
Mr. Smith, 12,000 shares; and Duncan-Smith Co., 15,000 shares.
DESCRIPTION OF CONSOLIDATED SECURITIES
General
The Company is authorized to issue 50,000,000 shares of
Common Stock, $.012 par value per share and 10,000,000 shares of
Preferred Stock, $1.00 par value per share. As of September 30,
1997, there were 15,573,535 shares of Common Stock outstanding
and 1,227,305 shares of Series A Preferred Stock and 500,000
shares of Series B Preferred Stock outstanding.
Common Stock
The holders of Common Stock are entitled to one vote for
each share held of record on all matters to be voted on by
stockholders. There is non-cumulative voting with respect to
the election of directors, with the result that the holders of
more than 50% of the shares voting for the election of directors
can elect all of the directors. The holders of Common Stock are
entitled to receive dividends when, as and if declared by the
Board of Directors out of funds legally available therefor. In
the event of liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share
ratably in all assets remaining available for distribution to
them after payment of liabilities and after provision has been
made for each class of stock, if any, having liquidation
preference over the Common Stock. Holders of shares of Common
Stock, as such, have no conversion, preemptive or other
subscription rights, and there are no redemption or sinking fund
provisions applicable to the Common Stock. All of the
outstanding shares of Common Stock are, and the shares of Common
Stock offered hereby, when issued against the consideration
therefor, will be, fully paid and nonassessable.
Reverse Stock Split
At the Company's Annual Meeting, stockholders approved an
amendment to the Company's charter pursuant to which the Board
of Directors is authorized, without further action by
stockholders, to effect a reverse split of the Common Stock at a
rate of one share of new Common Stock for a whole number of
shares of existing Common Stock of between two and ten, in the
discretion of the Board of Directors. If a reverse stock split
were effected, the exercise or conversion rate of the Company's
outstanding convertible preferred stock, convertible notes,
options and warrants would be appropriately adjusted. The Board
of Directors has not yet made a determination to effect such
reverse stock split or, if effected, the rate of the reverse
split.
Preferred Stock
The Company is authorized to issue preferred stock with
such designation, rights and preferences as may be determined
from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting
power or other rights of the holders of the Company's Common
Stock. In the event of issuance, the preferred stock could be
utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the
Company. The Company has no present intention to issue any
additional shares of its preferred stock. See "Certain
Relationships and Related Transactions."
Pursuant to the foregoing authority, the Board of Directors
of the Company has designated a Series A Preferred Stock and a
Series B Preferred Stock. The following discussion of the
terms of the Series A Preferred Stock and Series B Preferred
Stock is qualified in its entirety by reference to the
Certificate of Designation of Preferred Stock relating thereto
which is filed as an exhibit to the registration statement of
which this Prospectus forms a part.
Series A Preferred Stock
There are authorized and outstanding 1,227,305 shares of
the Company's Series A Preferred Stock, par value $1.00 per
share.
Conversion. Each share of Series A Preferred Stock is
convertible at any time, at the option of the holder, into the
number of shares of Common Stock obtained by dividing $1.00 by
the conversion price then in effect. The conversion price was
originally $.75 per share. If and whenever the Company issues
shares of Common Stock (except shares issued pursuant to options
and/or shares under the Company's profit sharing plan) for
consideration less than the conversion price, the conversion
price is reduced to the per share consideration received by the
Company in respect of any such issuance. If the Company issues
shares of Common Stock without consideration, the conversion
price is reduced such that a holder of Series A Preferred Stock
will have the right to convert such stock into the same
percentage of the outstanding Common Stock as such holder would
have held had its Series A Preferred Stock been converted just
prior to such issuance. If the Company issues shares of Common
Stock for property other than cash, the amount of the
consideration deemed received by the Company for purposes of
these provisions is the fair market value of such property.
The Company has issued Common Stock below the initial
conversion price of the Series A Preferred Stock. The holders of
the Series A Preferred Stock have agreed, as of December 1,
1996, that the conversion price of the Series A Preferred Stock
will be $0.57 notwithstanding that, by the terms of the Series A
Preferred Stock, the issuance of Common Stock by the Company
should have resulted in a lower conversion price. Subsequently
the conversion price of the Series A Preferred Stock was
adjusted to $0.38 per share, by unanimous action of the Board of
Directors. Such agreement does not constitute a waiver of the
rights of the holders of Series A Preferred Stock in respect of
any future issuances of Common Stock.
In the case of any capital reorganization, reclassification
of the stock of the Company, consolidation or merger or sale,
exchange, lease, transfer or other disposition of all or
substantially all of the property and assets of the Company, or
the participation by the Company in a share exchange as the
company to be acquired, the Series A Preferred Stock will be
convertible into the kind and number of shares of stock or other
securities or property to which the holder of such shares would
have been entitled to receive had the holder converted such
shares into Common Stock immediately prior to the event.
Mandatory Conversion. In the event the Company raises at
least $1.5 million of equity at a price per share equal to or
greater than the conversion price, the holders of the Series A
Preferred Stock, upon notice by the Company, will be required to
convert all shares of Series A Preferred Stock into Common
Stock.
Registration Rights. The holders of the Series A Preferred
Stock have certain rights to demand registration under the
Securities Act and to participate in the registration by the
Company of its capital stock for its own account or for the
account of its security holders.
Board Representation. The holders of a majority of the
Series A Preferred Stock outstanding have the right, at their
option, to designate one director of the Company.
Redemption. The Company has the right to redeem the Series
A Preferred Stock, in whole or in part, at par value, on 30
days' notice to each holder of such stock. Such redemption may
not be sooner than 30 days nor later than 120 days following the
filing with the Commission of the Company's most recent annual
report on Form 10-K. In the event that less than all shares of
Series A Preferred Stock are to be redeemed, such redemption
will be pro rata among the holders of such stock. If the Series
A Preferred Stock is called for redemption, the right to convert
such Series A Preferred Stock expires on the redemption date.
Financial Limitation. The Company may not issue any
additional preferred stock senior in priority of liquidation to
the Series A Preferred Stock without the prior written approval
of the holders of at least 50% of the outstanding Series A
Preferred Stock.
Dividends. The Company is required to pay quarterly
dividends on the Series A Preferred Stock at a rate of 6% per
annum. Such dividends are cumulative, with interest payable on
unpaid dividends. No such dividends have as yet been declared or
paid.
Series B Preferred Stock. There are authorized and
outstanding 500,000 shares of Series B Preferred Stock, par
value $1.00 per share. The terms of the Series B Preferred Stock
are the same as the terms of the Series A Preferred Stock,
except as follows:
Conversion. The initial conversion price of the Series B
Preferred Stock was $0.33. The Company has issued Common Stock
below the initial conversion price. The holder of the Series B
Preferred Stock has agreed, as of December 1, 1996, that the
conversion prices of the Series B Preferred Stock will be $0.25,
notwithstanding that, by the terms of the Series B Preferred
Stock, the issuance of Common Stock by the Company should have
resulted in a lower conversion price. Such agreement does not
constitute a waiver of the rights of the holder of the Series B
Preferred Stock in respect of any future issuance of Common
Stock.
Mandatory Conversion. In the event the Company raises at
least $1.5 million of equity at a price per share equal to or
greater than $0.75, the holders of the Series B Preferred Stock,
upon notice by the Company, will be required to convert all
shares of Series B Preferred Stock into Common Stock. The
Company's right to mandatory conversion under these provisions
expires on December 31, 1996.
Board Representation. The holders of the Series B
Preferred Stock have no right to designate a director.
Liquidation. In the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Company, the
holders of the Series B Preferred Stock are entitled to receive
out of the assets of the Company an amount per share equal to
the par value of such shares, plus any accrued and unpaid
dividends, before any payment is made or assets distributed to
the holders of Common Stock.
Transfer Agent.
The transfer agent for the Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York New York
10005.
BUSINESS - NOVACARE
NovaCare is a national leader in physical rehabilitation
services and employee services. As a clinical leader in
rehabilitation, the company treats 37,000 patients per day in
cost-effective outpatient and long-term care settings, and has
achieved significant market share in long-term care and orthotic
and prosthetic rehabilitation. In addition, NovaCare is the
nation's second largest provider of outpatient rehabilitation
services and the second largest professional employer
organization, administering the full array of human resource
functions, including the management of heath care benefits and
workers' compensation, for small and medium-sized businesses.
NovaCare was incorporated in Delaware in 1985. Its
principle executive offices are located at 1016 West Ninth
Avenue, King of Prussia, PA 19406 and its telephone number is
(610) 992-7200.
Lines of Business
NovaCare currently operates two lines of businesses:
Rehabilitation services and employee services.
Rehabilitation Services
NovaCare comprehensive medical rehabiltation services
include (i) providing rehabiltation therapy and rehabilitation
program consulting and management services on a contract basis
to health care institutions, primarily long-term care
facilities, and (ii) providing outpatient, orthotic and
prosthetic ("O&P") and occupational health rehabilitation
services through a national network of patient care centers and
integrated delivery systems.
Employee Services
Employee services are generally provided to small and
medium-sized businesses and are comprehensive, fully integrated
outsourcing solutions to human resource management, including
payroll management, workers' compensation, risk management,
benefits administration, unemployment services and human
resource consulting services.
STOCK OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS OF CONSOLIDATED
The following table sets forth information at November 26,
1997 with respect to the beneficial ownership of shares of
Common Stock by (i) each person known by the Company to be the
owner of more than 5% of the outstanding shares of Common Stock,
(ii) each director and executive officer and (iii) all executive
officers and directors as a group. The beneficial ownership
information described and set forth below is based on
information furnished by the specified persons and is determined
in accordance with Rule 13d-3 under the Exchange Act. It does
not constitute an admission of beneficial ownership for any
other purpose. Unless otherwise noted, the Company believes
that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock
beneficially owned by them.
Name and Address of Amount and Nature of
Percent of
Beneficial Owner Beneficial Ownership
Class
________________________________________________________________
Joel Friedman 591,910 (1) 1.5%
James Kenney 180,000 (2) 1.1%
Paul Frankel 180,000 (3) 1.1%
Goodhue W. Smith, III 122,000 (4) Less than 1%
Alan M. Mantell 296,667 (5) 1.9%
Robert M. Whitty 281,666 (6) 1.8%
Sidney Dworkin 466,951 (7) 2.9%
Renaissance Capital Partners II, Ltd.
8080 N. Central Expressway
Suite 210 LB 59
Dallas, Texas 75206 10,306,324 (8) 49.06%
All executive officers and directors
as a group (7 persons) 2,119,708 (9) 12.1%
________________________________________________________________
Unless otherwise indicated, each person listed maintains a
mailing address c/o Consolidated Health Care Associates, Inc.,
38 Pond Street, Franklin, Massachusetts 02038
(1) Includes 251,912 shares subject to currently exercisable
stock options and the right to acquire 41,213 shares upon
conversion of Series A Preferred Stock. Also includes
112,641 shares of Common Stock owned by Mr. Friedman's
children or which Mr. Friedman's children have the right to
acquire upon conversion of shares of Series A Preferred
Stock as to which Mr. Friedman disclaims beneficial
ownership.
(2) Includes 80,000 shares subject to currently exercisable
stock options.
(3) Includes 30,000 shares subject to currently exercisable
stock options.
(4) Includes 30,000 shares subject to currently exercisable
stock options. Does not include 15,000 shares owned by
Duncan-Smith Co., of which Mr. Smith is an officer.
(5) Includes currently exercisable stock options to acquire
287,667 shares.
(6) Consists of currently exercisable stock options.
(7) Includes 160,000 shares issuable upon a conversion of a
convertible promissory note, 50,000 shares issuable upon
exercise of warrants. Also includes 40,000 shares owned
by a partnership of which Mr. Dworkin is a partner, 80,000
shares issuable upon conversion of a promissory note held
by such partnership and 25,000 shares issuable upon
exercise of warrants held by such partnership.
(8) Includes the right to acquire 5,147,324 shares issuable
upon conversion of outstanding Series A Preferred Stock and
Series B Preferred Stock.
(9) Includes 961,245 shares subject to currently exercisable
non-qualified stock options, the right to acquire 84,426
shares upon conversion of outstanding Series A Preferred
Stock, 75,000 shares issuable upon exercise of warrants,
and 240,000 shares issuable upon the conversion of
convertible notes.
OTHER RELATED MATTERS
At the special meeting of Consolidated's Stockholders held
on January 13, 1998, Stockholders considered and approved an
Asset Purchase Agreement dated as of November 20, 1997 with
Olympus and the Olympus Subsidiary pursuant to which
substantially all of the assets of PTS relating solely to the
four outpatient clinics located in Attleboro, Leominster,
Pittsburgh and West Bridgewater, Massachusetts and the Business
were to have been sold to the Olympus Subsidiary for aggregate
consideration of approximately $1,700,000 in cash.
Stockholders holding more than a majority of the total
outstanding shares of common stock of Consolidated as well as
95% of the shares represented at the meeting voted in favor of
the adoption of the proposed Olympus Purchase Agreement. At the
Special Meeting, stockholders will be asked to consider and vote
upon the Termination Proposal to ratify, approve and confirm
termination of, and revocation of approval and adoption by
stockholders of, the Olympus Purchase Agreement.
In addition to approving the Purchase Agreement and
ratification of termination of the Olympus Purchase Agreement,
at the Special Meeting stockholders will also be asked to
consider and vote upon the Authorization Proposal to grant to
the President and the Treasurer and each of the Proper Officers
authority and power to exercise his sole discretion in
negotiating the definitive terms and conditions of the Purchase
Agreement and to execute and deliver the Purchase Agreement and
any other agreements, documents and instruments contemplated
thereby to effectuate the transactions contemplated therein,
with such changes therein and modifications and amendments
thereto as any such proper officer may in his discretion
approve.
OTHER INCIDENTAL MATTERS
If sufficient votes in favor of the Sale Proposal are not
received by the time scheduled for the Special Meeting, the
persons named as proxies may propose one or more adjournments of
the Special Meeting for a period or periods of not more than 30
days in the aggregate to permit further solicitation of proxies.
The persons named as proxies will vote in favor of such
adjournment those proxies which authorize them to vote in favor
of each of the Sale Proposal, the Termination Proposal and the
Authorization Proposal and to not withhold discretion to vote on
other matters. They will vote against any such adjournment
those proxies which direct them to vote against the Sale
Proposal and do not withhold discretion to vote on other
matters. Any such adjournment will require the affirmative vote
of a majority of the votes cast on the question in person or by
proxy at the session of the Special Meeting to be adjourned.
The costs of any such additional solicitation and of any
adjourned session will be borne by Consolidated.
The Board of Directors does not intend to bring any matters
before the Special Meeting other than as stated in this Proxy
Statement, and is not aware that any other matters will be
presented for action at the Special Meeting. If any other
matters come before the Special Meeting, the persons named in
the enclosed form of proxy will vote the proxy with respect
thereto in accordance with their best judgment, pursuant to the
discretionary authority granted by the proxy.
LEGAL MATTERS
Certain legal matters in connection with the Sale will be
passed upon for Consolidated upon by Robinson & Cole LLP,
Boston, Massachusetts and for NovaCare by its in-house General
Counsel.
EXPERTS
The consolidated financial statements of Consolidated for
the year ended December 31, 1995 incorporated in this Proxy
Statement by reference have been so included in reliance on the
report of Federman, Lally & Remis LLP, independent accountants,
given the authority of said firm as experts in auditing and
accounting. The consolidated financial statements of
Consolidated for the year ended December 31, 1996 incorporated
in this Proxy Statement by reference have been so included in
reliance on the report of Federman, Lally & Remis LLC,
independent accountants, given the authority of said firm as
experts in auditing and accounting.
Representatives of Federman, Lally & Remis LLC are expected
to be available by telephone at the Special Meeting and, while
such representatives do not plan to make a statement at such
meeting, they will be available to respond to questions from
stockholders in attendance.
STOCKHOLDERS PROPOSALS
Any stockholder proposals intended to be presented at the
Consolidated's next annual meeting of stockholders must be
received by Consolidated at its offices on or before Jauary 26,
1998 for consideration for inclusion in the proxy material for
such annual meeting of stockholders.
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
38 Pond Street, Franklin, Massachusetts 02038
The undersigned hereby appoints Robert M. Whitty and Raymond
L. LeBlanc and each of them acting singly, with full power of
substitution, attorneys and proxies to represent the undersigned
at the Special Meeting of Stockholders of Consolidated Health
Care Associates, Inc. ('Consolidated") to be held March 27, 1997
and at any adjournments thereof with all power which the
undersigned would possess if personally present, and to vote all
shares of stock which the undersigned may be entitled to vote at
said meeting upon the matters set forth in the Notice of Special
Meeting in accordance with the following instructions and with
discretionary authority on such other matters as may come before
the Special Meeting or at any adjournment thereof. All previous
proxies are hereby revoked.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
IT WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED AND, IF NO
DIRECTION IS INDICATED, IT WILL BE VOTED FOR PROPOSAL NO. 1,
PROPOSAL NO. 2 AND PROPOSAL NO. 3, RESPECTIVELY.
(1) Proposed adoption of the Purchase Agreement pursuant to
which RehabClinics (SPT), Inc. d/b/a NovaCare Outpatient
Rehabilitation and Mass., P.C., taken together and each a
subsidiary or affiliate of NovaCare, Inc. (collectively, the
"Purchaser"), will purchase substantially all of the assets of
PTS Rehab, Inc. ("PTS"), related solely to the four outpatient
clinics operated by PTS located in Attleboro, Leominster,
Pittsfield and West Bridgewater, Massachusetts, the Leases
therefor and related Provider Agreements, Service Agreements and
Professional Contracts and assume certain liabilities of PTS and
Consolidated related to such assets for aggregate consideration
of approximately $1,600,000. A copy of the Purchase Agreement is
attached as Annex A to the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) Proposed ratification of termination of, and proposed
revocation of approval and adoption by stockholders of, the
Purchase Agreement dated as of November 20, 1997 by and among PTS
and Consolidated and Olympus Healthcare Group, Inc. and Olympus
Outpatient Services, Inc. relating to the proposed sale of PTS'
assets, which Purchase Agreement had been previously approved and
adopted by stockholders at a Special Meeting of Stockholders held
on January 13, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Proposed grant of authority and power to the President
and Treasurer and all other officers of Consolidated designated
by the President (collectively, the "Proper Officers") to
negotiate the terms of the Purchase Agreement with Purchasers and
to execute any other agreements, documents and instruments
contemplated thereby, with such changes therein and modifications
and amendments thereto as any such Proper Officer may in his
discretion approve, such execution and delivery thereof and be
conclusive evidence of such authority under this Proposal.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) In their discretion, the proxies are authorized to vote
upon such other business as may properly come before the meeting.
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Signature:
Date: , 1998
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Date: , 1998
Annex A
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT dated as of March 5, 1998 by and among PTS
Rehab, Inc., a Connecticut corporation (the "Company"),
Consolidated Health Care Associates, Inc. (the "Shareholder"),
RehabClinics (SPT), Inc., a Delaware corporation d.b.a. NovaCare
Outpatient Rehabilitation (the "Purchaser"), and NovaCare, Inc.
("NovaCare"), but only in regard to Article IV and Article V.
W I T N E S S E T H:
WHEREAS, the Company owns and operates four outpatient
clinics located in Attleboro, Leominster, Pittsfield and West
Bridgewater, Massachusetts on premises leased from third parties
(collectively, the "Centers"), which provide among other things,
ancillary healthcare and outpatient rehabilitation services (such
activities are hereinafter referred to as the "Business");
WHEREAS, the Purchaser and its direct and indirect
subsidiaries are engaged in the business of providing outpatient
rehabilitation services (including general rehabilitation, sports
rehabilitation, industrial rehabilitation and work hardening)
through a network of facilities (such activities are hereinafter
referred to as the "Purchaser's Business");
WHEREAS, the Shareholder is the holder of all of the issued
and outstanding shares of capital stock of the Company (all such
shares of Common Stock held by the Shareholder being hereinafter
referred to as the "Shares");
WHEREAS, as of the Effective Date, as defined in Section
VII.D, the Purchaser desires to acquire from the Company certain
assets of the Company as described in Section I(C)(i) hereof (the
"Assets") and to assume certain liabilities and contractual
obligations of the Company as described in Section I(C)(ii)
hereof (the "Assumed Liabilities"), and the Company desires to
sell or assign the Assets and to assign the Assumed Liabilities
to the Purchaser, on the terms and subject to the conditions
hereinafter set forth; and
WHEREAS, to induce the Purchaser to enter into this
Agreement and perform its obligations hereunder, the Shareholder
has agreed to make the representations, warranties, covenants and
agreements of the Shareholder (including the indemnification and
non-competition agreements) set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, and
intending to be legally bound, the parties hereto hereby agree as
follows:
SECTION I
PURCHASE AND SALE OF THE ASSETS
A. Purchase and Sale of the Assets. Subject to the terms
and conditions of this Agreement and on the basis of the
representations, warranties, covenants and agreements herein
contained:
(i) The Company hereby sells, assigns and conveys to
the Purchaser and the Purchaser hereby purchases, acquires and
accepts from the Company, the Assets, which shall not include any
such assets of the Company set forth on Schedule I as "Excluded
Assets".
(ii) The Company hereby assigns to the Purchaser and
the Purchaser hereby accepts and assumes from the Company, the
Assumed Liabilities. The Purchaser shall not assume and shall
have no responsibility with respect to any and all liabilities or
obligations of the Company, known or unknown, absolute or
contingent, accrued or unaccrued, whether due or to become due,
other than the Assumed Liabilities.
B. Purchase Price. The purchase price (the "Purchase Price")
for the Assets is (i) $1,100,000 in cash and (ii) $500,000 in the
form of the promissory note attached hereto as Exhibit H hereto
(the "Note").
The Note shall be an interest bearing balloon note, payable
in full on the third (3rd) anniversary of the Closing Date;
provided, however, that if the Shareholder completes a reverse
merger with an unrelated third-party whereby the Shareholder is
the surviving entity in such merger and following such merger the
Shareholder has a net worth that, in the Purchaser's discretion,
is reasonably sufficient to guaranty the performance of the
Company's obligations under this Agreement, the Purchaser shall
pre-pay $200,000.00 of the total amount owed under the Note
within sixty (60) days of the Shareholder providing the Purchaser
with sufficient written documentation of (a) the completion of
such merger, and (b) the Shareholder's net worth.
C. Assets; Assumed Liabilities.
(i) The Assets shall consist of all assets, business,
contract rights, patient records, financial books and records,
and goodwill, of every kind and nature, real, personal, and
mixed, tangible and intangible, wherever located, of the Company
used in or in any way related to the Business as conducted by the
Company, except for those assets listed on Schedule I as
"Excluded Assets."
(ii) The Assumed Liabilities shall consist of and shall
be limited solely to the obligations of the Company listed in
Schedule I hereto.
D. Allocation. The Purchase Price for the Assets
(including the Assumed Liabilities assumed by the Purchaser)
shall be allocated to the Assets and the Assumed Liabilities at
their fair market values. The portion of the Purchase Price not
allocated to specific Assets and Assumed Liabilities shall be
allocated to goodwill.
SECTION II
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE COMPANY AND THE SHAREHOLDER
The Company and the Shareholder (collectively, the
"Sellers"), jointly and severally, hereby represent and warrant
to, and covenant and agree with, the Purchaser, as of the date of
the Closing that:
A. Organization and Qualification. The Company is duly
organized, validly existing and in corporate good standing under
the laws of the State of Connecticut and has full corporate power
and authority to own its properties and to conduct the businesses
in which it is now engaged. The Company is in good standing in
each other jurisdiction wherein the failure so to qualify would
have an adverse effect on its businesses or properties. The
Company has no subsidiaries, owns no capital stock or other
proprietary interest, directly or indirectly, in any other
corporation, association, trust, partnership, joint venture or
other entity and has no agreement with any person, firm or
corporation to acquire any such capital stock or other
proprietary interest. The Company has full power, authority and
legal right, and all necessary approvals, permits, licenses and
authorizations to enter into and consummate the transactions
contemplated under this Agreement. The copies of the Certificate
of Incorporation and By-Laws of the Company which have been
delivered to the Purchaser are complete and correct.
B. Authority. Except as set forth in Schedule II.B, the
execution and delivery of this Agreement by the Company, the
performance by the Company of its covenants and agreements
hereunder and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action. Except as set forth in Schedule II.B, this
Agreement constitutes a valid and legally binding obligation of
the Company and the Shareholder, enforceable against the Company
and the Shareholder in accordance with its terms.
C. No Legal Bar; Conflicts. Except as set forth on
Schedule II.C, neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby, violates any provision of the Certificate of
Incorporation or By-Laws of the Company or any statute,
ordinance, regulation, order, judgment or decree of any court or
governmental agency or board, or to the best of the Sellers'
knowledge, conflicts with or will result in any breach of any of
the terms of or constitute a default under or result in the
termination of or the creation of any lien pursuant to the terms
of any contract or agreement to which the Company is a party or
by which the Company or any of the Assets is bound. Except as
set forth in Schedule II.C, no consents, approvals or
authorizations of, or filings with, any governmental authority or
any other person or entity are required in connection with the
execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby.
D. Financial Statements; No Undisclosed Liabilities. The
Company and the Shareholder have delivered to the Purchaser
audited consolidated financial statements (including the notes
thereto) of the Shareholder and its wholly-owned subsidiaries,
Consolidated Imaging Systems, Inc., Associated Billing
Corporation, the Company and Consolidated Rehabilitation
Services, Inc. (collectively, the "Shareholder's Subsidiaries")
for the fiscal year ended December 31, 1996, certified by
Federman, Lally & Remis LLC, the Shareholder's auditors
(hereinafter referred to as the "Financial Statements"). The
Financial Statements are true and correct in all material
respects and have been prepared in accordance with generally
accepted accounting principles applied consistently throughout
the periods involved. The Financial Statements fully and fairly
present the financial condition of the Shareholder, on a
consolidated basis, as at the dates thereof and the results of
the operations of the Shareholder, on a consolidated basis, for
the periods indicated. The balance sheets contained in the
Financial Statements fairly reflect all liabilities of the
Shareholder, on a consolidated basis, of the types normally
reflected in balance sheets as at the dates thereof. The Sellers
have delivered to the Purchaser a true and correct copy of the
Shareholder's quarterly reports on Form 10-QSB filed by the
Shareholder with the United States Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), for the fiscal quarters ended March
31, 1997, June 30, 1997 and September 30, 1997, respectively,
which reports contain unaudited condensed consolidated financial
statements of the Shareholder and the Shareholder's Subsidiaries,
on a consolidated basis, at and for the three month periods ended
March 31, 1997, June 30, 1997, and September 30, 1997,
respectively (the "1997 Balance Sheet"). Except as set forth in
this Agreement and the Schedules hereto, the Sellers have no
liabilities in respect of the Business and the Assets as of or
since the date of the Financial Statements or as of this date
which are not reflected therein or in the 1997 Balance Sheet,
including, without limitation, contingent liabilities, except for
current liabilities incurred in the ordinary course of business
consistent with past practices (and not materially different in
type or amount) (collectively, the "Liabilities"). A true and
correct copy of the Financial Statements is attached hereto as
Exhibit B.
E. Absence of Certain Changes. Except as set forth on
Schedule II.E, subsequent to the date of the 1997 Balance Sheet,
there has not been with respect to the Business or the Assets,
any (i) adverse or to the best of the Sellers' knowledge,
prospective adverse change in the condition of the Business,
financial or otherwise, or in the results of the operations of
the Company; (ii) damage or destruction (whether or not insured)
affecting the properties or business operations of the Company;
(iii) labor dispute or, to the best of the Sellers' knowledge,
threatened labor dispute involving the employees of the Company
or any resignations or threatened resignations of orthotists,
prosthetists or other professionals, or notice that any employees
of the Company intend to take leaves of absence, with or without
pay; (iv) actual or, to the best of the Sellers' knowledge,
threatened disputes with any major accounts or referral sources
of the Company, or actual or, to the best of the Sellers'
knowledge, threatened loss of business from any of the major
accounts or referral sources of the Company; (v) changes in the
methods or procedures for billing or collection of customer
accounts or recording of customer accounts receivable or reserves
for doubtful accounts with respect to the Company, or (vi) other
event or condition of any character, known to the Company or
Shareholder, or which in the exercise of reasonable diligence
should be known to the Company or Shareholder, not disclosed in
this Agreement, or a Schedule or Exhibit hereto, and materially
adversely affecting the Assets or the Business.
F. Liabilities Incurred. Except as set forth on Schedule
II.F, subsequent to the date of the 1997 Balance Sheet, the
Company has not (i) incurred any bank indebtedness, entered into
any leases, loan agreements or contracts, obligations or
arrangements of any kind, including, without limitation, for the
payment of money or property to any person, or (ii) permitted any
liens, charges, encumbrances, security interests or claims
whatsoever (collectively, "Liens") to attach to the Assets.
G. Real Property Owned or Leased. A list of all real
property leased to or by the Company or in which the Company has
any interest with respect to the Centers is set forth in Schedule
II.G. Company owns no real property. All such leased real
property is held subject to written leases or other agreements
which are valid and effective in accordance with their respective
terms, and, except as set forth in Schedule II.G, there are no
existing defaults or, to the knowledge of the Sellers, events of
default, or events which with notice or lapse of time or both
would constitute defaults, thereunder on the part of the Company.
Neither the Company nor Shareholder has any knowledge of any
default or claimed or purported or alleged default or state of
facts which with notice or lapse of time or both would constitute
a default on the part of any other party in the performance of
any obligation to be performed or paid by such other party under
any lease referred to in Schedule II.G. Neither the Company nor
Shareholder has received any written or oral notice to the effect
that any lease will not be renewed at the termination of the term
thereof or that any such lease will be renewed only at a
substantially higher rent.
H. Title to Assets; Condition of Property. The Company
has good and valid title to the Assets, including, without
limitation, the properties and assets reflected in the 1997
Balance Sheet (except for assets leased under leases set forth in
Schedule II.G, and accounts receivable collected upon, since the
date of the in the 1997 Balance Sheet in the ordinary course of
business consistent with past practices). The Company has the
right, power and authority to sell and transfer the Assets to the
Purchaser and upon such transfer, the Purchaser will acquire good
and marketable title to the Assets, free and clear of all Liens,
except liens for current taxes not yet due. The Assets include
all properties and assets used in the operations of the Business
as currently conducted. All such properties and assets are in
good condition and repair, consistent with their respective ages,
and have been maintained and serviced in accordance with the
normal practices of the Company and as necessary in the normal
course of business. Except as set forth in Schedule II.H and
except liens for current taxes not yet due, none of the Assets is
subject to any Liens. To the Seller's knowledge, none of the
Assets (or uses to which they are put) fails to conform with any
applicable agreement, law, ordinance or regulation in a manner
which is likely to be material to the operations of the Business.
Except as set forth in Schedule II.G, the Company owns all the
properties and assets that have been located at or in the Centers
at any time since the date of the 1997 Balance Sheet.
I. Taxes. The Company has filed or caused to be filed on
a timely (timely being understood to include all properly granted
extensions) basis all federal, state, local, foreign and other
tax returns, reports and declarations relating to the operation
of the Business (collectively, "Tax Returns") required to be
filed by it. All Tax Returns filed by or on behalf of the
Company are true, complete and correct in all material respects.
The Company has paid all income, estimated, excise, franchise,
gross receipts, capital stock, profits, stamp, occupation, sales,
use, transfer, value added, property (whether real, personal or
mixed), employment, unemployment, disability, withholding, social
security, workers' compensation and other taxes, and interest,
penalties, fines, costs and assessments (collectively, "Taxes"),
due and payable with respect to the periods covered by such Tax
Returns (whether or not reflected thereon). There are no tax
Liens on any of the Assets of the Company. The accrual for Taxes
reflected in the Financial Statements accurately reflects the
total amount of all unpaid Taxes, whether or not disputed and
whether or not presently due and payable, of the Company as of
the close of the period covered by the Financial Statements.
Since the date of the 1997 Balance Sheet, the Company has not
incurred any tax liability other than in the ordinary course of
business. No Tax Return of the Company has ever been audited.
No deficiency in Taxes for any period has been asserted by any
taxing authority which remains unpaid at the date hereof, no
written inquiries or notices have been received by the Company
from any taxing authority with respect to possible claims for
Taxes, the Company has no reason to believe that such an inquiry
or notice is pending or threatened, and, to the Company's
knowledge, there is no basis for any additional claims or
assessments for Taxes. The Company has not agreed to the
extension of the statute of limitations with respect to any Tax
Return or tax period. The Company has delivered to the Purchaser
copies of the federal and state income Tax Returns filed by the
Company for the past three years and for all other past periods
as to which the appropriate statute of limitations has not
lapsed.
J. Permits; Compliance with Applicable Law.
(i) General. The Company is not in default under any,
and has complied with all, statutes, ordinances, regulations and
laws (including, but not limited to, all federal and state fraud
and abuse, "anti-kickback" and "self-referral" laws), orders,
judgments and decrees of any court or governmental entity or
agency, relating to the Business or the Assets as to which a
default or failure to comply might result in an adverse affect on
the Business. Neither the Company nor Shareholder has any
knowledge of any basis for assertion of any violation of the
foregoing or for any claim for compensation or damages or
otherwise arising out of any violation of the foregoing. Neither
the Company nor Shareholder has received any notification of any
asserted present or past failure to comply with any of the
foregoing which has not been satisfactorily responded to in the
time period required thereunder.
(ii) Permits; Intellectual Property. Set forth in
Schedule II.J is a complete and accurate list of all permits,
licenses, approvals, franchises, patents, registered and common
law trademarks, service marks, tradenames, copyrights (and
applications for each of the foregoing), notices and
authorizations issued by governmental entities or other
regulatory authorities, federal, state or local (collectively the
"Permits"), held by the Company in connection with the Business.
The Permits set forth in Schedule II.J are all the Permits
required for the conduct of the Business as is presently
conducted. All the Permits set forth in Schedule II.J are in
full force and effect, and to the Seller's knowledge, the Company
has not engaged in any activity that would cause or permit
revocation or suspension of any such Permit, and no action or
proceeding looking to or contemplating the revocation or
suspension of any such Permit is pending or to the Seller's
knowledge, threatened. There are no existing defaults or events
of default or event or state of facts which with notice or lapse
of time or both would constitute a default by the Company under
any such Permit. Neither the Company nor Shareholder has any
knowledge of any default or claimed or purported or alleged
default or state of facts which with notice or lapse of time or
both would constitute a default on the part of any other party in
the performance of any obligation to be performed or paid by any
other party under any Permit set forth in Schedule II. J. The
use by the Company of any proprietary rights relating to any
Permits does not involve any claimed infringement of such Permit
or rights. Except as set forth on Schedule II.J, to the Seller's
knowledge, the consummation of the transactions contemplated
hereby will in no way affect the continuation, validity or
effectiveness of the Permits set forth in Schedule II. J or
require the consent of any person. The Company is not required
to be licensed by, nor is it subject to the regulation of, any
governmental or regulatory body by reason of the conduct of the
Business.
(iii) Environmental.
(a) The Company has duly complied with and, to
the Seller's knowledge, the real estate subject to the leases
listed on Schedule II.G and improvements thereon, the Centers
(collectively, referred to as the "Premises") are in compliance
with, the provisions of all federal, state and local
environmental, health and safety laws, codes and ordinances and
all rules and regulations promulgated thereunder.
(b) The Company has not received any notice of,
and neither the Company nor Shareholder knows of any facts which
might constitute, violations of any federal, state or local
environmental, health or safety laws, codes or ordinances, and
any rules or regulations promulgated thereunder, which relate to
the use, ownership or occupancy of any of the Premises or of any
premises formerly owned, leased or occupied by the Company.
(iv) Medicare and Medicaid. The Company has complied
with all laws, rules and regulations of the Medicare, Medicaid
and other governmental healthcare programs, and has filed all
claims, invoices, returns, cost reports and other forms, the use
of which is required or permitted by such programs, in the manner
prescribed. All claims, returns, invoices, cost reports and
other forms made by the Company to Medicare, Medicaid or any
other governmental health or welfare related entity or any other
third party payor since the inception of the Business are in all
respects true, complete, correct and accurate. No deficiency in
any such claims, returns, cost reports and other filings,
including claims for over-payments or deficiencies for late
filings, has been asserted or to the Seller's knowledge,
threatened by any federal or state agency or instrumentality or
other provider or reimbursement entities relating to Medicare or
Medicaid claims or any other third party payor. The Company has
not been subject to any audit relating to fraudulent Medicare or
Medicaid procedures or practices. There is no basis for any
claim or request for recoupment or reimbursement from the Company
by, or for reimbursement by the Company of, any federal or state
agency or instrumentality or other provider reimbursement
entities relating to Medicare or Medicaid claims, to the Sellers'
knowledge. Net revenues from the Medicare program represented
less than 5% of the net revenues of the Business during fiscal
years 1995, 1996 and during the first 9 months of 1997. During
1995, 1996 and the first 9 months of 1997, the Company had no
revenues from the Medicaid program.
K. Inventories; Accounts Payable.
(i) The inventories of the Company are in all respects
merchantable and fully usable in the ordinary course of business.
(ii) The accounts and notes payable and other accrued
expenses reflected in the Financial Statements, and the accounts
and notes payable and accrued expenses incurred by the Business
subsequent to the date of the 1997 Balance Sheet, are in all
respects valid claims that arose in the ordinary course of
business. Except as set forth in Schedule II.K, since the date
of the 1997 Balance Sheet, the accounts and notes payable and
other accrued expenses of the Business have been paid in a manner
consistent with past practice. The aggregate unpaid accounts
payable and accrued expenses (including, but not limited to
accrued payroll, accrued vacation and sick time) of the Business
as of the Closing Date (the "Closing Assumed Indebtedness") does
not exceed $75,000. If the Closing Assumed Indebtedness exceeds
$75,000, the Company shall immediately pay to the Purchaser an
amount equal to such excess. Set forth in Schedule II.K is an
itemization of the outstanding accounts payable, accrued expenses
and debt of the Business as of the date of the Closing. Except
for the debts set forth on Schedule II.K and the Closing Assumed
Indebtedness, Company has no debt related to the assets of the
Business.
L. Contractual and Other Obligations. Set forth in
Schedule II.L is a list and brief description of all (i)
contracts, agreements, licenses, leases, arrangements (written or
oral) and other documents to which the Company is a party or by
which the Company or any of the Assets is bound (including, in
the case of loan agreements, a description of the amounts of any
outstanding borrowings thereunder and the collateral, if any, for
such borrowings); (ii) all obligations and liabilities of the
Company pursuant to uncompleted orders for the purchase of
materials, supplies, equipment and services for the requirements
of the Business with respect to which the remaining obligation of
the Company is in excess of $2,500; and (iii) material contingent
obligations and liabilities of the Company; all of the foregoing
being hereinafter referred to as the "Contracts." Neither the
Company nor, to the Company's knowledge, any other party is in
default in the performance of any covenant or condition under any
Contract and no claim of such a default has been made and, to the
Company's knowledge, no event has occurred which with the giving
of notice or the lapse of time would constitute a default under
any covenant or condition under any Contract. Except as set
forth in Schedule II.L, the Company is not a party to any
Contract which would terminate or be materially adversely
affected by consummation of the transactions contemplated by this
Agreement. The Company is not a party to any Contract expected
to be performed at a loss. Originals or true, correct and
complete copies of all written Contracts have been provided to
the Purchaser.
M. Compensation. Set forth in Schedule II.M attached
hereto is a list of all agreements between the Company and each
person employed by or independently contracting with the Company
with regard to compensation, whether individually or
collectively, and set forth in Schedule II.M is a list of all
employees of the Company and their respective salaries. The
transactions contemplated by this Agreement will not result in
any liability for severance pay to any employee or independent
contractor of the Company. The Company has not informed any
employee or independent contractor providing services to the
Company that such person will receive any increase in
compensation or benefits or any ownership interest in the Company
or the Business. The Company and the Shareholder acknowledge
that the decision as to whether to employ some or all the
employees of the Company shall be made by the Purchaser in its
sole discretion, and that neither the Company nor Shareholder has
informed any person to the contrary. Any such employment by the
Purchaser shall constitute a termination of the person by the
Company and the establishment of an independent employment
relationship by the Purchaser.
N. Employee Benefit Plans. Except as set forth in
Schedule II.N, the Company does not maintain or sponsor, or
contribute to, any pension, profit-sharing, savings, bonus,
incentive or deferred compensation, severance pay, medical, life
insurance, welfare or other employee benefit plan. All pension,
profit-sharing, savings, bonus, incentive or deferred
compensation, severance pay, medical, life insurance, welfare or
other employee benefit plans within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as
amended (hereinafter referred to as "ERISA"), in which the
employees participate (such plans and related trusts, insurance
and annuity contracts, funding media and related agreements and
arrangements being hereinafter referred to as the "Benefit
Plans") comply with all requirements of the Department of Labor
and the Internal Revenue Service, and with all other applicable
law, and the Company has not taken or failed to take any action
with respect to the Benefit Plans which might create any
liability on the part of the Company or the Purchaser. In
addition:
(i) The Company does not maintain sponsor or
contribute to, and has never maintained, sponsored or contributed
to a "defined benefit plan" (within the meaning of Section 3(35)
of ERISA) or a "multiemployer plan" (within the meaning of
Section 3(37) of ERISA);
(ii) Other than claims in the ordinary course for
benefits with respect to the Benefit Plans, there are no actions,
suits or claims (including claims for income taxes, interest,
penalties, fines or excise taxes with respect thereto) pending
with respect to any Benefit Plan, or, to the Company's knowledge,
any circumstances which might give rise to any such action, suit
or claim (including claims for income taxes, interest, penalties,
fines or excise taxes with respect thereto); and
(iii) The Company has no obligation to provide
health or other welfare benefits to former, retired or terminated
employees, except as specifically required under Section 4980B of
the Internal Revenue Code of 1986, as amended (the "Code") or
Section 601 of ERISA. The Company has complied with the notice
and continuation requirements of Section 4980B of the Code or
Section 601 of ERISA and the regulations thereunder.
O. Labor Relations. There have been no violations of any
federal, state or local statutes, laws, ordinances, rules,
regulations, orders or directives with respect to the employment
of individuals by, or the employment practices or work conditions
of, the Company in respect of the business, or the terms and
conditions of employment, wages and hours. The Company is not
engaged in any unfair labor practice or other unlawful employment
practice and, except as set forth in Schedule II.O, there are no
charges of unfair labor practices or other employee-related
complaints pending or, to the Company's knowledge, threatened
against the Company before the National Labor Relations Board,
the Equal Employment Opportunity Commission, the Occupational
Safety and Health Review Commission, the Department of Labor or
any other federal, state, local or other governmental authority.
There is no strike, picketing, slowdown or work stoppage or
organizational attempt pending, or, to the Company's knowledge,
threatened against or involving the Business. No issue with
respect to union representation is pending or, to the Company's
knowledge, threatened with respect to the employees of the
Company in respect of the Business. No union or collective
bargaining unit or other labor organization has ever been
certified or recognized by the Company as the representative of
any of the employees of the Company.
P. Increases in Compensation or Benefits. Except as set
forth in Schedule II.P, subsequent to the date of the 1997
Balance Sheet, there have been no increases in the compensation
payable or to become payable to any of the employees of the
Company in respect to the Business and there have been no
payments or provisions for any awards, bonuses, loans, profit
sharing, pension, retirement or welfare plans or similar or other
disbursements or arrangements for or on behalf of such employees
(or related parties thereof), in each case, other than pursuant
to currently existing plans or arrangements, if any, set forth in
Schedule II.N. All bonuses heretofore granted to employees of
the Company in respect to the Business have been paid in full to
such employees. The vacation policy of the Company is set forth
in Schedule II.N. Except as set forth in Schedule II.N, no
employee of the Company in respect of the Business is entitled to
vacation time during the current calendar year and no employee of
the Company in respect of the Business has any accrued vacation
or sick time with respect to any prior period.
Q. Insurance. A list and brief description of the
insurance policies maintained by the Company is set forth in
Schedule II.Q. Such insurance policies are in full force and
effect and all premiums due thereon prior to or on the date of
the Closing have been paid. The Company has complied with the
provisions of such policies. To the Company's knowledge, such
insurance is of comparable amounts and coverage as that which
companies engaged in similar businesses maintain in accordance
with good business practices. There are no notices of any
pending or threatened termination or premium increases with
respect to any such policies. The Company has not had any
casualty loss or occurrence which may give rise to any claim of
any kind not covered by insurance and neither the Company nor
Shareholder is aware of any occurrence which may give rise to any
claim of any kind not covered by insurance. No third party has
filed any claim against the Company for personal injury or
property damage of a kind for which liability insurance is
generally available which is not fully insured, subject only to
the standard deductible. All claims against the Company covered
by insurance have been reported to the insurance carrier on a
timely basis.
R. Conduct of Business. The Company is not restricted
from conducting the Business in any location by agreement or
court decree.
S. Allowances. The Company has no obligation outside of
the ordinary course of business to make allowances to any
customers with respect to the Business.
T. Use of Names. All names under which the Company
currently conducts the Business are listed in Schedule II.T.
There are no other persons or businesses conducting businesses
similar to those of the Company in the Commonwealth of
Massachusetts having the right to use or using the names set
forth in Schedule II.T or any variants of such names; and no
other person or business has ever attempted to restrain the
Company or Shareholder from using such names or any variant
thereof.
U. Power of Attorney. The Company has not granted any
power of attorney (revocable or irrevocable) to any person, firm
or corporation for any purpose whatsoever.
V. Licensure, etc. Each individual employed or contracted
by the Company is duly licensed, if required by law, and is
otherwise in compliance with all federal and state laws, rules
and regulations relating to such professional licensure and
otherwise meets the qualifications to provide such therapy
services. Each individual now or formerly employed or contracted
by the Company to provide professional services was duly
licensed, if required by law, to provide such services during all
periods prior to the Closing when such employee or independent
contractor provided such services on behalf of the Company. The
Company is in compliance with all relevant state laws and
precedents relating to the corporate practice of the learned or
licensed professions, and there are no material claims, disputes,
actions, suits, proceedings or investigations currently pending,
threatened or filed or commenced against or affecting the Assets
or the Business relating to such laws and precedents, and no such
material claim, dispute, action, suit, proceeding or
investigation has been filed or commenced during the five-year
period preceding the date of the Closing, and the Company is not
aware of any basis for such a valid claim.
W. Litigation; Disputes. Except as set forth in Schedule
II.W, there are no claims, disputes, actions, suits,
investigations or proceedings pending or, to the Company's
knowledge, threatened against or affecting the Company, the
Business or any of the Assets, no such claim, dispute, action,
suit, proceeding or investigation has been pending or, to the
Company's knowledge, threatened during the five-year period
preceding the date of the Closing and, to the best of the
knowledge of the Company and the Shareholder, there is no basis
for any such claim, dispute, action, suit, investigation or
proceeding. Neither the Company nor Shareholder has any knowledge
of any default under any such action, suit or proceeding. The
Company is not in default in respect of any judgment, order,
writ, injunction or decree of any court or of any federal, state,
municipal or other government department, commission, bureau,
agency or instrumentality or any arbitrator.
X. Location of Business and Assets. Set forth in Schedule
II.X is each location (specifying state, county and city) where
the Company (i) has a place of business, (ii) owns or leases real
property and (iii) owns or leases any other property, including
inventory, equipment and furniture in respect of the Business.
Y. Disclosure. No representation or warranty made under
any Section hereof and none of the information furnished by the
Company or the Shareholder set forth herein, in the Schedules or
Exhibits hereto or in any document delivered by the Company or
Shareholder to the Purchaser, or any authorized representative of
the Purchaser, pursuant to this Agreement contains any untrue
statement of a material fact or omits to state a material fact
necessary to make the statements herein or therein not
misleading.
Z. Computer Software. The Company has the right to use
all computer software, including all property rights constituting
part of that computer software, used in connection with the
Company's business operations (the "Computer Software"). A list
of all written licenses pertaining to the Computer Software is
set forth in Schedule II.Z (the "Licenses"). The Company has no
knowledge that any of the Licenses may not be valid or
enforceable by the Company or that the use of the Computer
Software or any of the Licenses may infringe upon or conflict
with the rights of any third party. The Company has not granted
any licenses to use the Computer Software or any sub-licenses
with respect to any of the Licenses.
AA. Schedules. Each of the Company and the Shareholder
covenants to use best efforts to ensure that all of the attached
Schedules and Exhibits are complete and accurate as of the
Closing.
SECTION III
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE SHAREHOLDER
Shareholder hereby represents and warrants to, and covenants
and agrees with, the Purchaser, as of the date of the Closing,
that:
A. Authority. Except as set forth in Schedule III.A,
Shareholder is fully able to execute and deliver this Agreement
and to perform Shareholder's covenants and agreements hereunder,
and this Agreement constitutes a valid and legally binding
obligation of Shareholder, enforceable against Shareholder in
accordance with its terms.
B. No Legal Bar; Conflicts. Except as set forth in
Schedule III.B, neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby, violates any statute, ordinance, regulation, order,
judgment or decree of any court or governmental agency, or
conflicts with or will result in any breach of any of the terms
of or constitute a default under or result in the termination of
or the creation of any lien (other than liens for taxes not yet
due) pursuant to the terms of any contract or agreement to which
Shareholder is a party or by which Shareholder or any of
Shareholder's assets is bound.
C. Regulatory Matters. Shareholder agrees that if as a
result of a regulatory change or for any other reason, the
Purchaser shall determine that it is necessary or desirable to
restructure the manner in which the Business is conducted or the
manner in which services are provided, Shareholder shall assist
the Purchaser to take promptly all necessary steps to carry out
such restructuring. The expenses related to such restructuring
shall be borne by the Purchaser.
SECTION IV
REPRESENATIONS, WARRANTIES, COVENANTS AND
AGREEMENT OF THE PURCHASER AND NOVACARE
The Purchaser and NovaCare, jointly and severally, hereby
represent and warrant to, and covenant and agree with, the
Company and the Shareholder, as of the date of Closing that:
A. Organization and Qualification: The Purchaser is duly
organized, validly existing and in corporate good standing under
the laws of the State of Delaware and has full corporate power
and authority to own its properties and conduct the business in
which it is now engaged. The Purchaser has full power, authority
and legal right, and all necessary approvals, permits, licenses
and authorizations to enter into and consummate the transactions
contemplated under this Agreement.
B. Authority. The execution and delivery of this
Agreement by the Purchaser, the performance by the Purchaser of
its covenants and agreements hereunder and the consummation by
the Purchaser of the transactions contemplated hereby have been
duly authorized by all necessary corporate action. This
Agreement constitutes a valid and legally binding obligation of
the Purchaser enforceable against the Purchaser in accordance
with its terms.
C. No Legal Bar: Conflicts. Neither the execution and
delivery of this Agreement nor the consummation of the
transactions contemplated hereby violates any provision of the
Certificate of Incorporation or By-Laws of the Purchaser or any
statute, ordinance, regulation, order, judgment or decree of any
court or governmental agency or board, or, to the best of the
Purchaser's knowledge, conflicts with or will result in any
breach of any of the terms of or constitute a default under or
result in the termination of or the creation of any Lien pursuant
to the terms of any contract or agreement to which the Purchaser
is a party or by which the Purchaser is bound. No consents,
approvals or authorizations of, or filings with, any governmental
authority or any other person or entity are required in
connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby.
D. No Solicitation. In the event that this Agreement is
terminated, the Purchaser and NovaCare each agrees that, until
February 1, 1999, neither the Purchaser nor any of their
affiliates will solicit to employ any of the officers or key
employees of the Sellers or any of their affiliates with whom the
Purchaser or any of their affiliates had contact or who were
specifically identified to the Purchaser or any of their
affiliates during the period commencing February 1, 1998 to the
date of such termination without obtaining the prior written
consent of the Shareholder.
SECTION V
REPRESENTATION, WARRANTIES, COVENANTS
AND AGREEEMENTS OF NOVACARE
NovaCare hereby represents and warrants to, and covenants
and agrees with, the Company and the Shareholder, as of the date
of the Closing, that:
A. Authority. NovaCare is fully able to execute and
deliver this Agreement and the Guaranty of the Note (as defined
below) and to perform NovaCare's covenants and agreements
hereunder and thereunder, and this Agreement and the Guaranty of
the Note constitute valid and legally binding obligations of
NovaCare, enforceable against NovaCare in accordance with their
terms.
B. No Legal Bar: Conflicts. Neither the execution or
delivery of this Agreement and the Guaranty of the Note, nor the
consummation of the transactions contemplated hereby and thereby,
violates any statute, ordinance, regulation, order, judgment or
decree of any court or governmental agency, or conflicts with or
will result in any breach of any of the terms of or constitute a
default under or result in termination of any contract or
agreement to which NovaCare is a party or by which NovaCare or
any of NovaCare's assets are bound.
SECTION VI
ADDITIONAL REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE COMPANY,
THE SHAREHOLDER AND THE PURCHASER
A. Publicity. All press releases, filings and other
publicity concerning the transactions contemplated hereby will be
subject to review and approval by both the Sellers and the
Purchaser, such approval not to be unreasonably withheld or
delayed. Such approval shall not be required if the person
issuing such publicity reasonably believes it to be necessary for
compliance with legal requirements, including, without
limitation, the federal securities laws and the rules and
regulations promulgated thereunder, but such person shall provide
the other party with reasonable notice and an opportunity to
review the same before release. Both the Sellers and the
Purchaser hereby covenant and agree to keep the terms and
conditions of this Agreement and all documents and information
concerning other parties to this Agreement confidential except to
the extent that disclosure is required by law, and the Purchaser
agrees that all non-public documents delivered to it by the
Sellers pursuant to this Agreement in connection with the
business operations of the Sellers, shall not be disseminated by
the Purchaser, except to its attorneys, accountants, officers,
employees and agents on a need-to-know basis, and shall be
returned to the Sellers in the event that the transactions hereby
are not consummated.
B. Correspondence. Each of the Company and the
Shareholder covenants and agrees that each of them will deliver
to the Purchaser, promptly after the receipt thereof, all
inquiries, correspondence and other materials received by either
of them from any person or entity relating to the Business or the
Assets.
C. Books and Records. Each of the Company and the
Shareholder represents and warrants that the books and records of
the Company are in all respects complete and correct, have been
maintained in accordance with good business practices and
accurately reflect the basis for the financial position and
results of operations of the Company set forth in the Financial
Statements. All of such books and records have been available
for inspection by the Purchaser and its representatives. Each of
the Company and the Shareholder covenants and agrees that each of
them shall give the Purchaser reasonable access to the historical
financial books and records of the Company, to the extent such
books and records are not included in the Assets, for a period of
five years from the date of the Closing. The Shareholder shall
retain all such books and records in substantially their
condition at the time of the Closing. None of such books and
records shall be destroyed without the prior written approval of
the Purchaser or without first offering such books and records to
the Purchaser.
D. Discharge of Obligations. Each of the Company and the
Shareholder covenants and agrees to pay promptly and otherwise to
fulfill and discharge all obligations and liabilities of the
Company which are not Assumed Liabilities hereunder when due and
payable and otherwise prior to the time at which any of such
obligations or liabilities could reasonably be expected to result
in or give rise to a claim against the Assets, the Business or
the Purchaser, result in the imposition of any Lien (other than
liens for current taxes not yet due) on any of the Assets, or
adversely affect the Purchaser's title to or use of any of the
Assets.
SECTION VII
CLOSING, DELIVERIES, AND EFFECTIVE DATE
A. Time and Place of Closing. The closing of the purchase
and sale of the Assets as set forth herein (the "Closing") shall
be held at 11:00 A.M., local time, on a day that is within five
(5) business days after the Conditions to Closing set forth in
Section VII. C have been met, or waived by the party with
authority to waive any such Condition that is waived (the
"Closing Date"). The parties agree to use best efforts to
satisfy the Conditions to Closing as soon as reasonably possible.
B. Deliveries.
(i) At the Closing, the Purchaser shall deliver to the
Company, as a condition to Closing, the following:
a. A certified check made payable to the order of
the Company or a wire transfer to the account of the Company in
the amount of $1,100,000;
b. The Note, executed by the Purchaser;
c. The Guaranty of the Note, executed by
NovaCare;
d. An opinion of NovaCare's in-house general
counsel delivered to the Company and the Shareholder pursuant to
the instructions of the Purchaser, dated the date of the Closing,
in substantially the same form as set forth in Exhibit E-1
attached hereto;
e. A certificate of the Purchaser's president and
of NovaCare's president or other executive officer stating that
all representations and warranties made by the Purchaser and
NovaCare in this Agreement and in any written statements
delivered to the Company or the Shareholder pursuant to this
Agreement shall be complete, true and correct as of the Closing;
and
f. Such instruments as shall be sufficient to
effect the assumption by the Purchaser of the Assumed
Liabilities;
(ii) At the Closing, the Company and the Shareholder
shall deliver to the Purchaser, as a condition to Closing, the
following:
a. Such deeds, bills of sale, assignments and
other instruments of conveyance and transfer, and such powers of
attorney, as shall be effective to vest in the Purchaser title to
or other interest in, and the right to full custody and control
of, the Assets, free and clear of all liens, charges,
encumbrances and security interests whatsoever;
b. The Contracts and the books and records of the
Company constituting a part of the Assets;
c. Evidence that any and all sales or use taxes
assessed in connection with this transaction have been paid by
the Company;
d. Such certificates, instruments and other
documents, in form and substance satisfactory to the Purchaser
and its counsel, as they shall have reasonably requested in
connection with the transactions contemplated hereby;
e. An opinion of Robinson & Cole LLP, counsel for
the Company and the Shareholder, delivered to the Purchaser
pursuant to the instructions of the Company and the Shareholder,
dated the date of the Closing, substantially to the effect set
forth in Exhibit E attached hereto;
f. All necessary consents of third parties under
the contracts, agreements, leases, insurance policies and other
instruments of the Company to the consummation of the
transactions contemplated hereby, which consents shall not
provide for the acceleration of any liabilities or any other
detriment to the Purchaser or the Company;
g. A written consent duly executed by the Company
evidencing its consent to the use by the Purchaser and any
subsidiaries, affiliated companies or assigns of the Purchaser of
the name "PTS Rehab" and variants thereof.
h. A certificate of the Company's president and
of the Shareholder's president stating that all representations
and warranties made by the Company and the Shareholder in this
Agreement and in any written statements delivered to the
Purchaser pursuant to this Agreement shall be complete, true and
correct as of the Closing.
C. Conditions to Closing.
(i) The obligations of the Purchaser under this
Agreement are subject to the satisfaction, on or prior to the
Closing of the following conditions, all or any of which may be
waived in writing by the Purchaser:
(a) The Company having entered into an Agreement
of Purchase and Sale with Mass., P.C., Inc. or such other
professional corporation as the Purchaser shall approve;
(b) The Company and the Shareholder having
delivered to the Purchaser those items set forth in Section
VII,B(ii);
(c) The Company having entered into the
Management Agreement set forth in Section XI,K; and
(d) The Company and/or the Shareholder having fully completed to
the Purchaser's satisfaction all of the Schedules and Exhibits to
this Agreement.
(e) The Company and the Shareholder shall have
entered into an agreement terminating that certain Asset Purchase
Agreement among the Company, the Shareholder, Olympus Healthcare
Group, Inc. ("Group") and Olympus Outpatient Services, Inc.
("Services" and, collectively with Group, "Olympus") dated as of
November 20, 1997 (the "Olympus Agreement") and effecting a
release of any and all claims of Olympus against (1) the Company,
the Shareholder and their respective officers, directors,
representatives and affiliates and (2) the Purchaser, NovaCare
and their respective officers, directors, representatives and
affiliates arising or that might arise under or in connection
with the Olympus Agreement or this Agreement.
(ii) The obligations of the Company and the Shareholder
under this Agreement are subject to the satisfaction, on or prior
to the Closing, of the following conditions, all or any of which
may be waived in writing by the Shareholder:
(a) The Purchaser and NovaCare having delivered
to the Company and the Shareholder those items set forth in
Section VII.B(i);
(b) The Purchaser, or its designated affiliate,
having entered into the Management Agreement set forth in Section
XI.K;
(c) The Company and the Shareholder shall have
entered into an agreement terminating the Olympus Agreement and
effecting a release of any and all claims of Olympus against (1)
the Company, the Shareholder and their respective officers,
directors, representatives and affiliates and (2) the Purchaser,
NovaCare and their respective officers, directors,
representatives and affiliates arising or that might arise under
or in connection with the Olympus Agreement or this Agreement;
and
(d) This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of
the outstanding shares of the Shareholder in accordance with
applicable law and the Shareholder's Certificate of
Incorporation.
D. Effective Date. The "Effective Date" shall be March 1,
1998.
SECTION VIII
INDEMNIFICATION
A. Indemnification by the Company and the Shareholder.
The Company and the Shareholder, jointly and severally, shall
indemnify and hold harmless the Purchaser from and against all
losses, claims, assessments, demands, damages, liabilities,
obligations, costs and/or expenses, including, without
limitation, reasonable fees and disbursements of counsel
(hereinafter referred to collectively as "Damages") sustained or
incurred by the Purchaser (or its designee) (i) by reason of the
breach of any of the obligations, covenants or provisions of, or
the inaccuracy of any of the representations or warranties made
by, the Company or the Shareholder herein, or (ii) arising out of
or relating to any liabilities or obligations of the Company not
assumed by the Purchaser (or its designee) hereunder, including,
without limitation, (a) professional malpractice and other
professional liabilities relating to acts or omissions of the
Company or its employees, agents or independent contractors prior
to the Closing; (b) liabilities of the Company for overpayments
made to the Company and any other matter, for all periods prior
to Closing, under the Medicare or Medicaid programs and/or
applicable workers' compensation programs; (c) federal, state,
and local tax liabilities, obligations, and withholding tax
obligations of the Company, except for federal and state income
tax obligations arising from the operation of the Business after
the Effective Date, which shall be the responsibility of the
Purchaser; (d) liabilities under Company's employee plans; (e)
liabilities relating to or arising from any litigation or other
claim or obligation (including amounts and claims payable),
arising from acts or omissions prior to the Closing; and (f) any
other debt, obligation or duty of the Company arising prior to
the Closing Date or relating to conduct or activities occurring
prior to the Closing Date, unless otherwise specifically included
as an Assumed Liability. In addition, to the right of the
Purchaser to indemnification hereunder, the Purchaser shall have
the right from time to time to set off the amount of any of the
Purchaser's Damages against any payments due under the Note.
B. Indemnification by the Purchaser. The Purchaser shall
indemnify and hold harmless the Company and the Shareholder from
and against any and all Damages sustained or incurred by the
Company or Shareholder (i) by reason of the breach of any of the
obligations, covenants or provisions of, or the inaccuracy of any
of the representations or warranties made by, the Purchaser
herein or (ii) arising out of the Assumed Liabilities.
C. Procedure for Indemnification. In the event that any
party hereto shall incur any Damages in respect of which
indemnity may be sought by such party pursuant to this Section
VI, the party from whom such indemnity may be sought (the
"Indemnifying Party") shall be given written notice thereof by
the party seeking such indemnity (the "Indemnified Party"), which
notice shall specify the amount and nature of such Damages and
include the request of the Indemnified Party for indemnification
of such amount. The Indemnifying Party shall within 30 days pay
to the Indemnified Party the amount of the Damages so specified.
D. Limitations. The Sellers shall not be liable to
Purchaser for indemnification claims under Section VIII.A until
the aggregate indemnification claims under Section VIII.A exceed
$10,000, and, in no event shall the Sellers be liable to the
Purchaser for indemnification claims under Section VIII.A in
excess of $1,600,000.
SECTION IX
NON-COMPETITION AGREEMENT
Following the consummation of the transactions contemplated
hereby, and in consideration thereof, neither the Company nor
Shareholder shall, (a) subsequent to the date of the Closing and
until seven years after the date of the Closing, directly or
indirectly, (i) engage, whether as principal, agent, investor,
distributor, representative, stockholder, employee, consultant,
volunteer or otherwise, with or without pay, in any activity or
business venture, anywhere within a fifty (50) mile radius of the
existing business locations of the Business, which is competitive
with the Business, (ii) solicit or entice or endeavor to solicit
or entice away from any member of the Purchaser Group (as
hereinafter defined) any person who was a director, officer,
employee, agent or consultant of such member of the Purchaser
Group, either on the Company's or the Shareholder's own account
or for any person, firm, corporation or other organization,
whether or not such person would commit any breach of such
person's contract of employment by reason of leaving the service
of such member of the Purchaser Group, (iii) solicit or entice or
endeavor to solicit or entice away any of the clients or
customers of the Business, either on the Company's or the
Shareholder's own account or for any other person, firm,
corporation or organization, or (iv) employ any person who was a
director, officer or employee of any member of the Purchaser
Group or any person who is or may be likely to be in possession
of any confidential information or trade secrets relating to the
business of any member of the Purchaser Group, or (b) at any
time, take any action or make any statement the effect of which
would be, directly or indirectly, to impair the good will of any
member of the Purchaser Group or the business reputation or good
name of any member of the Purchaser Group, or be otherwise
detrimental to the Purchaser, including any action or statement
intended, directly or indirectly, to benefit a competitor of any
member of the Purchaser Group. Because the remedy at law for any
breach of the foregoing provisions of this Section VII would be
inadequate, the Company and the Shareholder hereby consent, in
case of any such breach, to the granting by any court of
competent jurisdiction of specific enforcement, including, but
not limited to pre-judgment injunctive relief, of such
provisions, to preserve the status quo ante pending the outcome
of arbitration proceedings under Section IX(F) hereof, as
provided for in Section IX(E) hereof.
The parties hereto agree that if, in any proceeding, the
court or other authority shall refuse to enforce the covenants
herein set forth because such covenants cover too extensive a
geographic area or too long a period of time, any such covenant
shall be deemed appropriately amended and modified in keeping
with the intention of the parties to the maximum extent permitted
by law.
For purposes hereof, "Purchaser Group" shall mean,
collectively, the Purchaser and its subsidiaries, affiliates and
parent entities operating in the same lines of business.
SECTION X
BROKERS AND FINDERS
A. The Shareholder's Obligation. The Purchaser shall not
have any obligation to pay any fee or other compensation to any
person, firm or corporation dealt with by the Company or the
Shareholder in connection with this Agreement and the
transactions contemplated hereby, and the Company and the
Shareholder, jointly and severally, hereby agree to indemnify and
save the Purchaser harmless from any liability, damage, cost or
expense arising from any claim for any such fee or other
compensation.
B. The Purchaser's Obligation. Neither the Company nor
the Shareholder shall have any obligation to pay any fee or other
compensation to any person, firm or corporation dealt with by the
Purchaser in connection with this Agreement and the transactions
contemplated hereby, and the Purchaser hereby agrees to indemnify
and save the Company and the Shareholder harmless from any
liability, damage, cost or expense arising from any claim for any
such fee or other compensation.
SECTION XI
MISCELLANEOUS
A. Notices. All notices, requests or instructions
hereunder shall be in writing and delivered personally, sent by
telecopy or sent by registered or certified mail, postage
prepaid, as follows:
(1) If to the Company or the Shareholder:
Consolidated Health Care Associates, Inc.
PTS Rehab, Inc.
38 Pond Street
Franklin, Massachusetts 02038
Attention: President
Telecopy No.: (508) 541-1274
Telephone No.: (508) 520-2422
with a copy to:
David A. Garbus, Esq.
Robinson & Cole LLP
One Boston Place
Boston, Massachusetts 02108
Telecopy No.: (610 557-5999
Telephone No.: (617) 557-5900
2) If to the Purchaser or NovaCare:
RehabClinics (SPT), Inc.
d.b.a. NovaCare Outpatient
Rehabilitation
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: President
Telecopy No.: (610) 992-3393
Telephone No.: (610) 992-7600
with a copy to:
NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: General Counsel
Telecopy No.: (610) 992-3396
Telephone No.: (610) 992-7404
Any of the above addresses may be changed at any time by notice
given as provided above; provided, however, that any such notice
of change of address shall be effective only upon receipt. All
notices, requests or instructions given in accordance herewith
shall be deemed received on the date of delivery, if hand
delivered or telecopied, and two business days after the date of
mailing, if mailed.
B. Survival of Representations. Each representation,
warranty, covenant and agreement of the parties hereto herein
contained shall survive closing until the end of the applicable
statute of limitation, notwithstanding any investigation at any
time made by or on behalf of any party hereto.
C. Entire Agreement. This Agreement and the documents
referred to herein contain the entire agreement among the parties
hereto with respect to the transactions contemplated hereby, and
no modification hereof shall be effective unless in writing and
signed by the party against which it is sought to be enforced.
The Memorandum of Understanding dated February 13, 1998 between
the Shareholder and the Purchaser shall terminate and be of no
further force or effect upon the execution of this Agreement.
The Confidentiality and Non-Disclosure Agreement dated as of
February 5, 1998 between NovaCare and the Shareholder shall
terminate and be of no further force or effect upon the execution
of this Agreement.
D. Expenses. Each of the parties hereto shall bear such
party's own expenses in connection with this Agreement and the
transactions contemplated hereby.
E. Injunctive Relief. Notwithstanding the provisions of
Section XI(F) hereof, in the event of a breach or threatened
breach by the Company or Shareholder of the provisions of Section
VII of this Agreement, the Company and the Shareholder hereby
consent and agree that the Purchaser shall be entitled, in order
to preserve the status quo ante pending the outcome of
arbitration pursuant to Section XI(F) hereof, to receive an
injunction or similar equitable relief restraining the Company or
Shareholder, as the case may be, from committing or continuing
any such breach or threatened breach or granting specific
performance of any act required to be performed by the Company or
the Shareholder, as the case may be, under any such provision,
without the necessity of showing any actual damage or that money
damages would not afford an adequate remedy and without the
necessity of posting any bond or other security. The parties
hereto hereby consent to the jurisdiction of the federal courts
for the Eastern District of Pennsylvania and the Pennsylvania
state courts located in such District for any proceedings under
this Section XI(E). The parties hereto agree that the
availability of arbitration in Section XI(F) hereof shall not be
used by any party as grounds for the dismissal of any injunctive
actions instituted by the Purchaser pursuant to this Section
XI(E). Nothing herein shall be construed as prohibiting the
Purchaser from pursuing any other remedies at law or in equity
which it may have.
F. Dispute Resolution
(i) Arbitration. Any controversy or claim arising
out of or relating to this Agreement, or any breach hereof,
shall, except as provided in Section XI(E) hereof, be settled by
arbitration in accordance with the National Health Lawyers
Association ("NHLA") Alternative Dispute Resolution Services
Rules of Procedure for Arbitration (the "Rules"). The parties
agree that Rules on Expedited Procedures contained in the Rules
shall be applied in any arbitration proceeding hereunder, and
further agree that, notwithstanding anything to the contrary
contained in the Rules, the arbitrator shall not award
consequential, exemplary, incidental, punitive or special
damages. The arbitration shall be held in the Philadelphia,
Pennsylvania area and the prevailing party shall be entitled to
receive reasonable fees and disbursements of counsel as part of
such award.
(ii) Procedure. It is agreed that if any party shall
desire relief of any nature whatsoever from any other party as a
result of any controversy, such party will initiate such
arbitration proceedings within a reasonable time, but in no event
more than twelve (12) months after the facts underlying said
controversy first arise or become known to the party seeking
relief (whichever is later). The failure of such party to
institute such proceedings within said period shall be deemed a
full waiver of any claim for such relief. The parties shall bear
equally all costs of said arbitration (other than their own
attorney's fees and costs). The parties agree that the decision
and award of the Arbitrator shall be final and conclusive upon
the parties, in lieu of all other legal, equitable (except as
provided in Section XI(E) above) or judicial proceedings between
them, and that no appeal or judicial review of the award or
decision of the Arbitrator shall be taken, but that such award or
decision may be entered as a judgment and enforced in any court
having jurisdiction over the party against whom enforcement is
sought. Any equitable relief awarded under Section XI(E) shall be
dissolved upon issuance of the arbitrator's decision and order.
G. Invalidity. Should any provision of this Agreement be
held by a court or arbitration panel of competent jurisdiction to
be enforceable only if modified, such holding shall not affect
the validity of the remainder of this Agreement, the balance of
which shall continue to be binding upon the parties hereto with
any such modification to become a part hereof and treated as
though originally set forth in this Agreement. The parties
further agree that any such court or arbitration panel is
expressly authorized to modify any such unenforceable provision
of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by
rewriting the offending provision, deleting any or all of the
offending provision, adding additional language to this
Agreement, or by making such other modifications as it deems
warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The
parties expressly agree that this Agreement as modified by the
court or the arbitration panel shall be binding upon and
enforceable against each of them. In any event, should one or
more of the provisions of this Agreement be held to be invalid,
illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other
provisions hereof, and if such provision or provisions are not
modified as provided above, this Agreement shall be construed as
if such invalid, illegal or unenforceable provisions had never
been set forth herein.
H. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the successors and
assigns of the Company, the Shareholder, the Purchaser and
NovaCare, respectively, and the legal representatives and heirs
of Shareholder.
I. Governing Law. The validity of this Agreement and of
any of its terms or provisions, as well as the rights and duties
of the parties under this Agreement, shall be construed pursuant
to and in accordance with the laws of the Commonwealth of
Pennsylvania, without regard to conflict of laws principles.
J. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same
instrument.
K. Management Agreement. In order for Purchaser to
continue to provide and bill for services following the Closing
and until Purchaser has obtained all necessary regulatory
approvals and contract assignments, Purchaser and the Company
shall execute and deliver the Management Agreement in the form of
Exhibit I hereto. Pursuant to the Management Agreement, (i)
Purchaser shall manage the provision of services "by the Company"
for a specified period of time following the Closing, (ii)
services shall be billed in the name of the Company, and (iii)
Purchaser shall completely indemnify the Company from any
financial or other liability arising from such arrangement. The
Company shall continue its corporate existence for at least the
term of the management agreement and Purchaser shall indemnify
the Company for all reasonable costs and expenses associated
therewith; nothing in this Agreement in any way obligates or
requires the Company to dissolve its corporate existence.
L. Taxes. Purchaser shall pay to the Internal Revenue
Service and applicable state taxing authorities, in its name and
tax identification number, all federal and state income taxes
arising from the operation of the Business after the Effective
Date.
M. Interpretation. The parties hereto acknowledge and
agree that: (i) each party and its counsel reviewed and
negotiated the terms and provisions of this Agreement and have
contributed to its revision; (ii) the rule of construction to the
effect that any ambiguities are resolved against the drafting
party shall not be employed in the interpretation of this
Agreement; and (iii) the terms and provisions of this Agreement
shall be construed fairly as to all parties hereto and not in
favor of or against any party, regardless of which party was
generally responsible for the preparation of this Agreement.
* * *
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first written above.
COMPANY: PTS REHAB, INC.
By:/s/ ROBERT M. WHITTY
Name: ROBERT M. WHITTY
Title: President
SHAREHOLDER: CONSOLIDATED HEALTH CARE
ASSOCIATES, INC.
By:/s/ ROBERT M. WHITTY
Name: ROBERT M. WHITTY
Title: President
PURCHASER: REHABCLINICS (SPT),
INC. d.b.a. NOVACARE OUTPATIENT
REHABILITATION
By:/s/ ROBERT M. WHITTY
Name: ROBERT M. WHITTY
Title: Vice President
NOVACARE,
INC. (only with regard to
Article IV and Article V)
By:/s/ RICHARD A. McDONALD
Name: RICHARD A. McDONALD
Title:Vice President and Treasurer
Schedule I
ASSUMED LIABILITIES AND EXCLUDED ASSETS
Purchaser expressly assumes the liabilities of the Company
listed below, and assumes no other liabilities of the Company:
1. Obligations arising after the Closing Date to provide
services under payor and other contracts included in Assets.
2. Obligations arising after the Closing Date in connection
with use and occupancy by the tenant under the leases of the
Centers after the Closing Date.
3. Obligations arising after the Closing Date with respect
to the accounts payable listed in Schedule II, but in no event to
exceed $75,000.
4. Federal and state corporate income tax obligations
arising from the operation of the Business after the Effective
Date.
5. Obligations listed on Schedule II, but not in excess of
$75,000, excluding any intercompany debt, third-party debt or
indebtedness to the sole Shareholder, a member of Shareholder's
affiliated corporations, or any entity in which Shareholder (or a
member of Shareholder's affiliated corporations) has a beneficial
interest.
Excluded Assets
Purchaser shall not acquire, and the Company shall remove from
its books prior to Closing, the Assets listed below and
associated liabilities:
1. Vehicles.
2. Loans to or from Shareholder, employees, family members
of Shareholder or employees or affiliated entities.
3. Cash and cash equivalents.
4. Accounts receivable
Schedule II
ACCRUED EXPENSES/ACCOUNTS PAYABLE/DEBT
AS OF THE DATE OF CLOSING
1. Accrued Payroll $
2. Accrued Vacation $
3. Accrued Sick Time $
4. Debt $
5. Interest on Debt $
6. Accrued Taxes $
7. Accrued Liability for self-insured $
benefit programs
8. Other Accounts Payable and Accrued $
Expenses
$
EXHIBIT A
CERTAIN CONSENTS,
CONTRACTS, PERMITS AND OTHER MATTERS
1. Required Consents. - See Schedule II.C.
2. Real Property. - See Schedule II.G.
a. Owned.
b. Leased.
3. Tax Settlements. - None.
4. Permits. - See Schedule II. J.
5. Contracts. - See Schedule II.L.
6. Insurance. - See Schedule II.O.
Insured Carrier Coverage Policy No.
9. Computer Software Licenses. - See Schedule II.Z.
EXHIBIT B
FINANCIAL STATEMENTS
See attached.
EXHIBIT C
EMPLOYEES OF THE COMPANY
1. Employees - See Schedule II.M.
Employee Salary
2. Increases in compensation since date of the 1997 Balance
Sheet:
None.
3. Agreements between the Company and employees thereof with
respect to compensation:
See Schedule II.L.
4. Employees entitled to more than three weeks vacation time
during the current calendar year:
See Schedule II.K.
5. Bonuses granted to employees which have not yet been paid in
full:
None.
6. Terminated Employees:
None.
EXHIBIT D
EMPLOYEE BENEFIT PLANS
1. Health Insurance - See Schedule II.N.
2. Profit Sharing Plan - See Schedule II.N.
3. Continuing Education Allowance - See Schedule II.N.
4. Vacation Policy of the Company: - See Schedule II.N.
5. Disability Policy - See Schedule II.N.
EXHIBIT E
OPINION OF COMPANY'S COUNSEL
(i) This Agreement has been duly authorized, executed and
delivered by the Company and the Shareholder and constitutes the
valid and legally binding obligation of the Company and the
Shareholder, enforceable against the Company and the Shareholder
in accordance with its terms.
(ii) Neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby,
violates any statute, ordinance, regulation, order, judgment or
decree of any court or governmental agency or, to the best of the
knowledge of counsel, conflicts with or will result in any breach
of any of the terms of or constitute a default under the terms of
any contract or agreement to which the Company or the Shareholder
is a party or by which the Company or the Shareholder or any of
the assets is bound.
(iii) The bills of sale, assignments and other instruments of
transfer of ownership delivered by the Company have been duly
executed and delivered, are valid and binding in accordance with
their terms, and are, to the knowledge of counsel, without having
undertaken a lien search, sufficient to convey to the Purchaser
all the right, title and interest of the Company in and to the
Assets, free and clear of all liens, security interests and
encumbrances.
(iv) To the best of the knowledge of counsel, there are no
claims, disputes, actions, suits or proceedings pending or
threatened against the Company or the Shareholder relating to the
Business or any of the Assets.
EXHIBIT G
MANAGEMENT AGREEMENT
EXHIBIT H
NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. IT MAY NOT BE TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
OR AN OPINION OF COUNSEL TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED. THIS NOTE IS SUBJECT TO
A RIGHT OF OFFSET AS PROVIDED HEREIN.
REHABCLINICS (SPT), INC.
6% Subordinated Promissory Note
due March __, 2001
$500,000 King of Prussia,
March __, 1998 Pennsylvania
Section 1. General. FOR VALUE RECEIVED, REHABCLINICS
(SPT), INC., a Delaware corporation (the "Maker"), hereby
promises to pay to the order of PTS Rehab, Inc. (the "Payee"), at
38 Pond Street, Franklin, Massachusetts 02038 (except that the
Payee may require that payments shall be made to the Payee by
mail at such address as the Payee shall from time to time
designate in writing to the Maker), the principal sum of Five
Hundred Thousand Dollars ($500,000), plus interest thereon as
described below, in lawful money of the United States of America
or such lesser amount as may be payable due to offsets, if any,
as provided for herein.
The principal amount hereof shall be payable on March __,
2001, at which later time the entire principal amount of this
Note then outstanding together with any outstanding accrued and
unpaid interest thereon shall be due and payable; provided, that,
this Note shall be subject to a mandatory partial prepayment as
provided for and in accordance with Section I.B. of the Agreement
of Purchase and Sale, between Maker and Payee, dated March __,
1998.
The Maker hereby also promises to pay interest on the unpaid
principal amount hereof in like money at such place, from the
date hereof until payment of the principal amount hereof has been
made in full, at the rate of six percent (6%) per annum, payable
with the final payment of the principal due hereunder.
Section 2. Subordination.
Section 2.1 Indebtedness Subordinated to Senior Debt.
The Maker hereby covenants and agrees, and the holder of this
Note, by such holder's acceptance hereof, hereby consents,
covenants and agrees, that, to the extent and in the manner
hereinafter set forth in this Section 2, the indebtedness of the
Maker for or on account of principal and interest on this Note,
and the payment of the principal of and interest (whether by
redemption or otherwise) on this Note, is hereby expressly made
subordinate and subject in right of payment to the prior
indefeasible payment in full in cash of all Senior Debt. Defined
terms used herein shall have the meanings set forth in Section 5
hereof, unless otherwise specified or defined herein.
This Section 2 shall constitute a continuing offer to all
persons who become holders of, or continue to hold, Senior Debt,
and such provisions are made for the benefit of the holders of
Senior Debt, and such holders are made obligees hereunder and
they or each of them may enforce such provisions.
Section 2.2 Payment Over of Proceeds Upon Dissolution;
Etc.. Upon any payment or distribution of assets of the Maker in
the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, total or partial liquidation, winding-up,
reorganization or other similar case or proceeding in connection
therewith, relative to the Maker or to its creditors, or to its
assets, whether voluntary or involuntary, or (b) any liquidation,
dissolution or other winding-up of the Maker, whether voluntary
or involuntary and whether or not involving insolvency or
bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshaling of assets and/or liabilities of the Maker,
then and in any such event the holders of Senior Debt shall be
entitled to receive indefeasible payment in full in cash of all
amounts due or to become due (whether or not an event of default
has occurred under the Loan Documents (as that term is defined in
the Credit Agreement) or the maturity of such Senior Debt has
been declared due and payable prior to the date on which it would
otherwise have become due and payable) on or in respect of all
Senior Debt before the holder of this Note is entitled to receive
any payment on account of principal of, interest on or otherwise
in respect of this Note, and to that end the holders of Senior
Debt shall be entitled to receive, for application to the payment
thereof, any payment or distribution of any kind or character,
whether in cash, property or securities, including any such
payment or distribution which may be payable or deliverable by
reason of the payment of any other Indebtedness of the Maker
being subordinated to the payment of this Note, which may be
payable or deliverable in respect of this Note in any such case,
proceeding, dissolution, liquidation, reorganization or other
winding-up or event.
If, notwithstanding the foregoing provisions of this Section
2 of this Note, the holder of this Note shall have received any
payment or distribution of assets of the Maker of any kind or
character, whether in cash, property or securities, including any
such payment or distribution which may be payable or deliverable
by reason of the payment of any other Indebtedness being
subordinated to the payment of this Note before all Senior Debt
is indefeasibly paid in full, then and in such event such payment
or distribution shall be paid over or delivered forthwith to the
trustee in bankruptcy, receiver, liquidating trustee, custodian,
assignee, agent or other person making payment or distribution of
assets of the Maker, for application to the payment of all Senior
Debt remaining unpaid to the extent necessary to pay all Senior
Debt in full.
For purposes of this Section 2 only, the words "cash,
property, or securities" shall not be deemed to include
securities of the Maker as reorganized or readjusted, or
securities of the Maker or any other corporation provided for by
a plan of reorganization or readjustment the payment of which is
subordinated at least to the extent provided in this Section 2
with respect to this Note to the payment of all Senior Debt which
may at the time be outstanding.
Section 2.3 Standstill; Prior Payment of Senior Debt Upon
Acceleration of Subordinated Indebtedness. Notwithstanding any
provision herein or in any other writing or agreement to the
contrary, the holder of this Note shall not, unless all Senior
Debt shall have been declared due and payable by acceleration of
maturity pursuant to the terms thereof, without the prior written
consent of the holders of the Senior Debt, commence, prosecute or
participate in, prior to the expiration of one year after the
occurrence of any default under this Note which is a ground for
acceleration of this Note (the date of such default is
hereinafter referred to as the "Sub-Debt Default Date"), any
suit, action or proceeding against the Maker with respect to this
Note, or assert, collect or enforce, or take any action to
foreclose or realize upon, prior to the 366th day following the
Sub-Debt Default Date, any security interest, lien or encumbrance
on any property of the Maker pursuant to any security agreements,
pledge agreements, mortgages, lien instruments or other documents
which secure this Note or take any action which might result in a
payment in contravention of any provision of this Section 2 until
the Senior Debt shall have been indefeasibly paid in cash in
full, and any such security agreements, pledge agreements,
mortgages, liens instruments or other documents shall contain the
subordination provisions set forth in this Section 2.
Upon the occurrence of any default under this Note, the
holder of this Note shall notify the holders of the Senior Bank
Debt, in writing, at the address and by the means as specified in
Section 2.11(a).
If this Note is declared due and payable before its stated
maturity, then and in such event the holders of the Senior Debt
outstanding at the time this Note so becomes due and payable
shall be entitled to receive indefeasible payment in cash in full
of all amounts due or to become due on or in respect of all such
Senior Debt (whether or not an event of default has occurred
thereunder or the maturity of such Senior Debt has been declared
due and payable prior to the date on which it would otherwise
have become due and payable) before the holder of this Note is
entitled to receive any payment (including any payment which may
be payable by reason of the payment of any other Indebtedness of
the Maker being subordinate to or pari passu with the payment of
this Note by the Maker), on account of the principal of or
interest hereon.
If, notwithstanding the foregoing, the Maker shall make any
payment to the holder of this Note prohibited by the foregoing
provision of this Section 2, such payment shall be paid over and
delivered forthwith to the holders of the Senior Debt but only to
the extent that, upon notice from the holder of this Note to the
holders of the Senior Debt that such prohibited payment has been
made, the holders of the Senior Debt notify the holder of this
Note of the amounts then due and owing on the Senior Debt, if
any, and only such amount so notified to the holder of this Note
shall be paid to the holders of the Senior Debt.
The provisions of this Section 2.3 shall not apply to any
payment with respect to which Section 2.2 of this Note would be
applicable.
Section 2.4 No Payment When Senior Debt in Default. In
the event and during the continuation of any default in the
payment of principal of or interest on any Senior Debt or if any
other default with respect to any Significant Senior Debt (as
hereinafter defined) shall have occurred and be continuing which
permits (or with notice or lapse of time, or both, would permit)
the holders of such Significant Senior Debt (or a trustee or
agent on behalf of the holders thereof) to declare such
Significant Senior Debt due and payable prior to the date on
which it would otherwise have become due and payable or such a
default would result from or exist after giving effect to a
payment with respect to this Note, and if the holder of any
Senior Debt gives written notice of such default to the holder of
this Note and designates the same as a "Senior Default Notice"
hereunder, unless and until such default shall have been cured or
waived or shall have ceased to exist and such acceleration shall
have been rescinded or annulled, or if any judicial proceeding
shall be pending with respect to any such default in payment or
other default, no payment (including any payment which may be
payable by reason of the payment of any other Indebtedness of the
Maker being subordinated to or pari passu with the payment of
this Note) shall be made by the Maker on account of principal of,
interest or on otherwise in respect of this Note or on account of
the purchase or other acquisition of subordinated Indebtedness.
As used herein, the term "Significant Senior Debt" means, so long
as the Credit Agreement shall remain outstanding, only Senior
Bank Debt.
If, notwithstanding the foregoing, the Maker makes any
payment to the holder of this Note prohibited by the foregoing
provisions of this Section 2, such payment shall be paid over and
delivered forthwith to the holders of the Senior Debt but only to
the extent that, upon notice from the holder of this Note to the
holders of the Senior Debt that such prohibited payment has been
made, the holders of the Senior Debt notify the holder of this
Note of the amounts then due and owing on the Senior Debt, if
any, and only such amount so notified to the holder of this Note
shall be paid to the holders of Senior Debt.
The provisions of this Section 2.4 shall not apply to any
payment with respect to which Section 2.2 of this Note would be
applicable.
Section 2.5 Payment Permitted if No Default. Nothing
contained in this Section 2 or elsewhere in this Note shall
prevent the Maker, at any time except during the pendency of any
of the conditions described in Sections 2.2, 2.3 and 2.4, other
than as provided in Section 2.4, from making scheduled payments
at any time of principal of or interest on this Note.
Section 2.6 Subrogation to Rights of Holders of Senior
Debt. Subject to the indefeasible payment in full in cash of all
Senior Debt, the holder of this Note shall be subrogated to the
extent of the payments or distributions made to the holders of
such Senior Debt pursuant to the provisions of this Section 2 to
the rights of the holders of such Senior Debt to receive payments
or distributions of cash, property or securities of the Maker
applicable to the Senior Debt until the principal of and interest
on this Note shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of the
Senior Debt of any cash, property or securities to which the
holder of this Note would be entitled except for the provisions
of this Section 2, and no payments over pursuant to the
provisions of this Section 2 to the holders of Senior Debt by the
holder of this Note, shall, as between the Maker, its creditors
other than holders of Senior Debt, and the holder of this note,
be deemed to be a payment or distribution by the Maker of or on
account of this Note.
Section 2.7 Provisions Solely to Define Relative Rights.
The provisions of this Section 2 are and are intended solely for
the purpose of defining the relative rights of the holder of this
Note, on the one hand, and the holders of Senior Debt, on the
other hand. Nothing contained in this Section 2 or elsewhere in
this Note is intended to or shall impair, as between the Maker,
its creditors other than the holders of Senior Debt and the
holder of this Note, the obligation of the Maker, which is
absolute and unconditional, to pay to the holder of this Note the
principal of and interest on this Note as and when the same shall
become due and payable in accordance with its terms and which,
subject to the rights under this Note of the holders of Senior
Debt, is intended to rank equally with all other general
obligations of the Maker, or is intended to or shall affect the
relative rights against the Maker of the holder of this Note and
creditors of the Maker other than the holders of Senior Debt, nor
shall anything herein or therein prevent the holder of this Note
from exercising all remedies otherwise permitted by applicable
law upon default under this Note, subject to the rights, if any,
under this Section 2 of the holders of Senior Debt to receive
cash, property or securities otherwise payable or deliverable to
the holder of this Note.
Section 2.8 Proof of Claim. If the holder of this Note
does not file a proper proof of claim or debt in the form
required in any bankruptcy, insolvency or receivership proceeding
prior to 30 days before the expiration of the time to file such
proof of claim or debt, then the holders of Senior Debt are
hereby authorized to file an appropriate proof of claim or debt
for and on behalf of the holder of this Note and such holder
hereby appoints the holders of Senior Debt or their
representative or representatives the attorney-in-fact of such
holder for such purposes.
Section 2.9 No Waiver of Subordination Provisions. No
right of any current or future holder of any Senior Debt to
enforce subordination as herein provided shall at any time in any
way be prejudiced or impaired by any act or failure to act on the
part of the Maker or by any act or failure to act, in good faith,
by any such Senior Debt holder, or by any non-compliance by the
Maker with the terms, provisions and covenants of this Note,
regardless of any knowledge thereof any such Senior Debt holder
may have or be otherwise charged with. The holder of this Note
by such holder's acceptance hereof agrees that, so long as there
is indebtedness outstanding under this Note, the holder of this
Note shall not agree to compromise, release, forgive or otherwise
discharge the obligations of the Maker with respect to this Note
without the prior written consent of the holders of the Senior
Debt.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from
time to time, without the consent of or notice to the holder of
this Note, without incurring responsibility to the holder of this
Note and without impairing or releasing the subordination
provided in this Section 2 or the obligations hereunder of the
holder of this Note to the holders of the Senior Debt, do any one
or more of the following: (i) change the manner, place or terms
of payment or extend the time of payment, renew or alter Senior
Debt, or otherwise amend or supplement in any manner Senior Debt
or any instrument evidencing the same or any agreement under
which Senior Debt is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Debt; (iii) release any person liable in any
manner for the payment or collection of Senior Debt; and (iv)
exercise or refrain from exercising any rights against the Maker
and any other person.
Section 2.10 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of
the Maker, the holder of this Note shall be entitled to rely upon
any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership,
liquidation, reorganization, dissolution, winding-up or similar
case or proceeding is pending, or a certificate of the trustee in
bankruptcy, liquidating trustee, custodian, receiver, assignee
for the benefit of creditors, agent or other person making such
payment or distribution, delivered to the holder of this Note,
for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the
Senior Debt and other Indebtedness of the Maker, the amount
thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to
this Note.
Section 2.11 Miscellaneous.
(a) Notices. All communications provided for
hereunder shall be by telephone, in person or in writing
(including telex or facsimile communication) and shall be
delivered or sent by telex or facsimile to the respective party
at the addresses and numbers set forth below:
If to the holder of this Note:
Consolidated Health Care Associates, Inc.
PTS Rehab, Inc.
38 Pond Street
Franklin, Massachusetts 02038
Attn.: President
Telecopy: 508-541-1274
Telephone: 508-520-2422
With a copy to:
David A. Garbus, Esq.
Robinson & Cole, LLP
One Boston Place
Boston, Massachusetts 02108
Telecopy No.: 617-557-5999
Telephone No.: 617-557-5900
If to the Maker:
NovaCare Outpatient Rehabilitation East, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: President
With a copy to:
NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: General Counsel
If to the holders of the Senior Debt:
PNC Bank, National Association, as Agent for the
Banks
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, Pennsylvania 15265
Telecopy No.: (412) 762-2784
Telephone No.: (412) 762-7469
or to such other addresses and numbers as any party hereto shall
specify to the others in writing. All notices shall be effective
(a) in the case of telex or facsimile, when received, (b) in the
case of hand-delivered notice, when delivered, (c) in the case of
telephone, when telephoned, provided that written confirmation
must be provided the next day by letter, facsimile or telex, and
(d) if given by any other means, when delivered, provided that
notices to PNC Bank, National Association, as Agent for the Banks
shall not be effective until received.
(b) Severability of Provisions; Captions. Any
provision of this Section 2 which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof or affecting
the validity or enforceability of such provision in any other
jurisdiction. The several captions to sections and subsections
herein are inserted for convenience only and shall be ignored in
interpreting the provisions of this Section.
Section 3. Optional Prepayment. The Maker may at any
time with the prior written consent of the holders of Senior Bank
Debt so long as any Senior Bank Debt or any commitment to lend
pursuant to the Credit Agreement is outstanding, prepay the whole
or any part of the unpaid principal amount of this Note, without
penalty or premium, but with interest accrued to the date fixed
for prepayment. Notices of prepayment shall be given by the
Maker by mail and shall be mailed to the holder of this Note not
less than thirty (30) days from the date fixed for prepayment.
In case this Note is to be prepaid in part only, such notice
shall specify the principal amount hereof to be prepaid, and
shall state that this Note shall be submitted to the Maker for
notation hereon of the principal amount hereof to be prepaid.
Upon giving of notice of prepayment as aforesaid, this Note or
portion hereof so specified for prepayment shall on the
prepayment date specified in such notice become due and payable,
and from and after the date of such prepayment is received by the
holder of this Note, interest on this Note or portion hereof so
specified for prepayment shall cease to accrue and, on
presentation and surrender hereof to the Maker for cancellation
in the case of this Note being prepaid as a whole, or for
notation hereon of the payment of the portion of the principal
amount hereof being prepaid in the case of a prepayment of this
Note in part only, this Note or portion hereof so specified for
prepayment shall be paid by the Maker at the prepayment price
aforesaid. Any prepayment of this Note in part shall be applied
to the installments of principal payable hereunder in the reverse
order of maturity thereof.
Section 4. Events of Default and Remedies. Subject to
Section 2 hereof, the holder of this Note shall have the right,
without demand or notice, to accelerate this Note and to declare
the entire unpaid balance hereof and the obligations evidenced
hereby immediately due and payable and to seek and obtain payment
of this Note (time being of the essence in this Note) upon the
occurrence of any of the following events of default: (a) the
Maker fails to pay any installment of principal payable under
this Note or interest thereon within twenty (20) days after
receipt of written notice from the holder of this Note to the
effect that such installment or interest has not been paid when
due, or (b) the Maker admits in writing its inability to pay its
debts generally as they become due, files a petition in
bankruptcy or a petition to take advantage of any bankruptcy,
reorganization or insolvency act, makes an assignment for the
benefit of creditors, or consents to the appointment of a
receiver for itself or for all or substantially all of its
property or, on a petition in bankruptcy filed against it, is
adjudicated a bankrupt, which judgment, order or decree shall not
be appealed within the permitted time period from the date of
entry thereof and subsequently vacated. Upon such declaration by
the holder of this Note, the obligations evidenced by this Note
shall be immediately due and payable. Failure of the holder of
this Note to exercise its right to accelerate this Note pursuant
to this Section 4 shall not be considered a waiver of such right
of acceleration or bar the holder from exercising such right
while any installment of principal payable under this Note or
interest thereon remains overdue. All remedies of the holder
hereof shall be cumulative and concurrent and may be pursued
singly, successively or together, at the sole discretion of the
holder of this Note. The Maker hereby waives any and all
statutory or common law defenses of laches, estoppel or the
expiration of applicable statutes of limitations to the extent
that such defenses may arise as a result of the delay or
forbearance by the Payee of any actions to collect amounts due
under this Note as a result of the provisions of Section 2.3.
The Indebtedness evidenced by this Note shall rank pari
passu with all other unsecured Indebtedness of the Maker other
than the Senior Debt.
In the event of any event of default hereunder, the Maker
agrees to pay to the holder of this Note all expenses incurred by
such holder, including, without limitation, reasonable fees and
disbursements of counsel, incurred by such holder in the
enforcement and collection of this Note.
Section 5. Definitions. As used herein, the following
terms shall have the following respective meanings:
"Credit Agreement" means that certain Credit Agreement by
and among NovaCare, Inc., a Delaware corporation, certain of its
subsidiaries, PNC Bank, National Association, as agent and the
banks party thereto, dated as of May 27, 1994, as the same may be
restated, amended, supplemented, modified or replaced from time
to time, including all schedules and exhibits thereto.
"Indebtedness" shall mean as to any person at any time, any
and all indebtedness, obligations or liabilities (whether matured
or unmatured, liquidated or unliquidated, direct or indirect,
absolute or contingent, or joint or several) of such person for
or in respect of: (i) borrowed money, (ii) amounts raised under
or liabilities in respect of any note purchase or acceptance
credit facility, (iii) reimbursement obligations under any letter
of credit, currency swap agreement, interest rate swap, cap,
collar or floor agreement or other interest rate management
device, (iv) any other transaction (including, without
limitation, forward sale or purchase agreements, capitalized
leases and conditional sales agreements) having the commercial
effect of a borrowing of money entered into by such person to
finance its operations or capital requirements (but not including
trade payables and accrued expenses incurred in the ordinary
course of business which are not represented by a promissory
note), or (v) any Guaranty of Indebtedness for borrowed money.
For purposes hereof, "Guaranty" shall mean any obligation of any
person guaranteeing or in effect guaranteeing any liability or
obligation of any other person in any manner, whether directly or
indirectly, including, without limiting the generality of the
foregoing, any agreement to indemnify or hold harmless any other
person, any performance bond or other suretyship arrangement and
any other form of assurance against loss, except endorsement of
negotiable or other instruments for deposit or collection in the
ordinary course of business.
"Post Petition Interest" means interest accruing after the
commencement of any bankruptcy or insolvency case or proceeding
with respect to the Maker or any receivership, liquidation,
reorganization or other similar case or proceeding in connection
therewith, at the rate applicable to such Indebtedness, whether
or not such interest is an allowable claim in any such
proceeding.
"Senior Bank Debt" means all principal, interest (including,
without limitation, Post-Petition Interest), fees, expenses,
penalties, indemnifications, reimbursements, damages, obligations
and other liabilities under the Credit Agreement, the other Loan
Documents (as that term is defined in the Credit Agreement) and
all other documentation governing such Indebtedness, as such
agreements may be restated, amended, supplemented, modified or
replaced from time to time, together with any refunding or
replacement thereof.
"Senior Debt" means all Indebtedness, including the Senior
Bank Debt, of the Maker, whether currently outstanding or
hereafter created, incurred or assumed (including but not limited
to Post-Petition Interest), unless such Indebtedness, by its
terms or the terms of the instrument creating or evidencing it is
subordinate in right of payment to or pari passu with this Note.
Senior Debt shall continue to constitute Senior Debt for all
purposes and the provisions of Section 2 of this Note shall
continue to apply to such Senior Debt, notwithstanding the fact
that such Senior Debt, or any claim in respect thereof, shall be
disallowed, avoided, subordinated or determined to be a
fraudulent conveyance pursuant to the provisions of the United
States Bankruptcy Code or other applicable Federal, state or
local law.
Section 6. Right of Offset. The principal amount of and
interest accrued on this Note may be offset at any time or from
time to time to the extent of the full amount of any Damages (as
defined in the Agreement of Purchase and Sale dated as of March
__, 1998 by and among the Payee and the Maker (the "Purchase
Agreement") as provided for in, and subject to the terms and
provisions of, the Purchase Agreement. The Maker shall have the
right to offset the full amount of any such Damages by reducing
the amount of the principal of and accrued but unpaid interest on
this Note by the amount of such Damages. Any such reduction in
the principal amount of this Note shall be applied first against
accrued but unpaid interest and then against the installments of
principal payable hereunder in the reverse order of maturity
thereof, with interest after the date of any offset accruing on
the amount of principal which remains after such offset. The
exercise of the right of offset provided for in this Section 6 is
not an exclusive remedy, and the provisions of this Section 6
shall not prevent the Maker from exercising all remedies
otherwise permitted under applicable law, the terms of the
Purchase Agreement or the terms of this Note.
Section 7. Arbitration. Any controversy, claim or
attempt to enforce rights arising out of or relating to this Note
or any breach hereof shall be settled by arbitration in
accordance with the National Health Lawyers Association
Alternative Dispute Resolution Services Rules of Procedure for
Arbitration then in effect pursuant to the procedures and terms
set forth in the Purchase Agreement and judgment upon the award
rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The arbitration shall be held in the
Philadelphia, Pennsylvania area.
Section 8. Governing Law. This Note shall be governed
by and construed in accordance with the laws of the Commonwealth
of Pennsylvania and shall be binding upon the successors and
assigns of the Maker and inure to the benefit of the Payee, the
Payee's successors, endorsees and assigns.
Section 9. Severability. If any term of provision of
this Note shall be held invalid, illegal or unenforceable, the
validity of all other terms and provisions hereof shall in no way
be affected thereby.
IN WITNESS WHEREOF, this Note has been executed by the
Maker hereof by an officer with all due authority to bind the
Maker to all of the Provisions hereof.
REHABCLINICS (SPT), INC.
By
GUARANTY
GUARANTY AGREEMENT, dated as of March ___, 1998, by
NovaCare, Inc., a Delaware corporation ("Guarantor"), in
favor of Consolidated Health Care Associates, Inc.
("Shareholder") and PTS Rehabilitation, Inc. (the
"Company").
WHEREAS, the Guarantor's indirect wholly owned
subsidiary, RehabClinics (SPT), Inc. ("Payor"), the Company
and the Shareholder have entered into that certain Agreement
of Purchase and Sale, dated as of March ___, 1998 (the
"Agreement");
WHEREAS, pursuant to the Agreement, Payor has issued to
the Company its nonnegotiable promissory notes, dated March
___, 1998, in the aggregate principal amount of $500,000
(the "Note"); and
NOW, THEREFORE, in consideration of the premises and
other good and valuable consideration, receipt of which is
hereby acknowledged, Guarantor does hereby covenant and
agree as follows:
1. Guarantor hereby absolutely and unconditionally
guarantees to the Company, subject to Section 2 of the Note,
the due and punctual payment in full, in lawful money of the
United States, of all payments due under the Note, and
payments of any and all sums which may at any time be or
become due and payable under the Agreement (all of such
payments being hereinafter collectively referred to as
"Payments" and the Note and the Agreement being collectively
referred to as the "Obligation Documents"), at their stated
due dates or when otherwise due (whether by acceleration or
otherwise), and the full, punctual, and faithful performance
of all other agreements, covenants and obligations contained
in the Obligation Documents or incorporated therein by
reference subject to the terms and conditions of the
Obligation Documents as if Guarantor were the Maker (as that
term is defined in the Note) and as if Guarantor were the
"Purchaser" under the Agreement.
2. Guarantor hereby agrees that its obligations
hereunder are an unconditional and absolute guaranty of
payment and of performance of the terms and provisions of
the Obligation Documents, irrespective of any waiver,
consent, or granting of any indulgence of the Shareholder or
any other person to the Payor with respect to any provision
of the Obligation Documents, irrespective of whether the
Shareholder or the Company shall have instituted any suit,
action, or proceeding or exhausted their remedies under the
Obligation Documents or taken any steps to enforce any
rights against the Payor or any other person to compel any
such performance or to collect all or part of any Payments
at law, or in equity, irrespective of whether the
Shareholder, the Company or any other person shall have
recovered any judgment against the Payor and irrespective of
any other circumstances or contingency.
3. Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the
event of merger or bankruptcy of the Payor, any right to
require a proceeding first against the Payor or any other
person, protest, notice of default in the payment of any sum
payable by Payor under the Obligation Documents, notice of
any other default, breach or nonperformance of any
agreement, covenant or obligation of the Payor under the
Obligation Documents, notice and all demands whatsoever,
with respect to the Obligation Documents or any indebtedness
evidenced thereby.
4. Guarantor hereby expressly waives notice from the
Shareholder or the Company of their acceptance of and
reliance on this Guaranty.
5. No amendment, release or modification of the
provisions of this Guaranty shall be established by conduct,
custom or course of dealing, but solely by an instrument in
writing duly executed by the Shareholder and Guarantor. No
delay or omission by the Shareholder or the Company to
exercise any right under this Guaranty shall impair any such
right, nor shall it be construed to be a waiver thereof.
6. The obligations of Guarantor under this Guaranty
shall not be altered, limited, or affected by any
modification of the Obligation Documents or by any
proceeding, voluntary or involuntary, involving the
bankruptcy, insolvency, receivership, reorganization,
liquidation, or arrangement of Payor or by any defense which
Payor may have by reason of the order, decree, or decision
of any court or administrative body resulting from any such
proceeding.
7. This Guaranty shall be governed by and shall be
construed and enforced in accordance with the laws of the
State of Delaware.
IN WITNESS WHEREOF, the Guarantor has caused this
Guaranty Agreement to be executed in its corporate name by
its respective officer, thereunto duly authorized, as of the
date first above written.
GUARANTOR: NOVACARE, INC.
By:______________________________
Title:______________________________
March 5 , 1998
The Board of Directors
Mr. James Kenney, Chairman
Consolidated Health Care Associates, Inc.
35 Pond Street, Franklin, MA 02038
Gentlemen:
The Mayflower Group, Ltd. ("Mayflower") recently opined (December
2, 1997) as to the fairness to Consolidated shareholders of the
Olympus Healthcare Group offer for substantially all of the
assets and certain of the liabilities of PTS Rehab, Inc. ("PTS"),
a wholly-owned subsidiary of Consolidated. Under the agreement
Olympus would have paid PTS $1,700,000 in cash. After due
diligence and analysis of the Olympus offer Mayflower's
conclusion was that this offer was "fair", from a financial point
of view, to the Consolidated shareholders.
Mayflower has been notified by Robert M. Whitty, Consolidated's
President and CEO, that the Olympus offer has been withdrawn and
that a new offer from NovaCare (NYSE-NOV) for the same assets is
under consideration by Consolidated's Board for $1,600,000 -
$1,100,000 in cash and $500,000 in a 3 year subordinated note (6%
interest payable at maturity), maturing in 3 years, and
guaranteed by NovaCare.
NovaCare is a leading provider of rehabilitation and employee
services with a market capitalization of over $800,000,000. It's
purchase of the PTS assets is a diminimus financial transaction
for them to undertake.
While on its face the Olympus offer had somewhat greater value,
it is Mayflower's opinion that if both offers were given at the
same time Mayflower's recommendation would have been to take the
NovaCare offer because of the greater certitude of its closing
and the questionable timing of financing available to Olympus as
compared to the strength of the NovaCare offer and note. Since
this was not the case and the Board now has the NovaCare offer,
in Mayflower's opinion there has been little lost in this change
of events.
In considering the NovaCare offer, Mayflower has reviewed the
current situation at Consolidated, i.e., the status of its
business particularly with respect to its ongoing viability.
Mayflower was updated since December 2, 1997 by interviewing
Robert M. Whitty, President and CEO and Raymond L. LeBlanc CFO
and Treasurer, and by examining the unaudited results of
operations to date.
Mayflower's opinion as to Consolidated's valuation at the time of
the Olympus offer was heavily weighted by Consolidated's need for
additional equity in order to maintain its viability. Without
new capital the prospect of liquidation was very real leaving
Consolidated shareholders, at the most, little more than the
value intrinsic to a liquidated shell.
In Mayflower's opinion there have been no changes since December
2, 1997 to suggest that Consolidated would have access to the
capital required to return to profitability, or if so, at a cost
to Consolidated's shareholders which would make the NovaCare
offer a less attractive option to the Consolidated Board.
Rather than restating those valuation techniques used in opining
as to the first Olympus offer and hence the valuation at the
time, Mayflower hereby incorporates those valuation techniques by
reference into this NovaCare opinion. Furthermore, it is
Mayflower's opinion that subsequent events have validated
Mayflower's original opinion as to the "value" of those assets
and the need to sell them for the shareholders to benefit at all
from that value.
Mayflower has also been assured that Renaissance is favorable to
the NovaCare offer and will be voting for its acceptance in the
upcoming shareholder's meeting. As in the opinion regarding the
Olympus offer, Mayflower views the Renaissance position as being
a strong validation of its own opinion. Accordingly, Mayflower
is of the opinion that the NovaCare offer is fair to Consolidated
and its shareholders, from a financial point of view.
The Mayflower Group, Ltd.
Marshall S. Sterman, President
