SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1
Tender Offer Statement Pursuant to
Section 14(d)(1) of the Securities Exchange Act of 1934
and
SCHEDULE 13D
(Amendment No. 1)
(Pursuant to Section 13(d) of the Securities Exchange Act of 1934)
COMMUNITY CARE OF AMERICA, INC.
(Name of Subject Company)
IHS ACQUISITION XXVI, INC.
a wholly owned subsidiary of
INTEGRATED HEALTH SERVICES, INC.
(Bidders)
COMMON STOCK, PAR VALUE $.0025 PER SHARE
(Title of Class of Securities)
20363B10
(Cusip Number of Class of Securities)
MARSHALL A. ELKINS, ESQ.
INTEGRATED HEALTH SERVICES, INC.
10065 RED RUN BOULEVARD
OWINGS MILLS, MARYLAND 21117
TELEPHONE: 410-998-8400
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidders)
COPIES TO:
Carl E. Kaplan, Esq Leslie A. Glew, Esq.
Fulbright & Jaworski L.L.P Integrated Health Services, Inc.
666 Fifth Avenue 10065 Red Run Boulevard
New York, New York 10103 Owings Mills, Maryland 21117
Telephone: (212) 318-3000 Telephone: (410) 998-8400
================================================================================
Transaction Valuation* Amount of Filing Fee**
$30,391,204 $6,078.24
================================================================================
* For purposes of calculating fee only. This amount assumes the purchase of
7,597,801 shares of Common Stock at $4.00 net per share. Such number of
shares represents all outstanding shares as of August 4, 1997.
** The amount of the filing fee, calculated in accordance with Regulation
240.0-11 of the Securities Exchange Act of 1934, equals 1/50 of 1% of the
value of the shares to be purchased.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and date of its filing.
Amount Previously Paid: N/A
Form or Registration No.: N/A
Filing Party: N/A
Date Filed: N/A
<PAGE>
CUSIP NO. 20363B10
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Integrated Health Services, Inc. (I.R.S. #23-2428312)
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF GROUP (a) [ ]
(SEE INSTRUCTIONS) (b) [ ]
3. SEC USE ONLY
4. SOURCES OF FUNDS (SEE INSTRUCTIONS)
BK, WC
5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) OR 2(f) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
State of Delaware
7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,189,274 shares
8. CHECK IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ]
(SEE INSTRUCTIONS)
9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
13.5%
10. TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
CO
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<PAGE>
CUSIP NO. 20363B10
<TABLE>
<CAPTION>
<S> <C>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
IHS Acquisition XXVI, Inc., a wholly owned subsidiary of Integrated Health Services,
Inc. (I.R.S. #: Pending)
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF GROUP (a) [ ]
(SEE INSTRUCTIONS) (b) [ ]
3. SEC USE ONLY
4. SOURCES OF FUNDS (SEE INSTRUCTIONS)
AF
5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) OR 2(f) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
State of Delaware
7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0 shares
8. CHECK IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [ ]
(SEE INSTRUCTIONS)
9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
0%
10. TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
CO
</TABLE>
<PAGE>
This Tender Offer Statement and Amendment No. 1 to Schedule 13D (this
"Statement") relates to the offer by IHS Acquisition XXVI, Inc. ("Purchaser"), a
Delaware corporation and a wholly-owned subsidiary of Integrated Health
Services, Inc., a Delaware corporation ("Parent"), to purchase all outstanding
shares of common stock, par value $.0025 per share (the "Shares"), of Community
Care of America, Inc., a Delaware corporation (the "Company"), at a price of
$4.00 per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated as of August 7, 1997 (the
"Offer to Purchase"), and the related Letter of Transmittal (which together
constitute the "Offer"), copies of which are attached hereto as Exhibits (a)(1)
and (a)(2), respectively. The Offer is being made pursuant to an Agreement and
Plan of Merger, dated as of August 1, 1997, by and among Parent, Purchaser and
the Company, which provides, among other things, that as promptly as practicable
after the satisfaction or, if permissible, waiver of the conditions set forth
therein, Purchaser will be merged with and into the Company (the "Merger"), with
the Company continuing as the surviving corporation, and each issued and
outstanding Share (other than any Shares held in the treasury of the Company or
owned by Purchaser, Parent or any subsidiary of Parent or the Company, and other
than Shares held by stockholders who shall not have voted in favor of the Merger
or consented thereto in writing and who shall have demanded properly in writing
appraisal for such Shares in accordance with Section 262 of the General
Corporation Law of the State of Delaware) will be converted into the right to
receive in cash, without interest, an amount equal to the price paid per Share
in the Offer.
The information contained in this Statement concerning the Company,
including, without limitation, information concerning the background of the
transaction, the deliberations, approvals and recommendations of the Special
Committee (as defined in the Offer to Purchase) and the Board of Directors of
the Company in connection with the transaction, the opinion of the Special
Committee's financial advisors, and the Company's capital structure and
historical and projected financial information, was supplied by the Company.
Parent and Purchaser take no responsibility for the accuracy of such
information.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Community Care of America, Inc. Its
principal executive offices are located at 3050 North Horseshoe Drive, Suite
260, Naples, Florida 34104.
(b) The class of equity securities being sought is all the outstanding shares
of common stock, par value $.0025 per share (the "Shares"), of the Company.
Information concerning the number of outstanding Shares and the consideration
being offered for the Shares set forth under "INTRODUCTION" in the Offer to
Purchase is incorporated herein by reference.
(c) Information concerning the principal market in which the Shares are
traded and the historical high and low sales prices for the Shares in such
market set forth in the Offer to Purchase under "THE OFFER -- Price Range of
Shares; Dividend Information" is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g). This Statement is being filed by the Purchaser and Parent.
The Purchaser and Parent are Delaware corporations and the Purchaser is a
wholly-owned subsidiary of Parent. Information concerning the principal
businesses and the addresses of the principal offices of the Purchaser and
Parent set forth in the Offer to Purchase under "THE OFFER -- Certain
Information Concerning the Purchaser and the Parent" is incorporated herein by
reference. The names, business addresses, present principal occupation or
employment, and the name, principal business and address of any corporation or
other organization in which such employment or occupation is conducted, material
occupations, positions, offices or employments during the last five years and
citizenship of each of the directors and executive officers of the Purchaser and
Parent set forth in Schedule I to the Offer to Purchase are incorporated herein
by reference.
(e) and (f). During the last five years, none of the Purchaser or Parent or,
to the best knowledge of the Purchaser or Parent, any of the persons listed in
Schedule I to the Offer to Purchase has been (i) convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or (ii) a
party
1
<PAGE>
to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting activities
subject to, federal or state securities laws or finding any violation of such
laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) The information set forth in the Offer to Purchase under "SPECIAL FACTORS
- -- Background of the Offer and the Merger," "SPECIAL FACTORS -- The Merger
Agreement," "SPECIAL FACTORS -- Interests of Certain Persons in the Offer and
the Merger" and "THE OFFER -- Certain Information Concerning the Purchaser and
the Parent" is incorporated herein by reference.
(b) The information set forth in the Offer to Purchase under "INTRODUCTION,"
"SPECIAL FACTORS -- Background of the Offer and the Merger," "SPECIAL FACTORS --
Purpose and Structure of the Offer and the Merger; Reasons of Parent and
Purchaser for the Offer and the Merger," "SPECIAL FACTORS -- Plans for the
Company After the Offer and the Merger; Certain Effects of the Offer and the
Merger," "SPECIAL FACTORS -- The Merger Agreement," "THE OFFER -- Certain
Information Concerning the Company" and "THE OFFER -- Certain Information
Concerning the Purchaser and the Parent" is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(c). The information set forth in the Offer to Purchase under "THE OFFER
- -- Source and Amount of Funds" is incorporated herein by reference.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e). The information set forth in the Offer to Purchase under
"INTRODUCTION," "SPECIAL FACTORS -- Background of the Offer and the Merger,"
"SPECIAL FACTORS -- Purpose and Structure of the Offer and the Merger; Reasons
of Parent and Purchaser for the Offer and the Merger," "SPECIAL FACTORS -- Plans
for the Company After the Offer and the Merger; Certain Effects of the Offer and
the Merger" and "SPECIAL FACTORS -- The Merger Agreement" is incorporated herein
by reference.
(f) and (g). The information set forth in the Offer to Purchase under
"SPECIAL FACTORS -- Plans for the Company After the Offer and the Merger;
Certain Effects of the Offer and the Merger" and "THE OFFER -- Effect of the
Offer on the Market for Shares, Margin Regulations and Registration under the
Exchange Act" is incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) and (b). The information set forth in the Offer to Purchase under
"SPECIAL FACTORS -- Beneficial Ownership of Shares," "SPECIAL FACTORS -- Share
Ownership by Parent, Purchaser and Their Affiliates" and "THE OFFER -- Certain
Information Concerning the Purchaser and the Parent" is incorporated herein by
reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the Offer to Purchase under "INTRODUCTION,"
"SPECIAL FACTORS -- Background of the Offer and the Merger," "SPECIAL FACTORS --
Purpose and Structure of the Offer and the Merger; Reasons of Parent and
Purchaser for the Offer and the Merger," "SPECIAL FACTORS -- Plans for the
Company After the Offer and the Merger; Certain Effects of the Offer and the
Merger," "SPECIAL FACTORS -- The Merger Agreement," "SPECIAL FACTORS -- Share
Ownership by Parent, Purchaser and Their Affiliates" and "THE OFFER -- Certain
Information Concerning the Purchaser and the Parent" is incorporated herein by
reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the Offer to Purchase under "INTRODUCTION" and
"THE OFFER -- Fees and Expenses" is incorporated herein by reference.
2
<PAGE>
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in the Offer to Purchase under "THE OFFER --
Certain Information Concerning the Purchaser and the Parent" is incorporated
herein by reference.
ITEM 10. ADDITIONAL INFORMATION.
(a). Not applicable.
(b) and (c). The information set forth in the Offer to Purchase under "THE
OFFER -- Certain Legal Matters" is incorporated herein by reference.
(d). The information set forth under "THE OFFER -- Effect of the Offer on the
Market for Shares, Margin Regulations and Registration under the Exchange Act"
in the Offer to Purchase is incorporated herein by reference.
(e). None.
(f). The information set forth in the Offer to Purchase and the related
Letter of Transmittal, and the Agreement and Plan of Merger, dated as of August
1, 1997, by and among the Parent, the Purchaser and the Company, copies of which
are attached hereto as Exhibit (a)(1), (a)(2) and (c)(1), respectively, is
incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase, dated August 7, 1997.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter from Shattuck Hammond Partners Inc. to Brokers,
Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(5) Form of Letter from Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees to their Clients.
(a)(6) Form of Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7) Text of Joint Press Release dated August 1, 1997, issued by
Integrated Health Services, Inc. and Community Care of America,
Inc.
(b)(1) Revolving Credit Agreement, dated as of May 15, 1996, as amended,
among Integrated Health Services, Inc., the lenders named therein,
and Citibank, N.A., as administrative agent.
(c)(1) Agreement and Plan of Merger, dated as of August 1, 1997, among
Parent, the Purchaser and the Company.
(c)(2) Voting and Tender Agreement, dated as of August 1, 1997, among the
Purchaser, Parent and Dr. Robert N. Elkins.
(c)(3) Voting and Tender Agreement, dated as of August 1, 1997, among the
Purchaser, Parent and Equity-Linked Investors L.P. and
Equity-Linked Investors-II, L.P.
(c)(4) Stockholders Agreement dated June 30, 1993 among Robert N. Elkins,
Robert N. Elkins, as voting trustee, Equity-Linked Investors, L.P.,
Equity-Linked Investors-II, L.P. and the Company. *
(c)(5) Voting Agreement dated January 26, 1996 among Robert N. Elkins and
certain stockholders of the Company. +
(c)(6) Warrant Acquisition Agreement dated as of January 13, 1997, between
the Company and the Parent, including Form of Series A Warrants,
Form of Series B Warrants and Registration Rights Agreement. +
(c)(7) Warrant Acquisition Agreement dated April 14, 1997 between the
Company and the Parent. +
(c)(8) Guaranty Agreement, dated August 1, 1997, made by Robert N. Elkins
to Parent.
(d) None.
(e) Not applicable.
(f) None.
- ----------
* Incorporated by reference to the Company's Registration Statement on Form
S-1, Registration No. 33-92692.
+ Incorporated by reference to the Company's Annual Report on Form 10-K for
the Fiscal Year ended December 31, 1996.
3
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and
correct.
Dated: August 7, 1997
IHS ACQUISITION XXVI, INC.
By /s/ Brian Davidson
--------------------------------
Name: Brian Davidson
Title: Executive Vice President-
-Development
INTEGRATED HEALTH SERVICES, INC.
By /s/ Brian Davidson
--------------------------------
Name: Brian Davidson
Title: Executive Vice President-
-Development
4
<PAGE>
EXHIBIT INDEX
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PAGE NO. IN
SEQUENTIALLY
EXHIBIT NUMBERED
NO. TITLE COPY
- ----------- ------------------------------------------------------------------------------------- ----------------
<S> <C> <C>
(a)(1) Offer to Purchase, dated August 7, 1997.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter from Shattuck Hammond Partners Inc. to Brokers,
Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(5) Form of Letter from Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees to their Clients.
(a)(6) Form of Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7) Text of Joint Press Release dated August 1, 1997, issued by
Integrated Health Services, Inc. and Community Care of America,
Inc.
(b)(1) Revolving Credit Agreement, dated as of May 15, 1996, as amended,
among Integrated Health Services, Inc., the lenders named therein,
and Citibank, N.A., as administrative agent.
(c)(1) Agreement and Plan of Merger, dated as of August 1, 1997, among
Parent, the Purchaser and the Company.
(c)(2) Voting and Tender Agreement, dated as of August 1, 1997, among the
Purchaser, Parent and Dr. Robert N. Elkins.
(c)(3) Voting and Tender Agreement, dated as of August 1, 1997, among the
Purchaser, Parent and Equity-Linked Investors L.P. and
Equity-Linked Investors-II, L.P.
(c)(4) Stockholders Agreement dated June 30, 1993 among Robert N. Elkins,
Robert N. Elkins, as voting trustee, Equity-Linked Investors, L.P.,
Equity-Linked Investors-II, L.P. and the Company. *
(c)(5) Voting Agreement dated January 26, 1996 among Robert N. Elkins and
certain stockholders of the Company. +
(c)(6) Warrant Acquisition Agreement dated as of January 13, 1997, between
the Company and the Parent, including Form of Series A Warrants,
Form of Series B Warrants and Registration Rights Agreement. +
(c)(7) Warrant Acquisition Agreement dated April 14, 1997 between the
Company and the Parent. +
(c)(8) Guaranty Agreement, dated August 1, 1997, made by Robert N. Elkins
to Parent.
(d) None.
(e) Not applicable.
(f) None.
</TABLE>
- ----------
* Incorporated by reference to the Company's Registration Statement on Form
S-1, Registration No. 33-92692.
+ Incorporated by reference to the Company's Annual Report on Form 10-K for
the Fiscal Year ended December 31, 1996.
OFFER TO PURCHASE FOR CASH
All Outstanding Shares of Common Stock
of
COMMUNITY CARE OF AMERICA, INC.
at
$4.00 Net Per Share
by
IHS Acquisition XXVI, Inc.
a wholly-owned subsidiary of
INTEGRATED HEALTH SERVICES, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, SEPTEMBER 4, 1997, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER SUCH NUMBER OF
SHARES OF COMMON STOCK OF COMMUNITY CARE OF AMERICA, INC. (THE "COMPANY") WHICH
CONSTITUTES AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF THE COMPANY'S
COMMON STOCK ON A FULLY-DILUTED BASIS ON THE DATE OF PURCHASE, (II) THE
EXPIRATION OR TERMINATION OF ANY WAITING PERIOD UNDER THE HART-SCOTT-RODINO
ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, AND THE REGULATIONS THEREUNDER
APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER AND (III) THE
SATISFACTION OF THE OTHER CONDITIONS DESCRIBED IN "THE OFFER - CERTAIN
CONDITIONS OF THE OFFER." THE OFFER IS NOT SUBJECT TO ANY FINANCING CONDITION.
THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS VOTE OF ALL DIRECTORS
PRESENT AND VOTING (WITH THE TWO DIRECTORS WHO ARE ALSO DIRECTORS OF INTEGRATED
HEALTH SERVICES, INC. ("PARENT") ABSTAINING OR NOT ATTENDING), BASED UPON, AMONG
OTHER THINGS, THE UNANIMOUS RECOMMENDATION AND APPROVAL OF A SPECIAL COMMITTEE
OF THE DIRECTORS OF THE COMPANY, HAS DETERMINED THAT THE TERMS OF THE OFFER AND
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE
COMPANY (OTHER THAN PARENT, THE PURCHASER AND THEIR AFFILIATES), AND RECOMMENDS
THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER. SEE "SPECIAL FACTORS - RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE
COMPANY BOARD; FAIRNESS OF THE OFFER AND THE MERGER."
---------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
shares of the Company's common stock, par value $0.0025 per share (the
"Shares"), should either (a) complete and sign the Letter of Transmittal (or a
facsimile thereof) in accordance with the instructions in the Letter of
Transmittal, have such stockholder's signature thereon guaranteed if required by
Instruction 1 to the Letter of Transmittal, and mail or deliver it together with
the certificates ("Share Certificates") representing tendered Shares, and any
other required documents, to Citibank, N.A. (the "Depositary") or tender such
Shares pursuant to the procedure for book-entry transfer set forth in "THE OFFER
- - Procedure for Accepting the Offer and Tendering Shares" or (b) request a
broker, dealer, commercial bank, trust company or other nominee to effect the
transaction for the stockholder. A stockholder whose Shares are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
must contact such broker, dealer, commercial bank, trust company or other
nominee in order to tender such Shares.
Any stockholder who desires to tender Shares and whose Share Certificates
are not immediately available, or who cannot comply with the procedures for
book-entry transfer on a timely basis, or who cannot deliver all required
documents to the Depositary prior to the expiration of the Offer, may tender
such Shares by following the procedures for guaranteed delivery set forth in
"THE OFFER - Procedure for Accepting the Offer and Tendering Shares."
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
set forth on the back cover page of this Offer to Purchase. Additional copies of
this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed
Delivery and other related materials may be obtained from the Information Agent,
the Dealer Manager, brokers, dealers, commercial banks and trust companies.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
---------------------
The Dealer Manager for the Offer is:
SHATTUCK HAMMOND PARTNERS INC.
August 7, 1997
<PAGE>
TABLE OF CONTENTS
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SECTION PAGE
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INTRODUCTION ........................................................................... 1
SPECIAL FACTORS ........................................................................ 4
1. Background of the Offer and the Merger ............................................. 4
2. Recommendations of the Special Committee and the Company Board; Fairness of the
Offer and the Merger ............................................................... 9
3. Opinions of the Company's Financial Advisors ....................................... 11
4. Position of Parent and Purchaser Regarding the Fairness of the Offer and the Merger. 18
5. Opinion of Financial Advisor to Parent ............................................. 18
6. Purpose and Structure of the Offer and the Merger; Reasons of Parent and Purchaser
for the Offer and the Merger ...................................................... 23
7. Plans for the Company After the Offer and the Merger; Certain Effects of the Offer
and the Merger ..................................................................... 24
8. Rights of Stockholders in the Merger ............................................. 26
9. The Merger Agreement ............................................................... 26
10. Interests of Certain Persons in the Offer and the Merger ........................... 34
11. Share Ownership by Parent, Purchaser and Their Affiliates ........................... 35
12. Beneficial Ownership of Shares ................................................... 37
THE OFFER .............................................................................. 39
1. Terms of the Offer; Expiration Date ................................................ 39
2. Procedure for Accepting the Offer and Tendering Shares ........................... 40
3. Withdrawal Rights .................................................................. 43
4. Acceptance for Payment and Payment for Shares .................................... 44
5. Certain Federal Income Tax Consequences of the Offer .............................. 45
6. Price Range of Shares; Dividend Information ....................................... 46
7. Effect of the Offer on the Market for Shares, Margin Regulations and Registration
under the Exchange Act ............................................................ 47
8. Certain Information Concerning the Company ....................................... 48
9. Certain Information Concerning the Purchaser and the Parent ........................ 50
10. Source and Amount of Funds ......................................................... 52
11. Certain Conditions of the Offer ................................................... 53
12. Certain Legal Matters ............................................................ 54
13. Fees and Expenses .................................................................. 58
14. Miscellaneous ..................................................................... 59
</TABLE>
SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND
PURCHASER
SCHEDULE II DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
SCHEDULE III AUDITED FINANCIAL STATEMENTS (AND RELATED NOTES)
FOR THE COMPANY FOR THE FISCAL YEARS ENDED DECEMBER 31, 1994,
1995 AND 1996 AND UNAUDITED FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED MARCH 31, 1996 AND 1997
ANNEX A OPINION OF SMITH BARNEY INC.
ANNEX B OPINION OF WHEAT, FIRST SECURITIES, INC.
ANNEX C RIGHTS OF DISSENTING STOCKHOLDERS UNDER THE
DELAWARE GENERAL CORPORATION LAW
<PAGE>
TO THE STOCKHOLDERS OF
COMMUNITY CARE OF AMERICA, INC.
INTRODUCTION
IHS Acquisition XXVI, Inc., a Delaware corporation (the "Purchaser") and a
wholly-owned subsidiary of Integrated Health Services, Inc. (the "Parent"),
hereby offers to purchase all outstanding shares of common stock, par value
$0.0025 per share (the "Shares"), of Community Care of America, Inc., a Delaware
corporation (the "Company"), at $4.00 per Share, net to the seller in cash,
without interest (the "Offer Price"), upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (which collectively constitute the "Offer").
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD"), BY UNANIMOUS
VOTE OF ALL DIRECTORS PRESENT AND VOTING (WITH THE TWO DIRECTORS WHO ARE ALSO
DIRECTORS OF PARENT ABSTAINING OR NOT ATTENDING), BASED UPON, AMONG OTHER
THINGS, THE UNANIMOUS RECOMMENDATION AND APPROVAL OF A SPECIAL COMMITTEE (THE
"SPECIAL COMMITTEE") OF THE DIRECTORS OF THE COMPANY, HAS DETERMINED THAT THE
TERMS OF THE OFFER AND THE MERGER (AS HEREINAFTER DEFINED) ARE FAIR TO, AND IN
THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY (OTHER THAN PARENT, THE
PURCHASER AND THEIR AFFILIATES), AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE
OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. SEE "SPECIAL FACTORS
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE COMPANY BOARD; FAIRNESS OF THE
OFFER AND THE MERGER."
Each of Smith Barney Inc. ("Smith Barney") and Wheat, First Securities,
Inc. ("Wheat First"), financial advisors to the Special Committee and to the
Company Board, has delivered to the Company Board a written opinion, dated
August 1, 1997, to the effect that, as of such date and based upon and subject
to certain matters stated therein, the $4.00 per Share cash consideration to be
received by the holders of the Shares (other than Parent and its affiliates) in
the Offer and the Merger was fair to such holders from a financial point of
view. The full text of the Smith Barney and Wheat First opinions are attached
hereto as Annexes A and B, respectively, and should be read carefully and in
their entirety for the assumptions made, matters considered and limitations on
the review undertaken by Smith Barney and Wheat First in connection with their
respective opinions. The opinions of Smith Barney and Wheat First are directed
to the Company Board and relate only to the fairness of the cash consideration
to be received in the Offer and the Merger by holders of the Shares (other than
Parent and its affiliates) from a financial point of view, do not address any
other aspect of the Offer or the Merger or related transactions and do not
constitute a recommendation to any stockholder as to whether such stockholder
should tender Shares in the Offer. See "SPECIAL FACTORS - Opinions of the
Company's Financial Advisors."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Solicitation/Recommendation Statement on Schedule 14D-9, which
is being mailed to stockholders herewith.
The Offer is conditioned upon, among other things, (i) there being validly
tendered and not withdrawn prior to the Expiration Date (as defined below) that
number of Shares which constitutes at least a majority of the outstanding Shares
on a fully-diluted basis on the date of purchase (the "Minimum Condition"), (ii)
the expiration or termination of any waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the regulations thereunder
(the "HSR Act") applicable to the purchase of Shares pursuant to the Offer and
(iii) the satisfaction of the other conditions set forth in "THE OFFER - Certain
Conditions of the Offer." The Offer is not subject to any financing condition.
The Company has advised the Purchaser that as of July 28, 1997, there were
7,597,801 Shares outstanding and options and warrants outstanding to purchase an
additional 3,060,435 Shares, including warrants to purchase 1,189,274 Shares
owned by the Parent. Therefore, the Minimum Condition would be satisfied if
5,329,119 Shares are validly tendered and not properly withdrawn. Although
neither Parent nor the Purchaser owns any outstanding Shares, the executive
officers and directors of Parent beneficially own 1,636,095 Shares (including
737,392 Shares subject to a voting agreement in favor of Dr. Robert N. Elkins,
Chairman of the Board and Chief Executive Officer of Parent, and 46,231 Shares
issuable upon the exercise of options), and Parent owns warrants to purchase
1,189,274 Shares. Two related stockholders of the Company and Dr. Elkins,
collectively owning 2,459,888 outstanding Shares (excluding 461,790 outstanding
Shares beneficially owned by Dr. Elkins, of which 449,790 Shares are
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subject to a voting agreement in his favor and with respect to which he does not
have sole dispositive power), have entered into Voting and Tender Agreements
pursuant to which they have agreed, among other things, to tender their Shares
in the Offer. Such 2,459,888 outstanding Shares represent approximately 32.4% of
the outstanding Shares and approximately 46.2% of the 5,329,119 Shares needed to
satisfy the Minimum Condition. See "SPECIAL FACTORS - Share Ownership by Parent,
Purchaser and Their Affiliates."
The Purchaser has been advised by the Company that, to the best of its
knowledge, and subject to applicable securities laws, all of the Company's
executive officers and directors currently intend to tender all Shares owned by
them pursuant to the Offer. The Company's executive officers and directors
currently own 1,467,196 Shares (excluding 105,238 Shares issuable upon the
exercise of stock options, 12,000 Shares owned by Dr. Elkins' spouse and 385,112
Shares subject to a voting agreement in favor of Dr. Elkins, with respect to
which he has no dispositive power, and which are not owned by directors and
executive officers of the Company). Such 1,467,196 outstanding Shares owned by
the Company's executive officers and directors, which represent 19.5% of the
outstanding Shares, include 1,136,157 Shares beneficially owned by directors and
executive officers of the Parent (excluding 46,231 Shares issuable upon the
exercise of options and excluding Shares subject to the voting agreement or
owned by Dr. Elkins' spouse), representing 15.0% of the outstanding Shares. See
"SPECIAL FACTORS - Interests of Certain Persons in the Offer and the Merger."
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of August 1, 1997 (the "Merger Agreement"), among the Company, the Parent and
the Purchaser. The Merger Agreement provides, among other things, for the making
of the Offer by the Purchaser, and further provides that as promptly as
practicable following the completion of the Offer and the satisfaction or waiver
of certain other conditions (see "THE OFFER - Certain Conditions of the Offer"),
the Purchaser will be merged with and into the Company (the "Merger") and the
Company will continue as the surviving corporation (the "Surviving Corporation")
in the Merger and become a wholly-owned subsidiary of the Parent.
Notwithstanding the foregoing, at the election of the Parent, any wholly-owned
subsidiary of the Parent may be substituted for the Purchaser as a constituent
corporation in the Merger. At the effective time of the Merger (the "Effective
Time"), each Share outstanding immediately prior to the Effective Time (other
than Shares held by the Purchaser, the Parent or any direct or indirect
subsidiary of the Parent, the Company or any of its subsidiaries, which shall be
canceled, and other than Shares, if any, held by stockholders who have not voted
in favor of the Merger or consented thereto in writing and who have properly
demanded appraisal rights with respect thereto under the General Corporation Law
of the State of Delaware (the "Delaware GCL")) will, by virtue of the Merger and
without any action on the part of the stockholder thereof, be converted into the
right to receive $4.00 in cash or any higher price paid per Share in the Offer
(the "Merger Consideration") payable to the stockholder thereof, without
interest thereon, upon surrender of the certificate formerly representing such
Share. The Merger Agreement is more fully described under "SPECIAL FACTORS - The
Merger Agreement."
Consummation of the Merger is subject to a number of conditions, including
approval by the stockholders of the Company if such approval is required by
applicable law. If the Purchaser purchases not less than that number of Shares
needed to satisfy the Minimum Condition, it will be able to effect the Merger
without the affirmative vote of any other stockholder of the Company. If the
Purchaser acquires at least 90% of the outstanding Shares, Purchaser intends to
approve and consummate the Merger without any action by, or any further prior
notice to, the other stockholders of the Company pursuant to the short-form
merger provisions of the Delaware GCL. If, however, after consummation of the
Offer Purchaser owns less than such number of Shares, a vote of the Company's
stockholders will be required under the Delaware GCL to approve the Merger, and
a significantly longer period of time will be required to effect the Merger. See
"SPECIAL FACTORS - Purpose and Structure of the Offer and the Merger; Reasons of
Parent and Purchaser for the Offer and the Merger" and "THE OFFER Certain
Conditions of the Offer."
The Merger Agreement provides that following the satisfaction or waiver of
the conditions to the Offer, the Purchaser will accept for payment, in
accordance with the terms of the Offer, all Shares validly tendered and not
withdrawn pursuant to the Offer as soon as practicable after the Expiration
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Date. The initial expiration date of the Offer is 12:00 Midnight, New York City
time, on Thursday, September 4, 1997. However, certain conditions may not be
satisfied as of such date. See "THE OFFER - Certain Conditions of the Offer."
The Merger Agreement provides that the Purchaser may extend the Offer beyond the
scheduled expiration date, if at the scheduled expiration date of the Offer any
of the conditions to the Purchaser's obligation to accept for payment and pay
for the Shares shall not have been satisfied or waived, until such time that the
conditions are satisfied or waived, and under certain other circumstances. See
"SPECIAL FACTORS - The Merger Agreement."
No appraisal rights are available in connection with the Offer; however,
stockholders who do not vote for the Merger and comply with the applicable
provisions of the Delaware GCL will have the right to seek appraisal and have
the "fair value" of their Shares (exclusive of any element of value arising from
the accomplishment or expectation of the Merger) judicially determined and paid
to them, regardless of whether the Merger is consummated with or without a vote
of the Company's stockholders. See "SPECIAL FACTORS - Rights of Stockholders in
the Merger."
THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY MEETING OF
THE COMPANY'S STOCKHOLDERS. ANY SUCH SOLICITATION WOULD BE MADE ONLY PURSUANT TO
SEPARATE PROXY MATERIALS COMPLYING WITH THE REQUIREMENTS OF SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").
Tendering stockholders will not be obligated to pay brokerage commissions,
solicitation fees or, subject to Instruction 6 of the Letter of Transmittal,
stock transfer taxes on the purchase of Shares by Purchaser pursuant to the
Offer. However, any tendering stockholder or other payee who fails to complete
and sign the Substitute Form W-9 that is included in the Letter of Transmittal
may be subject to a required backup federal income tax withholding of 31% of the
gross proceeds payable to such stockholder or other payee pursuant to the Offer.
See "THE OFFER - Certain Federal Income Tax Consequences of the Offer."
Purchaser will pay all charges and expenses of Shattuck Hammond Partners Inc.,
as Dealer Manager (in such capacity, the "Dealer Manager"), Citibank, N.A., as
Depositary (in such capacity, the "Depositary"), and MacKenzie Partners, Inc.,
as Information Agent (in such capacity, the "Information Agent"), incurred in
connection with the Offer. For a description of the fees and expenses to be paid
by Purchaser, see "THE OFFER - Fees and Expenses."
The information contained in this Offer to Purchase concerning the Company
was supplied by the Company. Parent and the Purchaser take no responsibility for
the accuracy of such information. The information contained in this Offer to
Purchase concerning the Offer, the Merger, Parent and the Purchaser was supplied
by Purchaser. The Company takes no responsibility for the accuracy of such
information.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER. ALSO SEE "THE OFFER - MISCELLANEOUS" FOR INFORMATION
REGARDING CERTAIN ADDITIONAL DOCUMENTS FILED WITH THE COMMISSION IN CONNECTION
WITH THE OFFER.
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SPECIAL FACTORS
1. BACKGROUND OF THE OFFER AND THE MERGER.
The Company develops and operates skilled nursing facilities in medically
underserved rural communities. The Company began operations in December 1993
with its acquisition of all of the capital stock of MeritWest Inc.
("MeritWest"), which operated 28 long-term care facilities, of which 14 were
owned, 13 were leased and one was managed, in six states. Dr. Robert N. Elkins,
a director of the Company and Chairman of the Board and Chief Executive Officer
of Parent, was a founder and principal stockholder of the Company. See "SPECIAL
FACTORS - Interests of Certain Persons in the Offer and the Merger." The Company
subsequently consummated a series of acquisitions and entered into various lease
and management agreements. The Company's business strategy was to improve the
acquired facilities and use them as a platform to provide an expanded and
coordinated range of health care services, while continuing to seek expansion
opportunities.
In August 1995, the Company completed an initial public offering of its
common stock. The Company issued 3,450,000 Shares to the public at a price of
$9.50 per Share, and raised net proceeds of approximately $27.6 million. The
Company used the net proceeds of the offering principally to repay indebtedness
and to redeem shares of preferred stock.
At the time of consummation of the public offering in August 1995, the
Company assumed the management of nine long-term care facilities (the "Sandy
River Facilities") in Maine pursuant to a series of management agreements (which
also contemplated the Company managing one additional facility upon completion
of construction and the achievement of certain occupancy levels). As part of the
arrangement, the Company also obtained an option to acquire these ten facilities
pursuant to which the Company made a $5.0 million non-refundable deposit.
During 1996, the Company sought to raise additional funds through debt and
equity public offerings with the objective of reducing its revolving credit
indebtedness and increasing working capital. These offerings were unsuccessful,
in part due to investor concerns related to the Medicare decertification of a
nursing facility operated by the Company and growing concerns regarding the
ability of the Sandy River Facilities to generate sufficient cash flow to pay
the Company's management fees and consequent write-off risks.
In February 1996, the Company engaged Smith Barney to pursue alternative
courses of obtaining a capital infusion for the Company, finding a suitable
joint venture partner or selling the Company. During the first quarter of 1996,
approximately 34 parties were contacted on the Company's behalf, of which four
submitted initial indications of interest. However, the Company was unable to
either obtain a capital infusion or to find a purchaser for the Company.
The Sandy River Facilities continued to fail to generate sufficient cash
flows to pay the Company's management fees and, in August 1996, the Company
terminated both its management agreement and purchase option agreements relating
to those facilities. The Company also separately determined to close four
primary care clinics, four adult day care centers and one physician practice. As
a result principally of the termination of the agreements relating to the Sandy
River Facilities and the nine unrelated closings, the Company recorded $19.2
million in charges during the second quarter of 1996.
In October 1996, the Company requested that Smith Barney assist the Company
in again evaluating debt and equity financing alternatives or the possible sale
of the Company. Approximately 40 parties were contacted on the Company's behalf,
of which five submitted initial indications of interest. However, no viable
offers were submitted to the Company.
The Company recorded $10.7 million of charges during the fourth quarter of
1996. These charges related principally to: the termination of an agreement to
acquire certain rural hospitals in Georgia and the transfer back to the sellers
of one hospital acquired in connection with the proposed transaction since the
Company was unable to secure financing to complete the proposed transaction;
costs associated with unsuccessful debt and equity offerings by the Company;
contractual allowances and revenue adjustments; and other balance sheet
adjustments.
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As a result of the foregoing, the Company recorded a total of $29.9 million
of write-offs and charges during the year ended December 31, 1996. For the same
period, the Company incurred a loss of $18.9 million and had negative cash flow
from operating activities. As of December 31, 1996, the Company had a working
capital deficiency of $10.9 million and was in default with respect to certain
of its debt, lease and other agreements. These circumstances raised doubt about
the Company's ability to continue as a going concern.
In December 1996, as part of a financial restructuring plan, the Company
refinanced its bank revolving line of credit to extend the payment terms related
to $4.8 million of debt due at December 31, 1996. The Company also subsequently
obtained the release of $4.1 million of security deposits through a modification
of agreements with its principal lessor to reduce rental payments and obtained
waivers of financial covenant violations and related defaults under certain debt
and lease agreements through February 1998.
The Company also entered into a number of transactions with Parent
commencing in December 1996. Dr. Elkins, a director of the Company and
beneficial owner of approximately 21.0% of the Shares, is Chairman of the Board,
Chief Executive Officer and a significant stockholder of Parent. John Silverman,
a director of the Company, is also a director, officer and stockholder of
Parent. Michael Blass, a director of the Company, has provided legal services to
Parent as well as the Company. Deborah Lau, a director of the Company and
currently its President, had been an employee of Parent until she became Chief
Operating Officer of the Company in October 1995 as part of a management
restructuring. Ms. Lau has no continuing contractual arrangements with Parent.
The Company had previously (in January 1994) entered into a Medicare
consulting agreement with Symphony Care Consulting, Inc. ("SCCI"), a
wholly-owned subsidiary of Parent. The agreement was amended on May 1, 1995 and
provided for SCCI's provision to the Company of Medicare reimbursement and
certification services, including training, cost report preparation and
accounting services, through January 1996. The Company paid to SCCI $410,000 in
1994, $453,000 in 1995 and $148,000 in 1996 for these services. In 1996, the
Company paid Symphony Rehabilitation Services ("SRS") and Symphony Pharmacy
Services ("SPS"), both wholly-owned subsidiaries of Parent, $162,000 for therapy
services and $98,000 for pharmacy services, respectively. In addition, the
Company paid Parent approximately $500,000 in 1994 and $186,000 in 1995 to
reimburse Parent for expenses incurred on behalf of the Company in connection
with the start-up of the Company's operations, the MeritWest acquisition and due
diligence services in connection with the Company's public offering. No amounts
were paid to Parent in 1996. The Company believes that the terms of the
agreement with SCCI and the amounts paid to Parent, SRS and SPS for services
were on terms as favorable as could have been obtained from unaffiliated third
parties.
On December 27, 1996, the Company and Parent entered into a Management
Agreement (the "Management Agreement") pursuant to which the Company engaged
Parent to supervise, manage and operate the financial, accounting, MIS,
reimbursement and ancillary services contracting functions for the Company until
December 31, 2001. The Management Agreement provides for the Company to pay to
Parent for its services, until December 31, 1997, an amount equal to the lesser
of 2% of the Company's gross revenues (as defined) or the Company's annualized
cost of performing those services itself based on the period July 1, 1996
through December 31, 1996. Thereafter, the management fee payable to Parent is
to be the lesser of 2% of the Company's gross revenues or a percentage of gross
revenues determined by comparing the Company's cost of performing such functions
during the period July 1, 1996 through December 31, 1996 to its gross revenues
for that period. The gross revenues percentage may be increased from 2.0% to
2.5% by mutual agreement of the parties following Parent's review of the
Company.
At the same time the Company and Parent entered into the Management
Agreement, IHS Financial Holdings, Inc., a wholly-owned subsidiary of Parent
("IHS Holdings"), also entered into a loan agreement (the "First Loan
Agreement") which, as amended on January 13, 1997, entitles the Company to
borrow, until December 27, 1998, amounts on a revolving credit basis so that no
more than $5.0 million is outstanding at any time. Loan advances are subject to
the consent of Parent, which consent
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may not be unreasonably withheld. This revolving credit facility bears interest
at a rate per annum equal to the annual rate of interest set forth in Parent's
revolving credit agreement with Citibank, N.A., plus 2%. Repayment of amounts
advanced under this line of credit are subordinated to the payment of up to an
aggregate of $30 million of principal and interest on the Company's obligations
to its two principal unaffiliated third party lenders. In connection with
entering into the revolving credit facility, the Company issued to Parent
warrants to purchase an aggregate of 752,182 Shares, one-half of which were
exercisable until January 13, 1999 at $3.22 per share (the average of the high
and low trading prices of the Shares on January 14 and 15, 1997) and the
remaining one-half of which were exercisable until January 13, 2002 at $6.44 per
Share.
Parent initially declined the opportunity to enter the rural healthcare
market at the time the Company was formed. However, by the end of 1996, with the
changes in the healthcare industry, such as the expected introduction of
prospective pay for nursing homes and continued pressure on reimbursement rates,
as well as Parent's expansion of its home healthcare services in connection with
the establishment of its post-acute care network system based on geriatric care
facilities and home healthcare, Parent detemined that geriatric care facilities
serving medically underserved rural communities could be an important strategic
component of its post-acute care network system. However, Parent was at the time
unwilling to enter this market through acquisition until it better understood
the rural healthcare marketplace. Accordingly, the Parent believed that entering
into the Management Agreement would provide it with an opportunity to better
understand the rural healthcare marketplace without making a large capital
commitment.
In negotiating the terms of the Management Agreement and the First Loan
Agreement, Parent appointed a special committee consisting of two directors who
had no financial interest or other relationship with the Company. This special
committee engaged separate legal counsel and a financial advisor, Shattuck
Hammond Partners Inc. ("Shattuck Hammond"), to advise it in connection with the
negotiation of the Management Agreement, the First Loan Agreement and the
warrants issued in connection with the First Loan Agreement.
On April 14, 1997, Parent agreed to guarantee certain obligations of the
Company to the Company's principal revolving credit lender and to the lender
which has financed the Company's major acquisitions. To induce Parent to issue
such guarantees, the Company agreed to reimburse Parent for such amounts paid by
Parent on behalf of the Company, including costs, fees and expenses, and to pay
Parent interest at the rate of 15% per annum on all amounts which become owing
to Parent from the Company with respect thereto. In connection therewith, the
Company also issued warrants to Parent to purchase an aggregate of 379,900
Shares until April 15, 2002 at $1.9375 per Share (the closing price of the
Shares on April 14, 1997). The number of Shares subject to each of the above
warrants and the exercise prices are subject to adjustment in certain instances,
including if the Company issues Shares of Common Stock (or securities
convertible into Common Stock) at less than the applicable exercise price. As a
result of the issuance of the warrants in April 1997, the warrants issued to
Parent in January 1997 were adjusted to cover 809,374 Shares, one-half of which
are exercisable at $2.99 per Share until January 13, 1999 and one-half of which
are exercisable at $5.99 per Share until January 13, 2002. In connection with
the issuance of each of the above warrants, the Company granted to Parent
certain rights to cause the Shares issuable upon exercise of the warrants to be
registered under the Securities Act of 1933, as amended (the "Securities Act"),
at the Company's expense.
In April 1997, at the Company's direction, Smith Barney began a third
attempt to solicit buyers for the Company. This time, approximately 38 parties,
including Parent, were contacted. By mid-May 1997, four parties had submitted
preliminary expressions of interest in acquiring the Company.
On June 6, 1997, the Board of Directors of the Company held a meeting at
which it authorized the formation of the Special Committee to solicit and review
any acquisition proposals, to retain counsel and an investment bank in the
Special Committee's discretion and to conduct an auction process as it deemed
appropriate. At that meeting, Dr. Elkins indicated that Parent management was
considering the possibility of submitting to its Board of Directors a proposal
to bid for the purchase of the Company. Accordingly, the Special Committee was
organized to include the directors of the Company other than Messrs. Elkins and
Silverman, who are both directors of Parent.
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On June 11, 1997, the Special Committee held its first meeting. The Special
Committee retained the law firm of Chadbourne & Parke LLP, which had previously
acted as special counsel to the Company Board on various matters relating to
representation of the Company in negotiations with Parent. The Special Committee
also decided, upon advice of counsel, to seek an opinion in connection with any
acquisition transaction from an investment bank that had no previous dealings
with Parent or the Company, in addition to an opinion from Smith Barney, since
Smith Barney from time to time provides investment banking services to Parent on
matters unrelated to the Company. The Special Committee directed that its
counsel prepare a form of merger agreement for submission to the parties who
provided preliminary indications of interest and that each of the bidders be
contacted with a view to reducing the conditions to the offers made by such
bidders and increasing the consideration offered by them. The Special Committee
also requested that Parent be contacted to determine if it would be submitting
an offer, and also directed that its advisors prepare a press release announcing
that the Company was soliciting potential buyers for the Company.
On June 13, 1997, the Company publicly announced that it was evaluating
credible indications of interest from potential buyers.
Between June 11, 1997 and June 24, 1997, the Special Committee members
communicated informally by telephone regarding the auction process, selection of
an investment banker in addition to Smith Barney to render an opinion in
connection with a transaction and related matters. During this period,
discussions continued with the parties who had submitted expressions of
interest, including Parent.
On June 24, 1997, the Special Committee, on behalf of the Company, engaged
Wheat First to render an opinion in connection with any proposed transaction
that might result from the auction process. Also, on June 24, 1997, Michael
Blass resigned from the Special Committee. He indicated that he had been advised
that Parent had decided to submit a bid to purchase the Company and felt that
his resignation was appropriate in light of the fact that his law firm, Blass &
Driggs, had provided and continued to provide legal services to Parent on
matters unrelated to the Company.
During 1997, Parent continued to expand its post-acute care network,
particularly in the home healthcare area. In July 1997, Parent agreed to acquire
RoTech Medical Corporation, which provides comprehensive home healthcare and
primary care physician services, principally to patients in non- urban areas
(the "RoTech Acquisition"). The proposed RoTech Acquisition, as well as Parent's
acquisition of First American Health Care of Georgia, Inc. in October 1996 and
Arcadia Services, Inc. in July 1997, will significantly expand Parent's presence
in the rural home healthcare market. As a result, Parent determined that
operating geriatric care facilities in the areas where it provided rural home
healthcare services would benefit its home healthcare business and expand the
scope of its post-acute care network. Accordingly, Parent determined to pursue
the acquisition of the Company.
On June 25, 1997, Parent delivered a bid to acquire all of the Company's
outstanding Shares in a merger pursuant to which stockholders of the Company
would receive $3.50 per Share in cash.
On June 26, 1997, the Special Committee held a meeting, attended by the
Company's legal and financial advisors, to discuss the bids that had been
presented. The Special Committee was informed that one of the entities that
initially provided an expression of interest had withdrawn its bid. With respect
to the bids submitted, the Special Committee was informed as follows:
- One entity that had previously provided an expression of interest in
buying the Company at $3.00 per Share in cash had, following completion of
its due diligence, reduced its bid to $1.50 per Share in cash. The Special
Committee had a high degree of confidence that the entity could finance such
a transaction. However, the Special Committee believed that this bid
represented a very conservative valuation of the Company.
- Another entity bid $3.41 per Share in cash. The bidder, however,
refused to disclose its financing sources unless the Special Committee agreed
to engage in exclusive negotiations with such bidder. Further, the bid
provisions required establishment of an escrow account and significant
conditions relating to the restructuring of existing financing arrangements,
which the Company believed made the consummation of any transaction at the
bid price subject to significant risk of
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delay or failure. The bidder did not reveal its financing sources and was
unwilling to permit the Company to conduct due diligence with respect to the
ability of the bidder to finance the transaction, until such time as the
Company was prepared to negotiate exclusively with the bidder.
- Parent submitted a bid for $3.50 cash per Share. The Special Committee
noted that the offer contained no financing contingency and that the offer
had already been approved by a special committee of Parent's board of
directors.
- A fourth entity submitted a bid calling for an exchange of
publicly-traded shares of such entity for Shares of the Company. The bid was
nominally valued at $4.10 per Share, based on the market price of the
bidder's shares. The Special Committee requested that Wheat First and Smith
Barney each analyze certain pro forma financial information relating to the
combined entity resulting from a possible transaction with this bidder. The
Special Committee also reviewed with its advisors certain issues relating to,
among other things, liquidity of the trading market for shares of the bidder
following a merger, capitalization of the combined entity, earnings accretion
or dilution, working capital needs, regulatory impact of the merger and
timing issues.
The Special Committee directed that its advisors focus their efforts on the
stock-for-stock bidder and a cash merger with Parent with a view to seeking
increased consideration and minimizing conditions to closing.
On July 1, 1997, Parent notified the Company that it had raised its cash
offer to $4.00 per Share.
On July 1, 1997, the stock-for-stock bidder raised its offer to $4.26 per
Share, again based on the current market price of its publicly-traded shares.
On July 6, 1997, the Special Committee met to review the sale process. At
such meeting, the Special Committee was updated as to the revised status of the
bids received from Parent and the stock-for-stock bidder, and reviewed with
Wheat First and Smith Barney certain pro forma financial information with
respect to the stock-for-stock bidder following a merger with the Company. For
the reasons discussed under "SPECIAL FACTORS-Recommendations of the Special
Committee and the Company Board; Fairness of the Offer and the Merger," the
Special Committee determined that the proposed transaction with Parent was in
the best interests of the Company's stockholders.
The Special Committee directed its advisors to enter into detailed
negotiations with Parent with a view to executing a definitive merger agreement.
Between July 7 and July 31, 1997, the Company and Parent negotiated the
terms of a definitive merger agreement. During this period, the Company and
Parent also negotiated terms of a $5.0 million secured loan financing which the
Company requested to provide it working capital in order to avoid making
additional asset dispositions.
On July 18, 1997, the Company and IHS Holdings entered into a second loan
agreement, which entitles the Company to borrow for working capital purposes,
until July 18, 1999, amounts on a revolving credit basis so that no more than
$5.0 million is outstanding at any time. Loan advances are to be made directly
to creditors of the Company, including the Parent, in payment of the Company's
obligations to such creditors. Proceeds used to pay the Company's obligations
are directed by the Parent in accordance with the Management Agreement. This
revolving credit facility bears interest at a rate per annum equal to the annual
rate of interest set forth in Parent's revolving credit agreement with Citibank,
N.A., plus 4%. Repayment of amounts advanced under this line of credit are
subordinated to the payment of up to an aggregate of $13.6 million of principal
and interest on the Company's obligations to one of the Company's principal
unaffiliated third-party lenders. The revolving credit facility is guaranteed in
full by Community Care of Nebraska, Inc., ECA Holdings, Inc., CCA of Midwest,
Inc., Quality Care of Columbus, Inc., Quality Care of Lyons, Inc. and W.S.T.
Care, Inc., each a wholly-owned subsidiary of the Company (together, the
"Guarantors"). The revolving line of credit is secured by the real property
assets of the Company and its subsidiaries. At July 31, 1997, no borrowings were
outstanding under this facility.
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On July 30, 1997, the Special Committee met to review the terms of the
proposed merger agreement. Wheat First and Smith Barney each made a financial
presentation and advised the Special Committee that, subject to review of the
final documentation for the transaction and certain other customary matters, it
was prepared to render an opinion to the effect that the cash consideration to
be received by holders of Shares (other than Parent and its affiliates) in the
Offer and the Merger was fair from a financial point of view to such holders.
See "SPECIAL FACTORS-Opinions of the Company's Financial Advisors." After full
discussion, the Special Committee members determined to recommend the Merger to
the Company Board for approval.
On July 31, 1997, the Company Board met to review the terms of the proposed
Merger Agreement and the recommendation of the Special Committee. Wheat First
and Smith Barney each made a financial presentation and orally rendered to the
Company Board their respective opinions (which opinions were subsequently
confirmed by delivery of written opinions dated August 1, 1997, the date of
execution of the Merger Agreement) to the effect that, as of the date of such
opinions and based upon and subject to certain matters stated therein, the cash
consideration to be received by holders of Shares (other than Parent and its
affiliates) in the Offer and the Merger was fair from a financial point of view
to such holders. See "SPECIAL FACTORS - Opinions of the Company's Financial
Advisors." A majority of the Company Board, including a majority of the
non-employee directors, approved the Offer and the Merger. Dr. Elkins did not
attend the meeting, and Mr. Silverman abstained, noting that he was a director
of Parent.
On August 1, 1997, representatives of the Company and Parent signed the
definitive Merger Agreement. On the same date, the Company and Parent issued a
joint press release announcing the signing of the Merger Agreement.
2. RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE COMPANY BOARD; FAIRNESS OF
THE OFFER AND THE MERGER.
At a meeting held on July 30, 1997, the Special Committee unanimously
determined to recommend that the Company Board approve the Offer and the Merger.
At a meeting held on July 31, 1997, the Company Board, by unanimous vote of all
directors present and voting (with the two directors who are also directors of
Parent abstaining or not attending) based on the recommendation of the Special
Committee, determined that the terms of the Offer and the Merger were fair to,
and in the best interests of, stockholders of the Company (other than Parent,
the Purchaser and their affiliates), and approved the Offer and Merger.
In reaching its conclusions, the Special Committee considered a number of
factors, including but not limited to the following:
(i) the Company's financial condition and results of operations,
including its substantial net losses since its initial public offering in
August 1995; its reliance since inception on financings as its principal
source of liquidity; and its difficulty during the period since its public
offering in obtaining financing;
(ii) the cash consideration of $4.00 per Share to be received by the
Company's stockholders in the Offer and Merger represents a substantial
premium over recent market prices (the closing price of the Shares as
reported on the Nasdaq National Market on July 31, 1997, the last full
trading day prior to the announcement of the execution of the Merger
Agreement, was $3.1875) and the Offer and the Merger will enable the
Company's stockholders to sell their Shares at a premium in an otherwise
relatively illiquid market. See "SPECIAL FACTORS - Purpose and Structure of
the Offer and the Merger; Reasons of Parent and Purchaser for the Offer and
the Merger" and "THE OFFER - Price Range of Shares; Dividend Information";
(iii) the Offer Price and Merger consideration represent a substantial
premium to the net book value of the Shares (which as of March 31, 1997
was $2.04 per Share on a primary basis);
(iv) the Company's current business and future prospects, including the
fact that, without increased liquidity, the Company would be constrained in
its growth;
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(v) partial sales of the Company's assets would present significant
risks in realizing value for the stockholders due to the liquidity
constraints on the Company and the effects that write-offs resulting from
asset sales would have on the Company's ability to maintain its Nasdaq
listing and liquidity for the Shares;
(vi) uncertainty as to the realizable value to equity holders upon an
orderly liquidation of the Company's assets;
(vii) the fact that the Company had for more than a year-and-a-half
publicly indicated it was seeking a buyer and had been unsuccessful in
finding a credible buyer with adequate financing sources to make
consummation of a sale probable;
(viii) the fact that, in the most recent auction process, commenced in
April 1997, the most viable alternative bid was a stock-for-stock proposal
that involved significant risks which made such offer unattractive by
comparison to the cash offer of Parent. Although the stock-for-stock bid
had a nominal value in excess of the Parent's cash offer, based on the
market price of the bidder's stock, the Special Committee believed that the
resulting post-merger entity would not be a suitable vehicle for the
Company's stockholders to realize value. The Special Committee was
influenced in its determination by the fact that the shares of the bidder
were trading at multiples of approximately 148 times projected 1997
earnings and 49 times projected 1998 earnings, whereas the mean multiples
for comparable companies in the same industry were 17.1 times 1997
projected earnings and 14.9 times 1998 projected earnings. The Special
Committee was concerned that (A) the trading multiple could not be
justified based on historical performance and that a settling of share
prices of the combined entity would negatively affect the value of the
Company's stockholders' holding in the post-merger entity, (B) the trading
volume of the shares of the stock-for-stock bidder was low, and there was a
very small institutional investor base, so that the Company's stockholders
would have had limited liquidity for their shares in a post-merger entity,
(C) the Company required working capital to sustain operations pending a
merger, which it could reasonably expect to obtain only by divesting
certain assets or obtaining financing from a prospective bidder, and (D)
divestitures by the Company would result in additional write-offs which
would have jeopardized the post-merger entity's ability to maintain the
minimum net worth required to maintain a Nasdaq listing. The Special
Committee believed, based on review of the stock-for-stock bidder's
historical working capital needs and sources, that liquidity for the
Company's operations would be an issue of immediate concern if it pursued a
transaction with the stock-for-stock bidder;
(ix) the terms and conditions of the Offer and the Merger, including
the lack of financing as a condition of either the Offer or the Merger, and
that all stockholders will receive the same price and form of consideration
for their Shares, whether in the Offer or the Merger;
(x) the oral presentations made by the Company's financial and legal
advisors to the Special Committee at a meeting held on July 30, 1997 as to
various financial and other considerations deemed relevant to the
evaluation of the Offer and the Merger; and
(xi) the belief on the part of members of the Special Committee, based
upon their investigation regarding the Company's business, its current
financial condition and results of operations, and its future prospects,
that the cash consideration to be paid in the Offer and the Merger fairly
reflects the Company's value that was probable of being obtained by the
stockholders of the Company in a sale of the Company.
At a meeting of the Company Board held on July 31, 1997, by unanimous vote
of all directors present and voting (with the two directors who are also
directors of Parent abstaining or not attending), based upon the recommendation
of the Special Committee, the Company Board voted to recommend to the
stockholders of the Company that they accept the Offer and tender their Shares
pursuant to the Offer. Dr. Elkins did not attend the meeting of the Company
Board at which this recommendation was made and Mr. Silverman abstained, noting
that he was director of Parent.
The members of the Company Board, including the Special Committee,
evaluated the various factors listed above in light of their knowledge of the
business, financial condition and prospects of the Company, and based upon the
advice of financial and legal advisors. The Company Board also took into
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account the financial presentations of the Company's financial advisors and
their respective oral opinions (subsequently confirmed in writing) to the effect
that, as of the date of such opinions and based upon and subject to certain
matters stated therein, the cash consideration to be received by holders of
Shares (other than Parent and its affiliates) in the Offer and the Merger was
fair, from a financial point of view, to such holders. In light of the number
and variety of factors that the Company Board and the Special Committee
considered in connection with their evaluation of the Offer and the Merger,
neither the Company Board nor the Special Committee found it practicable to
assign relative weights to the foregoing factors and, accordingly, neither the
Company Board nor the Special Committee did so. In addition to the factors
listed above, the Company Board and the Special Committee each considered the
fact that while consummation of the Offer would result in the stockholders of
the Company receiving a premium for their Shares over the trading prices of the
Shares prior to the public announcement of the Merger Agreement, consummation of
the Offer and the Merger would eliminate any opportunity for stockholders of the
Company (other than Parent, Purchaser and their affiliates) to participate in
the potential future growth prospects of the Company. The Company Board and the
Special Committee determined, however, that (i) the loss of opportunity is
reflected in the Offer Price, and (ii) there is uncertainty as to the Company's
long-term financial prospects.
In addition, the Special Committee and the Company Board determined that
the Offer and the Merger are procedurally fair to the stockholders of the
Company (other than Parent, Purchaser, and their affiliates) because, among
other things: (i) the Special Committee, consisting of directors who are neither
designees of Parent nor persons having a current business relationship with
Parent, was appointed to represent the interests of the stockholders of the
Company (other than Parent, Purchaser, and their affiliates); (ii) the Special
Committee retained and was advised by independent legal counsel; (iii) the
Special Committee retained Smith Barney and Wheat First as its independent
financial advisors to assist it in evaluating the Offer and the Merger; and (iv)
the fact that the $4.00 per Share price and the other terms and conditions of
the Merger Agreement resulted from active arm's-length bargaining between
representatives of the Special Committee, on the one hand, and a special
committee of the Board of Directors of the Parent which did not include persons
who were directors or stockholders of the Company, on the other.
Each of the Company Board and the Special Committee recognized that the
Merger is not structured to require the approval of a majority of the
stockholders of the Company (other than Parent or Purchaser), and that if the
Offer is consummated Parent and Purchaser will have sufficient voting power to
approve the Merger without the affirmative vote of any other stockholder of the
Company. Pursuant to the Merger Agreement, the purchase by Purchaser of all
Shares validly tendered in the Offer and not withdrawn is a condition to the
Merger.
In making their respective determinations and recommendations, each of the
Company Board and the Special Committee was aware of the matters set forth under
"SPECIAL FACTORS - Interests of Certain Persons in the Offer and Merger."
3. OPINIONS OF THE COMPANY'S FINANCIAL ADVISORS
Smith Barney Inc. Smith Barney was retained by the Company to act as its
financial advisor in connection with the proposed Offer and the Merger. In
connection with such engagement, the Company requested that Smith Barney
evaluate the fairness, from a financial point of view, to the holders of the
Shares (other than Parent and its affiliates) of the consideration to be
received by such holders in the Offer and the Merger. On July 30, 1997, at a
meeting of the Special Committee held to evaluate the proposed Offer and the
Merger, Smith Barney advised the Special Committee that, subject to review of
the final documentation for the transaction and certain other customary matters,
it was prepared to render an opinion to the effect that the cash consideration
to be received in the Offer and the Merger by holders of the Shares (other than
Parent and its affiliates) was fair, from a financial point of view, to such
holders. On July 31, 1997, at a meeting of the Company Board held to evaluate
the proposed Offer and the Merger, Smith Barney delivered to the Company Board
an oral opinion (which opinion was subsequently confirmed by delivery of a
written opinion dated August 1, 1997, the date of execution of the Merger
Agreement), to the effect that, as
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<PAGE>
of the date of such opinion and based upon and subject to certain matters stated
therein, the cash consideration to be received in the Offer and the Merger by
holders of the Shares (other than Parent and its affiliates) was fair, from a
financial point of view, to such holders.
In arriving at its opinion, Smith Barney reviewed the Merger Agreement and
held discussions with certain senior officers, directors and other
representatives and advisors of the Company and certain senior officers and
other representatives of Parent concerning the business, operations and
prospects of the Company. Smith Barney examined certain publicly available
business and financial information relating to the Company as well as certain
financial forecasts and other information and data for the Company which were
provided to or otherwise discussed with Smith Barney by the management of the
Company. Smith Barney reviewed the financial terms of the Offer and the Merger
as set forth in the Merger Agreement in relation to, among other things: current
and historical market prices and trading volumes of the Shares; the historical
and projected earnings and other operating data of the Company; and the
capitalization and financial condition of the Company. Smith Barney also
considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected which Smith Barney considered
relevant in evaluating the Offer and the Merger and analyzed certain financial,
stock market and other publicly available information relating to the businesses
of other companies whose operations Smith Barney considered relevant in
evaluating those of the Company. In connection with its engagement, Smith Barney
was requested to approach, and held discussions with, third parties to solicit
indications of interest in a possible acquisition of or investment in the
Company. In addition to the foregoing, Smith Barney conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as Smith Barney deemed appropriate in arriving at its opinion.
Smith Barney noted that its opinion was necessarily based upon information
available, and financial, stock market and other conditions and circumstances
existing and disclosed, to Smith Barney as of the date of its opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Smith Barney. With respect to financial forecasts
and other information and data provided to or otherwise reviewed by or discussed
with Smith Barney, the management of the Company advised Smith Barney that such
forecasts and other information and data were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company.
Smith Barney did not make and was not provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the Company
nor did Smith Barney make any physical inspection of the properties or assets of
the Company. Although Smith Barney evaluated the cash consideration to be
received by holders of the Shares (other than Parent and its affiliates) from a
financial point of view, Smith Barney was not asked to and did not recommend the
specific consideration payable in the Offer and the Merger, which was determined
through negotiation between the Company and Parent. No other limitations were
imposed by the Company on Smith Barney with respect to the investigations made
or procedures followed by Smith Barney in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED AUGUST 1, 1997,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX A AND IS INCORPORATED HEREIN BY
REFERENCE. HOLDERS OF THE SHARES ARE URGED TO READ THIS OPINION CAREFULLY IN ITS
ENTIRETY. THE OPINION OF SMITH BARNEY IS DIRECTED TO THE BOARD OF DIRECTORS OF
THE COMPANY AND RELATES ONLY TO THE FAIRNESS OF THE CASH CONSIDERATION TO BE
RECEIVED IN THE OFFER AND THE MERGER BY HOLDERS OF THE SHARES (OTHER THAN PARENT
AND ITS AFFILIATES) FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER
ASPECT OF THE OFFER OR THE MERGER OR RELATED TRANSACTIONS AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER SUCH STOCKHOLDER
SHOULD TENDER SHARES IN THE OFFER. THE SUMMARY OF THE OPINION OF SMITH BARNEY
SET FORTH IN THIS OFFER TO PURCHASE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
In preparing its opinion, Smith Barney performed a variety of financial and
comparative analyses, including those described below, and provided the Special
Committee and the Company Board with a written presentation with respect to such
analyses. A copy of Smith Barney's written presentation has
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<PAGE>
been filed as an exhibit to the Rule 13e-3 Transaction Statement on Schedule
13E-3 filed with the Commission with respect to the Offer and will be available
for inspection and copying at the principal executive offices of the Company
during regular business hours by any interested stockholder of the Company or
representatives of such stockholder who have been so designated in writing and
may be inspected and copied, and obtained by mail, from the Commission in the
manner specified under "THE OFFER-Certain Information Concerning the Company."
The summary of such analyses does not purport to be a complete description of
Smith Barney's analyses underlying Smith Barney's opinion or presentation to the
Special Committee or the Company Board. The preparation of a fairness opinion is
a complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Accordingly, Smith Barney
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and factors, without considering all analyses and
factors, could create a misleading or incomplete view of the processes
underlying such analyses and opinion. In its analyses, Smith Barney made
numerous assumptions with respect to the Company, Parent, industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of the Company and Parent. The estimates
contained in such analyses and the valuation ranges resulting from any
particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty. Smith Barney's opinion and analyses were only one of many factors
considered by the Special Committee and the Company Board in their evaluation of
the Merger and should not be viewed as determinative of the views of the Special
Committee, the Company Board or management of the Company with respect to the
cash consideration to be received in the Offer and the Merger by holders of the
Shares (other than Parent or its affiliates) or the proposed Offer or Merger.
Selected Company Analysis. Using publicly available information, Smith
Barney analyzed, among other things, the market values and trading multiples of
the Company and the following 21 selected publicly traded companies in the
healthcare industry, consisting of: Advocat, Inc.; Arbor Health Care Company;
Beverly Enterprises, Inc.; Extendicare, Inc.; Genesis Health Ventures, Inc.;
GranCare, Inc.; Harborside Healthcare Corp.; Health Care & Retirement Corp.;
Horizon/CMS Healthcare Corp.; Parent; Living Centers of America, Inc.; Manor
Care, Inc.; Mariner Health Group, Inc.; The Multicare Companies, Inc.; National
Healthcare L.P.; Regency Health Services, Inc.; Retirement Care Associates Inc.;
Summit Care Corporation; Sun Healthcare Group, Inc.; Unison Healthcare Group;
and Vencor Inc. (collectively, the "Selected Companies"). Smith Barney compared
market values as multiples of latest 12 months and estimated calendar 1997 and
1998 net income, adjusted market values (equity value, plus net debt) as
multiples of, among other things, earnings before interest, taxes, depreciation
and amortization ("EBITDA") and adjusted enterprise values (equity value, plus
net debt and capitalized rents) as multiples of, among other things, latest 12
months revenues and earnings before interest, taxes, depreciation, amortization
and rent ("EBITDAR"). Net income projections for the Selected Companies were
based on estimates of selected investment banking firms and net income
projections for the Company were based on internal estimates of the management
of the Company. All multiples were based on closing stock prices as of July 29,
1997. Applying a range of selected multiples for the Selected Companies of
latest 12 months net income, estimated calendar 1997 and 1998 net income and
latest 12 months EBITDA, revenues and EBITDAR of 18.0x to 26.5x, 13.7x to 20.5x,
11.9x to 17.9x, 7.7x to 11.5x, 1.0x to 1.4x and 7.6x to 11.4x, respectively, to
corresponding financial data for the Company resulted in an equity reference
range for the Company of approximately $1.17 to $2.67 per Share, as compared to
the cash consideration in the Offer and the Merger of $4.00 per Share.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Smith Barney analyzed the purchase price and implied
transaction value multiples paid in 28 selected transactions in the healthcare
industry, consisting of (acquiror/target): Genesis Health Ventures, Inc./The
Multicare Companies, Inc.; Apollo Management, L.P. & Living Centers of America
Inc./ Living Centers of America Inc.; Living Centers of America Inc./ GranCare,
Inc.; Vencor Inc./ Transitional Hospitals
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Corporation; Sun Healthcare Group, Inc./ Retirement Care Associates, Inc.;
HEALTHSOUTH Corporation/Horizon/CMS Healthcare Corporation; Vencor Inc./TheraTx,
Inc.; Genesis Health Ventures, Inc./Geriatric & Medical Companies, Inc.; The
Multicare Companies, Inc./ADS Group; Marriott International Inc./Forum Group,
Inc.; The Multicare Companies, Inc./Concord Health Group, Inc.; Manor Care,
Inc./Beverly Enterprises, Inc.; Living Centers of America Inc./Rehability
Corporation; Grancare, Inc./Evergreen Healthcare, Inc.; Vencor Inc./Hillhaven
Corporation; Living Centers of America Inc./Brian Care Centers; Hillhaven
Corporation/Nationwide Care, Inc.; Mariner Health Care Inc./ Convalescent
Services, Inc.; Horizon Healthcare Inc./peopleCARE HERITAGE Group; TheraTX,
Inc./ PersonaCare, Inc.; Regency Health Services Inc./Care Enterprises, Inc.;
The Multicare Companies, Inc./ Providence Health Care Inc.; Mariner Health
Group, Inc./Pinnacle Care Group; Sun Healthcare Group, Inc./Mediplex Group,
Inc.; Integrated Health Services, Inc./Central Park Lodges, Inc.; Genesis Health
Ventures, Inc./Meridian Healthcare, Inc.; Horizon Healthcare Inc./ Greenery
Rehabilitation Group Incorporated; and Living Centers of America Inc./Vari-Care,
Inc. (collectively, the "Selected Transactions"). Smith Barney compared purchase
prices as multiples of, among other things, latest 12 months net income,
transaction values as multiples of, among other things, latest 12 months EBITDA
and adjusted transaction values (transaction value, plus rents capitalized at
12.5%) as multiples of latest 12 months revenues and EBITDAR. All multiples for
the Selected Transactions were based on information available at the time of
announcement of the transaction. Applying a range of selected multiples for the
Selected Transactions of latest 12 months net income, EBITDA, revenues and
EBITDAR of 17.8x to 26.8x, 8.1x to 12.1x, 1.3x to 1.9x and 7.8x to 11.6x,
respectively, to corresponding financial data for the Company resulted in an
equity reference range for the Company of approximately $0.73 to $3.35 per
Share, as compared to the cash consideration in the Offer and the Merger of
$4.00 per Share.
No company, transaction or business used in the "Selected Company Analysis"
or "Selected Merger and Acquisition Transactions Analysis" as a comparison is
identical to the Company or the Offer and the Merger. Accordingly, an analysis
of the results of the foregoing is not entirely mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the Selected Companies, Selected
Transactions or the business segment, company or transaction to which they are
being compared.
Discounted Cash Flow Analysis. Smith Barney performed a discounted cash
flow analysis of the projected free cash flow of the Company for the fiscal
years 1998 through 2002, based on internal estimates of the management of the
Company for fiscal year 1998 and extrapolated thereafter assuming annual revenue
growth rates of 6%, 8% and 10%. The stand-alone discounted cash flow analysis of
the Company was determined by (i) adding (x) the present value of projected free
cash flows over the five-year period from 1998 to 2002 and (y) the present value
of the Company's estimated terminal value in year 2002 and (ii) subtracting the
current net debt of the Company. The range of estimated terminal values for the
Company at the end of the five-year period was calculated by applying terminal
value multiples ranging from 5.0x to 7.0x to the Company's projected 2002
EBITDA, representing the Company's estimated value beyond the year 2002. The
cash flows and terminal values of the Company were discounted to present value
using discount rates ranging from 18% to 20%. Utilizing such terminal values and
discount rates, this analysis resulted in implied equity reference ranges for
the Company of approximately $2.74 to $5.45 per Share (assuming an annual
revenue growth rate for the Company of 10%), $2.07 to $4.56 per Share (assuming
an annual revenue growth rate for the Company of 8%), and $1.46 to $3.78 per
Share (assuming an annual revenue growth rate for the Company of 6%), as
compared to the cash consideration in the Offer and the Merger of $4.00 per
Share.
Other Factors and Comparative Analyses. In rendering its opinion, Smith
Barney considered certain other factors and conducted certain other comparative
analyses, including, among other things, a review of (i) indications of interest
received from, and discussions with, third parties other than Parent; (ii) the
Company's historical and projected financial results; (iii) the history of
trading prices and volume for the Shares and the relationship between the
movement of such common stock and movements in the common stock of comparable
companies; (iv) the ownership profile of the Company; and (v) a business and
financial profile of Parent.
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Pursuant to the terms of Smith Barney's engagement, the Company has agreed
to pay Smith Barney for its services in connection with the Merger an aggregate
financial advisory fee of $1.8 million. The Company has also agreed to reimburse
Smith Barney for travel and other out-of-pocket expenses incurred by Smith
Barney in performing its services, including the fees and expenses of its legal
counsel, and to indemnify Smith Barney and related persons against certain
liabilities, including liabilities under the federal securities laws, arising
out of Smith Barney's engagement.
Smith Barney has advised the Company that, in the ordinary course of
business, Smith Barney and its affiliates may actively trade or hold the
securities of the Company and Parent for their own account or for the account of
customers and, accordingly, may at any time hold a long or short position in
such securities. Smith Barney has in the past provided investment banking
services to the Company and Parent unrelated to the proposed Offer and Merger,
for which services Smith Barney has received compensation. In addition, Smith
Barney and its affiliates (including Travelers Group Inc. and its affiliates)
may maintain relationships with the Company and Parent.
Smith Barney is an internationally recognized investment banking firm and
was selected by the Company based on Smith Barney's experience, expertise and
familiarity with the Company and its business. Smith Barney regularly engages in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
Wheat, First Securities, Inc. The Special Committee, on behalf the Company,
retained Wheat First to render an opinion as to the fairness, from a financial
point of view, to the holders of Shares (other than Parent and its affiliates)
of the Offer. Wheat First is a nationally recognized investment banking firm
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Wheat First
regularly publishes research reports regarding the long-term care industry and
the businesses and securities of publicly owned companies in that industry,
including the Company.
Representatives of Wheat First attended the meeting of the Special
Committee on July 30, and the meeting of the Company Board of Directors on July
31, 1997 at which the Merger Agreement was considered and approved. At these
meetings, Wheat First expressed an oral opinion that, as of such dates, the
Offer was fair, from a financial point of view, to the stockholders of the
Company (other than Parent and its affiliates). A letter dated August 1, 1997
confirmed the opinion.
THE FULL TEXT OF WHEAT FIRST'S OPINION, WHICH SETS FORTH CERTAIN
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON REVIEW UNDERTAKEN, IS
ATTACHED AS ANNEX B TO THIS OFFER TO PURCHASE. THE SUMMARY OF THE OPINION OF
WHEAT FIRST SET FORTH IN THIS OFFER TO PURCHASE IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE OPINION ITSELF. NO LIMITATIONS WERE IMPOSED BY THE SPECIAL
COMMITTEE OR BY THE COMPANY BOARD UPON WHEAT FIRST WITH RESPECT TO THE
INVESTIGATIONS MADE OR PROCEDURES FOLLOWED BY IT IN RENDERING THE OPINION. WHEAT
FIRST'S OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE OFFER TO THE STOCKHOLDERS OF THE COMPANY (OTHER THAN PARENT AND ITS
AFFILIATES) AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO
HOW SUCH STOCKHOLDER SHOULD VOTE ON THE MERGER.
A copy of Wheat First's written presentation has been filed as an exhibit
to the Rule 13e-3 Transaction Statement on Schedule 13E-3 filed with the
Commission and will be available for inspection and copying at the principal
executive offices of the Company during regular business hours by any interested
stockholder of the Company or representative of such stockholder who has been so
designated in writing and may be inspected and copied, and obtained by mail,
from the Commission in the manner specified in "THE OFFER - Certain Information
Concerning the Company."
In arriving at its opinions, Wheat First reviewed certain publicly
available business and financial information relating to the Company and Parent
and certain other information provided to it, including the following: (i) the
Company's Annual Reports to Stockholders, Annual Reports on Form 10-K and
related financial information for the two fiscal years ended December 31, 1996
and 1995; (ii) the Company's Quarterly Report on Form 10-Q and related financial
information for the quarter ended March
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31, 1997; (iii) Parent's Annual Reports to stockholders, Annual Reports on Form
10-K and related financial information for the three fiscal years ended December
31, 1996, 1995 and 1994; (iv) Parent's Quarterly Report on Form 10-Q and related
financial information for the quarter ended March 31, 1997; (v) certain publicly
available information with respect to historical market prices and trading
activities for the Shares and the Parent's common stock and for certain publicly
traded companies which Wheat First deemed relevant; (vi) certain publicly
available information with respect to certain comparable companies and the
financial terms of certain other mergers and acquisitions which Wheat First
deemed relevant; (vii) the Merger Agreement; (viii) other financial information
concerning the businesses and operations of the Company and Parent, including
certain audited financial information and certain internal financial analyses
and forecasts for the Company prepared by the senior management of the Company;
and (ix) such financial studies, analyses, inquiries and other matters as it
deemed necessary. In addition, Wheat First met with members of the senior
management of the Company to discuss the business and prospects of the Company.
In connection with its review, Wheat First relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it or
publicly available, including the representations and warranties of the Company
and Parent included in the Merger Agreement, and Wheat First relied upon the
management of the Company as to the reasonableness and achievability of its
financial and operational forecasts and projections, and the assumptions and
bases therefor, provided to Wheat First, and assumed that such forecasts and
projections will be realized in the amounts and in the time periods currently
estimated by such managements. Wheat First also assumed that the Merger will be
consummated in accordance with the terms and conditions of the Merger Agreement
in due course without unnecessary delay.
Additionally, Wheat First considered certain financial and stock market
data of the Company and Parent and compared that data with similar data for
certain publicly held long-term care companies and considered the financial
terms of certain other comparable transactions that recently have been announced
or effected, as further discussed below. The Wheat First opinion is necessarily
based on economic and market conditions and other circumstances as they exist
and can be evaluated by Wheat First as of the date thereof.
In connection with rendering its opinions, Wheat First performed a variety
of financial analyses. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial analysis
or summary description. Moreover, the evaluation of the fairness, from a
financial point of view, of the Offer to the Company's stockholders was to some
extent a subjective one based on the experience and judgment of Wheat First and
not merely the result of mathematical analysis of financial data. Accordingly,
notwithstanding the separate factors summarized below, Wheat First believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, could create an incomplete view of the evaluation process
underlying its opinion. The ranges of valuations resulting from any particular
analysis described below should not be taken to be Wheat First's view of the
actual value of the Company.
In performing its analyses, Wheat First made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of the Company. The analyses
performed by Wheat First are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses. Additionally, analyses relating to the values of businesses do
not purport to be appraisals or to reflect the prices at which businesses
actually may be sold. In rendering its opinion, Wheat First assumed that, in the
course of obtaining the necessary regulatory approvals for the Merger Agreement,
no conditions will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger, on a pro forma basis, to the Company.
Wheat First's opinion is just one of the many factors taken into
consideration by the Special Committee and the Company Board in determining to
approve the Merger Agreement. Wheat First's opinion does not address the
relative merits of the Offer and the Merger as compared to any alternative
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business strategies that might exist for the Company, nor does it address the
effect of any other business combination in which the Company might engage.
The following is a summary of the analyses performed by Wheat First in
connection with its oral opinion delivered to the Special Committee on July 30,
1997 and its oral opinion (subsequently confirmed in writing) delivered to the
Company Board on July 31, 1997:
Comparable Acquisitions Analysis: Wheat First performed an analysis of
purchase prices in 50 long-term care transactions announced since January 1,
1996. Wheat First deemed seven of these transactions (Sun Healthcare Group's
contemplated acquisition of Regency Health Services; Genesis Health Ventures'
contemplated acquisition of The Multicare Companies; Grancare's contemplated
merger with Living Centers of America; HEALTHSOUTH's contemplated acquisition of
Horizon/CMS Healthcare; Sun Healthcare Group's contemplated acquisition of
Retirement Care Associates; Vencor's acquisition of TheraTx; and The Multicare
Companies' acquisition of Concord Health Group) to be generally comparable and
three of these transactions to be most comparable. The three most comparable
transactions (Sun Healthcare Group's contemplated acquisition of Regency Health
Services; Sun Healthcare Group's contemplated acquisition of Retirement Care
Associates; and The Multicare Companies' acquisition of Concord Health Group)
were selected based on their respective sizes, profitability and scope of
business operations of the acquired companies which were most comparable to the
Company. Multiples of revenue, EBITDAR (earnings before interest, taxes,
depreciation, amortization and rent) and number of beds were compared to the
multiples implied by the consideration offered to the stockholders in the Offer
and the Merger or enterprise value (defined as equity value plus net debt plus
eight times annual rent).
The following comparisons of the implied consideration or enterprise value
based on the Offer Price were based on financial data as of and for the
twelve-month period ended March 31, 1997 for the Company and the twelve month
reporting period prior to the announcement of each transaction for each acquiree
in the selected transactions: (i) an enterprise value over revenue multiple of
1.3x versus the median multiple in the seven generally comparable transactions
of 1.6x and the three most comparable transactions of 1.9x; (ii) an enterprise
value over EBITDAR multiple of 17.0x versus the median multiple in seven
generally comparable transactions of 8.6x and the three most comparable
transactions of 11.6x; and (iii) an enterprise value over number of beds value
of $38,589 versus the median value in the seven generally comparable
transactions of $62,573 and the three most comparable transactions of $44,050.
Comparable Companies Analysis: Wheat First performed an analysis of market
valuation, as of July 30, 1997, of 17 publicly-traded long-term care companies
(Advocat, Arbor Health Care, Beverly Enterprises, Genesis Health Ventures,
Grancare, Harborside Healthcare, Health Care and Retirement, Horizon Healthcare,
Parent, Living Centers of America, Manor Care, Mariner Health, The Multicare
Companies, Regency Health, Sun Healthcare, Unison Healthcare and Vencor). Based
on size, profitability and scope of business operations, Wheat First deemed four
of these companies to be most comparable to the Company. The following
comparisons were based on financial data as of and for the twelve-month period
ended March 31, 1997 for the Company and the twelve month prior reporting
periods for each publicly-traded company: (i) an enterprise value over revenue
multiple of 1.3x versus the median multiple of 1.4x and the most comparable
companies of 1.2x; (ii) an enterprise value over EBITDAR of 17.0x versus the
median multiple of 8.8x and the most comparable companies of 8.2x; and (iii) an
enterprise value over number of beds value of $38,589 versus the median multiple
of $85,679 and the most comparable companies of $54,679.
Premiums Paid Analysis: Wheat First compared the premium implied by the
Offer to 53 similar sized transactions based on equity values. The one day
premium implied by the Offer was 23.1% versus the median of the comparable
transactions of 18.9%; the one week premium implied by the Offer was 33.3%
versus the median of the comparable transactions of 22.2%; the four week premium
implied by the Offer was 8.5% versus the median of the comparable transactions
of 29.1%; the three month premium implied by the Offer was 88.2% versus the
median of the comparable transactions of 29.2%; and the six month premium
implied by the Offer was 28.0% versus the median of the comparable transactions
of 31.2%.
No company or transaction used as a comparison in the above analysis is
identical to the Company, Parent or the Merger Agreement. Accordingly, an
analysis of the results of the foregoing necessarily
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involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading of the companies used for comparison in the
above analysis.
The Wheat First opinion is based solely upon the information available to
Wheat First and the economic, market and other circumstances as they existed as
of August 1, 1997. Events occurring after that date could materially affect the
assumptions and conclusions contained in the opinion. Wheat First did not
undertake to reaffirm or revise its opinion or otherwise comment on any events
occurring after the date thereof.
As compensation for Wheat First's services, the Company agreed to pay Wheat
First a fee of $250,000 payable after the delivery by Wheat First of its
opinion. The Company has agreed also to reimburse Wheat First for its reasonable
out-of-pocket expenses incurred in connection with the activities contemplated
by its engagement, regardless of whether the Merger Agreement is consummated.
The Company has further agreed to indemnify Wheat First against certain
liabilities under federal securities laws. The payment of the above fee was not
contingent upon Wheat First rendering a favorable opinion with respect to the
Merger Agreement. The Special Committee selected Wheat First to serve as its
financial advisor in connection with the Merger Agreement on the basis of Wheat
First's expertise. In the ordinary course of its business, Wheat First and its
affiliates may actively trade in the equity securities of the Company for its
account and the accounts of its customers, and therefore may from time to time
hold long or short positions in such securities.
4. POSITION OF PARENT AND PURCHASER REGARDING THE FAIRNESS OF THE OFFER AND THE
MERGER
Parent and Purchaser believe that the consideration to be received by the
stockholders of the Company (other than Parent, Purchaser and their affiliates)
pursuant to the Offer and the Merger is fair to such stockholders. Parent and
Purchaser base their belief on the following factors: (i) a Special Committee
consisting of directors who are neither directors or designees of Parent nor
persons having a current business relationship with Parent was appointed to
represent the interests of the stockholders of the Company (other than Parent,
Purchaser and their affiliates); (ii) the Special Committee retained and was
advised by independent legal and financial advisors; (iii) the Special Committee
and the Company Board (with the two directors who are also directors of Parent
either abstaining or not attending the meeting) each determined that the Offer
and the Merger are fair to, and in the best interests of, the stockholders of
the Company (other than Parent, Purchaser and their affiliates), approved the
Merger Agreement and the transactions contemplated thereby and recommended that
the stockholders of the Company accept the Offer and the Merger; (iv) the $4.00
per Share price to be paid in the Offer and the Merger and the other terms and
conditions of the Merger Agreement resulted from active arm's-length bargaining
between representatives of the Special Committee, on the one hand, and a special
committee of the Board of Directors of Parent which did not include any persons
who were directors or stockholders of the Company, on the other; (v) the
consideration to be paid in the Offer and the Merger represents a premium of
approximately 25% over the reported closing price for the Shares on the last
trading day prior to the public announcement of the Merger Agreement; and (vi)
the historical financial performance of the Company and its financial results,
which include operating losses in 1996 and the first quarter of 1997 and
substantial liquidity problems requiring loans and guarantees from Parent.
Parent and Purchaser have reviewed the factors considered by the Special
Committee and the Company Board in support of their decisions, as described in
the Solicitation/Recommendation Statement on Schedule 14D-9 and above (see
"-Recommendations of the Special Committee and the Company Board; Fairness of
the Offer and the Merger"), and have no basis to question their consideration of
or reliance on such factors. In reaching their conclusions, Parent and Purchaser
also considered generally the current and historical market prices for the
Shares. Neither Parent nor Purchaser found it practicable to assign, nor did
either of them assign, relative weights to the individual factors considered in
reaching their conclusions as to fairness.
5. OPINION OF FINANCIAL ADVISOR TO PARENT
The Board of Directors of Parent (the "Parent Board") retained Shattuck
Hammond to provide financial advisory and investment banking services to Parent
in connection with Parent's acquisition of
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the outstanding Shares of the Company, and to provide an opinion to the Parent
Board as to the fairness of such transaction to Parent's stockholders from a
financial point of view.
On June 11, 1997, Shattuck Hammond delivered to the Parent Board its
preliminary oral opinion, as investment bankers, that Parent's acquisition of
the outstanding Shares (inclusive of estimated common stock equivalents) for
$3.50 per share would be fair to Parent's stockholders from a financial point of
view. On June 13, 1997, Parent asked Shattuck Hammond whether, in the event
Parent were to increase its offer for the outstanding Shares to $4.00 per Share,
Shattuck Hammond would be able, based on its analyses, to render an opinion that
an acquisition by Parent of the outstanding Shares for $4.00 per Share would be
fair to Parent's stockholders from a financial point of view. On June 20, 1997,
Shattuck Hammond delivered to the Parent Board its written opinion (the "June 20
Opinion") that Parent's acquisition of the outstanding Shares at $3.50 per Share
would be fair to Parent's stockholders from a financial point of view. In
addition, on June 20, 1997, Shattuck Hammond orally informed the Parent Board
that Shattuck Hammond was prepared to issue a written opinion that Parent's
acquisition of the outstanding Shares at up to $4.00 per Share would be fair to
Parent's stockholders from a financial point of view. In its oral presentation
to the Parent Board on June 20, 1997, Shattuck Hammond noted that in preparing
its opinion, it had not taken into account certain potential additional savings
which could result from the contemplated transaction, such as interest savings
due to refinancing of existing Company debt (inclusive of operating leases), and
potential cost savings resulting from reduced insurance premiums for the
Company. On July 3, 1997, as a result of Parent's decision to offer $4.00 per
Share for the outstanding Shares, Shattuck Hammond withdrew the June 20 Opinion
and delivered to the Parent Board its written opinion that Parent's acquisition
of the outstanding Shares (inclusive of estimated common stock equivalents) for
$4.00 per Share (the "Transaction") would be fair to Parent's stockholders from
a financial point of view (such opinion, the "Shattuck Hammond Opinion"). (The
Shattuck Hammond Opinion also did not take into account the potential additional
savings referred to in the second preceding sentence.)
The Shattuck Hammond Opinion did not state that any specific price per
Share constituted the appropriate price per Share for the Transaction, did not
recommend the amount of consideration to be paid and did not constitute a
recommendation as to any action that the Parent Board or stockholders should
take in connection with the Transaction. The Shattuck Hammond Opinion is
directed only to the fairness from a financial point of view to holders of
Parent stock of Parent's acquisition of the Shares (inclusive of estimated
common stock equivalents) at $4.00 per Share. Shattuck Hammond has expressed no
opinion as to the structure, terms or effect of any other aspect of the
Transaction, including, without limitation, the tax consequences of the
Transaction to Parent or the Company or any stockholder of Parent or the
Company. Shattuck Hammond has not been requested to and has not rendered any
opinion as to the fairness of the Transaction to either the Board of Directors
or stockholders of the Company.
In connection with the Shattuck Hammond Opinion, Shattuck Hammond (i)
reviewed certain publicly available business and historical financial
information relating to each of Parent and the Company, (ii) reviewed certain
financial information and other data provided to it by Parent and the Company
that is not publicly available relating to the business and prospects of each of
Parent and the Company, (iii) discussed the businesses, operations and prospects
of Parent and the Company with the respective managements of Parent and the
Company, (iv) reviewed the historical market prices and trading values of the
Shares, (v) reviewed publicly available financial and stock market data with
respect to other publicly-traded companies in lines of business Shattuck Hammond
believed to be generally comparable to those of the Company, (vi) reviewed
publicly available financial information and stock market data with respect to
proposed and completed merger and acquisition transactions involving companies
in lines of business Shattuck Hammond believed to be generally comparable to
those of the Company, and (vii) conducted such other studies, analyses,
investigations and inquiries, and considered such other information, as it
deemed relevant.
In rendering the Shattuck Hammond Opinion, Shattuck Hammond assumed and
relied upon the accuracy and completeness of all information supplied or
otherwise made available to it by Parent and the Company or obtained by Shattuck
Hammond from other sources, and relied upon the assurances of Parent's and the
Company's respective managements that they were unaware of any information or
facts
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<PAGE>
that would make the information provided to Shattuck Hammond incomplete or
misleading. Shattuck Hammond did not independently verify such information,
undertake an independent appraisal of the assets or liabilities (contingent or
otherwise) of Parent or the Company, nor was Shattuck Hammond furnished with any
such appraisals. With respect to financial forecasts regarding Parent and the
Company furnished to Shattuck Hammond by Parent and the Company, respectively,
Shattuck Hammond was advised by the respective managements of Parent and the
Company, and assumed, that such forecasts had been reasonably prepared and
reflected the best currently available estimates and judgment of the respective
managements of Parent and the Company as to the respective expected future
financial performance of Parent and the Company. In addition, Shattuck Hammond
assumed that certain of the Company's facilities would be disposed of at a
price, and/or in a manner, consistent with Parent's estimates and that such
disposition(s) would not have a material adverse impact on the net equity value
of the Company. Shattuck Hammond also assumed that Parent would complete the
Transaction in accordance with terms and conditions, and upon definitive
documents, that are standard and customary for similar transactions. The
Shattuck Hammond Opinion was necessarily based upon market, economic and other
conditions that existed and could be evaluated as of the date of such Opinion,
and on information available to Shattuck Hammond as of the date thereof. No
limitations were imposed upon Shattuck Hammond by Parent with respect to the
investigations to be made or procedures to be followed by it in rendering the
Shattuck Hammond Opinion.
The following paragraphs summarize the most significant quantitative and
qualitative analyses performed by Shattuck Hammond in arriving at the Shattuck
Hammond Opinion and do not purport to be a complete description of the analyses
performed by Shattuck Hammond. The information presented below is based upon the
financial condition of Parent and the Company as of the date or dates shortly
before the delivery of the Shattuck Hammond Opinion on July 3, 1997 and share
price information through the close of the market on July 3, 1997. In the course
of performing its analyses, Shattuck Hammond noted that (i) Dr. Robert N.
Elkins, Chairman and Chief Executive Officer of Parent, is a director and
stockholder of the Company and at the date thereof beneficially owned
approximately 1.7 million Shares, which represented approximately 23% of the
outstanding Shares; (ii) John L. Silverman, a director of Parent and executive
officer of a subsidiary of Parent, is a director and stockholder of the Company;
(iii) Lawrence P. Cirka, a director and executive officer of Parent, is a
stockholder of the Company; and (iv) Timothy F. Nicholson, a director of Parent,
is a stockholder of the Company.
In the preparation of its valuations, Shattuck Hammond utilized pro forma
projected results for 1997 on the assumption that the Company would successfully
sell or close down 12 of its leased facilities which have been operating at
continuing losses (the "Assumed Discontinued Facilities"). In this regard, the
financial impact on Shattuck Hammond's valuation analysis of the Company would
depend upon the prices (if any) for which the facilities were sold, the outcome
of the negotiations with the lessor of 11 of the Assumed Discontinued Facilities
and the accounting treatment of the sale or close down. In addition to the
financial impact of the Assumed Discontinued Facilities, Shattuck Hammond also
believed that pro forma 1997 results were a better indicator of the financial
value of the Company due to the Company's discontinuation of certain business
operations in 1996 as well as other factors which occurred during 1996 at the
Company. Second, Shattuck Hammond examined the financial impact of the
Transaction on Parent under two scenarios, one assuming no synergies were
realized and the other assuming realization of certain synergies (the |P`Assumed
Synergies|P') which Parent believed would be realized in connection with its
acquisition of the Company and would result in certain cost savings, namely: (i)
reductions in certain selling, general and administrative expenses at the
Company, which the Parent estimated at approximately $1.2 million; and (ii)
increased pre-tax profit at Parent, which Parent estimated at $500,000, due to
the provision of incremental rehabilitation services to Company facilities by
Parent.
Publicly-Traded Comparable Company Analysis. Shattuck Hammond reviewed and
compared certain relevant valuation multiples of the Company and Parent to a
group of selected, publicly-traded companies considered by Shattuck Hammond to
be reasonably comparable to the Company (the |P`Comparable Companies|P') which
included: (i) Advocat, Inc.; (ii) Beverly Enterprises, Inc.; (iii) The Multicare
Companies Inc.; (iv) Regency Health Services, Inc.; and (v) Sun Healthcare
Group, Inc. As discussed above, the Company's pro forma projected results for
1997 were used for valuation purposes. Based on a review of a variety of
valuation multiples for the Comparable Companies, Shattuck Hammond be-
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<PAGE>
lieved that valuations based on multiples of earnings before interest, taxes,
depreciation and amortization ("EBITDA") and price earnings ("P/E") multiples of
projected 1997 and 1998 net income provided the most relevant valuation
analyses. For valuations based on EBITDA, information on projected 1997 results
for the Comparable Companies was not available and, therefore, valuations based
on the most current twelve month EBITDA for the Comparable Companies were used
by Shattuck Hammond, discounted by 10% and applied to the projected pro forma
1997 results of the Company. Shattuck Hammond calculated a range of EBITDA
multiples for the Comparable Companies, Parent and the Company by dividing the
business enterprise value ("BEV") for each company (i.e., the number of
fully-diluted shares outstanding multiplied by the closing share price on June
6, 1997 plus long-term liabilities less net working capital) by EBITDA.
(Long-term liabilities and net working capital are hereafter referred to as the
Balance Sheet Adjustments.) In addition, Shattuck Hammond calculated the
projected 1997 and 1998 P/E multiples for the Comparable Companies, Parent and
the Company by dividing the share price of each company by the projected
earnings per share. The projected earnings per share estimates for all companies
except the Company were based on a mean consensus estimate by equity research
analysts as reported through Bloomberg L.P. The Company's projected earnings per
Share were based on projections prepared by the Company and reviewed by Parent.
For 1997, the Company's projected earnings per Share were prepared on a pro
forma basis.
This analysis indicated that the average EBITDA multiple for the Comparable
Companies was 8.2x, which Shattuck Hammond discounted by 10% as described above
and created a high, average and low EBITDA multiple range of 8.4x, 7.4x and
6.4x. Shattuck Hammond then utilized these multiples to calculate Share values
for the Company adjusted for the estimated Balance Sheet Adjustments at December
31, 1997 (the |P`Estimated Balance Sheet Adjustments|P'). In the Assumed
Synergies scenario, this analysis produced per Share values of the Company of
from $5.67 to $2.63 per Share with a mean of $4.15 per Share. In the scenario
which did not include the Assumed Synergies, this analysis produced per Share
values of the Company of from $3.88 to $1.27 per Share with a mean of $2.57 per
Share. Furthermore, the analysis indicated that the average P/E multiples for
the Comparable Companies was 14.7x and 12.8x for 1997 and 1998, respectively.
Shattuck Hammond then utilized high, average and low projected 1997 P/E
multiples of 15.7x, 14.7x and 13.7x and projected 1998 P/E multiples of 13.8x,
12.8x and 11.8x. In the Assumed Synergies case, this analysis produced per Share
values of the Company of from $5.74 to $5.01 with a mean of $5.38 based on the
Company's pro forma projected 1997 net income and per Share values of $9.60 to
$8.20 with a mean of $8.90 based on the Company's projected 1998 net income. In
the scenario which did not include the Assumed Synergies, this analysis produced
per Share values for the Company of from $3.83 to $3.34 with a mean of $3.59
based on the Company's pro forma projected 1997 net income and per Share values
of from $7.91 to $6.77 with a mean of $7.34 based on the Company's projected
1998 net income.
Discounted Cash Flow Analysis. Shattuck Hammond performed a discounted cash
flow analysis of the Company to derive its value by computing the present value
of its future cash flow stream utilizing five year projections of the Company
provided to Shattuck Hammond by Parent and the Company, terminal EBITDA
valuation multiples of 6.0x, 7.0x and 8.0x determined by the methodology
described in |P`Publicly Traded Comparable Company Analysis|P' described above,
and discount rates of 14%, 16% and 18%, which were approximately 25% higher than
the discount rates generally used by Parent. Shattuck Hammond believed that
these discount rates were appropriate due to the Company's high leverage and the
uncertainty regarding the sale of the Assumed Discounted Facilities. This
analysis produced per Share values of the Company after adjusting for the
Estimated Balance Sheet Adjustments of from $12.01 to $6.34 with a mean of $8.97
in the Assumed Synergies scenario and $10.54 to $5.28 with a mean of $7.72 in
the scenario which did not include the Assumed Synergies.
Comparable Merger and Acquisition Analysis. Utilizing publicly available
information, Shattuck Hammond analyzed the purchase prices and multiples paid or
proposed to be paid in three merger or acquisition transactions announced during
the previous twelve months in which the target companies were publicly-traded
and considered by Shattuck Hammond to be reasonably comparable to the Company
(the |P`Comparable Transactions|P'). These transactions (target/acquiror)
included Living Centers of America, Inc./GranCare, Inc./Apollo Management, L.P.;
Retirement Care Associates, Inc./Sun Healthcare Group, Inc.; and Geriatric &
Medical Companies, Inc./Genesis Health Ventures, Inc. Based
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on a review of a variety of valuation multiples for the Comparable Transactions,
Shattuck Hammond believed that EBITDA multiples (BEV divided by EBITDA) provided
the most relevant valuation analysis. This analysis indicated that the average
EBITDA multiple for the Comparable Transactions was 8.5x, which Shattuck Hammond
discounted by 10%, and created high, average and low EBITDA multiples of 8.7x,
7.7x and 6.7x. Shattuck Hammond then utilized these multiples to calculate per
Share values of the Company adjusted for the Estimated Balance Sheet
Adjustments. The per Share values were based on the Company's projected pro
forma 1997 EBITDA. In the Assumed Synergies case, this analysis produced per
Share values for the Company of from $6.12 to $3.09 with a mean of $4.61. In the
scenario which did not include the Assumed Synergies, this analysis produced per
Share values for the Company of from $4.27 to $1.66 with a mean of $2.96.
Per Bed Valuation Analysis. Based on discussions with long-term care
companies on per licensed bed valuations placed on facilities deemed by Shattuck
Hammond to have similar characteristics to those operated by the Company,
Shattuck Hammond conducted an analysis of the value of the number of beds
operated by the Company. This analysis differentiated between beds which were
owned and those which were leased (excluding the Assumed Discontinued
Facilities). Shattuck Hammond estimated a range of bed values of $40,000 to
$30,000, with a mean of $35,000 for owned beds, and $18,000 to $12,000, with a
mean of $15,000 for leased beds. Shattuck Hammond then multiplied these values
by the respective number of beds owned and leased by the Company, adjusted for
the Estimated Balance Sheet Adjustments, and derived a value per Share range of
$3.46 to $0.44 with a mean of $1.95. Shattuck Hammond noted in its oral
presentation to the Parent Board that the per bed valuation analysis did not
take into account any synergies that Parent expected to derive in conjunction
with the Transaction.
Accretion/(Dilution) Analysis. Shattuck Hammond conducted a per share
accretion/(dilution) analysis based on the projected impact of the Transaction
on Parent's projected earnings per share. This analysis assumed (i) Parent's
estimate of transaction costs, (ii) a $4.5 million loss on the disposition of
the Assumed Discontinued Facilities, and (iii) a purchase price per Share of
$3.50. Shattuck Hammond created a high, average and low analysis of the
accretion/(dilution) impact on Parent's earnings per share by discounting both
the Company's 1997 pro forma projected pre-tax income and 1998 projected pre-tax
income by 0%, 20% and 30%, respectively. Through this analysis, Shattuck Hammond
derived a projected accretion/(dilution) impact on Parent's earnings per share
from $0.03 to $0.01 with a mean of $0.02 for 1997, and from $0.09 to $0.05 with
a mean of $0.07 for 1998. Shattuck Hammond noted in its June 20 oral
presentation to the Parent Board that (i) based on due diligence conducted
subsequent to June 11, 1997, Parent believed that the disposal of the Assumed
Discontinued Facilities would not result in a material loss and (ii) that the
analysis did not take into account any synergies related either to potential
interest savings due to refinancing of existing debt and leases or potential
cost savings resulting from reduced insurance premiums paid by the Company.
Shattuck Hammond further noted that such factors would potentially result in
additional accretion to Parent's projected earnings per share.
The preparation of fairness opinions involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances. Accordingly, such opinions are not readily susceptible to summary
description. In arriving at the Shattuck Hammond Opinion, Shattuck Hammond did
not attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Shattuck Hammond, therefore, believes its analyses
must be considered as a whole and that considering any portion of such analyses
could create a misleading or incomplete view of the process underlying the
Shattuck Hammond Opinion.
Shattuck Hammond was retained by the Parent Board on the basis of its
experience as financial advisors in connection with mergers and acquisitions.
The Parent Board retained Shattuck Hammond to provide financial advisory and
investment banking services to Parent, and to provide an opinion to the Parent
Board as to the fairness of the Transaction to Parent's stockholders from a
financial point of view, pursuant to a letter agreement dated June 5, 1997.
Pursuant to that agreement, Parent agreed to pay Shattuck Hammond (i) a fee of
$100,000 payable upon the signing of such agreement, and (ii) a fee of $200,000
payable on the date of delivery of its opinion as to the fairness to Parent's
stockholders from a financial point of view of the proposed transaction, which
sum on the date hereof had not been paid.
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<PAGE>
Parent also agreed to reimburse Shattuck Hammond for expenses including fees and
expenses of its legal counsel incurred by it and to indemnify Shattuck Hammond
for certain liabilities that may arise out of the rendering of its services or
opinions.
Shattuck Hammond is a nationally recognized investment banking firm. As
part of its investment banking business, Shattuck Hammond is continually engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and other purposes. Shattuck Hammond had provided
certain investment banking services to Parent from time to time prior to its
engagement with respect to the Transaction, including (i) for a fee of $125,000,
the delivery of a commercial reasonableness opinion in January 1997 with respect
to a line of credit made available to the Company by Parent, partial
consideration for which included issuance to Parent of certain Share purchase
warrants and the granting of a management contract by the Company to Parent; and
(ii) for a fee of $60,000, which was paid in November 1996, the delivery of a
valuation report and fairness opinion in connection with an acquisition
unrelated to the Company. Also, in March 1997, Parent engaged Shattuck Hammond
pursuant to a written agreement to perform financial advisory services and to
render oral and written opinions as to the fairness to Parent's stockholders
from a financial point of view of a proposed transaction. This engagement letter
provided for payment to Shattuck Hammond of a fee of $100,000 upon execution of
the engagement letter, an additional $100,000 fee upon the rendering of an oral
fairness opinion and an additional fee of $150,000 upon delivery of a written
fairness opinion. The transaction was never consummated and Parent has agreed to
pay Shattuck Hammond a total of $100,000 (plus reimbursement of certain
expenses) in connection with such engagement. In addition, Shattuck Hammond is
serving as Dealer Manager in this Offer for which it will receive a fee of
$150,000 and reimbursement of expenses. The management of Parent and Shattuck
Hammond are in the process of discussing the potential engagement of Shattuck
Hammond to provide additional financial advisory services in the future.
The Shattuck Hammond Opinion will be made available for inspection and
copying at the principal executive offices of Parent during its regular business
hours by any interested equity security holder of Parent or such person's
representative who has been so designated in writing. In addition, a copy of
Shattuck Hammond's written presentation has been filed as an exhibit to the Rule
13e-3 Transaction Statement on Schedule 13E-3 filed with the Commission and will
be available for inspection and copying at the principal executive offices of
the Parent during regular business hours by any interested stockholder of the
Company or representatives of such stockholder who has been so designated in
writing and may be inspected and copied, and obtained by mail, from the
Commission in the manner specified in "THE OFFER - Certain Information
Concerning the Company."
6. PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER; REASONS OF PARENT AND
PURCHASER FOR THE OFFER AND THE MERGER
Purpose and Structure. The purpose of the Offer is for Parent indirectly to
acquire the entire equity interest in the Company. The purpose of the Merger is
for Parent to acquire all of the equity interest in the Company not acquired
pursuant to the Offer. Upon consummation of the Merger, the Company will become
a wholly-owned subsidiary of Parent. The acquisition of the entire equity
interest in the Company has been structured as a cash tender offer followed by a
cash merger in order to provide a prompt and orderly transfer of ownership of
the equity interest in the Company held by stockholders of the Company (other
than Parent and Purchaser) from such stockholders to Parent and to provide the
stockholders of the Company (other than Parent and Purchaser) with cash for all
of their Shares.
Under the Delaware GCL and the Company's certificate of incorporation, the
approval of the Company Board and, under certain circumstances, the affirmative
vote of the holders of a majority of the outstanding Shares are required to
approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger. If the Offer is consummated, Parent and Purchaser
will have sufficient voting power to cause the approval and adoption of the
Merger Agreement and the transactions contemplated thereby without the
affirmative vote of any other stockholder of the Company. Pursuant to the Merger
Agreement, the purchase by Purchaser of all Shares validly tendered in the Offer
and not withdrawn is a condition to the Merger.
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In the Merger Agreement, the Company has agreed to take all action
necessary to convene a special meeting of its stockholders as promptly as
practicable after the consummation of the Offer for the purpose of considering
and taking action on the Merger Agreement and the transactions contemplated
thereby, if such action is required under the Delaware GCL. Parent and Purchaser
have agreed that all Shares owned by them and their subsidiaries, including all
Shares purchased in the Offer, will be voted in favor of the Merger Agreement
and the transactions contemplated thereby.
Under the Delaware GCL, if, following consummation of the Offer, Purchaser
owns at least 90% of the Shares then outstanding, Purchaser will be able to
cause the Merger to occur without a vote of the Company's stockholders. In such
event, Parent, Purchaser and the Company have agreed to take all necessary and
appropriate action to cause the Merger to become effective as soon as reasonably
practicable after consummation of the Offer without a meeting of the Company's
stockholders. In the event all of the conditions to the Offer set forth under
"THE OFFER - Certain Conditions of the Offer" shall have been satisfied but
there shall not have been tendered to the Purchaser sufficient Shares so that
the Merger could be effected without a stockholders' meeting in accordance with
Section 253 of the Delaware GCL, Purchaser may extend the Offer for a period or
periods aggregating not more than 15 business days after the later of (i) the
initial expiration date of the Offer and (ii) the date on which all the other
conditions to the Offer set forth under "THE OFFER Certain Conditions of the
Offer" have been satisfied. If, following consummation of the Offer, Purchaser
owns less than 90% of the Shares then outstanding, a vote of the Company's
stockholders will be required under the Delaware GCL to approve the Merger, and
a significantly longer period of time will be required to effect the Merger. See
"THE OFFER - Certain Conditions of the Offer."
Parent's Reasons for the Offer and the Merger. Parent determined to pursue
the acquisition of the Company because of its determination that the acquisition
of geriatric care facilities in rural areas will be an important component in
the expansion of its post-acute care network. Parent's recent acquisitions of
home healthcare companies have established the Parent's home healthcare
capabilities in rural areas, particularly in certain of the areas where the
Company has facilities. Parent believes that operating geriatric care facilities
in the same area as its home healthcare operations is important to its ability
to realize the full value of its home healthcare operations. In addition, the
Parent believes that owning the Company will provide it with additional markets
for its rehabilitation and other ancillary services, which are currently
provided to the Company's facilities in large part by other companies. Parent
determined to pursue the acquisition of the Company in its entirety at this time
because without the Parent's ongoing financial and operational support and in
light of the ongoing consolidation in the healthcare industry, the Company's
ability to survive as an independent company is questionable and the Parent is
not willing to continue to support the Company as it has over the past several
months without the benefits of full ownership. Accordingly, Parent and the
Purchaser believe the Offer and the Merger are in the best interests not only of
the Company's stockholders, but all of the Company's constituents, including its
employees, patients and suppliers.
As an inducement to Parent to enter into the Merger Agreement, Dr. Elkins
has agreed that to the extent the Company's net income to Parent (assuming
certain of the Company's existing facilities are sold or closed) after the
incorporation of the Company's assets into Parent's operations for the one-year
period ending on the first anniversary of the Merger (the "Guaranty Period") is
less than the projected net income for the Company as set forth in the
projections prepared by the Company and reviewed by Parent in connection with
the transactions contemplated by the Merger Agreement for the Guaranty Period,
Dr. Elkins will pay to Parent the amount of the shortfall, up to a maximum of
his after-tax net proceeds from his sale of Shares in the Offer and the Merger.
Dr. Elkins guaranty is conditioned on reimbursement rates for the Company's
services, in general, remaining stable or increasing. If reimbursement rates
decrease, then Dr. Elkins' guaranty shall be reduced in proportion to the
decrease in the reimbursement rate.
7. PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER; CERTAIN EFFECTS OF THE
OFFER AND THE MERGER
Pursuant to the Merger Agreement, promptly upon completion of the Offer,
Parent and Purchaser intend to effect the Merger in accordance with the terms
of the Merger Agreement. See "SPECIAL FACTORS - The Merger Agreement."
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Parent's management has begun, and intends to continue, a review of the
Company and its assets, corporate structure, capitalization, operations,
properties, policies, management and personnel to determine what changes, if
any, would be desirable in order best to organize and integrate the activities
of the Company and Parent. Parent expressly reserves the right to make any
changes that it deems necessary or appropriate in light of its review or in
light of future developments or that would be desirable to permit Parent to
manage the Company. Except as otherwise disclosed in this Offer to Purchase,
Parent has no present plans or proposals that would result in an extraordinary
corporate transaction involving the Company or any of its subsidiaries, such as
a merger, reorganization, liquidation, relocation of operations or sale or
transfer of a material amount of assets. Parent currently intends to sell or
close down 12 to 15 of the Company's facilities by December 31, 1997. Such
facilities generated revenue of approximately $18 million to $23 million and
pre-tax losses of approximately $4 million to $5 million. Parent has determined
that these facilities are located in markets which do not fit within Parent's
post-acute care network strategy.
On July 28, 1997, IHS entered into a letter of intent with Health and
Retirement Properties Trust ("HRPT"), the Company's principal landlord and a
significant lender to the Company, relating to an agreement-in-principle to
restructure the lease and loan agreements between the Company and HRPT if the
transactions contemplated by the Merger Agreement are consummated. In April 1997
Parent had guaranteed the Company's obligations to HRPT. Under the
agreement-in-principle, (i) Parent or a nominee will purchase 14 facilities,
aggregating 1,238 beds, currently owned by HRPT and leased to the Company, (ii)
approximately $12.2 million principal amount of loans from HRPT to the Company
will be prepaid and the collateral security released, (iii) three facilities
mortgage financed by HRPT will be sold to HRPT and leased to Parent or a
nominee, (iv) approximately $8.8 million of mortgage indebtedness due HRPT
secured by nine facilities owned by the Company will be assumed by Parent or a
nominee, (v) leases of 16 facilities operated by the Company will be assumed by
Parent or a nominee, and (vi) the leases and mortgages being assumed will be
modified to reduce future rent increases and release cash security deposits.
Parent will guarantee all lease and mortgage obligations to HRPT, which will
receive a $3.7 million modification fee. The restructuring of the Company's
lease and loan arrangements with HRPT is subject to the completion of definitive
documentation, and there can be no assurance the Company's lease and loan
arrangements with HRPT will be restructured on these terms, on different terms
or at all.
As a result of the Offer, the interest of Parent in the Company's net book
value and net earnings will increase in proportion to the number of Shares
acquired in the Offer. If the Merger is consummated, Parent's interest in such
items and in the Company's equity generally will increase to 100% and Parent and
its subsidiaries will be entitled to all benefits resulting from that interest,
including all income generated by the Company's operations and any future
increase in the Company's value. Similarly, Parent will also bear the risk of
losses generated by the Company's operations and any decrease in the value of
the Company after the Merger. Subsequent to the Merger, current stockholders of
the Company (other than Parent) will cease to have any equity interest in the
Company, will not have the opportunity to participate in the earnings and growth
of the Company after the Merger and will not have any right to vote on corporate
matters. Similarly, stockholders will not face the risk of losses generated by
the Company's operations or decline in the value of the Company after the
Merger.
The Shares are currently traded on The Nasdaq Stock Market, Inc.'s National
Market (the "Nasdaq National Market"). See "THE OFFER - Price Range of the
Shares; Dividend Information." Following the consummation of the Merger, the
Shares will no longer be quoted on Nasdaq and the registration of the Shares
under the Exchange Act will be terminated. Accordingly, after the Merger there
will be no publicly traded equity securities of the Company outstanding and the
Company will no longer be required to file periodic reports with the Commission.
See "THE OFFER - Effect of the Offer on the Market for the Shares, Margin
Regulations and Registration under the Exchange Act." It is expected that if
Shares are not accepted for payment by Purchaser pursuant to the Offer and the
Merger is not consummated, the Company's current management, under the general
direction of the Company Board, will continue to manage the Company as an
ongoing business.
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8. RIGHTS OF STOCKHOLDERS IN THE MERGER
Holders of Shares do not have appraisal rights as a result of the Offer.
However, if the Merger is consummated, holders of Shares at the Effective Time
will have certain rights pursuant to the provisions of Section 262 of the
Delaware GCL ("Section 262") to dissent and demand appraisal of, and to receive
payment in cash of the fair value of, their Shares. Under Section 262,
dissenting stockholders who comply with the applicable statutory procedures will
be entitled to receive a judicial determination of the fair value of their
Shares (exclusive of any element of value arising from the accomplishment or
expectation of the proposed Merger). In addition, such dissenting stockholders
would be entitled to receive a fair rate of interest from the date of
consummation of the Merger on the amount determined to be the fair value of
their Shares. In determining the fair value of the Shares, the court is required
to take into account all relevant factors. Accordingly, such determination could
be based upon considerations other than, or in addition to, the market value of
the Shares, including, among other things, asset values and earning capacity. In
Weinberger v. UOP, Inc., the Delaware Supreme Court stated that "proof of value
by any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered in
an appraisal proceeding. The Weinberger court also noted that under Section 262,
fair value is to be determined "exclusive of any element of value arising from
the accomplishment or expectation of the merger." In Cede & Co. v. Technicolor,
Inc., however, the Delaware Supreme Court stated that, in the context of a
two-step cash merger, "to the extent that value has been added following a
change in majority control before cash-out, it is still value attributable to
the going concern," to be included in the appraisal process. As a consequence of
the foregoing, the fair value determined in any appraisal proceeding could be
the same as or more or less than the Merger Consideration.
Purchaser does not intend to object, assuming the proper procedures are
followed, to the exercise of appraisal rights by any stockholder and the demand
for appraisal of, and payment in cash for the fair value of, the Shares. Parent
intends, however, to cause the Surviving Corporation to argue in an appraisal
proceeding that, for purposes of such proceeding, the fair value of each Share
is less than the Merger Consideration. In this regard, stockholders should be
aware that opinions of investment banking firms as to the fairness from a
financial point of view (including the opinions of Smith Barney and Wheat First
described herein) are not necessarily opinions as to "fair value" under Section
262.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS DOES NOT
PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY
STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SECTION 262 INCLUDED
HEREWITH IN ANNEX C. THE PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS ARE
CONDITIONED ON STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE DELAWARE
GCL.
Several decisions by Delaware courts have held that, in certain
circumstances, a controlling stockholder of a company involved in a merger has a
fiduciary duty to other stockholders that requires that the merger be "entirely
fair" to such other stockholders. In determining whether a merger is fair to
minority stockholders, Delaware courts have considered, among other things, the
type and amount of consideration to be received by the stockholders and whether
there was fair dealing among the parties. The Delaware Supreme Court stated in
Weinberger and in Rabkin v. Philip A. Hunt Chemical Corp. that although the
remedy ordinarily available to minority stockholders is the right to appraisal
described above, monetary damages, injunctive relief or such other relief as the
court may fashion may be available if a merger is found to be the product of
procedural unfairness, including fraud, misrepresentation or other misconduct.
9. THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement, a
copy of which appears as an Exhibit to the Tender Offer Statement on Schedule
14D-1 filed by Purchaser and Parent with the Commission in connection with the
Offer. Such summary is qualified in its entirety by reference to the Merger
Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer
as promptly as practicable after the date thereof but in no event later than
five business days after the date of public announcement of the execution and
delivery of the Merger Agreement. The obligation of the Purchaser
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to commence the Offer and to accept for payment and pay for Shares tendered
pursuant to the Offer is subject to the satisfaction or waiver by the Purchaser
of the conditions described in "THE OFFER - Certain Conditions of the Offer."
Under the Merger Agreement, the Purchaser expressly reserves the right, in its
sole discretion, to waive any such condition (other than the Minimum Condition,
which may only be waived with the Company's consent) and make any other changes
in the terms and conditions of the Offer; provided, that, without the consent of
the Company, no change may be made which (a) reduces the number of Shares
subject to the Offer, (b) reduces the price per Share payable in the Offer, (c)
adds to the conditions to the Offer, (d) extends the Offer other than as
described in the next sentence, (e) changes the form of consideration payable in
the Offer or (f) amends any other term of or adds any new term to the Offer in
any manner materially adverse to the Company's stockholders. The Purchaser may,
without the consent of the Company, but subject to the Company's right to
terminate the Merger Agreement if Shares have not been accepted for payment on
or before November 30, 1997, (i) extend the Offer, if at the scheduled or
extended expiration date of the Offer any of the conditions to the Purchaser's
obligation to purchase Shares shall not be satisfied or waived, until such time
as such conditions are satisfied or waived, (ii) extend the Offer for any period
required by any rule, regulation, interpretation or position of the Commission
or the staff thereof applicable to the Offer, (iii) extend the Offer from time
to time until two business days after expiration of the waiting period under the
HSR Act, and (iv) extend the Offer for an aggregate period of not more than 15
business days beyond the latest expiration date that would otherwise be
permitted under clauses (i), (ii) or (iii) of this sentence if there shall not
have been tendered to the Purchaser sufficient Shares so that the Merger could
be effected without a stockholders' meeting in accordance with Section 253 of
the Delaware GCL.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof and in accordance with the Delaware GCL, at the
Effective Time, the Purchaser will be merged with and into the Company. As a
result of the Merger, the separate corporate existence of the Purchaser will
cease and the Company will continue as the Surviving Corporation. At the
Parent's election, any direct or indirect subsidiary of the Parent other than
the Purchaser may be merged with and into the Company instead of the Purchaser.
At the Effective Time, each Share issued and outstanding immediately prior
to the Effective Time (other than Shares owned by the Company, any subsidiary of
the Company, the Parent, the Purchaser or any other subsidiary of the Parent,
which Shares shall automatically be canceled and retired and shall cease to
exist, and no consideration shall be delivered in exchange therefor, or Shares
held by stockholders who shall have properly demanded and perfected appraisal
rights under Section 262) will be cancelled, extinguished and converted into the
right to receive $4.00 in cash or any higher price that may be paid pursuant to
the Offer, payable to the holder thereof, without interest, upon surrender of
the certificate formerly representing such Share in the manner described in the
Merger Agreement (the "Merger Consideration"). In addition, as of the Effective
Time, each share of capital stock of the Purchaser issued and outstanding
immediately prior to the Effective Time shall be converted into and become one
thousand fully paid and nonassessable shares of common stock, par value $0.0025
per share, of the Surviving Corporation.
The Merger Agreement provides that Shares that are issued and outstanding
immediately prior to the Effective Time and which are held by stockholders who
have complied with all the provisions of Section 262 of the Delaware GCL will
not be converted into the right to receive the Merger Consideration, but will be
entitled to receive the consideration as determined pursuant to Section 262 of
the Delaware GCL; provided, however, that if, after the Effective Time, such
stockholder shall have failed to perfect or shall have withdrawn or otherwise
lost his, her or its right to appraisal under the Delaware GCL, such
stockholder's Shares shall thereupon be deemed to have been converted, as of the
Effective Time, into the right to receive the Merger Consideration as described
above. The Merger Agreement requires that the Company give Parent prompt notice
of any demand for appraisal of Shares received by the Company and the
opportunity to participate in and direct all negotiations and proceedings with
respect to any demand for appraisal. In addition, the Merger Agreement prohibits
the Company from making any payment with respect to, settling or offering to
settle or otherwise negotiating any demands for appraisal without Parent's prior
consent.
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Purchaser or the designated paying agent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to the Merger
Agreement to any holder of Shares such amounts that Purchaser or the paying
agent is required to deduct and withhold with respect to the making of such
payment under the United States Internal Revenue Code of 1986, as amended, the
rules and regulations promulgated thereunder or any provision of state, local or
foreign tax law.
The Merger Agreement also provides that at the Effective Time and without
any further action on the part of the Company and the Purchaser, the Restated
Certificate of Incorporation (the "Certificate of Incorporation") of the
Company, as in effect immediately prior to the Effective Time, will be amended
to provide that the total number of shares of all classes of stock which the
Company has the authority to issue will be 1,000 shares of Common Stock and, as
so amended, the Certificate of Incorporation will be the certification of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein and under the Delaware GCL. At the Effective Time and
without any further action on the part of the Company and the Purchaser, the
By-Laws of the Company as in effect immediately prior to the Effective Time will
be the By-Laws of the Surviving Corporation until thereafter changed or amended
as provided therein or by law. The Merger Agreement provides that the directors
of the Purchaser immediately prior to the Effective Time will be the initial
directors of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and By-Laws of the Surviving Corporation, and
the officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected and qualified or their earlier
resignation or removal.
Pursuant to the Merger Agreement, following the purchase of Shares pursuant
to the Offer, if approval of the Merger Agreement by the Company's stockholders
is required by law, the Company will, at Parent's request, take all action
necessary in accordance with applicable law to convene a meeting of its
stockholders as soon as practicable to consider and vote upon the Merger
Agreement and the transactions contemplated thereby. The Company will, through
the Board of Directors, recommend that the Company's stockholders vote in favor
of the adoption of the Merger Agreement and the transactions contemplated
thereby, including preparing and filing with the Commission under the Exchange
Act a proxy statement (the "Proxy Statement") and using its best efforts to
cause the Proxy Statement to be mailed to stockholders of the Company as
promptly as practicable after such filing. The Company will, through the Board
of Directors, recommend that the Company's stockholders vote in favor of the
adoption of the Merger Agreement and the transactions contemplated thereby,
subject to the Board of Directors' fiduciary duty under applicable law. At the
meeting of the Company's stockholders, the Parent will cause all Shares owned by
the Parent, the Purchaser or any other subsidiary of Parent, including all
Shares purchased in the Offer, to be voted in favor of the adoption of the
Merger Agreement and the transactions contemplated thereby.
The Delaware GCL also provides that if a parent company owns at least 90%
of each class of stock of a subsidiary, the parent company can effect a
"short-form" merger with that subsidiary without a stockholder vote.
Accordingly, if, as a result of the Offer, or otherwise, the Purchaser acquires
or controls the voting power of at least 90% of the outstanding Shares, the
Purchaser will be able, and intends, to effect the Merger without a stockholder
vote.
Representations and Warranties. The Merger Agreement contains
representations and warranties by the Company with respect to, among other
things, its organization and the organization and ownership of its subsidiaries,
its capitalization, its corporate power and governmental authorization to enter
into the Merger Agreement, its filings with the Commission, its financial
statements, and the absence of certain changes in its business since March 31,
1997. The Company has also represented and warranted that consummation of the
transactions contemplated by the Merger Agreement does not conflict with or
result in any breach of any provision of the Certificate of Incorporation and
By-Laws of the Company, require any filing with, or permit, authorization,
consent or approval of, any governmental entity other than those described in
the Merger Agreement, violate any applicable laws or (except as set forth in the
disclosure schedule to the Merger Agreement) any material agreements or
instruments binding on the Company. Other representations and warranties in the
Merger Agreement pertain to the information supplied by the Company in
connection with the Offer, the absence of undisclosed liabilities, the Com-
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pany's employee benefit plans and other compensation arrangements, the absence
of certain litigation with respect to the Company, compliance by the Company
with applicable law, including environmental and healthcare reimbursement laws,
tax matters, the inapplicability of state anti-takeover statutes (except as set
forth in the disclosure schedule to the Merger Agreement), including Section 203
of the Delaware GCL, the Company's material contracts, insurance matters,
intellectual property matters, labor matters, real estate matters, and the vote
required to approve the Merger. The Merger Agreement also contains
representations and warranties with respect to the extent of its equity
interests in other entities, any brokerage fees payable as a result of the
consummation of the Offer and the Merger and the opinions of its financial
advisors with respect to the fairness of the consideration to be received
pursuant to the Offer and the Merger.
The Merger Agreement also contains representations and warranties by the
Parent and the Purchaser with respect to, among other things, the organization
of the Purchaser and the Parent, their authority to enter into the Merger
Agreement, the information supplied by them in connection with the Offer and
their financial ability to purchase the Shares. The Merger Agreement also
contains representations and warranties by the Purchaser and the Parent which
address any required consents under any applicable provisions of the HSR Act,
the Exchange Act, the Securities Act of 1933, as amended (the "Securities Act"),
and the regulations thereunder and applicable state takeover laws. Other
representations and warranties by the Purchaser and the Parent state that
execution of the Merger Agreement by the Parent and the Purchaser will not
conflict with or result in any breach of any provision of the certificate of
incorporation or by-laws of the Parent or the Purchaser, or violate any
applicable laws or any agreements or instruments binding on the Parent or its
subsidiaries (except as provided in the Merger Agreement).
Covenants of the Company. Pursuant to the Merger Agreement, until such time
as Parent's designees constitute a majority of the members of the Board of
Directors of the Company, the Company shall and shall cause its subsidiaries to
carry on their respective businesses in the usual, regular and ordinary course
in substantially the same manner as conducted prior to execution and delivery of
the Merger Agreement and use all reasonable efforts to preserve intact their
present business organizations and preserve their relationships with customers,
suppliers, employees and others having business dealings with the Company and
its subsidiaries. Without limiting the generality of the foregoing, the Company
shall not, and shall not permit any of its subsidiaries to, without the written
consent of Parent or as expressly contemplated or permitted by the Merger
Agreement, among other things: (i) (A) declare or pay any dividends on or make
any other distributions in respect of its capital stock, other than dividends
and distributions by any direct or indirect wholly-owned subsidiaries of the
Company, (B) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock or (C) repurchase, redeem
or otherwise acquire any shares of capital stock or other securities of the
Company or its subsidiaries, except pursuant to agreements referenced in Section
4.24 of the Merger Agreement or listed in the disclosure schedule thereto; (ii)
issue, deliver, sell, pledge or encumber any shares of its capital stock or any
securities convertible into, or any rights, warrants, calls, subscriptions or
options to acquire, any such shares or convertible securities, or any other
ownership interest, or authorize or propose to do any of the foregoing (other
than the issuance of Shares upon exercise of stock options and warrants
outstanding as of the date of the Merger Agreement); (iii) amend or propose to
amend its certificate of incorporation or by-laws; (iv) enter into any
management agreement for any of its assets or acquire or agree to acquire (A)
any business or any corporation, partnership, joint venture, association or
other business organization or division thereof or (B) any assets that are
material, individually or in the aggregate, to the Company and its subsidiaries,
taken as a whole, except purchases of inventory in the ordinary course of
business consistent with past practice; (v) sell, lease, license, encumber or
otherwise dispose of or agree to sell, lease, license, encumber or otherwise
dispose of any of its assets, except for the disposition of equipment in the
ordinary course of business consistent with past practice; (vi) (A) incur or
guarantee any indebtedness for borrowed money, issue or sell any debt
securities, guarantee any debt securities of others or enter into any
"keep-well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, except for borrowings for working capital purposes consistent
with past practices or (B) make any loans,
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advances or capital contributions to, or investments in, any person other than
in the case of both clauses (A) and (B) any loan from the Company to a direct or
indirect wholly-owned subsidiary; (vii) make any tax election that would have a
material effect on the Company or settle or compromise any material tax
liabilities; (viii) except as otherwise permitted by the Merger Agreement, pay,
discharge, settle or satisfy any claim, liability or obligation, other than the
payment, in the ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities recognized or disclosed in the
Company's most recent consolidated financial statements included in documents
filed with the Commission and liabilities incurred since the date of such
financial statements in the ordinary course of business consistent with past
practice; (ix) except in the ordinary course of business or as otherwise
permitted by the Merger Agreement, modify, amend or terminate any material
agreement or waive any material rights or claims; or (x) except as provided in
the Merger Agreement or required by law, increase the compensation of executive
officers or directors, enter into, adopt, amend or terminate any employee
benefit plan or any plan, agreement, policy or arrangement for the benefit of
any director, officer or current or former employee, or pay any benefit not
required by any plan or arrangement as in effect as of the date of the Merger
Agreement (including the grant of, or acceleration of exercisability or vesting
of, stock options, stock appreciation rights and restricted stock). In addition,
the Company has agreed to (i) provide Parent or its counsel with copies of all
filings made by the Company with any governmental entity in connection with the
Merger Agreement; and (ii) consult with Parent before filing any material tax
return as to the positions and elections to be taken or made with respect to
such return, and to take such positions or make such elections as the Company
and Parent shall jointly agree.
Prohibition on Solicitation. The Merger Agreement provides that the Company
and its officers, directors, employees, representatives and agents will
immediately cease any ongoing discussions or negotiations, if any, with any
parties conducted prior to the date of the Merger Agreement with respect to any
Takeover Proposal (as defined below); provided that following the cessation of
any such discussions or negotiations, future discussions or negotiations with
any such parties will be governed by the remaining provisions of this paragraph.
Except as set forth in the Merger Agreement, (a) neither the Company or any of
its subsidiaries, nor any of its or their respective officers, directors,
employees or representatives will encourage, solicit or initiate (including by
way of furnishing information) or take any other action to facilitate any
inquiries or the making of any proposal which constitutes or may reasonably be
expected to lead to any Takeover Proposal or participate in any discussions or
negotiations regarding any Takeover Proposal and (b) neither the Company Board
nor any committee thereof shall (i) withdraw or modify, or propose to withdraw
or modify, in a manner adverse to Parent, the approval or recommendation by such
Board of Directors or committee of the Offer, the Merger Agreement or the
Merger, (ii) approve or recommend, or propose to approve or recommend, any
Takeover Proposal or (iii) cause the Company to enter into any agreement with
respect to any Takeover Proposal. Notwithstanding the foregoing, at any time
prior to acceptance of the Shares pursuant to the Offer (a) the Company Board
may take, and disclose to the Company's stockholders, a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act with respect to any tender
offer for shares of capital stock of the Company; provided, that the Company
Board will not recommend that the stockholders of the Company tender their
shares in connection with any such tender offer unless the Company Board shall
have determined in good faith, after consultation with outside counsel, that
failing to take such action would be inconsistent with the Board of Directors'
fiduciary duty under applicable law; (b) the Company may furnish information, in
response to an unsolicited Takeover Proposal, to any person pursuant to a
confidentiality agreement, and may participate in negotiations concerning such
Takeover Proposal, if the Company Board determines in its good faith judgment,
after consultation with outside counsel, that it is necessary to do so in order
to comply with its fiduciary duties to the Company's stockholders under
applicable law; and (c) the Company may (subject to the provisions of the Merger
Agreement), if the Board of Directors determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to the Company's stockholders under applicable
law, withdraw or modify its approval or recommendation of the Offer, the Merger
Agreement and the Merger, approve or recommend a Superior Proposal (as defined
below), cause the Company to enter into an agreement with respect to a Superior
Proposal or terminate the Merger Agreement, but in each case only at a time that
is after the first business day following Parent's receipt of written notice
advising Parent that the Company Board has received a Superior Proposal,
specifying
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the material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal. In addition, if the Company proposes to
enter into an agreement with respect to any Takeover Proposal, it shall
concurrently with entering into such agreement pay, or cause to be paid, to
Parent the Termination Fee (see "-Fees and Expenses"). Under the Merger
Agreement, the Company is obligated to notify the Parent immediately of any
request for information or of any Takeover Proposal, the material terms and
conditions of such request or Takeover Proposal and the identity of the person
making such request or Takeover Proposal. The Company has agreed to keep Parent
fully informed of the status and details of any such request or Takeover
Proposal.
For purposes of the Merger Agreement, "Takeover Proposal" means any
inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of 20% or more of the assets of the Company and its
subsidiaries or 20% or more of any class of equity securities of the Company or
any of its subsidiaries, any tender offer or exchange offer that if consummated
would result in any person beneficially owning 20% or more of any class of
equity securities of the Company or any of its subsidiaries, any merger,
consolidation, business combination, sale of substantially all the assets,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its subsidiaries, other than the transactions contemplated by
the Merger Agreement, or any other transaction the consummation of which could
reasonably be expected to impede, interfere with, prevent or materially delay
the Offer and/or the Merger or which would reasonably be expected to dilute
materially the benefits to Parent of the transactions contemplated by the Merger
Agreement. For purposes of the Merger Agreement, a "Superior Proposal" means any
bona fide proposal made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the Shares
then outstanding or all or substantially all the assets of the Company and
otherwise on terms which the Company Board determines in its good faith judgment
(based on the advice of a financial advisor of nationally recognized reputation)
to be more favorable to the Company's stockholders than the Offer and the
Merger.
Reasonable Efforts. The Merger Agreement provides that, upon the terms and
subject to the conditions thereof, each of the parties thereto shall use its
reasonable efforts to take, or cause to be taken, all actions necessary to (i)
comply promptly with all legal requirements which may be imposed on itself with
respect to the Offer and the Merger (which actions shall include furnishing all
information required under the HSR Act and in connection with approvals of or
filings with any other governmental entity) and will promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon any of them or any of their subsidiaries in connection with the
Offer and the Merger and (ii) obtain (and will cooperate with each other in
obtaining) any consent, authorization, order or approval of, or any exemption
by, any governmental entity or other public or private third party required to
be obtained or made by Parent, the Purchaser, the Company or any of their
subsidiaries in connection with the Offer and the Merger or the taking of any
action contemplated thereby or by the Merger Agreement, except that no party
need waive any substantial rights or agree to any substantial limitation on its
operations or to dispose of any assets.
Board of Directors. The Merger Agreement provides that, subject to Section
14(f) of the Exchange Act and Rule 14f-1 thereunder, promptly upon the payment
by the Purchaser for any Shares pursuant to the Offer, the Purchaser shall be
entitled to designate such number of directors of the Company as shall give the
Purchaser a majority of the directors; provided that until the Effective Time at
least two persons who are directors of the Company on the date of the Merger
Agreement and who are not officers of the Company shall be directors of the
Company (the "Independent Directors"). Following the election of the Purchaser's
designees to the Board of Directors and prior to the Effective Time, the
affirmative vote of a majority of the Independent Directors shall be required by
the Company to (i) amend or terminate the Merger Agreement by the Company, (ii)
exercise or waive any of the Company's rights or remedies under the Merger
Agreement, or (iii) extend the time for performance of Parent's and the
Purchaser's respective obligations under the Merger Agreement. The Company will
promptly, at the option of the Parent, increase the size of the Board of
Directors and/or obtain the resignations of such number of its current directors
as is necessary to enable the Purchaser's designees to be elected to and to
constitute a majority of the Board of Directors, and will cause the Purchaser's
designees to be so elected.
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Treatment of Stock Options and Warrants. Pursuant to the Merger Agreement,
the Company has agreed to amend the Company's option plans to provide that if
optionees do not exercise their unexercised options to purchase Shares granted
by the Company under such plans (the "Options") within 30 days of a notice that
the Company proposes to merge into another corporation, then the optionee will
receive, in settlement of each Option, a Cash Amount (as defined below) with
respect to the number of Shares underlying the unexercised portion of the Option
immediately prior to the Effective Time. The Cash Amount payable for each Option
shall equal the difference between (i) the product of (a) the Merger
Consideration minus the exercise price per Share of each Option and (b) the
number of Shares covered by the unexercised portion of the Option and (ii) any
applicable withholding taxes. The Company is obligated to give to each optionee
notice that the Company proposes to merge into another corporation following the
date of the Merger Agreement. The Company's option plans will terminate as of
the Effective Time.
The Merger Agreement provides that, at the Effective Time, each holder of
an outstanding warrant to purchase Shares granted by the Company ("Warrants"),
whether or not then exercisable, shall, in settlement thereof, receive for each
Share issuable upon exercise of such Warrant an amount (subject to any
applicable withholding tax) in cash equal to the difference between the Merger
Consideration and the per share exercise price of such Warrant to the extent
such difference is a positive number. The Company has also agreed to use its
best efforts to obtain all consents or releases from holders of Warrants
necessary to give effect to the transactions contemplated by this paragraph.
Indemnification and Insurance. Under the Merger Agreement the Purchaser
agrees that all rights to indemnification existing in favor of the present or
former directors and officers of the Company (as such) or any of its
subsidiaries (collectively, the "Covered Persons"), as provided in the Company's
Certificate of Incorporation or By-Laws, or the articles of incorporation,
by-laws or similar documents of any of the Company's subsidiaries and the
indemnification agreements with such present and former directors and officers
filed with the Commission and publicly available prior to the date of the Merger
Agreement, with respect to matters occurring prior to the Effective Time will
survive the Merger and continue in full force and effect in accordance with
their terms. In addition, for a period of six years from the Effective Time,
Parent shall (i) guarantee such indemnification obligations and (ii) maintain in
effect the Company's current officers' and directors' liability insurance policy
covering those persons who were covered at the time of the Merger Agreement.
Conditions to Merger. The respective obligation of each party to the Merger
Agreement to effect the Merger shall be subject to the satisfaction, prior to
the closing of the transactions contemplated by the Merger Agreement, of the
following conditions: (a) if necessary under applicable law, the Merger shall
have been adopted by the requisite vote of the stockholders of the Company in
accordance with the Delaware GCL; (b) no legal requirements shall have been
enacted, entered, promulgated or enforced by any court or governmental entity
which prohibit or prevent the consummation of the Merger (provided that each of
the parties shall have used reasonable efforts to prevent the entry of any such
injunction or other order and to appeal as promptly as possible any injunction
or other order that may be entered; (c) Purchaser shall have previously accepted
for payment and paid for Shares pursuant to the Offer; and (d) the applicable
waiting period under the HSR Act shall have expired or been terminated.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time of the Merger, whether before or after approval of the terms
of the Merger Agreement by the stockholders of the Company, (a) by mutual
consent of the Parent and the Company (but only by action of the Independent
Directors after the purchase of Shares pursuant to the Offer); (b) by either the
Company or the Parent if (i) (x) as a result of the failure of any of the
conditions to the Offer the Offer shall have terminated or expired in accordance
with its terms without the Purchaser having accepted for payment any Shares
pursuant to the Offer or (y) the Purchaser shall not have accepted for payment
any Shares pursuant to the Offer prior to November 30, 1997; provided, however,
that the right to terminate the Merger Agreement shall not be available to any
party whose failure to perform any of its obligations under the Merger Agreement
results in the failure of any such condition or if the failure of such condition
results from facts or circumstances that constitute a breach of representation
or warranty under the Merger Agreement by such party; or (ii) any governmental
entity shall have issued an order,
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decree or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the acceptance for payment of, or payment for, Shares
pursuant to the Offer or the Merger and such order, decree or ruling or other
action shall have become final and nonappealable; (c) by Parent or the Purchaser
(i) prior to the purchase of Shares pursuant to the Offer in the event of a
breach by the Company of any representation, warranty, covenant or other
agreement contained in the Merger Agreement which (A) would give rise to the
failure of certain conditions to the Offer and (B) cannot be or has not been
cured within 20 days after the giving of written notice to the Company; (ii) if
Parent or the Purchaser is entitled to terminate the Offer as a result of the
Company Board or any committee thereof having withdrawn or modified in a manner
adverse to Parent or the Purchaser its approval or recommendation of the Offer,
the Merger or the Merger Agreement, or approved or recommended any Takeover
Proposal, or if the Company shall have entered into any agreement with respect
to any Superior Proposal in accordance with the Merger Agreement or the Company
Board or any committee thereof has resolved to do any of the foregoing or (iii)
if, due to an occurrence, not involving a breach by Parent or the Purchaser
under the Merger Agreement, which makes it impossible to satisfy any of the
conditions set forth in "THE OFFER - Certain Conditions of the Offer," Parent,
the Purchaser or any of their affiliates shall have failed to commence the Offer
on or prior to five business days following the date of the initial public
announcement of the Offer; (d) by the Company (i) in connection with entering
into a definitive agreement relating to a Superior Proposal in accordance with
the Merger Agreement, or (ii) if Parent or the Purchaser shall have breached in
any material respect any of their respective representations, warranties,
covenants or other agreements contained in the Merger Agreement, which breach or
failure to perform is incapable of being cured or has not been cured within 20
days after the giving of written notice to Parent or the Purchaser, as
applicable, except, in any case, such breaches and failures which are not
reasonably likely to affect adversely Parent's or the Purchaser's ability to
complete the Offer or the Merger, or (iii) if Parent, the Purchaser or any of
their affiliates shall have failed to commence the Offer on or prior to five
business days following the date of the initial public announcement of the Offer
(provided that the Company may not terminate the Merger Agreement pursuant to
this provision if the Company is at such time in breach of its obligations under
the Merger Agreement such as to cause a material adverse effect on the Company
and its subsidiaries, taken as a whole).
In the event of the termination of the Merger Agreement, the Merger
Agreement shall forthwith become void and of no effect and there shall be no
liability on the part of any party thereto except as described under "Fees and
Expenses" below and as otherwise provided in the Merger Agreement; provided,
however, that nothing in the Merger Agreement will relieve any party from
liability for any breach thereof before termination.
Fees and Expenses. The Merger Agreement provides that, except as provided
in the following paragraph, all fees and expenses incurred in connection with
the Offer, the Merger, the Merger Agreement and the transactions contemplated
thereby will be paid by the party incurring such fees or expenses, whether or
not the Offer or the Merger is consummated.
Under the Merger Agreement the Company will pay, or cause to be paid, in
same day funds, to the Parent (a) a termination fee of $1,000,000 (the
"Termination Fee") and (b) all outstanding loans between Parent or any of its
subsidiaries and the Company if the Merger Agreement is terminated (w) by the
Company in accordance with the provisions described in clause (d)(i) under the
heading "Termination" above, (x) by the Parent in accordance with the provisions
described in clause (c)(ii) under the heading "Termination" above or (y) by
either the Company or Parent in accordance with the provisions of clause (b)(i)
above and (I) prior thereto there shall have been publicly announced another
Takeover Proposal or an event described in clause (d) under "THE OFFER - Certain
Conditions of the Offer" shall have occurred and (II) a Takeover Proposal is
consummated on or prior to March 31, 1998. Any amounts payable pursuant to the
Merger Agreement shall be payable concurrently with termination of the Merger
Agreement in the case of termination pursuant to clauses (w) and (x) above and
at the time of consummation of a Takeover Proposal as described in clause
(y)(II) above.
Amendment; Waiver. Any provision of the Merger Agreement may be amended or
waived prior to the Effective Time (as set forth in the Merger Agreement) if,
and only if, such amendment is in writing and signed, in the case of an
amendment, by the Company, the Parent and the Purchaser or, in the case
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of a waiver, by the party against whom the waiver is to be effective; provided
that (i) any waiver or amendment shall be effective against a party only if the
board of directors of such party approves such waiver or amendment and (ii)
after the adoption of the Merger Agreement by the stockholders of the Company,
no such amendment or waiver shall be made which by law requires the further
approval of such stockholders without obtaining such further approval.
Notwithstanding any provision included under this heading "Amendment; Waiver" to
the contrary, following the election or appointment of the Purchaser's designees
as directors of the Company and prior to the Effective Time, the affirmative
vote of a majority of the Independent Directors then in office shall be required
by the Company to (i) amend or terminate the Merger Agreement by the Company,
(ii) exercise or waive any of the Company's rights or remedies under the Merger
Agreement or (iii) extend the time for performance of Parent and the Purchaser's
respective obligations under the Merger Agreement.
No failure by any party to assert any of its rights under the Merger
Agreement or otherwise shall operate as a waiver thereof.
Assignment. The Merger Agreement shall be binding upon and inure to the
benefit of the parties thereto and their respective successors and assigns,
provided that no party may assign any of its rights, interests or obligations
under the Merger Agreement without the prior written consent of the other
parties thereto, except that the Purchaser may assign any or all of its rights,
interests and obligations under the Merger Agreement to any direct or indirect
wholly-owned subsidiary of Parent.
10. INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER
In considering the recommendations of the Company Board and the Special
Committee with respect to the Offer and the Merger and the fairness of the
consideration to be received in the Offer and the Merger, stockholders should be
aware that certain officers and directors of the Company have interests in the
Offer and the Merger which are described below and which may be in addition to
their interests as stockholders of the Company. Stockholders also should be
aware that Parent and Purchaser have certain interests that present actual or
potential conflicts of interest in connection with the Offer and the Merger. As
a result of the current beneficial ownership of approximately 21.0% of the
outstanding Shares by Dr. Robert N. Elkins, Parent's Chairman of the Board and
Chief Executive Officer, Parent's ownership of warrants to purchase Shares
representing approximately 13.5% of the outstanding Shares, the fact that two of
the Company's directors (including Dr. Elkins) are directors of Parent, and the
management services and loans provided to the Company by the Parent, Parent may
be deemed to control the Company. The Special Committee and the Company Board
were each aware of these actual and potential conflicts of interest and
considered them along with the other matters described under "SPECIAL FACTORS
Recommendations of the Special Committee and the Company Board; Fairness of the
Offer and the Merger."
Dr. Robert N. Elkins and Mr. John Silverman, two of the Company's
directors, are also stockholders, directors and officers of Parent. Dr. Elkins
is a stockholder of Parent and the Chairman of the Board and Chief Executive
Officer of Parent, and Mr. Silverman is a stockholder of Parent and the Chief
Executive Officer of a subsidiary of Parent.
Michael S. Blass, Esq., a director of the Company, is a partner of Blass &
Driggs, which law firm has provided and continues to provide legal services to
Parent as well as the Company on matters unrelated to the Merger Agreement. Fees
paid to Blass & Driggs by the Parent and the Company in 1996 were $2.6 million
and $550,000, respectively.
Ms. Deborah Lau is a member of the Special Committee. Prior to joining the
Company as Chief Operating Officer in 1995, Ms. Lau was an employee of Parent.
She has no contractual arrangements, commitments or understandings with Parent.
Ms. Lau is currently President and Chief Executive Officer of the Company. Ms.
Lau has an employment agreement with the Company. The employment agreement
provides for a term of three years commencing October 2, 1995, with automatic
one-year extensions on each anniversary thereof unless either party elects not
to so extend by giving written notice at least 90 days prior to such anniversary
date. Ms. Lau's current base salary is $237,659 per annum, subject to increase
annually by a percentage equal to the percentage increase in the Consumer Price
Index and such additional amounts as may be determined at the discretion of the
Company's Chief Executive Officer. In addition, Ms. Lau may
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also receive annual bonuses at the discretion of the Company's Chief Executive
Officer, subject to a maximum amount equal to 35% of base salary per annum (and
a minimum of $56,250) for the year ended December 31, 1996). Because Ms. Lau is
now Chief Executive Officer of the Company, the Company intends to have
determinations as to salary increases and bonuses made by either the entire
Company Board or the Compensation and Options Committee of the Company Board.
Ms. Lau's employment agreement provides that the Company may terminate her
employment for, among other reasons, cause (as defined) by continuing to pay Ms.
Lau her then current base salary for a period of 18 months, provided that if, at
the time, less than 18 months remains on the term of her employment agreement,
such base salary shall continue for the longer of the remaining term of her
employment agreement or 12 months. In the event of a "change of control" of the
Company (as defined), Ms. Lau has the right, upon giving 30 days' written notice
to the Company within 180 days following such event (or, if terminated by the
Company during such 180 day period), to terminate her employment, in which
event, Ms. Lau shall be entitled to receive her then base salary for a period of
36 months following the date of such termination and all stock options then held
by Ms. Lau shall become fully vested. A "change of control" of the Company is
deemed to occur under Ms. Lau's employment agreement: (i) when a person, other
than Dr. Robert N. Elkins or an institutional investor becomes the "beneficial
owner" of more than 20% or more of the Shares, (ii) in the event of certain
mergers or consolidations in which the Company is not the surviving entity,
(iii) in the event of the sale, lease or transfer of substantially all of the
Company's assets or the liquidation of the Company, or (iv) if Dr. Elkins ceases
to be a director of the Company. The consummation of the transactions
contemplated by the Merger Agreement will constitute a "change of control" under
Ms. Lau's employment agreement.
Mr. Wallace Olson is a member of the Special Committee. Mr. Olson has no
contractual or other relationship with Parent or any of its affiliates (other
than the Company). Mr. Olson was a principal shareholder of Southern Care
Centers, Inc. ("Southern Care"), which was merged into a wholly-owned subsidiary
of the Company in May 1996. In connection with such transaction, the Company and
the selling shareholders of Southern Care (including Mr. Olson) are engaged in a
dispute regarding post-closing settlement matters. The Company claims a
receivable due from the selling shareholders, including Mr. Olson, of
approximately $1.4 million. Such claim has been disputed by the selling
shareholders of Southern Care, who have also asserted claims against the
Company. See Note 2 to the Company's Consolidated Financial Statements included
in Schedule III.
Information regarding the beneficial ownership of Shares by the Company's
directors and executive officers is set forth under "SPECIAL FACTORS Beneficial
Ownership of Shares." Messrs. Blass and Silverman, directors of the Company, and
Mr. William Krystopowicz, an executive officer of the Company, are parties to a
voting agreement in favor of Dr. Elkins with respect to their Shares. See
"SPECIAL FACTORS - Share Ownership by Parent, Purchaser and Their Affiliates."
11. SHARE OWNERSHIP BY PARENT, PURCHASER AND THEIR AFFILIATES
As of July 31, 1997, Parent owns warrants to acquire 1,189,274 Shares, of
which warrants to purchase 784,587 Shares have an exercise price below the Offer
Price. In addition, the Shares beneficially owned by all executive officers and
directors of Parent (including the Shares Dr. Elkins has the right to vote),
represent approximately 21.0% of the outstanding Shares on a fully-diluted
basis. Robert N. Elkins, Chairman of the Board and Chief Executive Officer of
Parent and a director of the Company, beneficially owns 1,600,853 Shares
(including 10,989 Shares issuable upon the exercise of options and 737,392
Shares which he has the right to vote pursuant to a voting agreement). Mr.
Silverman, a director of Parent and the Company, beneficially owns 8,083 Shares
(excluding 35,242 Shares issuable upon the exercise of outstanding options),
which Shares are subject to the voting agreement in favor of Dr. Elkins, and
other executive officers and directors of Parent beneficially own an aggregate
of 187,674 Shares, which Shares are subject to the voting agreement in favor of
Dr. Elkins. See "SPECIAL FACTORS - Background of the Offer and the Merger."
Voting Agreement and Stockholders Agreement. Stockholders of the Company
who, at April 25, 1996, owned an aggregate of 737,392 shares of Common Stock
(including 287,602 shares owned by a limited partnership in which a limited
partnership controlled by Dr. Robert N. Elkins is a general partner and is
afforded sole voting power) are parties to a Voting Agreement with Dr. Elkins
(the "Voting Agreement"),
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a director, founder and principal stockholder of the Company, in which such
stockholders have agreed that, during the ten-year term of the Voting Agreement
(which was effective January 26, 1996), at all meetings of stockholders and in
all written consents of stockholders, they will vote all Common Stock owned at
the time in the same manner as Common Stock owned by Dr. Elkins (840,472 shares)
is voted by him. Each such stockholder has also irrevocably appointed Dr. Elkins
as proxy to represent and vote all shares of Common Stock of such stockholder at
any meeting of stockholders of the Company and in all actions taken by written
consent of stockholders. The Voting Agreement prohibits the parties thereto from
transferring their Shares except (i) to an immediate family member who agrees to
be bound by the Voting Agreement, (ii) to an entity wholly-owned by such person,
which entity becomes a party to the Voting Agreement, (iii) in an underwritten
public offering or a sale under Rule 144 under the Securities Act or (iv)
pursuant to a pledge to any NASD member firm. Under the terms of the Voting
Agreement, the Shares subject to the Voting Agreement cannot be tendered without
Dr. Elkins' consent. Common Stock owned by such stockholders will cease to be
subject to the Voting Agreement following any sale thereof in an underwritten
public offering pursuant to the Securities Act, or in a sale under Rule 144
promulgated under such Act. Parties to the Voting Agreement include Lawrence P.
Cirka and John L. Silverman, both of whom are directors and executive officers
of Parent and, in the case of Mr. Silverman, a director of the Company, Deborah
Lau and Michael Blass, who are directors of the Company, as well as W. Bradley
Bennett, Marshall A. Elkins and Marc B. Levin, all of whom are executive
officers of Parent. In addition, Equity-Linked Investors, L.P. ("ELI-I") and
Equity-Linked Investors-II, L.P. ("ELI-II") entered into a Stockholders'
Agreement, dated as of December 30, 1993 (the "Stockholders' Agreement"), with
Dr. Elkins and the Company, pursuant to which ELI-I and ELI-II are collectively
entitled to designate two nominees to the Company's Board of Directors. Dr.
Elkins has agreed, pursuant to the Stockholders' Agreement, to vote all shares
over which he has voting control for the election of such nominees. If the
collective ownership of ELI-I and ELI-II and their affiliates falls below
665,907 shares, they will be entitled to one board nominee so long as they or
their affiliates own any shares of Common Stock. ELI-I and ELI-II, which
currently own an aggregate of 1,331,814 shares of the Company's Common Stock,
have had no designees sitting on the Company Board since June 1996. See "SPECIAL
FACTORS - Beneficial Ownership of Shares."
Voting and Tender Agreements. As an inducement and a condition to the
Parent and the Purchaser entering into the Merger Agreement and incurring the
obligations set forth therein, including the Offer and the Merger, the Parent
required that each of Dr. Robert N. Elkins, the Parent's Chairman of the Board
and Chief Executive Officer, and ELI-I and ELI-II (together with ELI-I, "ELI")
(Dr. Elkins and ELI, each a "Stockholder" and together, the "Stockholders")
enter into a Voting and Tender Agreement (the "Tender Agreements") with the
Parent and the Purchaser.
Pursuant to the Tender Agreements, each Stockholder has agreed (i) to
tender for sale to the Purchaser, pursuant to the terms of the Offer, the Shares
then owned of record or beneficially by such Stockholder and (ii) that during
the time that the Tender Agreement is in effect, the Stockholder shall not give,
sell, assign, hypothecate, pledge, encumber, grant a security in or otherwise
dispose of, any Shares, or any right, title or interest therein or thereto,
except to the Purchaser pursuant to the Voting and Tender Agreement. In
addition, the Stockholder has agreed that during the time that the Tender
Agreement is in effect, at any meeting of the stockholders of the Company,
however called, and in any action by consent of the stockholders of the Company,
the Stockholder shall vote the Shares (i) in favor of the Merger pursuant to the
Merger Agreement and (ii) against any proposal for any recapitalization, merger,
sale of assets or other business combination between the Company and any person
or entity (other than the Merger) or any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement or which could
result in any of the conditions to the Company's obligations under the Merger
Agreement not being fulfilled. In addition, each Stockholder has agreed (i) to
grant to Parent, if so requested by Parent, an irrevocable proxy to vote the
Shares in a manner consistent with the preceding sentence, (ii) not to join in
any action that is inconsistent with, or designed or intended to have the effect
of discouraging, the completion of the Merger pursuant to the terms of the
Merger Agreement and (iii) not to enter into any agreement or grant a proxy or
power of attorney with respect to the Shares which is inconsistent with the
Tender Agreement. The Tender Agreements contain customary representations and
warranties by the parties. Under the Tender Agreements, Dr. Elkins is obligated
to
36
<PAGE>
tender in the Offer the 840,472 outstanding Shares owned by him, as well as the
287,602 Shares owned by a partnership in which a limited partnership controlled
by Dr. Elkins is a general partner and is afforded sole voting and dispositive
power, and ELI is obligated to tender the 1,331,814 Shares owned by them,
representing in the aggregate 2,459,888 Shares, or 32.4% of the outstanding
Shares and 46.2% of the 5,329,119 Shares required to meet the Minimum Condition.
Under the Tender Agreements, Dr. Elkins will be obligated to vote, to the extent
not tendered with his consent, in favor of the Merger the 449,790 Shares which
he has the right to vote pursuant to the Voting Agreement.
The Tender Agreements provide that the Stockholders entered into such
agreements solely as the owner of Shares, and that the agreements set forth
therein shall in no way prohibit the Stockholder or any of its officers,
directors, employees, representatives or agents from taking, or omitting to
take, any action as a director, employee, representative or agent of the Company
permitted to be taken or omitted under the Merger Agreement.
In order to induce the Parent, the Purchaser and the Company to enter into
the Merger Agreement, the Tender Agreement executed by ELI provides that (i)
Parent and the Purchaser released ELI from all debts, obligations and other
claims it ever had or now has against ELI, (ii) upon Purchaser gaining control
of the Company, Parent and Purchaser would cause the Company to release ELI from
all debts, obligations and other claims it ever had or now has against ELI, and
(iii) upon ELI's receipt of the foregoing release from the Company, ELI's
release of Parent, the Purchaser and the Company from all debts, obligations and
other claims it ever had or now has against the Parent, the Purchaser and the
Company would become effective. In order to induce the Parent, the Purchaser and
the Company to enter into the Merger Agreement, the Tender Agreement executed by
Dr. Elkins provided that upon Purchaser gaining control of the Company, (i) Dr.
Elkins would release the Company from all debts, obligations and other claims he
ever had or now has against the Company and (ii) the Company would release Dr.
Elkins from all debts, obligations and other claims it ever had or now has
against Dr. Elkins.
12. BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth certain information, as of July 31, 1997
(except as otherwise indicated), regarding the ownership of Shares by each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding Shares, as well as each director of the Company, the Chief Executive
Officer of the Company, certain other officers of the Company, and all executive
officers and directors of the Company as a group:
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS(2)
- ------------------------------------- ------------------------- -----------
Robert N. Elkins
8889 Pelican Bay Boulevard
Naples, Florida 33963 ............ 1,600,853(3) 21.0%
Integrated Health Services
10065 Red Run Boulevard
Owing Mills, Maryland 21117 ...... 1,189,274(4) 13.5
Equity-Linked Investors, L.P.
Desai Capital Management Incorporated
Rohit M. Desai
540 Madison Avenue
New York, New York 10022 ......... 665,907(5) 8.8
Equity-Linked Investors-II, L.P.
Desai Capital Management Incorporated
Rohit M. Desai
540 Madison Avenue
New York, New York 10022 ......... 665,907(5) 8.8
Putnam Investments, Inc.
Putnam Investment Mangement, Inc.
The Putnam Advisory Company, Inc.
One Post Office Square
Boston, Massachusetts 02109 ...... 417,700(6) 5.5
37
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS(2)
- ------------------------------------------------------- ------------------------- ------------
<S> <C> <C>
Deborah A. Lau ....................................... 26,190(7) *
William J. Krystopowicz .............................. 64,174(8)(9) *
Wallace Olson, Esq. ................................. 264,444 3.5
John L. Silverman .................................... 43,325(8)(10) *
Michael S. Blass .................................... 35,238(8)(11) *
All current directors and executive officers as a group
(9 persons) .......................................... 1,969,546(4)(12) 25.6
</TABLE>
- ----------
* Less than 1%
(1) The Company has advised Parent and Purchaser that it believes that all
beneficial owners named in the table have sole voting and investment power
with respect to the Shares they beneficially own. The Shares shown in the
table to be beneficially owned include any Shares that the person has the
right to acquire within 60 days of July 31, 1997, by the exercise of any
Company option of which the Company has knowledge. Shares issuable upon the
exercise of options are considered outstanding for the purpose of computing
the percentage of outstanding Shares which would be owned by the optionee
if the options held by such person and currently exercisable or exercisable
within 60 days after July 31, 1997 were exercised, but (except for the
calculation of beneficial ownership by all executive officers and directors
as a group) are not considered outstanding for the purpose of computing the
percentage of outstanding Shares owned by any other person.
(2) Percent of 7,597,801 Shares outstanding as of July 31, 1997, counting as
outstanding for each named person all Shares issuable to such person on
exercise of Company options that are included in the first column.
(3) Includes (a) 840,472 Shares owned individually by Dr. Elkins, (b) 287,602
Shares (3.8%) owned by a partnership in which a limited partnership
controlled by Dr. Elkins is a general partner and is afforded sole voting
(subject to the Voting Agreement described above) and dispositive power,
(c) 449,790 additional Shares (5.9%) subject to the Voting Agreement
described above as to which shares Dr. Elkins has sole voting power but no
dispositive power, (d) 12,000 Shares owned by his wife as to which Dr.
Elkins disclaims beneficial ownership and (e) 10,989 Shares subject to
options. Excludes the 1,189,274 Shares issuable upon exercise of warrants
held by Parent (see footnote 4), of which Dr. Elkins is Chairman of the
Board and Chief Executive Officer. Dr. Elkins disclaims beneficial
ownership of Shares deemed beneficially owned by Parent. See "SPECIAL
FACTORS - Share Ownership by Parent, the Purchaser and Their Affiliates."
(4) Represents Shares issuable upon exercise of warrants. Excludes the Shares
beneficially owned by Dr. Robert N. Elkins (see footnote 3) who is Chairman
of the Board and Chief Executive Officer of Parent, as to which Shares
Parent disclaims beneficial ownership. Dr. Elkins disclaims beneficial
ownership of all warrants held by Parent.
(5) ELI-I and ELI-II are limited partnerships, the general partners of which
are Rohit M. Desai Associates and Rohit M. Desai Associates-II,
respectively. Mr. Rohit M. Desai is the managing general partner of Rohit
M. Desai Associates and Rohit M. Desai Associates-II. Mr. Desai is also the
sole stockholder, Chairman of the Board and President of DCMI, which acts
as an investment advisor to ELI-I and ELI-II. Under the investment advisory
agreements between DCMI and each of ELI-I and ELI-II, DCMI has the power to
vote and dispose of these Shares. Accordingly, each of DCMI and Mr. Desai
may be deemed to be beneficial owners of all 1,331,814 Shares owned in the
aggregate directly by ELI-I and ELI-II. DCMI and Mr. Desai each disclaim
beneficial ownership of such Shares.
(6) Based on a Schedule 13G filed with the Commission and the Company, which
provided information as at December 31, 1996, Putnam Investments, Inc. and
its subsidiaries, Putnam Investment Management Inc. and The Putnam Advisory
Company, Inc., registered investment advisors, have shared voting power
with respect to 45,500 Shares, no voting power with respect to the
remaining 372,200 Shares and shared dispositive power as to all 417,700
Shares.
(7) Includes 16,190 Shares subject to options.
(8) The Shares (and Shares subject to options) owned by such person are subject
to the Voting Agreement described above and, accordingly, each such person
has no voting power, but has sole dispositive power, with respect to such
Shares.
(9) Includes 31,828 Shares subject to options.
(10) Includes 35,242 Shares subject to options.
(11) Includes 10,989 Shares subject to options.
(12) Includes 105,238 Shares subject to options.
38
<PAGE>
THE OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any extension or
amendment), the Purchaser will accept for payment and pay for all Shares which
are validly tendered on or prior to the Expiration Date and not withdrawn as
provided in "THE OFFER - Withdrawal Rights." The term "Expiration Date" shall
mean 12:00 midnight, New York City time, on Thursday, September 4, 1997, unless
and until the Purchaser, in its sole discretion (but subject to the terms of the
Merger Agreement), shall have extended the period of time for which the Offer is
open, in which event "Expiration Date" shall mean the latest time and date at
which the Offer, as so extended by the Purchaser, shall expire.
The Offer is conditioned upon, among other things, (i) the satisfaction of
the Minimum Condition, (ii) the expiration or termination of any waiting period
under the HSR Act applicable to the purchase of Shares pursuant to the Offer and
(iii) the satisfaction of the other conditions set forth under "THE OFFER
Certain Conditions of the Offer."
Subject to the applicable rules and regulations of the Commission,
Purchaser expressly reserves the right (but shall not be obligated), in its sole
discretion (but subject to the terms and conditions of the Merger Agreement), at
any time and from time to time, upon the failure to be satisfied of any of the
conditions to the Offer under "THE OFFER - Certain Conditions of the Offer," to
(i) decline to purchase any of the Shares tendered and terminate the Offer, (ii)
waive such unsatisfied condition (other than the Minimum Condition), and
purchase all Shares validly tendered, (iii) extend the Offer and, subject to the
right of stockholders to withdraw Shares until the Expiration Date, retain the
Shares which have been tendered during the period or periods for which the Offer
is extended or (iv) amend the Offer.
Subject to the applicable rules and regulations of the Commission, the
Purchaser expressly reserves the right, in its sole discretion (but subject to
the terms and conditions of the Merger Agreement), at any time and from time to
time, and regardless of whether or not any of the events set forth under "THE
OFFER - Certain Conditions of the Offer" have occurred, to modify the terms of
the Offer, except that, without the consent of the Company, the Purchaser shall
not (i) reduce the number of Shares to be purchased in the Offer, (ii) reduce
the price for the Shares, (iii) add to the conditions set forth under "THE OFFER
- - Certain Conditions of the Offer," (iv) except as provided in the next
sentence, extend the Offer, (v) change the form of consideration payable in the
Offer or (vi) amend any other term of or add any new term to the Offer in a
manner materially adverse to the stockholders. Notwithstanding the foregoing,
the Purchaser may, without the consent of the Company, but subject to the
Company's right to terminate the Merger Agreement if Shares have not been
accepted for payment on or prior to November 30, 1997, (i) extend the Offer
beyond the Expiration Date, if at the Expiration Date any of the conditions to
the Purchaser's obligation to accept for payment, and pay for, Shares shall not
be satisfied or waived, until such time as such conditions are satisfied or
waived, (ii) extend the Offer for any period required by any rule, regulation,
interpretation or position of the Commission or the staff thereof applicable to
the Offer or in order to obtain any regulatory approval or comply with any other
governmental regulation applicable to the transactions contemplated by the
Merger Agreement, (iii) extend the Offer from time to time until two business
days after expiration of the waiting period under the HSR Act, and (iv) extend
the Offer for an aggregate period of not more than 15 business days beyond the
latest Expiration Date that would otherwise be permitted under clauses (i), (ii)
or (iii) of this sentence if there shall not have been tendered to the Purchaser
sufficient Shares so that the Merger could be effected without a stockholders'
meeting in accordance with Section 253 of the Delaware GCL. UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR TENDERED SHARES,
WHETHER OR NOT PURCHASER EXERCISES ITS RIGHT TO EXTEND THE OFFER.
There can be no assurances that the Purchaser will exercise its right to
extend the Offer. Any extension, amendment or termination will be followed as
promptly as practicable by public announcement. In the case of an extension,
Rule 14e-1(d) under the Exchange Act requires that the announcement be issued no
later than 9:00 a.m., Eastern time, on the next business day after the
previously scheduled Expiration Date in accordance with the public announcement
requirements of Rule 14d-4(c)
39
<PAGE>
under the Exchange Act. Subject to applicable law (including Rules 14d-4(c) and
14d-6(d) under the Exchange Act, which require that any material change in the
information published, sent or given to stockholders in connection with the
Offer be promptly disseminated to stockholders in a manner reasonably designed
to inform stockholders of such change), and without limiting the manner in which
the Purchaser may choose to make any public announcement, the Purchaser will not
have any obligation to publish, advertise or otherwise communicate any such
public announcement other than by making a release to the Dow Jones News
Service. As used in this Offer to Purchase, "business day" means any day other
than a Saturday, Sunday or federal holiday and consists of the time period from
12:01 a.m. through 12:00 midnight, New York City time.
If the Purchaser extends the Offer or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its purchase of or
payment for Shares or is unable to pay for Shares pursuant to the Offer in
accordance with the terms of the Merger Agreement, then, without prejudice to
the Purchaser's rights under the Offer, the Depositary may retain tendered
Shares on behalf of the Purchaser, and such Shares may not be withdrawn except
to the extent tendering stockholders are entitled to withdrawal rights as
described under "THE OFFER - Withdrawal Rights." However, the ability of the
Purchaser to delay the payment for Shares which the Purchaser has accepted for
payment is limited by Rule 14e-1(c) under the Exchange Act, which requires that
a bidder pay the consideration offered or return the securities deposited by or
on behalf of holders of securities promptly after the termination or withdrawal
of such bidder's offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or waives a material condition of the Offer,
subject to the Merger Agreement, the Purchaser will disseminate additional
tender offer materials and extend the Offer to the extent required by Rules
14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during
which the Offer must remain open following material changes in the terms of the
Offer or information concerning the Offer, other than a change in price or a
change in the percentage of securities sought or a change in the dealer's
soliciting fee, will depend upon the facts and circumstances, including the
relative materiality of the terms or information. In the Commission's view, an
offer should remain open for a minimum of five business days from the date a
material change is first published, sent or given to securityholders, and, if
material changes are made with respect to information that approaches the
significance of price and share levels, a minimum of ten business days may be
required to allow for adequate dissemination and investor response. With respect
to a change in price or a change in percentage of securities sought or a change
in the dealer's solicitation fee, a minimum ten business day period is generally
required under the applicable rules and regulations of the Commission to allow
for adequate dissemination to stockholders and for investor response.
The Company has provided to the Purchaser its list of stockholders and
security position listings for the purpose of disseminating the Offer to
stockholders. This Offer to Purchase and the related Letter of Transmittal and
other relevant materials are being mailed to record holders of Shares and will
be furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the stockholder
list or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Shares.
2. PROCEDURE FOR ACCEPTING THE OFFER AND TENDERING SHARES.
Valid Tender. For Shares to be validly tendered pursuant to the Offer,
either (i) a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), together with any required signature guarantees, or an
Agent's Message (as defined below) in connection with a book-entry delivery of
Shares, and any other required documents, must be received by the Depositary at
one of its addresses set forth on the back cover page of this Offer to Purchase,
and Share Certificates for tendered Shares must be received by the Depositary at
one of such addresses or such Share Certificates must be delivered pursuant to
the procedures for book-entry transfer set forth below (and a Book-Entry
Confirmation (as defined below) received by the Depositary) in each case at or
prior to the Expiration Date, or (ii) the tendering stockholder must comply with
the guaranteed delivery procedures set forth below.
40
<PAGE>
Book-Entry Transfer. The Depositary will establish accounts with respect to
the Shares at The Depository Trust Company ("DTC") and the Philadelphia
Depository Trust Company ("PDTC") (DTC and PDTC, each, a "Book-Entry Transfer
Facility" and, collectively, the "Book-Entry Transfer Facilities") for purposes
of the Offer within two business days after the date of this Offer to Purchase.
Any financial institution that is a participant in any of the Book-Entry
Transfer Facility systems may make book-entry delivery of Shares by causing a
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at a Book-Entry Transfer Facility, in accordance with such Book-Entry
Transfer Facility's procedures for transfer. However, although delivery of
Shares may be effected through book-entry transfer at a Book-Entry Transfer
Facility, a Letter of Transmittal (or facsimile thereof), properly completed and
duly executed, together with any required signature guarantees, or an Agent's
Message (as defined below), and any other required documents must, in any case,
be transmitted to and received by the Depositary at one of its addresses set
forth on the back cover page of this Offer to Purchase prior to the Expiration
Date, or the tendering stockholder must comply with the guaranteed delivery
procedures set forth below. The confirmation of a book-entry transfer of Shares
into the Depositary's account at a Book-Entry Transfer Facility as described
above is referred to herein as a "Book-Entry Confirmation." DELIVERY OF
DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY
TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
The term "Agent's Message" means a message transmitted through electronic
means by a Book-Entry Transfer Facility, in accordance with the normal
procedures of such Book-Entry Transfer Facility and the Depositary, to, and
received by, the Depositary and forming a part of a Book-Entry Confirmation,
which states that such Book-Entry Transfer Facility has received an express
acknowledgment from the participant in such Book-Entry Transfer Facility
tendering the Shares which are the subject of such Book-Entry Confirmation that
such participant has received and agrees to be bound by the terms of the Letter
of Transmittal and that the Purchaser may enforce such agreement against the
participant. The term "Agent's Message" shall also include any hard copy
printout evidencing such message generated by a computer terminal maintained at
the Depositary's office.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY,
IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED
DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE
OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal if (i) the Letter of Transmittal is signed by the registered
holder(s) of the Shares (which term, for purposes of this section, includes any
participant in a Book-Entry Transfer Facility system whose name appears on a
security position listing as the owner of the Shares) tendered therewith and
such registered holder(s) has not completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Payment Instructions" on
such Letter of Transmittal or (ii) such Shares are tendered for the account of a
bank, broker, dealer, credit union, savings association or other entity that is
a member in good standing of the Securities Transfer Agents Medallion Program
(an "Eligible Institution"). In all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution. See Instructions 1
and 5 to the Letter of Transmittal.
If the Share Certificates are registered in the name of a person other than
the signer of the Letter of Transmittal, or if payment is to be made, or Share
Certificates not accepted for payment or not tendered are to be returned, to a
person other than the registered stockholder, then the tendered Share
Certificates must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name or names of the registered holder or
holders appear on such Share Certificates, with the signature(s) on such
certificates or stock powers guaranteed as described above. See Instructions 1
and 5 of the Letter of Transmittal.
If Share Certificates are forwarded to the Depositary in multiple
deliveries, a Letter of Transmittal (or manually signed facsimile thereof),
properly completed and duly executed, must accompany each such delivery.
41
<PAGE>
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates are not immediately
available or such stockholder cannot deliver the Share Certificates and all
other required documents to the Depositary prior to the Expiration Date, or such
stockholder cannot complete the procedure for delivery by book-entry transfer on
a timely basis, such Shares may nevertheless be tendered if all of the following
conditions are satisfied:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser herewith, is
received by the Depositary, as provided below, on or prior to the
Expiration Date; and
(iii) the Share Certificates representing all tendered Shares in
proper form for transfer (or a Book-Entry Confirmation with respect to such
Shares) in each case together with a properly completed and duly executed
Letter of Transmittal (or facsimile thereof) are received by the Depositary
within three NASDAQ trading days after the date of execution of the Notice
of Guaranteed Delivery. A "NASDAQ trading day" is any day on which the
Nasdaq National Market is open for business.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, telex, facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in such
Notice of Guaranteed Delivery.
Notwithstanding any other provisions hereof, payment for Shares accepted
for payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (a) Share Certificates for (or a timely Book-Entry
Confirmation with respect to) such Shares, (b) a Letter of Transmittal (or
facsimile thereof) for such Shares, properly completed and duly executed, with
any required signature guarantees, or, in the case of a book-entry transfer, an
Agent's Message, and (c) any other documents required by the Letter of
Transmittal. Accordingly, tendering stockholders may be paid at different times
depending upon when Share Certificates, Book-Entry Confirmations and such other
documents are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL
INTEREST BE PAID BY PURCHASER ON THE PURCHASE PRICE OF THE SHARES TO ANY
TENDERING STOCKHOLDERS, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN
MAKING SUCH PAYMENT.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered Shares pursuant to any of the procedures described above will be
determined by the Purchaser, in its sole discretion, which determination shall
be final and binding on all parties. The Purchaser reserves the absolute right
to reject any or all tenders of any Shares determined by it not to be in proper
form or the acceptance of or payment for which may, in the opinion of the
Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute
right, in its sole discretion, subject to the terms of the Merger Agreement, to
waive any of the conditions of the Offer or any defect or irregularity in any
tender with respect to Shares of any particular stockholder, whether or not
similar conditions, defects or irregularities are waived in the case of other
Shares. No tender of Shares will be deemed to have been validly made until all
defects and irregularities have been cured or waived. None of the Purchaser, the
Parent, any of their affiliates or assigns, the Depositary, the Information
Agent, the Dealer Manager or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. Purchaser's interpretation of the
terms and conditions of the Offer (including the Letter of Transmittal and the
Instructions thereto) will be final and binding.
Appointment as Proxy. By executing the Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints designees of the Purchaser
and each of them as the stockholder's attorneys-in-fact and proxies, each with
full power of substitution, in the manner set forth in the Letter of
Transmittal, to the fullest extent of such stockholder's rights with respect to
the Shares tendered by such stockholder and accepted for payment by the
Purchaser (and with respect to any and all other Shares or other securities
issued or issuable in respect of such Shares on or after the date thereof). All
such powers of attorneys and proxies shall be considered irrevocable and coupled
with an interest in the
42
<PAGE>
tendered Shares. This appointment will be effective when, and only to the extent
that, the Purchaser accepts such Shares for payment. Upon acceptance for
payment, all prior powers of attorneys and proxies given by the stockholder with
respect to the Shares (and such other Shares and securities) will, without
further action, be revoked and no subsequent powers of attorneys and proxies may
be given by or any subsequent written consent executed by such stockholder (and,
if given or executed, will not be deemed effective) with respect thereto. The
designees of the Purchaser will, with respect to the Shares (and such other
Shares and securities) for which such appointment is effective, be empowered to
exercise all voting and other rights of such stockholder as they in their sole
discretion may deem proper at any annual, special or adjourned meeting of the
Company's stockholders, by written consent in lieu of any such meeting or
otherwise. The Purchaser reserves the right to require that, in order for Shares
to be validly tendered, immediately upon the acceptance for payment of such
Shares the Purchaser is able to exercise full voting and other rights of a
record and beneficial stockholder, including rights in respect of acting by
written consent, with respect to such Shares and other securities.
Other Requirements. A tender of Shares pursuant to one of the procedures
described above will constitute the tendering stockholder's acceptance of the
terms and conditions of the Offer. The Purchaser's acceptance for payment of
Shares tendered pursuant to the Offer will constitute a binding agreement
between the tendering stockholder and the Purchaser upon the terms and subject
to the conditions of the Offer.
Backup Federal Income Tax Withholding and Substitute Form W-9. Under the
"backup withholding" provisions of federal income tax law, the Depositary may be
required to withhold 31% of the amount of any payments of cash pursuant to the
Offer. In order to avoid backup withholding, a stockholder tendering Shares in
the Offer must, unless an exemption applies, provide the Depositary with such
stockholder's correct taxpayer identification number ("TIN") on a substitute
Form W-9 and certify, under penalties of perjury, that such TIN is correct and
that such stockholder is not subject to backup withholding. If a stockholder
does not provide its correct TIN or fails to provide the certifications
described above, the Internal Revenue Service ("IRS") may impose a penalty on
such stockholder and payment of cash to such stockholder pursuant to the Offer
may be subject to backup withholding of 31%. All stockholders tendering Shares
pursuant to the Offer should complete and sign the substitute Form W-9 included
in the Letter of Transmittal to provide the information and certification
necessary to avoid backup withholding (unless an applicable exemption exists and
is proved in a manner satisfactory to the Depositary). Certain stockholders
(including among others all corporations and certain foreign individuals and
entities) are not subject to backup withholding. Noncorporate foreign
stockholders should complete and sign a Form W-8, Certificate of Foreign Status,
a copy of which may be obtained from the Depositary, in order to avoid backup
withholding. See Instruction 9 of the Letter of Transmittal.
3. WITHDRAWAL RIGHTS.
Tenders of Shares made pursuant to the Offer are irrevocable, except that
Shares tendered pursuant to the Offer may be withdrawn pursuant to the
procedures set forth below at any time prior to the Expiration Date and, unless
theretofore accepted for payment as provided herein, may also be withdrawn at
any time after October 6, 1997. If the Purchaser extends the Offer, is delayed
in its acceptance for payment of Shares or is unable to purchase or pay for
Shares validly tendered for any reason, then, without prejudice to the
Purchaser's rights hereunder, tendered Shares may be retained by the Depositary
on behalf of the Purchaser and may not be withdrawn except to the extent that
tendering stockholders are entitled to withdrawal rights as set forth in this
section. Any such delay in acceptance for payment will be accompanied by an
extension of the Offer to the extent required by law.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses set forth on the back cover page of this
Offer to Purchase. Any such notice of withdrawal must specify the name of the
person who tendered the Shares to be withdrawn, the number of Shares to be
withdrawn and the name of the registered stockholder, if different from that of
the person who tendered such Shares. If Share Certificates have been delivered
or otherwise identified to the Depositary, then prior to the physical release of
such certificates, the serial numbers shown on the particular Share Certificates
to be withdrawn, and a signed notice of withdrawal with
43
<PAGE>
signatures guaranteed by an Eligible Institution (except in the case of Shares
tendered for the account of the Eligible Institution), must also be furnished to
the Depositary as described above. If Shares have been tendered pursuant to the
procedure for book-entry transfer set forth under "THE OFFER - Procedure for
Accepting the Offer and Tendering Shares," any notice of withdrawal must also
specify the name and number of the account at the applicable Book-Entry Transfer
Facility to be credited with the withdrawn Shares and otherwise comply with such
Book-Entry Transfer Facility's procedures for such withdrawal, in which case a
notice of withdrawal will be effective if delivered to the Depositary by any
method of delivery described in the first sentence of this paragraph.
Withdrawals of tenders of Shares may not be rescinded, and any Shares
properly withdrawn will thereafter be deemed not validly tendered for purposes
of the Offer. Withdrawn Shares may be retendered by again following one of the
procedures described above under "THE OFFER - Procedure for Accepting the Offer
and Tendering Shares" at any time on or prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, which determination shall be final and binding. None of the
Purchaser, the Parent, any of their affiliates or agents, the Depositary, the
Information Agent, the Dealer Manager or any other person will be under any duty
to give notification for any defects or irregularities in any notice of
withdrawal or incur any liability for failure to give any such notification.
4. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment, and will pay for, all
Shares validly tendered prior to the Expiration Date (and not properly
withdrawn) as soon as practicable after the Expiration Date. In all cases,
payment for Shares purchased pursuant to the Offer will be made only upon timely
receipt by the Depositary of (i) certificates for such Shares or Book-Entry
Confirmation of a book-entry transfer of such Shares into the Depositary's
account at a Book-Entry Transfer Facility pursuant to the procedures set forth
under "THE OFFER - Procedure for Accepting the Offer and Tendering Shares," (ii)
the Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, together with any required signature guarantees, or an Agent's Message
in connection with a book-entry transfer, and (iii) any other documents required
by the Letter of Transmittal.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered and not withdrawn
as, if and when the Purchaser gives oral or written notice to the Depositary of
the Purchaser's acceptance for payment of such Shares pursuant to the Offer. In
all cases, upon the terms and subject to the conditions of the Offer, payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price with the Depositary, which will act as agent for tendering
stockholders for the purpose of receiving payment from the Purchaser and
transmitting payment to stockholders whose Shares have been accepted for
payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR TENDERED
SHARES BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING
PAYMENT AFTER THE EXPIRATION DATE. Upon the deposit of funds with the Depositary
for the purpose of making payments to tendering stockholders, Purchaser's
obligation to make such payments shall be satisfied and tendering stockholders
must thereafter look solely to the Depositary for payment of amounts owed to
them by reason of the acceptance for payment of Shares pursuant to the Offer.
Purchaser will pay any stock transfer taxes with respect to the transfer and
sale to it or its order pursuant to the Offer, except as otherwise provided in
Instruction 6 of the Letter of Transmittal, as well as any charges and expenses
of the Depositary and the Information Agent.
If Purchaser is delayed in its acceptance for payment of, or payment for,
tendered Shares or is unable to accept for payment or pay for such Shares
pursuant to the Offer for any reason, then, without prejudice to Purchaser's
rights under the Offer (but subject to Purchaser's obligations under Rule
14e-1(c) under the Exchange Act to pay for or return the tendered Shares
promptly after the termination or withdrawal of the Offer), the Depositary may,
nevertheless, retain tendered Shares on behalf of Purchaser, and such Shares may
not be withdrawn except to the extent tendering stockholders are entitled to
exercise, and duly exercise, withdrawal rights as described under "THE OFFER -
Withdrawal Rights."
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<PAGE>
If any tendered Shares are not accepted for payment for any reason, or if
certificates are submitted for more Shares than are tendered, certificates
evidencing such unpurchased or untendered Shares will be returned, without
expense, to the tendering stockholder (or, in the case of Shares delivered by
book-entry transfer to a Book-Entry Transfer Facility pursuant to the procedures
set forth under "THE OFFER - Procedure for Accepting the Offer and Tendering
Shares," such Shares will be credited to an account maintained within such
Book-Entry Transfer Facility), as promptly as practicable following the
expiration, termination or withdrawal of the Offer.
Purchaser reserves the right to transfer or assign, in whole or from time
to time in part, to one or more of Purchaser's subsidiaries or affiliates, the
right to purchase all or any portion of the Shares tendered pursuant to the
Offer, but any such transfer or assignment will not relieve Purchaser of its
obligations under the Offer or prejudice the rights of tendering stockholders to
receive payment for Shares validly tendered and accepted for purchase.
If the Purchaser varies the terms of the Offer by increasing the
consideration to be paid per Share, the Purchaser shall pay such increased
consideration for all Shares purchased pursuant to the Offer whether or not such
Shares have been tendered prior to such increase.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER.
The following is a summary of certain of the material United States federal
income tax consequences of the receipt of cash for Shares pursuant to the Offer
or the Merger. This summary is for general information only, is based on the law
as currently in effect and does not address all aspects of income taxation that
may be relevant to stockholders. For example, this discussion does not address
tax consequences under any applicable foreign, state, local or other tax laws.
In addition, this discussion does not address the federal income tax
consequences of the receipt of cash for Shares pursuant to the Offer or the
Merger to particular categories of taxpayers subject to special treatment under
the United States federal income tax laws, such as trusts, financial
institutions, broker-dealers, persons who are not citizens or residents of the
United States, tax-exempt organizations, life insurance companies, employees who
acquire their Shares through the exercise of an employee stock option or
otherwise as compensation, and persons who receive payments in respect of
options to acquire Shares. STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO
THEM, INCLUDING THE CONSEQUENCES UNDER FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND AS A RESULT OF CHANGES IN SUCH TAX LAWS, INCLUDING RECENT CHANGES
TO APPLICABLE FEDERAL CAPITAL GAINS RATES AND HOLDING PERIODS.
The receipt of cash for Shares pursuant to the Offer or the Merger will be
a taxable transaction for federal income tax purposes. In general, a stockholder
who receives cash for Shares pursuant to the Offer or the Merger will recognize
gain or loss for federal income tax purposes equal to the difference between the
amount of cash received in exchange for the Shares sold and such stockholder's
adjusted tax basis in such Shares. Provided that the Shares constitute capital
assets in the hands of the stockholder, such gain or loss will be treated as
capital gain or loss. Under the Taxpayer Relief Act of 1997, which was recently
enacted into law, the effective tax rates and holding periods applicable to
capital gains have been modified. The new Act provides that capital gains
recognized on the receipt of cash pursuant to the Offer or the Merger will be
subject to a 20% maximum rate if the stockholder has held the Shares for more
than 18 months at the time of sale. However, a 28% maximum rate would apply if
at the time of sale a stockholder has held the Shares for more than one year but
not more than 18 months. Gain or loss will be calculated separately for each
block of Shares (i.e., a group of Shares with the same tax basis and holding
period).
A stockholder (other than certain exempt stockholders including, among
others, all corporations and certain foreign individuals and entities) that
tenders Shares may be subject to 31% backup withholding unless the stockholder
provides its TIN and certifies that such number is correct or properly certifies
that it is awaiting a TIN, or unless an exemption applies. A stockholder who
does not furnish its TIN may be subject to a penalty imposed by the IRS. See
"THE OFFER - Procedure for Accepting the Offer and Tendering Shares."
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<PAGE>
If backup withholding applies to a stockholder, the Depositary is required
to withhold 31% from payments to such stockholder. Backup withholding is not an
additional tax. Rather, the amount of the backup withholding can be credited
against the Federal income tax liability of the person subject to the backup
withholding, provided that the required information is given to the IRS. If
backup withholding results in an overpayment of tax, a refund can be obtained by
the stockholder upon filing an appropriate income tax return.
6. PRICE RANGE OF SHARES; DIVIDEND INFORMATION.
The Shares, which were initially offered to the public on August 9, 1995 at
a price of $9.50 per Share, are traded in the over-the-counter market and are
quoted on the Nasdaq National Market under the symbol "CCAI".
The following table sets forth, for the quarters indicated, the high and
low sale prices for the Shares on the Nasdaq National Market based on the
Company's 1996 Annual Report on Form 10-K (the "Company's 1996 Form 10-K") by
the Dow Jones Historical Stock Quote Reporter and other publicly available
sources.
High Low
------- ------
Fiscal 1995:
Third Quarter (from August 9) ...... $ 14 $ 9 3/4
Fourth Quarter ..................... 14 5/8 9 3/4
High Low
------- -----
Fiscal 1996:
First Quarter ...................... $ 15 1/2 $ 9
Second Quarter ..................... 13 5/8 9 1/4
Third Quarter ..................... 12 3/8 6
Fourth Quarter ..................... 8 1/8 3 1/2
High Low
------ -----
Fiscal 1997:
First Quarter ........................ $ 4 5/8 $ 2 3/8
Second Quarter ........................ 3 7/8 1 3/8
Third Quarter (through August 6) ...... 4 2 7/8
On July 31, 1997, the last full trading day prior to the announcement of
the execution of the Merger Agreement and the Purchaser's intention to commence
the Offer, the closing price of the Shares as reported on the Nasdaq National
Market was $3.1875. As of August 6, 1997, the last full trading day prior to
commencement of the Offer, such closing price was $3.8125. Stockholders are
urged to obtain current market quotations for the Shares.
The Purchaser has been advised by the Company that since the Company's
initial public offering in August 1995, the Company has neither paid nor
declared any dividends on the Shares, and that it does not intend to declare any
dividends in the foreseeable future. The Company's bank revolving credit
facility prohibits the payment of cash dividends on the Shares, and each of the
Company's leases for its long-term care facilities contains provisions that may
limit the amount of cash dividends that the Company may pay.
Under the terms of the Merger Agreement, the Company has agreed that it
will not (i) declare or pay any dividends on or make any distributions in
respect of its capital stock, (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for such shares of
capital stock, (iii) except as permitted by the Merger Agreement, repurchase,
redeem or otherwise acquire any shares of its capital stock or (iv) issue,
deliver, sell, pledge or encumber, or authorize or propose the issuance,
delivery, sale, pledge or encumbrance of, any shares of its capital stock of any
class or any securities convertible into, or any rights,
46
<PAGE>
warrants, calls, subscriptions or options to acquire, any such shares or
convertible securities, or other ownership interest (other than the issuance of
shares of Common Stock upon the exercise of certain options and warrants
described in the Merger Agreement).
7. EFFECT OF THE OFFER ON THE MARKET FOR SHARES, MARGIN REGULATIONS AND
REGISTRATION UNDER THE EXCHANGE ACT.
Market for the Shares. The purchase of Shares by Purchaser pursuant to the
Offer will reduce the number of Shares that might otherwise trade publicly and
the number of holders of Shares and could adversely affect the liquidity and
market value of the remaining Shares held by the public.
Depending on the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the National Association of
Securities Dealers, Inc. (the "NASD") for continued inclusion in the Nasdaq
National Market, which require the issuer have (i) at least 200,000 publicly
held shares with a market value of $1,000,000, (ii) 400 stockholders or 300
stockholders of round lots, (iii) net tangible assets of $1,000,000, $2,000,000,
or $4,000,000, depending on the profitability of the issuer during the four most
recent fiscal years and (iv) a minimum bid price per share of $1.00 or, in the
alternative, market value of public float of $3,000,000 and $4,000,000 of net
tangible assets. The NASD has filed with the Commission proposed rule changes
which would materially increase the foregoing maintenance criteria. In the event
that Shares were no longer eligible for Nasdaq National Market quotation,
quotations might still be available from other sources. The extent of the public
market for the Shares and the availability of such quotations would, however,
depend upon the number of holders of Shares remaining at such time, the interest
in maintaining a market in the Shares on the part of securities firms, the
possible termination of registration under the Exchange Act, as described below,
and other factors. The Company has informed the Purchaser that as of August 1,
1997 there were approximately 80 stockholders of record of the Shares and in
excess of 2,000 beneficial owners of Shares. If as a result of the Offer, the
Shares no longer meet the requirements of the NASD for continued trading and the
trading of Shares on the Nasdaq National Market is discontinued, the market and
prices for the Shares could be adversely affected.
Margin Regulations. The Shares are currently "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of allowing
brokers to extend credit on the collateral of the Shares. Depending upon factors
similar to those described above regarding listing and market quotations,
following the Offer it is possible that the Shares would no longer constitute
"margin securities" for the purposes of the margin regulations of the Federal
Reserve Board and therefore could no longer be used as collateral for loans made
by brokers.
Registration Under the Exchange Act. The Shares are currently registered
under the Exchange Act. Registration of the Shares under the Exchange Act may be
terminated upon application of the Company to the Commission if the Shares are
not listed on a national securities exchange and there are fewer than 300 record
holders of the Shares. Termination of registration of the Shares under the
Exchange Act would reduce substantially the information required to be furnished
by the Company to the stockholders and to the Commission and would make certain
provisions of the Exchange Act, such as the short-swing profit recovery
provisions of Section 16(b), the requirement of furnishing a proxy statement in
connection with stockholders' meetings pursuant to Section 14(a) and the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions no longer applicable to the Company. Furthermore, if the
Purchaser acquires a substantial number of Shares or the registration of the
Shares under the Exchange Act were to be terminated, the ability of "affiliates"
of the Company and persons holding "restricted securities" of the Company to
dispose of such securities pursuant to Rule 144 under the Securities Act may be
impaired or eliminated. If registration of the Shares under the Exchange Act
were terminated prior to the consummation of the Merger, the Shares would no
longer be "margin securities" or be eligible for Nasdaq National Market
reporting.
The Purchaser currently intends to seek to cause the Company to terminate
the registration of the Shares under the Exchange Act as soon after consummation
of the Offer as the requirements for termination of registration are met. If
registration of the Shares is not terminated prior to the Merger, trading of the
Shares on the Nasdaq National Market will be discontinued, and the registration
of the Shares under the Exchange Act will be terminated, following consummation
of the Merger.
47
<PAGE>
8. CERTAIN INFORMATION CONCERNING THE COMPANY.
The information concerning the Company contained in this Offer to Purchase,
including financial information, has been furnished by the Company or taken
from, or based upon, publicly available documents and records on file with the
Commission and other public sources. The summary information concerning the
Company in this section and elsewhere in this Offer to Purchase is derived from
the Company's 1996 Form 10-K and the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997 (the "Company's 1997 Form 10-Q"). The summary
information set forth below is qualified in its entirety by reference to such
documents (which may be obtained and inspected as described below under
"Available Information") and should be considered in conjunction with the more
comprehensive financial and other information in such documents and other
publicly available reports and documents filed by the Company with the
Commission. Neither Parent nor the Purchaser assumes any responsibility for the
accuracy or completeness of the information contained in such documents and
records, or for any failure by the Company to disclose events that may have
occurred and may affect the significance or accuracy of any such information but
which are not known to the Purchaser.
General. The Company was incorporated on December 28, 1992 as a Delaware
corporation under the name ElderCare of America, Inc. and changed its name to
Community Care of America, Inc. on October 13, 1993. The Company's principal
executive offices are located at 3050 North Horseshoe Drive, Suite 260, Naples,
Florida 34104, and its telephone number is (941) 435-0085.
According to the Company's 1996 Form 10-K, the Company develops and
operates skilled nursing facilities in medically underserved rural communities.
The Company's strategy is to enter rural areas through the acquisition of
long-term care facilities which serve as platforms from which to develop
networks that provide an array of healthcare and related services. The Company
believes that long-term care facilities in rural communities generally represent
underutilized assets to which other services can be added to extend high
quality, cost-effective solutions to address unmet basic healthcare needs for
those who live in rural locations. The Company's strategy is designed to
coordinate flexible, community-based healthcare services, including long-term
care, rehabilitation, adult day care, home healthcare, assisted living and
transportation services. The Company also affiliates with other healthcare
providers whose patients can benefit from utilizing the Company's other
services. During 1996, the Company achieved a growth of 37.4% in revenues
(before a $1.9 million revenue adjustment in 1996) above 1995 levels which was
largely attributable to the acquisition or management of eight facilities in the
Southeast.
As of August 7, 1997, the Company operated 54 licensed long-term care
facilities with 4,450 licensed beds, one rural healthcare clinic, two outpatient
rehabilitation centers, one child day care center and 115 assisted living units
within six of the communities which the Company serves. The Company currently
operates in Alabama, Colorado, Florida, Georgia, Iowa, Kansas, Louisiana, Maine,
Missouri, Nebraska, Texas and Wyoming.
Directors and Officers. The name, address, principal occupation or
employment, five-year employment history and citizenship of each director and
executive officer of the Company is set forth on Schedule II hereto.
Summary Historical Financial Data. The selected consolidated financial data
with respect to the Company and its subsidiaries set forth below and the
information set forth in Schedule III hereto has been excerpted or derived from
information contained in the Company's 1996 Form 10-K and the Company's 1997
Form 10-Q. More comprehensive financial information is included in such reports
(including management's discussion and analysis of financial condition and
results of operations) and in other documents filed by the Company with the
Commission, and the following summary is qualified in its entirety by reference
to such reports and other documents and all of the financial data and notes
contained therein. Such reports and other documents may be examined and copies
may be obtained from the offices of the Commission and the NASD in the manner
set forth below under "Available Information." A copy of the financial
statements set forth in the Company's 1996 Form 10-K is reproduced as Schedule
III hereto.
48
<PAGE>
COMMUNITY CARE OF AMERICA, INC.
SELECTED SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DEC. 31, ENDED MARCH 31,
--------------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ---------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues .................................... $ 57,492 $94,178 $ 127,512 $28,945 $32,694
Operating expenses ................................. 57,098 90,690 133,754 26,766 33,333
Loss on impairment of investments and other
non-recurring charges .............................. - - 22,128 - -
Operating income (loss) ........................... 394 3,488 (28,370) 2,179 (639)
Earnings (loss) before extraordinary charge ......... 394 2,441 (18,905) 2,179 (639)
Net earnings (loss) ................................. 394 1,449 (18,905) 1,352 (477)
Dividends-preferred stock ........................... (653) (408) - - -
Net earnings (loss) applicable to common stock $ (259) $ 1,041 $ (18,905) $ 1,352 $ (477)
======== ======= ========= ======== =======
Net earnings (loss) per share ..................... $ (0.13) $ 0.22 $ (2.56) $ 0.19 $ (0.06)
======== ======= ========= ======== =======
Weighted average number of common and com-
mon equivalent shares outstanding 2,041 4,840 7,385 7,198 7,598
======== ======= ========= ======== =======
<CAPTION>
December 31,
------------------------------------- March 31,
1994 1995 1996 1997
--------- --------- ------------- ----------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) ..................... $ 2,276 $ 4,488 $ (10,952) $(9,801)
Total assets .................................... 62,375 93,290 102,119 102,686
Long-term debt, including current portion ...... 33,086 35,665 60,371 60,172
Redeemable preferred stock and common stock
subject to repurchase ........................ 5,908 2,181 - -
Stockholders' equity ........................... 4,745 31,241 16,003 15,526
</TABLE>
Certain Company Projections. In connection with the Parent's and the
Purchaser's due diligence review of the Company and in the course of the
negotiations between the Company, the Parent and the Purchaser and their
respective advisors described in "SPECIAL FACTORS - Background of the Offer and
the Merger" which led to the execution of the Merger Agreement, the Company
provided the Parent and the Purchaser with certain projections of future
operating performance of the Company which the Parent and the Purchaser believe
are not publicly available. Such projections, which were prepared as part of the
effort to sell the Company, cover the six-year period beginning with 1997 and
assumed that 12 facilities would be sold or closed by the end of 1997. Such
projections did not take into account any of the potential effects of the
transactions contemplated by the Offer or the Merger.
COMMUNITY CARE OF AMERICA, INC. MANAGEMENT PROJECTIONS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1998 1999 2000 2001 2002
---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total revenue ......... $107,475 $117,423 $129,166 $142,082 $156,290 $171,91
Operating income ...... 20,289 25,549 28,104 30,914 34,005 37,40
Net income ............ 1,967 4,734 6,332 8,229 10,466 12,78
</TABLE>
THE COMPANY DOES NOT AS A MATTER OF COURSE MAKE PUBLIC ANY PROJECTIONS AS
TO FUTURE PERFORMANCE OR EARNINGS, AND THE PROJECTIONS SET FORTH ABOVE ARE
INCLUDED IN THIS OFFER TO PURCHASE ONLY BECAUSE THE INFORMATION WAS MADE
AVAILABLE TO THE PARENT AND THE PURCHASER BY THE COMPANY. THE COMPANY HAS
INFORMED
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<PAGE>
THE PARENT AND THE PURCHASER THAT THESE PROJECTIONS WERE NOT PREPARED WITH A
VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE
COMMISSION OR THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED
PUBLIC ACCOUNTANTS REGARDING PROJECTIONS AND FORECASTS. THE COMPANY HAS ALSO
INFORMED THE PARENT AND THE PURCHASER THAT ITS INTERNAL FINANCIAL FORECASTS
(UPON WHICH THE PROJECTIONS PROVIDED TO THE PARENT AND THE PURCHASER WERE BASED
IN PART) ARE, IN GENERAL, PREPARED SOLELY FOR INTERNAL USE AND CAPITAL BUDGETING
AND OTHER MANAGEMENT DECISION-MAKING PURPOSES AND ARE SUBJECTIVE IN MANY
RESPECTS AND THUS SUSCEPTIBLE TO VARIOUS INTERPRETATIONS AND PERIODIC REVISION
BASED ON ACTUAL EXPERIENCE AND BUSINESS DEVELOPMENTS. PROJECTED INFORMATION OF
THIS TYPE IS BASED ON ESTIMATES AND ASSUMPTIONS WHICH THEMSELVES ARE BASED ON
EVENTS AND CIRCUMSTANCES THAT HAVE NOT TAKEN PLACE AND ARE INHERENTLY SUBJECT TO
SIGNIFICANT FINANCIAL, MARKET, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND
CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT AND MANY OF WHICH ARE
BEYOND THE CONTROL OF THE COMPANY, THE PURCHASER OR THE PARENT OR THEIR
RESPECTIVE FINANCIAL ADVISORS. MANY OF THE ASSUMPTIONS UPON WHICH THE FOREGOING
PROJECTIONS WERE BASED, NONE OF WHICH WERE APPROVED BY THE PARENT OR THE
PURCHASER, ARE DEPENDENT UPON ECONOMIC FORECASTING (BOTH GENERAL AND SPECIFIC TO
THE COMPANY'S BUSINESSES), WHICH IS INHERENTLY UNCERTAIN AND SUBJECTIVE.
THEREFORE, IT IS EXPECTED THAT THERE WILL BE DIFFERENCES BETWEEN THE ACTUAL AND
PROJECTED RESULTS AND THAT THE ACTUAL RESULTS MAY BE MATERIALLY HIGHER OR LOWER
THAN THOSE PROJECTED. NONE OF THE PARENT, THE PURCHASER, THE COMPANY OR THEIR
RESPECTIVE FINANCIAL ADVISORS ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OR
VALIDITY OF ANY OF SUCH PROJECTIONS. INCLUSION OF THE FOREGOING PROJECTIONS
SHOULD NOT BE REGARDED AS AN INDICATION THAT PARENT, THE PURCHASER, THE COMPANY
OR ANY OTHER PERSON WHO RECEIVED SUCH INFORMATION CONSIDERS IT AN ACCURATE
PREDICTION OF FUTURE EVENTS, AND NEITHER THE PURCHASER NOR THE PARENT HAS RELIED
ON THEM AS SUCH. NONE OF THE PARENT, THE PURCHASER OR THE COMPANY, OR THEIR
RESPECTIVE FINANCIAL ADVISORS, OR ANY OTHER PARTY, INTENDS TO PUBLICLY UPDATE OR
OTHERWISE PUBLICLY REVISE THE PROJECTIONS SET FORTH ABOVE. THE INDEPENDENT
ACCOUNTANTS FOR THE COMPANY, THE PARENT AND THE PURCHASER HAVE NOT EXAMINED,
REVIEWED OR COMPILED THESE PROJECTIONS AND ACCORDINGLY DO NOT EXPRESS AN OPINION
OR ANY OTHER FORM OF ASSURANCE WITH RESPECT TO THEM.
Available Information. The Company is subject to the information filing
requirements of the Exchange Act and, in accordance therewith, the Company files
periodic reports, proxy statements and other information with the Commission
under the Exchange Act relating to its business, financial condition and other
matters. The Company is required to disclose in such proxy statements certain
information, as of particular dates, concerning the Company's directors and
officers, the remuneration, options granted to them, the principal holders of
the Company's securities and any material interest of such persons in
transactions with the Company. Such reports, proxy statements and other
information may be inspected at the Commission's office at 450 Fifth Street,
N.W., Washington, D.C. 20549, and should also be available for inspection and
copying at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street (Suite 1400), Chicago, IL 60661. Copies may be obtained by mail,
upon payment of the Commission's customary fees, from the Public Reference
Section of the Commission's principal office at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding the Company (and other registrants that file
electronically with the Commission). The address of such Web site is
(http://www.sec.gov). Such material should also be available for inspection at
The Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
9. CERTAIN INFORMATION CONCERNING THE PURCHASER AND THE PARENT.
Purchaser. The Purchaser, a Delaware corporation and wholly owned
subsidiary of the Parent, was incorporated on July 31, 1997 for the purpose of
acquiring the Company and has not engaged in any other business activity except
in connection with the Offer and the Merger. The Purchaser maintains executive
offices c/o Parent, 10065 Red Run Boulevard, Owings Mills, Maryland 21117, and
its telephone number at such address is 410-998-8400.
Parent. Parent (NYSE:IHS) is one of the nation's leading providers of
post-acute healthcare services. Post-acute care is the provision of a continuum
of care to patients following discharge from an acute care hospital. Parent's
post-acute care services include subacute care, home care and inpatient and
outpatient rehabilitation, hospice and diagnostic services. Parent's post-acute
care network is designed to address the fact that the cost containment measures
implemented by private insurers and managed
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care organizations and limitations on government reimbursement of hospital costs
have resulted in the discharge from hospitals of many patients who continue to
require medical and rehabilitative care. Parent's post-acute healthcare system
is intended to provide cost-effective continuity of care for its patients in
multiple settings and enable payors to contract with one provider to provide all
of a patient's needs following discharge from acute care hospitals. Parent
believes that its post-acute care network can be extended beyond post-acute care
to also provide "pre-acute" care, i.e., services to patients which reduce the
likelihood of a need for a hospital stay. The Parent's post-acute care network
currently consists of approximately 1,100 service locations in 41 states.
Parent presently operates 172 geriatric care facilities (116 owned or
leased and 56 managed) and 158 medical specialty units ("MSUs"), which are
typically 20 to 75 bed specialty units with physical identities, specialized
medical technology and staffs separate from the geriatric care facilities in
which they are located within 84 of these facilities. Parent offers a wide range
of basic medical services as well as a comprehensive array of respiratory,
physical, speech, occupational and physiatric therapy in all its geriatric care
facilities. Parent has recently expanded significantly its home healthcare
services, and now offers home nursing, infusion, respiratory and rehabilitation
services.
Parent was incorporated in March 1986 as a Pennsylvania corporation and
reorganized as a Delaware corporation in November 1986. Parent's principal
executive offices are located at 10065 Red Run Boulevard, Owings Mills, Maryland
21117 and its telephone number is (410) 998-8400.
Directors and Officers. The name, business address, present principal
occupation or employment, five-year employment history and citizenship of each
director and of each executive officer of the Parent and the Purchaser are set
forth in Schedule I hereto.
Available Information. Parent is subject to the informational filing
requirements of the Exchange Act and, in accordance therewith, Parent files
periodic reports, proxy statements and other information with the Commission
under the Exchange Act relating to its business, financial condition and other
matters. Parent is required to disclose in such proxy statements certain
information, as of particular dates, concerning the directors and officers of
Parent, the remuneration and stock options granted to them, the principal
holders of its securities and material interests of such persons in transactions
with Parent. Such reports, proxy statements and other information should be
available for inspection and copying at the Commission in the same manner as set
forth with respect to information concerning the Company in "THE OFFER - Certain
Information Concerning the Company." Such material should also be available for
inspection at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, NY 10005. The financial statements set forth in Part I of Parent's
Quarterly Report on 10-Q for the quarter ended March 31, 1997 and pages 55-92 of
Parent's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
are incorporated herein by reference.
Except for the 1,600,853 Shares beneficially owned by Dr. Robert N. Elkins,
Chairman of the Board and Chief Executive Officer of Parent and a director of
the Company (including 737,392 Shares which Mr. Elkins has the right to vote
pursuant to the Voting Agreement and 10,939 Shares issuable upon the exercise of
outstanding options), the 8,083 Shares and options to purchase 35,242 Shares
owned by Mr. John L. Silverman, an employee and director of Parent and a
director of the Company (which Shares are subject to the Voting Agreement), the
187,674 Shares owned by certain other executive officers and directors of Parent
(which Shares are subject to the Voting Agreement) and warrants to purchase
1,189,274 Shares owned by Parent (see "SPECIAL FACTORS Background of the Offer
and the Merger"), none of Purchaser, Parent nor, to the best knowledge of the
Purchaser and Parent, any of the persons listed on Schedule I hereto or any
associate of the Purchaser or the Parent, or any of the persons so listed,
beneficially owns or has a right to acquire directly or indirectly any
securities of the Company. Neither the Purchaser, the Parent, nor to the best
knowledge of the Purchaser, any of the persons or entities referred to above, or
any of the respective executive officers, directors or subsidiaries of any of
the foregoing, has effected any transactions in the securities of the Company
during the past 60 days.
Except as described in this Offer to Purchase, and except for the warrants
to purchase Shares issued by the Company to the Parent and the Voting Agreement
to which Dr. Elkins is a party (see "SPECIAL FACTORS - Background of the Offer
and the Merger" and "SPECIAL FACTORS - Share Owner-
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ship by Parent, Purchaser and Their Affiliates"), neither the Purchaser nor
Parent, nor to the best knowledge of the Purchaser and Parent, any of the
persons listed on Schedule I hereto, has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Company, including, but not limited to, contracts,
arrangements, understandings or relationships concerning the transfer or voting
of such securities, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or withholding of
proxies. Except as described in this Offer to Purchase, neither the Purchaser,
the Parent, nor to the best knowledge of the Purchaser and Parent, any of the
persons listed on Schedule I hereto, has had since the formation of the Company
any business relationships or transactions with the Company or any of its
executive officers, directors or affiliates that are required to be reported
under the rules and regulations of the Commission applicable to the Offer.
Except as described in this Offer to Purchase, since the formation of the
Company, there have been no contacts, negotiations or transactions between the
Purchaser, the Parent or, to the best knowledge of the Purchaser and the Parent,
any of the persons listed in Schedule I hereto, on the one hand, and the Company
or its affiliates, on the other hand, concerning a merger, consolidation or
acquisition, a tender offer or other acquisition of securities, an election of
directors, or a sale or other transfer of a material amount of assets.
10. SOURCE AND AMOUNT OF FUNDS.
The Purchaser estimates that approximately $36.4 million will be required
to (i) purchase Shares pursuant to the Offer and the Merger, (ii) pay the
holders of outstanding stock options an amount equal to the excess of the price
per Share pursuant to the Offer over the exercise price of such stock option,
multiplied by the number of Shares subject to such stock option, (iii) pay the
holders of outstanding warrants an amount equal to the excess of the price per
Share pursuant to the Offer over the exercise price of such warrant, multiplied
by the number of Shares subject to such warrant, and (iv) pay the fees and
expenses related to the Offer.
The Purchaser will obtain the necessary funds for the Offer from the
Parent. The Parent will obtain such funds from (i) its working capital and (ii)
borrowings under its revolving credit facility. The Parent has sufficient
availability under the revolving credit facility to provide the required funds.
On May 15, 1996, the Parent entered into a $700 million revolving credit
facility, including a $100 million letter of credit subfacility, with Citibank,
N.A., as Administrative Agent, and certain other lenders (the "Credit
Facility"). The Credit Facility consists of a $700 million revolving loan which
reduces to $560 million on June 30, 2000 and $315 million on June 30, 2001, with
a final maturity on June 30, 2002. The $100 million subcommitment for letters of
credit will remain at $100 million until final maturity. The Credit Facility is
guaranteed by the Parent's subsidiaries and secured by a pledge of all of the
stock of substantially all of the Parent's subsidiaries. At the option of the
Parent, loans under the Credit Facility bear interest at a rate equal to either
(i) the sum of (a) the higher of (1) the bank's base rate or (2) one percent
plus the latest overnight federal funds rate plus (b) a margin of between zero
percent and one and one-quarter percent (depending on certain financial ratios);
or (ii) in the case of Eurodollar loans, the sum of between three quarters of
one percent and two and one-half percent (depending on certain financial ratios)
and the interest rate in the London interbank market for loans in an amount
substantially equal to the amount of borrowing and for the period of the
borrowing selected by the Parent. The Credit Facility limits the Parent's
ability to incur indebtedness or contingent obligations, to make additional
acquisitions, to create or incur liens on assets, to pay dividends and to
purchase or redeem the Parent's stock. In addition, the Credit Facility requires
that the Parent meet certain financial tests, and provides the banks with the
right to require the payment of all of the amounts outstanding under the Credit
Facility if there is a change in control of the Parent or if any person other
than Dr. Robert N. Elkins, Parent's Chairman and Chief Executive Officer, or a
group managed by Dr. Elkins owns more than 40% of the Parent's capital stock.
Amounts repaid under the Credit Facility may be reborrowed until June 30, 2002.
Citibank, N.A. is acting as the Depositary for the Offer.
Parent anticipates that borrowings under the Credit Facility will be repaid
from operating cash flow of the Parent, the Company and its subsidiaries or
other sources, which may include the proceeds of debt or equity financings of
Parent. No decisions have been made concerning these matters and such
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decisions will be made based on the Parent's review of its business and the
advisability of particular transactions, as well as on prevailing interest rates
and other financial and market conditions.
A copy of the Parent's revolving credit facility has been filed with the
Commission. Reference is made to such exhibit for a more complete description of
the terms and conditions of such document.
11. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provision of the Offer or the Merger Agreement,
the Purchaser shall not be required to accept for payment or, subject to any
applicable rules and regulations of the Commission, including Rule 14e-1(c)
under the Exchange Act (relating to the Purchaser's obligation to pay for or
return tendered Shares after the termination or withdrawal of the Offer), to pay
for any Shares tendered pursuant to the Offer unless (i) there shall have been
validly tendered and not withdrawn prior to the expiration of the Offer such
number of Shares which would constitute a majority of the outstanding shares of
Common Stock of the Company on a fully-diluted basis on the date of purchase
("on a fully-diluted basis" means, as of the date of the purchase of Shares
pursuant to the Offer, the number of Shares outstanding, together with all
Shares of the Company issuable pursuant to options and warrants) and (ii) any
waiting period under the HSR Act applicable to the purchase of Shares pursuant
to the Offer shall have expired or been terminated. Furthermore, notwithstanding
any other term of the Offer or the Merger Agreement, the Purchaser will not be
required to accept for payment or, subject as aforesaid, to pay for any Shares
not theretofore accepted for payment or paid for, and may terminate the Offer
if, at any time on or after the date of the Merger Agreement and before the
acceptance of such Shares for payment or the payment therefor, any of the
following conditions exists (other than as a result of any action or inaction of
the Parent or any of its subsidiaries which constitutes a breach of the Merger
Agreement):
(a) there shall be threatened, instituted or pending by any person or any
Federal, state or local government or any court, administrative agency or
commission or other governmental authority or agency, domestic, foreign or
supranational (a "Governmental Entity") any suit, action or proceeding (i)
challenging the acquisition by Parent or the Purchaser of any Shares under
the Offer, seeking to restrain or prohibit the making or consummation of the
Offer or the Merger or the performance of any of the other transactions
contemplated by the Merger Agreement or seeking to obtain from the Company,
Parent or the Purchaser any damages not covered by insurance which in the
reasonable judgment of Parent are material in relation to the Company and
its subsidiaries taken as whole, (ii) seeking to prohibit or impose any
limitations on Parent's or the Purchaser's ownership or operation (or that
of any of their respective subsidiaries or affiliates) of the Company's
businesses or assets, or to compel Parent or the Purchaser or their
respective subsidiaries and affiliates to dispose of or hold separate any
portion of the business or assets of the Company or Parent and their
respective subsidiaries, (iii) seeking to impose limitations on the ability
of the Purchaser, or render the Purchaser unable, to accept for payment, pay
for or purchase some or all of the Shares pursuant to the Offer and the
Merger, (iv) seeking to impose limitations on the ability of Parent or the
Purchaser effectively to exercise full rights of ownership of any Shares
including, without limitation, the right to vote such Shares on all matters
properly presented to the stockholders of the Company, or (v) which
otherwise in the reasonable judgment of Purchaser are likely to have a
material adverse effect on the Company;
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to
the Offer or the Merger, or any other action shall be taken by any
Governmental Entity, other than the application to the Offer or the Merger
of applicable waiting periods under the HSR Act, that in the reasonable
judgment of Parent is likely to result, directly or indirectly, in any of
the consequences referred to in clauses (i) through (v) of paragraph (a)
above;
(c) there shall have occurred any events that, either individually or in
the aggregate, have caused or in the reasonable judgment of the Parent are
likely to cause a material adverse change with respect to the Company;
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(d) (i) the Board of Directors of the Company or any committee thereof
shall have withdrawn or modified in a manner adverse to Parent or the
Purchaser its approval or recommendation of the Offer, the Merger or the
Merger Agreement, or approved or recommended any Takeover Proposal, (ii) the
Company shall have entered into any agreement with respect to any Superior
Proposal in accordance with the Merger Agreement or (iii) the Board of
Directors of the Company or any committee thereof shall have resolved to
take any of the foregoing actions;
(e) any of the representations and warranties of the Company set forth in
the Merger Agreement that are qualified as to materiality shall not be true
and correct and any such representations and warranties that are not so
qualified shall not be true and correct in any material respect, in each
case as of the date of the Merger Agreement and at the scheduled or extended
expiration of the Offer;
(f) the Company shall have failed to perform or cure within the
applicable cure period any material obligation or to comply in any material
respect with any material agreement or covenant of the Company to be
performed or complied with by it under the Merger Agreement;
(g) the Merger Agreement shall have been terminated in accordance with
its terms;
(h) there shall have occurred (i) any general suspension of, or
limitation of prices for, trading in securities on the New York Stock
Exchange or NASDAQ, (ii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iii) a
commencement of war, armed hostilities or other international or national
calamity directly involving the Armed Forces of the United States, (iv) any
general limitation (whether or not mandatory) by any governmental authority
on the extension of credit by banks or other lending institutions and (v) in
the case of any of the foregoing existing at time of the commencement of the
Offer, a material acceleration or worsening thereof; or
(i) the Parent, Purchaser and the Company shall not have procured
consents (i) to transfer of healthcare licenses in the States of Alabama,
Colorado, Florida, Georgia, Iowa, Kansas, Louisiana, Maine, Missouri,
Nebraska, Texas and Wyoming, (ii) to transfers of the Certificates of Need
in the States of Alabama and Maine and (iii) from Healthcare and Retirement
Properties Trust and Daiwa Healthco 2, L.L.C., the Company's lenders.
The foregoing conditions are for the sole benefit of the Purchaser and the
Parent, may be asserted by the Purchaser and the Parent, in whole or in part, at
any time and from time to time, in the reasonable judgment of the Purchaser and
Parent regardless of the circumstances giving rise to any such condition (other
than a breach by the Parent or the Purchaser), and may be waived by the
Purchaser and Parent in whole or in part at any time and from time to time in
their sole discretion. The failure by Parent or the Purchaser at any time to
exercise any of the foregoing rights will not be deemed a waiver of any right,
the waiver of such right with respect to any particular facts or circumstances
shall not be deemed a waiver with respect to any other facts or circumstances,
and each right will be deemed an ongoing right that may be asserted at any time
and from time to time. Should the Offer be terminated pursuant to the foregoing
provisions, all tendered Shares not theretofore accepted for payment shall be
returned forthwith by the Depositary to the tendering stockholders.
12. CERTAIN LEGAL MATTERS.
General. Except as described in this section, based on its review of
publicly available filings by the Company with the Commission, other publicly
available information concerning the Company and materials which have been
provided to the Parent or the Purchaser by the Company, the Purchaser is not
aware of any license or regulatory permit that appears to be material to the
business of the Company and its subsidiaries taken as a whole that is likely to
be adversely affected by the Purchaser's acquisition of Shares (and the indirect
acquisition of the stock of the Company's subsidiaries) pursuant to the Offer
or, except as set forth below, of any filings, approval or any other action by
any domestic or foreign governmental or administrative authority that would be
required prior to the acquisition of Shares (or the indirect acquisition of the
stock of the Company's subsidiaries) by the Purchaser pursuant to the Offer.
However, should any such approval or other action be required, it is currently
contemplated that
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such approval or action would be sought except as described below in this
section under "State Takeover Laws." Except as permitted by the condition
described under "THE OFFER - Certain Conditions of the Offer," there is no
current intent to delay the purchase of Shares tendered pursuant to the Offer
pending the outcome of any such matter. There can be no assurance that any such
approval or other action, if needed, would be obtained without substantial
conditions or that adverse consequences might not result to the business of the
Company, the Parent or the Purchaser or that certain parts of the businesses of
the Company, the Parent or the Purchaser might not have to be disposed of or
held separate or other substantial conditions complied with in order to obtain
such approval or take such other action or in the event that such approval was
not obtained or such other action was not taken, any of which could cause the
Purchaser to elect (subject to the terms of the Merger Agreement) to terminate
the Offer without the purchase of the Shares thereunder. The Purchaser's
obligation under the Offer to accept for payment and pay for Shares is subject
to certain conditions, including conditions relating to the legal matters
discussed in this section.
State Takeover Laws. The Company is incorporated under the laws of the
State of Delaware. Section 203 of the Delaware GCL prohibits a Delaware
corporation such as the Company from engaging in a "Business Combination"
(defined as a variety of transactions, including mergers) with an "Interested
Stockholder" (defined generally as a person that is the beneficial owner of 15%
or more of a corporation's outstanding voting stock) for a period of three years
following the date that such person became an Interested Stockholder unless (a)
prior to the date such person became an Interested Stockholder, the board of
directors of the corporation approved either the Business Combination or the
transaction that resulted in the stockholder becoming an Interested Stockholder,
(b) upon consummation of the transaction that resulted in the stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding stock held by directors who are also officers
of the corporation and employee stock ownership plans that do not provide
employees with the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer or (c) on or
subsequent to the date such person became an Interested Stockholder, the
Business Combination is approved by the board of directors of the corporation
and authorized at a meeting of stockholders, and not by written consent, by the
affirmative vote of the holders of at least 662|M/3% of the outstanding voting
stock of the corporation not owned by the Interested Stockholder. Parent has
been an Interested Stockholder of the Company for more than three years as a
result of the ownership of Shares by Dr. Robert N. Elkins, Parent's Chairman of
the Board and Chief Executive Officer. The Purchaser was formed after approval
of the Offer, the Merger and the Merger Agreement by the Company Board.
Accordingly, the Company, Parent and the Purchaser believe Section 203 is
inapplicable to the Offer and the Merger.
A number of other states throughout the United States have enacted takeover
statutes that purport, in varying degrees, to be applicable to attempts to
acquire securities of corporations that are incorporated or have assets,
stockholders, executive offices or places of business, or whose business
operations otherwise have substantial effect, in such states. In Edgar v. MITE
Corp., the Supreme Court of the United States held that the Illinois Business
Takeover Act, which involved state securities laws that made the takeover of
certain corporations more difficult, imposed a substantial burden on interstate
commerce and therefore was unconstitutional. In CTS Corp. v. Dynamics Corp. of
America, however, the Supreme Court of the United States held that a state may,
as a matter of corporate law and, in particular, those laws concerning corporate
governance, constitutionally disqualify a potential acquiror from voting on the
affairs of a target corporation without prior approval of the remaining
stockholders, provided that such laws were applicable only under certain
conditions. The state law before the Supreme Court was by its terms applicable
only to corporations that had a substantial number of stockholders in the state
and were incorporated there.
The Company, directly or through subsidiaries, conducts business in a
number of states throughout the United States, some of which have enacted
takeover statutes. Purchaser does not know whether any of these statutes will,
by their terms, apply to the Offer, and has not complied with any such statutes.
To the extent that certain provisions of these statutes purport to apply to the
Offer, Purchaser believes that there are reasonable bases for contesting such
statutes. If any person should seek to apply any state takeover statute,
Purchaser would take such action as then appears desirable, which action may
include challenging the validity or applicability of any such statute in
appropriate court proceedings. If it is asserted that one or more
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takeover statutes apply to the Offer and it is not determined by an appropriate
court that such statute or statutes do not apply or are invalid as applied to
the Offer, Purchaser might be required to file certain information with, or
receive approvals from, the relevant state authorities, and Purchaser might be
unable to purchase or pay for Shares tendered pursuant to the Offer, or be
delayed in continuing or consummating the Offer. In such case, Purchaser may not
be obligated to accept for payment or pay for Shares tendered pursuant to the
Offer.
Antitrust Laws. Under the HSR Act and the rules that have been promulgated
thereunder by the Federal Trade Commission ("FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the FTC and certain waiting period requirements have been
satisfied. The acquisition of Shares pursuant to the Offer is subject to such
requirements. See "THE OFFER - Certain Conditions of the Offer."
Purchaser expects to file a Notification and Report Form with respect to
the Offer under the HSR Act as soon as practicable following commencement of the
Offer. The waiting period under the HSR Act with respect to the Offer will
expire at 11:59 p.m. New York City time, on the 15th day after the date such
form is filed, unless early termination of the waiting period is granted. In
addition, the Antitrust Division or the FTC may extend such waiting period by
requesting additional information or documentary material from Purchaser. If
such a request is made with respect to the Offer, the waiting period related to
the Offer will expire at 11:59 p.m. New York City time on the 10th day after
substantial compliance by Purchaser with such request. With respect to each
acquisition, the Antitrust Division or the FTC may issue only one request for
additional information. In practice, complying with a request for additional
information or material can take a significant amount of time. In addition, if
the Antitrust Division or the FTC raises substantive issues in connection with a
proposed transaction, the parties may engage in negotiations with the relevant
governmental agency concerning possible means of addressing those issues and may
agree to delay consummation of the transaction while such negotiations continue.
Expiration or termination of applicable waiting periods under the HSR Act is a
condition to Purchaser's obligation to accept for payment and pay for Shares
tendered pursuant to the Offer.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of the
Company by the Purchaser. At any time before or after the Purchaser's
acquisition of Shares pursuant to the Offer, the Antitrust Division or the FTC
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the purchase of
Shares pursuant to the Offer or the consummation of the proposed Merger or
seeking the divestiture of Shares acquired by the Purchaser or the divestiture
of substantial assets of the Company or its subsidiaries or the Parent or its
subsidiaries. Private parties may also bring legal action under the antitrust
laws under certain circumstances.
Based upon the examination of publicly available information relating to
the business in which the Parent and the Company are engaged, the Parent and the
Purchaser believe that the acquisition of Shares by the Purchaser will not
violate the antitrust laws. There can be no assurance that a challenge to the
Offer on antitrust grounds will not be made or, if such a challenge is made,
what the outcome will be. See "THE OFFER - Certain Conditions of the Offer" for
certain conditions to the Offer, including conditions with respect to litigation
and certain government actions.
Federal and State Healthcare Regulatory Authorities. The Company owns,
operates and/or manages long-term care and assisted living facilities. The
facilities are operated in Alabama, Colorado, Florida, Georgia, Iowa, Kansas,
Louisiana, Maine, Missouri, Nebraska, Texas and Wyoming.
The regulatory requirements of these jurisdictions require notice of or
approval prior to any direct or indirect change in ownership, control or
management of any of the facilities or services. These regulatory requirements
include, without limitation, those providing for licensure, certificate of need
or similar laws restricting development and/or expansion activities ("CON laws"
or "CON"), participation in the Medicaid program, as well as federal laws
regarding participation in the Medicare and the Medicaid programs. To the extent
that the consummation of the Offer or the consummation of the Merger is
determined to constitute any such change in ownership, control or management of
facilities under the
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applicable regulatory requirements, consummation of the Offer and the
consummation of the Merger would be subject to compliance with the regulatory
requirements of the applicable state, as well as any applicable federal laws and
receipt, to the extent applicable, of any required approvals or other
authorization. The state and federal requirements are subject to interpretation
by the various agencies and may, in certain instances, be subject to waiver.
Pursuant to federal Medicare program standards, providers must notify the
Medicare program as promptly as possible upon initiating negotiations for a
change of ownership but in no event later than 15 working days after the
transaction causing the change in ownership occurs. When a provider undergoes a
change in ownership, the provider must also file a final cost report no later
than 45 days following the change in ownership. According to Medicare program
standards, the merger of the provider corporation into another corporation, or
the consolidation of two or more corporations, resulting in the creation of a
new corporation constitutes a change in ownership. However, transfer of
corporate stock or the merger of another corporation into the provider
corporation does not constitute a change in ownership.
Alabama. The Alabama CON standards exempt from review a transfer of
ownership interest in a long term care facility; however, licensure requirements
include a letter of non-reviewability from the State Health Planning and
Development Agency. The licensure regulatory requirements provide the notice of
any change of ownership of a long term care facility be filed with the
Department of Public Health, Division of Licensure and Certification
approximately 30 days prior to the change of ownership.
Colorado. The Colorado licensure requirements provide that a letter of
intent must be submitted to the Department of Public Health and Environment
("DPHE") at least 30 days prior to any change of ownership or control of a long
term care facility. Such notification must explicitly detail the pending
transaction. DPHE will evaluate the letter of intent and if deemed a change of
ownership, DPHE will forward an application, which must be completed and filed
with DPHE at least 30 days prior to the change occurring. Additionally, Health
Care Policy and Financing ("HCPF") must be notified at least 60 days prior to a
transfer of ownership or control of a long term care facility participating in
the Colorado Medicaid program. Notification of HCPF must sufficiently detail the
transaction, including any Purchase Agreement, for evaluation of the necessity
of issuing new provider numbers.
Florida. The Florida CON standards exempt from CON review a transfer of
ownership in a long term care facility. The regulatory requirements provide that
a transfer of corporate stock does not constitute a change in ownership;
however, the Florida Agency for Health Care Administration requires notification
prior to the final transfer.
Georgia. The Georgia CON standards exempt from CON review a transfer of
ownership in a long term care facility. The Georgia regulatory requirements
provide that notification of a change in ownership or control of a long term
care nursing facility be provided to the Georgia Office of Regulatory Services
at least 30 days prior to the final transfer.
Iowa. The Iowa CON standards exempt from CON review a transfer of ownership
in a long term care facility. The Iowa regulatory requirements provide that
notification of a change in ownership or control of a long term care nursing
facility be provided to the Iowa Health Facilities Division at least 30 days
prior to the final transfer.
Kansas. The Kansas regulatory requirements provide that notification of a
change in ownership or control of a long term care nursing facility be provided
to the State of Kansas Department of Health and Environment, Bureau of Adult &
Child Care at least 30 days prior to the final transfer.
Louisiana. The Louisiana CON standards exempt from CON review a transfer of
ownership in a long term care facility. The Louisiana regulatory requirements
provide that notification of a change in ownership or control of a long term
care nursing facility be provided to the Louisiana Department of Health and
Hospitals, Bureau of Health Services Financing, Health Standards Section at
least 30 days prior to the final transfer.
Maine. The Offer and the Merger will not require any licensing notification
in the State of Maine.
57
<PAGE>
Missouri. The Missouri CON standards exempt from CON review a transfer of
ownership in a long term care facility. The Missouri regulatory requirements
provide that notification of a change in ownership or control of a long term
care nursing facility be provided to the Missouri Department of Social Services,
Division of Aging at least 30 days prior to the final transfer.
Nebraska. The Nebraska CON standards exempt from CON review a transfer of
ownership in a long term care facility. The Nebraska regulatory requirements
provide that notification to the Nebraska Department of Health, Division of
Licensing of a change in ownership or control of a long term care nursing
facility must occur within 48 hours of such change. Completed license
applications, for information purposes, including applicable fees, are to be
provided to the NDOH at least 30 days prior to the final transfer.
Texas. The Texas regulatory requirements provide that notification of a
change in ownership or control of a long term care nursing facility be provided
to the Texas Department of Human Services, Licensing Section at least 30 days
prior to the final transfer.
Wyoming. The Wyoming regulatory requirements provide that notification of a
change in ownership or control of a long term care nursing facility be provided
to the Wyoming Office of Health Quality at least 30 days prior to the final
transfer.
Federal Reserve Board Regulations. The margin regulations promulgated by
the Federal Reserve Board place restrictions on the amount of credit that may be
extended for the purpose of purchasing margin stock (including the Shares) if
such credit is secured by directly or indirectly by margin stock. The Purchaser
and the Parent believe that the financing of the acquisition of the Shares will
not be subject to the margin regulations.
13. FEES AND EXPENSES.
Shattuck Hammond is acting as Dealer Manager in connection with the Offer
and has provided certain financial advisory services in connection with the
acquisition of the Shares. Parent has agreed to compensate Shattuck Hammond for
its services as Dealer Manager and its financial advisory services and to
reimburse Shattuck Hammond for reasonable out-of-pocket expenses, including
reasonable attorneys' fees, and has also agreed to indemnify Shattuck Hammond
against certain liabilities and expenses in connection with the Offer, including
liabilities under the federal securities laws.
The Purchaser has retained Citibank N.A. to act as Depositary and MacKenzie
Partners, Inc. to serve as Information Agent in connection with the Offer. The
Information Agent may contact holders of Shares by mail, telephone, telecopy,
telegraph and personal interview and may request banks, brokers, dealers and
nominee stockholders to forward materials relating to the Offer to beneficial
owners. The Purchaser has agreed to pay each of the Depositary and the
Information Agent reasonable and customary compensation for their services in
connection with the Offer, plus reimbursement for out-of-pocket expenses, and
has agreed to indemnify each of them against certain liabilities and expenses in
connection therewith, including certain liabilities under the federal securities
laws.
Neither the Purchaser nor the Parent will pay any fees or commissions to
any broker or dealer or other person (other than the Dealer Manager, the
Information Agent and the Depositary) in connection with the solicitation of
tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks and
trust companies will be reimbursed by the Purchaser for customary mailing and
handling expenses incurred by them in forwarding materials to their customers.
58
<PAGE>
The following is an estimate of expenses to be incurred in connection with
the Offer and the Merger:
Expenses To Be Paid By Purchaser And Its Affiliates:
Financial Advisor/Dealer Manager ............... $ 450,00
Legal Fees ....................................... 225,00
Printing and Mailing ........................... 110,00
Filing Fees .................................... 75,00
Depositary Fees ................................. 50,00
Information Agent Fees ........................... 7,50
Miscellaneous .................................... 82,50
----------
Total .......................................... $1,000,00
==========
Expenses To Be Paid By The Company:
Financial Advisors .............................. $2,050,00
Legal Fees ....................................... 200,00
Printing and Mailing ........................... 50,00
Miscellaneous .................................... 50,00
----------
Total .......................................... $2,350,00
==========
14. MISCELLANEOUS.
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the securities,
blue sky or other laws of such jurisdiction. However, the Purchaser may, in its
sole discretion, take such action as it may deem necessary to make the Offer in
any such jurisdiction and extend the Offer to holders of Shares in such
jurisdiction. In any jurisdiction where the securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on behalf of the Purchaser by the Dealer Manager or one or
more registered brokers or dealers that are licensed under the laws of such
jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER OR THE PARENT NOT CONTAINED HEREIN OR
IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE
DELIVERY OF THIS OFFER TO PURCHASE NOR ANY PURCHASE PURSUANT TO THE OFFER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF PURCHASER OR THE COMPANY SINCE THE DATE AS OF WHICH INFORMATION
IS FURNISHED OR THE DATE OF THIS OFFER TO PURCHASE.
Parent and Purchaser have filed with the Commission a Tender Offer
Statement on Schedule 14D-1, together with exhibits, pursuant to Rule 14d-3
under the Exchange Act, and Parent, Purchaser and the Company have filed with
the Commission a Rule 13e-3 Transaction Statement on Schedule 13E-3, together
with exhibits, pursuant to Rule 13e-3 under the Exchange Act, furnishing certain
additional information with respect to the Offer. In addition, the Company has
filed with the Commission a Solicitation/Recommendation Statement on Schedule
14D-9, together with exhibits, pursuant to Rule 14d-9 under the Exchange Act,
setting forth the recommendation of the Company Board and the Special Committee
with respect to the Offer and the reasons for such recommendations and
furnishing certain additional related information. Such Schedules and any
amendments thereto, including exhibits, may be inspected and copies may be
obtained from the Commission in the manner set forth under "THE OFFER - Certain
Information Concerning the Company" (except that they will not be available at
the regional offices of the Commission).
IHS ACQUISITION XXVI, INC.
August 7, 1997
59
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS
OF PARENT AND PURCHASER
Directors and Executive Officers of Parent. The name of each director and
each executive officer of Integrated Health Services, Inc. is set forth below.
The business address of each executive officer is 10065 Red Run Boulevard,
Owings Mills, Maryland 21117, telephone: 410-998-8400, except that the business
address for each of Messrs. Cirka and Robert N. Elkins is 8889 Pelican Bay
Boulevard, Naples, Florida 34108. Each person is a citizen of the United States
of America. The present principal occupation of employment of each person listed
below and such person's five-year employment history is set forth next to his or
her name.
<TABLE>
<CAPTION>
NAME, ADDRESS AND PRESENT PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
POSITION WITH PARENT MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ---------------------------------- -----------------------------------------------------------
<S> <C>
ROBERT N. ELKINS, M.D Robert N. Elkins, M.D. has been Chairman of the Board and
CHAIRMAN OF THE BOARD AND CHIEF Chief Executive Officer of Parent since March 1986 and also
EXECUTIVE OFFICER served as President from March 1986 to July 1994. From 1980
until co-founding Parent with Timothy F. Nicholson, a
director of Parent, in 1986, Dr. Elkins was a co-founder
and Vice President of Continental Care Centers, Inc., an
owner and operator of long-term healthcare facilities. From
1976 through 1980, Dr. Elkins was a practicing physician.
Dr. Elkins is a graduate of the University of Pennsylvania,
received his M.D. degree from the Upstate Medical Center,
State University of New York, and completed his residency
at Harvard University Medical Center.
LAWRENCE P. CIRKA Lawrence P. Cirka has been President and a director of
PRESIDENT AND DIRECTOR Parent since July 1994, and served as Chief Operat- ing
Officer of Parent from October 1987 to April 1997 and
Senior Vice President of Parent from October 1987 to July
1994. Prior to joining Parent, Mr. Cirka served in various
operational capacities with Unicare Healthcare Corporation,
a long-term healthcare company, for 15 years, most recently
as Vice President-Western Division, where he had
operational and financial responsibility for 46 long-term
healthcare facilities exceeding 5,000 beds. Mr. Cirka is a
graduate of Clarion University and a Licensed Nursing Home
Administrator in Pennsylvania, Florida and Washington.
EDWIN M. CRAWFORD Edwin M. Crawford has been a director of Parent since 1995.
DIRECTOR Since 1993 he has been Chairman of the Board of Directors,
Magellan Health Services, Inc. President and Chief Executive Officer of Magellan Health
3414 Peachtree Road Services, Inc. (formerly Charter Medical Corporation), and
Atlanta, Georgia 30326 served as President and Chief Operating Officer of Charter
Medical from 1992 to 1993. From 1990 to 1992 he was
Executive Vice President - Hospital Operations of Charter
Medical.
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND PRESENT PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
POSITION WITH PARENT MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- -------------------------------- ------------------------------------------------------------
<S> <C>
KENNETH M. MAZIK Kenneth M. Mazik has been a director of Parent since 1995.
DIRECTOR For the past five years he has been a private investor
Jovius Foundation involved in numerous enterprises. He serves as Chairman of
699 E. Fifth Avenue the Jovius Foundation and as President of Au Clair Programs
Mt. Dora, Florida 32757 and Orlando Financial Corporation, specializing in
investments in long-term care of the disabled.
ROBERT A. MITCHELL Robert A. Mitchell has been a director of Parent since
Director 1995. From 1986 to the present he has practiced law with
162 E. 64th Street the Law Offices of Robert A. Mitchell, with an emphasis on
New York, NY 10021 corporate and entertainment law, as well as finance and
public relations matters concerning healthcare acqui-
sitions. Since 1992 he has been founder, director and
treasurer of the Bone Marrow Foundation.
CHARLES W. NEWHALL III Charles W. Newhall III has been a director of Parent since
DIRECTOR 1986. For over five years he has been General Part- ner of
New Enterprise Associates New Enterprise Associates, a group of venture capital
1119 St. Paul Street partnerships.
Baltimore, Maryland 24202
TIMOTHY F. NICHOLSON Timothy F. Nicholson has been a director of Parent since
DIRECTOR 1986. Since May 1993 he has served as Chairman and Managing
Speciality Care PLC Director of Speciality Care PLC. From March 1986 to May
Hamilton House 1993 he was Executive Vice President of Parent and from
1 Temple Avenue November 1986 to May 1993 he was Secretary of Parent. From
London, EC4Y OHA, England 1980 to 1986 he served as Ex- ecutive Vice President of
Continental Care Centers, Inc., and from 1973 to 1980 he
was a practicing attorney.
JOHN L. SILVERMAN John L. Silverman has been a director of Parent since 1986
DIRECTOR AND CHIEF EXECUTIVE and Chief Executive Officer and President of Asia Care,
OFFICER AND PRESIDENT OF ASIA Inc., a subsidiary of Parent, since June 1995. From 1985 to
CARE, INC. 1995 he was President of VentureCorp, Inc., a venture
Asia Care, Inc. capital and investment management company, and from 1990 to
Suite 28(B), 28th Floor 1996 he was President and Chief Finan- cial Officer of Chi
Wisma Denmark Systems, Inc. (formerly the Chi Group, Inc.), a healthcare
86 Jalan Ampang consulting company.
50450 Kuala Lumpur, Malaysia
GEORGE H. STRONG George H. Strong has been a director of Parent since 1994
DIRECTOR and is currently a director of several corporations. From
946 Navesink River Road 1978 until 1993, he served as a director and senior officer
Locust, New Jersey 07760 of Universal Health Services, Inc., a publicly owned
hospital management corporation.
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND PRESENT PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
POSITION WITH PARENT MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ---------------------------------- ---------------------------------------------------------
<S> <C>
W. BRADLEY BENNETT W. Bradley Bennett has been Executive Vice President -
EXECUTIVE VICE PRESIDENT - Chief Accounting Officer of Parent since September 1996.
CHIEF ACCOUNTING OFFICER From April 1996 to September 1996, he served as Senior Vice
President - Chief Accounting Officer of Parent, as Senior
Vice President - Corporate Controller from November 1995 to
April 1996, and as Vice President - Corporate Controller
from December 1992 to November 1995. From October 1991,
when he joined Parent, to December 1992, he served as
Assistant Corporate Controller. For five years prior to
joining Parent, Mr. Bennett was with KPMG Peat Marwick LLP,
Certified Public Accountants. Mr. Bennett is a Certified
Public Accountant and a Summa Cum Laude graduate of Loyola
College, receiving a B.A. in Accounting.
BRIAN K. DAVIDSON Brian K. Davidson has been Executive Vice President -
EXECUTIVE VICE PRESIDENT - Development of Parent since November 1995. From January
DEVELOPMENT 1993 to November 1995 he served as Senior Vice President -
Development. From January 1991, when he joined Parent, to
January 1993 he served as Senior Vice President - Managed
Operations of Parent. For more than five years prior to
joining Parent, Mr. Davidson served as Chief Operating
Officer of the Tutera Group, a management company operating
skilled nursing beds and retirement apartment units. Mr.
Davidson received B.S. and M.S. degrees from Central
Missouri State University.
VIRGINIA M. DOLLARD Virginia M. Dollard has been Executive Vice President -
EXECUTIVE VICE PRESIDENT - POST Post Acute Network Operations of Parent since April 1997.
ACUTE NETWORK OPERATIONS From January 1997 to April 1997 she served as Senior Vice
President - Post Acute Network Operations of Parent and
from May 1995 to January 1997 as Senior Vice President,
Southeast Division of Parent. For several years prior to
joining Parent, Ms. Dollard was Executive Vice-President
and Chief Operating Officer of HealthPlus-New York Life
Health plan, a 350,000 member HMO/PPO subsidiary of New
York Life Insurance Company. Ms. Dollard graduated Magna
Cum Laude from Roger Williams College with a B.S. in Health
and Social Services Administration. She also received an
M.A. in Management with Distinction from Pepperdine
University.
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND PRESENT PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
POSITION WITH PARENT MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ------------------------------- ----------------------------------------------------------
<S> <C>
MARSHALL A. ELKINS Marshall A. Elkins has been Executive Vice President and
EXECUTIVE VICE PRESIDENT AND General Counsel of Parent since November 1995. From July
GENERAL COUNSEL 1992 to November 1995 he served as Senior Vice President
and General Counsel of Parent and from January 1990 to July
1992 he served as General Counsel and Vice President of
Parent. From July 1987 until joining Parent in 1990, Mr.
Elkins was in private practice in New York City. Mr. Elkins
served as General Counsel to US West Capital Corporation
and later as Assistant General Counsel of US West Financial
Services Corporation from July 1985 to July 1987. Prior
thereto, Mr. Elkins was associate counsel at CIT Cor-
poration from 1980 to 1985. Mr. Elkins received a B.A.
degree from the University of Wisconsin and a J.D. from New
York Law School.
ELEANOR C. HARDING Eleanor C. Harding has been Executive Vice President -
EXECUTIVE VICE PRESIDENT - Finance of Parent since September 1996. From November 1995
FINANCE to September 1996 she served as Senior Vice President -
Finance and Treasurer and from August 1993 to November 1995
she served as Vice President - Finance and Treasurer of
Parent. From January 1990 until she joined Parent in August
1993, Ms. Harding served as Senior Vice President, Chief
Financial Officer and Treasurer of the Marcor Company.
Prior to January 1990, Ms. Harding served in similar
positions for Jiffy Lube International, Inc. and The Black
and Decker Corporation. Ms. Harding received a B.A. in
Economics from Mount Holyoke College and an M.S. in Finance
from Loyola College.
MARC B. LEVIN Marc B. Levin has been Executive Vice President - Investor
EXECUTIVE VICE PRESIDENT - Relations since November 1995. From March 1993 to November
INVESTOR RELATIONS 1995 he served as Senior Vice President - Investor
Relations and from May 1991 to March 1993 he served as Vice
President - Investor Relations of Parent. From March 1989
until May 1991, Mr. Levin served as Vice President -
Corporate Controller/Administration of Parent. Prior to
joining Parent in 1989, Mr. Levin served in various
capacities with Beverly Enterprises for six years, most
recently as Assistant to the President - Eastern Division.
Mr. Levin is a Certified Public Accountant and received
B.S. and M.B.A. degrees from the University of Maryland.
</TABLE>
I-4
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND PRESENT PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
POSITION WITH PARENT MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ----------------------------- ---------------------------------------------------------
<S> <C>
ANTHONY R. MASSO Anthony R. Masso has been Executive Vice President -
EXECUTIVE VICE PRESIDENT - Managed Care since June 1994. Prior to joining Parent, Mr.
MANAGED CARE Masso served in several managed care operating roles as
Senior Vice President of American MedCenters, an HMO
company in Minneapolis and as Regional Vice President of
Aetna Health Plans for the Midwest and Eastern Divisions.
He had operational responsibility for thirteen HMOs,
serving on the boards of ten. For twelve years, Mr. Masso
served as a senior executive in the federal HMO office of
the Department of Health and Human Services. Mr. Masso is a
graduate of the University of Rhode Island and holds a
master's degree from Syracuse University.
C. CHRISTIAN WINKLE C. Christian Winkle has been Chief Operating Officer of
CHIEF OPERATING OFFICER Parent since April 1997. From November 1995 to April 1997,
he served as Executive Vice President - Field Operations of
Parent's owned and leased facilities, and from March 1994
to November 1995 he served as Senior Vice President -
Operations. Mr. Winkle joined Parent in September 1990 as
Regional Vice President of Operations and President - MSU
Prod- uct Development. Prior to joining Parent, Mr. Winkle
was the Executive Director of the Renaissance Reha-
bilitation & Diagnostic Hospital in Chattanooga, Ten-
nessee. Mr. Winkle is a graduate of Case Western Reserve
University in Cleveland, Ohio.
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER. The directors of Purchaser
are Lawrence P. Cirka, Eleanor C. Harding and Marc B. Levin, each of whom is an
executive officer of Parent. The executive officers of Purchaser are Robert N.
Elkins, Lawrence P. Cirka, W. Bradley Bennett, Brian K. Davidson, Virginia M.
Dollard, Marshall A. Elkins, Eleanor C. Harding, Marc B. Levin, Anthony R. Masso
and C. Christian Winkle, each of whom is an executive officer of Parent and
holds the same office as that in Parent, except that Robert N. Elkins is not
Chairman of the Board. Each of the directors and executive officers was
appointed or elected to office on July 31, 1997. Unless otherwise indicated
above, the business address of each such person is 10065 Red Run Boulevard,
Owings Mills, Maryland 21117, telephone: 410-998-8400. Each person is a citizen
of the United States of America. The present principal occupation or employment
of each such person and such person's five-year employment history is set forth
next to his or her name.
I-5
<PAGE>
SCHEDULE II
DIRCTORS AND EXECUTIVE OFFICERS
OF THE COMPANY
Directors and Executive Officers of the Company. The name of each director
and each executive officer of Community Care of America, Inc. is set forth
below. The business address of each executive officer is 3050 North Horseshoe
Drive, Suite 260, Naples, Florida, 34104, telephone: 941-435-0085. Each person
is a citizen of the United States of America. The present principal occupation
of employment of each person listed below and such person's five-year employment
history is set forth next to his or her name.
<TABLE>
<CAPTION>
NAME, ADDRESS AND PRESENT PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
POSITION WITH THE COMPANY MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ------------------------------- ----------------------------------------------------------
<S> <C>
MICHAEL S. BLASS Michael S. Blass, 41, has been a director since July 1995.
DIRECTOR Mr. Blass has been a partner in the law firm of Blass &
c/o Blass & Driggs Driggs for more than the past five years. Mr. Blass
461 Fifth Avenue received a B.A. degree from Georgetown University and a
New York, New York 10017 J.D. Degree from Fordham University.
ROBERT N. ELKINS, M.D. Robert N. Elkins, M.D., 53, co-founder of the Company, has
DIRECTOR served as a director since December 1992. Since March of
8889 Pelican Bay Boulevard 1986, Dr. Elkins has also served as Chairman of the Board
Naples, Florida 34108 and Chief Executive Officer of Parent, and he also served
as President from March 1986 to July 1994. From 1980 until
co-founding Parent with Timothy F. Nicholson, a director of
Parent, Dr. Elkins was a co-founder and Vice President of
Continental Care Centers, Inc., an owner and operator of
long-term healthcare facilities. From 1976 through 1980,
Dr. Elkins was a practicing physician. Dr. Elkins is a
graduate of the University of Pennsylvania, received his
M.D. degree from the Upstate Medical Center, State
University of New York, and completed his residency at
Harvard University Medical Center. Dr. Elkins is also a
director of Capstone Capital Corpora- tion and Davstar
Industries, Inc.
WILLIAM J. KRYSTOPOWICZ William J. Krystopowicz, 45, has been Executive Vice
EXECUTIVE VICE PRESIDENT AND President since February 1994. From July 1993 until
DIRECTOR OF MERGERS AND February 1994, Mr. Krystopowicz served as the Interim
ACQUISITIONS President. He also served as the Company's Chief Fi-
nancial Officer from February 1994 until June 1995, at
which time he became the Director of Mergers and
Acquisitions. Prior to joining the Company in July 1993,
Mr. Krystopowicz served as Parent's Senior Vice President
of Financial Services since August 1988. Mr. Krystopowicz
received a B.S. degree in accounting from LaSalle
University.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND PRESENT PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
POSITION WITH THE COMPANY MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- --------------------------------------- ----------------------------------------------------------
<S> <C>
DEBORAH A. LAU Deborah A. Lau, 37, has served as President, Chief
PRESIDENT, CHIEF EXECUTIVE Executive Officer, Chief Financial Officer and director
OFFICER, CHIEF FINANCIAL OFFICER (while retaining the post of Chief Operating Officer) since
AND DIRECTOR April 4, 1997. Prior to that time, since October 1995, when
she joined the Company, Ms. Lau served as Executive Vice
President and Chief Operating Officer. From March 1989
until she joined the Company, Ms. Lau served with Parent as
its Regional Vice President from March 1989 to November
1993, Vice President Healthcare Controller from November
1993 to December 1994 and Vice President of Financial Oper-
ations from January 1995. Prior to March 1989, Ms. Lau
served as Assistant Controller at Continental Care Centers,
Inc. Ms. Lau received a B.S. degree in accounting and
business administration at Towson State University.
WALLACE OLSON Wallace Olson, 50, has served as a director since June
DIRECTOR 1997. Mr. Olson has been involved in long-term health care
207 Krystal Building since 1985. From 1990 to 1996, Mr. Olson was a principal
1 Union Square and chief executive officer for Southern Care Centers,
Chattanooga, Tennessee 37404 Inc., a long-term health care company, which in 1996 was
sold to the Company. Prior thereto, Mr. Olson was Vice
President - Acquisitions for Nursing Care Centers of
America, Inc., Vice President - Acquisitions of Harborside
Healthcare and Director of Acquisitions for Life Care
Centers of America, Inc. Mr. Olson practiced as a public
accountant from 1971 to 1984.
JOHN L. SILVERMAN John L. Silverman, 55, has served as Chairman of the Board
CHAIRMAN OF THE BOARD AND and director since December 1993. Since July 1995, he has
DIRECTOR been President and Chief Executive Officer of Asia Care,
c/o Integrated Health Services, Inc. Inc., a subsidiary of Parent. From 1985 to 1995, he was
10065 Red Run Boulevard also President and Chief Executive Officer of Venturecorp,
Owings Mills, Maryland 21117 Inc., a venture capital and investment management company.
From 1990 to 1996, he was President of Chi Systems, Inc.
(formerly the Chi Group, Inc.), a healthcare consulting
company. Mr. Silverman has also been a director of Parent
since 1986.
</TABLE>
II-2
<PAGE>
SCHEDULE III
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1995 1996 1997
--------- ----------- ------------
(unaudited)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ............................................. $ 2,485 $ 1,709 $ 611
Accounts receivable (note 3) .......................................... 12,934 16,407 17,934
Inventories ............................................................ 1,534 1,761 1,754
Prepaid expenses and other current assets .............................. 3,662 1,095 1,295
------- --------- ---------
Total current assets ................................................ 20,615 20,972 21,594
Property, plant and equipment, net of accumulated depreciation (notes
4 and 6) ............................................................... 54,327 58,424 58,209
Notes receivable (note 16) ............................................. 2,533 - -
Deposits ............................................................... 10,244 6,637 6,637
Excess of cost over fair value of net assets acquired, net of accumulated
amortization of $139 in 1995, $710 in 1996 and $899 in 1997 (note 2). 3,299 13,666 13,496
Deferred financing costs ................................................ 948 1,066 1,326
Other assets ............................................................ 1,324 1,354 1,424
------- --------- ---------
$93,290 $102,119 $ 102,686
======= ========= =========
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term debt (note 6) ........................ $ 1,258 $ 6,341 $ 4,407
Accounts payable and accrued expenses (note 5) ........................ 14,869 23,402 24,807
Put option contracts payable (219,798 shares) (note 16) ............... - 2,181 2,181
------- --------- ---------
Total current liabilities .......................................... 16,127 31,924 31,395
------- --------- ---------
Long-term debt, less current maturities (note 6) ........................ 34,407 54,030 55,765
Deferred income taxes (note 8) .......................................... 9,334 162 -
Commitments and contingencies (notes 2, 7, 12, 13 and 16) ...............
Common stock subject to repurchase (219,798 shares) (notes 2 and 16). 2,181 - -
Shareholders' equity (notes 10 and 15):
Common stock, $.0025 par value; authorized 15,000,000 shares;
issued and outstanding 6,982,789 shares in 1995 and 7,597,801 shares
in 1996 (including 219,798 shares subject to repurchase) ............ 17 19 19
Additional paid-in capital ............................................. 31,356 36,465 36,465
Deficit ............................................................... (132) (19,037) (19,514)
Receivable from shareholders (note 2) ................................. - (1,444) (1,444)
------- --------- ---------
Net shareholders' equity ............................................. 31,241 16,003 15,526
------- --------- ---------
$93,290 $102,119 $ 102,686
======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1994 1995 1996 1996 1997
------------ ------------ -------------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Net patient service revenues ........................ $ 56,699 $ 92,259 $ 123,143 $ 26,144 $ 32,449
Other operating revenues ........................... 793 1,919 4,369 2,801 245
---------- ---------- ---------- ----------- ----------
Total operating revenues ........................ 57,492 94,178 127,512 28,945 32,694
---------- ---------- ---------- ----------- ----------
Operating expenses:
Facility operating expenses ........................ 46,035 73,693 111,171 22,106 27,239
Corporate administrative and general ............... 2,935 4,765 5,226 1,434 1,039
Rent (note 7) ....................................... 3,806 6,404 8,999 1,763 2,632
Depreciation and amortization ..................... 1,465 2,033 3,021 645 857
Interest, net of interest income (note 6) ......... 2,857 3,795 5,337 818 1,566
Loss on impairment of investments and other
non-recurring charges (note 12) .................. - - 22,128 - -
---------- ---------- ---------- ----------- ----------
Total operating expenses ........................ 57,098 90,690 155,882 26,766 33,333
---------- ---------- ---------- ----------- ----------
Earnings (loss) before income taxes and ex-
traordinary charge 394 3,488 (28,370) 2,179 (639)
Federal and state income taxes (note 8) ............ - 1,047 (9,465) 827 (162)
---------- ---------- ---------- ----------- ----------
Earnings (loss) before extraordinary charge ...... 394 2,441 (18,905) 1,352 (477)
Extraordinary charge, net of income taxes
(note 15) .......................................... - (992) - - -
---------- ---------- ---------- ----------- ----------
Net earnings (loss) .............................. 394 1,449 (18,905) 1,352 (477)
Dividends-preferred stock ........................... (653) (408) - - -
---------- ---------- ---------- ----------- ----------
Net earnings (loss) applicable to common
stock .......................................... $ (259) $ 1,041 $ (18,905) $ 1,352 $ (477)
========== ========== ========== =========== ==========
Per common share:
Earnings (loss) before extraordinary charge ......... $ (0.13) $ 0.42 $ (2.56) $ 0.19 $ (0.06)
Extraordinary charge .............................. - (0.20) - - -
---------- ---------- ---------- ----------- ----------
Net earnings (loss) ................................. $ (0.13) $ 0.22 $ (2.56) $ 0.19 $ (0.06)
========== ========== ========== =========== ==========
Weighted average number of common and com-
mon equivalent shares outstanding 2,041,154 4,840,457 7,384,697 7,197,905 7,597,801
========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
ADDITIONAL RECEIVABLE
COMMON PAID IN ACCUMULATED FROM
STOCK CAPITAL (DEFICIT) SHAREHOLDERS TOTAL
-------- ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 ........................... $ 4 $ 5,251 $ (914) $ - $ 4,341
Issuance of 216,428 shares of common stock at $6.19 per
share, net of stock issuance costs ..................... 1 1,034 - - 1,035
Accretion of discount on redeemable preferred stock
(note 9) ............................................. - (372) - - (372)
Dividends declared - redeemable preferred stock ......... - - (653) - (653)
Net earnings .......................................... - - 394 - 394
---- -------- --------- -------- ---------
Balance at December 31, 1994 ........................... 5 5,913 (1,173) - 4,745
Issuance of 3,450,000 shares of common stock at $9.50 per
share, net of stock issuance costs (note 13) ......... 9 27,580 - - 27,589
Redemption of preferred stock of $8,167 and exercise of
warrants for 1,331,814 shares of common stock at par
value ................................................ 3 (2,006) - - (2,003)
Amortization of restricted stock awards ............... - 100 - - 100
Accretion of discount on redeemable preferred stock
(note 9) ............................................. - (231) - - (231)
Dividends declared - redeemable preferred stock ......... - - (408) - (408)
Net earnings .......................................... - - 1,449 - 1,449
---- -------- --------- -------- ---------
Balance at December 31, 1995 ........................... 17 31,356 (132) - 31,241
Exercise of employee stock options for 33,385 shares of
common stock at prices ranging from $3.71 to $10.11
per share ............................................. - 160 - - 160
Issuance of 581,627 shares of common stock in connection
with acquisitions at prices ranging from $8.44 to $11.77
per share (note 2) .................................... 2 4,949 - (1,444) 3,507
Net loss ................................................ - - (18,905) - (18,905)
---- -------- --------- -------- ---------
Balance at December 31, 1996 ........................... 19 36,465 (19,037) (1,444) 16,003
---- -------- --------- -------- ---------
Net loss (unaudited) .................................... - - (477) - (477)
---- -------- --------- -------- ---------
Balance at March 31, 1997 (unaudited) .................. $19 $ 36,465 $ (19,514) $ (1,444) $ (15,526)
==== ======== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ............................................................... $ 394 $ 1,449 $(18,905)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in)
operating activities:
Loss on impairment of investments and other non-recurring charges ............... - - 22,128
Depreciation and amortization ................................................... 1,465 2,033 3,021
Amortization of deferred financing costs ....................................... 68 123 399
Extraordinary charge, net of tax ................................................ - 992 -
Amortization of restricted stock award .......................................... - 100 -
Deferred income taxes ............................................................ - 541 (9,465)
Net change in operating assets and liabilities:
Increase in accounts receivables ................................................ (4,479) (4,609) (3,615)
Decrease (increase) in inventory, prepaid expenses and other current
assets ........................................................................ (89) (1,787) 2,999
Increase (decrease) in accounts payable and accrued liabilities ............... (4,154) 4,179 993
---------- ---------- ---------
Net cash provided by (used in) operating activities ........................... (6,795) 3,021 (2,445)
---------- ---------- ---------
Cash flows from investing activities:
Property, plant and equipment additions, including costs of terminated activities
of $9,258 in 1996 ............................................................... (2,472) (6,647) (12,117)
Business acquisitions (note 2) ................................................... (78) (10,719) (6,132)
Notes receivable .................................................................. - (2,533) (233)
Deposits ........................................................................ 2,000 (3,194) (519)
Other assets ..................................................................... (443) (877) 798
---------- ---------- ---------
Net cash used in investing activities .......................................... (993) (23,970) (18,203)
---------- ---------- ---------
Cash flows from financing activities:
Proceeds from issuances of common stock, net of stock issuance costs ............ 402 27,589 160
Redemption of preferred stock and warrants (notes 9 and 15) ..................... - (8,142) -
Dividends on preferred stock ...................................................... (490) (571) -
Principal reductions on long-term debt .......................................... (24,233) (60,404) (19,782)
Proceeds from long-term debt borrowings .......................................... 30,719 61,733 41,931
Deferred financing costs, including terminated offerings of $1,677 in 1996......... (1,179) (696) (2,437)
---------- ---------- ---------
Net cash provided by financing activities ....................................... 5,219 19,509 19,872
---------- ---------- ---------
Decrease in cash .................................................................. (2,569) (1,440) (776)
Cash and cash equivalents, beginning of period .................................... 6,494 3,925 2,485
---------- ---------- ---------
Cash and cash equivalents, end of period .......................................... $ 3,925 $ 2,485 $ 1,709
========== ========== =========
<PAGE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-----------------------
1996 1997
----------- -----------
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ............................................................... $ 1,352 $ (477)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in)
operating activities:
Loss on impairment of investments and other non-recurring charges ............... - -
Depreciation and amortization ................................................... 604 806
Amortization of deferred financing costs ....................................... 41 49
Extraordinary charge, net of tax ................................................ - -
Amortization of restricted stock award .......................................... - -
Deferred income taxes ............................................................ - (162)
Net change in operating assets and liabilities:
Increase in accounts receivables ................................................ (1,420) (1,526)
Decrease (increase) in inventory, prepaid expenses and other current
assets ........................................................................ 1,522 (193)
Increase (decrease) in accounts payable and accrued liabilities ............... 392 1,405
--------- ---------
Net cash provided by (used in) operating activities ........................... 2,491 (100)
--------- ---------
Cash flows from investing activities:
Property, plant and equipment additions, including costs of terminated activities
of $9,258 in 1996 ............................................................... (2,417) (386)
Business acquisitions (note 2) ................................................... (348) -
Notes receivable .................................................................. 30 -
Deposits ........................................................................ (1,366) -
Other assets ..................................................................... (1,726) (105)
--------- ---------
Net cash used in investing activities .......................................... (5,827) (491)
--------- ---------
Cash flows from financing activities:
Proceeds from issuances of common stock, net of stock issuance costs ............ - -
Redemption of preferred stock and warrants (notes 9 and 15) ..................... - -
Dividends on preferred stock ...................................................... - -
Principal reductions on long-term debt .......................................... (1,435) (1,371)
Proceeds from long-term debt borrowings .......................................... 2,808 1,173
Deferred financing costs, including terminated offerings of $1,677 in 1996......... (34) (309)
--------- ---------
Net cash provided by financing activities ....................................... 1,339 (507)
--------- ---------
Decrease in cash .................................................................. (1,997) (1,098)
Cash and cash equivalents, beginning of period .................................... 2,485 1,709
--------- ---------
Cash and cash equivalents, end of period .......................................... $ 488 $ 611
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)
(1) Summary of Significant Accounting Policies
(a) Organization and Basis of Presentation
Community Care of America, Inc. (CCA) is a Delaware corporation originally
incorporated on December 28, 1992. CCA began incurring start-up expenses in 1993
but had no significant operations until its acquisition of all the capital stock
of MeritWest, Inc. ("MeritWest") on December 30, 1993. For accounting purposes,
this acquisition has been treated as effective as of December 31, 1993 and,
accordingly, the results of operations of this acquired company are included in
CCA's consolidated financial statements beginning on January 1, 1994.
The consolidated financial statements include the accounts of CCA and its
wholly-owned subsidiaries (collectively the Company). In consolidation, all
significant intercompany balances and transactions have been eliminated. At
December 31, 1996, CCA owned, leased or managed 54 long-term care facilities,
one hospital, two physician practices, two primary care clinics, one rural
healthcare clinic, one outpatient rehabilitation center, one child care center,
one home healthcare agency and an aggregate of 115 assisted living units in six
communities the Company serves.
(b) Patient Service Revenues
Patient service revenues are recorded at established rates and adjusted for
differences between such rates and estimated amounts reimbursable by third-party
payors. Estimated settlements under third-party payor retrospective rate setting
programs (primarily Medicare and Medicaid) are accrued in the period the related
services are rendered. Settlements receivable and related revenues under such
programs are based on annual cost reports prepared in accordance with Federal
and state regulations, which reports are subject to audit and retroactive
adjustment in future periods. In the opinion of management, adequate provision
has been made in the consolidated financial statements for such adjustments;
however, the ultimate amount of adjustments could be in excess of amounts
provided.
(c) Management Fee Revenues
Management fee revenues are recognized when earned and collectibility is
reasonably assured.
(d) Cash and Cash Equivalents
Cash equivalents consist of highly liquid debt instruments with original
maturities of three months or less.
(e) Property, Plant and Equipment
The Company capitalizes costs associated with acquiring health care
facilities and related interests therein. Pre-acquisition costs represent direct
costs of the investigation and negotiation of the acquisition of operating
facilities; indirect and general expenses related to such activities are
expensed as incurred. Pre-acquisition costs and construction in progress are
transferred to depreciable asset categories when the related tasks are achieved
or are charged to operating expenses when it is determined that the related
acquisition will not be consummated. Interest costs incurred during construction
and renovation are capitalized.
The Company capitalizes development costs which represent the direct and
incremental costs of developing healthcare delivery networks using the Company's
long-term care facilities or rural hospitals as platforms for providing an
expanded range of services (i.e. primary care clinics, rehabilitation, home
health, etc.). Development costs include consulting fees, salaries and related
costs of development personnel and other direct costs of performing functions
such as market research and feasibility, promotion and marketing, recruitment of
physicians and other service providers, training and related costs during the
period the new facility or service attains complete operational status.
F-5
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(1) Summary of Significant Accounting Policies - (Continued)
Total costs of facilities acquired are allocated to land, land
improvements, equipment and buildings (or leasehold interests therein) based on
their respective fair values determined generally by independent appraisal.
(f) Depreciation and Amortization
Depreciation and amortization are provided on the straight-line basis over
the estimated useful lives of the assets, generally 40 years for buildings, 25
years for land improvements, 10 years for equipment, 5 years for development
costs and the initial term and expected renewal terms of the leases for costs of
leasehold interests and improvements.
(g) Deferred Financing Costs
The Company defers financing costs incurred to obtain long-term debt and
amortizes such costs using the interest method over the term of the related
debt.
(h) Excess of Cost Over Fair Value of Net Assets Acquired
The assets and liabilities of acquired entities accounted for under the
purchase method of accounting are adjusted to their estimated fair values as of
the acquisition dates. The amounts recorded as excess of cost over fair value of
net assets acquired represent amounts paid that exceed estimated fair values
assigned to the assets and liabilities of each acquired business. Such amounts
are being amortized on a straight-line basis over periods ranging from 10 to 40
years, depending on the specific circumstances of each acquisition.
(i) Income Taxes
Deferred income taxes are recognized for the tax consequences of temporary
differences between financial statement carrying amounts and the related tax
bases of assets and liabilities, primarily related to business acquisitions.
Such tax effects are measured by applying enacted statutory tax rates applicable
to future years in which the differences are expected to reverse, and the effect
of a change in tax rates is recognized in the period that includes the date of
enactment.
(j) Earnings per Common Share
Earnings per share is computed based on the weighted average number of
common and common equivalent shares outstanding during the periods. Common stock
equivalents include options and warrants to purchase common stock, assumed to be
exercised using the treasury stock method. Options and warrants issued from May
1994 through August 15, 1995 have been treated as outstanding for all periods
presented. Dividends related to the Company's 8% redeemable preferred stock,
Series A, of $653 in 1994 and $408 in 1995, are deducted from net earnings for
the purpose of calculating earnings per share. On August 15, 1995, the preferred
stock was redeemed with the proceeds of the initial public offering of the
Company's common stock and related warrants were exercised (see note 9). Had the
redemption of preferred stock and related issuance of common stock occurred on
January 1, 1995, earnings per common share for the year ended December 31, 1995
would be as follows:
Earnings before extraordinary charge ................... $.45
Net earnings ........................................... .26
(k) Accounting for Stock Options
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB No. 25"), in accounting for its stock
options. Additional information required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
is discussed in Note 10.
F-6
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(1) Summary of Significant Accounting Policies - (Continued)
(l) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(m) Impairment of Long-Lived Assets
Management regularly evaluates whether events or changes in circumstances
have occurred that could indicate an impairment in the value of long-lived
assets. During the second quarter of 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." In accordance with the provisions of SFAS No. 121, if there is
an indication that the carrying amount of an asset is not recoverable, the
Company estimates the projected undiscounted cash flows, excluding interest, of
the related individual facilities to determine if an impairment loss should be
recognized. The amount of impairment loss is determined by comparing the
carrying value of the asset to its estimated fair value. Estimated fair value is
determined through an evaluation of recent financial performance and projected
discounted cash flows of its facilities using standard industry valuation
techniques, including the use of independent appraisals when considered
necessary. If an asset tested for recoverability was acquired in a business
combination accounted for using the purchase method, the related goodwill is
included as part of the carrying value and evaluated as described above in
determining the recoverability of that asset.
In addition to consideration of impairment upon the events or changes in
circumstances described above, management regularly evaluates the remaining
lives of its long-lived assets. If estimates are changed, the carrying value of
affected assets is allocated over the remaining lives.
Prior to adoption of SFAS No. 121 in 1996, the Company performed its
analyses of impairment of long-lived assets by consideration of the projected
undiscounted cash flows on an entity-wide basis. The effect of the adoption of
SFAS 121 in the second quarter of 1996 required the Company to perform this
analysis on a facility-by-facility basis (see note 12).
(n) Interim Consolidated Financial Statements
The consolidated financial statements as of March 31, 1997 and for the
three months ended March 31, 1996 and 1997 are unaudited and have been prepared
on a basis substantially consistent with the audited consolidated financial
statements, and, in the opinion of management, include all adjustments
(consisting of only normal recurring adjustments) necessary for fair
presentation of the results of these interim periods. The results of the three
months ended March 31, 1997 are not necessarily indicative of the results to be
expected for the entire year.
(2) Business Acquisitions
The following is a summary of significant business acquisitions by year.
Such acquisitions have been accounted for by the purchase method and,
accordingly, the results of operations have been included in the Company's
consolidated financial statements from the respective dates of acquisition.
1994 Acquisitions
In November 1994, the Company acquired leasehold interests in two long-term
care facilities located in Colorado and Wyoming (Tealwood) for a total cost of
approximately $400, including legal fees and other direct costs of the
acquisition of $78 and accrued liabilities of $322.
F-7
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(2) Business Acquisitions - (Continued)
1995 Acquisitions
Effective as of February 1, 1995, the Company acquired all the assets of
the Georgiana Doctor's Hospital, two primary care clinics and a home healthcare
agency (Georgiana) located in Alabama. The Company issued a 9% promissory note
for $1,250 to the seller at closing (see note 6).
Effective April 1, 1995, the Company acquired all of the capital stock of
three subsidiaries of Quality Health Care, Inc. (Quality), which owned and
operated three long-term care facilities located in Nebraska. In connection with
the transaction, Quality sold 11 facilities to Health and Retirement Properties
Trust (HRPT) for $14,200. The Company borrowed $5,845 from HRPT and leased the
latter facilities from HRPT as discussed more fully in notes 6 and 7.
Effective July 1, 1995, the Company obtained operating leases with
wholly-owned subsidiaries of American Health Corporation (American) for three
long-term care facilities in Alabama. The agreements provide for an initial term
of twelve years, with one five-year renewal option, annual minimum rental of
$1,200 and rights of first refusal with respect to the sale of the facilities.
Effective August 1, 1995, the Company purchased all the assets of a
physician practice, including a primary care clinic (Voreis), located in
Alabama, and on October 1, 1995, the Company acquired substantially all of the
assets of a 39-bed long-term care facility in Palmer, Nebraska (Coolidge
Center).
Effective November 1, 1995, the Company acquired all of the capital stock
of an outpatient rehabilitation head trauma clinic in Maine (MHTU). As partial
consideration in this transaction, the Company issued 25,061 shares of common
stock to the seller. These shares are subject to repurchase under the terms of a
settlement agreement dated October 27, 1996 as amended on March 1, 1997, at a
price equal to the greater of the average closing price of the stock for the 15
days prior to the date of repurchase or $13.21 per share (see note 13). In
addition, the Company may be required to make additional payments to the Seller
up to $200 if operating results for the five year period beginning January 1,
1996 exceed base year amounts.
Acquisitions in 1995 and the manner of payment are summarized as follows:
<TABLE>
<CAPTION>
CASH PAID
COOLIDGE FOR ACCRUED
DESCRIPTION GEORGIANA QUALITY AMERICAN VOREIS CENTER MHTU COSTS TOTAL
- ------------------------------ ----------- --------- ---------- -------- ---------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Seller financing ............ $1,250 - - - - - - $ 1,25
Common stock issued(1) ...... - - - - - 331 - 33
Accrued liabilities ......... 540 1,000 50 - 100 280 (1,970)
Cash paid .................. 372 5,864 500 925 450 638 1,970 10,71
------- ------ ---- ---- ---- ------ ------- -------
Total cost .................. $2,162 6,864 550 925 550 1,249 - $12,30
======= ====== ==== ==== ==== ====== ======= =======
</TABLE>
- ----------
(1) Represents 25,061 shares of common stock.
F-8
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(2) Business Acquisitions - (Continued)
The allocation of the total cost of the 1995 acquisitions to the assets
acquired and liabilities assumed is summarized as follows:
<TABLE>
<CAPTION>
COOLIDGE
DESCRIPTION GEORGIANA QUALITY AMERICAN VOREIS CENTER MHTU TOTAL
- ---------------------------------------------- ----------- --------- ---------- -------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets .............................. $ 618 1,512 - 140 - 129 $ 2,399
Property, plant and equipment ............... 2,040 4,818 - 385 550 - 7,793
Other assets ................................. - 1,241 400 - - - 1,641
Intangible assets (10, 20 and 20 years) - - 150 400 - 1,142 1,692
Current liabilities ........................ (496) (525) - - - (22) (1,043)
Long-term liabilities ........................ - (182) - - - (182)
-------- ----- ---- ---- ---- --------
Total cost ................................. $ 2,162 6,864 550 925 550 1,249 $ 12,300
======== ===== ==== ==== ==== ===== ========
</TABLE>
1996 Acquisitions
Effective January 1, 1996, the Company purchased certain assets of the
Family Care Medical Center of Arcadia, Inc. (Arcadia), a certified rural
healthcare clinic in Florida. Pursuant to the asset purchase agreement, the
Company issued a promissory note for $110 and 12,739 shares of common stock with
a fair value of $150 to the seller at closing. The promissory note was paid in
full as of December 31, 1996.
On May 16, 1996, Southern Care Centers, Inc. ("Southern Care") was merged
into CCA Acquisition I, Inc., ("Newco"), a newly formed wholly-owned subsidiary
of the Company. As a result of the merger, the subsidiaries of Southern Care
("Acquired Subsidiaries"), which leased five long-term care facilities in
Georgia and one long-term care facility in Louisiana, became indirect
wholly-owned subsidiaries of the Company. In addition, another wholly-owned
subsidiary of the Company became the manager, under a Management Agreement dated
as of May 1, 1996, of a long-term care facility in Texas owned by a former
subsidiary of Southern Care which was not acquired by the Company. Additionally,
Newco is providing accounting, internal auditing, billing, accounts payable and
certain other services under an Agreement to Provide Accounting and Auditing
Services and Rural Healthcare Provider Network Services dated as of May 1, 1996
to a company owned by the former shareholders of Southern Care which operates
another long-term care facility in Georgia.
Pursuant to the merger agreement, the shareholders of Southern Care (the
selling shareholders) received $2,700 of cash and 568,888 shares of common stock
of the Company with a fair value of $4,800. In addition, the selling
shareholders were entitled to receive, on or before March 31, 1997, up to $2,000
in common stock of the Company based on the amount that Newco's annualized
contribution margin on a consolidated basis for the year ended December 31, 1996
exceeds $4,400. As of December 31, 1996, no such events occurred. The Company
has agreed to file two shelf registration statements under the Securities Act of
1933, as amended, covering the shares issued and issuable in the merger and,
upon request of the holders, to "piggyback" such shares in certain registration
statements filed by the Company.
The merger agreement provides that the consideration to the selling
shareholders shall be reduced to the extent that current liabilities exceeded
current assets by more than $1,850 at the closing date. The Company has
determined that such condition existed at the closing date and has recorded a
receivable from the selling shareholders of $1,444 at December 31, 1996. Such
claim has been disputed by the selling shareholders. The Company believes the
claim is valid and fully collectible; accordingly, no valuation allowance has
been recorded with respect to this matter. Because the receivable arose in
connection with the issuance of the Company's common stock, the related balance
at December 31, 1996 is presented as a reduction of stockholder's equity.
F-9
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(2) Business Acquisitions - (Continued)
In a series of related transactions, the subsidiaries of Southern Care
acquired the five leased Georgia facilities and, in turn, sold those facilities
to Health and Retirement Properties Trust ("HRPT"). HRPT thereupon leased the
five Georgia facilities back to the Acquired Subsidiaries for an initial term
ending on December 31, 2010 with two renewal options for six year and thirteen
year terms, each at the option of the Acquired Subsidiaries. After the first
lease year, rent is subject to increase based on year over year increases, if
any, in net patient revenues and non-inpatient revenues, each as defined in the
master lease agreement. The Louisiana facility continues to be leased under the
terms of the lease existing prior to the merger.
Acquisitions in 1996 and the manner of payment are summarized as follows:
<TABLE>
<CAPTION>
CASH PAID FOR
DESCRIPTION ARCADIA SOUTHERN CARE ACCRUED COSTS TOTAL
- ------------------------------------ --------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
Seller financing .................. $110 - - $ 110
Common stock issued(1) ............ 150 4,800 - 4,950
Accrued liabilities ............... - 2,500 (3,409) (909)
Cash paid ........................ 40 2,683 3,409 6,132
Receivable from shareholders ...... - (1,444) - (1,444)
----- ------- ------- --------
Total cost ........................ $300 8,539 - $ 8,839
===== ======= ======= ========
</TABLE>
- ----------
(1) Represents shares of common stock as follows: 12,379 shares for Arcadia and
568,888 shares for Southern Care Centers, Inc.
The allocation of the total cost of the 1996 acquisitions to the assets
acquired and liabilities assumed is summarized as follows:
<TABLE>
<CAPTION>
DESCRIPTION ARCADIA SOUTHERN CARE TOTAL
- ---------------------------------------------- --------- --------------- -----------
<S> <C> <C> <C>
Current assets .............................. $ 36 753 $ 789
Property, plant, and equipment ............... 60 5,400 5,460
Other assets ................................. - 1,741 1,741
Intangible assets (10 and 20.67 years) ...... 204 10,855 11,059
Current liabilities ........................ - (4,784) (4,784)
Long-term liabilities ........................ - (5,426) (5,426)
------ ------- --------
Total cost ................................. $ 300 8,539 $ 8,839
====== ======= ========
</TABLE>
The following unaudited pro forma consolidated results of operations
information is presented as if the acquisition transactions described above had
occurred as of the beginning of the respective periods presented, after giving
effect to certain adjustments, including depreciation and amortization of the
new cost basis of the assets acquired, increased interest and rent expense and
related income tax effects.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1995 1996
---------- ------------
<S> <C> <C>
Total operating revenues ........................... $122,495 $ 133,506
Earnings (loss) before extraordinary charge ......... 3,821 (18,652)
Earnings (loss) applicable to common stock before ex-
traordinary charge ................................. 2,901 (18,652)
Earnings (loss) per common share before extraordi-
nary charge ........................................ .53 $ (2.53)
========= =========
</TABLE>
F-10
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(3) Accounts Receivable
Accounts receivable consist of the following:
1995 1996
--------- --------
Patient accounts receivable .................. $10,909 $15,832
Third-party payor settlements ............... 2,696 4,228
Other ....................................... 1,307 1,180
-------- --------
14,912 21,240
Allowance for doubtful accounts and contractual
adjustments ................................. 1,978 4,833
-------- --------
$12,934 $16,407
======== ========
The Company generally does not require collateral or other security in
extending credit to patients; however, the Company routinely obtains assignments
of (or is otherwise entitled to receive) benefits receivable under the health
insurance programs, plans or policies of patients (e.g., Medicare, Medicaid,
commercial insurance and managed care organizations). The Company's patient
service revenues derived from the Medicare and Medicaid programs were 17% and
52%, respectively, for the year ended December 31, 1995, and 20% and 50%,
respectively, for the year ended December 31, 1996. Patient accounts receivable
from the Federal government (Medicare) were $1,777 and $3,421 at December 31,
1995 and 1996, respectively. Amounts receivable from various states (Medicaid)
were $4,883 and $6,302, respectively, at December 31, 1995 and 1996.
Third-party payor settlements receivable from the Federal government
(Medicare) were approximately $1,718 and $2,794 at December 31, 1995 and 1996,
respectively; the remainder relates primarily to net amounts receivable from the
states of Colorado and Nebraska (Medicaid). Certain of the Medicaid and Medicare
cost reports for prior years were settled during 1995 and 1996, the impact of
which was not material. At December 31, 1996, the Company had open cost reports
for the 1993, 1994 and 1995 years which, after related allowances, are recorded
at estimated net realizable value.
The allowance for doubtful accounts and contractual adjustments is
determined by management using estimates of potential losses and contractual
settlements based on an analysis of current and past due accounts, collection
experience in relation to amounts billed, prior settlement experience and other
relevant information. Although the Company believes amounts provided are
adequate, the ultimate uncollectible amounts could be in excess of the amounts
provided. The Company's provision for bad debts was $658 in 1995 and $1,867 in
1996.
(4) Property, Plant and Equipment
Property, plant and equipment are summarized as follows:
1995 1996
--------- --------
Land .............................................. $ 5,983 $ 5,926
Land improvements .................................. 612 613
Buildings and improvements ......................... 32,214 39,911
Leasehold improvements and leasehold interests .... 8,598 9,135
Equipment ........................................ 7,269 7,880
Construction in progress ......................... 987 255
Pre-acquisition and development costs ............. 1,867 425
-------- --------
57,530 64,145
Less accumulated depreciation and amortization .... 3,203 5,721
-------- --------
Net property, plant and equipment ................ $54,327 $58,424
======== ========
F-11
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(5) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
DECEMBER 31,
--------------------
1995 1996
--------- --------
Accounts payable ............ $ 8,860 $15,595
Accrued compensation ......... 4,422 3,473
Other accrued expenses ...... 1,587 4,334
-------- --------
$14,869 $23,402
======== ========
(6) Long-Term Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- --------
<S> <C> <C>
Mortgage notes:
11.5% note payable in monthly principal and interest installments of $138
commencing January 31, 1996 through June 30, 1996; interest only pay-
ments of $130 commencing July 31, 1996 through June 30, 1998; princi-
pal and interest payments of $138 commencing on July 31, 1998 and
maturing on December 31, 2016 ....................................... $13,600 $13,551
9%note payable in monthly principal and interest installments
of $50 commencing January 31, 1996 through June 30, 1996; interest
payments of $45 commencing July 31, 1996 through June 30, 1998;
principal and interest payments of $50 commencing on July 31, 1998
and maturing on December 31, 2016 ................................... 6,000 5,967
10% note payable in monthly interest only payments through December
31, 1996; principal and interest payments of $19 commence January 31,
1997 through December 31, 2021 ....................................... 2,045 2,045
9% note payable in semi-annual installments through March 9, 1998, plus
interest payable quarterly .......................................... 1,125 750
-------- --------
Total mortgage notes payable .......................................... 22,770 22,313
Revolving line of credit with bank, due on December 31, 1996 ............ 8,410 -
Revolving line of credit with bank, due on December 27, 1999 ............ - 14,495
Revolving line of credit with Integrated Health Services, Inc., due on De-
cember 27, 1998 (see note 14) - 2,000
11% note secured by property and equipment, interest only due monthly;
principal due December 31, 2008 ....................................... - 10,000
</TABLE>
F-12
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(6) Long-Term Debt - (Continued)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- --------
<S> <C> <C>
11% notes maturing December 30, 2016, interest and principal payable in
monthly installments of $47 commencing January 31, 1997; secured by a lien on
substantially all of the leasehold assets of several long-term care
facilities .................................................................. 2,892 4,835
Notes payable, secured by equipment and land, maturing from June 19, 1997
to April 4, 2005; principal payable in monthly installments of $25, with
interest payable monthly at variable rates up to 15.13% ..................... 740 512
13% capital lease payable in monthly principal and interest installments
ranging from $54 to $65 through April 30, 2015, with a final payment of
$2,414 ..................................................................... - 5,401
7% unsecured note payable, due on demand .................................... - 600
10% unsecured note payable in monthly principal and interest installments
of $8, maturing on August 1, 1998 .......................................... - 141
Other ........................................................................ 853 74
-------- --------
35,665 60,371
Less current portion ......................................................... 1,258 6,341
-------- --------
$34,407 $54,030
======== ========
</TABLE>
Mortgage notes aggregating $21,563 at December 31, 1996 are payable to
Health and Retirement Properties Trust ("HRPT") and are secured by deeds of
trust on 18 long-term care facilities located in Colorado and Nebraska and liens
on substantially all of the common stock of certain of the Company's
subsidiaries. These mortgage notes are subject to cross-default provisions under
the Company's leases with HRPT (see note 7). The remaining mortgage note is
secured by a deed of trust on one hospital (Georgiana) located in Alabama. The
mortgage notes also provide for additional interest payable quarterly commencing
in 1996 equal to the greater of (a) 5% of excess net patient revenues over a
base year amount or (b) the amount of the additional interest for the
immediately preceding loan year.
On April 4, 1996, the Company borrowed $10,000 from HRPT, pursuant to an
11% promissory note (the "HRPT Note"), to provide additional renovation and
acquisition funding and general working capital. No principal payments are
required until the maturity date of December 31, 2008 with interest payments
made monthly. The HRPT Note is secured by all of the collateral security which
secures the Company's current obligations to HRPT and is subject to cross
default with other obligations to HRPT. As a result of closing this loan, the
Company increased the refundable security deposit held by HRPT for all
obligations by $550.
F-13
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(6) Long-Term Debt - (Continued)
Revolving Lines of Credit
On August 7, 1995, the Company entered into a Revolving Credit and
Reimbursement Agreement with NationsBank of Florida, N.A. ("NationsBank")
providing for a revolving credit facility (the "Loan Agreement") pursuant to
which the Company was entitled to borrow from time to time up to $15,000,
subject to a borrowing base of 80% of eligible accounts receivable. In July
1996, the agreement was modified to reflect a revised scheduled maturity of
December 31, 1996. Outstanding loans bore interest equal to, as selected by the
Company, either a floating rate (the greater of the federal funds rate plus .50%
or NationsBank's prime rate) or a rate equal to the applicable Eurodollar rate
plus 1.75% (subject to adjustment after September 30, 1996 based on certain
financial ratios achieved by the Company). The Loan Agreement was secured by
substantially all of the unencumbered assets of the borrowing entities and the
capital stock of the Company's subsidiaries, Community Care of America of
Alabama, Inc. and CCA of Maine, Inc. The Loan Agreement required the Company to
maintain a prescribed level of tangible net worth (as defined), and current,
fixed charge coverage and leverage ratios, placed limitations on indebtedness,
liens, investments and transactions with affiliates and prohibited the payment
of dividends. The revolving credit facility was paid in full in December 1996
with the proceeds from the Daiwa Securities of America, Inc. revolving credit
facility (see below).
On December 27, 1996, the Company entered into a Healthcare Receivables
Purchase and Transfer Agreement with Daiwa Securities of America, Inc. ("Daiwa")
providing for a 36 month revolving credit facility pursuant to which the Company
may borrow from time to time up to $15,000, subject to a borrowing base formula.
The Loan Agreement is secured by the assignment to the lender of all patient and
third party settlement receivables. Proceeds from the line of credit were used
to repay borrowings and terminate the Revolving Credit and Reimbursement
Agreement with NationsBank discussed above. As of December 31, 1996, Daiwa
advanced the Company an amount in excess of the borrowing base by approximately
$4,800. Such amount has been classified as current portion of long term debt
since repayment is due upon demand. The remaining outstanding loan will mature
on December 27, 1999 and amounts advanced bear interest at a rate equal to the
LIBOR rate at the time of each revolving advance plus 2.00% per annum. The
interest rate at December 31, 1996 was 7.9065%. The agreement requires the
Company to maintain a prescribed tangible net worth ratio as well as various
other financial and non- financial covenants (see Note 13 for further
information).
The Company and IHS entered into a loan agreement which, as amended,
entitles the Company to borrow, until December 27, 1998, amounts on a revolving
credit basis so that no more than $5,000 is outstanding at any time provided
that, unless such advance is applied to the payment of management fees that
become due to IHS under the Management Agreement (see Note 14), IHS consents to
the making of advances, which consent may not be unreasonably withheld. This
revolving credit facility bears interest at a rate per annum equal to the annual
rate of interest set forth in IHS's revolving credit agreement with Citibank,
N.A., plus 2%. Repayment of amounts advanced under this line of credit are
subordinated to the payment of up to an aggregate of $30,000 of principal and
interest on the Company's obligations to HRPT and Daiwa.
F-14
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(6) Long-Term Debt - (Continued)
In connection with entering into the revolving credit facility, the Company
issued warrants to purchase an aggregate of 752,182 shares of the Company's
Common Stock, one-half of which are exercisable until January 13, 1999 at $3.22
per share (the average of the high and low trading price of the Company's Common
Stock on January 14 and 15, 1997) and the remaining one-half of which are
exercisable until January 13, 2002 at $6.44 per share. The number of shares
subject to the warrants and the exercise prices are subject to adjustment in
certain instances, including the Company issuing shares of Common Stock (or
securities convertible into Common Stock) at less than the applicable exercise
price. In connection therewith, the Company has granted to IHS certain rights to
cause the shares issuable upon exercise of the warrants to be registered under
the Securities Act of 1933, as amended, at the Company's expense.
Aggregate principal maturities of long-term debt for the next five years
are as follows: 1997, $6,341; 1998, $2,666; 1999, $10,007; 2000, $328; 2001,
$356 and thereafter $40,673.
Information concerning interest expense is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1994 1995 1996
------ ------ -----
<S> <C> <C> <C>
Interest income applied to reduce interest expense ...... $63 $ 96 $ 11
Interest capitalized to construction in progress ......... $92 $107 $277
</TABLE>
(7) Leases
The Company is lessee under operating leases of 34 long-term care
facilities, of which one expires in February 2006, three expire in June 2007,
and 30 expire in December 2010. The Company also leases certain office space and
computer equipment expiring in 1998 and 1999. Minimum rent payments due under
operating leases in effect at December 31, 1996 are summarized as follows:
<TABLE>
<S> <C>
1997 ............................................. $ 10,458
1998 ............................................. 10,369
1999 ............................................. 10,014
2000 ............................................. 10,043
2001 ............................................. 10,103
Thereafter ....................................... 146,363
---------
Total .......................................... $197,350
=========
</TABLE>
The leases for the 30 health care facilities are with HRPT and provide for
two consecutive renewal options of six and thirteen years, respectively, at fair
market rentals at the expiration of the initial term. In connection with these
lease agreements, the Company was required to pay refundable deposits totaling
$5,660 as of December 31, 1996 which has been subsequently reduced (see note
13). The leases for the three health care facilities, also with HRPT, provide
for one renewal option for five years. The lease for one facility does not
currently have a renewal option.
F-15
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(7) Leases - (Continued)
With respect to the leases for the 30 health care facilities, the Company
has the right of first refusal and an option to purchase the facilities at a
price equal to the greater of a formula as defined in the lease agreement or the
fair market value of the facilities. Minimum rentals are generally subject to
adjustment for renovations made to the facilities by the lessor. Also, the
leases provide for contingent rentals, based on a percentage of gross revenues
of the facilities in excess of base year amounts. Contingent rentals were $150
in 1996; none were incurred during the period from inception to December 31,
1995. The lease agreements require the Company to maintain a current ratio of at
least one to one and a minimum tangible net worth, as defined, of $5,000, which
conditions were not met as of December 31, 1996. In addition, the lease
agreements restrict the Company's ability to pay dividends, incur indebtedness
or make distributions to affiliates. See note 13.
The lease for office space provides for two, one-year renewal options and
the equipment lease may be renewed for one year.
(8) Income Taxes
The income tax benefit for 1996, all of which relates to deferred taxes, is
summarized as follows:
<TABLE>
<S> <C>
Federal income taxes ................................. $ (7,375)
State income taxes .................................... (2,090)
--------
$ (9,465)
========
</TABLE>
In 1995, the Federal and state income tax provision was offset by net
operating loss carryovers of $280.
The expected income tax rate of 34% differs from the rate resulting from
the provision in the financial statements as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- ------------ -----------
<S> <C> <C> <C>
Income tax (benefit) at statutory rate (34%) ...... 34 % 34 % (34)%
State income tax, net of federal benefit ......... 4 % 4 % (4)%
Tax benefit of net operating loss carryover ...... (38)% (7)% - %
Increase (decrease) in valuation allowance ......... - % (1)% 3 %
Other ............................................. - % - % 2 %
------- ------ ------
- % 30 % $ (33)%
####### ###### ######
</TABLE>
The sources of deferred income tax (assets) and liabilities are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Excess of book over tax basis of assets .............................. $10,025 $ 11,179
Allowance for doubtful accounts .................................... (651) (1,262)
Accrued expenses ................................................... (803) (3,173)
Net operating loss carryovers ....................................... (870) (8,717)
Pre-acquisition separate company net operating loss carryovers ...... (1,365) (1,406)
Other ............................................................... 22 (184)
-------- --------
$ 6,358 $ (3,563)
Valuation allowance ................................................ 2,976 3,725
-------- --------
Deferred income tax liability ....................................... $ 9,334 $ 162
======== ========
</TABLE>
F-16
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(8) Income Taxes - (Continued)
At December 31, 1996, the Company had net operating loss carryovers
available for Federal income tax purposes of approximately $26,293 which expire
in the years 2007 through 2011, including pre-acquisition net operating loss
carryovers of approximately $3,652 which expire in the years 2007 through 2011.
The utilization of the pre-acquisition net operating loss carryovers is subject
to certain annual limitations under the Internal Revenue Code and, under "change
in ownership" provisions of the Code, other net operating loss carryovers may be
subject to similar limitations.
The valuation allowance relates, in part, to deferred tax assets that, when
subsequently realized, will be applied to reduce goodwill and other intangible
assets acquired to the extent that such allowances resulted in intangible assets
when originally recorded in connection with acquisitions. As of December 31,
1996, the Company did not fully reserve all deferred tax assets since future
operations are expected to generate sufficient taxable income to realize these
assets. As of December 31, 1996, the portion of the valuation allowance to be
applied to reduce goodwill in future years is approximately $3,725.
(9) Redeemable Preferred Stock
On December 30, 1993, the Company issued Series A 8% Redeemable Cumulative
Preferred Stock and warrants to purchase 1,331,814 shares of common stock at a
price of $.0198 per share. The warrants were valued at $2,631 in accordance with
the agreement of the parties and recorded as additional paid-in capital. The
difference between the value allocated to the preferred stock at issuance of
$5,536 and the aggregate redemption price of such shares of $8,167 was being
accreted to preferred stock and charged against common stockholders' equity
through the dates of mandatory redemption. Such accretion was $372 for the year
ended December 31, 1994 and $231 for the year ended December 31, 1995. The
preferred stock was redeemed at $100 per share and the warrants were exercised
in August 1995 (see note 15).
(10) Capital Stock
On July 28, 1995, the Company amended its certificate of incorporation
decreasing the Company's authorized common stock from 35,000,000 shares to
15,000,000 shares, increasing the authorized shares of preferred stock to
1,000,000 shares and effecting a reverse common stock split of one-for-7.9. All
share and per share data presented herein give effect to such changes.
At December 31, 1995 and 1996, the Company had outstanding stock options as
follows:
Stock options outstanding pursuant to:
<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
1993 Stock Option Plan ........................ 265,196 216,928
1993 Senior Executive Stock Option Plan ...... 57,799 16,565
1995 Stock Option Plan ........................ 153,910 208,894
1995 Non-Employee Directors Option Plan ...... 14,835 71,978
-------- --------
Total Stock Options Outstanding ............... 491,740 514,365
======== ========
</TABLE>
F-17
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(10) Capital Stock - (Continued)
The Company established the 1993 Stock Option Plan and the 1993 Senior
Executive Stock Option Plan effective July 1, 1993. The 1993 Stock Option Plan
provides that up to 289,258 shares of common stock may be issued to certain key
employees and consultants of the Company. Options granted to date under this
plan vest either immediately or over three years and expire ten years from the
date of grant. The 1993 Senior Executive Stock Option Plan provides that up to
74,364 options may be issued to senior executive officers of the Company.
Options granted to date under this plan vest over a period of seven years, with
accelerated vesting in some instances, based upon the occurrence of certain
events, including the achievement of earnings targets. The outstanding options
at December 31, 1996 expire ten years from the date of grant subject to earlier
termination in certain cases.
In 1995, the Company established the 1995 Stock Option Plan and the 1995
Non-Employee Directors Option Plan. The 1995 Stock Option Plan provides that up
to 500,000 shares of common stock may be issued to certain key employees and
consultants of the Company pursuant to options granted from time to time under
this plan. Options granted to date under this plan vest either immediately or
over periods from three to seven years, with accelerated vesting in some
instances, based upon the occurrence of certain events, including the
achievement of earnings targets. The outstanding options at December 31, 1996
expire ten years from the date of grant subject to the earlier termination in
certain cases. The 1995 Non-Employee Directors Option Plan provides that up to
100,000 shares of common stock may be issued to non-employee directors pursuant
to options automatically granted under that plan upon election as a director and
annually following the annual meeting of shareholders electing directors.
Options granted to date under this plan vest in three equal semi-annual
installments beginning six months after the date of grant and expire ten years
from the date of grant subject to the earlier termination in certain cases.
All stock options issued by the Company have been granted with exercise
prices equal to or greater than the estimated fair market value of the common
stock on the date of grant. Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
------------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------------ ---------- ------------ ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year ......... 292,936 $ 4.44 491,740 $ 7.68
Granted ................................. 230,339 11.42 226,132 11.23
Exercised .............................. - - (33,385) 4.62
Canceled ................................. (31,535) 6.75 (170,122) 8.95
-------- ------- --------- -------
Outstanding at end of year ............... 491,740 $ 7.68 514,365 $ 9.03
======== ======= ========= =======
Options Exercisable at end of year ...... 206,006 $ 5.10 222,310 $ 6.34
======== ======= ========= =======
</TABLE>
The following summarizes information about stock options outstanding as of
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- -------------------------------
RANGE OF NUMBER WEIGHTED AVG. WEIGHTED NUMBER WEIGHTED
EXERCISE OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- ------------------ ------------- ------------------ ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$3.71 150,685 6.54 $ 3.71 141,219 $ 3.71
$9.50 - $10.50 210,048 8.93 9.84 61,567 10.11
$10.51 - $14.00 153,632 9.10 13.12 19,524 13.49
------- ---- ------- -------- -------
514,365 8.28 $ 9.03 222,310 $ 6.34
======= ==== ======= ======== =======
</TABLE>
F-18
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(10) Capital Stock - (Continued)
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation expense has been
recognized in connection with its stock options. Had compensation expense for
the Company's stock options been determined consistent with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's net earnings and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
--------------------------- -----------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Net earnings (loss) applicable to common stock ...... $ 1,041 $ 890 $ (18,905) $ (19,283)
Per common share:
Earnings (loss) before extraordinary charge ......... 0.42 0.49 (2.56) (2.61)
Extraordinary charge .............................. (0.20) (0.26) 0.00 0.00
------- ------- --------- ---------
Net earnings (loss) ................................. 0.22 0.23 (2.56) (2.61)
======= ======= ========= =========
</TABLE>
The fair value of the options for purposes of the above pro-forma
disclosure was calculated using the Black-Scholes option pricing model and the
following assumptions: risk free interest rate of 6.58%, weighted average
expected lives of 5 to 8.5 years, no dividend payments, and a volatility of
35.8% based on the annualized 10 year industry average. The effects of applying
SFAS No. 123 in the pro forma net earnings and earnings per share for 1995 and
1996 may not be representative of the effects on such pro-forma information for
future years.
(11) Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, patient accounts
receivable, other current assets, accounts payable, and accrued expenses
approximates fair value because of the short-term maturity of these instruments.
The fair value of third-party payor settlements receivable is estimated by
discounting anticipated cash flows using estimated market discount rates to
reflect the time value of money. The fair value of the Company's long term debt
is estimated based on current rates offered to the Company for similar
instruments with the same remaining maturities. Management of the Company
believes the carrying amount of the above financial instruments approximates the
estimated fair value.
(12) Loss on Impairment of Long-Lived Assets and Other Non-recurring Charges
Operating expenses for 1996 include total non-recurring charges of $22.1
million and consist of the following:
<TABLE>
<CAPTION>
Exit
Loss on Other Costs and
Impairment of Asset Employee
Investment Write-offs Terminations Total
--------------- ------------ -------------- --------
<S> <C> <C> <C> <C>
Sandy River management contract termination ............... $ 5,453 $1,086 $3,360 $ 9,89
Aurora and Toledo facilities closed or voluntarily decer-
tified 1,450 - 207 1,65
Costs of a physician practice, primary care clinics, adult
day care centers, and other programs closed ............... 3,013 - 1,484 4,49
Memorial Health Group acquisition termination ............ 3,924 264 210 4,39
Termination of offerings of debt and equity securities ... - 1,677 - 1,67
-------- ------- ------- -------
$13,840 $3,027 $5,261 $22,12
======== ======= ======= =======
</TABLE>
F-19
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(12) Loss on Impairment of Long-Lived Assets and Other Non-recurring Charges -
(Continued)
In the second quarter of 1996, management made the decision to exit certain
activities, including the termination of the management agreement and related
purchase option for the Sandy River facilities and the closing of four primary
care clinics, four adult day care centers and one physician practice.
The Company terminated its management and purchase option agreements with
the Sandy River Group since the facilities were not generating sufficient cash
flows to pay the Company's management fees. As a result, management evaluated
its investment related to the management agreement and purchase option for
impairment. This analysis identified approximately $9,899 in write-offs,
including the write-offs of (1) the $5,000 purchase option deposit, (2)
unsecured management fees of $1,086, (3) direct acquisition costs of $453 and
(4) accrued exit and termination costs of $3,360 to transfer the properties back
to the Sandy River Group. As of December 31, 1996, substantially all exits costs
have been paid.
The four primary care clinics, four adult day care centers and one
physician practice were closed as a result of their unfavorable financial
performance and the negative impact these centers had on the Company's long-term
care business. As a result, the Company wrote-off development costs and property
and equipment relating to these activities of $3,013. In addition, the closure
of these clinics resulted in eliminating approximately 14 positions, primarily
doctors and clinical staff, through an involuntary severance program. Total
employee termination benefits provided in the financial statements were $454 as
of December 31, 1996, of which $138 was unpaid as of December 31, 1996 and will
be paid in 1997. Other costs to exit these activities include lease termination
costs of $964 which will paid over the remaining lease terms and other exit
costs of $66. Both of these obligations were incurred under contractual
obligations that existed prior to the commitment date and will continue after
the plan is completed with no economic benefit to the Company. Total lease
termination and other exit costs accrued but not paid as of December 31, 1996
was $873. Management anticipates that an additional $750 of costs will be
incurred in 1997 . Management expects the necessary activities to exit these
operations will be complete by December 31, 1997.
On December 31, 1996, the Company terminated an agreement to acquire other
rural hospitals in Georgia and transferred Memorial Healthcare, Inc. d/b/a Smith
Hospital (Smith) back to the sellers since CCA was not able to secure the
necessary financing to complete the transaction. The total non-recurring charge
to income related to this transaction was approximately $4,398 and consisted of
(1) the write-off of the investment in Smith's net assets, including transaction
costs of $3,924 (2) other asset write-offs of $264 and (3) exit costs of $210.
Other non-recurring charges represent the write-off of approximately $1,677
in deferred financing costs as a result of unsuccessful attempts to raise
capital through a secondary stock offering and a high yield debt offering. Also,
the Company reviewed the long-lived assets of the Aurora and Toledo facilities
for recoverability and determined that an additional write-down of $1,450 was
required. Such write-down has been reflected in non-recurring charges for the
period ended December 31, 1996.
The revenues and net operating losses from activities that will not be
continued are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ --------- ----------
<S> <C> <C> <C>
Revenue from primary care clinics, adult day care centers, a physician practice
and other programs closed ...................................................... - $1,177 $5,107
Net operating losses from primary care clinics, adult day care centers, a physi-
cian practice and other programs closed - $ (95) $ (880)
Revenue from management contracts and agreements terminated ..................... - $1,318 $3,336
Net operating income from management contracts and agreements terminated. - $ 427 $1,126
</TABLE>
F-20
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(12) Loss on Impairment of Long-Lived Assets and Other Non-recurring Charges -
(Continued)
In 1996, the Company adopted Financial Accounting Standard (SFAS) No. 121,
"Loss on Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." As a result, the Company performed a review of the events and/or
changes in circumstances that would suggest that the carrying amount of the
Company's asset may not be recoverable. This analysis included a consideration
of (1) the business, legal and economic climate for events that could adversely
affect the carrying value of an asset, (2) any physical changes in assets, (3)
the accumulated costs in excess of the amounts originally expected to acquire
and/or construct an asset, (4) decreases in the market value of assets and (5)
current period operating or cash flow losses that demonstrate continuing losses
associated with an asset used for the purpose of producing revenue. In addition,
the Company estimated the future cash flows expected to result from assets to be
held and used.
In estimating the future cash flows for determining whether an asset is
impaired, the Company grouped its assets at the lowest level for which there are
identifiable cash flows independent of other groups of assets (i.e., by long
term care facility). The results of comparing future undiscounted cash flows to
historical carrying value, together with the evaluation of the facts and
circumstances that may indicate an asset may not be recoverable, indicated that
the Toledo and Aurora facilities were eligible for an impairment charge. None of
the Company's remaining facilities were reduced since the carrying value of the
assets were less than the undiscounted cash flows.
During 1996, the Company closed its Aurora facility and voluntary
decertified its Toledo facility from the Medicare program due to quality of care
issues, unfavorable market conditions, the reduction in reimbursement from
third-party payors and competition. Accordingly, these events and circumstances,
together with the unfavorable undiscounted future cash flows, caused the Company
to perform further evaluations of whether the carrying amount of these assets
were recoverable.
After determining that an impairment charge for Toledo and Aurora was
appropriate, the Company determined the estimated fair value of such facilities
using standard industry valuation techniques. The excess carrying value of
goodwill, buildings and improvements, leasehold improvements and equipment above
the fair value was $1,450 and is included in the statement of operations for
1996 as loss on impairment of long-lived assets.
Prior to the adoption of SFAS 121, the Company evaluated impairment on the
entity level. Such evaluation yielded no impairment charge.
(13) Certain Significant Risks and Uncertainties
The Company has undergone major restructuring and reorganization in 1996
resulting in the closure or termination of certain business activities and
acquisitions and the termination of offerings of debt and equity securities.
During the year ended December 31, 1996 the Company incurred a loss of $18,905
and had negative cash flow from operating activities. As of December 31, 1996,
the Company had a working capital deficiency of $10,952 and was in default with
respect to certain of its debt, lease and other agreements. These circumstances
would naturally raise doubt about the Company's ability to continue as a going
concern. Management's plans with respect to this matter are discussed below.
F-21
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(13) Certain Significant Risks and Uncertainties - (Continued)
In October 1996, management engaged Smith Barney, Inc. as financial adviser
to assist in evaluating debt and equity financing alternatives, including the
possible sale of the Company. Management is evaluating the possibilities with
respect to the interest expressed by potential acquirers, joint venture partners
and organizations which might provide an infusion of capital. Also, management
is pursuing a financial restructuring plan and, in order to obtain sufficient
financial resources, the Company has accomplished the following subsequent to
December 31, 1996:
1. Refinanced the revolving line of credit with its bank to extend the
payment terms related to $4,800 of debt due on demand at December 31,
1996, and issued five year warrants to purchase 1,787,568 shares of Common
Stock (subject to reduction as payments of such debt is made) at $2.25 per
share (subject to repayment in certain circumstances).
2. Obtained the release of approximately $4,000 of security deposits through
a modification of the lease with HRPT to reduce rental payments.
3. Obtained a settlement agreement dated March 1, 1997 with the shareholders
of 219,798 shares of common stock subject to repurchase (the put
contract), which provides that, in lieu of repurchasing the shares, the
Company pay $500 and issue an 8.5% note payable due on September 1, 1997
in an amount equal to $1,681 less the proceeds from the sale of the shares
by the shareholders.
4. Obtained waivers of financial covenant violations and related defaults
under debt and lease agreements through February 1998.
5. Obtained a guarantee from IHS with respect to debt payments of
approximately $4,800 and lease payments of up to $10,000 in exchange for
warrants which allow IHS to purchase up to 379,900 shares of the Company's
common stock at $1.937 per share.
6. Obtained an extension on the payment of fees payable to IHS under the
management agreement discussed in note 14 through April 1998 (estimated to
be $2,200 for 1997).
In addition, the Company continues to pursue negotiations to obtain
additional debt or equity capital and anticipates finalizing its financial
restructuring plan soon. The Company believes it has obtained sufficient
financing commitments for the next year. However, other commitments will likely
be necessary to successfully accomplish the financial restructuring plan beyond
the next year.
The Company acquires or leases and operates long-term health care
facilities in medically-underserved rural communities, and uses such facilities
as platforms to develop networks offering a range of other healthcare services.
Facilities owned or leased by the Company are in the states of Alabama,
Colorado, Georgia, Iowa, Kansas, Louisiana, Missouri, Nebraska, Texas and
Wyoming. The Company and others in the healthcare business are subject to
certain inherent risks, including the following:
o Substantial dependence on revenues derived from reimbursement by the
Federal Medicare and state Medicaid programs;
o Government regulation, government budgetary constraints and proposed
legislative and regulatory changes; and
o awsuits alleging malpractice and related claims.
Such inherent risks require the use of certain management estimates in the
preparation of the Company's financial statements and it is reasonably possible
that a change in such estimates may occur.
F-22
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(13) Certain Significant Risks and Uncertainties - (Continued)
The Medicare and various state Medicaid reimbursement programs represented
20% and 50%, respectively, of the Company's revenues for the year ended December
31, 1996, and the Company's operations are subject to a variety of other
Federal, state and local regulatory requirements. Failure to maintain required
regulatory approvals and licenses and/or changes in such regulatory requirements
could have a significant adverse effect on the Company. Changes in Federal and
state reimbursement funding mechanisms, related government budgetary constraints
and differences between final settlements and estimated settlements receivable
under Medicare and Medicaid retrospective reimbursement programs, which are
subject to audit and retroactive adjustment as discussed in note 3, could have a
significant adverse effect on the Company. Also, the Company is from time to
time subject to malpractice and related claims and lawsuits, which arise in the
normal course of business and which could have a significant effect on the
Company. The Company believes that adequate provision for these items has been
made in the accompanying consolidated financial statements and that their
ultimate resolution will not have a material effect on the consolidated
financial statements.
Since its inception, the Company has grown through acquisitions, and
realization of acquisition costs, including excess costs over fair value of net
assets acquired, is dependent initially upon the consummation of the
acquisitions and subsequently upon the Company's ability to successfully
integrate and manage acquired operations. Also, the Company's development of
integrated healthcare networks is dependent upon successfully effecting
economies of scale, the recruitment of skilled personnel and the expansion of
services and related revenues. The Company has not completed implementing its
network strategy at any facilities, and realization of related development costs
cannot be assured. Finally, see note 12 for certain significant risks and
uncertainties, resulting in the loss on impairment of investments and other
non-recurring charges in 1996.
(14) Related Party Transactions
On January 19, 1994, the Company entered into a Medicare consulting
agreement with Symphony Care Consulting, Inc. (SCCI), a wholly-owned subsidiary
of Integrated Health Services, Inc., as amended on May 1, 1995. The consulting
agreement provided Medicare reimbursement and certification services including
training, cost report preparation and accounting services through January 1996.
Costs paid to SCCI were $410 in 1994, $453 in 1995, and $148 in 1996. In 1996,
the Company paid Symphony Rehabilitation Services (SRS) and Symphony Pharmacy
Services (SPS), wholly owned subsidiaries of IHS, $162 for therapy and $98 for
pharmacy services, respectively. Also, the Company paid IHS approximately $500
in 1994 and $186 in 1995 to reimburse IHS for expenses incurred on behalf of the
Company in connection with the start-up of CCA's operations, the acquisition of
MeritWest and due diligence service in connection with the public offering. No
amounts were paid to IHS in 1996. Two of the Company's directors are employees,
directors and stockholders of IHS. The Company believes that the terms of the
agreement with SCCI and the amounts paid to IHS, SRS and SPS for services are on
terms as favorable as could have been obtained from unaffiliated third parties.
Loans receivable from officers and directors of $425 at December 31, 1996
mature on various dates with accrued interest at 8% per annum.
F-23
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(14) Related Party Transactions - (Continued)
On December 27, 1996, the Company and IHS entered into a loan agreement
which, as amended, entitles the Company to borrow, until December 27, 1998,
amounts on a revolving credit basis so that no more than $5,000 is outstanding.
Loan advances are subject to the consent of IHS to the making of advances, which
consent may not be unreasonably withheld. This revolving credit facility bears
interest at a rate per annum equal to the annual rate of interest set forth in
IHS's revolving credit agreement with Citibank, N.A., plus 2%. Repayment of
amounts advanced under this line of credit are subordinated to the payment of up
to an aggregate of $30,000 of principal and interest on the Company's
obligations to HRPT and Daiwa. As of December 31, 1996, IHS had advanced the
Company $2,000.
In connection with entering into the revolving credit facility, the Company
issued warrants to purchase an aggregate of 752,182 shares of the Company's
Common Stock, one-half of which are exercisable until January 13, 1999 at $3.22
per share (the average of the high and low trading price of the Company's Common
Stock on January 14 and 15, 1997) and the remaining one-half of which are
exercisable until January 13, 2002 at $6.44 per share. The number of shares
subject to warrants and the exercise prices are subject to adjustment in certain
instances, including if the Company issues shares of Common Stock (or securities
convertible into Common Stock) at less than the applicable exercise price. In
connection therewith, the Company has granted to IHS certain rights to cause the
shares issuable upon exercise of the warrants to be registered under the
Securities Act of 1933, as amended, at the Company's expense.
On December 27, 1996, the Company entered into a Management Agreement (the
"Management Agreement") with Integrated Health Services, Inc. ("IHS") pursuant
to which the Company is employing IHS to supervise, manage and operate the
financial, accounting, MIS, reimbursement and ancillary services contracting
functions for the Company until December 31, 2001. The Management Agreement
provides for the Company to pay to IHS for its services, until December 31,
1997, an amount equal to the lesser of 2% of the Company's gross revenues (as
defined) or the Company's annualized cost of performing those services itself
based on the period July 1, 1996 through December 31, 1996. Thereafter, the
management fee payable to IHS is to be the lesser of 2% of the Company's gross
revenues or a percentage of gross revenues determined by comparing the Company's
cost of performing such functions during the period July 1, 1996 through
December 31, 1996 to its gross revenues for that period. The gross revenues
percentage which is fixed may be increased from 2.0% to 2.5% by mutual agreement
of the parties following IHS's review of the Company.
(15) Initial Public Offering
In August 1995, the Company issued 3,450,000 shares of common stock to the
public in an initial public offering at a price of $9.50 per share. Net proceeds
after underwriting discounts and expenses of the offering were $27,589.
The Company used the net proceeds of the offering to, among other things,
pay $10,800 of indebtedness to HRPT plus a prepayment penalty of approximately
$600 and redeem the Series A Preferred Stock for approximately $8,167.
Concurrently with the completion of the offering, the Series A Preferred
Stockholders purchased an aggregate of 1,331,814 shares of Common Stock through
their exercise of warrants by applying 263 shares of Series A Preferred Stock,
having an aggregate redemption value of $26,300, in payment of the full exercise
price of the warrants.
As a result of the repayment of certain indebtedness through the
application of a portion of the proceeds from the offering and the proceeds from
a concurrent borrowing, the Company recorded an extraordinary charge to earnings
of $1,398 related to prepayment penalties and the write-off of deferred
financing costs ($992, net of income tax benefit of $406).
F-24
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(16) Sandy River Transaction
Effective as of August 15, 1995, the Company entered into management
agreements for ten long-term care facilities (the "Sandy River Facilities"),
obtained an option to acquire all of the entities which own the ten facilities
(the "Option") and agreed to make fully secured loans to such entities for up to
$3,100. Effective as of August 15, 1996, the Company terminated the management
agreements since the Sandy River Facilities were not generating sufficient cash
flows to pay CCA's management fees.
Under the prior management agreements, the Company's monthly base
management fee was 7% of gross revenues (as defined) during the initial term.
Management fees were subordinated to the prior payment of all costs, expenses,
certain capital expenditures, lease payments and scheduled payments of principal
and interest on the indebtedness of the facilities, and a portion was
subordinated to certain advances and fees of approximately $400 per annum
payable to Sandy River Development, Inc. ("SRD"), a service company whose four
principals were also principals of certain owners of the Sandy River Facilities.
In accordance with the settlement agreement, unpaid management fees of $1,086
were waived by the Company upon the termination of the management agreements.
See note 12.
The Company recorded management fee revenue of $1,136 in 1995 and $1,266 in
1996. As part of the Company's strategy to make operational improvements at the
time it assumed the operations of facilities acquired or managed, the Company
implemented an action plan to improve the cash flows of the Sandy River
Facilities, which included specific steps to increase patient census, increase
Medicare utilization (which program has a higher per diem reimbursement rate),
maximize total third party reimbursement and introduce a cost savings program
through efficiencies and other professional management techniques. However,
despite the implementation of management's action plan, the Sandy River
Facilities did not generate sufficient cash flows to pay the entire management
fee, and it became apparent in 1996 that the facilities could not be managed on
a profitable basis.
The Company had also loaned $2,533 under secured revolving credit notes and
term promissory notes to certain entities (the "Borrowing Entities") which owed
indebtedness that was personally guaranteed by the principals of the entities
which own the Sandy River Facilities. The loans were primarily to enable the
Borrowing Entities to retire such indebtedness and thereby release such
principals from their personal guaranties. The loans to the Borrowing Entities
matured on August 10, 1996. The Company's loans to the Borrowing Entities bore
interest at the rate payable by the Company under the Company's revolving credit
facility and were secured (on a several basis) by, among other assets, the
accounts receivable of the Sandy River Facilities and mortgages on certain of
the Sandy River Facilities. Pursuant to the settlement agreement, CCA released
the Borrowing Entities from their obligations as consideration for the amounts
the Company owed to the Sandy River Group as a result of the termination of the
management agreement and related agreements.
Under a related option agreement, the Company had the right to purchase the
entities which own the ten facilities, during the initial three year term of the
management agreements, and the Company had a nonrefundable $5,000 purchase
option deposit, of which $1,850 was paid through the issuance of 194,737 shares
of Common Stock valued at $9.50 per share. In 1996, the Company terminated the
option and wrote-off the purchase option deposit of $5,000.
F-25
<PAGE>
COMMUNITY CARE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands, except per share amounts)- (Continued)
(16) Sandy River Transaction - (Continued)
The Company granted the holders of the 194,737 shares of Common Stock,
issued as partial payment of the purchase option deposit, the right to
"piggyback" such shares on one occasion in certain registration statements filed
by the Company under the Securities Act. As of April 14, 1997 such shares have
not been included in certain registration statements filed by the Company under
the Securities Act. In addition, each holder was also granted the right to
require the Company to repurchase up to 25%, 25% and 50% of their shares during
the one month period following each of March 15, 1996, September 15, 1996 and
March 15, 1997, respectively, at a price equal to $9.50 per share, or if higher
and a registration statement under the Securities Act with respect to such
shares is not then effective, the market price of the shares. On October 27,
1996, as a result of the terminated management agreement, the holders of these
shares exercised rights under the Option agreement and required the Company to
repurchase the aforementioned shares for $9.50 per share. The total amount due
to holders of stock of $2,181 has been classified as a current liability as of
December 31, 1996. The agreement was superseded by a settlement agreement dated
March 1, 1997. See note 13 for further information.
(17) Supplemental Cash Flow Information
Significant non-cash financing and investing activities are summarized in
notes 2 and 12 and as follows:
o Accretion of the discount on preferred stock resulted in an increase
in preferred stock and a decrease in additional paid-in capital of
$371 in 1994 and $231 in 1995.
o Preferred stock dividends of $163 in 1994 were accrued but not paid.
o Common Stock with fair value of $150 was issued for legal services in
connection with acquisitions in 1994.
o The realization of deferred tax assets relating to the MeritWest
acquisition and the corresponding reduction of the valuation allowance
decreased the excess of cost over fair value of net assets acquired by
$215 in 1995.
o The Sandy River transaction resulted in an increase in deposits of
$1,850 which was financed by issuance of common stock in 1995.
o The transfer in 1996 of Smith Hospital back to the prior owners
resulted in a non cash charge to income of $4,398 which consists of
the following:
<TABLE>
<S> <C>
Property, plant and equipment ...... $ 5,907
Long term debt ..................... (3,000)
Deferred financing costs ............ 264
Other .............................. 1,227
--------
$ 4,398
========
</TABLE>
Cash payments for interest, net of amounts capitalized, were $3,678 in 1995
and $5,008 in 1996. Cash payments for income taxes were $3 in 1995 and $32 in
1996.
F-26
<PAGE>
Annex A
[LETTERHEAD OF SMITH BARNEY INC.]
CONFIDENTIAL
August 1, 1997
The Board of Directors
Community Care of America, Inc.
3050 North Horseshoe Drive
Naples, Florida 33942
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of Community Care of America, Inc.
("CCA") of the consideration to be received by such holders pursuant to the
terms and subject to the conditions set forth in the Agreement and Plan of
Merger, dated as of August 1, 1997 (the "Merger Agreement"), among Integrated
Health Services, Inc. ("IHS"), IHS Acquisition XXVI, Inc., an indirect wholly
owned subsidiary of IHS ("Sub"), and CCA. As more fully described in the Merger
Agreement, (i) IHS will cause Sub to commence a tender offer to purchase all
outstanding shares of the common stock, par value $0.0025 per share, of CCA (the
"CCA Common Stock") at a purchase price of $4.00 per share, net to the seller in
cash (the "Tender Offer") and (ii) subsequent to the Tender Offer, Sub will be
merged with and into CCA (the "Merger" and, together with the Tender Offer, the
"Transaction") and each outstanding share of CCA Common Stock not previously
tendered will be converted into the right to receive $4.00 in cash.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of CCA and certain senior officers and other representatives of IHS
concerning the business, operations and prospects of CCA. We examined certain
publicly available business and financial information relating to CCA as well as
certain financial forecasts and other information and data for CCA which were
provided to or otherwise discussed with us by the management of CCA. We reviewed
the financial terms of the Merger as set forth in the Merger Agreement in
relation to, among other things: current and historical market prices and
trading volumes of CCA Common Stock; the historical and projected earnings and
other operating data of CCA; and the capitalization and financial condition of
CCA. We considered, to the extent publicly available, the financial terms of
certain other similar transactions recently effected which we considered
relevant in evaluating the Merger and analyzed certain financial, stock market
and other publicly available information relating to the businesses of other
companies whose operations we considered relevant in evaluating those of CCA. In
connection with our engagement, we were requested to approach, and held
discussions with, third parties to solicit indications of interest in a possible
acquisition of or investment in CCA. In addition to the foregoing, we conducted
such other analyses and examinations and considered such other financial,
economic and market criteria as we deemed appropriate in arriving at our
opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the management of CCA that such forecasts and other information and
data were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of CCA as to the future financial
performance of CCA. We have not made or been provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of CCA nor have we made
A-1
<PAGE>
The Board of Directors
Community Care of America, Inc.
Page 2
August 1, 1997
any physical inspection of the properties or assets of CCA. Our opinion is
necessarily based upon information available to us, and financial, stock market
and other conditions and circumstances existing and disclosed to us, as of the
date hereof.
Smith Barney has been engaged to render financial advisory services to CCA in
connection with the proposed Transaction and will receive a fee for such
services, a significant portion of which is contingent upon the consummation of
the Transaction. We also will receive a fee upon the delivery of this opinion.
In the ordinary course of our business, we and our affiliates may actively trade
or hold the securities of CCA and IHS for our own account or for the account of
our customers and, accordingly, may at any time hold a long or short position in
such securities. We have in the past provided investment banking services to CCA
and IHS unrelated to the proposed Transaction, for which services we have
received compensation. In addition, we and our affiliates (including Travelers
Group Inc. and its affiliates) may maintain relationships with CCA and IHS.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of CCA in its evaluation of the proposed
Transaction, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to whether or not such stockholder should
tender shares of CCA Common Stock in the Tender Offer or how such stockholder
should vote on the proposed Merger. Our opinion may not be published or
otherwise used or referred to, nor shall any public reference to Smith Barney be
made, without our prior written consent; provided that this opinion letter may
be included in its entirety in the Solicitation/Recommendation Statement of CCA
relating to the proposed Transaction.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the cash consideration to be received by
the holders of CCA Common Stock (other than IHS and its affiliates) in the
Transaction is fair, from a financial point of view, to such holders.
Very truly yours,
SMITH BARNEY INC.
A-2
<PAGE>
Annex B
[Letterhead of Wheat, First]
August 1, 1997
CONFIDENTIAL
The Board of Directors
Community Care of America, Inc.
3050 North Horseshoe Drive, Suite 260
Naples, FL 33942
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the outstanding shares of Common Stock, par value
$0.0025 per share (the "Shares"), of Community Care of America, Inc. (the
"Company") of the cash consideration to be received by such holders pursuant to
the terms and subject to the conditions set forth in the Agreement and Plan of
Merger dated as of August 1, 1997 (the "Agreement"), by and among Integrated
Health Services, Inc. (the "Acquiror"), its wholly-owned subsidiary and the
Company.
As described in the Agreement, Acquiror will cause its wholly-owned
subsidiary to commence a tender offer (the "Offer") to purchase all outstanding
Shares at a purchase price of $4.00 per Share, and following the Offer such
subsidiary of Acquiror will be merged with and into the Company (the "Merger").
Wheat, First Securities, Inc. ("Wheat"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. In the ordinary course of our business as a broker-dealer, we
may actively trade or hold the securities of the Company or the Acquiror for our
own account or for the account of our customers and, accordingly, may at any
time hold a long or short position in such securities. Wheat will receive a fee
from the Company for rendering this opinion.
In arriving at our opinion, we have, among other things:
(1) reviewed the financial and other information contained in the
Company's Annual Reports to Shareholders and Annual Reports on Form
10-K for the fiscal years ended December 31, 1996 and December 31,
1995, and the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997;
(2) reviewed the financial and other information contained in the
Acquiror's Annual Reports to Shareholders and Annual Reports on Form
10-K for the fiscal years ended December 31, 1996, December 31, 1995
and December 31, 1994, and the Acquiror's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997;
(3) conducted discussions with members of senior management of the Company
concerning its businesses, operations and prospects;
(4) reviewed other financial information concerning the businesses and
operations of the Company including certain audited financial
information and certain internal financial analyses and forecasts for
the Company prepared by senior management of the Company;
B-1
<PAGE>
(5) reviewed certain publicly available information with respect to
historical market prices and trading activity for the Company's Common
Stock and for certain publicly traded companies which we deemed
relevant;
(6) compared the results of operations of the Company with those of
certain publicly traded companies which we deemed relevant;
(7) compared the proposed financial terms of the transaction with the
financial terms of certain other mergers and acquisitions which we
deemed to be relevant;
(8) reviewed the Agreement; and
(9) reviewed such other financial studies and analyses and performed such
other investigations and taken into account such other matters as we
deemed necessary.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all information supplied or otherwise made available to us by
the Company, and we have not assumed any responsibility for independent
verification of such information or any independent valuation or appraisal of
any of the assets of the Company. We have relied upon the management of the
Company as to the reasonableness and achievability of their financial and
operational forecasts and projections, and the assumptions and bases therefor,
provided to us, and we have assumed that such forecasts and projections reflect
the best currently available estimates and judgments of such management and that
such forecasts and projections will be realized in the amounts and in the time
periods currently estimated by such management. Our opinion is necessarily based
upon market, economic and other conditions as they exist and can be evaluated on
the date hereof and the information made available to us through the date
hereof. We were not requested to, and did not, participate in the negotiation or
structuring of the transaction contemplated by the Agreement.
Our advisory services and the opinion expressed herein are provided solely
for the use of the Company's Board of Directors in evaluating the transaction
contemplated by the Agreement and are not on behalf of, and are not intended to
confer rights or remedies upon the Acquiror, any stockholder of the Acquiror or
the Company, or any person other than the Company's Board of Directors. This
opinion may not be summarized, excerpted from or otherwise publicly referred to
without our prior written consent; provided, that this opinion letter may be
included in its entirety in the Offer to Purchase and the
Solicitation/Recommendation Statement of the Company relating to the Offer and
the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that
as of the date hereof the cash consideration of $4.00 per Share to be received
by the holders of the Shares (other than Acquiror and its affiliates) in the
Offer and Merger is fair, from a financial point of view, to such holders.
Very truly yours,
WHEAT, FIRST SECURITIES, INC.
B-2
<PAGE>
ANNEX C
RIGHTS OF DISSENTING STOCKHOLDERS UNDER
THE DELAWARE GENERAL CORPORATION LAW ("DGCL")
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF THE DGCL, ANY
STOCKHOLDER WHO IS CONSIDERING EXERCISING DISSENTERS' RIGHTS
SHOULD CONSULT HIS OR HER LEGAL ADVISOR.
STATUTORY APPRAISAL PROCEDURES. The following is a brief summary of the
statutory procedures to be followed by a holder of Shares at the Effective Time
who does not wish to accept the per Share cash consideration pursuant to the
Merger (a "Remaining Stockholder") in order to dissent from the Merger and
perfect appraisal rights under Delaware law. This summary is not intended to be
complete and is qualified in the entirety by reference to Section 262 of the
DGCL, the text of which is set forth in this Annex C. Any Remaining Stockholder
considering demanding appraisal is advised to consult legal counsel. Appraisal
rights will not be available unless and until the Merger (or a similar business
combination) is consummated.
Remaining Stockholders of record who desire to exercise their appraisal
rights must fully satisfy all of the following conditions. A written demand for
appraisal of Shares must be delivered to the Secretary of the Company (x) before
the taking of the vote on the approval and adoption of the Merger Agreement if
the Merger is not being effected as a "short-form" merger but, rather, is being
consummated following approval thereof at a meeting of the Company's
stockholders (a "long-form" merger) or (y) within 20 days after the date that
the Surviving Corporation mails to the Remaining Stockholders a notice (the
"Notice of Merger") to the effect that the Merger is effective and that
appraisal rights are available (and includes in such notice a copy of Section
262 of DGCL and any other information required thereby) if the Merger is being
effected as a "short-form" merger without a vote or meeting of the Company's
stockholders. If the Merger is effected as a "long-form" merger, this written
demand for appraisal of Shares must be in addition to and separate from any
proxy or vote abstaining from or against the approval and adoption of the Merger
Agreement, and neither voting against, abstaining from voting, nor failing to
vote on the Merger Agreement will constitute a demand for appraisal within the
meaning of Section 262 of the DGCL. In the case of a "long-form" merger, any
stockholder seeking to demand appraisal must hold the Shares for which appraisal
is sought on the date of the making of the demand, continuously hold such Shares
through the Effective Time, and otherwise comply with the provisions of Section
262 of the DGCL.
In the case of both a "short-form" and a "long-form" merger, a demand for
appraisal must be executed by or for the stockholder of record, fully and
correctly, as such stockholder's name appears on the stock certificates. If
Shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, such demand must be executed by the fiduciary. If Shares
are owned of record by more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that in exercising the demand, he
is acting as agent for the record owner.
A record owner, such as a broker, who holds Shares as a nominee for others,
may exercise appraisal rights with respect to the Shares held for all or less
than all beneficial owners of Shares as to which the holder is the record owner.
In such case the written demand must set forth the number of Shares covered by
such demand. Where the number of Shares is not expressly stated, the demand will
be presumed to cover all Shares outstanding in the name of such record owner.
Beneficial owners who are not record owners and who intend to exercise appraisal
rights should instruct the record owner to comply strictly with the statutory
requirements with respect to the exercise of appraisal rights before the date of
any meeting of stockholders of the Company called to approve the Merger in the
case of a "long-form" merger and within 20 days following the mailing of the
Notice of Merger in the case of a "short-form" merger.
C-1
<PAGE>
Remaining Stockholders who elect to exercise appraisal rights must mail or
deliver their written demands to: Secretary, Community Care of America, Inc.,
3050 North Horseshoe Drive, Suite 260, Naples, Florida 34104. The written demand
for appraisal should specify the stockholder's name and mailing address, the
number of Shares covered by the demand and that the stockholder is thereby
demanding appraisal of such Shares. In the case of a "long-form" merger, the
Company must, within ten days after the Effective Time, provide notice of the
Effective Time to all stockholders who have complied with Section 262 of the
DGCL and have not voted for approval and adoption of the Merger Agreement.
In the case of a "long-form" merger, Remaining Stockholders electing to
exercise their appraisal rights under Section 262 must not vote for the approval
and adoption of the Merger Agreement or consent thereto in writing. Voting in
favor of the approval and adoption of the Merger Agreement, or delivering a
proxy in connection with the stockholders' meeting called to approve the Merger
Agreement (unless the proxy votes against, or expressly abstains from the vote
on, the approval and adoption of the Merger Agreement), will constitute a waiver
of the stockholder's right of appraisal and will nullify any written demand for
appraisal submitted by the stockholder.
Regardless of whether the Merger is effected as a "long-form" merger or a
"short-form" merger, within 120 days after the Effective Time, either the
Company or any stockholder who has complied with the required conditions of
Section 262 and who is otherwise entitled to appraisal rights may file a
petition in the Delaware Court of Chancery demanding a determination of the fair
value of the Shares of the dissenting stockholders. If a petition for an
appraisal is timely filed, after a hearing on such petition, the Delaware Court
of Chancery will determine which stockholders are entitled to appraisal rights
and thereafter will appraise the Shares owned by such stockholders, determining
the fair value of such Shares, exclusive of any element of value arising from
the accomplishment or expectation of the Merger, together with a fair rate of
interest to be paid, if any, upon the amount determined to be the fair value.
The cost of the appraisal proceeding may be determined by the Delaware
Court of Chancery and taxed upon the parties as the Delaware Court of Chancery
deems equitable in the circumstances. Upon application of a dissenting
stockholder, the Delaware Court of Chancery may order that all or a portion of
the expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys' fees
and the fees and expenses of experts, be charged pro rata against the value of
all Shares entitled to appraisal. In the absence of such determination or
assessment, each party shall bear its own expenses.
Any Remaining Stockholder who has duly demanded appraisal in compliance
with Section 262 of the DGCL will not, after the Effective Time, be entitled to
vote for any purpose the Shares subject to such demand or to receive payment of
dividends or other distributions on such Shares, except for dividends or other
distributions payable to stockholders of record at a date prior to the Effective
Time.
Any time within 60 days after the Effective Time, any former holder of
Shares shall have the right to withdraw his or her demand for appraisal and to
accept the per Share cash consideration pursuant to the Merger. After this
period, such holder may withdraw his or her demand for appraisal only with the
consent of the Surviving Corporation. If no petition for appraisal is filed with
the Delaware Court of Chancery within 120 days after the Effective Time, the
stockholders' rights to appraisal shall cease and all stockholders shall be
entitled to receive the per Share cash consideration pursuant to the Merger.
Failure to take any required step in connection with the exercise of
appraisal rights may result in the termination or waiver of such rights.
APPRAISAL RIGHTS CANNOT BE EXERCISED AT THIS TIME. THE INFORMATION SET
FORTH ABOVE IS FOR INFORMATIONAL PURPOSES ONLY WITH RESPECT TO ALTERNATIVES
AVAILABLE TO STOCKHOLDERS IF THE MERGER (OR ANY SIMILAR BUSINESS COMBINATION) IS
CONSUMMATED. STOCKHOLDERS WHO WILL BE ENTITLED TO APPRAISAL RIGHTS IN CONNECTION
WITH THE MERGER WILL RECEIVE ADDITIONAL INFORMATION CONCERNING APPRAISAL RIGHTS
AND THE PROCEDURES TO BE FOLLOWED IN CONNECTION THEREWITH BEFORE SUCH
STOCKHOLDERS HAVE TO TAKE ANY ACTION RELATING THERETO.
C-2
<PAGE>
STOCKHOLDERS WHO SELL SHARES IN THE OFFER WILL NOT BE ENTITLED TO EXERCISE
APPRAISAL RIGHTS WITH RESPECT THERETO BUT, RATHER, WILL RECEIVE THE PRICE PAID
IN THE OFFER THEREFOR.
GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
\s262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to \s228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to \s251 (other than a merger effected pursuant to \s251(g) of
this title), \s252, \s254, \s257, \s258, \s263 or \s264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of \s251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to \s\s251,
252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
C-3
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under \s253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy
or vote against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective date
of such merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to \s228 or
\s253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall,
C-4
<PAGE>
in the absence of fraud, be prima facie evidence of the facts stated therein.
For purposes of determining the stockholders entitled to receive either
notice, each constituent corporation may fix, in advance, a record date that
shall be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this
C-5
<PAGE>
section and who has submitted his certificates of stock to the Register in
Chancery, if such is required, may participate fully in all proceedings until it
is finally determined that he is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-6
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
COMMUNITY CARE OF AMERICA, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED AUGUST 7, 1997
BY
IHS ACQUISITION XXVI, INC.
A WHOLLY OWNED SUBSIDIARY OF
INTEGRATED HEALTH SERVICES, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, SEPTEMBER 4, 1997, UNLESS THE OFFER IS EXTENDED (SUCH
DATE, AS THE SAME MAY BE EXTENDED, THE "EXPIRATION DATE").
THE DEPOSITARY FOR THE OFFER IS:
CITIBANK, N.A.
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Overnight Courier Delivery: By Hand:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
c/o Citicorp Data Distribution, Inc. c/o Citicorp Data Distribution, Inc. Corporate Trust Window
P.O. Box 7072 404 Sette Drive 111 Wall Street, 5th Floor
Paramus, New Jersey 07653 Paramus, New Jersey 07653 New York, New York 10043
Facsimile for Eligible Institutions:
(201) 262-3240
Facsimile Confirmation Only:
(800) 422-2077
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN
AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS
LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9
PROVIDED BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders of Community
Care of America, Inc., either if certificates for Shares (as defined below) are
to be forwarded herewith or, unless an Agent's Message (as defined in the Offer
to Purchase) is utilized, if tenders of Shares are to be made by book-entry
transfer into the account of Citibank, N.A., as Depositary (the "Depositary"),
at the Depository Trust Company ("DTC") or the Philadelphia Depository Trust
Company ("PDTC") (each a "Book-Entry Transfer Facility" and collectively the
"Book-Entry Transfer Facilities") pursuant to the procedures set forth under
"THE OFFER--Procedure for Accepting the Offer and Tendering Shares" in the Offer
to Purchase (as defined below). Stockholders who tender Shares by book-entry
transfer are referred to herein as "Book-Entry Stockholders." DELIVERY OF
DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE
DEPOSITARY.
Holders of Shares whose certificates for such Shares are not immediately
available or who cannot deliver such Share certificates and all other required
documents to the Depositary prior to the Expiration Date, or who cannot complete
the procedure for book-entry transfer on a timely basis, must tender their
Shares according to the guaranteed delivery procedure set forth under "THE OFFER
- -- Procedure for Accepting the Offer and Tendering Shares" in the Offer to
Purchase. See Instruction 2.
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered
Holder(s) (Please fill in, if blank, exactly as Share Certificate(s) and Share(s) Tendered
name(s) appear(s) on certificate(s)) (Attach additional schedule, if necessary)
- --------------------------------------------------------------------------------------------------
Total Number
Share of Shares Number of
Certificate Represented By Shares
Number(s)* Certificate(s)* Tendered**
- --------------------------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Total Shares:
-------------------------------------------------
</TABLE>
- ----------
* Need not be completed by Book-Entry Stockholders.
** Unless otherwise indicated, all Shares represented by certificates
delivered to the Depositary will be deemed to have been tendered. See
Instruction 4.
[ ] CHECK HERE IF SHARES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER MADE TO AN
ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER FACILITY
AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY TRANSFER
FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution
---------------------------------------------------------------------------
Check box of Book-Entry Transfer Facility and provide Account Number and
Transaction Code Number:
[ ] The Depository Trust Company
[ ] The Philadelphia Depository Trust Company
Account Number Transaction Code Number
------------------- ----------------
[ ] CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Record Holder(s):
---------------------------------------------------------------------------
Window Ticket Number (if any):
---------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
------------------------
Name of Institution that Guaranteed Delivery:
------------------------------
If delivered by Book-Entry Transfer, check box of Book-Entry Transfer
Facility and provide Account Number and Transaction Code Number:
[ ] The Depository Trust Company
[ ] The Philadelphia Depository Trust Company
Account Number Transaction Code Number
------------------- ----------------
2
<PAGE>
NOTE: SIGNATURE MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to IHS Acquisition XXVI, Inc., a Delaware
corporation (the "Purchaser") and a wholly owned subsidiary of Integrated Health
Services, Inc., a Delaware corporation (the "Parent"), the above-described
shares of Common Stock, par value $.0025 per share (the "Shares"), of Community
Care of America, Inc., a Delaware corporation (the "Company"), at a purchase
price of $4.00 per Share, net to the seller in cash, without interest thereon,
upon the terms and subject to the conditions set forth in the Offer to Purchase
dated August 7, 1997 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which together constitute the
"Offer"). The undersigned understands that the Purchaser reserves the right to
transfer or assign, in whole or from time to time in part, to one or more of its
affiliates, the right to purchase all or any portion of the Shares tendered
pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, the Purchaser all
right, title and interest in and to all of the Shares that are being tendered
hereby and any and all dividends, distributions (including additional Shares) or
rights declared, paid or issued with respect to the tendered Shares on or after
the date hereof and payable or distributable to the undersigned on a date prior
to the transfer to the name of the Purchaser or nominee or transferee of the
Purchaser on the Company's stock transfer records of the Shares tendered
herewith (collectively, a "Distribution"), and appoints the Depositary the true
and lawful agent and attorney-in-fact of the undersigned with respect to such
Shares (and any Distribution) with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest) to
(a) deliver certificates representing such Shares (and any Distribution) or
transfer ownership of such Shares (and any Distribution) on the account books
maintained by a Book-Entry Transfer Facility, together in either case with
appropriate evidences of transfer and authenticity, to the Depositary for the
account of the Purchaser, (b) present such Shares (and any Distribution) for
transfer on the books of the Company and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of such Shares (and any
Distribution), all in accordance with the terms and subject to the conditions of
the Offer.
The undersigned irrevocably appoints designees of the Purchaser as such
stockholder's attorney-in-fact and proxy, with full power of substitution, to
the full extent of such stockholder's rights with respect to the Shares tendered
by such stockholder and accepted for payment by the Purchaser and with respect
to any and all other Shares or other securities issued or issuable in respect of
such Shares on or after the date hereof. Such appointment will be effective
when, and only to the extent that, the Purchaser accepts such Shares for
payment. Upon such acceptance for payment, all prior powers of attorney and
proxies given by such stockholder with respect to such Shares (and such other
Shares and securities) will be revoked without further action, and no subsequent
powers of attorney and proxies may be given nor any subsequent written consents
executed (and, if given or executed, will not be deemed effective). The
designees of the Purchaser will, with respect to the Shares (and such other
Shares and securities) for which such appointment is effective, be empowered to
exercise all voting and other rights of such stockholder as they in their sole
discretion may deem proper at any annual or special meeting of the Company's
stockholders or any adjournment or postponement thereof, by written consent in
lieu of any such meeting or otherwise. The Purchaser reserves the right to
require that, in order for Shares to be deemed validly tendered, immediately
upon the Purchaser's payment for such Shares the Purchaser must be able to
exercise full voting rights, including rights in respect of acting by written
consent, with respect to such Shares.
The undersigned hereby represents and warrants that (a) the undersigned has
full power and authority to tender, sell, assign and transfer the Shares (and
any Distribution) tendered hereby and (b) when the Shares are accepted for
payment by the Purchaser, the Purchaser will acquire good, marketable and
unencumbered title to the Shares (and any Distribution), free and clear of all
liens, restrictions, charges and encumbrances, and the same will not be subject
to any adverse claim. The undersigned,
3
<PAGE>
upon request, will execute and deliver any additional documents deemed by the
Depositary or the Purchaser to be necessary or desirable to complete the sale,
assignment and transfer of the Shares tendered hereby (and any Distribution). In
addition, the undersigned shall promptly remit and transfer to the Depositary
for the account of the Purchaser any and all Distributions in respect of Shares
tendered hereby, accompanied by appropriate documentation of transfer, and
pending such remittance or appropriate assurance thereof, the Purchaser will be,
subject to applicable law, entitled to all rights and privileges as owner of any
such Distribution and may withhold the entire purchase price or deduct from the
purchase price the amount or value thereof, as determined by the Purchaser in
its sole discretion.
All authority herein conferred or agreed to be conferred shall not be
affected by and shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned.
Tenders of Shares made pursuant to the Offer are irrevocable, except that
Shares tendered pursuant to the Offer may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by the Purchaser
pursuant to the Offer, may also be withdrawn at any time after October 6, 1997.
See "THE OFFER--Withdrawal Rights" in the Offer to Purchase.
The undersigned understands that tenders of Shares pursuant to any of the
procedures described in the Offer to Purchase under "THE OFFER--Procedure for
Accepting the Offer and Tendering Shares" and in the instructions hereto will
constitute a binding agreement between the undersigned and the Purchaser upon
the terms and subject to the conditions set forth in the Offer, including the
undersigned's representation that the undersigned owns the Shares being
tendered.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or issue or return any
certificate(s) for Shares not tendered or not accepted for payment in the
name(s) of the record holder(s) appearing under "Description of Shares
Tendered." Similarly, unless otherwise indicated herein under "Special Delivery
Instructions," please mail the check for the purchase price and/or any
certificate(s) for Shares not tendered or not accepted for payment (and
accompanying documents, as appropriate) to the address(es) of the record
holder(s) appearing under "Description of Shares Tendered." In the event that
both the Special Delivery Instructions and the Special Payment Instructions are
completed, please issue the check for the purchase price and/or any
certificate(s) for Shares not tendered or accepted for payment in the name of,
and deliver such check and/or such certificates to, the person or persons so
indicated. Unless otherwise indicated herein under "Special Payment
Instructions," please credit any Shares tendered herewith by book-entry transfer
that are not accepted for payment by crediting the account at the Book-Entry
Transfer Facility designated above. The undersigned recognizes that the
Purchaser has no obligation, pursuant to the Special Payment Instructions, to
transfer any Shares from the name(s) of the record holder(s) thereof if the
Purchaser does not accept for payment any of the Shares so tendered.
All capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Offer to Purchase.
4
<PAGE>
<TABLE>
<S> <C>
SPECIAL PAYMENT INSTRUCTIONS (SEE SPECIAL DELIVERY INSTRUCTIONS (SEE
INSTRUCTIONS 1, 5, 6 AND 7) INSTRUCTIONS 1, 4, 5, 6 AND 7)
To be completed ONLY if certificate(s) To be completed ONLY if certificate(s)
for Shares not tendered or not accepted for Shares not tendered or not accepted
for payment and/or the check for the for payment and/or the check for the
purchase price of Shares accepted for purchase price of Shares accepted for
payment are to be issued in the name of payment are to be sent to someone other
someone other than the undersigned or than the undersigned or to the
if Shares tendered by book-entry undersigned at an address other than
transfer which are not accepted for that shown above.
payment are to be returned by credit to
an account maintained at a Book-Entry Mail: [ ] check [ ] certificates to:
Transfer Facility other than the
account indicated above. Name___________________________________
(Please Print)
Issue: [ ] check [ ] certificates to:
Address________________________________
Name___________________________________
(Please Print) _______________________________________
(Include Zip Code)
Address________________________________
_______________________________________
_______________________________________ (TAX ID OR SOCIAL SECURITY NO.)
(Include Zip Code)
_______________________________________
(TAX ID OR SOCIAL SECURITY NO.)
(ALSO COMPLETE SUBSTITUTE FORM W-9)
(SEE SUBSTITUTE FORM W-9)
[ ] Credit Shares tendered by
book-entry transfer that are not
accepted for payment to (check one):
[ ] DTC [ ] PDTC
_______________________________________
(DTC OR PDTC Account No.)
</TABLE>
5
<PAGE>
________________________________________________________________________________
SIGN HERE
(AND COMPLETE SUBSTITUTE FORM W-9)
________________________________________________________________________________
________________________________________________________________________________
(Signature(s) of Holder(s))
Dated:______________________________, 1997
(Must be signed by record holder(s) exactly as name(s) appear(s) on certificates
representing the Shares or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, please provide the following information
and see Instruction 5).
Name(s):________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity:_______________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Area Code and Telephone No.:____________________________________________________
Tax Identification or Social Security Number:___________________________________
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5)
Authorized Signature____________________________________________________________
Name____________________________________________________________________________
Name of Firm____________________________________________________________________
(Please Print)
Address_________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number__________________________________________________
Dated _____________________________________________, 1997
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
To complete the Letter of Transmittal, you must do the following:
-- Fill in the box entitled "Description of Shares Tendered."
-- Sign and date the Letter of Transmittal in the box entitled "Sign
Here."
-- Fill in and sign in the box entitled "Substitute Form W-9."
In completing the Letter of Transmittal, you may (but are not required to)
also do the following:
-- If you want the payment for any Shares purchased issued in the name of
another person, complete the box entitled "Special Payment
Instructions."
-- If you want any certificate for Shares not tendered or Shares not
purchased issued in the name of another person, complete the box
entitled "Special Payment Instructions."
-- If you want any payment for Shares or certificate for Shares not
tendered or purchased delivered to an address other than that
appearing under your signature, complete the box entitled "Special
Delivery Instructions."
If you complete the box entitled "Special Payment Instructions" or "Special
Delivery Instructions," you must have your signature guaranteed by an Eligible
Institution (as defined in Instruction 1 below) unless the Letter of Transmittal
is signed by an Eligible Institution.
1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this
Letter of Transmittal (a) if this Letter of Transmittal is signed by the record
holder(s) of Shares tendered herewith, unless such holder(s) has completed
either the box entitled "Special Payment Instructions" or the box entitled
"Special Delivery Instructions" above, or (b) if such Shares are tendered for
the account of a firm which is a bank, broker, dealer, credit union, savings
association or other entity which is a member in good standing of the Securities
Transfer Agents Medallion Program (each of the foregoing being referred to as an
"Eligible Institution"). In all other cases, all signatures on this Letter of
Transmittal must be guaranteed by an Eligible Institution. See Instruction 5 of
this Letter of Transmittal.
2. REQUIREMENTS OF TRANSFER. This Letter of Transmittal is to be completed
by stockholders either if certificates are to be forwarded herewith or, unless
an Agent's Message is utilized, if tenders are to be made pursuant to the
procedure for tender by book-entry transfer set forth under "THE
OFFER--Procedure for Accepting the Offer and Tendering Shares" in the Offer to
Purchase. Certificates evidencing physically tendered Shares, or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of Shares
into the Depositary's account at a Book-Entry Transfer Facility, as well as this
Letter of Transmittal (or a facsimile hereof), properly completed and duly
executed, with any required signature guarantees, or an Agent's Message in
connection with a book-entry transfer, and any other documents required by this
Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth herein prior to the Expiration Date. If Share certificates
are forwarded to the Depositary in multiple deliveries, a properly completed and
duly executed Letter of Transmittal must accompany each such delivery.
Stockholders whose Share certificates are not immediately available or who
cannot deliver their Share certificates and all other required documents to the
Depositary prior to the Expiration Date or who cannot complete the procedure for
delivery by book-entry transfer on a timely basis may tender their Shares by
properly completing and duly executing a Notice of Guaranteed Delivery pursuant
to the guaranteed delivery procedure set forth under "THE OFFER -- Procedure for
Accepting the Offer and Tendering Shares" in the Offer to Purchase. Pursuant to
such procedure: (i) such tender must be made by or through an Eligible
Institution; (ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Purchaser, must be
received by the Depositary prior to the Expiration Date; and (iii) certificates
representing the Shares (or a Book-Entry Confirmation), in proper form for
transfer, in each case together with the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, with any required signature
guarantees (or, in the case of a book-entry delivery, an Agent's Message) and
any other documents required by this Letter of Transmittal, must be received by
the Depositary within three NASDAQ trading days after the date of
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<PAGE>
execution of such Notice of Guaranteed Delivery. A "NASDAQ Trading Day" is any
day on which The Nasdaq Stock Market, Inc.'s National Market is open for
business.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of the
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participants in the Book-Entry
Transfer Facility tendering the Shares that such participant has received this
Letter of Transmittal and agrees to be bound by the terms of this Letter of
Transmittal and that Purchaser may enforce such agreement against such
participant.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, CERTIFICATES
REPRESENTING THE SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY
THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE
TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF BOOK-ENTRY TRANSFER, BY
BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering stockholders, by execution of
this Letter of Transmittal (or a facsimile hereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Shares Tendered" is inadequate, the certificate numbers and/or the number of
Shares and any other required information should be listed on a separate signed
schedule attached hereto.
4. PARTIAL TENDERS. (Not applicable to Book-Entry Stockholders) If fewer
than all the Shares evidenced by any certificate submitted are to be tendered,
fill in the number of Shares which are to be tendered in the box entitled
"Number of Shares Tendered." In such cases, new certificates for the Shares that
were evidenced by your old certificates but were not tendered by you will be
sent to you, unless otherwise provided in the box entitled "Special Delivery
Instructions" in this Letter of Transmittal, as soon as practicable after the
Expiration Date. All Shares represented by certificates delivered to the
Depositary will be deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the record holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the certificate(s) without alteration, enlargement or any change
whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal or any certificates or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to the Purchaser of their authority so to act must be submitted.
If this Letter of Transmittal is signed by the record holder(s) of the
Shares listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required unless payment is to be made to or
certificates for Shares not tendered or not purchased are to be issued in the
name of a person other than the record holder(s), in which case the certificates
for Shares tendered hereby must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name(s) of the record holder(s)
appear(s) on such Share certificate(s). Signatures on such certificates or stock
powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the record
holder(s) of the certificate(s) listed, the certificate(s) must be endorsed or
accompanied by appropriate stock powers, in either
8
<PAGE>
case signed exactly as the name(s) of the record holder(s) appear on the
certificate(s). Signatures on such certificates or stock powers must be
guaranteed by an Eligible Institution.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction
6, the Purchaser will pay any stock transfer taxes with respect to the transfer
and sale of Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price is to be made to, or if certificate(s) for Shares
not tendered or accepted for payment are to be registered in the name of, any
person other than the record holder(s), or if tendered certificate(s) are
registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the record holder(s) or such person) payable on account of the transfer to
such person will be deducted from the purchase price unless satisfactory
evidence of the payment of such taxes or an exemption therefrom is submitted.
Except as otherwise provided in this Instruction 6, it will not be
necessary for transfer tax stamps to be affixed to the certificate(s) listed in
this Letter of Transmittal.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued in
the name of, and/or certificates for Shares not tendered or not accepted for
payment are to be issued or returned to, a person other than the signer of this
Letter of Transmittal or if a check and/or such certificates are to be returned
to a person other than the person(s) signing this Letter of Transmittal or to an
address other than that shown in the box entitled "Description of Shares
Tendered" in this Letter of Transmittal, the appropriate boxes on this Letter of
Transmittal must be completed. A stockholder delivering Shares tendered hereby
by book-entry transfer may request that Shares not accepted for payment be
credited to such account maintained at a Book-Entry Transfer Facility as such
stockholder may designate under "Special Payment Instructions." If no such
instructions are given, such Shares not accepted for payment will be returned by
crediting the same account at the Book-Entry Transfer Facility as the account
from which such Shares were delivered.
8. WAIVER OF CONDITIONS. Subject to the terms and conditions of the Merger
Agreement (as defined in the Offer to Purchase), the conditions of the Offer
(other than the Minimum Condition (as defined in the Offer to Purchase)) may be
waived by the Purchaser in whole or in part at any time and from time to time in
its sole discretion.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a stockholder whose tendered Shares are accepted for payment is
required to provide the Depositary with such stockholder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Depositary is
not provided with the correct TIN, the Internal Revenue Service may subject the
stockholder or other payee to a $50 penalty. In addition, payments that are made
to such stockholder or other payee with respect to Shares purchased pursuant to
the Offer may be subject to 31% backup withholding.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, the stockholder must submit a Form W-8, signed under penalties of
perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Depositary. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for more instructions.
If backup withholding applies, the Depositary is required to withhold 31%
of any such payments made to the stockholder or other payee. Backup withholding
is not an additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
The box in Part 3 of the Substitute Form W-9 may be checked if the
tendering stockholder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 3 is checked,
the stockholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed,
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<PAGE>
the Depositary will withhold 31% of all payments made prior to the time a
properly certified TIN is provided to the Depositary.
The stockholder is required to give the Depositary the TIN (e.g., social
security number or employer identification number) of the record owner of the
Shares or of the last transferee appearing on the transfers attached to, or
endorsed on, the Shares. If the Shares are in more than one name or are not in
the name of the actual owner, consult the enclosed "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for additional
guidance on which number to report.
10. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions
or requests for assistance may be directed to the Dealer Manager or the
Information Agent at their respective addresses and telephone numbers set forth
below. Additional copies of the Offer to Purchase, this Letter of Transmittal
and the Notice of Guaranteed Delivery may also be obtained from the Information
Agent or the Dealer Manager or from brokers, dealers, commercial banks or trust
companies.
11. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate representing
Shares has been lost, destroyed or stolen, the stockholder should promptly
notify the Depositary. The stockholder will then be instructed as to the steps
that must be taken in order to replace the certificate. This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost or destroyed certificates have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER
WITH ANY REQUIRED SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY
TRANSFER, AN AGENT'S MESSAGE, AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED
BY THE DEPOSITARY PRIOR TO THE EXPIRATION OF THE OFFER, AND EITHER SHARE
CERTIFICATES FOR TENDERED SHARES MUST BE RECEIVED BY THE DEPOSITARY OR SHARES
MUST BE DELIVERED PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH
CASE PRIOR TO THE EXPIRATION DATE OF THE OFFER, OR THE TENDERING STOCKHOLDER
MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY.
10
<PAGE>
<TABLE>
<S> <C>
_____________________________________________________________________________________________________________
PAYER'S NAME: CITIBANK, N.A.
_____________________________________________________________________________________________________________
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX Social Security Number
AT RIGHT AND CERTIFY BY SIGNING AND or Employer
DATING BELOW. Identification Number
Part 2 -- Certification -- Under penalties of perjury, I certify that:
FORM W-9 (1) The number shown on this form is my correct taxpayer
identification number (or I am waiting for a number to be issued to
me), and (2) I am not subject to backup withholding because: (a) I
Department of the Treasury am exempt from backup withholding, or (b) I have not been notified
Internal Revenue Service by the Internal Revenue Service ("IRS") that I am subject to backup
withholding as a result of a failure to report all interest or
Payer's Request for dividends, or (c) the IRS has notified me that I am no longer
Taxpayer Identification subject to backup withholding.
Number ("TIN")
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if
you have been notified by the IRS that you are currently subject to
backup withholding because of under reporting interest or dividends
on your tax return. However, if after being notified by the IRS that
you were subject to backup withholding you received another
notification from the IRS that you are no longer subject to backup
withholding, do not cross out such item (2).
_____________________________________________________________________________________________________________
SIGN SIGNATURE:______________________________ Part 3
HERE
DATE:___________________________________ Awaiting TIN [ ]
_____________________________________________________________________________________________________________
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU
PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have
mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or
Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I
do not provide a taxpayer identification number by the time of payment, 31% of all reportable cash payments made to me will be
withheld.
Signature ___________________________________________________
Date __________________________________________________, 1997
</TABLE>
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<PAGE>
THE INFORMATION AGENT FOR THE OFFER IS:
MACKENZIE PARTNERS, INC.
156 FIFTH AVENUE
NEW YORK, NEW YORK 10010
(212) 929-5500
OR
(800) 322-2885
THE DEALER MANAGER FOR THE OFFER IS:
SHATTUCK HAMMOND PARTNERS INC.
630 FIFTH AVENUE
NEW YORK, NEW YORK 10111
(212) 314-0400
12
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
COMMUNITY CARE OF AMERICA, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED AUGUST 7, 1997
THIS NOTICE OF GUARANTEED DELIVERY OR A FORM SUBSTANTIALLY EQUIVALENT
HERETO MUST BE USED TO ACCEPT THE OFFER, IF TIME WILL NOT PERMIT THE LETTER OF
TRANSMITTAL, CERTIFICATES REPRESENTING THE SHARES OR ANY OTHER REQUIRED
DOCUMENTS TO REACH THE DEPOSITARY, OR THE PROCEDURES FOR BOOK-ENTRY TRANSFER
CANNOT BE COMPLETED, ON OR PRIOR TO THE EXPIRATION DATE (AS DEFINED BELOW). THIS
FORM MAY BE DELIVERED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN THE OFFER TO
PURCHASE) BY HAND DELIVERY, TELEGRAM, FACSIMILE TRANSMISSION OR MAIL TO THE
DEPOSITARY AS SET FORTH BELOW. ALL CAPITALIZED TERMS USED HEREIN BUT NOT DEFINED
HEREIN SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE OFFER TO PURCHASE DATED
AUGUST 7, 1997 (AS THE SAME MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME,
THE "OFFER TO PURCHASE"). SEE "THE OFFER -- PROCEDURE FOR ACCEPTING THE OFFER
AND TENDERING SHARES" IN THE OFFER TO PURCHASE.
The Depositary for the Offer is:
CITIBANK, N.A.
<TABLE>
<CAPTION>
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By Mail: By Overnight Courier: By Hand:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
c/o Citicorp Data Distribution, Inc. c/o Citicorp Data Distribution, Inc. Corporate Trust Window
P.O. Box 7072 404 Sette Drive 111 Wall Street, 5th Floor
Paramus, New Jersey 07653 Paramus, New Jersey 07653 New York, New York 10043
By Facsimile:
(For Eligible Institutions Only)
(201) 262-3240
Facsimile Confirmation Only:
(800) 422-2077
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DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION, OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to IHS Acquisition XXVI, Inc., a Delaware
corporation (the "Purchaser") and a wholly owned subsidiary of Integrated Health
Services, Inc., a Delaware corporation (the "Parent"), upon the terms and
subject to the conditions set forth in the Offer to Purchase and the related
Letter of Transmittal (collectively, the "Offer"), receipt of each of which is
hereby acknowledged, the number of Shares set forth below, pursuant to the
guaranteed delivery procedures set forth in the Offer to Purchase under the
heading "THE OFFER -- Procedure for Accepting the Offer and Tendering Shares."
The undersigned understands that tenders of Shares may be withdrawn by
written notice of withdrawal received by the Depositary at any time on or prior
to 12:00 midnight, New York City time, on the Expiration Date. If the Purchaser
makes a material change in the terms of the Offer or the information concerning
the Offer, the Purchaser will disseminate additional Offer materials and extend
such Offer, to the extent required by law.
The undersigned understands that payment by the Depositary for Shares
tendered and accepted for payment pursuant to the Offer will be made only after
timely receipt by the Depositary of such Shares (or book-entry confirmation of
the transfer of such Shares into the Depositary's account at a Book-Entry
Transfer Facility) and a Letter of Transmittal (or facsimile thereof) with
respect to such Shares properly completed and duly executed with any required
signature guarantees and any other documents required by the Letter of
Transmittal or a properly transmitted Agent's Message.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
Capitalized terms used herein, but not defined herein, shall have the
meanings ascribed to them in the Offer to Purchase.
<PAGE>
PLEASE SIGN AND COMPLETE
Signature(s) of Record Holders or Address(es):____________________________
Authorized Signatory:
________________________________________
______________________________________
________________________________________
______________________________________ Area Code and Telephone No.:
______________________________________ ________________________________________
Name(s) of Record Holder(s):
______________________________________
______________________________________
______________________________________
Number of Shares to be Tendered:
______________________________________
Certificate No(s). of Shares (if
available)
______________________________________
If Shares will be delivered by a
______________________________________ book-entry transfer, check trust
company:
[-] The Depository Trust Company
[-] Philadelphia Depository Trust
Company
Transaction Code No.:________________
Dated: ______, 1997 Depository Account No.:________________
This Notice of Guaranteed Delivery must be signed by the record holder(s) of
Shares exactly as their name(s) appear(s) on the Shares or by person(s)
authorized to become record holder(s) by endorsements and documents transmitted
with this Notice of Guaranteed Delivery. If signature is by a trustee, guardian,
attorney-in-fact, officer of a corporation, executor, administrator, agent or
other representative, such person must provide the following information:
Please print name(s) and address(es)
Name(s): _________________________________________________________________
_________________________________________________________________
Capacity: _________________________________________________________________
_________________________________________________________________
DO NOT SEND SHARES WITH THIS FORM. SHARES SHOULD BE SENT TO THE DEPOSITARY,
TOGETHER WITH A PROPERLY COMPLETED AND VALIDLY EXECUTED LETTER OF TRANSMITTAL.
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of the Securities Transfer Agents Medallion
Program, the Stock Exchange Medallion Program or the New York Stock Exchange
Medallion Signature Program, hereby guarantees that, within three NASDAQ trading
days from the date of this Notice of Guaranteed Delivery, a properly completed
and validly executed Letter of Transmittal (or a facsimile thereof), together
with Shares tendered hereby in proper form for transfer (or confirmation of the
book-entry transfer of such Shares into the Depositary's account at a Book-Entry
Transfer Facility pursuant to the procedures for book-entry transfer set forth
in the Offer to Purchase under the caption "THE OFFER -- Procedure for Accepting
the Offer and Tendering Shares") and all other required documents will be
deposited by the undersigned with the Depositary at its address set forth above.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal or
Agent's Message and Shares to the Depositary within the time period shown
herein. Failure to do so could result in a financial loss to such Eligible
Institution.
Name of Firm:___________________________ ______________________________________
Authorized Signature
Address:_______________________________
Name:_________________________________
_______________________________________
Title:________________________________
_______________________________________
Area Code and
Telephone No.: _________________________ Date:_________________________________
DO NOT SEND SHARES WITH THIS FORM. ACTUAL SURRENDER OF SHARES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND VALIDLY EXECUTED
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
COMMUNITY CARE OF AMERICA, INC.
AT
$4.00 NET PER SHARE
BY
IHS ACQUISITION XXVI, INC.
A WHOLLY OWNED SUBSIDIARY OF
INTEGRATED HEALTH SERVICES, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, SEPTEMBER 4, 1997, UNLESS THE OFFER IS EXTENDED (SUCH DATE,
AS THE SAME MAY BE EXTENDED, THE "EXPIRATION DATE").
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
We have been appointed by IHS Acquisition XXVI, Inc., a Delaware
corporation (the "Purchaser") and a wholly owned subsidiary of Integrated Health
Services, Inc., a Delaware corporation (the "Parent"), to act as Dealer Manager
in connection with the Purchaser's offer to purchase for cash all the
outstanding shares of Common Stock, par value $.0025 per share ( the "Shares"),
of Community Care of America, Inc., a Delaware corporation (the "Company"), at a
purchase price of $4.00 per Share, net to the seller in cash without interest
thereon, upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated August 7, 1997 (the "Offer to Purchase"), and in the related
Letter of Transmittal (which, as amended from time to time, together constitute
the "Offer") enclosed herewith. Holders of Shares whose certificates for such
Shares are not immediately available or who cannot deliver their Share
certificates and all other required documents to the Depositary (as defined
below) prior to the Expiration Date (as defined in the Offer to Purchase), or
who cannot complete the procedures for book-entry transfer on a timely basis,
must tender their Shares according to the guaranteed delivery procedures set
forth under "THE OFFER -- Procedure for Accepting the Offer and Tendering
Shares" in the Offer to Purchase. Capitalized terms used herein but not defined
herein shall have the meanings ascribed to such terms in the Offer to Purchase.
We are asking you to contact your clients for whom you hold Shares
registered in your name or in the name of your nominee. In addition, we ask you
to contact your clients who, to your knowledge, hold Shares registered in their
own names. The Purchaser will pay all transfer taxes, if any, applicable to the
tender of Shares to it, except as otherwise provided in the Offer.
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. The Offer to Purchase, dated August 7, 1997;
2. A Letter of Transmittal for your use and for the information of your
clients, together with guidelines of the Internal Revenue Service for
Certification of Taxpayer Identification Number on Substitute Form W-9 providing
information relating to backup federal income tax withholding;
3. A Notice of Guaranteed Delivery to be used to accept the Offer if (i)
the Shares and all other required documents cannot be delivered to the
Depositary on or prior to the Expiration Date or (ii) the required procedures
for book-entry transfer cannot be completed on or prior to the Expiration Date;
4. A form of a letter which may be sent to your clients for whose account
you hold the Shares in your name or in the name of a nominee, with space
provided for obtaining such clients' instructions with regard to the Offer;
<PAGE>
5. The Company's Solicitation/Recommendation Statement on Schedule 14D-9;
and
6. Return envelope addressed to the Depositary.
PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK TIME, ON THURSDAY, SEPTEMBER 4, 1997, UNLESS THE OFFER IS
EXTENDED (SUCH DATE, AS THE SAME MAY BE EXTENDED, THE "EXPIRATION DATE"). WE
URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE IN ORDER TO OBTAIN
THEIR INSTRUCTIONS.
The Offer is conditioned upon, among other things, (i) there being validly
tendered and not withdrawn prior to the expiration of the Offer such number of
Shares which constitutes at least a majority of the outstanding Shares on a
fully-diluted basis on the date of purchase, (ii) the expiration or termination
of any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the regulations thereunder applicable to the purchase of
Shares pursuant to the Offer and (iii) the satisfaction of the other conditions
described under "THE OFFER -- Procedure for Accepting the Offer and Tendering
Shares" in the Offer to Purchase. The Offer is not subject to any financing
condition.
At a meeting held on July 31, 1997, the Board of Directors of the Company,
by unanimous vote of all directors present and voting (with the two directors
who are also directors of Parent abstaining or not attending), based on the
recommendation of the Special Committee appointed by the Company's Board of
Directors, determined that the terms of the Offer and the Merger are fair to,
and in the best interests of, the holders of Shares (other than Parent, the
Purchaser and its affiliates) and recommends that holders of Shares accept the
Offer and tender their Shares to the Purchaser.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as August 1, 1997 (the "Merger Agreement"), by and among the Parent, the
Purchaser and the Company. The Merger Agreement provides, among other things,
that subsequent to the consummation of the Offer, the Purchaser will merge with
and into the Company (the "Merger"). At the effective time of the Merger (the
"Effective Time"), each Share issued and outstanding immediately prior to the
Effective Time (other than Shares owned by the Company or any subsidiary of the
Company and Shares owned by the Parent, the Purchaser or any other subsidiary of
the Parent, which shall be cancelled, and other than Shares, if any, held by
stockholders who have properly exercised appraisal rights under Section 262 of
the Delaware General Corporation Law) will, by virtue of the Merger and without
any action on the part of the holders of the Shares, be converted into the right
to receive $4.00 in cash, payable to the holder thereof, without interest, upon
surrender of the certificate formerly representing such Share, less any required
withholding taxes.
In order to take advantage of the Offer, (i) a duly executed and properly
completed Letter of Transmittal and any required signature guarantees, or an
Agent's Message in connection with a book-entry delivery of Shares, and other
required documents should be sent to the Depositary, and (ii) either
certificates representing the tendered Shares should be delivered to the
Depositary, or such Shares should be tendered by book-entry transfer into the
Depositary's account maintained at one of the Book-Entry Transfer Facilities,
all in accordance with the instructions set forth in the Letter of Transmittal
and the Offer to Purchase.
If holders of Shares wish to tender, but it is impracticable for them to
forward their Shares or other required documents on or prior to the Expiration
Date or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures specified
under "THE OFFER -- Procedure for Accepting the Offer and Tendering Shares" in
the Offer to Purchase.
The Purchaser will not pay any fees or commissions to any broker or dealer
or other person (other than the Dealer Manager, the Depositary and the
Information Agent, as described in the Offer to Purchase) for soliciting tenders
of the Shares pursuant to the Offer. You will be reimbursed for customary
mailing and handling expenses incurred by you in forwarding the enclosed
materials to your clients as described in the Offer to Purchase under the
caption "THE OFFER -- Fees and Expenses."
<PAGE>
Additional copies of the enclosed materials may be obtained from the
Information Agent, at its address and telephone number set forth on the back
cover of the enclosed Offer to Purchase.
Very truly yours,
SHATTUCK HAMMOND PARTNERS INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY OTHER PERSON AS THE AGENT OF THE PARENT, THE PURCHASER, THE COMPANY, THE
DEPOSITARY, THE INFORMATION AGENT OR THE DEALER MANAGER OR AUTHORIZE YOU OR ANY
OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM
IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE
STATEMENTS CONTAINED THEREIN.
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
COMMUNITY CARE OF AMERICA, INC.
AT
$4.00 NET PER SHARE
BY
IHS ACQUISITION XXVI, INC.
A WHOLLY OWNED SUBSIDIARY
OF
INTEGRATED HEALTH SERVICES, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, SEPTEMBER 4, 1997, UNLESS THE OFFER IS EXTENDED (SUCH DATE,
AS THE SAME MAY BE EXTENDED, THE "EXPIRATION DATE").
To Our Clients:
Enclosed for your consideration is the Offer to Purchase dated August 7,
1997 (as the same may be amended or supplemented from time to time, the "Offer
to Purchase") and related Letter of Transmittal and instructions thereto (the
"Letter of Transmittal" and, together with the Offer to Purchase, the "Offer")
relating to the offer by IHS Acquisition XXVI, Inc., a Delaware corporation (the
"Purchaser") and a wholly owned subsidiary of Integrated Health Services, Inc.,
a Delaware corporation (the "Parent"), to purchase all of the outstanding shares
of Common Stock, $.0025 par value per share (the "Shares"), of Community Care of
America, Inc., a Delaware corporation (the "Company"), at a purchase price of
$4.00 per Share, net to the seller in cash without interest thereon, upon the
terms and subject to the conditions set forth in the Offer. Consummation of the
Offer is subject to certain conditions described in the Offer to Purchase.
Capitalized terms used herein and not defined herein shall have the meanings
ascribed to them in the Offer to Purchase.
If you wish to tender Shares but (i) certificates representing such Shares
("Share Certificates") are not immediately available, (ii) time will not permit
such Share Certificates and all other documents required by the Letter of
Transmittal to reach Citibank, N.A. (the "Depositary") on or prior to the
expiration date of the Offer or (iii) the procedure for book-entry transfer, as
set forth in the Offer to Purchase, cannot be completed on a timely basis, you
may nevertheless tender such Shares pursuant to the guaranteed delivery
procedure described under "THE OFFER -- Procedure for Accepting the Offer and
Tendering Shares" in the Offer to Purchase. See Instruction 2 of the Letter of
Transmittal. Delivery of documents to a Book-Entry Transfer Facility (as defined
in the Offer to Purchase) in accordance with the Book-Entry Transfer Facility's
procedures does not constitute delivery to the Depositary.
THIS MATERIAL RELATING TO THE OFFER IS BEING FORWARDED TO YOU AS THE
BENEFICIAL OWNER OF SHARES HELD BY US FOR YOUR ACCOUNT OR BENEFIT BUT NOT
REGISTERED IN YOUR NAME. WE ARE THE HOLDER OF RECORD OF SHARES HELD BY US FOR
YOUR ACCOUNT. A TENDER OF ANY SUCH SHARES CAN BE MADE ONLY BY US AS THE RECORD
HOLDER AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED
TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD
BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish us to tender
any or all such Shares held by us for your account, pursuant to the terms and
conditions set forth in the Offer. We urge you to read the Offer carefully
before instructing us to tender your Shares.
<PAGE>
Your instructions to us should be forwarded as promptly as possible in
order to permit us to tender Shares on your behalf in accordance with the
provisions of the Offer. The Offer will expire at 12:00 Midnight, New York City
time, on Thursday, September 4, 1997, unless extended (the "Expiration Date").
Shares tendered pursuant to the Offer may only be withdrawn under the
circumstances described in the Offer.
Your attention is directed to the following:
1. The tender price is $4.00 per Share, net to the seller in cash without
interest thereon.
2. The Offer is for all outstanding Shares.
3. At a meeting held on July 31, 1997, the Board of Directors of the
Company, by unanimous vote of all directors present and voting (with the two
directors who are also directors of Parent abstaining or not attending), based
on the recommendation of the Special Committee appointed by the Company's Board
of Directors, determined that the terms of the Offer and the Merger are fair to,
and in the best interests of, the holders of Shares (other than Parent, the
Purchaser and their affiliates) and recommends that holders of Shares accept the
Offer and tender their Shares to the Purchaser.
4. The Offer is being made pursuant to an Agreement and Plan of Merger,
dated as of August 1, 1997 (the "Merger Agreement"), by and among the Parent,
the Purchaser and the Company. The Merger Agreement provides, among other
things, that subsequent to the consummation of the Offer, the Purchaser will
merge with and into the Company (the "Merger"). At the effective time of the
Merger (the "Effective Time"), each Share issued and outstanding immediately
prior to the Effective Time (other than Shares owned by the Company or any
subsidiary of the Company and Shares owned by the Parent, the Purchaser or any
other subsidiary of the Parent, which shall be cancelled, and other than Shares,
if any, held by stockholders who have properly exercised appraisal rights under
Section 262 of the Delaware General Corporation Law) will, by virtue of the
Merger and without any action on the part of the holders of the Shares, be
converted into the right to receive $4.00 in cash, payable to the holder
thereof, without interest, upon surrender of the certificate formerly
representing such Share, less any required withholding taxes.
5. The Offer and withdrawal rights will expire at 12:00 Midnight, New York
City time, on Thursday, September 4, 1997, unless the Offer is extended.
6. Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares pursuant to the
Offer.
7. The Offer is conditioned upon, among other things, (i) there being
validly tendered and not withdrawn prior to the expiration of the Offer such
number of Shares which constitutes at least a majority of the outstanding Shares
on a fully-diluted basis on the date of purchase, (ii) the expiration or
termination of any waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the regulations thereunder applicable
to the purchase of Shares pursuant to the Offer and (iii) the satisfaction of
the other conditions described under "THE OFFER -- Certain Conditions of the
Offer" in the Offer to Purchase. The Offer is not subject to any financing
condition.
The Offer is being made solely by the Offer to Purchase and the related
Letter of Transmittal and is being made to all holders of Shares. The Purchaser
is not aware of any state where the making of the Offer is prohibited by
administrative or judicial action pursuant to any valid state statute. If the
Purchaser becomes aware of any valid state statute prohibiting the making of the
Offer or the acceptance of Shares pursuant thereto, the Purchaser will make a
good faith effort to comply with any such state statute. If, after such good
faith effort, the Purchaser cannot comply with such state statute, the Offer
will not be made to, nor will tenders be accepted from or on behalf of, the
holders of Shares in such state. In any jurisdiction where the securities, blue
sky or other laws require the Offer to be made by a licensed broker or dealer,
the Offer shall be deemed to be made on behalf of the Purchaser by Shattuck
Hammond Partners Inc., the Dealer Manager for the Offer, or one or more
registered brokers or dealers that are licensed under the laws of such
jurisdiction.
<PAGE>
If you wish to have us tender any or all of the Shares held by us for your
account, please so instruct us by completing, executing and returning to us the
instruction form that follows. If you authorize the tender of your Shares, all
such Shares will be tendered unless otherwise specified on the instruction form
contained in this letter. PLEASE FORWARD YOUR INSTRUCTIONS TO US AS SOON AS
POSSIBLE TO ALLOW US AMPLE TIME TO TENDER SHARES ON YOUR BEHALF PRIOR TO
EXPIRATION OF THE OFFER.
<PAGE>
INSTRUCTIONS REGARDING THE OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
COMMUNITY CARE OF AMERICA, INC.
BY
IHS ACQUISITION XXVI, INC.
The undersigned acknowledge(s) receipt of your letter enclosing the Offer
to Purchase dated August 7, 1997 (the "Offer to Purchase") and the related
Letter of Transmittal pursuant to an offer by IHS Acquisition XXVI, Inc., a
wholly owned subsidiary of Integrated Health Services, Inc., to purchase all
outstanding Shares of Common Stock, $.0025 par value per share, of Community
Care of America, Inc. at a purchase price of $4.00 per Share, net to the seller
in cash, without interest thereon, upon the terms and subject to the conditions
set forth in the Offer to Purchase and the related Letter of Transmittal.
This will instruct you to tender the Shares indicated below (or, if no
number is indicated below, all Shares) which are held by you for the account of
the undersigned, pursuant to the terms of and conditions set forth in the Offer
to Purchase and the related Letter of Transmittal furnished to the undersigned.
Number of Shares to be Tendered (check ONE box):*
[ ] All Shares _______________________________________
[ ] ____ Shares _______________________________________
Signature(s)
Dated:______________, 1997
_______________________________________
_______________________________________
Please print name(s) here
_______________________________________
_______________________________________
_______________________________________
_______________________________________
Please type or print address
_______________________________________
Area Code and Telephone Number
_______________________________________
Taxpayer Identification or Social
Security Number
_______________________________________
My Account Number with You
- ----------
*UNLESS OTHERWISE INDICATED, SIGNATURE(S) HEREON BY BENEFICIAL OWNER(S) SHALL
CONSTITUTE AN INSTRUCTION TO THE NOMINEE TO TENDER ALL SHARES OF SUCH BENEFICIAL
OWNER(S).
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER--Social Security numbers have nine digits separated by two hyphens:
i.e., 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e., 00-0000000. The table below will help determine the
type of number to give the payer.
- --------------------------------------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- --------------------------------------------------------------------------------
1. ... Individual The individual
2..... Two or more individuals(1) The actual owner of the
(joint) account or,
if combined funds, the first
individual listed on the
account(2)
3...... Custodian account of a minor (Uniform The minor(3)
Gift to Minors Act)
4...... a. The usual revocable savings trust The grantor-trustee(2)
(grantor is also trustee)
b. So-called trust account that is not
a legal or valid trust under State law
5...... Sole proprietorship The owner(4)
6...... Corporate account The corporation
- -----------------------------------------------------------------------------
GIVE THE
EMPLOYER IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- -----------------------------------------------------------------------------
7...... Association, club, religious, The organization
charitable, educational or other
tax-exempt organization
8...... Partnership account The partnership
9...... A broker or registered nominee The broker or nominee
10...... Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a state or local
government, school district or
prison) that receives agricultural
program payments
11..... A valid trust, estate or pension The legal entity(5)
trust
(1) Includes husband and wife, and adult and minor. If adult and minor, give
Social Security number of the adult or, if the minor is the only
contributor, the minor.
(2) List first and circle the name of the person whose number you furnish.
(3) Circle the minor's name and furnish the minor's social security number.
(4) Show your individual name. You may also enter your business name. You may
use either your SSN or EIN.
(5) List first and circle the name of the valid trust, estate or pension fund.
(Do not furnish the identifying number of the personal representative or
trustee unless the legal entity is not designated in the account title.)
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
<TABLE>
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GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER (TIN) ON SUBSTITUTE FORM W-9
(SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE)
PAGE 2
<S> <C>
NAME
If you are an individual, you must generally provide the name (15) A trust exempt from tax under section 664(c) or described in
shown on your social security card. However, if you have changed section 4947(a)(1).
your last name, for instance, due to marriage, without informing
the Social Security Administration of the name change, please Payments of dividends generally not subject to backup withholding
enter your first name, the last name shown on your social include the following:
security card, and your new last name.
o Payments to nonresident aliens subject to withholding
under section 1441.
OBTAINING A NUMBER
o Payments to partnerships not engaged in a trade or
If you don't have a taxpayer identification number ("TIN"), apply business in the U.S. that have at least one nonresident
for one immediately. To apply, obtain Form SS-5, Application for alien partner.
a Social Security Card, from our local office of the Social
Security Administration, or Form SS-4, Application for Employer
Identification Number, from your local Internal Revenue Service o Payments made by certain foreign organizations.
(the "IRS") office.
Payments of interest generally not subject to backup withholding
include the following:
PAYEES AND PAYMENTS EXEMPT FROM
BACKUP WITHHOLDING o Payments of interest on obligations issued by
individuals. Note: You may be subject to backup
withholding if this interest is $600 or more and is
The following is a list of payees generally exempt from backup paid in the course of the payor's trade or business and
withholding and for which no information reporting is required. you have not provided your correct TIN to the payor.
For interest and dividends, all listed payees are exempt except
item (9). For broker transactions, payees listed in (1) through o Payments of tax-exempt interest (including
(13) and a person registered under the Investment Advisers Act of exempt-interest dividends under section 852).
1940 who regularly acts as a broker are exempt. Payments subject
to reporting under sections 6041 and 6041A are generally exempt o Payments described in section 6049(b)(5) to nonresident
from backup withholding only if made to payees described in items aliens.
(1) through (7), except that a corporation (except certain
hospitals described in Regulations section 1.6041-3(a)) that o Payments on tax-free covenant bonds under section 1451.
provides medical and healthcare services or bills and collects
payments for such services is not exempt from backup withholding o Payments made by certain foreign organizations.
or information reporting.
o Mortgage interest paid by you.
(1) A corporation.
Payments that are not subject to information reporting are
(2) An organization exempt from tax under section 501(a), or an generally also not subject to backup withholding. For details,
individual retirement plan ("IRA"), or a custodial account see sections 6041, 6041A(a), 6042, 6044, 6045, 6049, 6050A and
under section 403(b)(7) if the account satisfies the 6050N, and the regulations under those sections.
requirements of section 401(f)(2).
PRIVACY ACT NOTICE.--Section 6109 requires you to furnish your
(3) The United States or any of its agencies or correct TIN to persons who must file information returns with the
instrumentalities. IRS to report interest, dividends, and certain other income paid
to you, mortgage interest you paid, the acquisition or
abandonment of secured property, cancellation of debt, or
(4) A state, the District of Columbia, a possession of the contributions you made to an IRA. The IRS uses the numbers for
United States, or any of their political subdivisions or identification purposes and to help verify the accuracy of your
instrumentalities. tax return. You must provide your TIN whether or not you are
required to file a tax return. Payors must generally withhold 31%
of taxable interest, dividend, and certain other payments to a
(5) A foreign government or any of its political subdivisions, payee who does not furnish a TIN to a payor. Certain penalties
agencies or instrumentalities. may also apply.
(6) An international organization or any of its agencies or PENALTIES
instrumentalities.
(1) FAILURE TO FURNISH TIN.--If you fail to furnish your correct
(7) A foreign central bank of issue. TIN to a requester (the person asking you to furnish your TIN),
you are subject to a penalty of $50 for each such failure unless
(8) A dealer in securities or commodities required to register your failure is due to reasonable cause and not to willful
in the U.S., the District of Columbia or a possession of the neglect.
U.S.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO
(9) A futures commission merchant registered with the Commodity WITHHOLDING.--If you make a false statement with no reasonable
Futures Trading Commission. basis that results in no backup withholding, you are subject to a
$500 penalty.
(10) A real estate investment trust.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. --Willfully
(11) An entity registered at all times during the tax year under falsifying certifications or affirmations may subject you to
the Investment Company Act of 1940. criminal penalties including fines and/or imprisonment.
(12) A common trust fund operated by a bank under section 584(a). FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE IRS
(13) A financial institution.
(14) A middleman known in the investment community as a nominee
or listed in the most recent publication of the American
Society of Corporate Secretaries, Inc., Nominee List.
</TABLE>
FOR IMMEDIATE RELEASE:
Contact: Robert N. Elkins, M.D.
Chairman & CEO
Marc B. Levin
Executive Vice President
Integrated Health Services, Inc.
(410) 998-8400
Anthony J. Russo, Ph.D., ext. 202
Noonan/Russo Communications, Inc.
(212) 696-4455
---------------------------------------------
Available on the Internet:
http://www.ihs-inc.com
---------------------------------------------
INTEGRATED HEALTH SERVICES TO ACQUIRE
COMMUNITY CARE OF AMERICA
Owings Mills, MD, and Naples, FL August 1, 1997 Integrated Health
Services, Inc. (NYSE: IHS) and Community Care of America, Inc. (Nasdaq: CCAI)
today jointly announced that they have signed a definitive merger agreement for
IHS to acquire all of the outstanding shares of CCA. Community Care of America,
Inc., based in Naples, FL, is a provider of healthcare services in rural markets
focused on developing community-based networks providing a broad range of high
quality, low-cost healthcare services. The Company's operations include 54
long-term care facilities, one physician practice, and one outpatient
rehabilitation center.
Pursuant to the agreement, IHS will commence a tender offer of $4.00
per share in cash for all outstanding shares of Community Care of America common
stock. Integrated Health Services expects to commence its cash tender offer on
August 7, 1997. This tender offer will be followed by a $4.00 per share cash
merger to acquire any shares not previously tendered. As a result of the
transaction, Community Care of America would become a wholly-owned subsidiary of
Integrated Health Services. The transaction was approved by special committees
of the boards of IHS and CCA, each of which were represented by independent
counsel and advised by separate investment banking firms. IHS was the successful
bidder following an auction process conducted by the special committee of the
CCA board in conjunction with its advisors.
The transaction has been approved by the Boards of Directors of IHS and
CCA. The cash tender offer is subject to at least a majority of the fully
diluted shares of CCA being tendered, as well as the receipt of the required
regulatory approvals. Stockholders owning approximately 2.9 million shares of
CCA common stock have agreed to tender their shares. In addition, IHS owns
warrants exercisable for approximately 1.2 million shares. The parties expect to
complete the transaction within 90 days.
CCA has approximately 7.6 million shares outstanding and approximately
10.7 million shares on a fully diluted basis. The total value of the
transaction,
<PAGE>
including the assumption of CCA's debt by IHS and other financial obligations,
will approximate $94 million. IHS expects the transaction to be accretive to
earnings and earnings per share as a result of the cost synergies and economies
of scale IHS brings to CCA.
"The acquisition of CCA will broaden our post-acute care network to
include more rural markets and complement our home care locations in rural
markets as well as complementing our announced merger with RoTech Medical
Corporation," said Robert N. Elkins, M.D., Chairman and CEO of IHS. "We view the
rural market as a growth opportunity for our post-acute networks, with about 62
million people living in rural America."
Integrated Health Services is a highly diversified health services
provider, offering a broad spectrum of post-acute medical and rehabilitative
services through its nationwide healthcare network. IHS's post-acute services
include home nursing services, home infusion services, subacute care, inpatient
and outpatient rehabilitation, respiratory therapy, hospice care, and diagnostic
services. Supporting the full continuum of healthcare needs, IHS currently
operates over 1,000 post-acute service locations in 45 states throughout the
U.S.
Statements in this press release concerning the Company's and CCA's
business outlook or future economic performances, anticipated profitability,
revenues, expenses or other financial items, anticipated cost synergies and
product or service line growth, together with other statements that are not
historical facts, are "forward-looking statements" as that term is defined under
the Federal Securities Laws. Any forward-looking statements are estimates,
reflecting the best judgment of IHS and CCA based upon currently available
information and involve a number of risks, uncertainties and other factors which
could cause actual results to differ materially from those stated in such
statements. Risks, uncertainties and factors which could affect the accuracy of
such forward looking statements are identified in the public filings made by the
Company and CCA with the Securities and Exchange Commission, and forward looking
statements contained in this press release or in other public statements of the
Company and CCA should be considered in light of those factors. There can be no
assurance that factors will not affect the accuracy of such forward looking
statements.
CONTACTS:
Integrated Health Services Community Care of America
Investors: Marc Levin Investors/Media: Deborah Lau
IHS - 410/998-8428 Community Care of America
941/435-0085
Media: Michele Helm
Noonan/Russo Communications
212/696-4455 ext. 225
-2-
EXECUTION COPY
$700,000,000
REVOLVING CREDIT AGREEMENT
Dated as of May 15, 1996
Among
INTEGRATED HEALTH SERVICES, INC.,
as Borrower,
The Lenders from time to time party hereto,
and
CITIBANK, N.A.
as Administrative Agent
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms......................................... 1
SECTION 1.02. Accounting Terms.............................................. 27
SECTION 1.03. Other Definitional Provisions................................. 27
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. Revolving Facility............................................ 28
(a) Advances................................................... 28
(b) Borrowings................................................. 28
(c) Notice of Borrowing........................................ 28
(d) Telephonic Notice of Borrowing............................. 28
(e) Funding of Advances........................................ 29
(f) Notice of Borrowing Irrevocable............................ 29
(g) Assumption of Funding...................................... 29
(h) Failure of Lender to Fund.................................. 29
SECTION 2.02. Letter of Credit Subfacility.................................. 29
(a) Issuance of the Letters of Credit.......................... 29
(b) LC Application............................................. 30
(c) Reimbursement.............................................. 30
(d) Reimbursement Obligation Absolute.......................... 30
(e) Lender Participation....................................... 31
(f) Commercial Practices....................................... 31
(g) Replacement of LC Bank..................................... 32
SECTION 2.03. Promissory Notes.............................................. 32
(a) Notes...................................................... 32
(b) Recording of Amounts....................................... 32
SECTION 2.04. Fees.......................................................... 33
(a) Closing Fees............................................... 33
(b) Commitment Fees............................................ 33
(c) Letter of Credit Fees...................................... 33
(d) Facing Fees................................................ 33
(e) Letter of Credit Administration............................ 33
(f) Agent's Fees............................................... 33
(g) Contingent Fees............................................ 33
<PAGE>
ii
SECTION 2.05. Voluntary and Scheduled Facility Reductions................... 33
SECTION 2.06. Principal Payments............................................ 34
(a) Final Maturity............................................. 34
(b) Excess Revolving Credit Exposure........................... 34
(c) Excess LC Exposure......................................... 34
(d) Payment on Date of Change of Control....................... 34
(e) Facility Reduction for Receivables Sale Program............ 35
(f) Application of LC Cash Collateral.......................... 35
SECTION 2.07. Interest...................................................... 35
(a) Base Rate Advances......................................... 35
(b) Eurodollar Rate Advances................................... 36
(c) Default Interest........................................... 36
SECTION 2.08. Additional Interest on Eurodollar Rate Advances............... 36
SECTION 2.09. Interest Rate Determination and Protection.................... 36
(a) Determination of Eurodollar Rate........................... 36
(b) Notice of Eurodollar Rate.................................. 36
(c) Failure to Provide Information............................. 37
(d) Suspension of Eurodollar Rate Advances..................... 37
(e) Failure to Specify Duration................................ 37
(f) Agent's Determination Conclusive........................... 37
SECTION 2.10. Voluntary Conversion of Advances.............................. 37
(a) Notice of Continuance/Conversion........................... 37
(b) Telephonic Notice.......................................... 38
(c) Requirements............................................... 38
(d) Base Rate Advances......................................... 38
SECTION 2.11. Prepayments................................................... 38
SECTION 2.12. Funding Losses................................................ 39
SECTION 2.13. Increased Costs............................................... 39
(a) Increase in Cost........................................... 39
(b) Increase in Capital Requirements........................... 39
(c) Replacement Lenders and Participants....................... 40
SECTION 2.14. Illegality.................................................... 41
SECTION 2.15. Payments and Computations..................................... 41
(a) Payments................................................... 41
(b) Charging of Accounts....................................... 41
(c) Computations............................................... 41
(d) Payment on Business Day.................................... 42
(e) Presumption of Payment..................................... 42
SECTION 2.16. Taxes......................................................... 42
(a) Net Payments............................................... 42
(b) Payment of Other Taxes..................................... 42
(c) Indemnification............................................ 43
<PAGE>
iii
(d) Evidence of Payments....................................... 43
(e) Withholding Tax Exemption.................................. 43
(f) Withholding Taxes.......................................... 44
(g) Indemnification of the Agent............................... 44
(h) Subsequent Lenders......................................... 44
(i) Refund, Deduction or Credit of Taxes....................... 45
(j) Exclusion of Certain Taxes................................. 45
(k) Additional Cooperation..................................... 45
SECTION 2.17. Sharing of Payments........................................... 45
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent on the Closing Date...................... 46
(a) Loan Documents............................................. 46
(b) Corporate Documents........................................ 47
(c) Governmental Consents...................................... 47
(d) No Injunction.............................................. 48
(e) Other Deliveries........................................... 48
(f) Legal Opinions............................................. 48
(g) Payout and Release Agreement............................... 49
(h) Payment of Existing Facility............................... 49
(i) Payment of Fees and Expenses............................... 49
(j) Section 3.02 Conditions.................................... 49
SECTION 3.02. Conditions Precedent to Each Extension of Credit.............. 49
(a) Notice..................................................... 49
(b) Certification.............................................. 49
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower................ 50
(a) Organization............................................... 50
(b) Power and Authority........................................ 50
(c) Due Authorization.......................................... 51
(d) Subsidiaries and Ownership of Capital Stock................ 51
(e) Health Care Facilities..................................... 51
(f) Governmental Approval...................................... 52
<PAGE>
iv
(g) Binding and Enforceable.................................... 52
(h) Financial Information...................................... 52
(i) Material Adverse Change.................................... 52
(j) Compliance................................................. 52
(k) Litigation................................................. 52
(l) No Conflict................................................ 53
(m) No Default................................................. 53
(n) Payment of Taxes........................................... 53
(o) Margin Regulations......................................... 53
(p) Conduct of Business........................................ 53
(q) Health Care Permits........................................ 53
(r) Environmental Matters...................................... 54
(s) ERISA Compliance........................................... 55
(t) Title to Assets............................................ 55
(u) Collateral Documents....................................... 56
(v) Senior Indebtedness........................................ 56
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Financial Covenants........................................... 56
(a) Maximum Debt/EBITDAR Ratio................................. 56
(b) Minimum Cash Flow Coverage Ratio........................... 57
(c) Minimum Interest&Rent Coverage Ratio....................... 58
(d) Minimum Net Worth.......................................... 58
SECTION 5.02. Affirmative Covenants......................................... 58
(a) Compliance with Laws....................................... 58
(b) Inspection of Property and Books and Records............... 58
(c) Reporting Requirements..................................... 59
(d) Preservation of Corporate Existence, Etc................... 62
(e) New Subsidiaries........................................... 62
(f) Maintenance of Property.................................... 62
(g) Insurance.................................................. 62
(h) Payment of Obligations..................................... 63
(i) Environmental Laws......................................... 64
(j) Use of Proceeds............................................ 64
(k) Health Care Permits and Approvals.......................... 64
(l) Further Assurances......................................... 64
SECTION 5.03. Negative Covenants............................................ 65
(a) Liens...................................................... 65
<PAGE>
v
(b) Disposition of Assets...................................... 67
(c) Investments................................................ 68
(d) Limitation on Indebtedness................................. 73
(e) Transactions with Affiliates............................... 74
(f) Accommodation Obligations.................................. 75
(g) Leases of Health Care Facilities........................... 75
(h) Restricted Junior Payments................................. 76
(i) Mergers, Etc............................................... 77
(j) Capital Expenditures....................................... 78
(k) Conduct of Business........................................ 79
(l) Unpledged Assets........................................... 79
(m) Compliance with ERISA...................................... 79
(n) Health Care Permits and Approvals.......................... 79
(o) Retained Interest Criteria................................. 80
(p) Payment Restrictions Affecting Subsidiaries................ 80
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default............................................. 80
(a) Non-Payment of Principal................................... 80
(b) Non-Payment of Interest or Fees............................ 80
(c) Representations and Warranties............................. 80
(d) Financial, Lien and Debt Covenants......................... 81
(e) Reporting and Negative Covenants........................... 81
(f) Covenants.................................................. 81
(g) Debt....................................................... 81
(h) Leases..................................................... 81
(i) Bankruptcy................................................. 82
(j) Judgments.................................................. 82
(k) Guaranty................................................... 82
(l) Collateral Documents....................................... 82
(m) ERISA...................................................... 82
SECTION 6.02. Rights Not Exclusive.......................................... 83
<PAGE>
vi
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action...................................... 84
SECTION 7.02. Agent Not Liable.............................................. 84
SECTION 7.03. Rights as Lender.............................................. 85
SECTION 7.04. Lender Credit Decision........................................ 85
SECTION 7.05. Indemnification............................................... 85
SECTION 7.06. Successor Agent............................................... 86
SECTION 7.07. Release of Collateral......................................... 86
SECTION 7.08. Release of Guarantor upon Sale of Stock....................... 86
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments.................................................... 87
SECTION 8.02. Notices....................................................... 88
SECTION 8.03. No Waiver; Remedies........................................... 88
SECTION 8.04. Costs and Expenses............................................ 89
SECTION 8.05. Right of Set-off.............................................. 89
SECTION 8.06. Indemnity..................................................... 89
(a) General Indemnity.......................................... 89
(b) Environmental Indemnity.................................... 90
SECTION 8.07. Assignments and Participations................................ 90
(a) Permitted Assignment....................................... 90
(b) Effect of Assignment....................................... 91
(c) Maintenance of Agreements.................................. 91
(d) Procedure.................................................. 92
(e) Participations............................................. 92
(f) Additional Information..................................... 92
(g) Permitted Assignments...................................... 92
SECTION 8.08. Binding Effect................................................ 93
SECTION 8.09. Governing Law; Consent to Jurisdiction; Venue................. 93
SECTION 8.10. Waiver of Jury Trial.......................................... 93
SECTION 8.11. Limitation of Liability....................................... 94
SECTION 8.12. Entire Agreement.............................................. 94
SECTION 8.13. Survival...................................................... 94
SECTION 8.14. Execution in Counterparts..................................... 94
<PAGE>
vii
EXHIBITS
Exhibit A Form of Note
Forms of Loan Administration Documents
Exhibit B-1 Form of Notice of Borrowing
Exhibit B-2 Form of Notice of Continuance/Conversion
Exhibit B-3 Form of LC Application
Exhibit B-4 Form of Pricing Certificate
Forms of Certain Loan Documents
Exhibit C-1 Form of Subsidiary Guaranty
Exhibit C-2 Form of IHS Pledge and Security Agreement
Exhibit C-3 Form of Subsidiary Pledge and Security Agreement
Exhibit C-4 Form of Confirmation and Agreement of Guarantors
Forms of Opinion of Counsel
Exhibit D-1 Form of Opinion of Counsel for the Borrower and the Guarantors
Exhibit D-2 Form of Opinion of Special Local Counsel for a Guarantor
Other Forms
Exhibit E-1 Form of Compliance Certificate
Exhibit E-2 Form of Assignment and Acceptance
Exhibit E-3 Form of Payment and Release Agreement
<PAGE>
viii
SCHEDULES
Schedule I List of Lenders, Commitments and Pro Rata Shares
Schedule 1.01(a) List of Senior Debt Excluded from Current Portion of
Long-Term Debt
Schedule 1.01(b) List of "Schedule 1.01(b) Assets" Designated for Sale
Schedule 1.01(c) List of "Schedule 1.01(c) Assets" Designated for Sale
Schedule 2.04(a) Itemization of Closing Fees
Schedule 4.01(d) List of Subsidiaries
Schedule 4.01(e) List of Health Care Facilities
Schedule 4.01(f) List of Government Approvals
Schedule 4.01(k) List of Litigation
Schedule 4.01(r) List of Environmental Matters
Schedule 4.01(s) List of ERISA Matters
Schedule 5.03(c) List of Loans and Investments
Schedule 5.03(c)(xv) List of Permitted Acquisitions
Schedule 5.03(d) List of Liens and Debt
Schedule 5.03(f) List of Accommodation Obligations
<PAGE>
REVOLVING CREDIT AGREEMENT
REVOLVING CREDIT AGREEMENT, dated as of May 15, 1996, among INTEGRATED
HEALTH SERVICES, INC., a Delaware corporation, the financial institutions
signatory hereto as Lenders, and CITIBANK, N.A., a national banking association,
as Administrative Agent for the Lenders.
In consideration of the mutual agreements set forth herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement:
"ACCOMMODATION OBLIGATION" means, as applied to any Person, any direct or
indirect guaranty, endorsement or other liability of that Person with respect to
any Debt, lease, dividend, letter of credit or other obligation (the "PRIMARY
OBLIGATION") of another Person (the "PRIMARY OBLIGOR"), including any obligation
of that Person, whether or not contingent, (i) to purchase, repurchase or
otherwise acquire any such primary obligation or any property constituting
direct or indirect security therefor, or (ii) to advance or provide funds (A)
for the payment or discharge of any such primary obligation, or (B) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet item, level of income or
financial condition of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless the holder
of any such primary obligation against loss in respect thereof. The amount of
any Accommodation Obligation shall be deemed to be an amount equal to the
maximum stated or determinable amount of the primary obligation in respect of
which such Accommodation Obligation is made or, if not stated or if
indeterminable, the maximum reasonably estimated potential liability in respect
thereof.
"ADVANCE" means a loan by a Lender to the Borrower pursuant to Article II.
"ADJUSTED STOCKHOLDERS' EQUITY" means the sum of (i) net stockholders'
equity of the Borrower and its Subsidiaries, determined as of a particular time
on a consolidated basis in accordance with GAAP, and (ii) the principal amount
of Convertible Subordinated Debt then outstanding.
"AFFILIATE" of a specified Person means any other Person that directly or
indirectly through one or more intermediaries controls, is controlled by or is
under common control with the Person specified. For this purpose, "control,"
"controlled by" and "under common control
<PAGE>
2
with" with respect to any Person mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or by contract
or otherwise.
"AGENT" means Citibank, in its capacity as administrative agent for the
Lenders hereunder, and any successor appointed pursuant to Section 7.06.
"AGREEMENT" means this Revolving Credit Agreement, as hereafter amended,
modified or supplemented.
"APPLICABLE LENDING OFFICE" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of a Base Rate Advance and such
Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance.
"ASSET SALE" means the sale, transfer or other disposition of any asset,
business or property of the Borrower or any of its Subsidiaries, or the issuance
or sale of any capital stock of or other equity, ownership or profit interest in
any Subsidiary of the Borrower (except a dividend on any such stock or interest
declared and payable solely in additional shares of such stock or interest), to
any Person other than the Borrower or a wholly-owned Subsidiary of the Borrower,
for a total consideration in an amount greater than $5,000,000 in a single
transaction or series of related transactions. A disposition of accounts
receivable (i) shall not be an Asset Sale if made pursuant to a Receivables Sale
Program permitted under this Agreement and (ii) shall be an Asset Sale only if
disposed of as part of a disposition of all or substantially all of the
operating assets of the business from which such accounts receivable arose.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into
by a Lender and an Eligible Assignee, in substantially the form of Exhibit E-2,
and accepted by the Agent.
"AUTHORIZED OFFICER" means the principal financial officer, the chief
accounting officer, the controller, the treasurer or the vice president-finance
of the Borrower.
"BASE RATE" means, for any day, a fluctuating interest rate per annum equal
to the higher of (i) the then effective rate of interest announced publicly by
Citibank in New York, New York, from time to time, as Citibank's base rate, or
(ii) the then Federal Funds Rate plus one percent per annum.
"BASE RATE ADVANCE" means an Advance which bears interest by reference to
the Base Rate as provided in Section 2.07(a).
"BASE RATE MARGIN" means, for any Pricing Period, the rate per annum set
forth below opposite the Pricing Ratio determined for that Pricing Period:
<PAGE>
3
Pricing Ratio Base Rate Margin
------------- ----------------
greater than or equal to 6.00 1.25%
greater than or equal to 5.50 but less than 6.00 0.75%
greater than or equal to 5.00 but less than 5.50 0.50%
greater than or equal to 4.25 but less than 5.00 0.25%
greater than 4.25 0.00%
"BORROWER" means Integrated Health Services, Inc., a Delaware corporation.
"BORROWING" means a Base Rate Advance or Eurodollar Rate Advance made by
the Lenders on a Borrowing Date.
"BORROWING DATE" means the Closing Date or any subsequent Business Day on
which a Borrowing is requested from the Lenders.
"BREAKAGE COSTS" is defined in Section 2.12.
"BUSINESS DAY" means any day except a Saturday or Sunday or a day when
commercial banks are authorized or required by law to be closed in New York, New
York, Hartford, Connecticut, San Francisco, California or Baltimore, Maryland
and, where used in reference to any Eurodollar Rate Advance, means such a day on
which dealings are carried on in the London interbank market.
"CAPITAL EXPENDITURES" means expenditures for Hard Costs, whether paid in
cash or accrued as liabilities, made by the Borrower or any Subsidiary of the
Borrower.
"CAPITAL LEASE" means, with respect to any Person, any lease of any
property by that Person as lessee which, in accordance with GAAP, is required to
be accounted for as a capital lease on the balance sheet of that Person.
"CASH FLOW COVERAGE RATIO" means the ratio, as of the last day of any
Quarter, of (i) Cash Flow from Operations of the Borrower and its Subsidiaries
for the 12- month period then ending to (ii) the sum of (A) Interest Expense,
Receivables Program Charges and Lease Expense counted in determining such Cash
Flow from Operations, (B) the then Current Portion of Long-Term Debt, and (C)
all cash dividends paid on the Borrower's common stock during the 12-month
period then ending.
"CASH FLOW FROM OPERATIONS" means, with respect to any Person, the sum,
determined as of the last day of any Quarter for such Person and its
subsidiaries on a
<PAGE>
4
consolidated basis for the 12-month period including such Quarter and the
immediately preceding three Quarters (taken as a single period), of (i) net
income after taxes minus any extraordinary gain and any non-recurring gain on
any divestiture and plus any extraordinary loss and any non-recurring loss on
any divestiture, (ii) depreciation, amortization, and other non-cash charges
deducted in determining net income, (iii) Interest Expense, (iv) Lease Expense
and (v) with respect to Cash Flow from Operations of the Borrower and its
Subsidiaries only, Receivables Program Charges, all determined in accordance
with GAAP; provided, however, that (A) income attributable to any other Person
or business that is not at least 50% owned, directly or indirectly, by such
Person shall be counted, in determining net income, only to the extent such
income is received in cash by such Person or a subsidiary of such Person in such
period and is not reinvested in such other Person or business (other than as a
loan payable on demand) within six months thereafter, except that, with respect
to the Borrower only, income from minority Investments existing on the Closing
Date and described in Schedule 5.03(c) shall be counted in accordance with the
Borrower's past practice, and (B) no adjustments shall be made to reflect
minority interests in subsidiaries.
"CASH PROCEEDS OF SALE" means all cash and cash equivalents received by the
Borrower or any of its Subsidiaries as the cash consideration in any Asset Sale
or from any payment or distribution on, or sale or liquidation of, any
promissory note or other property received as non-cash consideration in any
Asset Sale.
"CHANGE OF CONTROL" means (i) a "change in control" as that term is defined
in any of the Subordinated Debt Indentures, (ii) a transaction or series of
transactions whereby any Person or group within the meaning of Section 13(d)(3)
of the 1934 Act and the rules and regulations promulgated thereunder (other than
Robert N. Elkins, M.D. or a group managed by Robert N. Elkins, M.D.) acquires
beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act),
directly or indirectly, of securities of the Borrower (or other securities
convertible into such securities) representing 40% of the combined voting power
of all securities of the Borrower entitled to vote in the election of directors
(a "CONTROLLING PERSON") or (iii) at any time, a majority of the Borrower's
directors are persons who were not (A) in office on the Closing Date, (B)
initially nominated by directors who were in office on the Closing Date or by
successor directors elected or appointed upon the initial nomination of such
directors or successor directors or (C) initially nominated by a group managed
by Robert N. Elkins, M.D. For this purpose, a Person or group shall not be a
Controlling Person if such Person or group holds voting power in good faith and
not for the purpose of circumventing the effect of the occurrence of a Change of
Control as an agent, bank, broker, nominee, trustee, or holder of revocable
proxies given in response to a solicitation pursuant to the 1934 Act, for one or
more beneficial owners who do not individually, or, if they are a group acting
in concert, as a group, have the voting power specified in the previous
sentence.
"CITIBANK" means Citibank, N.A., a national banking association.
<PAGE>
5
"CLOSING DATE" means the date on which all of the conditions precedent set
forth in Section 3.01 are satisfied or waived in writing by the Lenders.
"CODE" means the Internal Revenue Code of 1986 and the regulations
thereunder.
"COLLATERAL" means all property which at any time is subject or is to
become subject to any Lien granted or created under any of the Collateral
Documents.
"COLLATERAL DOCUMENTS" means the Pledge and Security Agreements and all
other security agreements, collateral assignments and other instruments,
documents and agreements at any time delivered to the Agent to create or
evidence Liens to secure the Obligations.
"COMMITMENT FEE RATE" means, for commitment fees accruing in any Pricing
Period, the rate per annum set forth below opposite the Pricing Ratio determined
for such Pricing Period:
Pricing Ratio Commitment Fee Rate
------------- -------------------
greater than or equal to 5.00 0.50%
greater than or equal to 4.25 but less than 5.00 0.375%
greater than or equal to 3.75 but less than 4.25 0.25%
less than 3.75 0.20%
"CONSENT SOLICITATION" means the solicitation of the consent of the holders
of Debt outstanding under the 1994 Subordinated Debt Indenture and the 1995
Subordinated Debt Indenture to certain amendments to such indentures pursuant to
the consent, dated and mailed to such holders on May 3, 1996, as thereafter
amended with the approval of the Agent in its sole discretion.
"CONVERTIBLE SUBORDINATED DEBT" means the Debt outstanding under the 1992
Convertible Subordinated Debt Indenture and the 1993 Convertible Subordinated
Debt Indenture.
"CURRENT PORTION OF LONG-TERM DEBT" means that portion of Debt of the
Borrower and its Subsidiaries on a consolidated basis (including, without
limitation, the Advances, but excluding the Subordinated Debt and the senior
Debt listed on Schedule 1.01(a)) that is, at the end of any Quarter, due and
payable within the next 12 months.
"DEBT," as applied to any Person and in each case determined on a
consolidated basis in conformity with GAAP, means (without duplication) (i) all
indebtedness for borrowed money (whether by loan or the issuance of debt
securities or otherwise); (ii) all obligations issued, undertaken or assumed as
the deferred purchase price of property or services or interest
<PAGE>
6
thereon, except accounts and accrued expenses currently payable; (iii) all
reimbursement obligations with respect to surety bonds, letters of credit,
bankers' acceptances and similar instruments, whether or not contingent; (iv)
all monetary obligations under any Capital Lease; (v) all obligations
(contingent or otherwise) to purchase, retire or redeem any capital stock or any
other equity interest of such Person; (vi) all monetary obligations measured by,
or determined on the basis of, the value of any capital stock of such Person;
and (vii) all obligations, whether or not such obligations constitute Debt as
defined in clauses (i) through (vi) above, secured by (or for which the holder
of the obligation has an existing right, contingent or otherwise, to be secured
by) any Lien upon any property of such Person or any Subsidiary of such Person,
except any such obligation secured by a Lien that is imposed by law and not
voluntarily granted.
"DEBT/EBITDAR RATIO" means the ratio, as of the last day of any Quarter,
of:
(i) the sum of:
(A) the difference, if any, between (x) the sum of (1) Funded
Debt and (2) eight times the Specified Lease Expense of the Borrower
and its Subsidiaries for the 12-month period then ending, less (y) the
lesser of (1) Quarter-End Excess Cash and (2) the Advances then
outstanding, and
(B) the Purchasers' Aggregate Net Investment outstanding on such
day; to
(ii) EBITDAR of the Borrower and such Subsidiaries for the 12- month
period then ending, after pro forma (1) adding to Specified Lease Expense
of the Borrower and such Subsidiaries, all amounts that would constitute
additional Specified Lease Expense of the Borrower and such Subsidiaries
for such period if any acquisition of a company that was made at any time
during such period by the Borrower or any of its Subsidiaries had been
consummated at the commencement of such period; (2) adding to Specified
Lease Expense of the Borrower and such Subsidiaries, all amounts that would
constitute additional Specified Lease Expense of the Borrower and such
Subsidiaries for such period if any lease of a Health Care Facility that
was entered into by the Borrower or any of its Subsidiaries at any time
during such period had been so entered into at the commencement of such
period; (3) adding to EBITDAR of the Borrower and such Subsidiaries, the
EBITDAR and Non-Recurring Charges determined solely for any such acquired
company or Health Care Facility, for the portion of such period that
preceded the acquisition; provided, however, that for Quarters ending
during the 12-month period immediately following the closing of the First
American Merger, EBITDAR of First American for the period from the closing
to the date of determination, annualized for the 12-month period then ended
shall be added to EBITDAR of the Borrower and such Subsidiaries; (4)
subtracting from Specified Lease Expense of the Borrower and such
Subsidiaries, the Specified Lease Expense for such period attributable to
any business or
<PAGE>
7
facility that was sold or closed by the Borrower or any of its Subsidiaries
in such period; and (5) subtracting from EBITDAR of the Borrower and such
Subsidiaries, the EBITDAR for such period of any business or facility that
was so sold or closed.
"DOLLARS" and "$" mean United States dollars or such coin or currency of
the United States of America as at the time of payment shall be legal tender for
the payment of public and private debts in the United States of America.
"DOMESTIC LENDING OFFICE" means, with respect to any Lender, the office of
such Lender specified as its "Domestic Lending Office" opposite its name on
Schedule I hereto or in the Assignment and Acceptance by which it became a
Lender or such other office of such Lender as such Lender may from time to time
specify to the Borrower and the Agent.
"EBITDAR" means, with respect to any Person, the sum of (i) Cash Flow from
Operations of such Person for any period and (ii) all charges for taxes counted
in determining the consolidated net income of such Person for such period.
"ELIGIBLE ASSIGNEE" means (i) a commercial bank organized under the laws of
the United States, or any State thereof, and having total assets in excess of
$5,000,000,000; (ii) a savings and loan association or savings bank organized
under the laws of the United States, or any State thereof, and having total
assets in excess of $3,000,000,000; (iii) a commercial bank organized under the
laws of any other country which is a member of the OECD, or a political
subdivision of any such country, and having total assets in excess of
$5,000,000,000, if such bank is acting through a branch or agency located in the
United States; (iv) the central bank of any country which is a member of the
OECD; (v) a finance company, insurance or other financial institution that is
engaged in making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business and having total assets in excess of
$3,000,000,000; (vi) a fund that is engaged in making, purchasing or otherwise
investing in commercial loans in the ordinary course of its business and having
total assets in excess of $200,000,000; (vii) Affiliates of an existing Lender;
and (viii) any other Person approved by the Agent, the LC Bank and the Borrower,
which approval shall not be unreasonably withheld; provided, however, that no
Person who is a non-resident alien or a foreign entity for United States income
tax purposes (except a commercial bank of the type described in clause (iii)
above), may be an Eligible Assignee unless each Note to be acquired by such
Person is reissued in registered form prior to transfer.
"ENVIRONMENTAL CLAIMS" means any and all administrative, regulatory or
judicial claims, demands, directives, proceedings, orders, decrees and judgments
relating in any way to any Environmental Law or any Environmental Permit.
"ENVIRONMENTAL LAWS" means all federal, state and local laws, statutes,
rules, regulations, ordinances and codes, and any binding judicial or
administrative interpretation thereof or requirement thereunder, including any
judicial or administrative order, by any
<PAGE>
8
Governmental Authority, relating to the regulation or protection of human
health, safety, the environment and natural resources.
"ENVIRONMENTAL PERMIT" means any license, permit, authorization,
registration or approval issued or required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA AFFILIATE" means any entity which is (or at any relevant time was) a
member of a "controlled group of corporations," under "common control" or a
member of an "affiliated service group" with the Borrower as defined in Section
414(b), (c) or (m) of the Code.
"ERISA EVENT" means (i) any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder, with respect to a Pension Plan; (ii) a
withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial employer
(as defined in Section 4001(a)(2) of ERISA); (iii) a complete or partial
withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan;
(iv) the filing of a notice of intent to terminate, the treatment of a plan
amendment as a termination under Section 4041 or 4041A of ERISA or the
commencement of proceedings by the PBGC to terminate a Pension Plan or
Multiemployer Plan subject to Title IV of ERISA; (v) a failure to make required
contributions to a Pension Plan or Multiemployer Plan; (vi) the imposition of
any liability under Title VI of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA
Affiliate; (vii) an application for a funding waiver or an extension of any
amortization period pursuant to Section 412 of the Code with respect to any
Pension Plan; (viii) the Borrower or ERISA Affiliate engages in a nonexempt
prohibited transaction or otherwise becomes liable with respect to a nonexempt
prohibited transaction, the consequences of which, in the aggregate, constitute
or could reasonably be expected to result in a Material Adverse Change; or (ix)
a violation of the applicable requirements of Section 404 or 405 of ERISA or the
exclusive benefit rule under Section 401(a) of the Code by the Borrower or any
ERISA Affiliate with respect to any Pension Plan for which the Borrower or any
of its Subsidiaries may be liable, the consequences of which, in the aggregate,
constitute or could reasonably be expected to result in a Material Adverse
Change.
"EUROCURRENCY LIABILITIES" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"EURODOLLAR LENDING OFFICE" means, with respect to any Lender, the office
of such Lender specified as its "Eurodollar Lending Office" opposite its name on
Schedule I hereto or in the Assignment and Acceptance by which it became a
Lender (or, if no such office is specified, its Domestic Lending Office) or such
other office of such Lender as such Lender may from time to time specify to the
Borrower and the Agent as its Eurodollar Lending Office.
<PAGE>
9
"EURODOLLAR RATE" means, for any Interest Period for each Eurodollar Rate
Advance comprising part of the same Borrowing, an interest rate per annum equal
to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per
annum, if such average is not such a multiple) of the rate per annum at which
deposits in U.S. dollars are offered by the principal office of each of the
Reference Banks in London to prime banks in the interbank market for U.S. Dollar
Deposits at 11:00 a.m. (London time) two Business Days before the first day of
such Interest Period in an amount substantially equal to such Reference Bank's
Eurodollar Rate Advance comprising part of such Borrowing (or, if such Reference
Bank is not a Lender, 10% of such Borrowing) and for a period equal to such
Interest Period.
"EURODOLLAR RATE ADVANCE" means an Advance which bears interest by
reference to the Eurodollar Rate as provided in Section 2.07(b).
"EURODOLLAR RATE MARGIN" means, for any Pricing Period, the rate per annum
set forth below opposite the Pricing Ratio determined for that Pricing Period:
Pricing Ratio Eurodollar Rate Margin
------------- ----------------------
greater than or equal to 6.00 2.50%
greater than or equal to 5.50 but less than 6.00 2.00%
greater than or equal to 5.00 but less than 5.50 1.75%
greater than or equal to 4.25 but less than 5.00 1.50%
greater than or equal to 3.75 but less than 4.25 1.25%
greater than or equal to 3.25 but less than 3.75 1.00%
greater than or equal to 2.75 but less than 3.25 0.875%
less than 2.75 0.75%
"EURODOLLAR RATE RESERVE PERCENTAGE" of any Lender for any day in the
Interest Period for any Eurodollar Rate Advance means the reserve percentage
applicable for such day under regulations issued from time to time by the Board
of Governors of the Federal Reserve System (or any successor) for determining
the maximum reserve requirement (including any emergency, supplemental or other
marginal reserve requirement) for such Lender with respect to liabilities or
assets consisting of or including Eurocurrency liabilities having a term equal
to such Interest Period.
"EVENTS OF DEFAULT" has the meaning provided in Section 6.01.
"EXISTING FACILITY" means the Revolving Credit and Term Loan Agreement,
dated as of April 20, 1995, by and among the Borrower, Citicorp USA, Inc., a
Delaware corporation, as
<PAGE>
10
administrative agent thereunder, and the other financial institutions signatory
thereto as lenders, as amended.
"FACILITY AMOUNT" means, on any date of determination, $700,000,000 less
all Facility Reductions which are then effective.
"FACILITY REDUCTION" means each temporary or permanent reduction of the
credit available to the Borrower under this Agreement, whether voluntarily made
or scheduled to be made pursuant to Section 2.05 or required to be made pursuant
to Section 2.06, Section 6.01 or any other provision of this Agreement or
otherwise becoming effective in accordance with this Agreement.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by Citibank from three Federal funds brokers of recognized
standing selected by it.
"FEE LETTER" means the letter dated April 8, 1996 from Citibank to the
Borrower.
"FIRST AMERICAN" means First American Health Care of Georgia, Inc., a
Georgia corporation.
"FIRST AMERICAN MERGER" means the proposed merger of a wholly-owned
Subsidiary of the Borrower with and into First American pursuant to which, on
the terms and conditions set forth in the First American Merger Agreement, First
American will become a wholly-owned Subsidiary of the Borrower.
"FIRST AMERICAN MERGER AGREEMENT" means the merger agreement, dated as of
February 21, 1996, among the Borrower, IHS Acquisition XIV, Inc., a Delaware
corporation and wholly-owned Subsidiary of the Borrower, First American and
certain principal shareholders thereof, as amended by Amendment No. 1, dated as
of March 12, 1996, and as thereafter further amended in accordance with Section
5.03(c)(xii).
"FUNDED DEBT" means all Debt of the type described in clauses (i), (ii) and
(iv) of the definition of "Debt," plus all Accommodation Obligations, except
those described in clauses (i) through (vi) of Section 5.03(f), owed by the
Borrower or any of its Subsidiaries and outstanding, on a consolidated basis, on
the last day of any Quarter.
<PAGE>
11
"FUNDED LC EXPOSURE" means the aggregate principal amount, as of any date
of determination, of all payments that were made by the LC Bank under any Letter
of Credit but have not been reimbursed to the LC Bank by the Borrower pursuant
to Section 2.02(c) or converted into Advances pursuant to Section 2.02(e).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the accounting profession), or in such
other statements by such entity as may be in general use by significant segments
of the U.S. accounting profession, which are applicable to the facts and
circumstances on the date of determination.
"GOVERNMENTAL AUTHORITY" means any nation, state, sovereign or government,
any political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"GUARANTOR" means each Subsidiary of the Borrower that executes, or joins
in, the Guaranty.
"GUARANTOR CONFIRMATION" means a Confirmation and Agreement of Guarantors
in substantially the form of Exhibit C-4, duly authorized, executed and
delivered by the Guarantors, setting forth the Guarantor Liability Limit as to a
particular Guarantor.
"GUARANTOR LIABILITY LIMIT" means:
(i) In respect of any Subsidiary that is (either directly or
indirectly through one or more wholly-owned Subsidiaries of the
Borrower) a wholly-owned Subsidiary of the Borrower, an unlimited
amount, and
(ii) In respect of any Subsidiary that is not such a wholly-owned
Subsidiary of the Borrower, an amount determined as of the last day of
the then most recently ended Quarter for which financial statements
are available by multiplying (A) EBITDAR plus any Non-Recurring
Charges, determined solely for such Subsidiary and its Subsidiaries
and any business, assets or entity directly or indirectly owned by
such Subsidiary at such time, on a consolidated basis, for the four
Quarters most recently ended prior to the date on which such
Subsidiary first became a Subsidiary not (directly or indirectly)
wholly-owned by the Borrower by (B) six and further by (C) a fraction,
the numerator of which is the number of shares of capital stock or
other equity, ownership or profit interests in such Subsidiary
directly or indirectly owned by the Borrower at such time and after
giving effect to any transaction then being consummated and the
denominator of which is the total number of all such shares and
interests outstanding at
<PAGE>
12
such time and after giving effect to any such transaction; provided,
however, that if the Borrower elects, in respect of any such
Subsidiary no later than the date that is 10 Business Days after such
Subsidiary first became a Subsidiary not (directly or indirectly)
wholly-owned by the Borrower, voluntarily to reduce the Facility
Amount effective as of such date in accordance with Section 2.05 by an
amount equal to the amount so determined, then the Guarantor Liability
Limit as to such Subsidiary (and only as to such Subsidiary) shall be
zero.
"GUARANTY" means the guaranty by the Borrower's Subsidiaries, except
Inactive Subsidiaries, delivered pursuant to Section 3.01(a) and each joinder
therein by any other Subsidiary of the Borrower and all Guarantor Confirmations,
guaranties, instruments and agreements at any time delivered by any Subsidiary
of the Borrower in respect of or in exchange or substitution for or in
replacement of such guaranty or to evidence its guaranty of payment of any of
the Obligations.
"HARD COSTS" means the direct costs of building, improving or maintaining
any Health Care Facility or other property used by the Borrower or any of its
Subsidiaries (including the cost of land, construction, bricks, mortar, painting
and related building maintenance, carpeting, roof repair and replacement,
parking lot replacement and maintenance, landscaping, HVAC equipment and
sprinkler systems and other items generally considered hard costs under
construction industry practice but not including the purchase price of an
existing Health Care Facility or any allocated overhead and administrative
expenses and other items generally considered soft costs under construction
industry practice) and the purchase price of any fixed, movable or mobile
equipment located on or used in connection with any such Health Care Facility or
otherwise used in conducting business if such equipment is or is required to be
reflected as property, plant and equipment on the consolidated balance sheet of
the Borrower and its Subsidiaries.
"HAZARDOUS MATERIALS" means (i) flammable explosives, radioactive
materials, friable asbestos, urea formaldehyde foam insulation, transformers or
other equipment that contain dielectric fluid containing regulated levels of
polychlorinated biphenyls and petroleum products, and (ii) chemicals, materials,
substances or wastes which are now or hereafter become defined as or included in
the definition, listing or identification of "hazardous substances," "hazardous
wastes," hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "medical waste,"
"infectious waste," "biomedical waste," "biohazardous waste," or words of
similar import, under any applicable Environmental Law.
"HEALTH CARE COMPANY" means a Person that is principally engaged, directly
or indirectly through its Subsidiaries, in the business of owning, operating or
managing Health Care Facilities or healthcare operations or providing healthcare
services.
<PAGE>
13
"HEALTH CARE FACILITY" means a facility which provides any healthcare
services, whether licensed as a skilled nursing facility, intermediate care
facility, personal care facility or a hospital or otherwise.
"HEALTH CARE PERMIT" means every accreditation, authorization, certificate
of need, license or permit that is required pursuant to applicable federal or
state law to own, lease, operate or manage a Health Care Facility or conduct the
business of a Health Care Company.
"INACTIVE SUBSIDIARY" means a Subsidiary of the Borrower that carries on no
business operations or other activities and has an aggregate capitalization of
$1,500 or less.
"INDEMNIFIED LIABILITIES" is defined in Section 8.06(a).
"INDEMNIFIED PERSON" is defined in Section 8.06(a).
"INTANGIBLE ASSETS" means, with respect to the Borrower and its
Subsidiaries on a consolidated basis, all assets properly classified as
intangible assets under GAAP, including goodwill, patents, copyrights,
trademarks, trade names, franchises, licenses, organization costs, deferred
charges, and deferred pre-opening costs, but excluding all intangible assets
classified as such under the provisions of Statements 87, 88 and 106 of the
Financial Accounting Standards Board relating to Accounting for Pensions and
Post- Retirement Benefits other than Pensions, so long as such intangible asset
has a related liability under GAAP of equal or substantially equal amount on the
consolidated balance sheet of the Borrower and its Subsidiaries as of the date
of determination.
"INTEREST&RENT COVERAGE RATIO" means the ratio, as of the last day of any
Quarter, of (A) EBITDAR of the Borrower and its Subsidiaries for the 12-month
period then ending to (B) the sum of Interest Expense, Receivables Program
Charges and Lease Expense counted in determining such EBITDAR.
"INTEREST EXPENSE" means, with respect to any Person, for any period for
such Person and its subsidiaries on a consolidated basis, interest expense net
of interest income, determined in conformity with GAAP.
"INTEREST PERIOD" means, for each Eurodollar Rate Advance comprising part
of the same Borrowing, the period commencing on the date of such Advance or the
date of the conversion of any Advance into such an Advance and ending on the
last day of the period selected by the Borrower pursuant to the provisions below
and, thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the period
selected by the Borrower pursuant to the provisions below. The duration of each
such Interest Period shall be 1, 2, 3 or 6 months, as the Borrower may select by
<PAGE>
14
notice received by the Agent not later than 11:00 a.m. (New York City time)
three Business Days prior to the first day of such Interest Period; provided,
however, that:
(a) the Borrower may not select any Interest Period which ends after
the Maturity Date;
(b) the Borrower may not select any Interest Period which ends after
any date on which any payment on any Advances is due unless, after giving
effect to such selection, the aggregate unpaid principal amount of Base
Rate Advances and Eurodollar Rate Advances having Interest Periods which
end on or prior to such date is at least equal to the principal amount of
Advances due and payable on and prior to such date;
(c) Interest Periods commencing on the same date for Advances
comprising part of the same Borrowing shall be of the same duration;
(d) whenever the last day of any Interest Period would otherwise occur
on a day that is not a Business Day, the last day of such Interest Period
shall be extended to the next succeeding Business Day, except that if such
extension would cause the last day of such Interest Period to occur in the
next following calendar month, the last day of such Interest Period shall
be the next preceding Business Day; and
(e) the Borrower may not have more than 15 Interest Periods in effect
at any one time.
"INVESTMENT" means (i) the acquisition of any interest in any property,
assets or business from any Person, whether by sale, lease or otherwise, (ii)
the funding of any loan, extension of credit, accommodation or capital
contribution to or for the benefit of any Person, and (iii) the acquisition of
any debt or equity securities of or claim against or interest in any Person,
whether upon original issuance, by purchase or otherwise.
"LC APPLICATION" means an application for a Letter of Credit in
substantially the form of Exhibit B-3, setting forth the information described
therein and such other information as the LC Bank may reasonably request and
signed by an Authorized Officer.
"LC BANK" means The Bank of Nova Scotia and any Lender which agrees to
become, and is designated as, a replacement LC Bank pursuant to Section 2.02(g).
"LC CASH COLLATERAL ACCOUNT" means a general deposit account established at
and maintained by Citibank in the name of and for the benefit of the Agent on
behalf of the Lenders and under the exclusive dominion and control of the Agent.
<PAGE>
15
"LC EXPOSURE" means the sum, as of any date of determination, of the
Unfunded LC Exposure and the Funded LC Exposure.
"LC FEE RATE" means, for any day, the then Eurodollar Rate Margin less
0.025% per annum.
"LC SUBCOMMITMENT" means the lesser, as of any date of determination, of
(i) $100,000,000 and (ii) the Facility Amount.
"LEASE EXPENSE" means, with respect to any Person, for any period for such
Person and its subsidiaries on a consolidated basis, lease and rental expense
accrued during such period under all leases and rental agreements, other than
Capital Leases and leases of personal property, of Health Care Facilities,
determined in conformity with GAAP.
"LENDER" means each financial institution signatory hereto, including the
LC Bank, and any other financial institution that pursuant to Section 8.07
becomes a party to this Agreement.
"LETTER OF CREDIT" means a letter of credit that (i) is available for
funding in Dollars until an expiry date no later than the Maturity Date, (ii) is
issued by the LC Bank at the request and for the account of the Borrower, (iii)
is governed by the Uniform Customs and Practices for Documentary Credits (1994
Revision), International Chamber of Commerce Publication 500, except as
otherwise agreed by the LC Bank, and (iv) is in form reasonably satisfactory to
the LC Bank.
"LIEN" means any mortgage, deed of trust, lien, pledge, charge, security
interest, hypothecation, assignment, deposit arrangement or encumbrance of any
kind in respect of any asset, whether or not filed, recorded or otherwise
perfected or effective under applicable law, as well as the interest of a vendor
or lessor under any conditional sale agreement, capital or finance lease or
other title retention agreement relating to such asset.
"LOAN AVAILABILITY" means the difference, as of any date of determination,
between (i) the Facility Amount, and (ii) the Outstanding Revolving Credit.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Guaranty, the Letters
of Credit, the Collateral Documents, each Rate Contract and all other guaranties
and other agreements, instruments and written indicia of the Obligations
delivered to the Agent or any Lender by or on behalf of the Borrower or any
other Loan Party pursuant to or in connection with the transactions contemplated
hereby.
"LOAN PARTIES" means the Borrower and each Subsidiary of the Borrower that
is a party to any Loan Document.
<PAGE>
16
"MATERIAL ADVERSE CHANGE" means any materially adverse change in the
financial condition, assets, nature of the assets, liabilities, operations or
prospects of the Borrower and its Subsidiaries, taken as a whole.
"MATERIAL ENVIRONMENTAL CLAIM" means any Environmental Claim, regardless of
merit, which does or can reasonably be expected to (i) result in the Borrower or
any of its Subsidiaries expending in the aggregate an amount in excess of
$10,000,000 to defend against, settle or satisfy, or (ii) prevent or enjoin the
Borrower or any of its Subsidiaries from operating a Health Care Facility on any
property on which it conducts operations.
"MATERIAL LEASE" means any lease agreement with respect to a Health Care
Facility or Facilities for which during the most recent four Quarters either (i)
total revenues from such Health Care Facility or Facilities represent ten
percent or more of the consolidated revenues of the Borrower and its
Subsidiaries, or (ii) net income from the operation of such Health Care Facility
or Facilities represents ten percent or more of the consolidated net income of
the Borrower and its Subsidiaries.
"MATERIAL SUBSIDIARY" means each Subsidiary of the Borrower which has (i)
as of the end of the most recent Quarter, total assets (other than Intangible
Assets) representing ten percent or more of the consolidated total assets (other
than Intangible Assets) of the Borrower and its Subsidiaries, (ii) for the most
recent four Quarters, total revenues representing ten percent or more of the
consolidated revenues of the Borrower and its Subsidiaries, or (iii) for the
most recent four Quarters, net income representing ten percent or more of the
consolidated net income of the Borrower and its Subsidiaries.
"MATURITY DATE" means June 30, 2002.
"MINIMUM NET WORTH" means the sum, as of the last day of any Quarter, of
(i) $590,000,000 less up to $10,000,000 of extraordinary losses (determined in
accordance with GAAP) of the Borrower and its Subsidiaries on a consolidated
basis incurred at any time after December 31, 1995, plus (ii) 75% of the
aggregate net income (determined in accordance with GAAP) of the Borrower and
its Subsidiaries on a consolidated basis earned in the Quarter ended March 31,
1996 and in each Quarter thereafter, if net income was earned in such Quarter
(and not reduced for a net loss in any Quarter), plus (iii) 100% of all
additions to Adjusted Stockholders' Equity resulting at any time after December
31, 1995 from the sale or issuance of any common or preferred stock of the
Borrower, except upon conversion of any Convertible Subordinated Debt.
"MOODY'S" means Moody's Investor Service, Inc., and its successors.
"MULTIEMPLOYER PLAN" means any Plan which is a "multiemployer plan," as
defined in Section 4001(a)(3) of ERISA.
<PAGE>
17
"NET CASH PROCEEDS OF SALE" means, with respect to any Asset Sale, the Cash
Proceeds of Sale of such sale less (i) all reasonable brokerage, legal and
accounting fees and disbursements, and any governmental fees and taxes incurred
(or reasonably expected to be incurred) in connection with such sale which are
not payable to Affiliates of the Borrower (or, if to Affiliates, are in amounts
no greater than would be payable in an arm's-length transaction); (ii) any Debt
secured by the assets subject to such Asset Sale repaid with such proceeds (to
the extent such repayment is permitted under the Loan Documents); and (iii)
reserves against any liabilities incurred as a result of such Asset Sale
reflected on the balance sheet of the Borrower or any of its Subsidiaries in
accordance with GAAP; provided, however, that in the event any such reserve is
subsequently decreased, other than as a result of the accrual or payment of any
liability for which such reserve was established, Net Cash Proceeds of Sale with
respect to such Asset Sale shall be increased by a like amount.
"1934 ACT" means the Securities Exchange Act of 1934 and the regulations
thereunder.
"1992 CONVERTIBLE SUBORDINATED DEBT INDENTURE" means the Indenture, dated
as of December 1, 1992, between the Borrower, as Issuer, and Signet Trust
Company, as Trustee.
"1993 CONVERTIBLE SUBORDINATED DEBT INDENTURE" means the Amended and
Restated Supplemental Indenture dated as of September 15, 1994, between the
Borrower, as Issuer, and NationsBank of Virginia, N.A., as Trustee.
"1994 SUBORDINATED DEBT INDENTURE" means the Indenture dated as of July 1,
1994, between the Borrower, as Issuer, and Signet Trust Company, as Trustee.
"1995 SUBORDINATED DEBT INDENTURE" means the Indenture, dated as of May 15,
1995, between the Borrower, as Issuer and Signet Trust Company, as Trustee.
"1996 SUBORDINATED DEBT INDENTURE" means the Indenture to be entered into
after the Closing between the Borrower, as Issuer, and the trustee thereunder in
connection with the proposed senior subordinated note offering.
"NON-RECURRING CHARGES" means all charges against the income of a company
or facility acquired by the Borrower or one of its Subsidiaries that (i) were
taken by the owners of such company or facility prior to or concurrently with
the acquisition, on the initiative solely of such owners or their management or
accountants and without any demand or influence from the Borrower or any of its
Affiliates or any Person acting for any of them, and (ii) either (A) reflect the
direct costs of the acquisition, including fees and expenses of attorneys,
accountants, advisors, architects, engineers, consultants and agents, and
environmental and travel costs, or (B) are charges taken in the current year to
make adjustments for charges for accruals, bad debt provisions or valuation
allowances in a prior year, if (x) the charges in the current year would be
<PAGE>
18
entirely eliminated if the prior year's income was restated, in accordance with
GAAP, to reflect such adjustments, and (y) the Borrower provides such
information relating to the adjustments and the restatement of the prior year's
income as the Agent or Requisite Lenders may reasonably request.
"NOTES" means the promissory notes of the Borrower delivered pursuant to
Section 3.01(a) and all promissory notes and other evidence of indebtedness at
any time delivered by the Borrower in exchange or substitution therefor or in
replacement thereof or as additional evidence of the Borrower's indebtedness for
the Advances.
"NOTICE OF BORROWING" means a notice substantially in the form of Exhibit
B-1.
"NOTICE OF CONTINUANCE/CONVERSION" means a notice substantially in the form
of Exhibit B-2.
"OBLIGATIONS" means all present and future Debts, obligations and
liabilities of every type and description of the Borrower or any other Loan
Party at any time arising under or in connection with this Agreement, any other
Loan Document or any Rate Contract, due or to become due to the Agent, any
Lender, any Person required to be indemnified under any Loan Document or any
other Person and shall include (i) all liability for principal of and interest
on any Advances, (ii) all liability for principal of and interest on any
reimbursement owed to the LC Bank for a payment made by it under a Letter of
Credit, and (iii) all liability under the Loan Documents for any additional
interest, fees, taxes, compensation, costs, losses, expense reimbursements and
indemnification.
"OECD" means the Organization for Economic Cooperation and Development.
"OTHER TAXES" is defined in Section 2.16(b).
"OUTSTANDING REVOLVING CREDIT" means the sum, as of any date of
determination, of (i) the aggregate outstanding principal amount of the
Advances, and (ii) the LC Exposure.
"PARTIAL DISPOSITION LIMIT" means, in respect of any proposed Retained
Interest Sale in which the Retained Interest Criteria are not met, that (i) the
sum of (A) that portion of EBITDAR of the Borrower and its Subsidiaries
(determined for the four Quarters most recently ended prior to the consummation
of such Retained Interest Sale) that is attributable to the businesses and
entities that are to be sold or disposed of in such Retained Interest Sale, and
(B) the amount of such portion of EBITDAR of the Borrower and such Subsidiaries
so computed as of the time of each prior Retained Interest Sale in which the
Retained Interest Criteria were not met is less than (ii) 15% of EBITDAR of the
Borrower and such Subsidiaries for the four Quarters most recently ended prior
to the consummation of such proposed Retained Interest Sale.
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19
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any of its functions under ERISA.
"PENSION PLAN" means any Plan which is (i) an "employee pension benefit
plan" as defined in Section 3(2) of ERISA and (ii) not a Multiemployer Plan.
"PERMITTED CASH INVESTMENTS" means:
(a) securities issued or fully guaranteed or insured by the United
States Government or any agency thereof and backed by the full faith and
credit of the United States maturing not more than one year from the date
of acquisition;
(b) certificates of deposit, time deposits, Eurodollar time deposits,
bankers' acceptances or deposit accounts having in each case a remaining
term to maturity of not more than one year, which are either (i) fully
insured by the Federal Deposit Insurance Corporation or (ii) issued by any
Lender or by any commercial bank under the laws of any State or any
national banking association that has combined capital and surplus of not
less than $800,000,000 and whose short-term securities are rated at least
A-1 by S&P or P-1 by Moody's;
(c) commercial paper that is rated at least A-1 by S&P or P-1 by
Moody's, issued by a company that is incorporated under the laws of the
United States or of any State and directly issues its own commercial paper,
and has a remaining term to maturity of not more than one year;
(d) a repurchase agreement with (i) any commercial bank that is
organized or licensed under the laws of any State or any national banking
association and that has total assets of at least $1,000,000,000, or (ii)
any investment bank that is organized under the laws of any State and that
has total assets of at least $1,000,000,000, if such agreement is secured
by any one or more of the securities and obligations described in clauses
(a), (b) or (c) of this definition having a market value (exclusive of
accrued interest and valued at least monthly) at least equal to the
principal amount of such investment;
(e) any money market or other investment fund the investments of which
are limited to investments described in clauses (a), (b), (c) and (d) of
this definition and which is managed by (i) a commercial bank that is
organized under the laws of any State or any national banking association
and that has total assets of at least $1,000,000,000, or (ii) an investment
bank that is organized under the laws of any State and that has total
assets of at least $1,000,000,000;
<PAGE>
20
(f) obligations, debentures, notes, bonds or other evidences of
indebtedness rated at least A- by S&P or A3 by Moody's, so long as the
aggregate amount of investments held under this clause (f) does not exceed
25% of the total amount then invested by the Borrower and its Subsidiaries
in Permitted Cash Investments;
(g) investments in investment grade auction rate and adjustable rate
preferred equities for issuers whose actual or implied senior long-term
debt is rated at least A- by S&P or A3 by Moody's;
(h) investments in investment grade fixed rate preferred equities for
issuers whose actual or implied senior long-term debt is rated at least A-
by S&P or A3 by Moody's, so long as the aggregate amount of investments
held under this clause (h) does not exceed 10% of the total amount invested
by the Borrower and its Subsidiaries in Permitted Cash Investments;
(i) adjustable rate mortgage-backed securities rated at least AA by
S&P or Aa by Moody's; and
(j) fixed rate mortgage-backed securities rated at least AA by S&P or
Aa by Moody's, so long as the aggregate amount of investments held under
this clause (j) does not exceed 25% of the total amount invested by the
Borrower and its Subsidiaries in Permitted Cash Investments.
"PERMITTED LIENS" means Liens permitted under Section 5.03(a).
"PERSON" means an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture or other entity, or a government or any political subdivision or
agency thereof.
"PLAN" means any "employee benefit plan" as defined in Section 3(3) of
ERISA (i) which the Borrower or any ERISA Affiliate maintains, administers,
contributes to or is required to contribute to, or, within the six years prior
to the Closing Date, maintained, administered, contributed to or was required to
contribute to, or under which the Borrower or any ERISA Affiliate may incur any
liability and (ii) which covers any employee or former employee of the Borrower
or any ERISA Affiliate (with respect to their relationship with such entities).
"PLEDGE AND SECURITY AGREEMENTS" means the pledge and security agreements
executed by the Borrower and certain of the Borrower's Subsidiaries and
delivered pursuant to Section 3.01(a) and each joinder therein by any other
Subsidiary of the Borrower and each other security agreement at any time
delivered by the Borrower or any Subsidiary of the Borrower to create a Lien
that secures any of the Obligations.
<PAGE>
21
"POTENTIAL DEFAULT" means any event or condition described in Section 6.01
which, with any notice or passage of time (or both) expressly described in
Section 6.01, would constitute an Event of Default.
"PRICING CERTIFICATE" means a certificate in substantially the form of
Exhibit B-4.
"PRICING PERIOD" means the period that commences on the Closing Date and
ends on August 20, 1996, and each consecutive period thereafter that commences
on the expiration of the prior period and ends on the 20th day of the next
following November, February, May or August.
"PRICING RATIO" means, for any Pricing Period, the Debt/EBITDAR Ratio as of
the Pricing Test Date for such Pricing Period. If a Pricing Certificate for the
Pricing Test Date for a particular Pricing Period is not delivered prior to the
commencement of such Pricing Period, then until (but only until) the Business
Day on which such Pricing Certificate is delivered to the Agent, the Pricing
Ratio shall be deemed to be the Pricing Ratio for the immediately preceding
Pricing Period.
"PRICING TEST DATE" means, for a particular Pricing Period, the last day of
the Quarter most recently ended prior to the commencement of such Pricing
Period.
"PRO RATA SHARE" means, in respect of any Lender, the ratio of (i) such
Lender's commitment to participate in the extension of credit hereunder, to (ii)
all such commitments, expressed as a percentage, as set forth in Schedule I or,
if such Lender has entered into one or more Assignments and Acceptances, in the
Register.
"PURCHASE LIMIT" is defined in Section 5.03(h).
"PURCHASERS' AGGREGATE NET INVESTMENT" means the net unrecovered investment
in the accounts receivable of the Borrower and its Subsidiaries, and proceeds
thereof, held by the purchasers in any Receivables Sale Program or their
transferees, without counting any Receivables Program Charges.
"QUALIFIED PLAN" means a pension plan (as defined in Section 3(2) of ERISA)
intended to be tax-qualified under Section 401(a) of the Code and which the
Borrower or any ERISA Affiliate sponsors, maintains, or to which it makes or is
obligated to make contributions, or in the case of a multiple employer plan (as
described in Section 4064(a) of ERISA) has made contributions at any time during
the immediately preceding period covering at least five plan years, but
excluding any Multiemployer Plan.
"QUARTER" means, with respect to any Person, a fiscal quarter of such
Person.
<PAGE>
22
"QUARTER-END EXCESS CASH" means the excess, determined as of the last day
of any Quarter (but only if it is a positive number), of (i) cash and Permitted
Cash Investments held by the Borrower and its Subsidiaries, less (ii) 2% of the
sum of the following operating expenses of the Borrower and its Subsidiaries for
the 12-month period then ending, determined and recorded in accordance with the
Borrower's current practice: "salaries, wages and benefits," "corporate,
administrative and general" and "other operating expenses."
"RATE CONTRACT" means any interest rate swap agreement, cap, floor or
collar agreement, interest rate insurance or other agreement or arrangement
designed to provide protection against fluctuations in interest rates entered
into by the Borrower and the Agent or any Lender.
"RECEIVABLES PROGRAM CHARGES" means the discount or yield of any
Receivables Sale Program and all program and administrative costs, back-stop
costs and other related costs, fees and expenses incurred by or charged to the
Borrower or any of its Subsidiaries, and when determined for any period shall
include all such discount, yield, costs, fees and expenses accrued or amortized
during such period.
"RECEIVABLES SALE PROGRAM" means a sale or other disposition of an interest
in the accounts receivable of any of the Borrower's Subsidiaries and the
proceeds thereof and records related thereto to one or more purchasers or
investors, if the sale or other disposition (i) is made without recourse to the
seller, (ii) is not guaranteed by the Borrower or any of its Subsidiaries,
except a guaranty that the seller will perform its obligations in respect of its
representations and warranties, indemnities and servicing commitments, and (iii)
is structured so that the Purchasers' Aggregate Net Investment in respect of any
and all such accounts receivable and proceeds outstanding at any one time will
not exceed $100,000,000.
"REFERENCE BANKS" means Citibank, Bank of America, N.T.&S.A. and
NationsBank, N.A. (Carolinas).
"REGISTER" is defined in Section 8.07(c).
"REPORTABLE EVENT" means any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder, a withdrawal from a plan described in
Section 4063 of ERISA or a cessation of operations described in Section 4062(e)
of ERISA.
"REQUISITE LENDERS" means Lenders at the time in the aggregate holding more
than 66 2/3% in Pro Rata Shares.
"RETAINED INTEREST" means the stock or equity, ownership or profit interest
which the Borrower or any Subsidiary of the Borrower retains, acquires or has
the right to acquire in any Retained Interest Sale.
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23
"RETAINED INTEREST CRITERIA" means, in respect of any Retained Interest and
the assets, operations, governance, income and profits of any business or entity
to which such Retained Interest directly or indirectly relates, each and all of
the following requirements:
(i) The Borrower or a wholly-owned Subsidiary of the Borrower must
have the exclusive right and power, subject to duties imposed by law, to
manage and control the ordinary business operations and assets of such
business or entity and freely to control and distribute the cash, income,
profits, and asset sale proceeds of such entity or business and, as to any
such entity that is a Subsidiary of the Borrower, to borrow from such
entity;
(ii) The Borrower or a wholly-owned Subsidiary of the Borrower must
effectively have the exclusive right and power, subject to duties imposed
by law, to determine whether, when and on what terms such business or
entity shall be financed, sold, dissolved, liquidated or merged and to make
all other decisions requiring approval of the owners of such business or
entity, either by reason of lawful and enforceable provisions in the
governing documents for such entity or under a voting trust arrangement, an
irrevocable proxy, an option to acquire or sell the interests of all other
Persons that hold or have the right to acquire an equity or ownership
interest in such business or entity, or other similar arrangements;
(iii) The exercise of such rights and powers by the Borrower or its
wholly-owned Subsidiary must not be barred, limited or restricted by
contract or agreement, except for provisions requiring performance of
duties imposed by law;
(iv) The terms on which the requirements in clauses (i), (ii) and
(iii) herein are met must be such that the Borrower or a wholly-owned
Subsidiary of the Borrower has the exclusive right and power to maintain
such conditions for as long as the Borrower or any Subsidiary of the
Borrower holds such Retained Interest;
(v) At the consummation of the transaction in which such Retained
Interest was kept or acquired, each Subsidiary of the Borrower to which
such Retained Interest directly or indirectly relates must reaffirm its
liability under the Guaranty by executing a Guarantor Confirmation setting
forth its Guarantor Liability Limit after giving effect to such transaction
and each other Guarantor must confirm its consent and agreement thereto by
executing such Guarantor Confirmation;
(vi) No later than the tenth Business Day following the consummation
of the transaction in which such Retained Interest was kept or acquired,
the Borrower must deliver to the Agent and Lenders written notice of the
structure and material terms of the agreements and arrangements relating to
the foregoing and the Retained Interest and related Retained Interest Sale,
accompanied by:
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24
(A) A certificate of an Authorized Officer of the Borrower
stating that at the time of such consummation the Retained Interest
Criteria were met in respect of such transaction, and
(B) A Guarantor Confirmation signed by the Guarantors, setting
forth the Guarantor Liability Limit of each Subsidiary affected by
such transaction, after giving effect to such transaction; and
(vii) The Borrower must not receive from the Requisite Lenders, within
20 Business Days after such notice, certificate and Guarantor Confirmation
were delivered to the Agent and Lenders, a written statement to the effect
that, in the opinion of the Lenders giving such notice and for reasons
generally set forth in such statement (which opinion, reasons and statement
shall be conclusive and binding on the Borrower and the other Loan Parties
if held, determined and presented by such Lenders in good faith), either:
(A) The Retained Interest Criteria are not met in respect of such
transaction, or
(B) Such Lenders notified the Borrower at least five Business
Days prior to the date of such statement that the Guarantor Liability
Limit of any Subsidiary affected by such transaction, after giving
effect to such transaction, was not properly determined, set forth or
acknowledged in the Guarantor Confirmation so delivered, and a
Guarantor Confirmation properly determining, setting forth and
acknowledging such Guarantor Liability Limit, duly executed by such
Subsidiary and all other Guarantors, was not received by the Agent and
Lenders within five Business Days after such notice was given to the
Borrower.
"RETAINED INTEREST SALE" means a sale or other disposition of less than all
of the stock of or other equity, ownership or profit interest in a Subsidiary,
or less than the entire ownership of any business, asset or entity, that was
directly or indirectly owned by the Borrower or any of its Subsidiaries on the
Closing Date or any Asset Sale, merger, consolidation, sale and repurchase,
exchange or other transaction in which, after giving effect to such transaction
and all related transactions, the Borrower or any of its Subsidiaries directly
or indirectly retains or acquires or has the right to acquire any stock of or
any equity, ownership or profit interest in any such Subsidiary, business, asset
or entity.
"SCHEDULE 1.01(B) ASSETS" means the assets described in Schedule 1.01(b)
and owned by the Borrower or any wholly-owned Subsidiary thereof and designated
for sale thereby.
"SCHEDULE 1.01(C) ASSETS" means the assets described in Schedule 1.01(c)
and owned by the Borrower or any wholly-owned Subsidiary thereof and designated
for sale thereby.
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25
"S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill
Corporation, and its successors.
"SPECIFIED LEASE EXPENSE" means, with respect to any Person, for any
period, Lease Expense of such Person for such period less that portion of such
Lease Expense representing payments for real estate and personal property taxes
and insurance.
"STATE" means the District of Columbia or any state of the United States of
America.
"SUBORDINATED DEBT" means the Debt outstanding under the Subordinated Debt
Indentures.
"SUBORDINATED DEBT INDENTURES" means the 1992 Convertible Subordinated Debt
Indenture, the 1993 Convertible Subordinated Debt Indenture, the 1994
Subordinated Debt Indenture, the 1995 Subordinated Debt Indenture and, upon the
effectiveness thereof, the 1996 Subordinated Debt Indenture.
"SUBSIDIARY" means, with respect to any Person, any corporation,
association, partnership, joint venture or other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled
directly or indirectly by such Person or one or more Subsidiaries of such Person
or a combination thereof.
"TANGIBLE ASSETS" means the difference, as of any date of determination,
between (i) the total consolidated assets of the Borrower and its Subsidiaries
as determined in accordance with GAAP and required under GAAP to be shown on a
consolidated balance sheet of the Borrower and its Subsidiaries, and (ii) all
such assets that are Intangible Assets.
"TAXES" is defined in Section 2.16(a).
"TERMINATION DATE" means the Maturity Date or such earlier date as the
commitments of the Lenders to extend credit under this Agreement shall be
terminated in whole pursuant to Section 2.05 or the obligation of each Lender to
make Advances and the LC Bank to issue Letters of Credit shall be terminated
pursuant to Section 6.01.
"'34 ACT COMPANY" means a Person that is a reporting company under the 1934
Act.
"UNFUNDED LC EXPOSURE" means the maximum amount which the LC Bank may be
required, under all Letters of Credit outstanding as of any date of
determination, to pay on such date or at any future time.
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26
"UNFUNDED PENSION LIABILITY" means, with respect to any Pension Plan that
is subject to Title IV of ERISA, the excess of such Pension Plan's accrued
benefits, as defined in Section 3(23) of ERISA, over the current value of such
Pension Plan's assets, as defined in Section 3(26) of ERISA (but excluding from
the definition of "current value" of "assets" of such Pension Plan, accrued but
unpaid contributions).
"UNITED STATES" and "U.S." mean the United States of America.
"WELFARE PLAN" means any Plan which is an "employee welfare benefit plan"
as defined in Section 3(1) of ERISA.
"WITHDRAWAL LIABILITIES" means the aggregate amount of the liabilities, if
any, pursuant to Section 4201 of ERISA if the Borrower and each ERISA Affiliate
made a complete withdrawal from all Multiemployer Plans and any increase in
contributions pursuant to Section 4243 of ERISA.
SECTION 1.02. Accounting Terms. All accounting terms not expressly defined
herein shall be construed, except where the context otherwise requires, and all
financial computations required under this Agreement shall be made in accordance
with GAAP applied on a consistent basis. If GAAP changes during the term of this
Agreement so as to affect the calculation of any term defined herein or any
measure of financial performance or financial condition employed or referred to
herein, the Borrower and the Lenders agree to negotiate in good faith toward an
amendment of this Agreement which shall approximate, to the extent possible, the
economic effect of the original provisions hereof after taking into account such
change in GAAP, but until the parties are able to agree upon such amendment (i)
the Borrower shall be deemed in compliance with the provisions hereof only if
and to the extent it would have been in compliance if such change in GAAP had
not occurred and (ii) the Borrower shall deliver to the Agent, with each
financial report delivered by the Borrower hereunder, information sufficient to
confirm such compliance as if such change in GAAP had not occurred.
SECTION 1.03. Other Definitional Provisions. (a) Unless otherwise specified
herein or therein, all terms defined in this Agreement shall have the defined
meanings when used in any other Loan Document or in any certificate or other
document made or delivered pursuant hereto.
(b) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement, and section, schedule and exhibit
references are to this Agreement unless otherwise specified. The meaning of
defined terms shall be equally applicable to the singular and plural forms of
the defined terms. The term "including" is not limiting and means "including
without limitation."
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27
(c) In the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including"; the words "to" and
"until" each mean "to but excluding"; and the word "through" means "to and
including."
(d) References to agreements and other documents shall be deemed to include
all subsequent amendments and other modifications thereto, but only to the
extent such amendments and other modifications are not prohibited by the terms
of any Loan Document.
(e) References to statutes or regulations shall be construed as including
all statutory and regulatory provisions consolidating, amending or replacing the
statute or regulation.
(f) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the construction of this Agreement.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. Revolving Facility. (a) Advances. Subject to the terms and
conditions herein, each Lender severally agrees to lend to the Borrower, from
time to time on any Borrowing Date until the Termination Date, an amount in
Dollars equal to such Lender's Pro Rata Share of a Borrowing that (i) is
requested by the Borrower for such Borrowing Date and (ii) when aggregated with
all other Lenders' Pro Rata Shares, does not exceed the Loan Availability as of
such Borrowing Date.
(b) Borrowings. Each Borrowing shall be in an aggregate amount not less
than $1,000,000 or an integral multiple of $500,000 in excess thereof and shall
consist of either Base Rate Advances or Eurodollar Rate Advances. The Borrower
may reborrow under Section 2.01(a) any Advances that it has voluntarily prepaid
pursuant to Section 2.11 or was required to prepay pursuant to Section 2.06(e).
(c) Notice of Borrowing. To request a Borrowing, the Borrower shall deliver
a Notice of Borrowing to the Agent not later than 11:00 a.m. New York City time
(i) three Business Days prior to the requested Borrowing Date, in the case of
Eurodollar Rate Advances, and (ii) one Business Day prior to the requested
Borrowing Date, in the case of Base Rate Advances. The Agent shall give each
Lender prompt notice thereof by telecopier, telex or cable. The Notice of
Borrowing shall specify (A) the requested Borrowing Date, (B) the amount of the
Borrowing and whether it will consist of Base Rate Advances or Eurodollar Rate
Advances, and (C) in the case of a Borrowing comprised of Eurodollar Rate
Advances, the initial Interest Period for such Eurodollar Rate Advances.
<PAGE>
28
(d) Telephonic Notice of Borrowing. The Borrower may give the Agent
telephonic notice of any proposed Borrowing by the time required under Section
2.01(c) and in such event shall promptly (but in no event later than the
Borrowing Date for the requested Borrowing) deliver a confirmatory Notice of
Borrowing to the Agent. The Agent shall give each Lender prompt notice thereof
by telecopier, telex or cable. If the telephonic request differs in any respect
from the written Notice of Borrowing subsequently delivered, the telephonic
request shall govern as to the terms of all Advances made in accordance with
such telephonic request. The Agent's determination of the contents of any
telephonic request shall, absent manifest error, be conclusive and binding on
all parties hereto.
(e) Funding of Advances. Upon fulfillment of the applicable conditions set
forth in Article III, each Lender shall, before 12:00 noon New York City time on
the Borrowing Date, make available for the account of its Applicable Lending
Office to the Agent at its address referred to in Section 8.02, in same day
funds, such Lender's Pro Rata Share of a Borrowing. After the Agent receives
such funds, the Agent will, not later than 5:00 p.m. New York City time on the
Borrowing Date, make such funds available to the Borrower at the Agent's
aforesaid address.
(f) Notice of Borrowing Irrevocable. Each Notice of Borrowing and
telephonic request shall be irrevocable and binding on the Borrower.
(g) Assumption of Funding. Unless the Agent receives notice from a Lender
prior to any Borrowing Date that such Lender will not make available to the
Agent such Lender's Pro Rata Share of the Borrowing to be made on such Borrowing
Date, the Agent may assume that such Lender has made its Pro Rata Share
available to the Agent on such Borrowing Date in accordance with Section 2.01(e)
and the Agent may, in reliance upon such assumption, make available to the
Borrower on such Borrowing Date a corresponding amount. If and to the extent
that such Lender fails to make its Pro Rata Share available to the Agent, such
Lender and the Borrower severally agree to repay to the Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Agent, at (i) in the case of the Borrower, the interest
rate applicable at the time to such Borrowing and (ii) in the case of such
Lender, the Federal Funds Rate until the third Business Day after demand by the
Agent to such Lender for such repayment and thereafter at the rate applicable at
the time to such Borrowing. If such Lender shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Lender's
Advance as part of such Borrowing for purposes of this Agreement and the
Borrower shall thereupon be excused from making the repayment described in the
preceding sentence.
(h) Failure of Lender to Fund. All obligations of the Lenders hereunder
shall be several, but not joint. The failure of any Lender to make the Advance
to be made by it as part of any Borrowing shall not relieve any other Lender of
its obligation, if any, hereunder to make
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29
its Advance as part of such Borrowing, but no Lender shall be responsible for
the failure of any other Lender to make an Advance on any Borrowing Date.
SECTION 2.02. Letter of Credit Subfacility. (a) Issuance of the Letters of
Credit. Subject to the terms and conditions set forth herein, the LC Bank agrees
to issue one or more Letters of Credit, at the request and for the account of
the Borrower, on any Business Day on or after the Closing Date and prior to the
Termination Date, so long as (i) after giving effect to the issuance of any
Letter of Credit so requested, (A) the Outstanding Revolving Credit does not
exceed the then Facility Amount, and (B) the LC Exposure does not exceed the
then LC Subcommitment, and (ii) the LC Bank has not received written notice from
the Agent or Requisite Lenders that an Event of Default or Potential Default is
continuing.
(b) LC Application. The Borrower may request issuance of a Letter of Credit
by delivering an LC Application to the Agent not later than two Business Days
prior to the date the Letter of Credit is to be issued. The Agent shall promptly
deliver a copy of the LC Application to the LC Bank and each Lender.
(c) Reimbursement. Any payment made by the LC Bank of a draft drawn under
any Letter of Credit shall constitute for all purposes of this Agreement the
making by the LC Bank of an Advance in the amount of such draft, which Advance
shall (i) constitute a Base Rate Advance until converted, at the Borrower's
election, into a Eurodollar Rate Advance pursuant to Section 2.10, and (ii)
satisfy the Borrower's obligation to reimburse the LC Bank under this Section
2.02 . With respect to each Advance made pursuant to this Section 2.02(c), the
Borrower shall be deemed to have certified the statements contained in Section
3.02(b) as of the date the payment constituting such Advance was made by the LC
Bank; provided that in the event any such statement was not true and correct as
of such date, such Advance shall be repayable on demand; provided further that
upon any such repayment on demand, the failure of any such statement to be true
and correct as of such date shall not constitute an Event of Default under
Section 6.01, unless the failure of any such statement to be true and correct as
of such date would have constituted an Event of Default under Section 6.01 even
if such repaid Advance had never been made.
(d) Reimbursement Obligation Absolute. The obligation of the Borrower to
reimburse the LC Bank for each payment made by the LC Bank under any Letter of
Credit, and to pay interest thereon as provided herein, shall be absolute,
unconditional and irrevocable and shall be performed strictly in accordance with
the terms of this Agreement under and without regard to any circumstances,
including (i) any lack of validity or enforceability of any of the Loan
Documents; (ii) any amendment or waiver of or any consent to departure from all
or any terms of any of the Loan Documents; (iii) the existence of any claim,
setoff, defense or other right which the Borrower may have at any time against
any beneficiary or any transferee of any Letter of Credit (or any Persons for
whom any such beneficiary or transferee may be acting), the LC Bank, the Agent,
any Lender or any other Person, whether in connection with this Agreement, the
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30
transactions contemplated herein or any unrelated transaction; (iv) any breach
of contract or dispute among or between the Borrower, the Agent, the LC Bank,
any Lender, or any other Person; (v) any demand, statement, certificate, draft
or other document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect; (vi) payment by the LC Bank under any
Letter of Credit against presentation of any demand, statement, certificate,
draft or other document which does not strictly comply with the terms of any
Letter of Credit; (vii) any non-application or misapplication by any beneficiary
or transferee of the proceeds of any amount paid under anyLetter of Credit or
any other act or omission of such beneficiary or such transferee in connection
with any Letter of Credit; (viii) any extension of time for or delay, renewal or
compromise of or other indulgence or modification granted or agreed to by the LC
Bank, the Agent or any Lender, with or without notice to or approval by the
Borrower; (ix) any failure to preserve or protect any Collateral, any failure to
perfect or preserve the perfection of any Lien thereon, or the release of any
Collateral; or (x) any other circumstance or event whatsoever relating to the
Borrower or such Letter of Credit or the reimbursement due therefor, whether or
not similar to any of the foregoing.
(e) Lender Participation. Each Lender severally agrees to participate with
the LC Bank in the extension of credit arising from the issuance of any Letter
of Credit in conformity with Section 2.02(a), in an amount equal to such
Lender's Pro Rata Share of the amount available for payment under such Letter of
Credit. Upon written demand by the LC Bank, with a copy of such demand to the
Agent, each Lender shall promptly fund its participation by paying to the LC
Bank Dollars in an amount equal to such Lender's Pro Rata Share of the payment
made by the LC Bank under any Letter of Credit, together with all interest
accrued and unpaid thereon for the period from the day on which the payment to
be reimbursed was demanded by the LC Bank until the Business Day on which such
funding from such Lender is received by the LC Bank at the rate per annum equal
to the Federal Funds Rate until the second Business Day following such demand,
and thereafter the rate per annum then applicable to Base Rate Advances. Upon
funding its participation in accordance with this Section 2.02(e), each Lender
shall be deemed to have made an Advance as of the date the relevant Letter of
Credit was drawn, and the Advance deemed pursuant to Section 2.02(c) to have
been made by the LC Bank upon any such payment shall be reduced, in an amount
equal to such Lender's participation. Each Lender's obligation to make such
payment to the LC Bank shall be absolute, unconditional and irrevocable and
shall not be affected by any circumstance whatsoever, including the occurrence
or continuance of any Potential Default or Event of Default, the failure to meet
any condition that otherwise must be met for the funding of any Advance, or the
failure of any other Lender to make any payment under this Section 2.02(e), and
each Lender further agrees that such payment shall be made without any offset,
abatement, withholding or reduction whatsoever. If after receipt of such funding
from any Lender the LC Bank receives payment from the Borrower or any other
source on account of the reimbursement obligation that was so funded, or the
interest accrued thereon, the LC Bank shall promptly remit such payment to the
Agent for prompt distribution to the Lenders to the extent of their
participation therein.
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31
(f) Commercial Practices. The Borrower assumes all risks of the acts or
omissions of any beneficiary or transferee of any Letter of Credit with respect
to the use of any Letter of Credit. The Borrower agrees that the LC Bank, the
Agent, the Lenders and their respective directors, officers or employees shall
not be liable or responsible for (i) the use which may be made of any Letter of
Credit or for any acts or omissions of any beneficiary or transferee in
connection therewith; (ii) any reference which may be made to this Agreement or
to any Letter of Credit in any agreements, instruments or other documents; (iii)
the validity, sufficiency or genuineness of any document other than a Letter of
Credit, or of any endorsement thereon, even if such document or endorsement
should in fact prove to be in any or all respects invalid, insufficient,
fraudulent or forged or any statement therein prove to be untrue or inaccurate
in any respect whatsoever; (iv) payment by the LC Bank against presentation of
documents which do not strictly comply with the terms of any Letter of Credit;
or (v) any other circumstances whatsoever in making or failing to make payment
under any Letter of Credit, except only that the LC Bank shall be liable to the
Borrower for acts or events described in clauses (i) through (v) above, to the
extent, but only to the extent, of any direct (as opposed to indirect, special
or consequential) damages suffered by the Borrower which the Borrower proves
were caused by (A) the LC Bank's willful misconduct or gross negligence in
determining whether a draft or demand presented under any Letter of Credit
strictly complies with the terms and conditions therefor stated in such Letter
of Credit or (B) the LC Bank's willful failure to pay any draft or demand
presented under any Letter of Credit that strictly complies with the terms and
conditions thereof. The LC Bank may accept any document that appears on its face
to be in order, without responsibility for further investigation. The
determination whether a draft or demand is properly presented under any Letter
of Credit prior to its expiration or whether a draft or demand presented under
any Letter of Credit is in proper and sufficient form may be made by the LC Bank
in its sole discretion, and such determination shall be conclusive and binding
upon the Borrower to the extent permitted by law. The Borrower hereby waives any
right to object to any payment made under any Letter of Credit on presentation
of any draft or demand that is in the form provided in the Letter of Credit but
varies with respect to punctuation, capitalization, spelling or similar matters
of form.
(g) Replacement of LC Bank. The Borrower may at any time, upon at least
five Business Days' prior written notice to the Agent and Lenders, designate as
a replacement LC Bank any Lender that has agreed in writing to act as LC Bank.
Thereupon, (i) the obligation, right and authority of the Lender that was
previously acting as LC Bank to issue Letters of Credit hereunder shall be
terminated, (ii) such Lender shall remain entitled to enforce all provisions
hereof applicable to all Letters of Credit theretofore issued by or requested
from such Lender, and (iii) the Lender designated as the replacement LC Bank
shall thenceforth issue Letters of Credit on the terms and subject to the
conditions herein.
SECTION 2.03. Promissory Notes. (a) Notes. The Advances made by each Lender
shall be evidenced by the Notes delivered pursuant to Section 3.01(a).
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32
(b) Recording of Amounts. Each Lender is hereby authorized (but shall not
be obligated), at its option, to either (i) endorse the date and amount of each
Advance made by such Lender and each payment of principal of Advances made on
such Lender's Note on a schedule annexed to and constituting a part of such Note
or (ii) record such Advances and payments in its books and records, and such
schedule or such books and records, as the case may be, shall constitute prima
facie evidence of the accuracy of the information contained therein.
SECTION 2.04. Fees. (a) Closing Fees. On the Closing Date, the Borrower
will pay to the Agent, for account of the Lenders, the closing fees described in
Schedule 2.04(a).
(b) Commitment Fees. On the first day of each Quarter, commencing July 1,
1996 and continuing thereafter until the Facility Amount is permanently reduced
to zero, and on the Termination Date, the Borrower shall pay to the Agent, for
the account of the Lenders in accordance with their Pro Rata Shares, a
commitment fee computed by applying the Commitment Fee Rate to the difference,
from day to day in the prior Quarter or partial Quarter, as the case may be,
between (i) the sum of (A) the then Facility Amount and (B) the then Purchasers'
Aggregate Net Investment, less (ii) the then Outstanding Revolving Credit.
(c) Letter of Credit Fees. On the first day of each Quarter, commencing
July 1, 1996 and continuing thereafter until the Facility Amount and Unfunded LC
Exposure have both been reduced to zero, and on the Termination Date, the
Borrower shall pay to the Agent for the account of the Lenders in accordance
with their Pro Rata Shares a letter of credit fee computed by applying the LC
Fee Rate to the Unfunded LC Exposure from day to day in the prior Quarter or
partial Quarter, as the case may be.
(d) Facing Fees. On the first day of each Quarter, commencing July 1, 1996
and continuing thereafter until the Facility Amount and Unfunded LC Exposure
have both been reduced to zero, and on the Termination Date, the Borrower shall
pay to the Agent for the account of the LC Bank a facing fee computed by
applying 0.125% per annum to the Unfunded LC Exposure from day to day in the
prior Quarter or partial Quarter, as the case may be.
(e) Letter of Credit Administration. The Borrower shall pay the LC Bank's
usual and customary charges for opening, amending or honoring any Letter of
Credit and for any wire transfers.
(f) Agent's Fees. The Borrower shall pay when due all fees payable under
the Fee Letter.
(g) Contingent Fees. The Borrower shall pay to the Agent, for the account
of the Lenders, when due the contingent fees payable under the Fee Letter.
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33
SECTION 2.05. Voluntary and Scheduled Facility Reductions. (a) The Borrower
at any time may terminate in whole, and from time to time may reduce ratably in
part, the unused portions of the commitments of the Lenders to extend credit
hereunder, by giving the Agent at least three Business Days' prior written
notice that, effective as of a Business Day set forth in the notice, the
Facility Amount shall be reduced by an amount that (i) does not exceed the Loan
Availability as of such Business Day and (ii) is equal to either (A) the then
Facility Amount or (B) an integral multiple of $1,000,000. Such notice, once
given, shall be irrevocable, and the Facility Amount, once reduced, may not be
increased under any circumstances.
(b) The Facility Amount shall be automatically and permanently reduced (i)
on June 30, 2000 to $560,000,000, (ii) on June 30, 2001 to $315,000,000 and
(iii) on the Termination Date as provided in Section 2.06(a) below.
SECTION 2.06. Principal Payments. The Borrower agrees to repay the Advances
and reduce the Facility Amount as follows:
(a) Final Maturity. On the Termination Date, all outstanding Advances
shall be due and payable and the Facility Amount and LC Subcommitment shall
be automatically and permanently reduced to zero.
(b) Excess Revolving Credit Exposure. If at any time, by reason of any
voluntary or mandatory Facility Reduction or for any other reason, the
Outstanding Revolving Credit exceeds the then Facility Amount, the Borrower
shall immediately, without notice or demand, repay Advances or, if no
Advances are outstanding, deposit Dollars to the LC Cash Collateral
Account, in an amount equal to such excess.
(c) Excess LC Exposure. If at any time, by reason of any voluntary or
mandatory Facility Reduction or for any other reason, the LC Exposure
exceeds the then LC Subcommitment, the Borrower shall immediately deposit
Dollars in an amount equal to such excess to the LC Cash Collateral
Account.
(d) Payment on Date of Change of Control. If, within the period
commencing on the date of a Change of Control and ending 30 Business Days
after the Borrower gives the Agent written notice of such Change of
Control, the Requisite Lenders shall demand in writing that the Borrower
repay all Advances, then on the 30th day following such demand (i) all
Advances then outstanding shall be due and payable in full, and (ii) the
Facility Amount and the LC Subcommitment shall be automatically and
permanently reduced to zero; and if any LC Exposure remains outstanding on
such day the Borrower on such day shall deposit Dollars to the LC Cash
Collateral Account as necessary to cause the amount on deposit therein to
be equal to the then LC Exposure.
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34
(e) Facility Reduction for Receivables Sale Program. Whenever any
Receivables Sale Program is in effect, the Facility Amount shall be reduced
(but in no event by more than $100,000,000) by an amount equal to the
Purchasers' Aggregate Net Investment, as certified from time to time
pursuant to Section 5.02(c)(xv) or 5.02(c)(xvi) for as long, but only for
as long, as the Receivables Sale Program is in effect. If after giving
effect to any such reduction the Outstanding Revolving Credit exceeds the
reduced Facility Amount, prepayment shall be made pursuant to Section
2.06(b) when such reduction becomes effective.
(f) Application of LC Cash Collateral. With respect to Dollars
deposited to the LC Cash Collateral Account:
(i) At any time when no Event of Default or Potential Default has
occurred and is continuing, the Agent may (and shall, if so directed
in writing by the Borrower or the Requisite Lenders) cause such
deposit to be applied to repay any or all Funded LC Exposure, in any
order of application;
(ii) Whenever any Event of Default has occurred and is
continuing, the Agent may (and shall if so directed in writing by the
Requisite Lenders) cause such deposit to be applied to repay or retire
any or all of the Obligations, whether or not then due, in any order
of application;
(iii) If at any time when no Event of Default or Potential
Default is continuing the Dollars on deposit in the LC Cash Collateral
Account exceed the then LC Exposure, the Agent shall, if so directed
in writing by the Borrower, cause such deposit to be released to the
Borrower to the extent, but only to the extent, such deposit exceeds
the then LC Exposure; and
(iv) Interest shall accrue and be payable on deposits to the LC
Cash Collateral Account.
SECTION 2.07. Interest. The Borrower agrees to pay interest on the unpaid
principal amount of each Advance made by each Lender (or, in the case of an
Advance made pursuant to Section 2.02(c), by the LC Bank) from the date of such
Advance until such principal amount shall be repaid in full, at the following
rates per annum:
(a) Base Rate Advances. Whenever such Advance is a Base Rate Advance,
a rate per annum equal on each day to the sum of the Base Rate as in effect
on such day plus the Base Rate Margin determined for such day, with all
such interest accrued in any one month payable monthly on the first day of
the next following month and in any case when the Facility Amount has been
reduced to zero and all Advances are repaid in full.
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35
(b) Eurodollar Rate Advances. Whenever such Advance is a Eurodollar
Rate Advance, a rate per annum equal on each day during the Interest Period
for such Eurodollar Rate Advance to the sum of the Eurodollar Rate for such
Interest Period plus the Eurodollar Rate Margin determined for such day,
with all interest so accrued payable on the last day of such Interest
Period and, if such Interest Period has a duration of more than three
months, on the day which occurs three months after the first day of such
Interest Period.
(c) Default Interest. For any period of time during which an Event of
Default under Section 6.01(a), (b), (d), (e), (f), (g), (h), (i), (j), (k),
(l) (with respect to Material Subsidiaries only) or (m) has occurred and is
continuing, the principal amount of all Advances then outstanding shall
bear interest payable upon demand at a rate per annum equal to the sum of
(i) 2.0% per annum plus (ii) the rate otherwise payable pursuant to
subsection (a) or (b) above, but not to exceed the maximum rate permitted
by applicable law.
SECTION 2.08. Additional Interest on Eurodollar Rate Advances. The Borrower
shall pay each Lender additional interest on the unpaid principal amount of each
Advance of such Lender for each day that such Advance is outstanding as a
Eurodollar Rate Advance, at a rate per annum equal to the remainder obtained by
subtracting (i) the Eurodollar Rate for such Interest Period for such Eurodollar
Rate Advance from (ii) the rate determined by dividing such Eurodollar Rate by a
percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such
Lender for such day. Such additional interest shall be determined by such
Lender, notified to the Borrower through the Agent and payable when and as
interest is payable on such Eurodollar Rate Advance or, if later, five Business
Days after the Borrower receives notice thereof. If the Borrower so requests,
such Lender shall provide the Borrower through the Agent a certificate setting
forth the calculation and supporting information for such additional interest,
which shall be conclusive and binding for all purposes, absent manifest error.
SECTION 2.09. Interest Rate Determination and Protection. (a) Determination
of Eurodollar Rate. The Eurodollar Rate for each Interest Period for Eurodollar
Rate Advances comprising part of the same Borrowing shall be determined by the
Agent on the basis of applicable rates furnished to and received by the Agent
from the Reference Banks two Business Days before the first day of such Interest
Period.
(b) Notice of Eurodollar Rate. The Agent shall give prompt notice to the
Borrower and the Lenders of the Eurodollar Rate for any Interest Period when
determined by the Agent.
(c) Failure to Provide Information. If any one of the Reference Banks does
not furnish to the Agent timely information sufficient to enable the Agent to
determine a Eurodollar Rate, the Agent shall determine such interest rate on the
basis of timely information
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36
furnished by the remaining Reference Banks. If fewer than two Reference Banks
furnish timely information to the Agent for determining the Eurodollar Rate for
any Eurodollar Rate Advances, the Agent shall determine the Eurodollar Rate
based on information furnished by Citibank. If Citibank is unable to obtain
timely information for determining the Eurodollar Rate for any Eurodollar Rate
Advances, the Agent shall forthwith notify the Borrower and the Lenders that the
interest rate cannot be determined for such Eurodollar Rate Advances and the
obligation of the Lenders to make or continue, or to convert Advances into,
Eurodollar Rate Advances shall be suspended until the Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist.
(d) Suspension of Eurodollar Rate Advances. If, with respect to any
Eurodollar Rate Advances, the Requisite Lenders notify the Agent that either (i)
the Eurodollar Rate for any Interest Period for such Eurodollar Rate Advances is
at least two basis points less than the cost to such Lenders of obtaining funds
in Dollars in the London interbank market in the amounts substantially equal to
such Lenders' Eurodollar Rate Advances and for a period equal to such Interest
Period or (ii) funding is not available to such Lenders in such market in
Dollars, then the Agent shall forthwith so notify the Borrower and the Lenders
and thereupon (A) each Eurodollar Rate Advance will automatically, on the last
day of the then existing Interest Period therefor, convert into a Base Rate
Advance, and (B) the obligation of the Lenders to make or continue, or to
convert Advances into, Eurodollar Rate Advances shall be suspended until the
Agent shall notify the Borrower and the Lenders that the circumstances causing
such suspension no longer exist.
(e) Failure to Specify Duration. If the Borrower fails, prior to the date
the Eurodollar Rate for any Interest Period is determined by the Agent, to
specify the duration of any Interest Period for any Eurodollar Rate Advances,
the Interest Period shall be one month.
(f) Agent's Determination Conclusive. Each determination by the Agent of an
interest rate hereunder shall be conclusive and binding for all purposes, absent
manifest error.
SECTION 2.10. Voluntary Conversion of Advances. (a) Notice of
Continuance/Conversion. Subject to the provisions of Sections 2.09 and 2.14, the
Borrower may on any Business Day, by giving the Agent a Notice of
Continuance/Conversion not later than 11:00 a.m. (New York City time) on the
third preceding Business Day, (i) convert Base Rate Advances comprising the same
Borrowing into Eurodollar Rate Advances, (ii) convert Eurodollar Rate Advances
comprising the same Borrowing into Base Rate Advances or (iii) continue
Eurodollar Rate Advances as Eurodollar Rate Advances, but (A) the Borrower may
convert a Eurodollar Rate Advance into a Base Rate Advance only on the last day
of an Interest Period for such Eurodollar Rate Advance, (B) the Borrower may
continue a Eurodollar Rate Advance as a Eurodollar Rate Advance only as of the
last day of an Interest Period for such Eurodollar Rate Advance, and (C) no
Advance may be converted into or continued as a
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37
Eurodollar Rate Advance at any time when an Event of Default or Potential
Default has occurred and is continuing.
(b) Telephonic Notice. In lieu of delivering a Notice of
Continuance/Conversion, the Borrower may give the Agent telephonic notice of any
proposed conversion or continuance by the time required under Section 2.10(a)
and in such event shall promptly (but in no event later than the date of the
requested conversion or continuance) deliver a confirmatory Notice of
Continuance/Conversion to the Agent. If the telephonic request differs in any
respect from the written Notice of Continuance/Conversion subsequently
furnished, the telephonic request shall govern as to the terms of such notice.
The Agent's determination of the contents of any telephonic request shall,
absent manifest error, be conclusive and binding on all parties hereto.
(c) Requirements. Each Notice of Continuance/Conversion or telephonic
request shall specify (i) the date of the continuance or conversion, (ii) the
Advances to be converted or continued and (iii) when Advances are converted into
or continued as Eurodollar Rate Advances, the duration of the Interest Period
for such Advances.
(d) Base Rate Advances. Unless a Eurodollar Rate has been determined for a
particular Advance and applies to such Advance on a particular day in accordance
with the provisions hereof, such Advance shall be a Base Rate Advance and shall
accrue interest at the rate then applicable to Base Rate Advances.
SECTION 2.11. Prepayments. The Borrower from time to time may prepay,
without premium or penalty, the outstanding principal amounts of Advances
comprising part of the same Borrowing, in whole or ratably in part, so long as
(i) the Borrower gives one Business Day's prior written notice to the Agent
stating the proposed date and aggregate principal amount of the prepayment, (ii)
each partial prepayment is made in an aggregate principal amount of $1,000,000
or an integral multiple of $500,000 in excess thereof, (iii) if any Eurodollar
Rate Advance is paid prior to the last day of the Interest Period for such
Advances, all unpaid interest accrued to the date of prepayment on the principal
amount prepaid and all Breakage Costs incurred as a result of the prepayment are
also paid, and (iv) all unpaid interest accrued to the date of prepayment is
paid concurrently with any prepayment in full. Notice of prepayment, once given,
shall be irrevocable, and the amount of the prepayment specified in the notice
shall accordingly be due and payable on the prepayment date specified therein.
SECTION 2.12. Funding Losses. If (i) any Eurodollar Rate
Advance is repaid or converted to a Base Rate Advance on any day other than the
last day of an Interest Period for such Eurodollar Rate Advance (whether as a
result of any optional prepayment, mandatory prepayment, payment upon
acceleration, mandatory conversion or otherwise), (ii) the Borrower fails to
borrow any Eurodollar Rate Advance in accordance with a Notice of Borrowing or a
telephonic request delivered to the Agent (whether as a result of the failure to
satisfy any
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38
applicable conditions or otherwise), (iii) any Base Rate Advance is not
converted into a Eurodollar Rate Advance or any Eurodollar Rate Advance is not
continued as a Eurodollar Rate Advance in accordance with a Notice of
Continuance/Conversion or telephonic request delivered to the Agent (whether as
a result of the failure to satisfy any applicable conditions or otherwise), or
(iv) the Borrower fails to make any prepayment in accordance with any notice of
prepayment delivered to the Agent, the Borrower shall, upon demand by any
Lender, reimburse such Lender for all costs and losses incurred by such Lender
as a result of such repayment, prepayment or failure ("BREAKAGE COSTS"),
including costs and losses incurred by a Lender as a result of funding
arrangements or contracts entered into by such Lender to fund Eurodollar Rate
Advances. Breakage Costs shall be payable only if demanded within 90 days after
the end of the applicable Interest Period and shall be due 30 days after demand.
Demand shall be made by delivery to the Borrower and the Agent of a certificate
of the Lender making the demand, setting forth in reasonable detail the
calculation of the Breakage Costs for which demand is made. Such certificate
shall, in the absence of manifest error, be conclusive and binding on the
Borrower.
SECTION 2.13. Increased Costs. (a) Increase in Cost. If, due to either (i)
the introduction of or any change (other than any change by way of imposition or
increase of reserve requirements, in the case of Eurodollar Rate Advances,
included in the Eurodollar Rate Reserve Percentage) in or in the interpretation
of any law or regulation or (ii) the compliance with any guideline or request
from any central bank or other Governmental Authority (whether or not having the
force of law), there shall be any increase in the cost to any Lender or any
participant under Section 8.07(e) of agreeing to make or making, funding or
maintaining Eurodollar Rate Advances, then the Borrower shall from time to time
pay to the Agent for the account of such Lender or participant additional
amounts sufficient to compensate such Lender or participant for such increased
cost. Such costs shall be payable only if demanded within six months after they
were incurred and shall be due 30 days after demand. Demand shall be made by
delivery to the Borrower and the Agent of a certificate of the Lender or
participant making the demand, setting forth in reasonable detail the
calculation of the costs for which demand is made. Such certificate shall, in
the absence of manifest error, be conclusive and binding on the Borrower.
(b) Increase in Capital Requirements. If any Lender determines that
compliance with any law or regulation or any guideline or request from any
central bank or other Governmental Authority (whether or not having the force of
law) affects or would affect the amount of capital required or expected to be
maintained by such Lender or any corporation controlling such Lender and that
the amount of such capital is increased by or based upon the existence of such
Lender's commitment to lend or funding hereunder and other commitments or
funding of this type, then, upon demand by such Lender, the Borrower shall,
within 30 days after demand from time to time by such Lender, pay to the Agent
for the account of such Lender additional amounts sufficient to compensate such
Lender or such corporation in the light of such circumstances, to the extent
that such Lender determines such increase in capital to be allocable to the
existence of such Lender's commitment to lend or funding hereunder. Demand for
such payment may be made at any time but must be made in writing, with a copy to
the Agent. No
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39
such compensation may be demanded as to increased capital maintained by a Lender
more than 12 months before compensation was first demanded by such Lender under
this Section 2.13(b). Demand for such compensation shall be made by delivery to
the Borrower and the Agent of a certificate of the Lender making the demand,
setting forth the amount demanded. Such certificate shall, in the absence of
manifest error, be conclusive and binding on the Borrower.
(c) Replacement Lenders and Participants. If, and on each occasion that,
(i) a Lender or a participant under Section 8.07(e) makes a demand for
compensation pursuant to Section 2.08, Section 2.13(a) or Section 2.13(b) with
respect to Eurodollar Rate Advances or (ii) a Lender is excused from funding
Eurodollar Rate Advances pursuant to Section 2.14 or (iii) Taxes are required,
pursuant to Section 2.16(a), to be deducted from or with respect to any amount
payable to any Lender or the Agent, the Borrower may in whole permanently
replace such Lender or participant, as the case may be, with an Eligible
Assignee willing to become a Lender hereunder, on the following terms:
(A) The replacement Lender must be satisfactory to the LC Bank in its
reasonable discretion;
(B) The Borrower shall give the Agent and the Lender or participant
being replaced at least five Business Days' prior written notice of the
replacement. The notice must be given within 180 days after the date of the
event specified in clause (i), (ii) or (iii) above, as the case may be,
pursuant to which such replacement is made, and must state the day (which
must be a Business Day not more than 10 days after the notice is given) on
which the replacement will be effective.
(C) On the effective date of the replacement, (1) the replacement
Lender shall purchase the Advances owed to such replaced Lender or
participant for a purchase price equal to the principal amount thereof and
all interest accrued thereon as of such effective date, payable in cash on
such effective date, (2) an Assignment and Acceptance covering such
Advances shall be delivered to the replacement Lender by the Lender being
replaced or by the participant being replaced and the Lender from which it
holds its participation, and (3) the Borrower shall pay to the Agent for
the account of the replaced Lender or participant all Breakage Costs
resulting from the replacement and all additional interest, fees,
compensation, costs, losses, taxes, expense reimbursements, indemnities and
other Obligations due to the Lender or participant being replaced.
(D) The Borrower will remain liable to each replaced Lender or
participant for all Obligations that survive the repayment of the Advances.
SECTION 2.14. Illegality. Notwithstanding any other provision of this
Agreement, if any Lender shall notify the Agent that the introduction of or any
change in or in the interpretation of any law or regulation makes it unlawful,
or any central bank or other
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40
Governmental Authority asserts that it is unlawful, for any Lender or its
Eurodollar Lending Office to perform its obligations hereunder to make
Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances
hereunder, then (i) the obligation of such Lender to make or continue, or to
convert Advances into, Eurodollar Rate Advances shall be suspended until the
Agent shall notify the Borrower and the Lenders that the circumstances causing
such suspension no longer exist, and (ii) the Borrower shall forthwith either
(A) prepay in full all Eurodollar Rate Advances of such Lender then outstanding,
together with interest accrued thereon and Breakage Costs related thereto or (B)
convert all Eurodollar Rate Advances of such Lender then outstanding into Base
Rate Advances and pay all interest accrued thereon to the date of conversion and
all Breakage Costs related thereto.
SECTION 2.15. Payments and Computations. (a) Payments. The Borrower shall
make each payment hereunder and under the Notes not later than 11:00 a.m. (New
York City time) on the day payment is due, in Dollars received by the Agent at
its address referred to in Section 8.02 in same day funds. Any payment due to a
Lender shall be paid to the Agent for account of such Lender. When the Agent
receives a payment for account of a Lender, the Agent will promptly cause like
funds to be distributed to such Lender for account of its Applicable Lending
Office.
(b) Charging of Accounts. If and to the extent any payment owed to the
Agent or any Lender is not made within three Business Days after the date it was
due hereunder or under the Note held by such Lender, the Borrower hereby
authorizes the Agent and such Lender to setoff and charge any amount so due
against any deposit account maintained by the Borrower with the Agent or such
Lender, whether or not the deposit therein is then due.
(c) Computations. All computations of interest, additional interest and
fees accruing at a per annum rate shall be made on the basis of the actual
number of days (including the first day but excluding the last day) occurring in
the period for which such interest, additional interest or commitment fees are
payable and a year of 360 days.
(d) Payment on Business Day. Whenever any payment hereunder or under the
Notes is due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day, and such extension of time shall be included
in the computation of interest or fees. If, however, such extension would cause
payment of interest on or principal of Eurodollar Rate Advances to be made in
the next following calendar month, such payment shall be made on the next
preceding Business Day.
(e) Presumption of Payment. Unless the Agent receives notice from the
Borrower prior to the date on which any payment is due to the Agent for the
benefit of the Lenders hereunder that the Borrower will not make such payment in
full, the Agent may assume that the Borrower has made such payment in full to
the Agent on such date and the Agent may, in reliance upon such assumption,
cause to be distributed to each Lender on such due date an
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41
amount equal to the amount then due such Lender. If and to the extent the
Borrower does not make such payment to the Agent in full when due, each Lender
shall repay to the Agent forthwith on demand such amount distributed to such
Lender, together with interest thereon for each day from the date such amount
was distributed to such Lender until the Business Day such Lender repays such
amount to the Agent, at the Federal Funds Rate until the third Business Day
after such demand and thereafter at the rate applicable to Base Rate Advances.
SECTION 2.16. Taxes. (a) Net Payments. Any and all payments by the Borrower
hereunder or under the Notes shall be made free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding, in
the case of each Lender and the Agent, taxes imposed on its net income, and
franchise taxes imposed on it, by the jurisdiction under the laws of which such
Lender or the Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Lender, taxes imposed on its net
income, and franchise taxes imposed on it, by the jurisdiction of such Lender's
Applicable Lending Office or any political subdivision thereof (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities, collectively, are "TAXES"). If the Borrower is required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under any
Note to any Lender or the Agent, (i) the sum payable shall be increased as may
be necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.16) such Lender or
the Agent (as the case may be) receives an amount equal to the sum it would have
received if no such deductions had been made, (ii) the Borrower shall make such
deductions, and (iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(b) Payment of Other Taxes. In addition, the Borrower agrees to pay any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
under the Notes or from the execution, delivery or registration of, or otherwise
similarly with respect to, this Agreement, the Notes or any other Loan Document
("OTHER TAXES").
(c) Indemnification. The Borrower will indemnify each Lender and the Agent
for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 2.16) paid by
such Lender or the Agent (as the case may be) and any liability (including
penalties, interest and expenses, but excluding any liability arising from the
gross negligence or willful misconduct of such Person) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. Payment under this indemnity shall be due 30 days after
written demand therefor. Any Person entitled to indemnification by the Borrower
pursuant to this Section 2.16(c) shall give the Borrower written notice of any
matter which such Person has determined has given rise to a right of
indemnification hereunder within 120 days after the earlier of (i) the date on
which such Person makes payment of the Taxes or Other Taxes giving rise to such
right or
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42
(ii) the date on which such Person receives written demand for payment of such
Taxes or Other Taxes from the applicable Governmental Authority; provided,
however, that the failure by any Person timely to provide such notice (A) shall
not release the Borrower from any of its obligations under this Section 2.16(c)
except to the extent the Borrower is materially prejudiced by such failure, or
such notice was provided more than 240 days after the latest date such notice
could have been timely given, and (B) shall not relieve the Borrower from any
other obligation or liability that it may have to such Person otherwise than
under this Section 2.16(c).
(d) Evidence of Payments. Within 30 days after the date of any payment of
Taxes hereunder by the Borrower, the Borrower will furnish to the Agent, at its
address referred to in Section 8.02, the original or a certified copy of any
receipt issued to the Borrower evidencing payment thereof.
(e) Withholding Tax Exemption. If any Lender is a "foreign person" within
the meaning of the Code, such Lender shall deliver to the Agent (i) (A) if such
Lender qualifies for an exemption from, or a reduction of, United States
withholding tax under a tax treaty, a properly completed and executed Internal
Revenue Service Form 1001 (or applicable successor form) before the payment of
any interest in the first calendar year and in each third succeeding calendar
year during which interest may be paid under this Agreement, (B) if such Lender
qualifies for an exemption from United States withholding tax for interest paid
under this Agreement because it is effectively connected with a United States
trade or business of such Lender, two properly completed and executed copies of
Internal Revenue Service Form 4224 (or applicable successor form) before the
payment of any interest is due in the first taxable year of such Lender, and in
each succeeding taxable year of such Lender, during which interest may be paid
under this Agreement, or (C) if such Lender is not a "bank" as defined in
Section 881(c)(3)(A) of the Code, a properly completed and executed Internal
Revenue Service Form W- 8 (or applicable successor form) before the payment of
any interest is due in the first taxable year of such Lender, and in each
succeeding taxable year of such Lender, during which interest may be paid under
this Agreement, certifying that such Lender is a foreign corporation,
partnership, estate or trust, together with a certificate of a duly authorized
officer representing that such Lender is not a "bank" for purposes of Section
881(c) of the Code, is not a 10% shareholder (within the meaning of Section
871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign
corporation related to the Borrower (within the meaning of Section 864(d)(4) of
the Code), and (ii) such other form or forms as may be required or reasonably
requested by the Agent to establish or substantiate exemption from, or reduction
of, United States withholding tax under the Code or other laws of the United
States. Each Lender agrees to notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction. If any
form or document referred to in this subsection (e) requires the disclosure of
information, other than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue Service Form 1001,
4224 or W-8 (or applicable successor forms) (or the related certificate
described above), that the Lender reasonably considers
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43
to be confidential, the Lender shall give notice thereof to the Borrower and
shall not be obligated to include in such form or document such confidential
information.
(f) Withholding Taxes. Where any Lender which is a "foreign person" is
entitled to a reduction in the applicable withholding tax, the Agent may
withhold from any interest payment to such Lender an amount equivalent to the
applicable withholding tax after taking into account such reduction. If the
forms or other documentation required by Section 2.16(e) are not delivered to
the Agent, then the Agent may withhold from any interest payment to any Lender
not providing such forms or other documentation, an amount equivalent to the
applicable withholding tax.
(g) Indemnification of the Agent. If the Internal Revenue Service or any
authority of the United States or other jurisdiction asserts a claim that the
Agent did not properly withhold tax from amounts paid to or for the account of
any Lender which is a "foreign person" (because the appropriate form was not
delivered, was not properly executed, or because such Lender failed to notify
the Agent of a change in circumstances which rendered the exemption from, or
reduction of, withholding tax ineffective, or for any other reason) such Lender
shall indemnify the Agent fully for all amounts paid, directly or indirectly, by
the Agent as tax or otherwise, including penalties and interest, together with
all reasonable expenses incurred, including reasonable legal expenses and
allocated staff costs and any other reasonable out-of-pocket expenses.
(h) Subsequent Lenders. For purposes of this Section 2.16, the term
"Lender" shall include any assignee pursuant to, and after compliance with the
requirements of, Section 8.07; provided that no Person acquiring any
participation pursuant to Section 8.07(e) shall be deemed a "Lender" for
purposes of this Section 2.16 unless and until the Borrower has been notified of
such participation. If any Lender grants participations in or otherwise
transfers its rights under this Agreement, the participant or transferee shall
be bound by the terms of Sections 2.16(e), (f) and (g) as though it were such
Lender.
(i) Refund, Deduction or Credit of Taxes. If any Lender determines, in its
sole good faith discretion, that it has actually and finally realized, by reason
of a refund, deduction or credit of any Taxes paid or reimbursed by the Borrower
pursuant to subsection (a), (b) or (c) above in respect of payments under the
Loan Documents, a current monetary benefit that it would otherwise not have
obtained, and that would result in the total payments under this Section 2.16
exceeding the amount needed to make such Lender whole, such Lender shall pay to
the Borrower, with reasonable promptness following the date on which it actually
realizes such benefit, an amount equal to the lesser of the amount of such
benefit or the amount of such excess, in each case net of all reasonable
out-of-pocket expenses in securing such refund, deduction or credit.
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44
(j) Exclusion of Certain Taxes. Notwithstanding any other provision of this
Agreement, the Borrower shall not be required to pay any amount hereunder to any
Lender or the Agent in respect of any Taxes to the extent that, on the date
hereof or any other date such Lender became a party to (or participant with
respect to) this Agreement or (with respect to payments to an Applicable Lending
Office) the date such Lender designated such Applicable Lending Office with
respect to this Agreement or any Notes, the obligation to withhold or pay such
Taxes existed or would exist upon the payment of an amount by the Borrower under
this Agreement or any Note; provided, however, that this paragraph shall not
apply (i) to any Lender or Applicable Lending Office that became a Lender or
Applicable Lending Office as a result of an assignment, transfer, or designation
made at the request of the Borrower, or (ii) to the extent that the amount
otherwise payable by the Borrower pursuant to this Section 2.16 to any Lender
that is an assignee pursuant to (and in compliance with the requirements of)
Section 8.07 does not exceed the amount that would have been payable under this
Section 2.16 to the assigning Lender in the absence of such assignment.
(k) Additional Cooperation. Any Lender claiming any amount pursuant this
Section 2.16 shall use reasonable efforts (consistent with legal and regulatory
restrictions) to file any certificate or document reasonably requested by the
Borrower or to change the jurisdiction of such Lender's Applicable Lending
Office if such a filing or change would avoid the need for or reduce the amount
payable by the Borrower under this Section 2.16 and would not, in the good-faith
determination of such Lender, otherwise be disadvantageous to such Lender.
SECTION 2.17. Sharing of Payments. If after the occurrence and during the
continuance of any Event of Default any Lender shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) on account of any Advances owed to it in excess of its Pro Rata Share
of all such payments, such Lender shall forthwith purchase from the other
Lenders such participations in the Advances made by them as shall be necessary
to cause such purchasing Lender to share the excess payment ratably with each of
them. If all or any portion of such excess payment is thereafter recovered from
such purchasing Lender, such purchase from the other Lenders shall be rescinded
and each such other Lender shall repay to the purchasing Lender the purchase
price to the extent of its allocable share of such recovery together with its
allocable share of any interest required to be paid by the purchasing Lender on
the amount so recovered. The Borrower agrees that any Lender purchasing a
participation from another Lender pursuant to this Section 2.17 may, to the
fullest extent permitted by law, exercise collection rights (including the right
of set-off) with respect to such participation as fully as if such Lender were
the direct creditor of the Borrower in the amount of such participation.
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45
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent on the Closing Date. This Agreement
shall become effective and binding upon the parties hereto only if each of the
following conditions precedent is satisfied no later than May 15, 1996:
(a) Loan Documents. The Agent must have received, with sufficient
copies for each Lender:
(i) this Agreement duly executed by the Borrower, the Agent and
each of the Lenders;
(ii) a promissory note, in substantially the form of Exhibit A,
payable to the order of each Lender in an original principal amount
equal to such Lender's Pro Rata Share of the Facility Amount on the
Closing Date, duly executed by the Borrower;
(iii) a guaranty, in substantially the form of Exhibit C-1, duly
executed by each Subsidiary of the Borrower that is not, on the
Closing Date, an Inactive Subsidiary;
(iv) a pledge and security agreement duly executed and delivered
in substantially the form of Exhibit C-2 by the Borrower and in
substantially the form of Exhibit C-3 by each Subsidiary of the
Borrower that owns, as of the Closing Date, any shares of the stock of
or other equity, ownership or profit interest in any Subsidiary of the
Borrower, together with (A) certificates representing the Pledged
Shares referred to in Schedule A to each such Pledge and Security
Agreement, other than shares in respect of Inactive Subsidiaries,
accompanied by undated stock powers executed in blank, and (B)
evidence satisfactory to the Lenders that all other actions necessary
or, in the opinion of the Lenders, desirable to perfect and protect
the security interests created by the Pledge and Security Agreements
have been taken, including delivery to the Agent of all instruments
constituting Collateral, duly endorsed, and delivery of UCC-1
financing statements duly executed by each Grantor under a Pledge and
Security Agreement and in form sufficient for filing in all offices in
which the Agent or any Lender may consider filing to be appropriate;
and
(v) the schedules to this Agreement and the Loan Documents.
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46
(b) Corporate Documents. The Agent must have received, with sufficient
copies for each Lender:
(i) copies of the articles or certificate of incorporation and
by-laws or other governing documents of each Loan Party as in effect
on the Closing Date, certified as of the Closing Date by a Secretary
or an Assistant Secretary of such Loan Party;
(ii) copies of resolutions of the Board of Directors of each Loan
Party approving the transactions contemplated hereby and authorizing
the execution, delivery and performance of each Loan Document to which
it is a party, certified as of the Closing Date by a Secretary or an
Assistant Secretary of such Loan Party;
(iii) a certificate of the Secretary or an Assistant Secretary of
each Loan Party certifying the names and true signatures of the
officers of such Loan Party authorized to sign each Loan Document to
which it is a party and, in the case of the Borrower, to request an
extension of credit hereunder; and
(iv) a good standing certificate for each Loan Party, issued as
of a recent date by the Secretary of State of the state in which such
Loan Party is incorporated or formed and each state in which it is
qualified to do business.
(c) Governmental Consents. Each Loan Party must have obtained all
consents, approvals and authorizations required from any Governmental
Authority in connection with the execution, delivery and performance of its
obligations under the Loan Documents.
(d) No Injunction. No law or regulation shall prohibit, and no order,
judgment or decree of any Governmental Authority shall enjoin, prohibit or
restrain, and no litigation shall be pending or threatened which in the
reasonable judgment of the Agent or Requisite Lenders would enjoin,
prohibit or restrain (i) the making of the Advances, (ii) the issuance of
any Letter of Credit or (iii) the consummation of the transactions
contemplated by the Loan Documents.
(e) Other Deliveries. The Agent must have received, with sufficient
copies for each Lender:
(i) a copy of the Borrower's financial statements on Form 10-K
for the year ended December 31, 1995, certified in a manner acceptable
to the Requisite Lenders by KPMG Peat Marwick;
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47
(ii) a certificate dated as of the Closing Date and signed by the
Chairman, Chief Executive Officer or Authorized Officer of the
Borrower, certifying that, as of the Closing Date, (A) the
representations and warranties contained in Article IV of this
Agreement are true and correct on and as of the Closing Date, as
though made on and as of such date, (B) no Event of Default or
Potential Default has occurred and is continuing, (C) since December
31, 1995, there has been no Material Adverse Change, and (D) each of
the other conditions precedent set forth in this Article III has been
satisfied;
(iii) all documents evidencing other necessary corporate action
and governmental approvals, if any, with respect to this Agreement or
any other Loan Document; and
(iv) such other certificates, agreements, documents or
instruments as the Agent or the Requisite Lenders may reasonably
request in writing.
(f) Legal Opinions. The Agent must have received, with sufficient
copies for each Lender:
(i) an opinion of Hunton & Williams, counsel for the Borrower and
the Guarantors, substantially in the form of Exhibit D-1 hereto and as
to such other matters as any Lender through the Agent may reasonably
request; and
(ii) an opinion of special local counsel for each of the
Guarantors substantially in the form of Exhibit D-2 hereto and as to
such other matters as any Lender through the Agent may reasonably
request.
(g) Payout and Release Agreement. The Agent must have received (with
sufficient copies for each Lender) a payout and release agreement, in
substantially the form of Exhibit E-3, duly executed by the Borrower and
its Subsidiaries and the other parties identified therein.
(h) Payment of Existing Facility. The first Borrowing must have been
requested by the Borrower, in an amount sufficient to pay in full the
"Amount Outstanding" set forth in the payout and release agreement
delivered pursuant to Section 3.01(g), the Agent must have received
irrevocable instructions from the Borrower to apply proceeds from such
Borrowing to pay such Amount Outstanding in full, and the Agent must have
received an LC Application for all Letters of Credit outstanding under the
Existing Facility duly executed by the Borrower and accepted by the LC
Bank, confirming that all such Letters of Credit shall be deemed applied
for, issued and
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48
outstanding under this Agreement and that all participation obligations
arising in respect thereof under the Existing Facility are discharged.
(i) Payment of Fees and Expenses. All fees and expense reimbursements
due to the Agent and the Lenders under this Agreement and the Fee Letter
must have been paid.
(j) Section 3.02 Conditions. Each of the conditions set forth in
Section 3.02 must be satisfied.
SECTION 3.02. Conditions Precedent to Each Extension of Credit. The
obligation of each Lender to make an Advance on the occasion of any Borrowing
and the obligation of the LC Bank to issue any Letter of Credit is subject to
the conditions precedent that on the date the Borrowing is to be made or Letter
of Credit is to be issued:
(a) Notice. The Borrower shall have delivered a fully completed Notice
of Borrowing or LC Application, as the case may be, dated such date.
(b) Certification. Each of the following statements shall be true, and
the Agent shall have received for the account of each Lender a certificate
dated such date and signed by an Authorized Officer, certifying that:
(i) the representations and warranties contained in Article IV of
this Agreement and in Article III of the Pledge and Security
Agreements are correct on and as of such date, before and after giving
effect to the extension of credit to be made hereunder on such date
and the application of the proceeds therefrom, as though made on and
as of such date;
(ii) no event has occurred and is continuing, or would result
from such extension of credit or from the application of the proceeds
therefrom, which constitutes an Event of Default or a Potential
Default; and
(iii) the incurrence of indebtedness by the Borrower in the
amount of such Borrowing or for the LC Exposure resulting from the
issuance of such Letter of Credit is permitted under each of the
Subordinated Debt Indentures (and if after such Borrowing is made or
Letter of Credit is issued the aggregate principal amount of Advances
and LC Exposure outstanding under this Agreement is greater than
$154,000,000 (or such other amount as determined pursuant to the
Consent Solicitation), such certificate shall include information
sufficient to confirm specifically that such incurrence is permitted
under Section 4.9 of the 1994 Subordinated Debt Indenture, under
Section 3.9 of the 1995
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49
Subordinated Debt Indenture and, upon the effectiveness thereof, under
of the terms of the 1996 Subordinated Debt Indenture).
The delivery of a Notice of Borrowing or LC Application and the acceptance by
the Borrower of the proceeds of a Borrowing or of a Letter of Credit shall
constitute a representation and warranty by the Borrower that, on the date such
Advance is made or Letter of Credit is issued, the foregoing statements are
true.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
(a) Organization. Each Loan Party is a corporation or partnership duly
organized, validly existing and in good standing (except where the failure
of one or more Loan Parties, other than the Borrower and its Material
Subsidiaries, to be in good standing after the Closing Date could not
reasonably be expected to result in a Material Adverse Change) under the
laws of the jurisdiction in which it is organized and is duly qualified to
do business in each jurisdiction where the character of its properties or
the nature of its activities makes such qualification necessary.
(b) Power and Authority. Each Loan Party has the corporate or
partnership power (i) to carry on its business as now being conducted and
as proposed to be conducted by it, (ii) to execute, deliver and perform
each Loan Document to which it is a party, and (iii) to take all action
necessary to consummate the transactions contemplated under each Loan
Document to which it is a party.
(c) Due Authorization. The execution, delivery and performance by each
Loan Party of each Loan Document to which it is or will be a party have
been duly authorized by all necessary action of its board of directors (or,
in case of a partnership, of its governing authority) and do not contravene
(i) its certificate or articles of incorporation (or, in case of a
partnership, governing agreements) or (ii) any law or any indenture, lease
or written agreement binding on or affecting it and do not result in or
require the creation of any Lien (other than pursuant to the Collateral
Documents) upon any of its property or assets.
(d) Subsidiaries and Ownership of Capital Stock. Set forth in Schedule
4.01(d), as such schedule may be amended pursuant to Section 5.02(c)(xiii),
is a complete list, as of the latest of (i) the date hereof, (ii) the
Closing Date, (iii) the date of
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delivery to the Agent of the then most recently required amended Schedule
4.01(d) pursuant to Section 5.02(c)(xiii), and (iv) in the event an amended
Schedule 4.01(d) is not timely delivered to the Agent pursuant to Section
5.02(c)(xiii), the date of the last day on which such amended schedule
could have been timely delivered, of all direct and indirect Subsidiaries
of the Borrower. Such schedules also set forth the number of issued and
authorized shares of each class of capital stock of and other equity,
ownership or profit interests in such Subsidiary and the identity of the
holders of all such shares. Except as set forth in such schedules, no
capital stock of or other equity, ownership or profit interest in any such
Subsidiary is subject to issuance or sale under any warrant, option or
purchase right, conversion or exchange right, call, commitment or claim of
any right, title or interest therein or thereto. The outstanding capital
stock of each such Subsidiary is duly authorized, validly issued, fully
paid and nonassessable and is not "margin stock," as that term is defined
in Regulations G, T, U and X of the Board of Governors of the Federal
Reserve System.
(e) Health Care Facilities. Set forth in Schedule 4.01(e), as such
schedule may be amended pursuant to Section 5.02(c)(xiv), is a complete
list, as of the latest of (i) the date hereof, (ii) the Closing Date, (iii)
the date of delivery to the Agent of the then most recently required
amended Schedule 4.01(e) pursuant to Section 5.02(c)(xiv) and (iv) in the
event an amended Schedule 4.01(e) is not timely delivered to the Agent
pursuant to Section 5.02(c)(xiv), the date of the last day on which such
amended schedule could have been timely delivered, of each Health Care
Facility owned, leased, managed or operated by the Borrower or any
Subsidiary of the Borrower which is a skilled nursing facility, hospital,
assisted living facility or retirement facility, and Schedule 4.01(e), as
it may be so amended, specifically sets forth, with respect to each such
Health Care Facility, whether such Health Care Facility is a leased
facility or an owned facility.
(f) Governmental Approval. No authorization or approval or other
action by, and no notice to or filing with, any Governmental Authority is
required for the due execution, delivery and performance by each of the
Loan Parties of any Loan Document to which it is or will be a party, except
for those listed on Schedule 4.01(f), each of which has been duly obtained
or made and is in full force and effect.
(g) Binding and Enforceable. This Agreement is, and each other Loan
Document to which any Loan Party will be a party is or when delivered will
be, legal, valid and binding obligations of the Loan Parties enforceable
against the Loan Parties in accordance with their respective terms, subject
to laws generally affecting the enforcement of creditors' rights.
(h) Financial Information. The consolidated balance sheets of the
Borrower and its Subsidiaries as at December 31, 1994 and December 31, 1995
and their
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51
related income and cash flow statements for the periods then ended, each
other financial statement of the Borrower and its Subsidiaries delivered to
the Agent or Lenders on or prior to the Closing Date, and each financial
statement delivered to the Lenders pursuant to Section 5.02(c), as and when
delivered to the Agent or Lenders fairly presents the consolidated
financial condition of the Borrower and its Subsidiaries as at the date
thereof and the consolidated results of their operations for the period
then ended, all in accordance with GAAP consistently applied.
(i) Material Adverse Change. Since December 31, 1995, there has been
no Material Adverse Change.
(j) Compliance. Except as permitted pursuant to Section 5.02(k) and
Section 5.03(n), each Loan Party is in compliance in all material respects
with all material applicable laws, rules, regulations and orders.
(k) Litigation. Set forth on Schedule 4.01(k) is a list, as of the
Closing Date, of all pending or overtly threatened actions or proceedings
affecting any Loan Party before any court, governmental agency or
arbitrator, and all loss contingencies within the meaning of GAAP, other
than any action or proceeding that would not subject the Loan Parties to
liability in excess of $5,000,000 individually or $30,000,000 in the
aggregate in the case of two or more related actions or proceedings. Except
as identified on Schedule 4.01(k), there is no pending or overtly
threatened action or proceeding affecting any Loan Party before any court,
governmental agency or arbitrator, which would, if adversely determined,
result in a Material Adverse Change or which relates to or could reasonably
be expected to affect the legality, validity or enforceability of any Loan
Document.
(l) No Conflict. The execution, delivery and performance by each Loan
Party of each of the Loan Documents to which it is a party do not and will
not (i) conflict with, result in a breach of, or constitute (with or
without notice or the lapse of time or both) a default under, any
instrument, lease, indenture, agreement or other contractual obligation
issued by any Loan Party or enforceable against it or any of its property
or assets, except under immaterial agreements for supplies or services
which are readily replaceable without any adverse effect on such Loan Party
or its business or (ii) require any approval of its stockholders.
(m) No Default. No event has occurred and is continuing which
constitutes an Event of Default or a Potential Default.
(n) Payment of Taxes. Each Loan Party has filed all federal income tax
returns and all other tax returns required to be filed by it and has paid
all taxes and
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52
assessments payable by it which have become due except to the extent being
contested in accordance with the provisions of Section 5.02(h).
(o) Margin Regulations. No proceeds of any Advance or Letter of Credit
will be used for any purpose that requires any Lender to deliver or obtain
any certification under, or to comply with any margin requirement or other
provision of, Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System.
(p) Conduct of Business. The Borrower is a holding company engaged
primarily in the business of (i) holding stock of and claims against its
Subsidiaries; (ii) managing and developing corporate opportunities related
to the business of its Subsidiaries; (iii) administering and coordinating
the overall operating business of its Subsidiaries and other investments
permitted hereunder; (iv) obtaining of financing for the business of its
Subsidiaries; and (v) holding interests in and title to assets and property
necessary or appropriate to conduct such business in the ordinary course.
The Subsidiaries of the Borrower (other than any such Subsidiaries engaged
in the insurance business as permitted under Section 5.03(c)(xiii)) are
principally engaged in the business of a Healthcare Company, including
making Investments in Subsidiaries or Persons that are Healthcare
Companies.
(q) Health Care Permits. (i) Except as permitted pursuant to Section
5.02(k) and Section 5.03(n), (A) each Loan Party now has, and has no reason
to believe it will not be able to maintain in effect, all Health Care
Permits necessary for the lawful conduct of its business or operations
wherever now conducted and as planned to be conducted, including the
ownership and operation of its Health Care Facilities, pursuant to all
applicable laws and all requirements of Governmental Authorities having
jurisdiction over such Loan Party or over any part of its operations; (B)
all such Health Care Permits are in full force and effect and have not been
amended or otherwise modified (except for modifications which do not
constitute and cannot reasonably be expected to result in a Material
Adverse Change), rescinded, revoked or assigned; (C) no Loan Party is in
default in any material respect under, or in violation in any material
respect of, any such Health Care Permit (and to the best knowledge of the
Borrower, no event has occurred, and no condition exists, which, with the
giving of notice or passage of time or both, would constitute a default
thereunder or violation thereof) that has caused or could reasonably be
expected to cause the loss of any such Health Care Permit; (D) neither the
Borrower nor any other Loan Party has received any notice of any violation
of applicable laws which has caused or could reasonably be expected to
cause any such Health Care Permit to be modified (except for modifications
not amounting to a Material Adverse Change), rescinded or revoked; (E) to
the best knowledge of the Borrower, no condition exists or event has
occurred which could reasonably be expected to result in the suspension,
revocation, impairment, forfeiture or non-renewal of such Health Care
Permit; and (F) the continuation, validity and effectiveness of all such
Health
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53
Care Permits will not in any way be adversely affected by the transactions
contemplated by this Agreement, except that the exercise by the Agent of
its rights and remedies in respect of the Collateral is subject to the
licensing power of health care regulatory authorities.
(ii) Except as permitted pursuant to Section 5.02(k) and Section
5.03(n), all Health Care Facilities owned, leased, managed or operated by
any Loan Party are entitled to participate in, and receive payment under,
the appropriate Medicare, Medicaid and related reimbursement programs and
in any similar state or local government-sponsored program, to the extent
that such Loan Party has decided to participate in any such state or local
program, and to receive reimbursement from private and commercial payors
and health maintenance organizations to the extent applicable thereto.
(r) Environmental Matters. Except as set forth in Schedule 4.01(r), as
it may from time to time be amended by the Borrower, (i) no Material
Environmental Claim is pending or, to the knowledge of the Borrower,
overtly threatened against the Borrower or any of its Subsidiaries, or any
property or assets currently owned or leased thereby, and (ii) to the
knowledge of the Borrower, no Material Environmental Claim is pending or
overtly threatened against any property or assets previously owned or
leased by the Borrower or any of its Subsidiaries. Except as set forth in
Schedule 4.01(r), and except in respect of matters that, in the aggregate,
are not and cannot reasonably be expected to result in a Material
Environmental Claim or a Material Adverse Change, the operations of the
Borrower and its Subsidiaries comply and have complied in all material
respects with all applicable Environmental Laws.
(s) ERISA Compliance. (i) Each Plan is in compliance in all material
respects with the applicable provisions of ERISA, the Code and other
applicable Federal or state law.
(ii) Each Pension Plan which is intended to be tax-qualified under
Section 401(a) of the Code has been determined by the IRS to qualify under
Section 401 of the Code, and the trusts created thereunder have been
determined to be exempt from tax under the provisions of Section 501 of the
Code, and to the best knowledge of the Borrower nothing has occurred which
would cause the loss of such qualification or tax-exempt status.
(iii) Except as set forth in Schedule 4.01(s), (A) none of the Pension
Plans which is subject to Title IV of ERISA has any material Unfunded
Pension Liability as to which the Borrower or any ERISA Affiliate is or may
be liable; (B) neither the Borrower nor any ERISA Affiliate has nor
reasonably expects to incur any material liability (and no event has
occurred which, with the giving of notice under Section 4219 of ERISA,
would result in such material liability) under Section 4201 or 4243 of
ERISA with respect to any
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54
Multiemployer Plan; (C) no ERISA Event has occurred or, to the best
knowledge of the Borrower, is reasonably expected to occur; and (D) neither
the Borrower nor any ERISA Affiliate has maintained any Welfare Plan which
provides, or requires the Borrower or any ERISA Affiliate to provide,
medical or other welfare benefits to any participant after the termination
of such participant's employment with the Borrower or such ERISA Affiliate
(except to the extent required by the provisions of Part 6 of Title I,
Subtitle B of ERISA or Sections 162(k) and 4980B of the Code).
(iv) Each Welfare Plan which is a "group health plan," as defined in
Section 607(1) of ERISA, has been operated in compliance with provisions of
Part 6 of Title I of ERISA and Sections 162(k) and 4980B of the Code at all
times.
(v) Neither the Borrower nor any ERISA Affiliate has engaged, directly
or indirectly, in a prohibited transaction (as defined in Section 4975 of
the Code or Section 406 of ERISA) for which no statutory or administrative
exemption is applicable in connection with any Plan the consequences of
which, in the aggregate, constitute or can reasonably be expected to result
in a Material Adverse Change.
(t) Title to Assets. Each Loan Party has title, as of the date of each
of its financial statements delivered hereunder, to all of its material
assets reflected therein, except assets leased to it under a Capital Lease,
free and clear of all Liens except Permitted Liens.
(u) Collateral Documents. On and after the Closing Date and, with
respect to perfection upon the filing of the financing statements delivered
pursuant to Section 3.01(a), the provisions of each Collateral Document are
effective to create in favor of the Agent, for the benefit of the Lenders,
legal, valid and perfected security interests in all right, title and
interest in the Collateral described therein, enforceable against each Loan
Party that owns an interest in such Collateral, subject to laws generally
affecting the enforcement of creditors' rights.
(v) Senior Indebtedness. This Agreement is a "Bank Credit Agreement"
within the meaning of the 1992 Convertible Subordinated Debt Indenture and
the 1993 Convertible Subordinated Debt Indenture and a "Credit Agreement"
within the meaning of the 1994 Subordinated Debt Indenture, the 1995
Subordinated Debt Indenture and, upon the effectiveness thereof, the 1996
Subordinated Debt Indenture. The Obligations when incurred will be "Senior
Indebtedness" within the meaning of the Subordinated Debt Indentures.
<PAGE>
55
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Financial Covenants. So long as any Obligation remains
unpaid, any Letter of Credit remains outstanding or any Lender is obligated to
extend credit hereunder, unless the Requisite Lenders otherwise consent in
writing the Borrower will:
(a) Maximum Debt/EBITDAR Ratio. Maintain a Debt/EBITDAR Ratio,
determined as of the last day of each Quarter, at an amount not greater
than that set forth for such Quarter below:
Quarter(s) Ended Debt/EBITDAR Ratio
---------------- ------------------
March 31, 1996 6.00
June 30, 1996 6.50
September 30, 1996 6.50
December 31, 1996 6.00
March 31, 1997 5.75
June 30, 1997 5.75
September 30, 1997 5.50
December 31, 1997 5.35
March 31, 1998 5.25
June 30, 1998 5.25
September 30, 1998 5.00
December 31, 1998 4.75
In 1999 and thereafter 4.50
(b) Minimum Cash Flow Coverage Ratio. Maintain a Cash Flow Coverage
Ratio, determined as of the last day of each Quarter, at an amount not less
than that set forth for such Quarter below:
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56
Cash Flow
Quarter(s) Ended Coverage Ratio
---------------- --------------
In 1996 1.10
March 31, 1997 1.25
June 30, 1997 1.25
September 30, 1997 1.50
December 31, 1997 1.50
March 31, 1998 1.60
June 30, 1998 1.60
September 30, 1998 1.70
December 31, 1998 1.70
In 1999 and thereafter 2.00
(c) Minimum Interest&Rent Coverage Ratio. Maintain an Interest&Rent
Coverage Ratio, determined as of the last day of each Quarter, at an amount
not less than that set forth for such Quarter below:
Interest & Rent
Quarter(s) Ended Coverage Ratio
---------------- --------------
In 1996 1.50
In 1997 1.75
In 1998 2.10
In 1999 2.50
In 2000 and thereafter 3.00
(d) Minimum Net Worth. Maintain Adjusted Stockholders' Equity,
determined as of the last day of each Quarter, at an amount not less than
the then Minimum Net Worth.
SECTION 5.02. Affirmative Covenants. So long as any Obligation remains
unpaid, any Letter of Credit remains outstanding or any Lender is obligated to
extend credit hereunder, unless the Requisite Lenders otherwise consent in
writing the Borrower will, and will cause its Subsidiaries to:
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57
(a) Compliance with Laws. Comply in all material respects with all
applicable laws, rules, regulations and orders.
(b) Inspection of Property and Books and Records. Except in the case
of Inactive Subsidiaries, (i) maintain proper books of record and account,
in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and
matters involving its assets and business, and (ii) permit representatives
of the Agent or any Lender to visit and inspect any of its properties, to
examine its corporate, financial and operating records and make copies
thereof or abstracts therefrom, and to discuss its affairs, finances and
accounts with its officers, employees and independent public accountants,
all at the expense of the Borrower, in the case of visits or inspections by
the Agent and, if an Event of Default is then continuing, by any Lender,
and at such reasonable times during normal business hours and as often as
may be reasonably requested, upon reasonable advance notice to the
Borrower, except that when an Event of Default exists the Agent or any
Lender may take any such action at any time during business hours and on
same-day notice.
(c) Reporting Requirements. Furnish to the Lenders:
(i) as soon as available and in any event within 50 days after
the end of each of the first three Quarters in each fiscal year, the
consolidated balance sheet of the Borrower and its Subsidiaries as at
the end of such Quarter and their consolidated income and cash flow
statements for such Quarter and for the fiscal year to date, certified
by an Authorized Officer;
(ii) as soon as available and in any event within 95 days after
the end of each fiscal year of the Borrower, a copy of the annual
report on Form 10-K for such year for the Borrower and its
Subsidiaries, containing financial statements for such year certified
in a manner acceptable to the Requisite Lenders by KPMG Peat Marwick
or other independent public accountants acceptable to the Requisite
Lenders;
(iii) as soon as possible and in any event within 10 Business
Days after becoming aware of any (A) Change of Control or (B) Event of
Default or Potential Default continuing on the date of such statement,
a statement of an Authorized Officer or the office of the General
Counsel of the Borrower setting forth details of such Change of
Control or Event of Default or Potential Default, as the case may be,
and the action which the Borrower has taken and proposes to take with
respect thereto;
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58
(iv) promptly after the filing thereof, copies of all reports and
all registration statements for the sale of newly issued stock filed
with the Securities and Exchange Commission or any national securities
exchange;
(v) notice when, but in no event later than ten days after, it
becomes aware of any Material Environmental Claim or the presence of
any Hazardous Material in, on or under any of its property that is
likely to prohibit or restrict materially the occupancy,
transferability or use of such property under any Environmental Laws;
(vi) notice upon, but in no event later than ten days after, the
occurrence of any ERISA Event affecting the Borrower or any ERISA
Affiliate, together with (A) a copy of any notice with respect to such
ERISA Event that may be required to be filed with the PBGC and (B) any
notice delivered by the PBGC to the Borrower or any ERISA Affiliate
with respect to such ERISA Event;
(vii) concurrently with the delivery of the financial statements
referred to in clause (i) and (ii) above, a compliance certificate of
an Authorized Officer in substantially the form of Exhibit E-1 (A)
stating that, to the best of such officer's knowledge, the Borrower,
during such period, has observed or performed all covenants and
agreements and satisfied all conditions required under this Agreement
to be observed, performed or satisfied by it, and that such officer
has obtained no knowledge of any Event of Default or Potential Default
except as specified in such certificate, (B) showing in detail the
calculations supporting such statement in respect of Section 5.01, and
(C) setting forth, and showing in detail the calculations supporting,
the Pricing Ratio determined as of the most recent Pricing Test Date
in the period covered by such certificate;
(viii) within 50 days after the end of each Quarter, a Pricing
Certificate setting forth the Pricing Ratio as calculated as of the
last day of such Quarter;
(ix) prior to the consummation of any acquisition of a Health
Care Company or Health Care Facility for aggregate consideration of
$50,000,000 or more, a term sheet describing such acquisition;
provided that the Borrower shall not be required to deliver a term
sheet hereunder with respect to the First American Merger; and
promptly, and in any case within 10 Business Days of any such request,
any additional information relating to such acquisition reasonably
requested by the Agent or the Requisite Lenders;
(x) prior to the consummation of any acquisition of a Health Care
Company or Health Care Facility for which a pro forma calculation of
the
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59
Interest&Rent Coverage Ratio is required under Section 5.03(c)(xi), a
term sheet describing such acquisition, and such pro forma calculation
of the Interest&Rent Coverage Ratio; and promptly, and in any case
within 10 Business Days of any such request, any additional
information relating to such acquisition reasonably requested by the
Agent or the Requisite Lenders;
(xi) within 10 Business Days after the consummation of any
acquisition of a Health Care Company or Health Care Facility for
aggregate consideration of less than $50,000,000 and for which a pro
forma calculation of the Interest&Rent Coverage Ratio is not required
under Section 5.03(c)(xi), a term sheet describing such acquisition;
and promptly, and in any case within 10 Business Days of any such
request, any additional information relating to such acquisition
reasonably requested by the Agent or the Requisite Lenders;
(xii) as soon as possible, and in any event within five Business
Days (A) after becoming aware thereof, notice of the occurrence of any
event that is or would (with the passage of time, notice or both) be a
default under or a violation of any Health Care Permit necessary for
the lawful conduct of the business or operations of any Loan Party,
including the ownership and operation of its Health Care Facilities,
and that is or can reasonably be expected to result in a Material
Adverse Change; (B) after receipt thereof, any notice of any violation
of applicable laws that causes or could reasonably be expected to
cause any such Health Care Permit to be modified (except for
modifications which do not constitute and cannot reasonably be
expected to result in a Material Adverse Change), rescinded or
revoked; and (C) after becoming aware thereof, notice of the
occurrence of any event that constitutes or can reasonably be expected
to result in a Material Adverse Change;
(xiii) concurrently with the delivery of the financial statements
referred to in clause (i) and (ii) above, Schedule 4.01(d), as amended
to reflect the formation, acquisition or disposition of any Subsidiary
of the Borrower during the Quarter then ended;
(xiv) concurrently with the delivery of the financial statements
referred to in clause (i) and (ii) above, Schedule 4.01(e), as amended
to reflect the acquisition or disposition of any Health Care Facility
which is a skilled nursing facility, hospital, assisted living
facility or retirement facility during the Quarter then ended;
(xv) at least 10 Business Days prior to entering into any
Receivables Sale Program, a written description of the material terms
and provider of such program, the method of determining the
Purchasers' Aggregate
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60
Net Investment and the Receivables Program Charges of such program,
the maximum amount of the Purchasers' Aggregate Net Investment under
such program, and the amount and due date of any Facility Reduction or
repayment required under Section 2.06(e) in respect of such program;
(xvi) no later than the effective date of any change in the
Purchasers' Aggregate Net Investment under any Receivables Sale
Program, written notice of the amount and effective date of such
change and the amount of any Facility Reduction and prepayment
required under Section 2.06(e) after giving effect to such change; and
(xvii) such other information respecting the condition or
operations, financial or otherwise, of the Borrower or any of its
Subsidiaries as the Agent or any Lender through the Agent from time to
time may reasonably request.
(d) Preservation of Corporate Existence, Etc. Subject to Section
5.03(i) and except in the case of Inactive Subsidiaries, (i) preserve and
maintain in full force and effect its corporate or partnership existence
and good standing under the laws of its State or jurisdiction of
incorporation or organization and all rights, privileges, qualifications,
permits, licenses and franchises necessary or desirable in the normal
conduct of its business (provided that the failure at any one time to
maintain Health Care Permits with respect to any three Health Care
Facilities owned or leased by any one or more Subsidiaries of the Borrower
shall not constitute a failure to comply with this Section 5.02(d)(i)),
(ii) use its reasonable efforts, in the ordinary course and consistent with
past practice, to preserve its business organization and preserve the
goodwill and business of the customers, suppliers and others doing business
with it, and (iii) preserve or renew all of its registered trademarks,
trade names and services marks, the non-preservation of which constitutes
or could reasonably be expected to result in a Material Adverse Change.
(e) New Subsidiaries. Promptly, and in any event within 10 Business
Days, of (i) the formation or acquisition of a new Subsidiary of the
Borrower (other than an Inactive Subsidiary), (ii) the date a Subsidiary
ceases to be an Inactive Subsidiary, or (iii) the date on which any
Subsidiary of the Borrower that has not executed and delivered a Pledge and
Security Agreement acquires any stock of or other equity, ownership or
profit interest in, or debt or liability of or other claim against, any
other Subsidiary, (A) notify the Agent of such event; (B) amend Schedule A
of the relevant Pledge and Security Agreement as appropriate in light of
such event; (C) cause such Subsidiary to execute and deliver a Pledge and
Security Agreement in substantially the form of Exhibit C-3 and all
financing statements and other documents required thereunder or appropriate
to perfect the security interest created thereby; (D) deliver to the Agent
all stock certificates and other instruments added to the Collateral
thereby, accompanied by
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61
an undated stock power or transfer document executed in blank; and (E)
cause such Subsidiary to deliver an executed counterpart of the Guaranty
and deliver to the Agent a Guarantor Confirmation setting forth the
Guarantor Liability Limit as to such Subsidiary.
(f) Maintenance of Property. Maintain and preserve all its property
which is necessary for use in its business in good working order and
condition, except ordinary wear and tear and except as permitted under
Section 5.03(b), and use the standard of care typical in the industry in
the operation of the Health Care Facilities.
(g) Insurance. Maintain insurance with financially sound and reputable
insurers with respect to its properties and business against loss or damage
of the kinds customarily insured against by Persons engaged in the same or
similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons, including
workers' compensation insurance, public liability and property and casualty
insurance, except that (i) the Borrower shall be permitted to maintain self
insurance with respect to health care benefits provided to employees and
with respect to workers' compensation insurance so long as the Borrower
also maintains, with financially sound and reputable insurers, stop loss
insurance of the type and in amounts customarily maintained by Persons
engaged in the same or similar business as are customarily carried under
similar circumstances by such other Persons and (ii) insurance need not be
maintained by or for the benefit of Inactive Subsidiaries. Upon request of
the Agent, the Borrower shall furnish the Agent, with copies for each
Lender, at reasonable intervals (but not more than once per calendar year),
a certificate of an Authorized Officer (and, if requested by the Agent, any
insurance broker of the Borrower) setting forth the nature and extent of
all insurance maintained by the Borrower and its Subsidiaries in accordance
with this Section 5.02(g) (and which, in the case of a certificate of a
broker, was placed through such broker).
(h) Payment of Obligations. Pay and discharge all of its obligations
and liabilities, including:
(i) as they become due and payable, all claims for tax
liabilities, assessments and governmental charges or levies against it
or upon its properties or assets;
(ii) as they become due and payable, all lawful claims which, if
unpaid, would, with the passage of time or notice or both, by law
become a Lien upon its property;
(iii) before expiration of any period of grace expressly
provided, all claims for payments due under any lease of a Health Care
Facility or any equipment therein; and
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62
(iv) before expiration of any period of grace expressly provided,
all claims for Debts as and when due and payable (subject to any
subordination provisions contained in any instrument evidencing, or
indenture or agreement governing, such Debt);
except that it may contest in good faith any claims and may permit the
claims so contested to remain unpaid during any period, including appeals,
when it is in good faith contesting the same, so long as (A) adequate
reserves have been established to the extent required by GAAP or other
adequate provision for the payment thereof has been made, (B) enforcement
of the contested claim is effectively stayed for the entire duration of
such contest, and (C) any claim determined to be due, together with any
interest or penalties thereon, is paid promptly, and in any event within
three Business Days, after resolution of such contest.
(i) Environmental Laws. Conduct its operations and keep and maintain
its property in compliance in all material respects with all applicable
Environmental Laws and Environmental Permits; and prepare at the Borrower's
sole cost and expense and deliver to the Agent and the Lenders such updates
as the Agent or the Requisite Lenders may reasonably request relating to
any Material Environmental Claim.
(j) Use of Proceeds. Use the proceeds of the Advances first to pay all
obligations under the Existing Facility and from time to time to retire all
Funded LC Exposure and other Obligations then due hereunder and thereafter
for working capital, acquisitions (provided that any such acquisition is
approved by the board of directors or equivalent governing body of the
target of such acquisition at the time of the initial offer by the Borrower
or one or more of its Subsidiaries) and other general corporate purposes of
the Borrower and its Subsidiaries not in contravention of any law or this
Agreement.
(k) Health Care Permits and Approvals. Take all action necessary (i)
to maintain in full force and effect all Health Care Permits necessary for
the lawful conduct of its business or operations wherever now conducted and
as planned to be conducted, including the ownership and operation of its
Health Care Facilities, pursuant to all applicable laws and all
requirements of Governmental Authorities having jurisdiction over it or any
part of its operations; and (ii) ensure that all Health Care Facilities
owned or leased by it are entitled to participate in, and receive payment
under, the appropriate Medicare, Medicaid and related reimbursement
programs, and any similar state or local government-sponsored program to
the extent that it has decided to participate in any such state or local
program, and to receive reimbursement from private and commercial payors
and health maintenance organizations to the extent applicable thereto;
provided that the failure at any one time to maintain Health Care Permits
with respect to any three Health Care Facilities owned or leased by any one
or more
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63
Subsidiaries of the Borrower shall not constitute a failure to comply with
this Section 5.02(k).
(l) Further Assurances. (i) Promptly and in no event later than five
Business Days after becoming aware thereof, notify the Lenders if any
written information, exhibits and reports furnished to the Lenders contain
any untrue statement of a material fact or omit to state any material fact
or any fact necessary to make the statements contained therein not
misleading in light of the circumstances in which made, and correct any
defect or error that may be discovered therein or in the execution,
acknowledgement or recordation of any Loan Document.
(ii) Promptly upon request by the Agent or the Requisite Lenders,
execute, deliver, acknowledge, file, re-file, register and re-register any
and all such further acts, security agreements, assignments, estoppel
certificates, financing statements and continuations thereof, termination
statements, notices of assignment, transfers, certificates, assurances and
other instruments as the Agent or the Requisite Lenders may reasonably
require from time to time in order (A) to carry out more effectively the
purposes of this Agreement or any other Loan Document, (B) to subject to
the Liens created by any of the Collateral Documents any of the properties,
rights or interests described in or intended to be covered by any
Collateral Document, (C) to comply with Section 5.03(1), (D) to establish
and maintain the validity, effectiveness, perfection and priority of any
Collateral Document or any Liens intended to be created thereby, or (E) to
better assure, convey, grant, assign, transfer, preserve, protect and
confirm to the Agent and the Lenders the rights granted or now or hereafter
intended to be granted to the Lenders under any Loan Document or under any
other instrument executed in connection therewith.
SECTION 5.03. Negative Covenants. So long as any Obligation remains unpaid,
any Letter of Credit remains outstanding or any Lender is obligated to extend
credit hereunder, without the written consent of the Requisite Lenders the
Borrower will not, and will not cause or permit any Subsidiary of the Borrower
to:
(a) Liens. Directly or indirectly make, create, incur, assume or
suffer to exist any Lien upon or with respect to any part of its property
or assets, whether now owned or hereafter acquired, or become or remain
bound by any agreement to do so, except:
(i) any Lien (other than a Lien on the Collateral) (A) existing
on the Closing Date and described in Schedule 5.03(d), securing Debt
permitted under Section 5.03(d)(ii), or (B) granted to secure any
extension, renewal, refinancing or replacement of any such Debt if (1)
the principal amount secured thereby is not increased and (2) the
property subject to the Lien so granted is
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64
limited to the property that was subject to the original Lien and any
accessions, fixtures, improvements or equipment added thereto in the
ordinary course of business;
(ii) any Lien created under any Loan Document;
(iii) any Lien for taxes, fees, assessments or other governmental
charges which are not delinquent and remain payable without penalty or
which are being contested as permitted under Section 5.02(h);
(iv) any carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Lien arising in the
ordinary course of business which is not delinquent or remains payable
without penalty or which is being contested as permitted under Section
5.02(h);
(v) any Lien (other than a Lien imposed by Environmental Laws or
by ERISA) on the property of the Borrower or any of its Subsidiaries
imposed by law, or pledges or deposits required by law pursuant to
worker's compensation, unemployment insurance and other social
security legislation;
(vi) any easement, right-of-way, restriction and other similar
encumbrance with respect to real property incurred in the ordinary
course of business if, in the aggregate, such items are not
substantial in amount and do not constitute and cannot reasonably be
expected to result in a Material Adverse Change;
(vii) any Lien arising out of any judgment or award against it,
if (A) such Lien is being contested as permitted under Section
5.02(h), (B) there is no material likelihood of the sale, forfeiture
or loss of any part of its properties, and (C) such Lien does not
materially interfere with the use of any material part of its
properties;
(viii) any Lien on property of a Person which becomes a
Subsidiary after the date of this Agreement if such Lien existed at
the time such Person became a Subsidiary of the Borrower and was not
created in anticipation thereof;
(ix) any Lien upon property of a Subsidiary of the Borrower
securing Debt of such Subsidiary permitted under Section 5.03(d)(iv),
if with respect to such Lien each of the conditions set forth in
Section 5.03(d)(iv) is satisfied;
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65
(x) the interest of the purchasers, and their transferees, under
any Receivables Sale Program in the accounts receivable of the
Borrower's Subsidiaries and proceeds thereof and records related
thereto; provided that the Facility Reduction required under Section
2.06(e) is in effect;
(xi) any Lien upon property of the Borrower or any Subsidiary
thereof securing Debt permitted under Section 5.03(d)(iii)(A); and
(xii) any Lien held by a third party insurance company with which
the Borrower or any Subsidiary thereof has established a dedicated
cash collateral account and deposited therein an amount not in excess
of $15,000,000 less the aggregate amount of any Investments made by
the Borrower or any Subsidiary thereof pursuant to Section
5.03(c)(xiii); provided that such account shall not collateralize any
obligations of any Person other than the Borrower and wholly-owned
Subsidiaries thereof;
or become or remain bound by any agreement restricting its ability to
grant, create, incur, assume or suffer to exist any Lien upon or with
respect to any part of its property or assets, whether now owned or
hereafter acquired, except (A) restrictions set forth in the Loan
Documents, (B) restrictions set forth in the Subordinated Debt Indentures,
(C) restrictions on the enforcement of junior Liens on property secured by
a Lien permitted under clauses (i) or (ix) of this Section 5.03(a), if such
restrictions are enforceable solely by the holder of the Lien so permitted,
(D) restrictions on the creation of a Lien on the lessee's interest under a
lease, if such restrictions are enforceable solely by the lessor (or any
lender to such lessor providing financing secured by assignment of such
lease) under such lease, and (E) restrictions on the creation of a Lien on
the accounts receivable subject to a Receivables Sale Program, and the
proceeds thereof and records related thereto, if such restrictions are
enforceable solely by the purchasers under such Receivables Sale Program
and their transferees.
(b) Disposition of Assets. Engage in any Asset Sale or otherwise
directly or indirectly sell, assign, lease, convey, transfer or otherwise
dispose of all or any portion of its assets, business or property, or agree
to do any of the foregoing, except:
(i) the disposition of inventory or used, worn-out or surplus
property or equipment or Permitted Cash Investments in the ordinary
course of business;
(ii) the sale of equipment for credit against the purchase price
of similar replacement equipment or if the proceeds of the sale are
reasonably promptly applied to the purchase price of similar
replacement equipment;
<PAGE>
66
(iii) the disposition of accounts receivable of the Borrower's
Subsidiaries pursuant to a Receivables Sale Program; provided that the
Facility Reduction required under Section 2.06(e) is in effect;
(iv) the sale of Schedule 1.01(b) Assets, so long as (A) the
entire consideration for such Asset Sale consists of cash received at
the closing thereof, (B) the consideration received for such assets is
not less than the sales price specified therefor in Schedule 1.01(b)
and (C) at the time of or after giving effect to such Asset Sale, no
Event of Default or Potential Default exists;
(v) the sale of Schedule 1.01(c) Assets which is made for fair
market value, so long as (A) at least 70% of the total consideration
for such Asset Sale consists of cash received at the closing thereof,
(B) the Agent concurrently acquires, on the terms set forth in the
Pledge and Security Agreements, a legal, valid and perfected security
interest in any and all non-cash consideration received in such Asset
Sale, (C) at the time of or after giving effect to such Asset Sale, no
Event of Default or Potential Default exists, and (D) if such Asset
Sale is a Retained Interest Sale, then, after giving effect to such
transaction and all related transactions, either (1) the Retained
Interest Criteria shall be met with respect to such transactions at
the time of consummation thereof, or (2) the Partial Disposition Limit
shall not be exceeded;
(vi) any other Asset Sale which is made for fair market value, so
long as (A) the sum of the aggregate consideration received pursuant
to such Asset Sale plus the aggregate consideration received pursuant
to all such other Asset Sales in any calendar year is less than
$30,000,000, (B) the Agent concurrently acquires, on the terms set
forth in the Pledge and Security Agreements, a legal, valid and
perfected security interest in any and all non-cash consideration
received in such Asset Sale, (C) at the time of or after giving effect
to such Asset Sale, no Event of Default or Potential Default exists,
and (D) if such Asset Sale is a Retained Interest Sale, then, after
giving effect to such transaction and all related transactions, either
(1) the Retained Interest Criteria shall be met with respect to such
transactions at the time of consummation thereof, or (2) the Partial
Disposition Limit shall not be exceeded; and
(vii) the sale for fair market value or liquidation of any assets
acquired or Investments made pursuant to Section 5.03(c)(xiii), so
long as the entire consideration therefor consists of cash received at
the closing thereof.
(c) Investments. Directly or indirectly make, acquire, carry or
maintain any Investment, or become or remain bound by any agreement to
make, acquire, carry or maintain any Investment, except:
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67
(i) Investments in Permitted Cash Investments;
(ii) Investments in accounts or notes receivable or other claims
arising from the sale or lease of goods or services in the ordinary
course of business;
(iii) Investments by the Borrower in a wholly-owned Subsidiary of
the Borrower, for purposes related to the business and operations
conducted by such Subsidiary in the ordinary course and not to acquire
any new business, Health Care Facility or Health Care Company;
(iv) loans and advances, in an aggregate amount not greater than
$10,000,000 in any calendar year, to employees of the Borrower or of
any Subsidiary of the Borrower;
(v) Investments held on the Closing Date and described in
Schedule 5.03(c);
(vi) loans made to the Borrower, any wholly-owned Subsidiary of
the Borrower or any Subsidiary of the Borrower then satisfying the
Retained Interest Criteria by a Subsidiary of the Borrower;
(vii) Investments in the construction or improvement of a Health
Care Facility and other Investments in assets added to property, plant
or equipment, but (A) only if the Hard Costs associated with such
Investments are counted as Capital Expenditures and (B) excluding a
purchase or other acquisition of a Health Care Facility;
(viii) Investments (A) in the common stock of companies that are
'34 Act Companies if the aggregate amount so invested at any one time
does not exceed $50,000, or (B) in the stock of Health Care Companies
that are '34 Act Companies if the aggregate amount so invested at any
one time does not exceed $20,000,000; provided that, except as
otherwise permitted under Sections 5.03(c)(x) and 5.03(c)(xiv), the
Borrower and its Subsidiaries shall not hold more than 4.9% of the
outstanding stock of any '34 Act Company at any one time;
(ix) Investments in promissory notes and other non-cash
consideration received in connection with any Asset Sale permitted
under Section 5.03(b)(v) or Section 5.03(b)(vi);
(x) Investments in Persons that are not wholly-owned Subsidiaries
of the Borrower (including, without limitation, joint ventures) and
<PAGE>
68
that are not '34 Act Companies at the time of any such Investment;
provided that (A) the aggregate amount of such Investments in any
calendar year shall not exceed (1) $40,000,000 plus the lesser of (x)
$40,000,000 minus the amount so invested in the prior calendar year or
(y) $15,000,000, or (2) in the event that the Debt/EBITDAR Ratio is
less than 5.50 for two consecutive Quarters, $60,000,000 plus the
lesser of (x) $60,000,000 minus the amount so invested in the prior
calendar year or (y) $20,000,000; provided, however, that in the event
that the Debt/EBITDAR Ratio is thereafter greater than 5.50 for any
two consecutive Quarters, the limitation set forth in subclause (1)
above shall apply until the Debt/EBITDAR Ratio is again less than 5.50
for two consecutive Quarters; provided further that neither the
Borrower nor any Subsidiary thereof shall be obligated to dispose of
any Investment permitted under this clause (A) in the event that the
aggregate amount of Investments hereunder in any calendar year exceeds
the limitation set forth in subclause (1) above, so long as any
Investments made in excess of such limitation were, at the time such
Investments were made, permitted under and made within the limitation
set forth in subclause (2) above; (B) any such Investment shall be
made by the Borrower through a wholly-owned Subsidiary of the Borrower
that (1) is engaged only in activities related to the Person in which
such Investment is made and (2) complies with the provisions of
Section 5.02(e) (except that any such Investment which is a loan may
be made directly by the Borrower so long as the Borrower complies with
Section 5.03(1) and Section 5.02(l)), and neither the Borrower nor any
of its Subsidiaries nor any of their properties shall be or become
bound by or subject to any contractual obligation that is or would be
violated or put in default by reason of such compliance or by reason
of the enforcement of the claims and Liens of the Agent and Lenders
arising from such compliance; and (C) at the time of or after giving
effect to any such Investment, no Event of Default or Potential
Default exists or would result; provided further that the Borrower or
any Subsidiary thereof may continue to carry such Investment in the
event such Person becomes a '34 Act Company;
(xi) Investments by existing, newly-formed or acquired
wholly-owned Subsidiaries of the Borrower in one or more Health Care
Companies or Health Care Facilities; provided that (A) the aggregate
cash portion of the aggregate consideration for all such Investments
shall not exceed an amount equal to 50% of the Net Cash Proceeds of
Sale of (1) Schedule 1.01(b) Assets, (2) Schedule 1.01(c) Assets and
(3) assets sold pursuant to Section 5.03(b)(vi); provided further
that, notwithstanding the foregoing limitations, the Borrower or any
wholly-owned Subsidiary thereof may make Investments under this
Section 5.03(c)(xi) for consideration (exclusive of the value of any
equity interests of the Borrower or such Subsidiary thereof issued as
part of such Investments) of up to an aggregate for all such
Investments of $150,000,000 if, on a pro forma basis,
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69
after giving effect to any such Investment (including Interest Expense
arising from Debt incurred in connection with any such Investment),
the Interest&Rent Coverage Ratio for the 12-month period ending at the
end of the most recently ended Quarter exceeds:
Year Minimum Pro Forma Ratio
---- -----------------------
1996 1.75
1997 2.00
1998 2.25
1999 2.65
2000 and thereafter 3.15
(B) at the time of or after giving effect to any such Investment, no
Event of Default or Potential Default exists or results; and (C) each
entity that becomes a Subsidiary of the Borrower in connection with or
as a result of any such Investment shall comply with the provisions of
Section 5.02(e), and neither the Borrower nor any of its Subsidiaries
nor any of their properties shall be or become bound by or subject to
any contractual obligation that is or would be violated or put in
default by reason of such compliance or by reason of the enforcement
of the claims and Liens of the Agent and Lenders arising from such
compliance;
(xii) The First American Merger; provided that (A) (x) the
Settlement Releases (as defined in the First American Merger
Agreement) shall have been received and (y) the order confirming the
plan of reorganization in the bankruptcy proceeding of First American
shall be final and nonappealable and the terms and conditions of such
order, plan of reorganization and any amendment, modification or
waiver of any provision of the First American Merger Agreement after
the date hereof shall be satisfactory to the Agent in its sole
discretion; provided further that, to the extent any term or condition
of any such order, plan of reorganization or any such amendment,
modification or waiver (x) increases (1) the aggregate purchase price
payable by the Borrower or any of its Subsidiaries in connection with
such merger, (2) the cash portion of such purchase price payable by
the Borrower or any of its Subsidiaries at the closing of such merger
or (3) by more than $10,000,000 the aggregate amount of any
obligations assumed by the Borrower or any of its Subsidiaries in
connection with such merger, or (y) accelerates the timing of any
payment of consideration (deferred, contingent or otherwise) in excess
of $10,000,000 in the aggregate under the First American Merger
Agreement, such terms or conditions or amendment, modification or
waiver shall be satisfactory to the Requisite Lenders in their sole
discretion; (B) at the time of or after giving effect to the First
American Merger, no Event of
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70
Default or Potential Default shall exist or result; and (C) the
Borrower shall comply with the provisions of Section 5.02(e), and
neither the Borrower nor any of its subsidiaries nor any of their
properties shall be or become bound by or subject to any contractual
obligation that is or would be violated or put in default by reason of
such compliance or by reason of the enforcement of the claims and
Liens of the Agent and Lenders arising from such compliance;
(xiii) Investments in one or more insurance company Subsidiaries
in an aggregate amount not greater than $15,000,000 less the aggregate
amount of all deposits by the Borrower or any subsidiary thereof with
one or more third party insurance companies, and with respect to which
deposits Liens are permitted pursuant to Section 5.03(a)(xii);
provided that (A) in the case of any such insurance company
Subsidiary, it shall be formed as an insurance company solely to do
business as such under and in accordance with all laws, regulations,
directives and administrative orders applicable to insurance companies
in its jurisdiction of organization; (B) no such Subsidiary shall
insure obligations of any Person other than the Borrower and
wholly-owned Subsidiaries thereof; and (C) the aggregate potential
liability of the Borrower and its subsidiaries in connection with such
Investment shall not exceed the aggregate amount of Investments
permitted under this Section 5.03(c)(xiii);
(xiv) Investments carried or maintained in Affiliates arising out
of Retained Interest Sales, including any such Investment carried or
maintained in a Person that becomes a '34 Act Company; and
(xv) The acquisitions described in Schedule 5.03(c)(xv); provided
that (A) the aggregate cash portion of the consideration for any such
acquisition shall not exceed the cash purchase price specified
therefor in Schedule 5.03(c)(xv); (B) at the time of or after giving
effect to any such acquisition, no Event of Default or Potential
Default shall exist or result; and (C) the Borrower shall comply with
the provisions of Section 5.02(e), and neither the Borrower nor any of
its Subsidiaries nor any of their properties shall be or become bound
by or subject to any contractual obligation that is or would be
violated or put in default by reason of such compliance or by reason
of the enforcement of the claims and Liens of the Agent and Lenders
arising from such compliance.
(d) Limitation on Indebtedness. Directly or indirectly create, incur,
assume, guarantee or suffer to exist, or otherwise become or remain
directly or indirectly liable with respect to, any Debt, except:
(i) the Obligations;
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71
(ii) Debt existing on the Closing Date and described in Schedule
5.03(d) and any extension, renewal or refinancing of such Debt so long
as either (A) the principal amount of such Debt is not increased or
(B) any increase in the principal amount of such Debt is permitted
pursuant to another clause of this Section 5.03(d);
(iii) any intercompany loan made (A) by the Borrower or any
wholly-owned Subsidiary thereof to any Person that is a Subsidiary of
the Borrower at the time such loan is made; provided that any such
loan made by the Borrower or any wholly-owned Subsidiary thereof to
any Person that is a wholly-owned Subsidiary of the Borrower at the
time such loan is made shall be repayable on demand; provided further
that, in the case of any loan to a non-wholly-owned Subsidiary of the
Borrower, (1) the Investment in such loan is permitted under Section
5.03(c) and (2) such loan shall be subject to the limitations on
Investments provided for therein; or (B) to the Borrower or any
wholly-owned Subsidiary thereof by any Subsidiary of the Borrower;
(iv) Debt (A) owed by a Health Care Company acquired in an
acquisition permitted under Section 5.03(c)(xi), Section 5.03(c)(xii)
or Section 5.03(c)(xv), if such Debt was outstanding prior to the
acquisition, (B) owed by a Subsidiary of the Borrower, if the
Subsidiary makes an acquisition permitted under Section 5.03(c)(xi),
Section 5.03(c)(xii) or Section 5.03(c)(xv) and incurs and uses such
Debt for the purpose of paying the purchase price or other
consideration for the acquisition, or (C) incurred or used by any
Subsidiary of the Borrower to purchase or otherwise acquire any
equipment for its business, but such Debt shall be permitted only if
and so long as the following conditions are met:
(1) such Debt (I) may be secured only by assets of the
Subsidiary that incurred it, (II) may be incurred and owed only
by a single Subsidiary that, if it owes Debt of the type
described at (A) and (B) in this clause (iv), has no significant
assets except those acquired in such acquisition, and equipment,
fixtures and improvements thereon, replacements thereof,
inventory therefor, and assets generated by operation thereof,
(III) must not be subject to terms that are violated, or pursuant
to which such Debt is put into default, by reason of any breach,
default or event of default under any indenture or agreement
governing any other Debt or lease binding on the Borrower or any
of its other Subsidiaries, (IV) must permit the Borrower and such
Subsidiary to comply with Section 5.02(e), and (V) must not be
violated or put into default or require any prepayment or
repurchase of such Debt by reason of any change in control over
the Borrower or such Subsidiary except, if required by the holder
of
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72
such Debt despite best efforts by the Borrower to the contrary, a
right to consent to a change of ownership of such Subsidiary if
such consent may not unreasonably be withheld; and
(2) the aggregate principal amount of all such Debt incurred
at any time after the Closing Date and outstanding at any one
time in a particular year must not exceed:
Year Maximum Amount
---- --------------
1996 $45,000,000
1997 $55,000,000
1998 $65,000,000
1999 and thereafter $75,000,000
; and
(v) Subordinated Debt incurred under the 1996 Subordinated Debt
Indenture, and any extension, renewal or refinancing of such Debt so
long as either (A) the principal amount of such Debt is not increased
or (B) any increase in the principal amount of such Debt is permitted
pursuant to another clause of this Section 5.03(d); provided that the
terms and conditions of such 1996 Subordinated Debt Indenture shall be
(1) substantially similar to the terms and conditions contained in the
1994 Subordinated Debt Indenture and the 1995 Subordinated Debt
Indenture and (2) satisfactory to the Agent in its sole discretion.
(e) Transactions with Affiliates. Enter or agree to enter into any
transaction with any Affiliate of the Borrower or of any Subsidiary of the
Borrower except (i) under the Loan Documents or (ii) in the ordinary course
of business and pursuant to the reasonable requirements of the business of
the Borrower or such Subsidiary and upon fair and reasonable terms no less
favorable to the Borrower or such Subsidiary than the Borrower or such
Subsidiary would obtain in a comparable arm's-length transaction with a
Person not an Affiliate of the Borrower or such Subsidiary.
(f) Accommodation Obligations. Create, incur, assume or suffer to
exist any Accommodation Obligations except:
(i) endorsements of checks for collection or deposit in the
ordinary course of business;
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73
(ii) Accommodation Obligations of the Borrower and its
Subsidiaries existing as of the Closing Date and described in Schedule
5.03(f);
(iii) the Obligations;
(iv) a guaranty by the Borrower of Debt of a Subsidiary permitted
under Section 5.03(d)(iv);
(v) a guaranty by the Borrower of the obligations of a Subsidiary
under a lease agreement permitted under Section 5.03(g);
(vi) a guaranty of the performance of the representations and
warranties, indemnities and servicing commitments of a Subsidiary (A)
to the purchasers under a Receivables Sale Program and their
transferees, (B) contained in any purchase or sale agreement entered
into in connection with any Investment or Asset Sale permitted under
this Agreement, and (C) contained in any management agreement entered
into in the ordinary course of such Subsidiary's business; and
(vii) any other Accommodation Obligation to the extent the same
does not cause an Event of Default under Section 5.01(a).
(g) Leases of Health Care Facilities. Enter into or become obligated
as lessee under any lease of a Health Care Facility, whether or not it is a
Capital Lease, unless (i) the lease is free from provisions pursuant to
which the lease is violated or put into default by reason of any breach,
default or event of default under any indenture or agreement governing any
Debt of, or other lease binding on, the Borrower or any of its other
Subsidiaries, except another lease entered into by the same lessor or by
one of its Affiliates, (ii) the lease permits the Borrower and such
Subsidiary to comply with Section 5.02(e) and does not include any
provision that is or would be violated or put in default by reason of such
compliance or by reason of the enforcement of the claims and Liens of the
Agent and Lenders arising from such compliance, and (iii) the lease is free
from provisions pursuant to which the lease is or would be violated or put
into default, or any prepayment would be required, by reason of any change
in control of the Borrower or such Subsidiary except, if required by the
lessor despite best efforts by the Borrower to the contrary, a right to
consent to a change of ownership of such Subsidiary if such consent may not
unreasonably be withheld; provided that at any one time the Borrower or any
of its Subsidiaries may be obligated as a lessee under one or more leases
of Health Care Facilities not otherwise permitted under this Section
5.03(g) so long as the aggregate annual rent payment obligations under all
such leases is less than $10,000,000.
<PAGE>
74
(h) Restricted Junior Payments. Directly or indirectly (i) declare or
make any dividend payment or other distribution of assets, properties,
cash, rights, obligations or securities on account of any shares of any
class of its capital stock or any other equity, ownership or profit
interests; (ii) purchase, redeem or otherwise acquire for value any shares
of any class of capital stock of, or other equity, ownership or profit
interests in, the Borrower or any of its Subsidiaries or any warrants,
rights or options to acquire any such shares or interests, now or hereafter
outstanding; (iii) enter into any agreement restricting the ability of any
Subsidiary of the Borrower to declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities
to its stockholders; (iv) agree to or permit any amendment or modification
of, or change in, any of the terms of the Subordinated Debt Indentures,
except as contemplated by and pursuant to the Consent Solicitation; or (v)
pay, prepay, redeem, or purchase or otherwise acquire any Subordinated
Debt, or make any deposit to provide for the payment of any Subordinated
Debt when due, or exchange any Subordinated Debt, or give any notice in
respect thereof; except that:
(A) the Borrower may declare and pay cash dividends on its common
stock, so long as (1) no Event of Default or Potential Default is
continuing at the time any such dividend is declared or paid or would
result from the payment and (2) the aggregate amount of all such cash
dividends paid in any one calendar year does not exceed the lesser of
(x) $0.05 per share and (y) $10,000,000 in the aggregate;
(B) the Borrower from time to time may purchase outstanding
shares of the Borrower's common stock, so long as (1) the aggregate
amount expended for all such purchases at any time after the Closing
Date does not exceed $20,000,000 (the "PURCHASE LIMIT") and (2) the
purchase is made in compliance with all applicable laws and no
Potential Default or Event of Default exists at the time of, or would
result from, any such purchase (and, for this purpose, the amounts
counted toward the Purchase Limit shall not be reduced by or on
account of any subsequent resale of the Borrower's common stock);
(C) the Borrower may declare and make any dividend payments or
other distributions payable solely by the Borrower in common stock of
the Borrower;
(D) so long as no Event of Default exists or would result, any
Subsidiary may (1) make any lawful distribution to the holders of
shares of its stock or other equity, ownership or profit interests and
(2) purchase, acquire or retire any such shares or interests that are
not held by the Borrower or a wholly-owned Subsidiary of the Borrower,
if the Investment in such shares or
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75
interests is permitted at the time under Section 5.03(c)(x),
5.03(c)(xi) or Section 5.03(c)(xii);
(E) the Borrower may pay when due the interest on the
Subordinated Debt if such interest is permitted to be paid at the time
under the subordination provisions of the governing Subordinated Debt
Indenture;
(F) the Borrower may give notice of a redemption with respect to
any issue of Convertible Subordinated Debt, if and only if (1) the
purpose of such notice is to force the holders of such Convertible
Subordinated Debt to convert their Convertible Subordinated Debt into
common stock of the Borrower and (2) at the time of the giving of such
notice no Event of Default or Potential Default has occurred and is
continuing; provided, however, that the Borrower may make any
redemption payment by reason of tenders actually made pursuant to such
notice only if either (x) the conversion of such Convertible
Subordinated Debt to common stock is underwritten by a third party
acceptable to the Agent and the Requisite Lenders or (y) any
redemption payment required to be made pursuant to such notice would
not cause Adjusted Stockholders' Equity to be less than Minimum Net
Worth and no Event of Default or Potential Default is continuing at
the time of, or would exist after giving effect to, any such
redemption payment; and
(G) so long as no Event of Default exists or would result and
unless otherwise prohibited under this Agreement, the 1993 Convertible
Subordinated Debt Indenture or the 1995 Subordinated Debt Indenture,
the Borrower may pay on January 1, 2001 and May 15, 2002,
respectively, any principal amount then due and payable under the 1993
Convertible Subordinated Debt Indenture and the 1995 Subordinated Debt
Indenture.
(i) Mergers, Etc. Merge or consolidate with or into or enter into any
agreement to merge or consolidate with or into any Person except that:
(i) a wholly-owned Subsidiary of the Borrower may engage in a
merger or consolidation with any one or more other wholly-owned
Subsidiaries of the Borrower if the surviving corporation is a
wholly-owned Subsidiary of the Borrower (A) that has executed the
Guaranty and (B) all the stock of which is held by the Agent in pledge
pursuant to the Collateral Documents;
(ii) a non-wholly-owned Subsidiary of the Borrower may engage in
a merger or consolidation with any one or more other non-wholly- owned
Subsidiaries of the Borrower; provided that the surviving corporation
is a Subsidiary of the Borrower, (A) that has executed the Guaranty
and (B) the stock
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of which, to the extent owned by the Borrower or any Subsidiary
thereof, is held by the Agent in pledge pursuant to the Collateral
Documents; and provided further that, after giving effect to any such
merger or consolidation, (1) the Borrower shall, directly or
indirectly, own an equity interest in the surviving corporation
substantially equivalent in aggregate value to its prior equity
interests in the non-wholly-owned Subsidiaries party to such merger or
consolidation, and (2) the surviving corporation shall satisfy the
Retained Interest Criteria as if such merger or consolidation had been
a Retained Interest Sale;
(iii) a wholly-owned Subsidiary of the Borrower may engage in a
merger or consolidation in connection with an acquisition permitted
under Section 5.03(c)(xi) or Section 5.03(c)(xii), but only if the
surviving corporation is a wholly-owned Subsidiary of the Borrower (A)
that has executed the Guaranty and (B) all the stock of which is held
by the Agent in pledge pursuant to the Collateral Documents; and
(iv) a Subsidiary of the Borrower may engage in a merger or
consolidation if the purpose and effect thereof is solely to
consummate a transaction permitted under Section 5.03(b)(iv), Section
5.03(b)(v) or Section 5.03(b)(vi).
(j) Capital Expenditures. Make Capital Expenditures during any
calendar year in an amount in excess of the amount set forth below opposite
such year:
Year Amount
---- ------
1996 $100,000,000
1997 $ 90,000,000
1998 and thereafter $ 80,000,000
plus in each calendar year the lesser of (i) $10,000,000 and (ii) the
excess, if any, of (A) the amount set forth above for the prior year over
(B) the Capital Expenditures made in the prior year.
(k) Conduct of Business. Engage in any business other than the
businesses of the Borrower and its Subsidiaries described in Section
4.01(p) and any business or activity substantially similar thereto.
(l) Unpledged Assets. In the case of the Borrower, own or hold any
assets, Investments or property upon which the Agent does not hold a valid,
perfected and sole Lien as security for the Obligations, except (i)
Investments permitted under clauses (i) and (iv) of Section 5.03(c), (ii)
Investments permitted under Section 5.03(c)(xiii), but
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77
only to the extent that the perfection of the Agent's Lien on such
Investments is prohibited by applicable law, (iii) other assets and
property having an aggregate value not greater than $30,000,000, and (iv)
shares of Inactive Subsidiaries.
(m) Compliance with ERISA. Directly or indirectly (or permit any ERISA
Affiliate directly or indirectly to) (i) terminate any Plan subject to
Title IV of ERISA so as to result in liability to the Borrower or any ERISA
Affiliate in excess of $2,000,000; (ii) permit any ERISA Event to exist;
(iii) make a complete or partial withdrawal (within the meaning of ERISA
Section 4201) from any Multiemployer Plan so as to result in liability to
the Borrower or any ERISA Affiliate in excess of $2,000,000; or (iv) permit
the total Unfunded Pension Liabilities (using the actuarial assumptions
utilized by the PBGC) for all Pension Plans (other than Pension Plans which
have no Unfunded Pension Liabilities) to exceed $2,000,000.
(n) Health Care Permits and Approvals. Engage in any activity that (i)
is or could reasonably be expected to result in a material default under or
violation of any Health Care Permit necessary for the lawful conduct of its
business or operations or (ii) causes or could reasonably be expected to
cause the loss by any Health Care Company or Health Care Facility owned,
leased, managed or operated by it of the right to participate in, and
receive payment under, the appropriate Medicare, Medicaid and related
reimbursement programs, and any similar state or local government-sponsored
program to the extent that it has decided to participate in any such state
or local program, or to receive reimbursement from private and commercial
payors and health maintenance organizations to the extent applicable
thereto; provided that the failure at any one time to maintain Health Care
Permits with respect to any three Health Care Facilities owned or leased by
one or more Subsidiaries of the Borrower shall not constitute a failure to
comply with this Section 5.03(n).
(o) Retained Interest Criteria. Cause, permit or suffer any of the
Retained Interest Criteria not to be met and maintained continuously after
the consummation of any transaction permitted under Section 5.03(b)(v)(D)
or Section 5.03(b)(vi)(D), for as long as the Retained Interest surviving
such transaction, or any portion thereof or non-cash proceeds therefrom, is
held by the Borrower or any of its subsidiaries.
(p) Payment Restrictions Affecting Subsidiaries. Cause, permit or
suffer any Subsidiary to become or remain subject to any contractual
obligation that in any manner limits or restricts its right to pay
dividends or make distributions, whether in cash or in property, to its
stockholders or to make loans or sell assets to the Borrower or any of its
Subsidiaries or to enter into any other lawful transaction with the
Borrower or any of its Subsidiaries, except limitations and restrictions
set forth in the Subordinated Debt Indentures or the Loan Documents.
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ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events ("EVENTS OF
DEFAULT") shall occur and be continuing:
(a) Non-Payment of Principal. The Borrower fails to pay when due any
principal of any Advance; or
(b) Non-Payment of Interest or Fees. The Borrower fails to pay when
due any interest payable under Section 2.07, any additional interest
payable under Section 2.08, any fee payable under Section 2.04 or any other
amount payable hereunder and such failure continues for five days or such
other period of grace provided for herein; or
(c) Representations and Warranties. Any representation or warranty
made by any Loan Party under or in connection with any Loan Document proves
to have been incorrect in any material respect when made and either (i)
such representation or warranty cannot be remedied or (ii) such
representation or warranty continues to be incorrect in any material
respect for ten days after either (A) such incorrectness is acknowledged in
writing by the Borrower or (B) written notice thereof is given to the
Borrower by the Agent or any Lender; or
(d) Financial, Lien and Debt Covenants. The Borrower fails to perform
or observe any term, covenant or agreement set forth in Section 5.01,
Section 5.03(a) or Section 5.03(d); or
(e) Reporting and Negative Covenants. The Borrower fails to perform or
observe any term, covenant or agreement set forth in Section 5.02(c) or
Section 5.03 (other than Sections 5.03(a) or 5.03(d)) and such failure
continues for ten days after either (i) it is acknowledged in writing by
the Borrower or (ii) written notice thereof is given to the Borrower by the
Agent or any Lender; or
(f) Covenants. The Borrower or any Loan Party fails to perform or
observe any term, covenant or agreement contained in this Agreement or any
other Loan Document (other than those specifically referred to in
subsections (a), (b), (c), (d) and (e) of this Section 6.01) and such
failure continues for 30 days after either (i) it is acknowledged in
writing by the Borrower or (ii) written notice thereof is given to the
Borrower by the Agent or any Lender; or
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(g) Debt. The Borrower or any of its Subsidiaries (i) fails to pay,
when due and payable (whether at the scheduled maturity or upon any
required prepayment, acceleration, demand or otherwise), any principal of
or premium or interest on any Debt (except the Notes) outstanding in a
principal amount of at least $10,000,000, and such failure continues for
longer than the period of grace, if any, specified for such failure in the
indenture or agreement governing such Debt, or (ii) commits or permits a
breach or default under any financial test or covenant which, under the
terms of the indenture or agreement governing any Debt (except the Notes)
outstanding in a principal amount of at least $20,000,000, requires the
maintenance of a specified net worth or working capital or any other
quantifiable measure of financial condition or financial performance, and
such breach or default continues for longer than the period of grace, if
any, specified for such failure in such indenture or agreement; or any such
Debt of at least $20,000,000 is declared to be due and payable or is
required to be prepaid prior to the stated maturity thereof; or
(h) Leases. (i) Except as otherwise permitted pursuant to Section
5.02(h), the Borrower or any of its Subsidiaries (A) fails to make any
payment within the period required under any Material Lease, and such
failure continues for longer than the period of grace, if any, specified
for such failure in such Material Lease, or (B) fails to perform or observe
any other term, covenant or agreement that (1) is contained in any Material
Lease and (2) requires the payment of money or can be performed or observed
by the payment of money, and such failure continues for longer than the
period of grace, if any, specified for such failure in such Material Lease;
or (ii) any Material Lease is terminated as a result of any failure by the
Borrower or any of its Subsidiaries to perform or observe any term,
covenant or agreement contained therein; or
(i) Bankruptcy. The Borrower or any Material Subsidiary is generally
not paying its debts as they become due or admits in writing its inability
to pay its debts generally or makes a general assignment for the benefit of
creditors; or any proceeding is instituted by or against any Loan Party or
any Subsidiary of a Loan Party seeking an order for relief under the United
States Bankruptcy Code or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its
debts or the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property under any law
relating to bankruptcy, insolvency, liquidation or reorganization or relief
of debtors and either (i) any such relief in any such proceeding is sought
or consented to by it or an order for any such relief is entered against
it, or (ii) any such proceeding instituted against it remains undismissed
and unstayed for a period of 60 days; or any Loan Party or any Material
Subsidiary takes any corporate action to authorize any of the actions set
forth above in this Section 6.01(i); or
(j) Judgments. Any judgment or order for the payment of money is
rendered against any of the Loan Parties or any of their Subsidiaries in an
amount in
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excess of $10,000,000 for any single judgment or order or in excess of
$50,000,000 for all such judgments or orders and either (i) enforcement
proceedings are commenced by any creditor upon such judgment or order and
not stayed, or (ii) there is any period of 60 consecutive days during which
a stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, is not in effect; or
(k) Guaranty. Any provision of the Guaranty after delivery thereof for
any reason ceases to be valid and binding on each Loan Party that is party
thereto, or any Loan Party shall repudiate or purport to revoke the
Guaranty; or
(l) Collateral Documents. The Collateral Documents, after delivery
thereof pursuant to Section 3.01, for any reason (other than pursuant to
the terms thereof) cease to create a valid and perfected first priority
security interest in any material portion of the Collateral purported to be
covered thereby; or
(m) ERISA. (i) The Borrower or any ERISA Affiliate fails to satisfy
its contribution requirements under Section 412(c)(11) of the Code, whether
or not it has sought a waiver under Section 412(d) of the Code; or (ii) in
the case of an ERISA Event involving the withdrawal from a Pension Plan of
a "substantial employer" (as defined in Section 4001(a)(2) or Section
4062(e) of ERISA), the withdrawing employer's proportionate share of that
Pension Plan's Unfunded Pension Liabilities is more than $2,000,000; or
(iii) in the case of an ERISA Event involving the complete or partial
withdrawal from a Multiemployer Plan, the withdrawing employer incurs a
withdrawal liability in an aggregate amount exceeding $2,000,000; or (iv) a
Plan that is intended to be qualified under Section 401(a) of the Code
loses its qualification, and with respect to such loss of qualification,
the Borrower or any ERISA Affiliate can reasonably be expected to be
required to pay (for additional taxes, payments to or on behalf of Plan
participants, or otherwise) an aggregate amount exceeding $2,000,000; or
(v) any combination of events listed in clauses (ii) through (iv) occurs
that involves a net increase in aggregate Unfunded Pension Liabilities and
unfunded liabilities in excess of $5,000,000;
then, and in any such event, the Agent (A) shall at the request, or may with the
consent, of the Requisite Lenders, by notice to the Borrower, declare the
obligation of each Lender to make Advances and the obligation of the LC Bank to
issue Letters of Credit to be terminated, whereupon the same shall forthwith
terminate and the Facility Amount and LC Subcommitment shall be automatically
and permanently reduced to zero, and (B) shall at the request, or may with the
consent, of the Requisite Lenders, by notice to the Borrower, declare the
Advances and all fixed and contingent obligations of the Borrower to reimburse
the LC Bank for any payment that has been or may be made under any Letter of
Credit, together with all interest thereon and all other amounts payable under
this Agreement, to be immediately due and payable, and thereupon the Advances
and all such fixed and contingent reimbursement obligations, interest and other
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81
amounts shall become and be immediately due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower; provided, however, that if an order for relief under the
United States Bankruptcy Code is entered at the request or upon the consent of
the Borrower or involuntarily against the Borrower (x) the obligation of each
Lender to make Advances and the obligation of the LC Bank to issue Letters of
Credit shall automatically be terminated and the Facility Amount and LC
Subcommitment shall be automatically and permanently reduced to zero, and (y)
the Advances and all such fixed and contingent obligations, interest and other
amounts shall automatically become and be immediately due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
SECTION 6.02. Rights Not Exclusive. The rights provided for in this
Agreement and the other Loan Documents are cumulative and are not exclusive of
any other rights, powers or privileges or remedies provided by law or in equity,
or under any other instrument, document or agreement.
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action. Each Lender hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto. As to
any matters not expressly provided for by this Agreement (including enforcement
or collection of the Notes), the Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Requisite Lenders, and such instructions shall be
binding upon all Lenders and all holders of Notes; provided, however, that the
Agent shall not be required to take any action which exposes the Agent to
personal liability or which is contrary to this Agreement or applicable law. The
Agent shall not be liable to any Lender if, in accordance with the terms of this
Agreement, it takes or omits to take any action pursuant to the instructions of
the Requisite Lenders. The Agent agrees to give to each Lender prompt notice of
each notice given to it by the Borrower pursuant to the terms of this Agreement.
The Agent agrees to perform and discharge the duties and powers delegated to it
under this Agreement and the other Loan Documents in accordance with the terms
hereof and thereof.
SECTION 7.02. Agent Not Liable. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable for any action taken or omitted to
be taken by it or any of them under or in connection with this Agreement, except
for its or their own gross negligence or willful misconduct. Without limiting
the generality of the foregoing, the Agent
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(i) may treat the payee of any Note as the holder thereof until the Agent
receives written notice of the assignment or transfer thereof signed by such
payee and including the agreement of the assignee or transferee to be bound
hereby as it would have been if it had been an original Lender party hereto, in
form satisfactory to the Agent; (ii) may consult with legal counsel (including
counsel for the Borrower), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations (whether written or oral) made in or in connection with this
Agreement; (iv) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement on the part of the Borrower or to inspect the property (including the
books and records) of the Borrower; (v) shall not be responsible to any Lender
for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other Loan Document or any other
instrument or document furnished pursuant to any Loan Document or for the
creation, validity, enforceability, sufficiency, value, perfection or priority
of any Lien purported to be granted to the Agent, whether pursuant to any of the
Collateral Documents or otherwise; and (vi) shall incur no liability under or in
respect of this Agreement by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telecopier, telegram, cable or
telex) believed by it in good faith to be genuine and signed or sent by the
proper party or parties.
SECTION 7.03. Rights as Lender. With respect to its commitment and Pro Rata
Share hereunder, the Advances and Notes held by it and all other rights, claims
and interests accorded it as Lender, Citibank shall have the same rights and
powers under this Agreement as any other Lender and may exercise the same as
though it were not the Agent; and the term "Lender" or "Lenders" shall include
Citibank in its individual capacity. Citibank and its Affiliates may accept
deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with, the Borrower, any of its Subsidiaries and
any Person who may do business with or own securities of the Borrower or any
such Subsidiary, all as if Citibank were not the Agent and without any duty to
account therefor to the Lenders. Any Lender and its respective Affiliates may
accept deposits from, lend money to, act as trustee under indentures of, and
generally engage in any kind of business with, the Borrower, any of its
Subsidiaries and any Person who may do business with or own securities of the
Borrower or any such Subsidiary, all as if such Lender were not a Lender
hereunder and without any duty to account therefor to the other Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements referred to in Section 4.01(h) and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it deems
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appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 7.05. Indemnification. The Lenders agree to indemnify the Agent (to
the extent not reimbursed by the Borrower) ratably according to their Pro Rata
Shares from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against the Agent in any way relating to or arising out of this Agreement or the
other Loan Documents or any action taken or omitted by the Agent under this
Agreement or the other Loan Documents; provided that no Lender shall be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
Agent's gross negligence or willful misconduct. Without limiting the foregoing,
each Lender agrees to reimburse the Agent promptly upon demand for its ratable
share of any reasonable out-of-pocket expenses (including reasonable fees and
expenses of counsel) incurred by the Agent in connection with the preparation,
execution, delivery, modification, amendment, protection or enforcement (whether
through negotiations, by legal proceedings, in bankruptcy or otherwise) of, or
legal advice in respect of rights or responsibilities under, this Agreement or
the other Loan Documents, to the extent that the Agent is not reimbursed for
such expenses by the Borrower.
SECTION 7.06. Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower and may be removed at any
time with or without cause by the Requisite Lenders. Upon any such resignation
or removal, the Requisite Lenders shall, subject to the written consent of the
Borrower, which consent shall not be unreasonably withheld or delayed, have the
right to appoint a successor Agent. If no successor Agent shall have been so
appointed by the Requisite Lenders, and shall have accepted such appointment,
within 30 days after the retiring Agent's giving of notice of resignation or the
Requisite Lenders' removal of the retiring Agent, then the retiring Agent may,
on behalf of the Lenders, appoint a successor Agent, which shall be a commercial
bank organized under the laws of the United States of America or of any State
and having total assets of at least $20,000,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under this Agreement. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Article VII
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.
SECTION 7.07. Release of Collateral. The Agent is hereby irrevocably
authorized to release any Lien granted to or held by the Agent upon (i) any and
all Collateral when the Facility Amount has been permanently reduced to zero,
all Letters of Credit issued hereunder have expired or been discharged, all
outstanding Advances and LC Exposure have been repaid, and all other Obligations
that are then due and payable and of which the Agent then
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has written notice demanding payment prior to release of Collateral have been
paid, (ii) any Collateral constituting property sold or to be sold or disposed
of as part of or in connection with any disposition permitted under Section
5.03(b), or (iii) any Collateral consisting of an instrument evidencing Debt or
other debt instrument, if the indebtedness evidenced thereby has been paid in
full. Upon request by the Agent or the Borrower at any time, each Lender shall
confirm in writing the Agent's authority to release Collateral, or particular
types or items of Collateral, as set forth in this Section 7.07. Subject to
Section 8.01(g), the Agent shall not be obligated to release any Collateral
unless it receives such written confirmation from the Requisite Lenders.
SECTION 7.08. Release of Guarantor upon Sale of Stock. If (i) either (A)
all of the outstanding shares of capital stock and other equity, ownership and
profit interests in any Guarantor are sold to a Person not an Affiliate of the
Borrower in a transaction which is permitted under Section 5.03(b)(iv), Section
5.03(b)(v) or Section 5.03(b)(vi) and which is not a Retained Interest Sale or
(B) the Guarantor Liability Limit of any Guarantor is reduced to zero as part of
a Retained Interest Sale and by reason of a voluntary reduction of the Facility
Amount that is elected by the Borrower at the time and in the manner set forth
in the definition of "Guarantor Liability Limit," and if (ii) the conditions set
forth in Section 5.03(b)(iv), Section 5.03(b)(v) or Section 5.03(b)(vi), as the
case may be, are met in respect of such transaction, then upon request by the
Agent or the Borrower each Lender shall confirm in writing that the liability of
such Guarantor under the Guaranty is released and discharged effective when such
transaction is consummated and such requirements are met, as set forth in
Section 2.13 of the Guaranty. Such confirmation from the Requisite Lenders (1)
shall establish conclusively that the liability of such Guarantor under the
Guaranty is released and discharged as set forth in Section 2.13 of the Guaranty
and (2) may be relied on, without further inquiry, by the purchaser in such
transaction and each of its transferees.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments. No amendment or waiver of any provision of this
Agreement or the Notes, nor consent to any departure by the Borrower therefrom,
shall be effective unless it is in writing and signed by the Requisite Lenders
(and any such waiver or consent shall in any case be effective only in the
specific instance and for the specific purpose for which given), but no
amendment, waiver or consent shall, unless in writing and signed by the Lender
to be bound or affected thereby, do any of the following:
(a) change the obligation of such Lender to extend credit hereunder or
subject such Lender to any additional obligations;
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(b) reduce the principal of or interest on the Notes or any fees or
other amounts payable to such Lender hereunder or under any other Loan
Document;
(c) postpone any date fixed for any payment (including any mandatory
prepayment) of principal of or interest on any Advances or LC Exposure held
by such Lender or any fees or other amounts payable to such Lender under
any Loan Document;
(d) waive, reduce or postpone any Facility Reduction required
hereunder;
(e) amend the definition of "Facility Amount," "Pro Rata Share" or
"Requisite Lenders";
(f) waive any Event of Default that is continuing under Section
6.01(a) or 6.01(b) in respect of a payment due to such Lender;
(g) release any substantial portion of the Collateral other than in
accordance with the terms of this Agreement;
(h) release or limit the liability of any Guarantor under the Guaranty
other than in accordance with the terms of the Guaranty;
(i) amend Section 2.13, Section 2.17 or Section 6.01(a); or
(j) amend this Section 8.01;
and (x) no amendment, waiver or consent shall, unless in writing and signed by
the Agent in addition to the Lenders required above to take such action, affect
the rights or duties of the Agent under this Agreement or any Loan Document and
(y) no amendment, waiver or consent shall, unless in writing and signed by the
LC Bank in addition to the Lenders required above to take such action, affect
the rights or duties of the LC Bank under this Agreement.
SECTION 8.02. Notices. All notices and other communications provided for
hereunder shall be in writing (including telecopier, telegraphic, telex or cable
communication) and mailed, telecopied, telegraphed, telexed, cabled or
delivered, if to the Borrower, at Integrated Health Services, Inc., 10065 Red
Run Boulevard, Owings Mills, Maryland 21117, Attention: General Counsel and
Attention: Eleanor Harding, Senior Vice President, with a copy to: Hunton &
Williams, 43rd Floor, MetLife Building, 200 Park Avenue, New York, New York
10166, Attention: John R. Fallon, Jr.; if to any Lender, at its Domestic Lending
Office specified opposite its name on Schedule I hereto; and if to the Agent, at
Citibank, N.A., 399 Park Avenue, New York, New York 10043, Attention: Margaret
A. Brown, Vice President, with a copy to: Shearman & Sterling, 555 California
Street, 20th Floor, San Francisco, California 94104,
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86
Attention: Steven E. Sherman; or, as to each party, at such other address as
shall be designated by such party in a written notice to the other parties. All
such notices and communications shall, when mailed, telecopied, telegraphed,
telexed or cabled, be effective when deposited in the mails, telecopied,
delivered to the telegraph company, confirmed by telex answerback or delivered
to the cable company, respectively, except that notices and communications to
the Agent pursuant to Article II or VII shall not be effective until received by
the Agent.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender,
the LC Bank or the Agent to exercise, and no delay in exercising, any right
under any Loan Document shall operate as a waiver thereof; nor shall any single
or partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses. The Borrower agrees to pay on demand all
reasonable costs and expenses incurred by the Agent in connection with the
preparation, negotiation, execution, delivery, modification and amendment of the
Loan Documents and the other documents to be delivered under the Loan Documents,
including the reasonable fees and out-of-pocket expenses of counsel for the
Agent with respect thereto and with respect to advising the Agent as to its
rights and responsibilities under the Loan Documents. The Borrower further
agrees to pay on demand all reasonable costs and expenses, including reasonable
fees and expenses of attorneys (including allocable costs of in-house counsel),
accountants, advisors and other experts, incurred by the Agent or the Lenders in
respect of any Event of Default or while any Event of Default is continuing or
in connection with the protection, resolution or enforcement (whether through
negotiations, by legal proceedings, in bankruptcy or otherwise) of the
Obligations or the Collateral or any right, remedy, power, interest or claim of
the Agent or any Lender under any Loan Document.
SECTION 8.05. Right of Set-off. Whenever any Event of Default is
continuing, each Lender may at any time or from time to time, with the consent
of the Requisite Lenders but without any prior notice to the Borrower or any
other Person, set off and apply any and all deposits (general or special, time
or demand, provisional or final) at any time held and other debt at any time
owing by such Lender to or for the credit or the account of the Borrower,
whether or not then due, and whether or not then fully secured, against any and
all Advances, LC Exposure and other Obligations then owing to such Lender,
whether or not then due. After any such set-off and application is made, the
Lender that made it shall promptly notify the Borrower thereof, but the failure
to do so shall not affect the validity of the set-off and application and shall
not expose such Lender to any liability. The Lenders' right of setoff under this
Section 8.05 is cumulative with and additional to all other rights and remedies
(including other rights of set-off) of the Lenders.
SECTION 8.06. Indemnity. (a) General Indemnity. The Borrower shall pay,
defend, indemnify, and hold each Lender, the Agent, their respective Affiliates
and each of their
<PAGE>
87
respective officers, directors, employees, counsel, agents and attorneys-in-fact
(each, an "INDEMNIFIED PERSON") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, charges, expenses or disbursements (including reasonable fees and
expenses of counsel and allocated costs of internal counsel incurred in
defending any such action or incurred in enforcing this Section 8.06(a)) of any
kind or nature whatsoever with respect to the execution, delivery, enforcement
and performance of this Agreement and any other Loan Document or the
transactions contemplated herein, and with respect to any investigation,
litigation or proceeding related to this Agreement or the Advances or the
Letters of Credit or the use of the proceeds thereof, whether or not any
Indemnified Person is a party thereto (all the foregoing, collectively, the
"INDEMNIFIED LIABILITIES"), except that the Borrower shall have no obligation
hereunder to any Indemnified Person with respect to Indemnified Liabilities
arising from the gross negligence or willful misconduct of such Indemnified
Person.
(b) Environmental Indemnity. The Borrower shall pay, defend, indemnify, and
hold harmless each Indemnified Person from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses or disbursements (including reasonable fees and expenses of
counsel and the allocated cost of internal counsel), which may be incurred by or
asserted against any Indemnified Person in connection with or arising out of any
pending or threatened investigation or Environmental Claim arising out of or
related to any acts or omissions or any property of the Borrower or any of its
Subsidiaries. In no event shall any site visit, observation, or testing by the
Agent or any Lender be a representation that Hazardous Materials are or are not
present in, on, or under the site, or that there has been or shall be compliance
with any Environmental Law. Neither the Borrower nor any other party is entitled
to rely on any site visit, observation, or testing by the Agent or any Lender.
Neither the Agent nor any Lender owes any duty of care to protect the Borrower
or any other Person against, or to inform the Borrower or any other Person of,
any adverse condition affecting any site or property.
SECTION 8.07. Assignments and Participations. (a) Permitted Assignment.
Each Lender may assign to one or more banks or other entities all or a portion
of its rights and obligations under this Agreement, but (i) each such assignment
shall be of a constant, and not a varying, percentage of all of the assigning
Lender's rights and obligations under this Agreement, unless otherwise consented
to by the Agent; (ii) the amount of the commitment and outstanding Advances of
the assigning Lender being assigned pursuant to each such assignment (determined
as of the date of the Assignment and Acceptance with respect to such assignment)
shall not be less than $5,000,000 or the total amount of the remaining
commitment and outstanding Advances of such Lender, except that an assignment to
an existing Lender may be in an amount less than $5,000,000, (iii) each such
assignment shall be to an Eligible Assignee, and (iv) the parties to each such
assignment shall execute and deliver to the Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance, together with any Note
or Notes subject to such assignment and a processing and recordation fee payable
to the Agent of $2,500. Upon such
<PAGE>
88
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, (A) the assignee thereunder shall
be a party hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder and (B) the Lender assignor thereunder
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto).
(b) Effect of Assignment. By executing and delivering an Assignment and
Acceptance, the Lender assignor thereunder and the assignee thereunder confirm
to and agree with each other and the other parties hereto that (i) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto or as to the Collateral or the validity,
enforceability, perfection or priority of any Lien upon the Collateral; (ii)
such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under this
Agreement or any other instrument or document furnished pursuant hereto; (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the financial statements referred to in Section 4.01(h) and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon the Agent, such
assigning Lender or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement; (v) such assignee
confirms that it is an Eligible Assignee; (vi) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto; (vii)
such assignee agrees that it will perform in accordance with their terms all of
the obligations which by the terms of this Agreement are required to be
performed by it as a Lender; and (viii) such assignee confirms and agrees that
it shall have no greater indemnification rights pursuant to Section 2.16(c) than
its Lender assignor.
(c) Maintenance of Agreements. The Agent, acting for this purpose (but only
for this purpose) as the agent of the Borrower (and in such capacity neither the
Agent nor any of its directors, officers, agents or employees shall be liable
for any action taken or omitted to be taken by it or any of them under or in
connection with this Section 8.07(c), except for its or their own gross
negligence or willful misconduct), shall maintain at its address referred to in
Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted
by it and a register for
<PAGE>
89
the recordation of the names and addresses of the Lenders and the commitments
and Pro Rata Shares of, and principal amount of the Advances owing to, each
Lender from time to time (the "REGISTER"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Lenders shall treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(d) Procedure. Upon its receipt of an Assignment and Acceptance executed by
an assigning Lender and an assignee Lender representing that it is an Eligible
Assignee, together with any Note or Notes subject to such assignment, the Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit E-2 hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrower. Within five Business Days
after its receipt of such notice, the Borrower, at its own expense, shall
execute and deliver to the Agent in exchange for the surrendered Note or Notes a
new Note or Notes to the order of such Eligible Assignee in an aggregate amount
equal to the interest in the surrendered Note or Notes assigned to it pursuant
to such Assignment and Acceptance and, if the assigning Lender has retained an
interest in the surrendered Note or Notes, a new Note or Notes to the order of
the assigning Lender in an aggregate amount equal to the interest so retained.
Such new Note or Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Note or Notes, shall be dated the
effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of Exhibit A.
(e) Participations. Each Lender may sell participations to one or more
banks or other entities in all or a portion of its rights and obligations under
this Agreement, but (i) such Lender's obligations under this Agreement
(including its commitment to the Borrower hereunder) shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations, (iii) such Lender shall remain the holder
of any such Note or Notes for all purposes of this Agreement, and (iv) the
Borrower, the Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement.
(f) Additional Information. Any Lender may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 8.07, disclose to the assignee or participant or proposed assignee
or participant, any information relating to the Borrower furnished to such
Lender by or on behalf of the Borrower, but only if the assignee or participant
or proposed assignee or participant is obligated to preserve the confidentiality
of any confidential information relating to the Borrower received by it from
such Lender.
<PAGE>
90
(g) Permitted Assignments. Any Lender may assign any of its rights and
obligations under this Agreement to any of its Affiliates without notice to or
consent of the Borrower or the Agent, and such Lender or any of its Affiliates
may assign any of its rights (including, without limitation, rights to payment
of principal and/or interest under the Notes) under this Agreement to any
Federal Reserve Bank without notice to or consent of the Borrower or the Agent.
SECTION 8.08. Binding Effect. This Agreement shall become effective when it
has been executed by the parties hereto and the conditions set forth in Section
3.01 have been satisfied and thereafter shall be binding upon and inure to the
benefit of the Borrower, the Agent and each Lender and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of each of the Lenders and the Agent. When (and only when) this
Agreement becomes effective, the commitments of the financial institutions that
are party to the Existing Facility to extend credit under the Existing Facility
shall be terminated, but all claims against the Borrower or any of its
Subsidiaries under or in respect of the Existing Facility, and all Liens
securing any such claim, shall remain in full force and effect until paid and
released as set forth in the payout and release agreement delivered pursuant to
Section 3.01(g).
SECTION 8.09. Governing Law; Consent to Jurisdiction; Venue. This Agreement
and the other Loan Documents shall be governed by, and construed in accordance
with, the laws of the State of New York. Any legal action or proceeding with
respect to any Loan Document may be brought in the courts of the State of New
York or of the United States for the Southern District of New York, and by
execution and delivery of this Agreement, each of the Borrower, the Agent and
the Lenders consents, for itself and in respect of its property, to the
jurisdiction of those courts. Each of the Borrower, the Agent and the Lenders
irrevocably waives any objection, including any objection to the laying of venue
or based on the grounds of forum non conveniens, which it may now or hereafter
have to the bringing of any action or proceeding in such jurisdiction in respect
of any Loan Document. The Borrower, the Agent and the Lenders each waive
personal service of any summons, complaint or other process, which may be made
by any other means permitted by New York law.
SECTION 8.10. Waiver of Jury Trial. THE BORROWER, THE LENDERS AND THE AGENT
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR PARTIES, WHETHER BASED ON CONTRACT, TORT, STATUTORY LIABILITY
OR OTHERWISE. THE BORROWER, THE LENDERS AND THE AGENT AGREE THAT ANY SUCH CLAIM
OR CAUSE OF ACTION SHALL BE TRIED BY THE COURT WITHOUT A JURY. THIS WAIVER
<PAGE>
91
SHALL APPLY TO EACH FUTURE AMENDMENT, RENEWAL, SUPPLEMENT OR MODIFICATION OF ANY
LOAN DOCUMENT AND TO EACH FUTURE LOAN DOCUMENT.
SECTION 8.11. Limitation of Liability. No claim may be made by the
Borrower, any Subsidiary of the Borrower, any Lender, the Agent or any other
Person against the Agent or any other Lender or the Affiliates, directors,
officers, employees, attorneys or agents of any of them for any special,
indirect or consequential damages or, to the fullest extent permitted by law,
for any punitive damages in respect of any claim or cause of action (whether
based on contract, tort, statutory liability, or any other ground) based on,
arising out of or related to any Loan Document or the transactions contemplated
hereby or any act, omission or event occurring in connection therewith, and the
Borrower (for itself and on behalf of each of its Subsidiaries), the Agent and
each Lender hereby waive, release and agree never to sue upon any claim for any
such damages, whether such claim now exists or hereafter arises and whether or
not it is now known or suspected to exist in its favor.
SECTION 8.12. Entire Agreement. This Agreement, together with the other
Loan Documents, embodies the entire Agreement and understanding among the
Borrower, the Lenders and the Agent and supersedes all prior or contemporaneous
agreements and understandings of such persons, verbal or written, relating to
the subject matter hereof and thereof except for the Fee Letter and any prior
arrangements made with respect to the payment by the Borrower of (or any
indemnification for) any fees, costs or expenses payable to or incurred (or to
be incurred) by or on behalf of the Agent or any Lender.
SECTION 8.13. Survival. The Borrower's liability for any and all additional
interest, fees, taxes, compensation, costs, losses, expense reimbursements,
indemnification and other similar Obligations arising under any Loan Document
shall survive the expiration or termination of the commitments of the Lenders to
extend credit hereunder and the repayment and retirement of all Advances and LC
Exposure at any time outstanding hereunder.
SECTION 8.14. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
INTEGRATED HEALTH SERVICES, INC.
By: /s/
------------------------------------
Name:
Title:
CITIBANK, N.A.,
as Administrative Agent and Lender
By: /s/
------------------------------------
Name:
Title:
BANK OF AMERICA N.T.&S.A.
as a Lender and Co-Agent
By: /s/
------------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA,
as LC Bank, a Lender and Co-Agent
By: /s/
------------------------------------
Name:
Title:
<PAGE>
S-2
CORESTATES BANK, N.A.,
as a Lender and Co-Agent
By: /s/
------------------------------------
Name:
Title:
CREDIT LYONNAIS
NEW YORK BRANCH,
as a Lender and Co-Agent
By: /s/
------------------------------------
Name:
Title:
DEUTSCHE BANK AG,
NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH
as a Lender and Co-Agent
By: /s/
------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA,
as a Lender and Co-Agent
By: /s/
------------------------------------
Name:
Title:
<PAGE>
S-3
NATIONSBANK, N.A.,
as a Lender and Co-Agent
By: /s/
------------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
as a Lender and Co-Agent
By: /s/
------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.,
as a Lender and Co-Agent
By: /s/
------------------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST,
as a Lender and Co-Agent
By: /s/
------------------------------------
Name:
Title:
<PAGE>
S-4
CREDITANSTALT CORPORATE
FINANCE, INC.,
as a Lender
By: /s/
------------------------------------
Name:
Title:
FLEET NATIONAL BANK,
as a Lender
By: /s/
------------------------------------
Name:
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION,
as a Lender
By: /s/
------------------------------------
Name:
Title:
HIBERNIA NATIONAL BANK,
as a Lender
By: /s/
------------------------------------
Name:
Title:
<PAGE>
S-5
AMSOUTH BANK,
as a Lender
By: /s/
------------------------------------
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI
TRUST COMPANY,
as a Lender
By: /s/
------------------------------------
Name:
Title:
THE SANWA BANK, LIMITED,
as a Lender
By: /s/
------------------------------------
Name:
Title:
SIGNET BANK,
as a Lender
By: /s/
------------------------------------
Name:
Title:
<PAGE>
S-6
THE SUMITOMO BANK, LIMITED,
as a Lender
By: /s/
------------------------------------
Name:
Title:
FIRST AMERICAN NATIONAL BANK,
as a Lender
By: /s/
------------------------------------
Name:
Title:
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
September 6, 1996
To the Administrative Agent and
the Lenders parties to the Revolving
Credit Agreement referred to below
Amendment No. 1 to Revolving Credit Agreement
Consent of Administrative Agent and Requisite Lenders
-----------------------------------------------------
Ladies and Gentlemen:
Reference is made to the revolving credit agreement, dated as of May 15,
1996 (the "Credit Agreement"), among Integrated Health Services, Inc. ("IHS"),
Citibank N.A., as administrative agent thereunder (the "Agent"), and the other
financial institutions party thereto, as lenders thereunder. Capitalized terms
used and not otherwise defined herein are used herein as defined in the Credit
Agreement.
First American and IHS have amended the First American Merger Agreement
pursuant to an amendment, dated as of September 9, 1996 (the "Amendment"), and
the plan of reorganization (the "Plan of Reorganization") in the bankruptcy
proceeding of First American in order to incorporate settlements among First
American, the Health Care Financing Administration and the Department of
Justice. The Amendment, among other things, increases the purchase price
potentially payable by IHS in connection with the First American Merger by $35
million, so that the aggregate purchase price could be as high as $312 million.
Copies of the Amendment and the amended Plan of Reorganization have been
provided to you under separate cover.
Pursuant to Section 5.03(c)(xii)(A) of the Credit Agreement, in order for
IHS to consummate the First American Merger pursuant to the First American
Merger Agreement, as amended by the Amendment, and the amended Plan of
Reorganization, (i) the terms and conditions of the Amendment and the amended
Plan of Reorganization must be satisfactory to the Agent in its sole discretion,
and (ii) the terms of the Amendment and the amended Plan of Reorganization
relating to the increase in the aggregate purchase price potentially payable by
IHS in connection therewith must be satisfactory to the Requisite Lenders in
their sole discretion. IHS hereby requests that you consent to the terms and
conditions of the Amendment and the amended Plan of Reorganization and to the
consummation of the First American Merger
<PAGE>
2
pursuant to the First American Merger Agreement, as amended by the Amendment,
and the amended Plan of Reorganization.
IHS also hereby requests that you agree (i) to amend the definition of
"Debt" in the Credit Agreement by adding to the end of such definition the
proviso "; provided, however, that the contingent payments which may become
payable in accordance with the First American Merger Agreement, including any
payments made to the Health Care Financing Administration or the Department of
Justice as required under the First American Merger Agreement, in a total amount
not in excess of $162 million, shall not consitute Debt for purposes of this
Agreement"; and (ii) to amend Section 5.03(c)(xii) of the Credit Agreement by
deleting in the fourth line of such section the words "be final and
nonappealable" and inserting in their place the words "have been entered, and
its effectiveness shall not have been stayed or enjoined in any manner,".
Please evidence your acknowledgement of and agreement and consent to the
foregoing by executing and returning not later than close of business on
September 11, 1996 the three counterparts of this Amendment No. 1 and consent
enclosed herewith to Citicorp Securities, Inc., 399 Park Avenue, 9th Floor, New
York, New York 10043, Attention: Rosemary Bell. This Amendment No. 1 and consent
shall become effective as of the date first above written when and if
counterparts of this Amendment No. 1 and consent shall have been executed by the
Requisite Lenders and the consent attached hereto shall have been executed by
the Guarantors. This Amendment No. 1 and consent is subject to the provisions of
Section 8.01 of the Credit Agreement.
This Amendment No. 1 and consent may be executed in any number of
counterparts and by any combination of the parties hereto in separate
counterparts, each of which counterparts shall be an original and all of which
taken together shall constitute one and the same Amendment No. 1 and consent.
Very truly yours,
INTEGRATED HEALTH
SERVICES, INC.
By: /s/
--------------------------------
Name:
Title:
<PAGE>
3
ACKNOWLEDGED, AGREED AND CONSENTED TO as of the date first above written:
CITIBANK, N.A.,
as Administrative Agent and as a Lender
By: /s/
-------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA,
as LC Bank, a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
CORESTATES BANK, N.A.,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
4
CREDIT LYONNAIS,
NEW YORK BRANCH,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
DEUTSCHE BANK AG,
NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
NATIONSBANK, N.A.,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
5
PNC BANK, NATIONAL ASSOCIATION,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
CREDITANSTALT CORPORATE
FINANCE, INC.,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
6
FLEET NATIONAL BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
GENERAL ELECTRIC
CAPITAL CORPORATION,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
HIBERNIA NATIONAL BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
AMSOUTH BANK OF ALABAMA,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
7
THE BANK OF TOKYO-MITSUBISHI
TRUST COMPANY,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
THE SANWA BANK, LIMITED,
NEW YORK BRANCH
as a Lender
By: /s/
-------------------------------------
Name:
Title:
SIGNET BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
8
FIRST AMERICAN NATIONAL BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
CONSENT
The undersigned, as Guarantors under the Subsidiary Guaranty, dated as of
May 15, 1996 (the "Guaranty"), in favor of the Agent for the Lenders parties to
the Credit Agreement referred to in the foregoing letter waiver and consent,
hereby consent to such letter waiver and consent and hereby confirm and agree
that notwithstanding the effectiveness of such letter waiver and consent, the
Guaranty is, and shall continue to be, in full force and effect and is hereby
confirmed and ratified in all respects.
ALABAMA SENIOR LIFE CARE, INC.
ALPINE MANOR, INC.
AMCARE HEALTH SERVICES, INC.
AMCARE, INC.
ARBOR LIVING CENTERS OF FLORIDA, INC.
ARBOR LIVING CENTERS OF TEXAS, INC.
ASIA CARE, INC.
BETHAMY LIVING CENTER MANAGEMENT COMPANY
BETHAMY LIVING CENTERS LIMITED PARTNERSHIP
BRIAR HILL, INC.
BRIARCLIFF NURSING HOME, INC.
CAMBRIDGE CARE CENTERS, INC.
CAMBRIDGE GROUP OF INDIANA, INC.
CAMBRIDGE GROUP OF PENNSYLVANIA, INC.
CAMBRIDGE GROUP OF TEXAS, INC.
CARE CENTERS HOLDING, INC.
CARRIAGE-By: -THE-LAKE OF IHS, INC.
CEDARCROFT HEALTH SERVICES, INC.
CENTRAL PARK LODGES, INC.
CENTRAL PARK LODGES OF WEST PALM BEACH, INC.
CENTRAL PARK LODGES (TARPON SPRINGS), INC.
CLARA BURKE NURSING HOME, INC.
CLAREMONT INTEGRATED HEALTH, INC.
COMPREHENSIVE POSTACUTE SERVICES, INC.
DERRY INTEGRATED HEALTH, INC.
ELIZABELL CO., INC.
ELM CREEK OF IHS, INC.
F.L.C. BENEVA NURSING PAVILION, INC.
F.L.C. SARASOTA NURSING PAVILION, INC.
FERRIGAN MOBILE X-RAY, INC.
FIRELANDS OF IHS, INC.
FLORIDA LIFE CARE, INC.
FLORIDA LIFE CARE, INC.
GAINESVILLE HEALTH CARE CENTER, INC.
GRAVOIS HEALTH CARE, INC.
<PAGE>
2
HEALTH CARE SYSTEMS, INC.
HEALTHCARE PHARMACY SERVICES OF FLORIDA, INC.
HEALTHCARE PHARMACY SERVICES OF PENNSYLVANIA, INC.
HEALTHCARE PHARMACY SERVICES OF TEXAS, INC.
HOME HEALTH INTEGRATED HEALTH SERVICES OF FLORIDA, INC.
HOSPICE INTEGRATED HEALTH SERVICES OF DISTRICT I, INC.
HOSPICE INTEGRATED HEALTH SERVICES OF DISTRICT VII-B, INC.
HOSPICE INTEGRATED HEALTH SERVICES OF FLORIDA, INC.
HOSPICE OF INTEGRATED HEALTH SERVICES, INC.
IHS ACQUISITION XIII, INC.
IHS AT LANSING, INC.
IHS OF DANA, INC.
INTEGRACARE, INC.
INTEGRATED-BALLARD, INC.
INTEGRATED HEALTH GROUP LIMITED PARTNERSHIP
INTEGRATED HEALTH OF LOCUST VALLEY ROAD, INC.
INTEGRATED HEALTH OF WATERFORD COMMONS, INC.
INTEGRATED HEALTH SERVICES AT ALEXANDRIA, INC.
INTEGRATED HEALTH SERVICES AT BIG SAIL, INC.
INTEGRATED HEALTH SERVICES AT BLUE RIDGE MANOR, INC.
INTEGRATED HEALTH SERVICES AT BRIARCLIFF HAVEN, INC.
INTEGRATED HEALTH SERVICES AT CADIZ, INC.
INTEGRATED HEALTH SERVICES AT CENTRAL FLORIDA, INC.
INTEGRATED HEALTH SERVICES AT CHEYENNE, INC.
INTEGRATED HEALTH SERVICES AT COLORADO SPRINGS, INC.
INTEGRATED HEALTH SERVICES AT COLUMBUS, INC.
INTEGRATED HEALTH SERVICES AT DAYTON, INC.
INTEGRATED HEALTH SERVICES AT DRIFTWOOD, INC.
INTEGRATED HEALTH SERVICES AT EASTERN MASSACHUSETTS, INC.
INTEGRATED HEALTH SERVICES AT GRANDVIEW CARE CENTER, INC.
INTEGRATED HEALTH SERVICES AT GREAT BEND, INC.
INTEGRATED HEALTH SERVICES AT HOPEDALE, INC.
INTEGRATED HEALTH SERVICES AT HOUSTON, INC.
INTEGRATED HEALTH SERVICES AT INDIAN CREEK, INC.
INTEGRATED HEALTH SERVICES AT KEN, INC.
INTEGRATED HEALTH SERVICES AT NEWARK, INC.
INTEGRATED HEALTH SERVICES AT ORMOND BEACH, INC.
INTEGRATED HEALTH SERVICES AT PARK REGENCY, INC.
INTEGRATED HEALTH SERVICES AT PENN, INC.
INTEGRATED HEALTH SERVICES AT SILVERCREST, INC.
INTEGRATED HEALTH SERVICES AT SOMERSET VALLEY, INC.
INTEGRATED HEALTH SERVICES AT SOUTHERN HILLS, INC.
<PAGE>
3
INTEGRATED HEALTH SERVICES AT STEUBENVILLE
INTEGRATED HEALTH SERVICES AT SYCARMORE CREEK, INC.
INTEGRATED HEALTH SERVICES AT THREE RIVERS, INC.
INTEGRATED HEALTH SERVICES AT TREYBURN, INC.
INTEGRATED HEALTH SERVICES FINANCIAL HOLDINGS, INC.
INTEGRATED HEALTH SERVICES HOLDINGS, INC.
INTEGRATED HEALTH SERVICES NPR, INC.
INTEGRATED HEALTH SERVICES OF ARCADIA, INC.
INTEGRATED HEALTH SERVICES OF ATHENS, INC.
INTEGRATED HEALTH SERVICES OF BRENTWOOD, INC.
INTEGRATED HEALTH SERVICES OF CALIFORNIA, INC.
INTEGRATED HEALTH SERVICES OF CLIFF MANOR, INC.
INTEGRATED HEALTH SERVICES OF COLORADO AT CHERRY CREEK,
INC.
INTEGRATED HEALTH SERVICES OF EAGLE CREEK, INC.
INTEGRATED HEALTH SERVICES OF GREEN BRIAR, INC.
INTEGRATED HEALTH SERVICES OF HERITAGE MANOR, INC.
INTEGRATED HEALTH SERVICES OF HICKORY CREEK, INC.
INTEGRATED HEALTH SERVICES OF INDIAN HILLS, INC.
INTEGRATED HEALTH SERVICES OF JACKSONVILLE, INC.
INTEGRATED HEALTH SERVICES OF KURT, INC.
INTEGRATED HEALTH SERVICES OF LESTER, INC.
INTEGRATED HEALTH SERVICES OF MELISSA, INC.
INTEGRATED HEALTH SERVICES OF MISSOURI, INC.
INTEGRATED HEALTH SERVICES OF ORANGE PARK, INC.
INTEGRATED HEALTH SERVICES OF RIVERBEND, INC.
INTEGRATED HEALTH SERVICES OF SCENIC HILLS, INC.
INTEGRATED HEALTH SERVICES OF SKYVIEW, INC.
INTEGRATED HEALTH SERVICES OF SKYVIEW II, INC.
INTEGRATED LIVING COMMUNITIES AT DENTON (MARYLAND), INC.
INTEGRATED LIVING COMMUNITIES OF SARASOTA, INC.
INTEGRATED LIVING COMMUNITIES RETIREMENT MANAGEMENT, INC.
INTEGRATED MANAGEMENT-CARRINGTON PONTE, INC.
INTEGRATED MANAGEMENT-GOVERNOR'S PARK, INC.
INTEGRATED OF AMARILLO, INC.
INTEGRATED PHYSICIAN GROUP SERVICES, INC.
ISABETH CO., INC.
LPC BETHAMY HEALTH CORPORATION
MANCHESTER INTEGRATED HEALTH, INC.
MOBILE RAY OF NEW ORLEANS, INC.
MOUNTAIN VIEW NURSING CENTER, INC.
NEW SOUTHWOOD ASSOCIATES, INC.
PALESTINE NURSING CENTER, INC.
<PAGE>
4
PALESTINE NURSING CENTER, INC.
PATIENT CARE PHARMACY, INC.
PATIENT CARE PHARMACY - COLORADO SPRINGS, INC.
PHARMACEUTICAL DOSE SERVICE, INC.
PINELLAS PARK NURSING HOME, INC.
PROFESSIONAL REVIEW NETWORK, INC.
REHAB MANAGEMENT SYSTEMS, INC.
REST HAVEN NURSING CENTERS, INC.
REST HAVEN NURSING CENTERS (CHESTNUT HILL), INC.
REST HAVEN NURSING CENTERS (WHITEMARSH), INC.
RIKAD PROPERTIES, INC.
SAMARITAN CARE, INC.
SAMARITAN CARE, INC.
SAMARITAN MANAGEMENT, INC.
SENIOR LIFE CARE, INC.
SENIOR LIFE CARE OF CALIFORNIA, INC.
SENIOR LIFE CARE OF LOUISIANA, INC.
SENIOR LIFE CARE OF OKLAHOMA, INC.
SENIOR LIFE CARE OF TENNESSEE, INC.
SENIOR LIFE CARE OF TEXAS, INC.
SLC COMMUNITY CARE, INC.
SOUTHWOOD HOLDINGS, INC.
SPRING CREEK OF IHS, INC.
SYMPHONY ANCILLARY SERVICES, INC.
SYMPHONY DIAGNOSTIC SERVICES, INC.
SYMPHONY DIAGNOSTIC SERVICES NO. 1, INC.
SYMPHONY DIAGNOSTIC SERVICES NO. 2, INC.
SYMPHONY HEALTH CARE CONSULTING, INC.
SYMPHONY HEALTH SERVICES, INC.
SYMPHONY HOME CARE SERVICES, INC.
SYMPHONY HOME CARE SERVICES NO. 1, INC.
SYMPHONY HOME CARE SERVICES NO. 2, INC.
SYMPHONY HOME CARE SERVICES NO. 3, INC.
SYMPHONY HOME CARE SERVICES NO. 4, INC.
SYMPHONY HOME CARE SERVICES NO. 5, INC.
SYMPHONY HOME CARE SERVICES NO. 6, INC.
SYMPHONY HOME CARE SERVICES NO. 7, INC.
SYMPHONY HOME CARE SERVICES NO. 8, INC.
SYMPHONY HOME CARE SERVICES NO. 9, INC.
SYMPHONY HOME CARE SERVICES NO. 10, INC.
SYMPHONY HOME CARE SERVICES NO. 11, INC.
SYMPHONY HOME CARE SERVICES NO. 12, INC.
SYMPHONY HOME CARE SERVICES NO. 13, INC.
<PAGE>
5
SYMPHONY HOME CARE SERVICES NO. 14, INC.
SYMPHONY HOME CARE SERVICES NO. 15, INC.
SYMPHONY HOME CARE SERVICES NO. 16, INC.
SYMPHONY HOME CARE SERVICES NO. 17, INC.
SYMPHONY HOME CARE SERVICES NO. 100, INC.
SYMPHONY HOME CARE SERVICES NO. 101, INC.
SYMPHONY HOME CARE SERVICES NO. 102, INC.
SYMPHONY HOME CARE SERVICES NO. 103, INC.
SYMPHONY HOME CARE SERVICES NO. 104, INC.
SYMPHONY HOME CARE SERVICES NO. 105, INC.
SYMPHONY HOME CARE SERVICES NO. 106, INC.
SYMPHONY HOME CARE SERVICES NO. 107, INC.
SYMPHONY HOME CARE SERVICES NO. 108, INC.
SYMPHONY HOME CARE SERVICES NO. 109, INC.
SYMPHONY HOME CARE SERVICES NO. 110, INC.
SYMPHONY HOME CARE SERVICES NO. 113, INC.
SYMPHONY HOME CARE SERVICES NO. 114, INC.
SYMPHONY HOME CARE SERVICES NO. 115, INC.
SYMPHONY HOME CARE SERVICES NO. 116, INC.
SYMPHONY HOME CARE SERVICES NO. 117, INC.
SYMPHONY HOME CARE SERVICES NO. 118, INC.
SYMPHONY HOME CARE SERVICES NO. 119, INC.
SYMPHONY HOME CARE SERVICES NO. 120, INC.
SYMPHONY HOME CARE SERVICES NO. 121, INC.
SYMPHONY HOME CARE SERVICES NO. 122, INC.
SYMPHONY PHARMACY SERVICES, INC.
SYMPHONY REHABILITATION SERVICES, INC.
SYMPHONY REHABILITATION SERVICES NO. 1, INC.
SYMPHONY REHABILITATION SERVICES NO. 2, INC.
SYMPHONY REHABILITATION SERVICES NO. 3, INC.
SYMPHONY REHABILITATION SERVICES NO. 4, INC.
SYMPHONY RESPIRATORY SERVICES, INC.
TEXAS LPC, INC.
WEST COAST CAMBRIDGE, INC.
WOODRIDGE CONVALESCENT CENTER, INC.
By: /s/
---------------------------------
Name:
Title:
of Each Guarantor or of the
General Partner of such Guarantor
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
November 8, 1996
To the Administrative Agent and
the Lenders parties to the Revolving
Credit Agreement referred to below
Amendment No.2 to Revolving Credit Agreement
--------------------------------------------
Ladies and Gentlemen:
Reference is made to the Revolving Credit Agreement, dated as of May 15,
1996, as amended by Amendment No. 1 dated September 6, 1996 (such Revolving
Credit Agreement as so amended being the "Credit Agreement"), among Integrated
Health Services, Inc. ("IHS"), Citibank N.A., as administrative agent thereunder
(the "Agent"), and the other financial institutions party thereto, as lenders
thereunder. Capitalized terms used and not otherwise defined herein are used
herein as defined in the Credit Agreement.
IHS has proposed to acquire Coram Healthcare Corporation ("Coram") pursunt
to an Agreement and Plan of Merger entered into as of October 19, 1996 (the
"Merger Agreement") and in connection therewith has requested that the Requisite
Lenders agree to amend certain covenants contained in Article V of the Credit
Agreement to permit such acquisition. We understand that the Requisite Lenders
are, on the terms and conditions stated below, willing to grant our request, and
the Requisite Lenders have agreed to amend the Credit Agreement as hereinafter
set forth.
Effective as of the date hereof and subject to the satisfaction of the
condition precedents set forth below, the Credit Agreement is hereby amended as
follows:
(a) Section 5.03(c) is amended by deleting the period at the end of
subsection (xv) thereof and substituting therefor "; and" and adding a new
subsection (xvi) following such subsection (xv) to read as follows:
"(xvi) The merger pursuant to the Agreement and Plan of Merger
('Merger Agreement') entered into as of October 19, 1996 among
Coram Healthcare Corporation ('Coram'), the Borrower and IHS
Acquisition XIX, Inc. (the 'Coram Merger'), provided that (A) any
amendment or modification of such Merger Agreement after November
8,1996 which increases the Debt assumed
<PAGE>
2
thereunder by the Borrower or any of its Subsidiaries or the cash
consideration payable by the Borrower or any of its Subsidiaries
in connection therewith in excess of $10,000,000 shall be
satisfactory to the Requisite Lenders in their sole discretion,
(B) at the time of or after giving effect to the Coram Merger, no
Event of Default or Potential Default shall exist or result and
(C) the Borrower shall comply with the provisions of Section
5.02(e), and neither the Borrower nor any of its Subsidiaries nor
any of their properties shall be or become bound by or subject to
any contractual obligation that is or would be violated or put in
default by reason of such compliance or by reason of the
enforcement of the claims and Liens of the Agent and the Lenders
arising from such compliance."
(b) Section 5.03(d) is amended by deleting the period at the end of
subsection (v) thereof and substituting therefor "; and" and adding a new
subsection (vi) following such subsection (v) to read as follows:
"(vi) In connection with the Coram Merger, (A) Debt owed by the
Borrower to Coram Funding, Inc. ('Coram Funding') in an aggregate
principal amount not in excess of the amount equal to the sum of
$172,300,000 plus interest at the rate of 11% per annum from
January 1, 1997 to the date of the cloisng of the Coram Merger
divided by 0.98625 and which shall mature in full no earlier than
the tenth anniversary of its issuance, bear interest at rate no
greater than 11% per annum, have subordination provisions,
covenants and other terms and conditions identical to those in
the 1996 Subordinated Debt Indenture (except certain exceptions
thereto as set forth in the Agreement dated as of October 19,
1996 between the Borrower and Coram Funding) and have no
scheduled principal payments until maturity, and (B) Debt owed by
Coram to MedPartners, Inc. in an aggregate principal amount not
in excess of $52,687,000 (plus an amount equal to the accrued
interest from September 30, 1996 through the date of closing of
the Coram Merger on the 7% Convertible Subordinated Notes of
Coram to Caremark Inc. due October 1, 2005 and the 12%
Non-Convertible Subordinated Notes of Coram to Caremark, Inc. due
October 1, 2005) and which shall mature no earlier than the
second anniversary of its issuance and bear interest at a rate no
greater that the lesser of (1) 8% per annum or (2) one-half
percent below the interest rate in effect from time to time under
this Agreement."
This Amendment shall become effective when and only when the Agent shall
have received (A) counterparts of this Amendment executed by IHS and the
Requisite Lenders, or as to any of such Lenders, advice satisfactory to the
Agent that such Lender has executed this Amendment, (B) an amendment fee for the
ratable account of each Lender in an aggregate amount equal to .0005 of the
Facility Amount and the supplemental fee as set forth in a letter dated November
8, 1996 from the
<PAGE>
3
Agent to IHS (the "Agent's Letter") and (C) counterparts of the Consent appended
hereto (the "Consent"), executed by each Guarantor. In addition, this Amendment
shall be of no force or effect if (i) the Agent does not receive on or before
the date of the closing of the acquisition of Coram pursuant to the Merger
Agreement an additional fee for the ratable account of each Lender in an
aggregate amount equal to .001375 of the Facility Amount and (ii) the Agent does
not receive the additional fee as set forth in the Agent's Letter by the due
date therefor.
IHS represents and warrants as follows:
(a) IHS is duly organized, validly existing and in good standing under
the laws of Delaware. Each Guarantor is a corporation or partnership duly
organized and validly existing under the laws of the jurisdiction in which
it is organized.
(b) Each of IHS and each Guarantor has the corporate or partnership
power to execute, deliver and perform this Amendment and the Consent, as
the case may be, and to take all action necessary to consummate the
transactions contemplated hereunder. The execution, delivery and
performance by IHS and each Guarantor of this Amendment and the Consent,
respectively, have been duly authorized by all necessary action and do not
contravene (i) its certificate or articles of incorporation (or, in case of
a partnership, governing agreements) or (ii) any law or any indenture,
lease or written agreement binding on or affecting it.
(c) No authorization or approval or other action by, and no notice to
or filing with, any Governmental Authority is required for the due
execution, delivery and performance by IHS or any Guarantor of this
Amendment or the Consent, respectively.
(d) This Amendment and the Consent constitutes legal, valid and
binding obligations of IHS and each Guarantor, respectively, enforceable
against IHS and each Guarantor, respectively, in accordance with their
respective terms subject to laws generally affecting the enforcement of
creditors' rights.
Upon the effectiveness of this Amendment, on and after the date hereof each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" of
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement as amended hereby. Except as specifically
amended above, the Credit Agreement, and all other Loan Documents, are and shall
continue to be in full force and effect and are hereby in all respects ratified
and confirmed. The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Agent under any of the Loan Documents, not
constitute a waiver of any provision of any of the Loan Documents. This
Amendment shall be governed by, and construed in accordance with, the laws of
the State of New York.
<PAGE>
4
Please evidence your acknowledgement of and agreement to the foregoing by
executing and returning not later than close of business on November 13, 1996
the three counterparts of this Amendment No. 2 and consent enclosed herewith to
Citicorp Securities, Inc., 399 Park Avenue, 9th Floor, New York, New York 10043,
Attention: Rosemary Bell. This Amendment No. 2 and consent is subject to the
provisions of Section 8.01 of the Credit Agreement.
This Amendment No. 2 and consent may be executed in any number of
counterparts and by any combination of the parties hereto in separate
counterparts, each of which counterparts shall be an original and all of which
taken together shall constitute one and the same Amendment No. 2 and consent.
Very truly yours,
INTEGRATED HEALTH
SERVICES, INC.
By: /s/
------------------------------
Name:
Title:
ACKNOWLEDGED, AGREED
AND CONSENTED TO as of
the date first above written:
CITIBANK, N.A.,
as Administrative Agent and as a Lender
By: /s/
-------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
5
THE BANK OF NOVA SCOTIA,
as LC Bank, a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
CORESTATES BANK, N.A.,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
CREDIT LYONNAIS,
NEW YORK BRANCH,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
DEUTSCHE BANK AG,
NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
6
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
NATIONSBANK, N.A.,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
7
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
CREDITANSTALT CORPORATE
FINANCE, INC.,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
By: /s/
-------------------------------------
Name:
Title:
FLEET NATIONAL BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
GENERAL ELECTRIC
CAPITAL CORPORATION,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
8
HIBERNIA NATIONAL BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
AMSOUTH BANK OF ALABAMA,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI
TRUST COMPANY,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
THE SANWA BANK, LIMITED,
NEW YORK BRANCH
as a Lender
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
9
SIGNET BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
FIRST AMERICAN NATIONAL BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
10
ALLIED IRISH BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
PROVIDENT BANK OF MARYLAND,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
BANK OF AMERICA ILLINOIS
as a Lender
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
CONSENT
The undersigned, as Guarantors under the Subsidiary Guaranty, dated as of
May 15, 1996 (the "Guaranty"), in favor of the Agent for the Lenders parties to
the Credit Agreement referred to in the foregoing Amendment No. 2 hereby consent
to such Amendment No. 2 and hereby confirm and agree that notwithstanding the
effectiveness of such Amendment No. 2, the Guaranty is, and shall continue to
be, in full force and effect and is hereby confirmed and ratified in all
respects.
ABC GP, INC.
ABC HOME HEALTH AND HOSPICE OF ALBANY, INC.
ABC HOME HEALTH AND HOSPICE OF ATHENS, INC.
ABC HOME HEALTH AND HOSPICE OF BRUNSWICK, INC.
ABC HOME HEALTH AND HOSPICE OF DUBLIN, INC.
ABC HOME HEALTH AND HOSPICE OF MACON, INC.
ABC HOME HEALTH AND HOSPICE OF SAVANNAH, INC.
ABC HOME HEALTH AND HOSPICE OF TIFTON, INC.
ABC HOME HEALTH AND HOSPICE OF VIDALIA, INC.
ABC HOME HEALTH AND HOSPICE OF WAYCROSS, INC.
ABC HOME NURSING, INC.
ABC NEWCO, INC.
ABC PHARMACEUTICALS, INC.
ALABAMA SENIOR LIFE CARE, INC.
ALPINE MANOR, INC.
AMCARE HEALTH SERVICES, INC.
AMCARE, INC.
ARBOR LIVING CENTERS OF FLORIDA, INC.
ARBOR LIVING CENTERS OF TEXAS, INC.
ASIA CARE, INC.
BETHAMY LIVING CENTER MANAGEMENT COMPANY
BETHAMY LIVING CENTERS LIMITED PARTNERSHIP
BRIAR HILL, INC.
BRIARCLIFF NURSING HOME, INC.
CAMBRIDGE CARE CENTERS, INC.
CAMBRIDGE GROUP OF INDIANA, INC.
CAMBRIDGE GROUP OF PENNSYLVANIA, INC.
CAMBRIDGE GROUP OF TEXAS, INC.
CARE CENTERS HOLDING, INC.
CARRIAGE-By-THE-LAKE OF IHS, INC.
CEDARCROFT HEALTH SERVICES, INC.
CENTRAL PARK LODGES, INC.
CENTRAL PARK LODGES OF WEST PALM BEACH, INC.
CENTRAL PARK LODGES (TARPON SPRINGS), INC.
CLARA BURKE NURSING HOME, INC.
<PAGE>
CLAREMONT INTEGRATED HEALTH, INC.
COMPREHENSIVE POSTACUTE SERVICES, INC.
DERRY INTEGRATED HEALTH, INC.
ELIZABELL CO., INC.
ELM CREEK OF IHS, INC.
F.L.C. BENEVA NURSING PAVILION, INC.
F.L.C. SARASOTA NURSING PAVILION, INC.
FERRIGAN MOBILE X-RAY, INC.
FIRELANDS OF IHS, INC.
FIRST AMERICAN HOME CARE OF ALABAMA, INC.
FIRST AMERICAN HOME CARE OF ARKANSAS, INC.
FIRST AMERICAN HOME CARE OF CALIFORNIA, INC.
FIRST AMERICAN HOME CARE OF COLORADO, INC.
FIRST AMERICAN HOME CARE OF FLORIDA, INC.
FIRST AMERICAN HOME CARE OF FT. LAUDERDALE, INC.
FIRST AMERICAN HOME CARE OF GEORGIA, INC.
FIRST AMERICAN HOME CARE OF ILLINOIS, INC.
FIRST AMERICAN HOME CARE OF INDIANA, INC.
FIRST AMERICAN HOME CARE OF LOUISIANA, INC.
FIRST AMERICAN HOME CARE OF MICHIGAN, INC.
FIRST AMERICAN HOME CARE OF MISSISSIPPI, INC.
FIRST AMERICAN HOME CARE OF MISSOURI, INC.
FIRST AMERICAN HOME CARE OF NAPLES, INC.
FIRST AMERICAN HOME CARE OF NEBRASKA, INC.
FIRST AMERICAN HOME CARE OF NEW MEXICO, INC.
FIRST AMERICAN HOME CARE OF NORTH CAROLINA, INC.
FIRST AMERICAN HOME CARE OF PENNSYLVANIA, INC.
FIRST AMERICAN HOME CARE OF OHIO, INC.
FIRST AMERICAN HOME CARE OF OKLAHOMA, INC.
FIRST AMERICAN HOME CARE OF SOUTH CAROLINA, INC.
FIRST AMERICAN HOME CARE OF TENNESSEE, INC.
FIRST AMERICAN HOME CARE OF TEXAS, INC.
FIRST AMERICAN HOME CARE OF VALDOSTA, INC.
FIRST AMERICAN HOME CARE OF VIRGINIA, INC.
FIRST AMERICAN HOME CARE OF WEST VIRGINIA, INC.
FIRST AMERICAN INTERNATIONAL, INC.
FLORIDA LIFE CARE, INC.
GAINESVILLE HEALTH CARE CENTER, INC.
GRAVOIS HEALTH CARE, INC.
HEALTH CARE SYSTEMS, INC.
HEALTHCARE PHARMACY SERVICES OF FLORIDA, INC.
HEALTHCARE PHARMACY SERVICES OF PENNSYLVANIA, INC.
HEALTHCARE PHARMACY SERVICES OF TEXAS, INC.
HOME HEALTH INTEGRATED HEALTH SERVICES OF FLORIDA, INC.
<PAGE>
HOSPICE INTEGRATED HEALTH SERVICES OF DISTRICT I, INC.
HOSPICE INTEGRATED HEALTH SERVICES OF DISTRICT VII-B, INC.
HOSPICE INTEGRATED HEALTH SERVICES OF FLORIDA, INC.
HOSPICE OF INTEGRATED HEALTH SERVICES, INC.
IHS ACQUISITION XIII, INC.
IHS ACQUISITION XVIII, INC.
IHS AT LANSING, INC.
IHS CHICAGO POST-ACUTE NETWORK, INC.
IHS OF DANA, INC.
INTEGRACARE, INC.
INTEGRATED-BALLARD, INC.
INTEGRATED HEALTH GROUP LIMITED PARTNERSHIP
INTEGRATED HEALTH OF LOCUST VALLEY ROAD, INC.
INTEGRATED HEALTH OF WATERFORD COMMONS, INC.
INTEGRATED HEALTH SERVICES AT ALEXANDRIA, INC.
INTEGRATED HEALTH SERVICES AT BIG SAIL, INC.
INTEGRATED HEALTH SERVICES AT BLUE RIDGE MANOR, INC.
INTEGRATED HEALTH SERVICES AT BRIARCLIFF HAVEN, INC.
INTEGRATED HEALTH SERVICES AT CADIZ, INC.
INTEGRATED HEALTH SERVICES AT CENTRAL FLORIDA, INC.
INTEGRATED HEALTH SERVICES AT CHEYENNE, INC.
INTEGRATED HEALTH SERVICES AT CINCINNATI, INC.
INTEGRATED HEALTH SERVICES AT COLORADO SPRINGS, INC.
INTEGRATED HEALTH SERVICES AT COLUMBUS, INC.
INTEGRATED HEALTH SERVICES AT DAYTON, INC.
INTEGRATED HEALTH SERVICES AT DRIFTWOOD, INC.
INTEGRATED HEALTH SERVICES AT EASTERN MASSACHUSETTS, INC.
INTEGRATED HEALTH SERVICES AT GRANDVIEW CARE CENTER, INC.
INTEGRATED HEALTH SERVICES AT GREAT BEND, INC.
INTEGRATED HEALTH SERVICES AT HOPEDALE, INC.
INTEGRATED HEALTH SERVICES AT HOUSTON, INC.
INTEGRATED HEALTH SERVICES AT INDIAN CREEK, INC.
INTEGRATED HEALTH SERVICES AT KENT, INC.
INTEGRATED HEALTH SERVICES AT KING DAVID CENTER, INC.
INTEGRATED HEALTH SERVICES AT NEWARK, INC.
INTEGRATED HEALTH SERVICES AT ORMOND BEACH, INC.
INTEGRATED HEALTH SERVICES AT PARK REGENCY, INC.
INTEGRATED HEALTH SERVICES AT PENN, INC.
INTEGRATED HEALTH SERVICES AT SILVERCREST, INC.
INTEGRATED HEALTH SERVICES AT SOMERSET VALLEY, INC.
INTEGRATED HEALTH SERVICES AT SOUTHERN HILLS, INC.
INTEGRATED HEALTH SERVICES AT STEUBENVILLE
INTEGRATED HEALTH SERVICES AT SYCARMORE CREEK, INC.
INTEGRATED HEALTH SERVICES AT THREE RIVERS, INC.
<PAGE>
INTEGRATED HEALTH SERVICES AT TREYBURN, INC.
INTEGRATED HEALTH SERVICES FINANCIAL HOLDINGS, INC.
INTEGRATED HEALTH SERVICES HOLDINGS, INC.
INTEGRATED HEALTH SERVICES NPR, INC.
INTEGRATED HEALTH SERVICES OF ARCADIA, INC.
INTEGRATED HEALTH SERVICES OF ATHENS, INC.
INTEGRATED HEALTH SERVICES OF BRENTWOOD, INC.
INTEGRATED HEALTH SERVICES OF BRUNSWICK, INC.
INTEGRATED HEALTH SERVICES OF CALIFORNIA, INC.
INTEGRATED HEALTH SERVICES OF CLIFF MANOR, INC.
INTEGRATED HEALTH SERVICES OF COLORADO AT CHERRY CREEK, INC.
INTEGRATED HEALTH SERVICES OF EAGLE CREEK, INC.
INTEGRATED HEALTH SERVICES OF GREEN BRIAR, INC.
INTEGRATED HEALTH SERVICES OF HERITAGE MANOR, INC.
INTEGRATED HEALTH SERVICES OF HICKORY CREEK, INC.
INTEGRATED HEALTH SERVICES OF INDIAN HILLS, INC.
INTEGRATED HEALTH SERVICES OF JACKSONVILLE, INC.
INTEGRATED HEALTH SERVICES OF KURT, INC.
INTEGRATED HEALTH SERVICES OF LESTER, INC.
INTEGRATED HEALTH SERVICES OF MELISSA, INC.
INTEGRATED HEALTH SERVICES OF MISSOURI, INC.
INTEGRATED HEALTH SERVICES OF ORANGE PARK, INC.
INTEGRATED HEALTH SERVICES OF RIVERBEND, INC.
INTEGRATED HEALTH SERVICES OF SCENIC HILLS, INC.
INTEGRATED HEALTH SERVICES OF SKYVIEW, INC.
INTEGRATED HEALTH SERVICES OF SKYVIEW II, INC.
INTEGRATED HEALTH SERVICES OF SUNSET, INC.
INTEGRATED MANAGEMENT-GOVERNOR'S PARK, INC.
INTEGRATED OF AMARILLO, INC.
INTEGRATED PHYSICIAN GROUP SERVICES, INC.
ISABETH CO., INC.
J.R. REHAB ASSOCIATES, INC.
LPC BETHAMY HEALTH CORPORATION
MANCHESTER INTEGRATED HEALTH, INC.
MOBILE RAY OF NEW ORLEANS, INC.
MOUNTAIN VIEW NURSING CENTER, INC.
NEW SOUTHWOOD ASSOCIATES, INC.
PALESTINE NURSING CENTER, INC.
PATIENT CARE PHARMACY, INC.
PATIENT CARE PHARMACY - COLORADO SPRINGS, INC.
PHARMACEUTICAL DOSE SERVICE, INC.
PINELLAS PARK NURSING HOME, INC.
PROFESSIONAL REVIEW NETWORK, INC.
REHAB MANAGEMENT SYSTEMS, INC.
<PAGE>
REST HAVEN NURSING CENTERS, INC.
REST HAVEN NURSING CENTERS (CHESTNUT HILL), INC.
REST HAVEN NURSING CENTERS (WHITEMARSH), INC.
RIKAD PROPERTIES, INC.
SAMARITAN CARE, INC. (Illinois Domestic)
SAMARITAN CARE, INC. (Michigan Domestic)
SAMARITAN MANAGEMENT, INC.
SLC COMMUNITY CARE, INC.
SOUTHWOOD HOLDINGS, INC.
SPRING CREEK OF IHS, INC.
SYMPHONY ANCILLARY SERVICES, INC.
SYMPHONY DIAGNOSTIC SERVICES, INC.
SYMPHONY DIAGNOSTIC SERVICES NO. 1, INC.
SYMPHONY DIAGNOSTIC SERVICES NO. 2, INC.
SYMPHONY HEALTH CARE CONSULTING, INC.
SYMPHONY HEALTH SERVICES, INC.
SYMPHONY HOME CARE SERVICES, INC.
SYMPHONY HOME CARE SERVICES NO. 1, INC.
SYMPHONY HOME CARE SERVICES NO. 2, INC.
SYMPHONY HOME CARE SERVICES NO. 3, INC.
SYMPHONY HOME CARE SERVICES NO. 4, INC.
SYMPHONY HOME CARE SERVICES NO. 5, INC.
SYMPHONY HOME CARE SERVICES NO. 6, INC.
SYMPHONY HOME CARE SERVICES NO. 7, INC.
SYMPHONY HOME CARE SERVICES NO. 8, INC.
SYMPHONY HOME CARE SERVICES NO. 9, INC.
SYMPHONY HOME CARE SERVICES NO. 10, INC.
SYMPHONY HOME CARE SERVICES NO. 11, INC.
SYMPHONY HOME CARE SERVICES NO. 12, INC.
SYMPHONY HOME CARE SERVICES NO. 13, INC.
SYMPHONY HOME CARE SERVICES NO. 14, INC.
SYMPHONY HOME CARE SERVICES NO. 15, INC.
SYMPHONY HOME CARE SERVICES NO. 16, INC.
SYMPHONY HOME CARE SERVICES NO. 17, INC.
SYMPHONY HOME CARE SERVICES NO. 18- CALIFORNIA, INC.
SYMPHONY HOME CARE SERVICES NO. 18- LOUISIANA, INC.
SYMPHONY HOME CARE SERVICES NO. 18- OKLAHOMA, INC.
SYMPHONY HOME CARE SERVICES NO. 18- TENNESSEE, INC.
SYMPHONY HOME CARE SERVICES NO. 18- TEXAS. INC.
SYMPHONY HOME CARE SERVICES NO. 19, INC.
SYMPHONY HOME CARE SERVICES NO. 100, INC.
SYMPHONY HOME CARE SERVICES NO. 101, INC.
SYMPHONY HOME CARE SERVICES NO. 102, INC.
SYMPHONY HOME CARE SERVICES NO. 103, INC.
<PAGE>
SYMPHONY HOME CARE SERVICES NO. 104, INC.
SYMPHONY HOME CARE SERVICES NO. 105, INC.
SYMPHONY HOME CARE SERVICES NO. 106, INC.
SYMPHONY HOME CARE SERVICES NO. 107, INC.
SYMPHONY HOME CARE SERVICES NO. 108, INC.
SYMPHONY HOME CARE SERVICES NO. 109, INC.
SYMPHONY HOME CARE SERVICES NO. 110, INC.
SYMPHONY HOME CARE SERVICES NO. 113, INC.
SYMPHONY HOME CARE SERVICES NO. 114, INC.
SYMPHONY HOME CARE SERVICES NO. 115, INC.
SYMPHONY HOME CARE SERVICES NO. 116, INC.
SYMPHONY HOME CARE SERVICES NO. 117, INC.
SYMPHONY HOME CARE SERVICES NO. 118, INC.
SYMPHONY HOME CARE SERVICES NO. 119, INC.
SYMPHONY HOME CARE SERVICES NO. 120, INC.
SYMPHONY HOME CARE SERVICES NO. 121, INC.
SYMPHONY HOME CARE SERVICES NO. 122, INC.
SYMPHONY PHARMACY SERVICES, INC.
SYMPHONY REHABILITATION SERVICES, INC.
SYMPHONY REHABILITATION SERVICES NO. 1, INC.
SYMPHONY REHABILITATION SERVICES NO. 2, INC.
SYMPHONY REHABILITATION SERVICES NO. 3, INC.
SYMPHONY REHABILITATION SERVICES NO. 4, INC.
SYMPHONY RESPIRATORY SERVICES, INC.
TEXAS LPC, INC.
WEST COAST CAMBRIDGE, INC.
WOODRIDGE CONVALESCENT CENTER, INC.
By: /s/
---------------------------------
Name:
Title:
of Each Guarantor or of the
General Partner of such Guarantor
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
March 24, 1997
To the Administrative Agent and
the Lenders parties to the Revolving
Credit Agreement referred to below
Amendment No.3 to Revolving Credit Agreement
--------------------------------------------
Ladies and Gentlemen:
Reference is made to the Revolving Credit Agreement, dated as of May 15,
1996, as amended by Amendment No. 1 dated September 6, 1996 and Amendment No. 2
dated November 8, 1996 (such Revolving Credit Agreement as so amended being the
"Credit Agreement"), among Integrated Health Services, Inc. ("IHS"), Citibank
N.A., as administrative agent thereunder (the "Agent"), and the other financial
institutions party thereto, as lenders thereunder. Capitalized terms used and
not otherwise defined herein are used herein as defined in the Credit Agreement.
IHS has proposed to (i) issue senior subordinated notes in an aggregate
principal amount of up to $450,000,000 and (ii) purchase the indebtedness
outstanding under the 1994 Subordinated Debt Indenture and the 1995 Subordinated
Debt Indenture. In connection with the foregoing, IHS has requested that the
Lenders agree to amend certain covenants contained in Article V of the Credit
Agreement to permit such transactions. We understand that the Requisite Lenders
are, on the terms and conditions stated below, willing to grant our request, and
the Requisite Lenders have agreed to amend the Credit Agreement as hereinafter
set forth.
Effective as of the date hereof and subject to the satisfaction of the
condition precedents set forth below, the Credit Agreement is hereby amended as
follows:
(a) The definition of "1996 Subordinated Debt Indenture" in Section
1.01 is amended in full to read as follows:
"'1996 SUBORDINATED DEBT INDENTURE' means the Indenture, dated as
of May 15, 1996, between the Borrower, as Issuer, and Signet Trust
Company, as Trustee."
(b) In Section 1.01, the following definition of "1997 Subordinated
Debt Indenture" is added in the appropriate alphabetical order:
<PAGE>
2
"'1997 SUBORDINATED DEBT INDENTURE' means the Indenture to be
entered into after April 7, 1997 between the Borrower, as Issuer, and
the trustee thereunder in connection with a proposed senior
subordinated note offering."
(c) The definition of "Subordinated Debt Indentures" in Section 1.01
is amended in full to read as follows:
"'SUBORDINATED DEBT INDENTURES' means the 1992 Convertible
Subordinated Debt Indenture, the 1993 Convertible Subordinated Debt
Indenture, the 1994 Subordinated Debt Indenture, the 1995 Subordinated
Debt Indenture, the 1996 Subordinated Debt Indenture and, upon the
effectiveness thereof, the 1997 Subordinated Debt Indenture"
(d) Section 5.03(d) is amended by deleting the period at the end of
subsection (v) thereof and substituting therefor "; and" and adding a new
subsection (vi) following such subsection (v) to read as follows:
"(vi) Subordinated Debt incurred under the 1997 Subordinated Debt
Indenture in an aggregate principal amount of up to $450,000,000, with
an interest rate not in excess of 10.25%, and any extension, renewal
or refinancing of such Debt so long as either (A) the principal amount
of such Debt is not increased or (B) any increase in the principal
amount of such Debt is permitted pursuant to another clause of this
Section 5.03(d); provided that the terms and conditions of such 1997
Subordinated Debt Indenture shall be (1) substantially similar to the
terms and conditions contained in the 1996 Subordinated Debt Indenture
and (2) satisfactory to the Agent in its sole discretion."
(e) Section 5.03(h)(G) is amended in full to read as follows:
"(G) so long as no Event of Default exists or would result and
unless otherwise prohibited under this Agreement and the 1993
Convertible Subordinated Debt Indenture, the Borrower may pay on
January 1, 2001 any principal amount then due and payable under the
1993 Convertible Subordinated Debt Indenture; and"
(f) Section 5.03(h) is amended by adding a new subsection (H)
following subsection (G) to read as follows:
"(H) purchase by tender or otherwise any or all of the
indebtedness outstanding under the 1994 Subordinated Debt
Indenture and the 1995 Subordinated Debt Indenture for an amount
not in excess of 116% of the principal amount purchased, provided
that the aggregate amount of such purchases cannot be in excess
of the aggregate net proceeds of the Subordinated Debt referred
to in Section 5.03(d)(vi)."
<PAGE>
3
This Amendment shall become effective on the date when and only when the
Agent shall have received (A) counterparts of this Amendment executed by IHS and
the Requisite Lenders, or as to any of such Lenders, advice satisfactory to the
Agent that such Lender has executed this Amendment and (B) counterparts of the
Consent appended hereto (the "Consent"), executed by each Guarantor.
IHS represents and warrants as follows:
(a) IHS is duly organized and validly existing under the laws of
Delaware. Each Guarantor is a corporation or partnership duly organized and
validly existing under the laws of the jurisdiction in which it is
organized.
(b) Each of IHS and each Guarantor has the corporate or partnership
power to execute, deliver and perform this Amendment and the Consent, as
the case may be, and to take all action necessary to consummate the
transactions contemplated hereunder. The execution, delivery and
performance by IHS and each Guarantor of this Amendment and the Consent,
respectively, have been duly authorized by all necessary action and do not
contravene (i) its certificate or articles of incorporation (or, in case of
a partnership, governing agreements) or (ii) any law or any indenture,
lease or written agreement binding on or affecting it.
(c) No authorization or approval or other action by, and no notice to
or filing with, any Governmental Authority is required for the due
execution, delivery and performance by IHS or any Guarantor of this
Amendment or the Consent, respectively.
(d) This Amendment and the Consent constitutes legal, valid and
binding obligations of IHS and each Guarantor, respectively, enforceable
against IHS and each Guarantor, respectively, in accordance with their
respective terms subject to laws generally affecting the enforcement of
creditors' rights.
(e) The Credit Agreement is a "Credit Agreement" within the meaning of
the 1997 Subordinated Debt Indenture, upon its effectiveness, and the
obligations under the Credit Agreement when incurred will be "Senior
Indebtedness" within the meaning of the 1997 Subordinated Debt Indenture.
Upon the effectiveness of this Amendment, on and after the date hereof each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" of
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement as amended hereby. Except as specifically
amended above, the Credit Agreement, and all other Loan Documents, are and shall
continue to be in full force and effect and are hereby in all respects ratified
and confirmed. The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Agent under any of the Loan Documents,
<PAGE>
4
not constitute a waiver of any provision of any of the Loan Documents. This
Amendment shall be governed by, and construed in accordance with, the laws of
the State of New York.
Please evidence your acknowledgement of and agreement to the foregoing by
executing and returning not later than the close of business on April 4, 1997
three counterparts of this Amendment No. 3 to Citicorp Securities, Inc., 399
Park Avenue, 9th Floor, New York, New York 10043, Attention: Rosemary Bell. This
Amendment No. 3 is subject to the provisions of Section 8.01 of the Credit
Agreement.
This Amendment No. 3 may be executed in any number of counterparts and by
any combination of the parties hereto in separate counterparts, each of which
counterparts shall be an original and all of which taken together shall
constitute one and the same Amendment No. 3.
Very truly yours,
INTEGRATED HEALTH
SERVICES, INC.
By: /s/
-----------------------------
Name:
Title:
ACKNOWLEDGED, AGREED
AND CONSENTED TO as of
the date first above written:
CITIBANK, N.A.,
as Administrative Agent and as a Lender
By: /s/
-------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
5
THE BANK OF NOVA SCOTIA,
as LC Bank, a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
CORESTATES BANK, N.A.,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
CREDIT LYONNAIS,
NEW YORK BRANCH,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
DEUTSCHE BANK AG,
NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
6
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
NATIONSBANK, N.A.,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
7
CREDITANSTALT CORPORATE
FINANCE, INC.,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
By: /s/
-------------------------------------
Name:
Title:
FLEET NATIONAL BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
GENERAL ELECTRIC
CAPITAL CORPORATION,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
HIBERNIA NATIONAL BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
8
AMSOUTH BANK OF ALABAMA,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI
TRUST COMPANY,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
THE SANWA BANK, LIMITED,
NEW YORK BRANCH
as a Lender
By: /s/
-------------------------------------
Name:
Title:
SIGNET BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
9
FIRST AMERICAN NATIONAL BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
ALLIED IRISH BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
PROVIDENT BANK OF MARYLAND,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
BANK OF AMERICA ILLINOIS
as a Lender
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
CONSENT
The undersigned, as Guarantors under the Subsidiary Guaranty, dated as of
May 15, 1996 or under Agreements to be Bound by such Subsidiary Guaranty
(collectively, the "Guaranty"), in favor of the Agent for the Lenders parties to
the Credit Agreement referred to in the foregoing Amendment No. 3 hereby consent
to such Amendment No. 3 and hereby confirm and agree that notwithstanding the
effectiveness of such Amendment No. 3, the Guaranty is, and shall continue to
be, in full force and effect and is hereby confirmed and ratified in all
respects.
ABC GP, INC.
ABC HOME HEALTH AND HOSPICE OF ALBANY, INC.
ABC HOME HEALTH AND HOSPICE OF ATHENS, INC.
ABC HOME HEALTH AND HOSPICE OF BRUNSWICK, INC.
ABC HOME HEALTH AND HOSPICE OF DUBLIN, INC.
ABC HOME HEALTH AND HOSPICE OF MACON, INC.
ABC HOME HEALTH AND HOSPICE OF SAVANNAH, INC.
ABC HOME HEALTH AND HOSPICE OF TIFTON, INC.
ABC HOME HEALTH AND HOSPICE OF VIDALIA, INC.
ABC HOME HEALTH AND HOSPICE OF WAYCROSS, INC.
ABC HOME NURSING, INC.
ABC NEWCO, INC.
ABC PHARMACEUTICALS, INC.
ALABAMA SENIOR LIFE CARE, INC.
ALPINE MANOR, INC.
ARBOR LIVING CENTERS OF FLORIDA, INC.
ARBOR LIVING CENTERS OF TEXAS, INC.
ASIA CARE, INC.
BETHAMY LIVING CENTER MANAGEMENT COMPANY
BETHAMY LIVING CENTERS LIMITED PARTNERSHIP
BRIAR HILL, INC.
BRIARCLIFF NURSING HOME, INC.
CAMBRIDGE CARE CENTERS, INC.
CAMBRIDGE GROUP OF INDIANA, INC.
CAMBRIDGE GROUP OF PENNSYLVANIA, INC.
CAMBRIDGE GROUP OF TEXAS, INC.
CARE CENTERS HOLDING, INC.
CARRIAGE-By-THE-LAKE OF IHS, INC.
CEDARCROFT HEALTH SERVICES, INC.
CENTRAL PARK LODGES, INC.
CENTRAL PARK LODGES OF WEST PALM BEACH, INC.
CENTRAL PARK LODGES (TARPON SPRINGS), INC.
CLARA BURKE NURSING HOME, INC.
CLAREMONT INTEGRATED HEALTH, INC.
COMPREHENSIVE POSTACUTE SERVICES, INC.
DERRY INTEGRATED HEALTH, INC.
ELIZABELL CO., INC.
<PAGE>
3
ELM CREEK OF IHS, INC.
F.L.C. BENEVA NURSING PAVILION, INC.
F.L.C. SARASOTA NURSING PAVILION, INC.
FERRIGAN MOBILE X-RAY, INC.
FIRELANDS OF IHS, INC.
FIRST AMERICAN HOME CARE OF ALABAMA, INC.
FIRST AMERICAN HOME CARE OF ARKANSAS, INC.
FIRST AMERICAN HOME CARE OF CALIFORNIA, INC.
FIRST AMERICAN HOME CARE OF COLORADO, INC.
FIRST AMERICAN HOME CARE OF FLORIDA, INC.
FIRST AMERICAN HOME CARE OF FT. LAUDERDALE, INC.
FIRST AMERICAN HOME CARE OF GEORGIA, INC.
FIRST AMERICAN HOME CARE OF ILLINOIS, INC.
FIRST AMERICAN HOME CARE OF INDIANA, INC.
FIRST AMERICAN HOME CARE OF LOUISIANA, INC.
FIRST AMERICAN HOME CARE OF MICHIGAN, INC.
FIRST AMERICAN HOME CARE OF MISSISSIPPI, INC.
FIRST AMERICAN HOME CARE OF MISSOURI, INC.
FIRST AMERICAN HOME CARE OF NAPLES, INC.
FIRST AMERICAN HOME CARE OF NEBRASKA, INC.
FIRST AMERICAN HOME CARE OF NEW MEXICO, INC.
FIRST AMERICAN HOME CARE OF NORTH CAROLINA, INC.
FIRST AMERICAN HOME CARE OF OHIO, INC.
FIRST AMERICAN HOME CARE OF OKLAHOMA, INC.
FIRST AMERICAN HOME CARE OF PENNSYLVANIA, INC.
FIRST AMERICAN HOME CARE OF SOUTH CAROLINA, INC.
FIRST AMERICAN HOME CARE OF TENNESSEE, INC.
FIRST AMERICAN HOME CARE OF TEXAS, INC.
FIRST AMERICAN HOME CARE OF VALDOSTA, INC.
FIRST AMERICAN HOME CARE OF VIRGINIA, INC.
FIRST AMERICAN HOME CARE OF WEST VIRGINIA, INC.
FIRST AMERICAN INTERNATIONAL, INC.
FLORIDA LIFE CARE, INC.
GAINESVILLE HEALTH CARE CENTER, INC.
GRAVOIS HEALTH CARE, INC.
HEALTH CARE SYSTEMS, INC.
HOME HEALTH INTEGRATED HEALTH SERVICES OF FLORIDA, INC.
HOSPICE INTEGRATED HEALTH SERVICES OF DISTRICT I, INC.
HOSPICE INTEGRATED HEALTH SERVICES OF DISTRICT VII-B, INC.
HOSPICE INTEGRATED HEALTH SERVICES OF FLORIDA, INC.
HOSPICE OF INTEGRATED HEALTH SERVICES, INC.
IHS ACQUISITION XIII, INC.
IHS ACQUISITION XV, INC.
IHS ACQUISITION XVIII, INC.
IHS ACQUISITION XIX, INCL
<PAGE>
4
IHS ACQUISITION XXII, INC.
IHS AT LANSING, INC.
IHS CHICAGO POST-ACUTE NETWORK, INC.
IHS DEVELOPMENT-HIGHLANDS PARK, INC.
IHS HOME CARE, INC.
IHS LAND ACQUISITION-HIGHLANDS PARK, INC.
IHS MANAGEMENT GROUP, INC.
IHS NETWORK SERVICES, INC.
IHS OF DANA, INC.
IN-HOME HEALTH CARE, INC.
INTEGRACARE, INC.
INTEGRATED-BALLARD, INC.
INTEGRATED HEALTH GROUP LIMITED PARTNERSHIP
INTEGRATED HEALTH OF LOCUST VALLEY ROAD, INC.
INTEGRATED HEALTH OF WATERFORD COMMONS, INC.
INTEGRATED HEALTH SERVICES AT ALEXANDRIA, INC.
INTEGRATED HEALTH SERVICES AT BIG SAIL, INC.
INTEGRATED HEALTH SERVICES AT BLUE RIDGE MANOR, INC.
INTEGRATED HEALTH SERVICES AT BRIARCLIFF HAVEN, INC.
INTEGRATED HEALTH SERVICES AT CADIZ, INC.
INTEGRATED HEALTH SERVICES AT CENTRAL FLORIDA, INC.
INTEGRATED HEALTH SERVICES AT CHEYENNE, INC.
INTEGRATED HEALTH SERVICES AT COLORADO SPRINGS, INC.
INTEGRATED HEALTH SERVICES AT COLUMBUS, INC.
INTEGRATED HEALTH SERVICES AT DAYTON, INC.
INTEGRATED HEALTH SERVICES AT DRIFTWOOD, INC.
INTEGRATED HEALTH SERVICES AT EASTERN MASSACHUSETTS, INC.
INTEGRATED HEALTH SERVICES AT GRANDVIEW CARE CENTER, INC.
INTEGRATED HEALTH SERVICES AT GREAT BEND, INC.
INTEGRATED HEALTH SERVICES AT HIGHLANDS PARK, INC.
INTEGRATED HEALTH SERVICES AT HOPEDALE, INC.
INTEGRATED HEALTH SERVICES AT HOUSTON, INC.
INTEGRATED HEALTH SERVICES AT INDIAN CREEK, INC.
INTEGRATED HEALTH SERVICES AT KENT, INC.
INTEGRATED HEALTH SERVICES AT KING DAVID CENTER, INC.
INTEGRATED HEALTH SERVICES AT NEWARK, INC.
INTEGRATED HEALTH SERVICES AT ORMOND BEACH, INC.
INTEGRATED HEALTH SERVICES AT PARK REGENCY, INC.
INTEGRATED HEALTH SERVICES AT PENN, INC.
INTEGRATED HEALTH SERVICES AT SILVERCREST, INC.
INTEGRATED HEALTH SERVICES AT SOMERSET VALLEY, INC.
INTEGRATED HEALTH SERVICES AT SOUTHERN HILLS, INC.
INTEGRATED HEALTH SERVICES AT STEUBENVILLE
INTEGRATED HEALTH SERVICES AT SYCARMORE CREEK, INC.
INTEGRATED HEALTH SERVICES AT THREE RIVERS, INC.
<PAGE>
5
INTEGRATED HEALTH SERVICES AT TREYBURN, INC.
INTEGRATED HEALTH SERVICES FINANCIAL HOLDINGS, INC.
INTEGRATED HEALTH SERVICES HOLDINGS, INC.
INTEGRATED HEALTH SERVICES NPR, INC.
INTEGRATED HEALTH SERVICES OF ARCADIA, INC.
INTEGRATED HEALTH SERVICES OF ATHENS, INC.
INTEGRATED HEALTH SERVICES OF BRENTWOOD, INC.
INTEGRATED HEALTH SERVICES OF BRUNSWICK, INC.
INTEGRATED HEALTH SERVICES OF CALIFORNIA, INC.
INTEGRATED HEALTH SERVICES OF CLIFF MANOR, INC.
INTEGRATED HEALTH SERVICES OF COLORADO AT CHERRY CREEK, INC.
INTEGRATED HEALTH SERVICES OF EAGLE CREEK, INC.
INTEGRATED HEALTH SERVICES OF GREEN BRIAR, INC.
INTEGRATED HEALTH SERVICES OF HERITAGE MANOR, INC.
INTEGRATED HEALTH SERVICES OF HICKORY CREEK, INC.
INTEGRATED HEALTH SERVICES OF INDIAN HILLS, INC.
INTEGRATED HEALTH SERVICES OF JACKSONVILLE, INC.
INTEGRATED HEALTH SERVICES OF KURT, INC.
INTEGRATED HEALTH SERVICES OF LESTER, INC.
INTEGRATED HEALTH SERVICES OF MELISSA, INC.
INTEGRATED HEALTH SERVICES OF MISSOURI, INC.
INTEGRATED HEALTH SERVICES OF ORANGE PARK, INC.
INTEGRATED HEALTH SERVICES OF RIVERBEND, INC.
INTEGRATED HEALTH SERVICES OF SCENIC HILLS, INC.
INTEGRATED HEALTH SERVICES OF SKYVIEW, INC.
INTEGRATED HEALTH SERVICES OF SKYVIEW II, INC.
INTEGRATED HEALTH SERVICES OF SUNSET, INC.
INTEGRATED MANAGED CARE, INC. (formerly Isabeth Co., Inc.)
INTEGRATED MANAGEMENT-GOVERNOR'S PARK, INC.
INTEGRATED OF AMARILLO, INC.
INTEGRATED PHYSICIAN GROUP SERVICES, INC.
J.R. REHAB ASSOCIATES, INC.
LIFEWAY, INC.
LPC BETHAMY HEALTH CORPORATION, L.P.
MANCHESTER INTEGRATED HEALTH, INC.
MOBILE RAY OF NEW ORLEANS, INC.
MOUNTAIN VIEW NURSING CENTER, INC.
NEW SOUTHWOOD ASSOCIATES, INC.
PALESTINE NURSING CENTER, INC.
PINELLAS PARK NURSING HOME, INC.
PREFERRED HOME HEALTH SERVICES, INC.
PROFESSIONAL REVIEW NETWORK, INC.
REHAB MANAGEMENT SYSTEMS, INC.
REST HAVEN NURSING CENTERS, INC.
REST HAVEN NURSING CENTERS (CHESTNUT HILL), INC.
<PAGE>
6
REST HAVEN NURSING CENTERS (WHITEMARSH), INC.
RIKAD PROPERTIES, INC.
SAMARITAN CARE, INC. (Illinois Domestic)
SAMARITAN CARE, INC. (Michigan Domestic)
SAMARITAN MANAGEMENT, INC.
SHC OF ARIZONA, L.P.
SHC SERVICES OF ARIZONA, L.P.
SIGNATURE HOME CARE GROUP, INC.
SIGNATURE HOME CARE, INC.
SIGNATURE HOME CARE OF ARLINGTON, INC.
SIGNATURE HOME CARE OF FLORIDA, INC.
SIGNATURE HOME CARE OF GEORGIA, INC.
SIGNATURE HOME CARE OF KANSAS, INC.
SIGNATURE HOME CARE OF NEW JERSEY, INC.
SIGNATURE HOME CARE OF NEW JERSEY GENERAL PARTNERSHIP
SIGNATURE HOME CARE OF SAN ANTONIO, INC.
SIGNATURE HOME CARE SERVICES OF FLORIDA, INC.
SIGNATURE HOME CARE SERVICES OF SAN ANTONIO, INC.
SIGNATURE MANAGEMENT SERVICES, INC.
SIGNATURE RECEIVABLES CORP.
SLC COMMUNITY CARE, INC.
SOUTHWOOD HOLDINGS, INC.
SPRING CREEK OF IHS, INC.
SYMPHONY ANCILLARY SERVICES, INC.
SYMPHONY DIAGNOSTIC SERVICES, INC.
SYMPHONY DIAGNOSTIC SERVICES NO. 1, INC.
SYMPHONY DIAGNOSTIC SERVICES NO. 2, INC.
SYMPHONY HEALTH CARE CONSULTING, INC.
SYMPHONY HEALTH SERVICES, INC.
SYMPHONY HOME CARE SERVICES, INC.
SYMPHONY HOME CARE SERVICES NO. 1, INC.
SYMPHONY HOME CARE SERVICES NO. 2, INC.
SYMPHONY HOME CARE SERVICES NO. 3, INC.
SYMPHONY HOME CARE SERVICES NO. 4, INC.
SYMPHONY HOME CARE SERVICES NO. 5, INC.
SYMPHONY HOME CARE SERVICES NO. 6, INC.
SYMPHONY HOME CARE SERVICES NO. 7, INC.
SYMPHONY HOME CARE SERVICES NO. 8, INC.
SYMPHONY HOME CARE SERVICES NO. 9, INC.
SYMPHONY HOME CARE SERVICES NO. 10, INC.
SYMPHONY HOME CARE SERVICES NO. 11, INC.
SYMPHONY HOME CARE SERVICES NO. 12, INC.
SYMPHONY HOME CARE SERVICES NO. 13, INC.
SYMPHONY HOME CARE SERVICES NO. 14, INC.
SYMPHONY HOME CARE SERVICES NO. 15, INC.
<PAGE>
7
SYMPHONY HOME CARE SERVICES NO. 16, INC.
SYMPHONY HOME CARE SERVICES NO. 17, INC.
SYMPHONY HOME CARE SERVICES NO. 18- CALIFORNIA, INC.
SYMPHONY HOME CARE SERVICES NO. 18- LOUISIANA, INC.
SYMPHONY HOME CARE SERVICES NO. 18- OKLAHOMA, INC.
SYMPHONY HOME CARE SERVICES NO. 18- TEXAS. INC.
SYMPHONY HOME CARE SERVICES NO. 19, INC.
SYMPHONY HOME CARE SERVICES NO. 100, INC.
SYMPHONY HOME CARE SERVICES NO. 101, INC.
SYMPHONY HOME CARE SERVICES NO. 102, INC.
SYMPHONY HOME CARE SERVICES NO. 103, INC.
SYMPHONY HOME CARE SERVICES NO. 104, INC.
SYMPHONY HOME CARE SERVICES NO. 105, INC.
SYMPHONY HOME CARE SERVICES NO. 106, INC.
SYMPHONY HOME CARE SERVICES NO. 107, INC.
SYMPHONY HOME CARE SERVICES NO. 108, INC.
SYMPHONY HOME CARE SERVICES NO. 109, INC.
SYMPHONY HOME CARE SERVICES NO. 110, INC.
SYMPHONY HOME CARE SERVICES NO. 113, INC.
SYMPHONY HOME CARE SERVICES NO. 114, INC.
SYMPHONY HOME CARE SERVICES NO. 115, INC.
SYMPHONY HOME CARE SERVICES NO. 116, INC.
SYMPHONY HOME CARE SERVICES NO. 117, INC.
SYMPHONY HOME CARE SERVICES NO. 118, INC.
SYMPHONY HOME CARE SERVICES NO. 119, INC.
SYMPHONY HOME CARE SERVICES NO. 120, INC.
SYMPHONY HOME CARE SERVICES NO. 121, INC.
SYMPHONY HOME CARE SERVICES NO. 122, INC.
SYMPHONY REHABILITATION SERVICES, INC.
SYMPHONY REHABILITATION SERVICES NO. 1, INC.
SYMPHONY REHABILITATION SERVICES NO. 2, INC.
SYMPHONY REHABILITATION SERVICES NO. 3, INC.
SYMPHONY REHABILITATION SERVICES NO. 4, INC.
SYMPHONY RESPIRATORY SERVICES, INC.
TEXAS LPC, INC.
<PAGE>
8
THE BESTON CORPORATION
WEST COAST CAMBRIDGE, INC.
WOODRIDGE CONVALESCENT CENTER, INC.
By: /s/
---------------------------------
Name:
Title:
of Each Guarantor or of the
General Partner of such Guarantor
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
July 3, 1997
To the Administrative Agent and
the Lenders parties to the Revolving
Credit Agreement referred to below
Amendment No. 4 to Revolving Credit Agreement
---------------------------------------------
Ladies and Gentlemen:
Reference is made to the Revolving Credit Agreement, dated as of May 15,
1996, as amended by Amendment No. 1 dated September 6, 1996, Amendment No. 2
dated November 8, 1996 and Amendment No. 3 dated March 24, 1997 (such Revolving
Credit Agreement as so amended being the "Credit Agreement"), among Integrated
Health Services, Inc. ("IHS"), Citibank N.A., as administrative agent thereunder
(the "Agent"), and the other financial institutions party thereto, as lenders
thereunder. Capitalized terms used and not otherwise defined herein are used
herein as defined in the Credit Agreement.
IHS has proposed to enter into a lease financing facility (the "Synthetic
Lease Facility") pursuant to which one or more of its Subsidiaries will enter
into one or more leases for its headquarters facility and other properties. As
part of such lease financings, IHS and its Subsidiaries (other than Inactive
Subsidiaries) propose to guaranty certain obligations of such Subsidiaries under
such leases and grant a security interest in the Collateral to secure those
guaranties, with such security interest to be pari passu with the security
interest of the Lenders. In addition, IHS has proposed to sell certain assets
which sales require the consent of the Requisite Lenders, to amend the
definition of "Cash Flow from Operations", to amend the Credit Agreement
covenant relating to stock repurchases and to acquire Community Care of America,
Inc. In connection with the foregoing, IHS has requested that the Requisite
Lenders agree to amend certain covenants contained in Article V of the Credit
Agreement and to amend the definition of "Debt/EBITDAR Ratio" to permit such
transactions, to amend Schedule 1.01 (c) to the Credit Agreement and to replace
the Pledge and Security Agreements heretofore executed by IHS or its
Subsidiaries with the Pledge and Security Agreements in the forms attached
hereto. We understand that the Requisite Lenders are, on the terms and
conditions stated below, willing to grant our requests, and the Requisite
Lenders have agreed to amend the Credit Agreement as hereinafter set forth.
Effective as of the date hereof and subject to the satisfaction of the
condition precedents set forth below, the Credit Agreement is hereby amended as
follows:
<PAGE>
2
(a) Section 1.01 is amended by adding the following definitions in the
appropriate alphabetical order:
"'CCA' means Community Care of America, Inc."
"'SYNTHETIC LEASE FACILITY' means the lease to be entered into between
State Street Bank and Trust Company, as Corporate Owner Trustee, and
Integrated Health Services at Highlands Park, Inc., as Lessee, and the
other leases to be entered into by Subsidiaries of the Borrower
pursuant to the Participation Agreement to be entered into among the
Borrower, Integrated Health Services at Highlands Park, Inc., IHS
Development - Highlands Park, Inc., State Street Bank and Trust
Company, as Corporate Owner Trustee, an Individual Owner Trustee, the
Certificate Holder party thereto, the Note Holders thereto and
Citibank, N. A., as Agent."
(b) The definition of "CASH FLOW FROM OPERATIONS" in Section 1.01 is
amended in full to read as follows:
"'CASH FLOW FROM OPERATIONS' means, with respect to any Person, the
sum, determined as of the last day of any Quarter for such Person and
its subsidiaries on a consolidated basis for the 12-month period
including such Quarter and the immediately preceding three Quarters
(taken as a single period), of (i) net income after taxes minus any
extraordinary gain and any non-recurring gain on any divestiture and
plus any extraordinary loss and any non-recurring loss on any
divestiture, (ii) depreciation, amortization, and other non-cash
charges deducted in determining net income, (iii) Interest Expense,
(iv) Lease Expense and (v) with respect to Cash Flow from Operations
of the Borrower and its Subsidiaries only, Receivables Program
Charges, all determined in accordance with GAAP; provided, however,
that (A) income attributable to any other Person or business that is
not at least 50% owned, directly or indirectly, by such Person shall
be counted, in determining net income, only to the extent such income
is received in cash by such Person or a subsidiary of such Person in
such period and is not reinvested in such other Person or business
(other than as a loan payable on demand) within six months thereafter,
except that, with respect to the Borrower only, income from minority
Investments existing on the Closing Date and described in Schedule
5.03(c) shall be counted in accordance with the Borrower's past
practice, (B) no adjustments shall be made to reflect minority
interests in subsidiaries and (C) non-recurring cash charges in an
aggregate amount not in excess of $30,000,000 in connection with the
terminated acquisition
<PAGE>
3
of Coram shall be included as an addback to net income for purposes of
this definition."
(c) The definition of "DEBT" in Section 1.01 is amended in full to
read as follows:
"'DEBT' as applied to any Person and in each case determined on a
consolidated basis in conformity with GAAP, means (without
duplication) (i) all indebtedness for borrowed money (whether by loan
or the issuance of debt securities or otherwise); (ii) all obligations
issued, undertaken or assumed as the deferred purchase price of
property or services or interest thereon, except accounts and accrued
expenses currently payable; (iii) all monetary obligations under the
Synthetic Lease Facility, (iv) all reimbursement obligations with
respect to surety bonds, letters of credit, bankers' acceptances and
similar instruments, whether or not contingent; (v) all monetary
obligations under any Capital Lease; (vi) all obligations (contingent
or otherwise) to purchase, retire or redeem any capital stock or any
other equity interest of such Person; (vii) all monetary obligations
measured by, or determined on the basis of, the value of any capital
stock of such Person; and (viii) all obligations, whether or not such
obligations constitute Debt as defined in clauses (i) through (vii)
above, secured by (or for which the holder of the obligation has an
existing right, contingent or otherwise, to be secured by) any Lien
upon any property of such Person or any Subsidiary of such Person,
except any such obligation secured by a Lien that is imposed by law
and not voluntarily granted; provided, however, that the contingent
payments which may become payable in connection with the First
American Merger, including any payments made to the Health Care
Financing Administration or the Department of Justice as required
under the First American Merger Agreement in a total amount not in
excess of $162 million, shall not constitute Debt for purposes of this
Agreement."
(d) Subparagraph (3) in the definition of "DEBT/EBITDAR RATIO" in
Section 1.01 is amended in full to read as follows:
"(3) adding to EBITDAR of the Borrower and such Subsidiaries, the
EBITDAR and Non-Recurring Charges determined solely for any such
acquired company or Health Care Facility, for the portion of such
period that preceded the acquisition; provided, however, that for
Quarters ending during the 12-month period immediately following the
closing of the First American Merger, EBITDAR of First American for
the period from the closing to the date of determination,
<PAGE>
4
annualized for the 12-month period then ended shall be added to
EBITDAR of the Borrower and such Subsidiaries; provided, further, that
for Quarters ending during the 12-month period immediately following
the closing of the acquisition of CCA, EBITDAR of CCA for the period
from the closing to the date of determination, annualized for the
12-month period then ended shall be added to EBITDAR of the Borrower
and such Subsidiaries."
(e) Section 5.03(a) is amended by deleting the period at the end of
subsection (xii) thereof and substituting therefor "; and" and adding a new
subsection (xiii) following such subsection (xii) to read as follows:
"(xiii) any Liens upon (a) stock of Subsidiaries and certain related
assets granted by the Borrower or one or more Subsidiaries of the
Borrower and (b) real property interests and certain related assets
granted by one or more Subsidiaries of the Borrower, in each case in
connection with the Synthetic Lease Facility."
(f) Section 5.03(c)(viii) is amended by adding to the end thereof the
following provision:
"provided, further, that the acquisition of CCA will not be deemed an
Investment for purposes of this Subsection 5.03(c)(viii);"
(g) Section 5.03(c) is amended by deleting the period at the end of
subsection (xv) thereof and substituting "; and" and adding a new
subsection (xvi) following such subsection (xv) to read as follows:
"(xvi) The acquisition of CCA by the Borrower or any of its
Subsidiaries substantially on the terms set forth in the letter dated
June 24, 1997 from the Borrower to the Lenders, provided, that (A) the
purchase price for the shares of CCA does not exceed $4.50 per share,
(B) at the time of or after giving effect to such acquisition, no
Event of Default or Potential Default shall exist or result, and (C)
the Borrower shall comply with the provisions of Section 5.02(e), and
neither the Borrower nor any of its Subsidiaries nor any of their
properties shall be or become bound by or subject to any contractual
obligation that is or would be violated or put in default by reason of
such compliance or by reason of the enforcement of the claims and
Liens of the Agent and Lenders arising from such compliance; provided,
further, that the acquisition of CCA shall not be deemed an Investment
for purposes of Section 5.03(c)(xi)."
<PAGE>
5
(h) Section 5.03(d) is amended by deleting the period at the end of
subsection (vi) thereof and substituting therefor "; and" and adding a new
subsection (vii) following such subsection (vi) to read as follows:
"(vii) Debt in an aggregate principal amount not in excess of
$100,000,000 incurred by the Borrower or any of its Subsidiaries in
connection with the Synthetic Lease Facility."
(i) Section 5.03 (f) is amended by deleting the period at the end of
subsection (vi) thereof and substituting therefor "; and" and adding a new
subsection (vii) following such subsection (vi) to read as follows:
"(vii) Accommodation Obligations incurred by the Borrower or any of
its Subsidiaries in connection with the Synthetic Lease Facility."
(j) Section 5.03(h)(B) is amended in full to read as follows:
"(B) The Borrower from time to time may purchase outstanding shares of
the Borrower's common stock or purchase options, or enter into other
transactions, to purchase such stock, so long as (1) the aggregate
amount expended for all such purchases, options and other transactions
at any time after the Closing Date does not exceed $50,000,000 (the
"Purchase Limit") and (2) any such purchase, option or other
transaction is made in compliance with all applicable laws and no
Potential Default or Event of Default exists at the time of, or would
result from, any such purchase, option or other transaction (and, for
this purpose, the amounts counted toward the Purchase Limit shall not
be reduced by or on account of any subsequent resale of the Borrower's
Common Stock);"
<PAGE>
6
(k) Schedule 1.01(c) is amended by adding to the end thereof the
following assets:
Health Care Facilities Assets Designated for Sale
-------------------------------------------------
Facility Name Location # Units
- ------------- -------- -------
Avenel (Owned) Plantation, FL 120
Auburndale (Owned) Auburndale, FL 120
Sarasota Pavillion (Owned) Sarasota, FL 180
Central Florida at Orlando
(Owned) Orlando, FL 120
Central Florida at Vero Beach (
(Owned) Vero Beach, FL 110
Chestnut Hill (Owned) Philadelphia, PA 200
Claremont (Owned) Claremont, NH 62
Clearwater (Owned) Clearwater, FL 150
Derry (Owned) Derry, NH 112
Jacksonville (Owned) Jacksonville, FL 120
Pinellas Park (Owned) Pinellas Park, FL 120
William & Mary (Owned) St. Petersburg, FL 96
Tarpon Springs (Owned) Tarpon Springs, FL 120
Venice North (Owned) Venice, FL 178
In connection with the Synthetic Lease Facility, the Lenders hereby
instruct the Agent, coincidentally with the closing of the Synthetic Lease
Facility, to enter into the Intercreditor Agreement and the Pledge and Security
Agreements to be delivered as provided in this Amendment. Upon the delivery
thereof, the Pledge and Security Agreements, in the forms attached hereto,
thereafter shall be deemed Pledge and Security Agreements for all purposes of
the Loan Documents and each Lender shall be bound by the terms of such
Intercreditor Agreement.
This Amendment shall become effective on the date when and only when the
Agent shall have received (A) counterparts of this Amendment executed by IHS and
the Requisite Lenders, or as to any of such Lenders, advice satisfactory to the
Agent that such Lender has executed this Amendment, (B) counterparts of the
Consent appended hereto (the "Consent"), executed by each Guarantor and (C)
evidence that all amounts due and payable under Section 8.04 of the Credit
Agreement have been paid in full, provided, that the closing of the Synthetic
Lease Facility shall not occur until and unless the Agent shall have received
(1) counterparts of the Intercreditor and Collateral Agency Agreement,
substantially in the form of Exhibit A hereto, executed by the parties thereto,
(2) a pledge and security agreement, duly executed and delivered, substantially
in the form of Exhibit B-1 in the case of IHS and substantially in the form of
Exhibit B-2 in the case of each Subsidiary that has prior hereto executed and
delivered a Pledge and Security Agreement, together with (a) the certificates or
other instruments pledged under each respective existing Pledge and Security
Agreement, accompanied by undated stock powers or transfer documents executed in
blank, and (b) evidence satisfactory to the Lenders that all other actions
necessary or, in the opinion of the
<PAGE>
7
Lenders, desirable to perfect and protect the security interests created by such
pledge and security agreements have been taken, including delivery to the Agent
of all instruments constituting Collateral, duly endorsed, and delivery of UCC-1
financing statements or amendments thereto duly executed by each Grantor under a
pledge and security agreement and in form sufficient for filing in all offices
in which the Agent or any Lender may consider filing to be appropriate and (3)
an opinion of LeBoeuf, Lamb Greene & MacRae, LLP, counsel to the Borrower, in
form and substance satisfactory to the Agent.
IHS represents and warrants as follows:
(a) IHS is duly organized and validly existing under the laws of
Delaware. Each Guarantor is a corporation or partnership duly organized and
validly existing under the laws of the jurisdiction in which it is
organized.
(b) Each of IHS and each Guarantor has the corporate or partnership
power to execute, deliver and perform this Amendment and the Consent, as
the case may be, and to take all action necessary to consummate the
transactions contemplated hereunder. The execution, delivery and
performance by IHS and each Guarantor of this Amendment and the Consent,
respectively, have been duly authorized by all necessary action and do not
contravene (i) its certificate or articles of incorporation (or, in case of
a partnership, governing agreements) or (ii) any law or any indenture,
lease or written agreement binding on or affecting it.
(c) No authorization or approval or other action by, and no notice to
or filing with, any Governmental Authority is required for the due
execution, delivery and performance by IHS or any Guarantor of this
Amendment or the Consent, respectively.
(d) This Amendment and the Consent constitutes legal, valid and
binding obligations of IHS and each Guarantor, respectively, enforceable
against IHS and each Guarantor, respectively, in accordance with their
respective terms subject to laws generally affecting the enforcement of
creditors' rights.
(e) The Guarantors executing the Consent are all of the Subsidiaries
(other than Inactive Subsidiaries) of IHS.
Upon the effectiveness of this Amendment, on and after the date hereof each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement as amended hereby. Except as specifically
amended above, the Credit Agreement, and all other Loan Documents, are and shall
continue to be in full force and effect and are hereby in all respects ratified
and confirmed. The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Agent under any of the Loan Documents, not
constitute a waiver of any provision of any of the Loan Documents. This
<PAGE>
8
Amendment shall be governed by, and construed in accordance with, the laws of
the State of New York.
Please evidence your acknowledgement of and agreement to the foregoing by
executing and returning not later than the close of business on July 8, 1997
three counterparts of this Amendment No. 4 to Citicorp Securities, Inc., 399
Park Avenue, 9th Floor, New York, New York 10043, Attention: Rosemary Bell. This
Amendment No. 4 is subject to the provisions of Section 8.01 of the Credit
Agreement.
This Amendment No. 4 may be executed in any number of counterparts and by
any combination of the parties hereto in separate counterparts, each of which
counterparts shall be an original and all of which taken together shall
constitute one and the same Amendment No. 4.
Very truly yours,
INTEGRATED HEALTH
SERVICES, INC.
By: /s/
-----------------------------
Name:
Title:
ACKNOWLEDGED, AGREED
AND CONSENTED TO as of
the date first above written:
CITIBANK, N.A.,
as Administrative Agent and as a Lender
By: /s/
-------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
9
THE BANK OF NOVA SCOTIA,
as LC Bank, a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
CORESTATES BANK, N.A.,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
CREDIT LYONNAIS,
NEW YORK BRANCH,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
DEUTSCHE BANK AG,
NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
10
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
NATIONSBANK, N.A.,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST,
as a Lender and Co-Agent
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
11
CREDITANSTALT CORPORATE
FINANCE, INC.,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
By: /s/
-------------------------------------
Name:
Title:
FLEET NATIONAL BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
GENERAL ELECTRIC
CAPITAL CORPORATION,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
HIBERNIA NATIONAL BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
12
AMSOUTH BANK OF ALABAMA,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI
TRUST COMPANY,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
THE SANWA BANK, LIMITED,
NEW YORK BRANCH
as a Lender
By: /s/
-------------------------------------
Name:
Title:
SIGNET BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
13
FIRST AMERICAN NATIONAL BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
ALLIED IRISH BANK,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
PROVIDENT BANK OF MARYLAND,
as a Lender
By: /s/
-------------------------------------
Name:
Title:
BANK OF AMERICA ILLINOIS
as a Lender
By: /s/
-------------------------------------
Name:
Title:
CRESTAR BANK
as a Lender
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
CONSENT
The undersigned, as Guarantors under the Subsidiary Guaranty, dated as of
May 15, 1996 or under Agreements to be Bound by such Subsidiary Guaranty
(collectively, the "Guaranty"), in favor of the Agent for the Lenders parties to
the Credit Agreement referred to in the foregoing Amendment No. 4 hereby consent
to such Amendment No. 4 and hereby confirm and agree that notwithstanding the
effectiveness of such Amendment No. 4, the Guaranty is, and shall continue to
be, in full force and effect and is hereby confirmed and ratified in all
respects.
ABC GP, INC.
ABC HOME HEALTH AND HOSPICE OF ALBANY, INC.
ABC HOME HEALTH AND HOSPICE OF ATHENS, INC.
ABC HOME HEALTH AND HOSPICE OF BRUNSWICK, INC.
ABC HOME HEALTH AND HOSPICE OF DUBLIN, INC.
ABC HOME HEALTH AND HOSPICE OF MACON, INC.
ABC HOME HEALTH AND HOSPICE OF SAVANNAH, INC.
ABC HOME HEALTH AND HOSPICE OF TIFTON, INC.
ABC HOME HEALTH AND HOSPICE OF VIDALIA, INC.
ABC HOME HEALTH AND HOSPICE OF WAYCROSS, INC.
ABC HOME NURSING, INC.
ABC NEWCO, INC.
ABC PHARMACEUTICALS, INC.
ALABAMA SENIOR LIFE CARE, INC.
ALPINE MANOR, INC.
ARBOR LIVING CENTERS OF FLORIDA, INC.
ARBOR LIVING CENTERS OF TEXAS, INC.
ASIA CARE, INC.
BETHAMY LIVING CENTER MANAGEMENT COMPANY
BETHAMY LIVING CENTERS LIMITED PARTNERSHIP
BRIAR HILL, INC.
BRIARCLIFF NURSING HOME, INC.
CAMBRIDGE CARE CENTERS, INC.
CAMBRIDGE GROUP OF INDIANA, INC.
CAMBRIDGE GROUP OF PENNSYLVANIA, INC.
CAMBRIDGE GROUP OF TEXAS, INC.
CARE CENTERS HOLDING, INC.
CARRIAGE-BY-THE-LAKE OF IHS, INC.
CEDARCROFT HEALTH SERVICES, INC.
CENTRAL PARK LODGES, INC.
CENTRAL PARK LODGES OF WEST PALM BEACH, INC.
CENTRAL PARK LODGES (TARPON SPRINGS), INC.
CLARA BURKE NURSING HOME, INC.
CLAREMONT INTEGRATED HEALTH, INC.
COMPREHENSIVE POSTACUTE SERVICES, INC.
DERRY INTEGRATED HEALTH, INC.
ELIZABELL CO., INC.
<PAGE>
2
ELM CREEK OF IHS, INC.
F.L.C. BENEVA NURSING PAVILION, INC.
F.L.C. SARASOTA NURSING PAVILION, INC.
FERRIGAN MOBILE X-RAY, INC.
FIRELANDS OF IHS, INC.
FIRST AMERICAN HOME CARE OF ALABAMA, INC.
FIRST AMERICAN HOME CARE OF ARKANSAS, INC.
FIRST AMERICAN HOME CARE OF CALIFORNIA, INC.
FIRST AMERICAN HOME CARE OF COLORADO, INC.
FIRST AMERICAN HOME CARE OF FLORIDA, INC.
FIRST AMERICAN HOME CARE OF FT. LAUDERDALE, INC.
FIRST AMERICAN HOME CARE OF GEORGIA, INC.
FIRST AMERICAN HOME CARE OF ILLINOIS, INC.
FIRST AMERICAN HOME CARE OF INDIANA, INC.
FIRST AMERICAN HOME CARE OF LOUISIANA, INC.
FIRST AMERICAN HOME CARE OF MICHIGAN, INC.
FIRST AMERICAN HOME CARE OF MISSISSIPPI, INC.
FIRST AMERICAN HOME CARE OF MISSOURI, INC.
FIRST AMERICAN HOME CARE OF NAPLES, INC.
FIRST AMERICAN HOME CARE OF NEBRASKA, INC.
FIRST AMERICAN HOME CARE OF NEW MEXICO, INC.
FIRST AMERICAN HOME CARE OF NORTH CAROLINA, INC.
FIRST AMERICAN HOME CARE OF OHIO, INC.
FIRST AMERICAN HOME CARE OF OKLAHOMA, INC.
FIRST AMERICAN HOME CARE OF PENNSYLVANIA, INC.
FIRST AMERICAN HOME CARE OF SOUTH CAROLINA, INC.
FIRST AMERICAN HOME CARE OF TENNESSEE, INC.
FIRST AMERICAN HOME CARE OF TEXAS, INC.
FIRST AMERICAN HOME CARE OF VALDOSTA, INC.
FIRST AMERICAN HOME CARE OF VIRGINIA, INC.
FIRST AMERICAN HOME CARE OF WEST VIRGINIA, INC.
FIRST AMERICAN INTERNATIONAL, INC.
FLORIDA LIFE CARE, INC.
GAINESVILLE HEALTH CARE CENTER, INC.
GRAVOIS HEALTH CARE, INC.
HEALTH CARE SYSTEMS, INC.
HOME HEALTH INTEGRATED HEALTH SERVICES OF FLORIDA, INC.
HOSPICE INTEGRATED HEALTH SERVICES OF DISTRICT I, INC.
HOSPICE INTEGRATED HEALTH SERVICES OF DISTRICT VII-B, INC.
HOSPICE INTEGRATED HEALTH SERVICES OF FLORIDA, INC.
HOSPICE OF INTEGRATED HEALTH SERVICES, INC.
IHS ACQUISITION XIII, INC.
IHS ACQUISITION XV, INC.
IHS ACQUISITION XVIII, INC.
<PAGE>
3
IHS ACQUISITION XIX, INC.
IHS ACQUISITION XXII, INC.
IHS AT LANSING, INC.
IHS CHICAGO POST-ACUTE NETWORK, INC.
IHS DEVELOPMENT-HIGHLANDS PARK, INC.
IHS HOME CARE, INC.
IHS LAND ACQUISITION-HIGHLANDS PARK, INC.
IHS MANAGEMENT GROUP, INC.
IHS NETWORK SERVICES, INC.
IHS OF DANA, INC.
IN-HOME HEALTH CARE, INC.
INTEGRACARE, INC.
INTEGRATED-BALLARD, INC.
INTEGRATED HEALTH GROUP LIMITED PARTNERSHIP
INTEGRATED HEALTH OF LOCUST VALLEY ROAD, INC.
INTEGRATED HEALTH OF WATERFORD COMMONS, INC.
INTEGRATED HEALTH SERVICES AT ALEXANDRIA, INC.
INTEGRATED HEALTH SERVICES AT BIG SAIL, INC.
INTEGRATED HEALTH SERVICES AT BLUE RIDGE MANOR, INC.
INTEGRATED HEALTH SERVICES AT BRIARCLIFF HAVEN, INC.
INTEGRATED HEALTH SERVICES AT CADIZ, INC.
INTEGRATED HEALTH SERVICES AT CENTRAL FLORIDA, INC.
INTEGRATED HEALTH SERVICES AT CHEYENNE, INC.
INTEGRATED HEALTH SERVICES AT COLORADO SPRINGS, INC.
INTEGRATED HEALTH SERVICES AT COLUMBUS, INC.
INTEGRATED HEALTH SERVICES AT DAYTON, INC.
INTEGRATED HEALTH SERVICES AT DRIFTWOOD, INC.
INTEGRATED HEALTH SERVICES AT EASTERN MASSACHUSETTS, INC.
INTEGRATED HEALTH SERVICES AT GRANDVIEW CARE CENTER, INC.
INTEGRATED HEALTH SERVICES AT GREAT BEND, INC.
INTEGRATED HEALTH SERVICES AT HIGHLANDS PARK, INC.
INTEGRATED HEALTH SERVICES AT HOPEDALE, INC.
INTEGRATED HEALTH SERVICES AT HOUSTON, INC.
INTEGRATED HEALTH SERVICES AT INDIAN CREEK, INC.
INTEGRATED HEALTH SERVICES AT KENT, INC.
INTEGRATED HEALTH SERVICES AT KING DAVID CENTER, INC.
INTEGRATED HEALTH SERVICES AT NEWARK, INC.
INTEGRATED HEALTH SERVICES AT ORMOND BEACH, INC.
INTEGRATED HEALTH SERVICES AT PARK REGENCY, INC.
INTEGRATED HEALTH SERVICES AT PENN, INC.
INTEGRATED HEALTH SERVICES AT SILVERCREST, INC.
INTEGRATED HEALTH SERVICES AT SOMERSET VALLEY, INC.
INTEGRATED HEALTH SERVICES AT SOUTHERN HILLS, INC.
INTEGRATED HEALTH SERVICES AT STEUBENVILLE
INTEGRATED HEALTH SERVICES AT SYCAMORE CREEK, INC.
<PAGE>
4
INTEGRATED HEALTH SERVICES AT THREE RIVERS, INC.
INTEGRATED HEALTH SERVICES AT TREYBURN, INC.
INTEGRATED HEALTH SERVICES FINANCIAL HOLDINGS, INC.
INTEGRATED HEALTH SERVICES HOLDINGS, INC.
INTEGRATED HEALTH SERVICES NPR, INC.
INTEGRATED HEALTH SERVICES OF ARCADIA, INC.
INTEGRATED HEALTH SERVICES OF ATHENS, INC.
INTEGRATED HEALTH SERVICES OF BRENTWOOD, INC.
INTEGRATED HEALTH SERVICES OF BRUNSWICK, INC.
INTEGRATED HEALTH SERVICES OF CALIFORNIA, INC.
INTEGRATED HEALTH SERVICES OF CLIFF MANOR, INC.
INTEGRATED HEALTH SERVICES OF COLORADO AT CHERRY CREEK, INC.
INTEGRATED HEALTH SERVICES OF EAGLE CREEK, INC.
INTEGRATED HEALTH SERVICES OF GREEN BRIAR, INC.
INTEGRATED HEALTH SERVICES OF HERITAGE MANOR, INC.
INTEGRATED HEALTH SERVICES OF HICKORY CREEK, INC.
INTEGRATED HEALTH SERVICES OF INDIAN HILLS, INC.
INTEGRATED HEALTH SERVICES OF JACKSONVILLE, INC.
INTEGRATED HEALTH SERVICES OF KURT, INC.
INTEGRATED HEALTH SERVICES OF LESTER, INC.
INTEGRATED HEALTH SERVICES OF MELISSA, INC.
INTEGRATED HEALTH SERVICES OF MISSOURI, INC.
INTEGRATED HEALTH SERVICES OF ORANGE PARK, INC.
INTEGRATED HEALTH SERVICES OF RIVERBEND, INC.
INTEGRATED HEALTH SERVICES OF SCENIC HILLS, INC.
INTEGRATED HEALTH SERVICES OF SKYVIEW, INC.
INTEGRATED HEALTH SERVICES OF SKYVIEW II, INC.
INTEGRATED HEALTH SERVICES OF SUNSET, INC.
INTEGRATED MANAGED CARE, INC. (formerly Isabeth Co., Inc.)
INTEGRATED MANAGEMENT-GOVERNOR'S PARK, INC.
INTEGRATED OF AMARILLO, INC.
INTEGRATED PHYSICIAN GROUP SERVICES, INC.
J.R. REHAB ASSOCIATES, INC.
LIFEWAY, INC.
LPC BETHAMY HEALTH CORPORATION, L.P.
MANCHESTER INTEGRATED HEALTH, INC.
MOBILE RAY OF NEW ORLEANS, INC.
MOUNTAIN VIEW NURSING CENTER, INC.
NEW SOUTHWOOD ASSOCIATES, INC.
PALESTINE NURSING CENTER, INC.
PINELLAS PARK NURSING HOME, INC.
PREFERRED HOME HEALTH SERVICES, INC.
PROFESSIONAL REVIEW NETWORK, INC.
REHAB MANAGEMENT SYSTEMS, INC.
REST HAVEN NURSING CENTER, INC.
<PAGE>
5
REST HAVEN NURSING CENTER (CHESTNUT HILL), INC.
REST HAVEN NURSING CENTER (WHITEMARSH), INC.
RIKAD PROPERTIES, INC.
SAMARITAN CARE, INC. (Illinois Domestic)
SAMARITAN CARE, INC. (Michigan Domestic)
SAMARITAN MANAGEMENT, INC.
SHC OF ARIZONA, L.C.
SHC SERVICES OF ARIZONA, L.C.
SIGNATURE HOME CARE GROUP, INC.
SIGNATURE HOME CARE, INC.
SIGNATURE HOME CARE OF ARLINGTON, INC.
SIGNATURE HOME CARE OF FLORIDA, INC.
SIGNATURE HOME CARE OF GEORGIA, INC.
SIGNATURE HOME CARE OF KANSAS, INC.
SIGNATURE HOME CARE OF NEW JERSEY, INC.
SIGNATURE HOME CARE OF NEW JERSEY GENERAL PARTNERSHIP
SIGNATURE HOME CARE OF SAN ANTONIO, INC.
SIGNATURE HOME CARE SERVICES OF FLORIDA, INC.
SIGNATURE HOME CARE SERVICES OF SAN ANTONIO, INC.
SIGNATURE MANAGEMENT SERVICES, INC.
SIGNATURE RECEIVABLES CORP.
SLC COMMUNITY CARE, INC.
SOUTHWOOD HOLDINGS, INC.
SPRING CREEK OF IHS, INC.
SYMPHONY ANCILLARY SERVICES, INC.
SYMPHONY DIAGNOSTIC SERVICES, INC.
SYMPHONY DIAGNOSTIC SERVICES NO. 1, INC.
SYMPHONY DIAGNOSTIC SERVICES NO. 2, INC.
SYMPHONY HEALTH CARE CONSULTING, INC.
SYMPHONY HEALTH SERVICES, INC.
SYMPHONY HOME CARE SERVICES, INC.
SYMPHONY HOME CARE SERVICES NO. 1, INC.
SYMPHONY HOME CARE SERVICES NO. 2, INC.
SYMPHONY HOME CARE SERVICES NO. 3, INC.
SYMPHONY HOME CARE SERVICES NO. 4, INC.
SYMPHONY HOME CARE SERVICES NO. 5, INC.
SYMPHONY HOME CARE SERVICES NO. 6, INC.
SYMPHONY HOME CARE SERVICES NO. 7, INC.
SYMPHONY HOME CARE SERVICES NO. 8, INC.
SYMPHONY HOME CARE SERVICES NO. 9, INC.
SYMPHONY HOME CARE SERVICES NO. 10, INC.
SYMPHONY HOME CARE SERVICES NO. 11, INC.
SYMPHONY HOME CARE SERVICES NO. 12, INC.
SYMPHONY HOME CARE SERVICES NO. 13, INC.
SYMPHONY HOME CARE SERVICES NO. 14, INC.
<PAGE>
6
SYMPHONY HOME CARE SERVICES NO. 15, INC.
SYMPHONY HOME CARE SERVICES NO. 16, INC.
SYMPHONY HOME CARE SERVICES NO. 17, INC.
SYMPHONY HOME CARE SERVICES NO. 18, INC.
SYMPHONY HOME CARE SERVICES NO. 18- CALIFORNIA, INC.
SYMPHONY HOME CARE SERVICES NO. 18- LOUISIANA, INC.
SYMPHONY HOME CARE SERVICES NO. 18- OKLAHOMA, INC.
SYMPHONY HOME CARE SERVICES NO. 18- TEXAS. INC.
SYMPHONY HOME CARE SERVICES NO. 19, INC.
SYMPHONY HOME CARE SERVICES NO. 100, INC.
SYMPHONY HOME CARE SERVICES NO. 101, INC.
SYMPHONY HOME CARE SERVICES NO. 102, INC.
SYMPHONY HOME CARE SERVICES NO. 103, INC.
SYMPHONY HOME CARE SERVICES NO. 104, INC.
SYMPHONY HOME CARE SERVICES NO. 105, INC.
SYMPHONY HOME CARE SERVICES NO. 106, INC.
SYMPHONY HOME CARE SERVICES NO. 107, INC.
SYMPHONY HOME CARE SERVICES NO. 108, INC.
SYMPHONY HOME CARE SERVICES NO. 109, INC.
SYMPHONY HOME CARE SERVICES NO. 110, INC.
SYMPHONY HOME CARE SERVICES NO. 113, INC.
SYMPHONY HOME CARE SERVICES NO. 114, INC.
SYMPHONY HOME CARE SERVICES NO. 115, INC.
SYMPHONY HOME CARE SERVICES NO. 116, INC.
SYMPHONY HOME CARE SERVICES NO. 117, INC.
SYMPHONY HOME CARE SERVICES NO. 118, INC.
SYMPHONY HOME CARE SERVICES NO. 119, INC.
SYMPHONY HOME CARE SERVICES NO. 120, INC.
SYMPHONY HOME CARE SERVICES NO. 121, INC.
SYMPHONY HOME CARE SERVICES NO. 122, INC.
SYMPHONY REHABILITATION SERVICES, INC.
SYMPHONY REHABILITATION SERVICES NO. 1, INC.
SYMPHONY REHABILITATION SERVICES NO. 2, INC.
SYMPHONY REHABILITATION SERVICES NO. 3, INC.
SYMPHONY REHABILITATION SERVICES NO. 4, INC.
SYMPHONY RESPIRATORY SERVICES, INC.
TEXAS LPC, INC.
<PAGE>
7
THE BESTON CORPORATION
WEST COAST CAMBRIDGE, INC.
WOODRIDGE CONVALESCENT CENTER, INC.
By: /s/
-------------------------------------
Name:
Title:
of Each Guarantor or of the
General Partner of such Guarantor
AGREEMENT AND PLAN OF MERGER
Among
INTEGRATED HEALTH SERVICES, INC.,
IHS ACQUISITION XXVI, INC.
and
COMMUNITY CARE OF AMERICA, INC.
Dated as of August 1, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I The Offer ................................................................................... 2
SECTION 1.01. The Offer ........................................................................... 2
SECTION 1.02. Company Actions ..................................................................... 4
ARTICLE II The Merger ................................................................................. 6
SECTION 2.01. The Merger .......................................................................... 6
SECTION 2.02. Closing ............................................................................. 6
SECTION 2.03. Effective Time ...................................................................... 6
SECTION 2.04. Effects of the Merger ............................................................... 6
SECTION 2.05. Certificate of Incorporation and By-laws ............................................ 6
SECTION 2.06. Directors ........................................................................... 7
SECTION 2.07. Officers ............................................................................ 7
ARTICLE III Effect of the Merger on the Capital Stock of the Constituent Corporations;
Exchange of Certificates ..................................................... 7
SECTION 3.01. Effect on Capital Stock ............................................................. 7
SECTION 3.02. Exchange of Certificates ............................................................ 9
ARTICLE IV Representations and Warranties of the Company ..............................................11
SECTION 4.01. Organization ........................................................................11
SECTION 4.02. Subsidiaries ........................................................................12
SECTION 4.03. Capitalization ......................................................................12
SECTION 4.04. Authority ...........................................................................13
SECTION 4.05. Consents and Approvals; No Violations................................................13
SECTION 4.06. SEC Reports and Financial Statements.................................................14
SECTION 4.07. Absence of Certain Changes or Events.................................................15
SECTION 4.08. No Undisclosed Liabilities...........................................................16
SECTION 4.09. Information Supplied.................................................................16
SECTION 4.10. Benefit Plans .......................................................................17
SECTION 4.11. Other Compensation Arrangements......................................................19
SECTION 4.12. Litigation ..........................................................................19
SECTION 4.13. Compliance with Applicable Law.......................................................20
SECTION 4.14. Tax Matters .........................................................................20
SECTION 4.15. State Takeover Statutes..............................................................22
SECTION 4.16. Brokers; Fees and Expenses...........................................................22
i
<PAGE>
SECTION 4.17. Opinions of Financial Advisors.......................................................22
SECTION 4.18. Intellectual Property................................................................23
SECTION 4.19. Labor Matters .......................................................................24
SECTION 4.20. Real Property, Leases and Assets.....................................................25
SECTION 4.21. Questionnaire .......................................................................25
SECTION 4.22. Environmental Matters................................................................25
SECTION 4.23. Reimbursement Matters................................................................27
SECTION 4.24. Material Contracts...................................................................28
SECTION 4.25. Insurance ...........................................................................29
ARTICLE V Representations and Warranties of Parent and Sub.............................................30
SECTION 5.01. Organization ........................................................................30
SECTION 5.02. Authority ...........................................................................30
SECTION 5.03. Consents and Approvals; No Violations................................................31
SECTION 5.04. Information Supplied.................................................................31
SECTION 5.05. Interim Operations of Sub............................................................32
SECTION 5.06. Brokers .............................................................................32
SECTION 5.07. Financing ...........................................................................32
SECTION 5.08. Section 2.03 ........................................................................32
ARTICLE VI Covenants ..................................................................................33
SECTION 6.01. Covenants of the Company.............................................................33
SECTION 6.02. No Solicitation .....................................................................36
SECTION 6.03. Other Actions .......................................................................38
ARTICLE VII Additional Agreements.......................................................................39
SECTION 7.01. Stockholder Approval; Preparation of Proxy Statement..................................39
SECTION 7.02. Access to Information.................................................................40
SECTION 7.03. Reasonable Efforts....................................................................40
SECTION 7.04. Options; Warrants ....................................................................41
SECTION 7.05. Directors ............................................................................42
SECTION 7.06. Fees and Expenses ....................................................................43
SECTION 7.07. Indemnification; Insurance............................................................44
SECTION 7.08. Certain Litigation....................................................................44
ARTICLE VIII Conditions ................................................................................44
SECTION 8.01. Conditions to Each Party's Obligation To Effect the Merger............................44
ARTICLE IX Termination and Amendment....................................................................45
SECTION 9.01. Termination ..........................................................................45
ii
<PAGE>
SECTION 9.02. Effect of Termination.................................................................47
SECTION 9.03. Amendment ............................................................................47
SECTION 9.04. Extension; Waiver ....................................................................48
ARTICLE X Miscellaneous ................................................................................48
SECTION 10.01. Nonsurvival of Representations and Warranties........................................48
SECTION 10.02. Notices .............................................................................48
SECTION 10.03. Interpretation ......................................................................49
SECTION 10.04. Counterparts ........................................................................50
SECTION 10.05. Entire Agreement; Third Party Beneficiaries..........................................50
SECTION 10.06. Governing Law .......................................................................50
SECTION 10.07. Publicity ...........................................................................50
SECTION 10.08. Assignment ..........................................................................50
SECTION 10.09. Enforcement .........................................................................51
Exhibits
Exhibit A - Conditions of the Offer
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of August 1, 1997, among
INTEGRATED HEALTH SERVICES, INC., a Delaware corporation ("Parent"), IHS
ACQUISITION XXVI, INC., a Delaware corporation and an indirect wholly owned
subsidiary of Parent ("Sub"), and COMMUNITY CARE OF AMERICA, INC., a Delaware
corporation (the "Company").
WHEREAS the respective Boards of Directors of Parent, Sub and
the Company have approved the acquisition of the Company by Parent on the terms
and subject to the conditions set forth in the Agreement;
WHEREAS, in furtherance of such acquisition, Parent proposes
to cause Sub to make a tender offer (as it may be amended from time to time as
permitted under the Agreement, the "Offer") to purchase all the outstanding
shares of Common Stock, par value $0.0025 per share, of the Company (the
"Company Common Stock"; all the outstanding shares of Company Common Stock being
hereinafter collectively referred to as the "Shares") at a purchase price of
$4.00 per share (the "Offer Price"), net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set forth in the
Agreement; and the Board of Directors of the Company has adopted resolutions
approving the Offer and the Merger (as defined below), recommending that the
Company's stockholders accept the Offer and approving the acquisition of Shares
by Sub pursuant to the Offer;
WHEREAS the respective Boards of Directors of Parent, Sub and
the Company have each approved the merger of Sub into the Company (the
"Merger"), upon the terms and subject to the conditions set forth in the
Agreement, whereby each share of Company Common Stock, other than shares of
Company Common Stock owned directly or indirectly by Parent or the Company and
Dissenting Shares (as defined in Section 3.01(d)), will be converted into the
right to receive the Offer Price; and
WHEREAS Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger and also to prescribe various conditions to the Offer and
the Merger.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained,
<PAGE>
and intending to be legally bound hereby, Parent, Sub and the Company hereby
agree as follows:
ARTICLE I
THE OFFER
SECTION 1.01. The Offer. (a) Subject to the provisions of the
Agreement, as promptly as practicable but in no event later than five business
days after the date of the public announcement by Parent and the Company of the
execution and delivery of this Agreement, Sub shall, and Parent shall cause Sub
to, commence the Offer. The obligation of Sub to, and of Parent to cause Sub to,
commence the Offer and accept for payment, and pay for, any Shares tendered
pursuant to the Offer shall be subject to the conditions set forth in Exhibit A
(the "Offer Conditions") and to the terms and conditions of the Agreement. Sub
expressly reserves the right to modify the terms of the Offer, except that,
without the consent of the Company, Sub shall not (i) reduce the number of
Shares subject to the Offer, (ii) reduce the Offer Price, (iii) add to the Offer
Conditions, (iv) except as provided in the next sentence, extend the Offer, (v)
change the form of consideration payable in the Offer, (vi) amend any other term
of or add any new term to the Offer in any manner materially adverse to the
holders of the Shares or (vii) waive the Minimum Condition (as defined in
Exhibit A). Notwithstanding the foregoing, Sub may, without the consent of the
Company, (A) Subject to Section 9.01(b)(i)(Y), extend the Offer, if at the
scheduled or extended expiration date of the Offer any of the Offer Conditions
shall not be satisfied or waived, until such time as such conditions are
satisfied or waived, (B) extend the Offer for any period required by any rule,
regulation, interpretation or position of the Securities and Exchange Commission
(the "SEC") or the staff thereof applicable to the Offer, (C) extend the Offer
from time to time until two business days after expiration of the waiting period
under the HSR Act (as defined in Section 4.05 below) and (D) extend the Offer
for a period not to exceed 15 business days, notwithstanding that all conditions
to the Offer are satisfied as of such expiration date of the Offer, if,
immediately prior to such expiration date (as it may be extended), the Shares
tendered and not withdrawn pursuant to the Offer equal less than 90% of the
outstanding Shares (on a fully diluted basis). Subject to the terms and
conditions of the Offer and the Agreement, Sub shall, and Parent shall cause Sub
to, accept for payment,
-2-
<PAGE>
and pay for, all Shares validly tendered and not withdrawn pursuant to the Offer
that Sub becomes obligated to accept for payment, and pay for, pursuant to the
Offer as soon as practicable after the expiration of the Offer.
(b) On the date of commencement of the Offer, Parent and Sub
shall file with the SEC a Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1") with respect to the Offer, which shall contain an offer to
purchase and a related letter of transmittal and summary advertisement (such
Schedule 14D-1 and the documents included therein pursuant to which the Offer
will be made, together with any supplements or amendments thereto, the "Offer
Documents"). Parent and Sub agree that the Offer Documents shall comply as to
form in all material respects with the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder and the Offer Documents, on the date first published, sent or given
to the Company's stockholders, shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation or warranty is made by Parent or Sub with respect to information
supplied by the Company or any of its stockholders specifically for inclusion or
incorporation by reference in the Offer Documents. Parent, Sub and the Company
each agrees promptly to correct any information provided by it for use in the
Offer Documents if and to the extent that such information shall have become
false or misleading in any material respect, and Parent and Sub further agree to
take all steps necessary to cause the Schedule 14D-1 as so corrected to be filed
with the SEC and the other Offer Documents as so corrected to be disseminated to
holders of Shares, in each case as and to the extent required by applicable
securities laws. The Company and its counsel shall be given reasonable
opportunity to review and comment upon the Offer Documents prior to their filing
with the SEC or dissemination to the stockholders of the Company. Parent and Sub
agree to provide the Company and its counsel any comments Parent, Sub or their
counsel may receive from the SEC or its staff with respect to the Offer
Documents promptly after the receipt of such comments.
(c) Parent shall provide or cause to be provided to Sub on a
timely basis the funds necessary to accept for
-3-
<PAGE>
payment, and pay for, any Shares that Sub becomes obligated to accept for
payment, and pay for, pursuant to the Offer.
SECTION 1.02. Company Actions. (a) The Company hereby approves
of and consents to the Offer and represents that the Special Committee of the
Board of Directors of the Company, at a meeting duly called and held, duly
adopted resolutions approving the Agreement, the Offer and the Merger,
determining that the terms of the Offer and the Merger are fair to, and in the
best interests of, the Company's stockholders, and the Board of Directors
ratified such action and recommended that the Company's stockholders accept the
Offer, tender their shares pursuant to the Offer and approve and adopt the
Agreement. The Company represents that such approval constitutes approval of the
Offer, the Agreement and the transactions contemplated hereby, including the
Merger, for purposes of Section 203 of the Delaware General Corporation Law, as
amended (the "DGCL"), such that, assuming the truth and correctness of the
representation in Section 5.08, Section 203 of the DGCL will not apply to the
transactions contemplated by the Agreement. The Company represents that its
Board of Directors has received the opinions of Smith Barney Inc. ("Smith
Barney") and Wheat, First Securities, Inc. ("Wheat First"), each dated the date
of this Agreement, to the effect that, as of such date, the cash consideration
to be received by the holders of Shares (other than Parent and its affiliates)
pursuant to the Offer and the Merger is fair to such holders from a financial
point of view, and complete and correct signed copies of such opinions will be
included in the Company's Schedule 14D-9 (as defined below) and such opinions
may be referenced by Parent in the Schedule 14D-1.
(b) At the time the Offer Documents are filed with the SEC,
the Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from
time to time, the "Schedule 14D-9") containing the recommendation described in
paragraph (a) and shall mail the Schedule 14D-9 to the stockholders of the
Company. The Schedule 14D-9 shall comply as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder and, on the date filed with the SEC and on the date first
published, sent or given to the Company's stockholders, shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light
-4-
<PAGE>
of the circumstances under which they were made, not misleading, except that no
representation or warranty is made by the Company with respect to information
supplied by Parent or Sub specifically for inclusion in the Schedule 14D-9. Each
of the Company, Parent and Sub agrees promptly to correct any information
provided by it for use in the Schedule 14D-9 if and to the extent that such
information shall have become false or misleading in any material respect, and
the Company further agrees to take all steps necessary to amend or supplement
the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented
to be filed with the SEC and disseminated to the Company's stockholders, in each
case as and to the extent required by applicable Federal securities laws. Parent
and its counsel shall be given reasonable opportunity to review and comment upon
the Schedule 14D-9 prior to its filing with the SEC or dissemination to
stockholders of the Company. The Company agrees to provide Parent and its
counsel any comments the Company or its counsel may receive from the SEC or its
staff with respect to the Schedule 14D-9 promptly after the receipt of such
comments.
(c) In connection with the Offer and the Merger, the Company
shall furnish or cause its transfer agent to furnish Sub promptly with mailing
labels containing the names and addresses of the record holders of Shares as of
a recent date and of those persons becoming record holders subsequent to such
date, together with copies of all lists of stockholders, security position
listings and computer files and all other information in the Company's
possession or control regarding the beneficial owners of Shares, and shall
furnish to Sub such information and assistance (including updated lists of
stockholders, security position listings and computer files) as Parent may
reasonably request in communicating the Offer to the Company's stockholders.
Subject to the requirements of applicable law, and except for such steps as are
necessary to disseminate the Offer Documents and any other documents necessary
to consummate the Merger, Parent and Sub and their agents shall hold in
confidence the information contained in any such labels, listings and files,
will use such information only in connection with the Offer and the Merger and,
if the Agreement shall be terminated, will, upon request, deliver, and will use
their best efforts to cause their agents to deliver, to the Company all copies
of such information then in their possession or control.
-5-
<PAGE>
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the
conditions set forth in the Agreement, and in accordance with the Delaware
General Corporation Law, as amended (the "DGCL"), Sub shall be merged with and
into the Company at the Effective Time (as defined in Section 2.03). Following
the Effective Time, the separate corporate existence of Sub shall cease and the
Company shall continue as the surviving corporation (the "Surviving
Corporation") and shall succeed to and assume all the rights and obligations of
Sub in accordance with the DGCL.
SECTION 2.02. Closing. The closing of the Merger (the
"Closing") will take place at 10:00 a.m. (New York City time) on a date to be
specified by Parent or Sub, which shall be no later than the second business day
after satisfaction or waiver of the conditions set forth in Article VIII (the
"Closing Date"), at the offices of Chadbourne & Parke LLP, 30 Rockefeller Plaza,
New York, New York 10112, unless another date, time or place is agreed to in
writing by the parties hereto.
SECTION 2.03. Effective Time. Subject to the provisions of the
Agreement, as soon as practicable on or after the Closing Date, the parties
shall file a certificate of merger or other appropriate documents (in any such
case, the "Certificate of Merger") executed in accordance with the relevant
provisions of the DGCL and shall make all other filings or recordings required
under the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Delaware Secretary of State, or at
such other time as Sub and the Company shall agree should be specified in the
Certificate of Merger (the time the Merger becomes effective being hereinafter
referred to as the "Effective Time").
SECTION 2.04. Effects of the Merger. The Merger shall have the
effects set forth in Section 259 of the DGCL.
SECTION 2.05. Certificate of Incorporation and By-laws. (a)
The Restated Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be amended as of the Effective
Time so that ARTICLE FOURTH of such certificate of incorporation reads in its
entirety as follows: "The total number of shares of all
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classes of stock which the Corporation shall have authority to issue is 1000
shares of Common Stock, par value $0.0025 per share" and, as so amended, such
certificate of incorporation shall be the certificate of incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
(b) The by-laws of the Company as in effect immediately prior
to the Effective Time shall be the by-laws of the Surviving Corporation, until
thereafter changed or amended as provided therein or by applicable law.
SECTION 2.06. Directors. The directors of Sub immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be, and the Company
shall procure, prior to and as a condition to the Closing, the resignation of
each of its directors effective as of the Closing.
SECTION 2.07. Officers. The officers of the Company
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 3.01. Effect on Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the holder
of any Shares or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of
capital stock of Sub shall be converted into and become 1000 fully paid and
nonassessable shares of Common Stock, par value $0.0025 per share, of the
Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent Owned Stock.
Each share of Company Common Stock that is owned by the Company or by any
subsidiary of the Company and each Share that is owned by Parent, Sub or any
other
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subsidiary of Parent shall automatically be canceled and retired and shall cease
to exist, and no consideration shall be delivered in exchange therefor.
(c) Conversion of Company Common Stock. Subject to Section
3.01(d), each Share issued and outstanding (other than Shares to be canceled in
accordance with Section 3.01(b)) shall be converted into the right to receive
from the Surviving Corporation in cash, without interest, the Offer Price (the
"Merger Consideration"). As of the Effective Time, all such Shares shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such Shares
shall cease to have any rights with respect thereto, except the right to receive
the Merger Consideration, without interest.
(d) Shares of Dissenting Stockholders. Notwithstanding
anything in the Agreement to the contrary, any issued and outstanding Shares
held by a person (a "Dissenting Stockholder") who complies with all the
provisions of Delaware law concerning the right of holders of Company Common
Stock to dissent from the Merger and require appraisal of their Shares
("Dissenting Shares") shall not be converted as described in Section 3.01(c) but
shall become the right to receive such consideration as may be determined to be
due to such Dissenting Stockholder pursuant to the laws of the State of
Delaware. If, after the Effective Time, such Dissenting Stockholder withdraws
his demand for appraisal or fails to perfect or otherwise loses his right of
appraisal, in any case pursuant to the DGCL, his Shares shall be deemed to be
converted as of the Effective Time into the right to receive the Merger
Consideration. The Company shall give Parent (i) prompt notice of any demands
for appraisal of Shares received by the Company and (ii) the opportunity to
participate in and direct all negotiations and proceedings with respect to any
such demands. The Company shall not, without the prior written consent of
Parent, make any payment with respect to, or settle, offer to settle or
otherwise negotiate, any such demands.
(e) Withholding Tax. Parent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any holder of shares of Common Stock outstanding immediately prior to the
Effective Time such amounts as may be required to be deducted and withheld with
respect to the making of such payment under the
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Internal Revenue Code of 1986, as amended (the "Code"), or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Common Stock outstanding
immediately prior to the Effective Time in respect of which such deduction and
withholding was made.
SECTION 3.02. Exchange of Certificates.
(a) Paying Agent. Prior to the Effective Time, Parent shall
designate a bank or trust company to act as paying agent in the Merger (the
"Paying Agent"), and, from time to time on, prior to or after the Effective
Time, Parent shall make available, or cause the Surviving Corporation to make
available, to the Paying Agent funds in amounts and at the times necessary for
the payment of the Merger Consideration upon surrender of certificates
representing Shares as part of the Merger pursuant to Section 3.01 (it being
understood that any and all interest earned on funds made available to the
Paying Agent pursuant to the Agreement shall be turned over to Parent).
(b) Exchange Procedure. As soon as reasonably practicable
after the Effective Time, the Paying Agent shall mail to each holder of record
of a certificate or certificates which immediately prior to the Effective Time
represented Shares (the "Certificates"), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and shall be in a form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Paying Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor the amount of cash into which the Shares theretofore
represented by such Certificate shall have been converted pursuant to Section
3.01, and the Certificate so surrendered shall forthwith be canceled. In the
event of a transfer of ownership of Shares that is not registered in the
transfer records of the Company, payment may be made to a person other than the
person in whose name the Certificate so
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surrendered is registered, if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person requesting such payment
shall pay any transfer or other taxes required by reason of the payment to a
person other than the registered holder of such Certificate or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 3.02, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the amount of cash, without
interest, into which the Shares theretofore represented by such Certificate
shall have been converted pursuant to Section 3.01. No interest will be paid or
will accrue on the cash payable upon the surrender of any Certificate.
(c) No Further Ownership Rights in Company Common Stock. All
cash paid upon the surrender of Certificates in accordance with the terms of
this Article III shall be deemed to have been paid in full satisfaction of all
rights pertaining to the Shares theretofore represented by such Certificates. At
the Effective Time, the stock transfer books of the Company shall be closed, and
there shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the Shares that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or the Paying Agent for any reason, they
shall be canceled and exchanged as provided in this Article III.
(d) Termination of Fund; No Liability. At any time following
four months after the Effective Time, the Surviving Corporation shall be
entitled to require the Paying Agent to deliver to it any funds (including any
interest received with respect thereto) which had been made available to the
Paying Agent and which have not been disbursed to holders of Certificates, shall
be repaid to the Surviving Corporation, and thereafter such holders shall be
entitled to look to the Surviving Corporation (subject to abandoned property,
escheat or other similar laws) only as general creditors thereof with respect to
the Merger Consideration payable upon due surrender of their Certificates,
without any interest thereon. Notwithstanding the foregoing, neither the
Surviving Corporation nor the Paying Agent shall be liable to any holder of a
Certificate for Merger Consideration delivered to a public official
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pursuant to any applicable abandoned property, escheat or similar law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specifically set forth in the schedule attached to
this Agreement corresponding to the sections of this Agreement setting forth
exceptions to the Company's representations and warranties set forth herein (the
"Company Disclosure Schedule"), the Company represents and warrants to Parent
and Sub as set forth below. The Company Disclosure Schedule will be arranged in
sections corresponding to sections of this Agreement to be modified by such
disclosure schedule. Nothing in the Schedules shall be deemed adequate to
disclose an exception to a representation or warranty made herein, unless the
Schedule identifies the exception with reasonable particularity and describes
the relevant facts in reasonable detail. Without limiting the generality of the
foregoing, the mere listing (or inclusion of a copy) of a document or other item
shall not be deemed adequate to disclose an exception to a representation or
warranty made herein (unless the representation or warranty has to do with the
existence of the document or other item itself).
SECTION 4.01. Organization. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to carry on its business as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power and authority would not have a material adverse
effect (as defined in Section 10.03) on the Company. The Company and each of its
subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing would not have a material adverse
effect on the Company. The Company has made available to Parent complete and
correct copies of its Amended and Restated Certificate of Incorporation and
By-laws and the certificates of incorporation and by-laws (or similar
organizational documents) of its subsidiaries.
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SECTION 4.02. Subsidiaries. The subsidiaries of the Company
are as set forth on Schedule 4.02. All the outstanding shares of capital stock
of each such subsidiary, are owned by the Company, by another wholly owned
subsidiary of the Company or by the Company and another wholly owned subsidiary
of the Company, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens"), except as indicated on Schedule 4.02, and are duly
authorized, validly issued, fully paid and nonassessable. Except for the capital
stock of its subsidiaries, the Company does not own, directly or indirectly, any
capital stock or other ownership interest in any corporation, partnership, joint
venture or other entity.
SECTION 4.03. Capitalization. The authorized capital stock of
the Company consists of 15,000,000 shares of Company Common Stock and 1,000,000
shares of preferred stock, par value $0.0025 per share ("Company Preferred
Stock"). At the close of business on July 28, 1997, (i) 7,597,801 shares of
Company Common Stock were issued and outstanding, (ii) 0 shares of Company
Common Stock were held by the Company in its treasury, (iii) 399,094 shares of
Company Common Stock were reserved for issuance upon exercise of outstanding
Options (as defined in Section 7.04), and (iv) a maximum of 2,661,341 shares of
Company Common Stock were issuable upon the exercise of certain outstanding
warrants, all as set forth on Schedule 4.03. Except as set forth above and
except for Shares issued upon the exercise of Options since July 28, 1997, as of
the date of the Agreement, no shares of capital stock or other voting securities
of the Company were issued, reserved for issuance or outstanding. All
outstanding shares of capital stock of the Company are, and all shares which may
be issued will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are no bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of the Company may vote. Except as set
forth above or as set forth on Schedule 4.03, as of the date of the Agreement,
there are no securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company or any
of its subsidiaries is a party or by which any of them is bound obligating the
Company or any of its subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital
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stock or other voting securities of the Company or of any of its subsidiaries or
obligating the Company or any of its subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. As of the date of the Agreement, there
are not any outstanding contractual obligations (i) of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company or (ii) of the Company to vote or to dispose of any shares
of the capital stock of any of its subsidiaries.
SECTION 4.04. Authority. The Company has the requisite
corporate power and authority to execute and deliver the Agreement and to
consummate the transactions contemplated hereby (other than, with respect to the
Merger, the approval and adoption of the terms of the Agreement by the holders
of a majority of the Shares (the "Company Stockholder Approval")). The
execution, delivery and performance of the Agreement and the consummation by the
Company of the Merger and of the other transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize the Agreement or to consummate the transactions so
contemplated (in each case, other than, with respect to the Merger, the Company
Stockholder Approval). The Agreement has been duly executed and delivered by the
Company and, constitutes a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
SECTION 4.05. Consents and Approvals; No Violations. Except
for filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act (including the
filing with the SEC of the Schedule 14D-9 and a proxy statement relating to any
required approval by the Company's stockholders of the Agreement (the "Proxy
Statement")), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), the DGCL, the laws of other states in which the Company
is qualified to do or is doing business, state takeover laws and foreign laws,
neither the execution, delivery or performance of the Agreement by the Company
nor the consummation by the Company of the transactions contemplated hereby will
(i) conflict with or result in any breach of any provision of the Amended and
Restated Certificate of Incorporation or By-laws of the
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Company or of the similar organizational documents of any of its subsidiaries,
(ii) require any filing with, or permit, authorization, consent or approval of,
any Federal, state or local government or any court, tribunal, administrative
agency or commission or other governmental or other regulatory authority or
agency, domestic, foreign or supranational (a "Governmental Entity"), (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any of its subsidiaries or any of their properties or
assets, or (iv) except as set forth on Schedule 4.05, result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which any of them or any of their properties or assets may be bound
that is described or referenced in Section 4.24.
SECTION 4.06. SEC Reports and Financial Statements. The
Company has filed with the SEC, and has heretofore made available to Parent true
and complete copies of, all forms, reports, schedules, statements and other
documents required to be filed by it since December 31, 1994, under the Exchange
Act or the Securities Act of 1933 (the "Securities Act") (such forms, reports,
schedules, statements and other documents, including any financial statements or
schedules included therein, are referred to as the "Company SEC Documents"). The
Company SEC Documents, at the time filed, (a) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading and (b) complied in
all material respects with the applicable requirements of the Exchange Act and
the Securities Act, as the case may be, and the applicable rules and regulations
of the SEC thereunder. Except to the extent revised or superseded by a
subsequently filed Company Filed SEC Document (as defined in Section 4.07) (a
copy of which has been made available to Parent prior to the date hereof), the
Company SEC Documents, considered as a whole as of their date, do not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated or incorporated by reference therein or necessary in order to make the
statements therein, in light of the circumstances under
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which they were made, not misleading (it being understood that the foregoing
does not cover future events resulting from public announcement of the Offer and
the Merger). The financial statements of the Company included in the Company SEC
Documents comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Forms 10-Q and 8-K of the SEC) and fairly
present (subject, in the case of the unaudited statements, to normal, recurring
audit adjustments) the consolidated financial position of the Company and its
consolidated subsidiaries as at the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended.
SECTION 4.07. Absence of Certain Changes or Events. Except as
disclosed in the Company SEC Documents filed and publicly available prior to the
date of the Agreement (the "Company Filed SEC Documents"), and except as
contemplated by Section 7.04, since March 31, 1997, the Company and its
subsidiaries have conducted their respective businesses only in the ordinary
course, and there has not been any material adverse change (as defined in
Section 10.03) with respect to the Company. Except as disclosed in the Company
Filed SEC Documents or Schedule 4.07 , since March 31, 1997, there has not been
(i) any declaration, setting aside or payment of any dividend or other
distribution with respect to its capital stock or any redemption, purchase or
other acquisition of any of its capital stock, (ii) any split, combination or
reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, (iii) (w) any granting by
the Company or any of its subsidiaries to any officer of the Company or any of
its subsidiaries of any increase in compensation, (x) any granting by the
Company or any of its subsidiaries to any such officer of any increase in
severance or termination pay, (y) except employment arrangements in the ordinary
course of business consistent with past practice with employees other than any
executive officer of the Company, any entry by the Company or any of its
subsidiaries into any employment, severance or termination agreement with any
such employee or executive officer or (z) except as contemplated
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by Section 7.04, any creation of or increase in or establishment of any bonus,
insurance, deferred compensation, pension, retirement, profit-sharing, stock
option (including the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards or the amendment of any existing
stock options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan or agreement or
arrangement, (iv) any damage, destruction or loss, whether or not covered by
insurance, that has or reasonably could be expected to have a material adverse
effect on the Company, (v) any revaluation by the Company of any of its material
assets, or (vi) any material change in accounting methods, principles or
practices by the Company.
SECTION 4.08. No Undisclosed Liabilities. Except as and to the
extent set forth in the Company's financial statements contained in its
Quarterly Report on Form 10-Q for March 31, 1997 (the "Company's Financial
Statements"), as of March 31, 1997, neither the Company nor any of its
subsidiaries had any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, and whether or not required by generally
accepted accounting principles to be reflected on a consolidated balance sheet
of the Company and its subsidiaries (including the notes thereto). Since March
31, 1997, except as and to the extent set forth in the Company Filed SEC
Documents or as set forth on Schedule 4.08, neither the Company nor any of its
subsidiaries has incurred any liabilities or obligations of any nature, whether
or not accrued, contingent or otherwise, and whether or not required by
generally accepted accounting principles to be reflected on a consolidated
balance sheet of the Company and its subsidiaries (including the notes thereto),
except for liabilities incurred in the ordinary course of business. The Company
and its subsidiaries do not have consolidated indebtedness for borrowed money in
excess of $70,000,000.
SECTION 4.09. Information Supplied. None of the information
supplied or to be supplied by the Company specifically for inclusion or
incorporation by reference in (i) the Offer Documents, (ii) the Schedule 14D-9,
(iii) the information to be filed by the Company in connection with the Offer
pursuant to Rule 14f-1 promulgated under the Exchange Act (the "Information
Statement") or (iv) the Proxy Statement, will, in the case of the Offer
Documents, the Schedule 14D-9 and the Information Statement, at the respective
times the Offer Documents, the Schedule 14D-9 and
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the Information Statement are filed with the SEC or first published, sent or
given to the Company's stockholders, or, in the case of the Proxy Statement, at
the time the Proxy Statement is first mailed to the Company's stockholders or at
the time of the Stockholders Meeting (as defined in Section 7.01), contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
Schedule 14D-9, the Information Statement and the Proxy Statement will comply as
to form in all material respects with the requirements of the Exchange Act and
the rules and regulations thereunder, except that no representation or warranty
is made by the Company with respect to statements made or incorporated by
reference therein based on information supplied by Parent or Sub specifically
for inclusion or incorporation by reference therein.
SECTION 4.10. Benefit Plans. (a) Each "employee pension
benefit plan" (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) (a "Pension Plan"), "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA) (a "Welfare Plan")
and each other plan, binding pensions arrangement or policy (written or oral)
relating to stock options, stock purchases, compensation, deferred compensation,
bonuses, severance, fringe benefits or other employee benefits, in each case
maintained or contributed to, or required to be maintained or contributed to, by
the Company or its subsidiaries for the benefit of any present or former
employee, officer or director (each of the foregoing, a "Benefit Plan") has been
administered in all material respects in accordance with its terms. The Company
and its subsidiaries and all the Benefit Plans are in compliance in all material
respects with the applicable provisions of ERISA, the Code, all other applicable
laws.
(b) Schedule 4.10 attached hereto sets forth a complete list
of each Benefit Plan as well as each bonus, employment, termination and
severance agreement, contract, binding arrangement and understanding (whether
written or oral) with employees of the Company and its subsidiaries.
(c) None of the Pension Plans is subject to Title IV of ERISA
or Section 412 of the Code and none of the Company or any other person or entity
that, together with the Company, is treated as a single employer under Section
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414 (b), (c), (m) or (o) of the Code (each, including the Company, a "Commonly
Controlled Entity"): (i) currently contributes to, or during any time during the
last six years had an obligation to contribute to, a Pension Plan subject to
Title IV of ERISA or Section 412 of the Code, or (ii) has incurred any liability
to the Pension Benefit Guaranty Corporation (other than for payment of premiums
not yet due), which liability has not been fully paid. All contributions and
other payments required to be made by the Company to any Pension Plan with
respect to any period ending before the Closing Date have been made or reserves
adequate for such contributions or other payments have been or will be set aside
therefor and have been or will be reflected in financial statements.
(d) Neither the Company nor any Commonly Controlled Entity is
required to contribute to any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) or has withdrawn from any multiemployer plan where such
withdrawal has resulted or would result in any "withdrawal liability" (within
the meaning of Section 4201 of ERISA) or "mass withdrawal liability" within the
meaning of PBGC Regulation 4219.2 that has not been fully paid.
(e) Each Benefit Plan that is a Welfare Plan may be amended or
terminated, upon thirty (30) days' notice, at any time after the Effective Time
without material liability to the Company or its subsidiaries.
(f) Except as set forth in Schedule 4.10(f), or as required
under Section 4980B of the Code, the Company does not have any obligation to
provide post-retirement health benefits.
(g) The Company has heretofore delivered to Parent correct and
complete copies of each of the following:
(1) All written, and descriptions of all binding oral,
employment, termination and severance agreements, contracts,
arrangements and understandings listed on Schedule 4.10;
(2) Each Benefit Plan and all amendments thereto; the
trust instrument and/or insurance contracts, if any, forming a part of
such Benefit Plan and all amendments thereto;
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(3) The most recent IRS Form 5500 and all schedules
thereto, if any;
(4) The most recent determination letter issued by the
IRS regarding the qualified status of each such Pension Plan;
(5) The most recent accountant's report, if any; and
(6) The most recent summary plan description, if any.
SECTION 4.11. Other Compensation Arrangements. Except as
disclosed on Schedule 4.11, or except as provided in the Agreement, as of the
date of the Agreement, neither the Company nor any of its subsidiaries is a
party to any binding oral or written (i) consulting agreement not terminable on
not more than 60 calendar days notice and involving the payment of more than
$50,000 per annum, (ii) agreement with any executive officer or other key
employee of the Company or any of its subsidiaries (x) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Company of the nature contemplated by the Agreement
or (y) providing any term of employment or compensation guarantee extending for
a period longer than one year or the payment of more than $100,000 per annum or
(iii) agreement or plan, including any stock option plan, stock appreciation
right plan, restricted stock plan or stock purchase plan, any of the benefits of
which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by the
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by the Agreement.
SECTION 4.12. Litigation. Except as disclosed in the Company
Filed SEC Documents or on Schedule 4.12, there is no suit, claim, action,
proceeding or investigation pending before any Governmental Entity or, to the
best knowledge of the Company, threatened against the Company or any of its
subsidiaries that could reasonably be expected to have a material adverse effect
on the Company. Neither the Company nor any of its subsidiaries is subject to
any outstanding order, writ, injunction or decree that could reasonably be
expected to have a material adverse effect on the Company.
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SECTION 4.13. Compliance with Applicable Law. The Company and
its subsidiaries hold all material permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities necessary for the lawful
conduct of their respective businesses (the "Company Permits"). The Company and
its subsidiaries are in compliance with the terms of the Company Permits, except
where the failure to so comply would not have a material adverse effect on the
Company. Except as disclosed in the Company Filed SEC Documents, the businesses
of the Company and its subsidiaries are not being conducted in violation of any
law, ordinance or regulation of any Governmental Entity, except for possible
violations that would not have a material adverse effect on the Company. No
investigation or review by any Governmental Entity with respect to the Company
or any of its subsidiaries is pending or, to the best knowledge of the Company,
threatened, nor has any Governmental Entity indicated an intention to conduct
any such investigation or review.
SECTION 4.14. Tax Matters. Except as set forth in Schedule
4.14:
(a) The Company and each of its subsidiaries has timely filed
all Federal income tax returns and all other material tax returns and reports
required to be filed by it. All such returns are complete and correct in all
material respects (except to the extent a reserve has been established on the
financial statements contained in the Company Filed SEC Documents). Each of the
Company and its subsidiaries (i) has paid (or the Company has paid on its
subsidiaries' behalf) to the appropriate authorities all taxes required to be
paid by it (without regard to whether a tax return is required), except taxes
for which an adequate reserve has been established on the financial statements
contained in the Company Filed SEC Documents, and (ii) has withheld and paid to
the appropriate authorities all material withholding taxes required to be
withheld by it. The most recent financial statements contained in the Company
Filed SEC Documents reflect an adequate reserve for all taxes payable by the
Company and its subsidiaries for all taxable periods and portions thereof
through the date of such financial statements.
(b) No Federal income tax return or other material tax return
of the Company or any of its subsidiaries is under audit or examination by any
taxing authority, and no written or unwritten notice of such an
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audit or examination has been received by the Company or any of its
subsidiaries. Each material deficiency resulting from any audit or examination
relating to taxes by any taxing authority has been paid, except for deficiencies
being contested in good faith. No material issues relating to taxes were raised
in writing by the relevant taxing authority in any completed audit or
examination that can reasonably be expected to recur in a later taxable period.
The Federal income tax returns of the Company and each of its subsidiaries do
not contain any positions that could give rise to a substantial understatement
penalty within the meaning of Section 6662 of the Code.
(c) There is no agreement or other document extending, or
having the effect of extending, the period of assessment or collection of any
taxes and no power of attorney with respect to any taxes has been executed or
filed with any taxing authority.
(d) No material liens for taxes exist with respect to any
assets or properties of the Company or any of its subsidiaries, except for liens
for taxes not yet due.
(e) None of the Company or any of its subsidiaries is a party
to or is bound by any tax sharing agreement, tax indemnity obligation or similar
agreement, arrangement or practice with respect to taxes (including any advance
pricing agreement, closing agreement or other agreement relating to taxes with
any taxing authority).
(f) None of the Company or any of its subsidiaries shall be
required to include in a taxable period ending after the Effective Time taxable
income attributable to income that accrued in a prior taxable period but was not
recognized in any prior taxable period as a result of the installment method of
accounting, the completed contract method of accounting, the long-term contract
method of accounting, the cash method of accounting or Section 481 of the Code
or comparable provisions of state, local or foreign tax law.
(g) Neither the Company nor any of its subsidiaries (i) is a
party to a safe harbor lease within the meaning of Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended and in effect prior to amendment by
the Tax Equity and Fiscal Responsibility Act of 1982, (ii) is a "consenting
corporation" under Section 341(f) of the Code, (iii) has agreed or is obligated
to make any payments
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for services which would not be deductible pursuant to Sections 162(a)(1),
162(m) or 280G of the Code, (iv) has participated in an international boycott as
defined in Section 999 of the Code, or (v) is required to make any adjustment
under Section 481(a) of the Code by reason of a change in accounting method or
otherwise.
(h) As used in the Agreement, "taxes" shall include all
Federal, state, local and foreign income, property, sales, excise, withholding
and other taxes, tariffs or governmental charges of any nature whatsoever.
SECTION 4.15. State Takeover Statutes67. The Board of
Directors of the Company has approved the Offer, the Merger, the Agreement and
the acquisition of Shares by Sub pursuant to the Offer and, assuming the truth
and correctness of the representation in Section 5.08, such approval is
sufficient to render inapplicable to the Offer, the Merger, the Agreement and
the transactions contemplated by the Agreement the provisions of Section 203 of
the DGCL. Other than the consents listed on Schedule 4.15, no other state
takeover statute or similar statute or regulation applies or purports to apply
to the Offer, the Merger, the Agreement, or any of the transactions contemplated
by the Agreement.
SECTION 4.16. Brokers; Fees and Expenses. No broker,
investment banker, financial advisor or other person, other than Smith Barney,
as financial advisor to the Company, and Wheat First, the fees and expenses of
which will be paid by the Company, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by the Agreement based upon arrangements made by or on
behalf of the Company.
SECTION 4.17. Opinions of Financial Advisors. The Company has
received the opinions of Smith Barney and Wheat First, each dated the date of
this Agreement, to the effect that, as of such date, the cash consideration to
be received in the Offer and the Merger by the holders of Shares (other than
Parent and its affiliates) is fair to such holders from a financial point of
view, and such opinions have not been withdrawn or modified in any material
respect. Complete and correct signed copies of such opinions will be delivered
to Parent after receipt thereof by the Company.
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SECTION 4.18. Intellectual Property. (a) Except as listed on
Schedule 4.18, the Company has made available to Parent true and correct copies
of all material license agreements relating to Intellectual Property to which
the Company and its subsidiaries are a party.
(b) Except as listed on Schedule 4.18:
(1) the Company and each of its subsidiaries owns, or
is licensed or otherwise has the right to use (in each case, clear of
any liens or encumbrances of any kind), all Intellectual Property
material to the conduct of its business as currently conducted;
(2) no material claims are pending or, to the best
knowledge of the Company, threatened that the Company or any of its
subsidiaries is infringing on or otherwise violating the rights of any
person with regard to any Intellectual Property owned by and/or
licensed to the Company or its subsidiaries; and
(3) to the best knowledge of the Company, no person
is infringing on or otherwise violating any right of the Company or any
of its subsidiaries with respect to any Intellectual Property owned by
and/or licensed to the Company or its subsidiaries;
(c) For purposes of the Agreement, "Intellectual Property"
shall mean trademarks (registered or unregistered), service marks, brand names,
certification marks, trade dress, assumed names, trade names and other
indications of origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any jurisdiction to
register, the foregoing, including any extension, modification or renewal of any
such registration or application; inventions, discoveries and ideas, whether
patented, patentable or not in any jurisdiction; trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any person; writings and other works, whether copyrighted,
copyrightable or not in any jurisdiction; registration or applications for
registration of copyrights in any jurisdiction, and any renewals or extensions
thereof; any similar intellectual property or proprietary rights and computer
programs and software (including source code, object code and data); licenses,
immunities, covenants not to sue and the like relating to the foregoing; and any
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claims or causes of action arising out of or related to any infringement or
misappropriation of any of the foregoing.
SECTION 4.19. Labor Matters. (a) Except as set forth in
Schedule 4.19, neither the Company nor any of its subsidiaries is a party to any
employment, labor or collective bargaining agreement and there are no
employment, labor or collective bargaining agreements which pertain to employees
of the Company or its subsidiaries.
(b) No labor organization or group of employees of the Company
or its subsidiaries has made a pending demand for recognition or certification
to the Company or its subsidiaries and there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or threatened to be brought or filed with the National Labor
Relations Board or any other labor relations tribunal or authority relating to
the Company or its subsidiaries. To the knowledge of the Company, after diligent
inquiry there are no organizing activities involving the Company or its
subsidiaries pending with any labor organization or group of employees of the
Company or its subsidiaries.
(c) There are no unfair labor practice charges, grievances or
complaints pending or, to the knowledge of the Company, threatened in writing by
or on behalf of any employee or group of employees of the Company or its
subsidiaries.
(d) There are no complaints, charges, or claims against the
Company or its subsidiaries pending, or threatened in writing to be brought or
filed, with any Governmental Entity or arbitrator based on, arising out of, in
connection with, or otherwise relating to the employment or termination of
employment of any individual by the Company or its subsidiaries.
(e) The Company and its subsidiaries are in compliance with
all laws and regulations governing the employment of labor, including, but not
limited to, all such laws and regulations relating to wages, hours, collective
bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection and payment of withholding and/or Social
Security taxes and similar taxes except where noncompliance individually or in
the aggregate will not have a material adverse effect.
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SECTION 4.20. Real Property, Leases and Assets. . (a) The
Company has sufficient title or valid leasehold interests to all its real
properties and assets to conduct its business as currently conducted or as
contemplated to be conducted.
(b) Each parcel of real property owned or leased by the
Company (i) except as set forth in Schedule 4.20, is owned or leased free and
clear of all mortgages, pledges, liens, security interests, conditional and
installment sale agreements, encumbrances, charges or other claims of third
parties of any kind (collectively, "Liens"), other than (A) Liens for current
taxes and assessments not yet past due, (B) inchoate mechanics' and
materialmen's Liens for construction in progress, (C) workmen's, repairmen's,
warehousemen's and carriers' Liens arising in the ordinary course of business of
the Company consistent with past practice, and (D) all matters of record, Liens
and other imperfections of title and encumbrances which, individually or in the
aggregate, would not have a material adverse effect (collectively, "Permitted
Liens"), and (ii) is neither subject to any governmental decree or order to be
sold nor is being condemned, expropriated or otherwise taken by any public
authority with or without payment of compensation therefor, nor, to the
knowledge of the Company, has any such condemnation, expropriation or taking
been proposed.
(c) All leases of real property leased for the use or benefit
of the Company to which the Company is a party and all amendments and
modifications thereto are in full force and effect and have not been modified or
amended, and there exists no material default under any such lease by the
Company, nor any event which with notice or lapse of time or both would
constitute a material default thereunder by the Company.
SECTION 4.21. Questionnaire. The healthcare law questionnaire
heretofore delivered to the Company (the "Questionnaire") and attached hereto as
Exhibit B, has been fully and accurately completed and does not contain any
material misstatement of any fact and does not omit any fact that would have to
be stated in order not to render any response to the Questionnaire materially
misleading.
SECTION 4.22. Environmental Matters. (a) For purposes of this
Agreement, the following terms shall have the following meanings: (i)
"Environmental Claims" means any
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and all actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, notices of liability or potential liability,
proceedings, consent orders or consent agreements relating in any way to any
Environmental Law, any Environmental Permit or any Hazardous Materials; (ii)
"Environmental Law" means any statute, law, rule, ordinance or code, in effect
now or any time prior to the Closing, and any judicial or administrative
interpretation thereof, including any judicial or administrative order, consent
decree or judgment, relating to pollution or protection of the environment,
health, safety or natural resources, including without limitation, those
relating to the use, handling, transportation, treatment, storage, disposal,
release or discharge of Hazardous Materials; (iii) "Environmental Permit" means
any permit, approval, identification number, license or other authorization
required under any applicable Environmental Law; (iv) "Governmental Authority"
means any United States federal, state or local or any foreign government,
governmental, regulatory or administrative authority, agency or commission or
any court, tribunal, or judicial or arbitral body; (v) "Hazardous Materials"
means (A) petroleum and petroleum products, by products or breakdown products,
radioactive materials, asbestos-containing materials and polychlorinated
biphenyls, and (B) any other chemicals, materials or substances defined or
regulated as toxic or hazardous or as a pollutant or contaminant or as a waste
under any applicable Environmental Law; and (vi) "leased property" and "leased
properties" means the real property which the Company has the right to control
pursuant to its lease and not any property which the Company does not have the
right to control.
(b) Except as described in Schedule 4.22 of the Disclosure
Schedule: (i) the Company is and has been in material compliance with all
applicable Environmental Laws; (ii) the Company has obtained all necessary
Environmental Permits and is and has been in material compliance with their
requirements; (iii) to the knowledge of the Company, there are no underground or
aboveground storage tanks or any surface impoundments, septic tanks, pits, sumps
or lagoons in which Hazardous Materials are being or have been treated, stored
or disposed of on any of the owned or leased properties or with respect to the
period of the Company's ownership, tenancy or operation of such property, on any
real property formerly owned, leased or occupied by the Company; (iv) to the
best knowledge of the Company, no owned or leased properties or any property
adjoining any owned or
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leased properties is listed or proposed for listing on the National Priorities
List under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended through the date hereof, or on the Comprehensive
Environmental Response, Compensation and Liability Information System, as
updated through the date hereof, or any analogous state list of sites requiring
investigation or cleanup; (v) to the knowledge of the Company, there is no
asbestos or asbestos-containing material on any of the owned or leased
properties; (vi) the Company has not released, discharged or disposed any
Hazardous Materials on any of the owned or leased properties or on any real
property formerly owned, leased or occupied by the Company in any manner or
quantity that can give rise to a material adverse effect; (vii) the Company is
not undertaking, has not completed, and, to the knowledge of the Company, is not
required to conduct, any investigation or assessment or remedial or response
action relating to any release, discharge or disposal of or contamination with
Hazardous Materials at any site, location or operation, either voluntarily or
pursuant to the order of any Governmental Authority or the requirements of any
Environmental Law; and (viii) there are no past, pending or, to the knowledge of
the Company, threatened Environmental Claims against the Company or any of its
properties, and, to the knowledge of the Company, there are no facts which can
form the basis of any such Environmental Claim, including without limitation
with respect to any off-site disposal location presently or formerly used by the
Company or any of its predecessors.
SECTION 4.23. Reimbursement Matters. The Company and each
subsidiary thereof, to the extent necessary to conduct their respective
businesses in a manner consistent with the past practices, is qualified for
participation in the Medicare and Medicaid programs. Except as disclosed on
Schedule 4.23 and in Company Filed SEC Documents, (a) neither the Company, nor
any subsidiary thereof, nor any nursing home, hospital or other facility with
respect to which the Company or any subsidiary thereof provides services, has
received any notice of denial or recoupment from the Medicare or Medicaid
programs, or any other third party reimbursement source (inclusive or managed
care organizations) with respect to products or services provided by the Company
or any subsidiary thereof; (b) there is no basis for the assertion of any such
denial or recoupment claim; and (c) neither the Company, nor any subsidiary
thereof, nor any nursing home, hospital or other facility
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with respect to which the Company or any subsidiary thereof provides products or
services, has received notice from any Medicare or Medicaid program or any other
third party reimbursement source (inclusive of managed care organizations) of
any pending or threatened investigation or survey with respect to or arising out
of products or services provided by the Company or any subsidiary thereof or
otherwise and, to the best knowledge, no such investigation or survey is
pending, threatened or imminent.
SECTION 4.24. Material Contracts.
(a) Each contract, agreement or other document or instrument
to which the Company or any of its subsidiaries is a party that was required to
be filed as an exhibit to the Company's annual report on Form 10-K for the year
ended December 31, 1996 was so filed and, from and after December 31, 1996,
neither the Company nor any of its subsidiaries has entered into any contract,
agreement or other document or instrument (other than this Agreement) that is
required to be filed with the SEC that has not been so filed on or before the
date of this Agreement or any amendment, modification or waiver under any
contract, agreement or other document or instrument that was previously so
filed, which amendment, modification or waiver is required to be so filed.
(b) Schedule 4.24 lists:
(i) any agreement concerning a partnership or joint venture;
(ii) any agreement concerning confidentiality or
non-competition;
(iii) any agreement under which the consequences of a default
or termination could have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the Company
or any subsidiary; or
(iv) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $100,000.
The Company has delivered to Parent a correct and complete
copy of each written agreement listed in Schedule 4.24 (as amended to date) and
a written summary
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setting forth the terms and conditions of each oral agreement referred to in
Schedule 4.24. With respect to each such agreement referred to in Section
4.24(a) and listed on Schedule 4.24: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect, (B) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C) no
party is in breach or default, and no event has occurred which, with notice, or
lapse of time, or both would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and (D) no
party has repudiated any provision of the agreement.
SECTION 4.25. Insurance. Schedule 4.25 sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which the Company or any subsidiary thereof is
currently a party, a named insured, or otherwise the beneficiary of coverage:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage is on a claims made, occurrence, or other basis) and amount (including
a description of how deductibles and ceilings are calculated and operate) of
coverage and a description of each of the claims made against the policies
during the last two years; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is
legal, valid, binding, enforceable, and in full force and effect; (B) the
policy, or substitute policies therefor, will continue to be legal, valid,
binding, enforceable, and in full force and effect on materially similar terms
on the Effective Date; (C) neither the Company nor any subsidiary thereof, nor
any other party
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to the policy is in breach or default (including with respect to the payment of
premiums or the giving to notices), and no event has occurred which, with
notice, or the lapse of time, would constitute such a breach or default, or
permit termination, modification, or acceleration, under the policy; and (D) no
party to the policy has repudiated any provision thereof. The Company and each
of its subsidiaries has been covered during the past two years by insurance in
scope and amount customary and reasonable for the businesses in which it has
engaged during the aforementioned period. Schedule 4.25 describes any
self-insurance arrangements affecting the Company and any subsidiary thereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as
follows:
SECTION 5.01. Organization. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power
and authority would not be reasonably expected to prevent or materially delay
the consummation of the Offer and/or the Merger.
SECTION 5.02. Authority. Parent and Sub have requisite
corporate power and authority to execute and deliver the Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of the Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent and Sub and no other corporate proceedings on the part of
Parent and Sub are necessary to authorize the Agreement or to consummate such
transactions. No vote of Parent shareholders is required to approve the
Agreement or the transactions contemplated hereby. The Agreement has been duly
executed and delivered by Parent and Sub, as the case may be, and, assuming the
Agreement constitutes a valid and binding obligation of the Company, constitutes
a valid and binding obligation of each of Parent and Sub enforceable against
them in accordance with its terms, except (i) as
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limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
SECTION 5.03. Consents and Approvals; No Violations. Except
for filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act (including the
filing with the SEC of the Offer Documents), the HSR Act, the DGCL, and as set
forth on Schedule 5.03 the laws of other states in which Parent is qualified to
do or is doing business, state takeover laws and foreign laws, neither the
execution, delivery or performance of the Agreement by Parent and Sub nor the
consummation by Parent and Sub of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the respective
certificate of incorporation or by-laws of Parent and Sub, (ii) require any
filing with, or permit, authorization, consent or approval of, any Governmental
Entity (except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings would not be reasonably expected
to prevent or materially delay the consummation of the Offer and/or the Merger),
(iii) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Parent, any of its subsidiaries or any of their properties or
assets, or (iv) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
lease, contract, agreement or other instrument or obligation to which Parent or
any of its subsidiaries is a party or by which any of them or any of their
properties or assets may be bound or, except in the case of clauses (iii) and
(iv) for violations, breaches or defaults which would not, individually or in
the aggregate, be reasonably expected to prevent or materially delay the
consummation of the Offer and/or the Merger.
SECTION 5.04. Information Supplied. None of the information
supplied or to be supplied by Parent or Sub specifically for inclusion or
incorporation by reference in (i) the Offer Documents, (ii) the Schedule 14D-9,
(iii) the Information Statement or (iv) the Proxy Statement will, in
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the case of the Offer Documents, the Schedule 14D-9 and the Information
Statement, at the respective times the Offer Documents, the Schedule 14D-9 and
the Information Statement are filed with the SEC or first published, sent or
given to the Company's stockholders, or, in the case of the Proxy Statement, at
the time the Proxy Statement is first mailed to the Company's stockholders or at
the time of the Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Offer Documents will comply as to
form in all material respects with the requirements of the Exchange Act and the
rules and regulations thereunder, except that no representation or warranty is
made by Parent or Sub with respect to statements made or incorporated by
reference therein based on information supplied by the Company specifically for
inclusion or incorporation by reference therein.
SECTION 5.05. Interim Operations of Sub. Sub was formed solely
for the purpose of engaging in the transactions contemplated hereby, has engaged
in no other business activities and has conducted its operations only as
contemplated hereby.
SECTION 5.06. Brokers. No broker, investment banker, financial
advisor or other person, other than Shattuck Hammond Partners Inc., the fees and
expenses of which will be paid by Parent, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by the Agreement based upon arrangements made by or on
behalf of Parent or Sub.
SECTION 5.07. Financing. Parent has sufficient funds available
to purchase, or to cause Sub to purchase, all the Shares pursuant to the Offer
and the Merger and to pay all fees and expenses related to the transactions
contemplated by the Agreement.
SECTION 5.08. Section 2.0367. Parent has been an "Interested
Stockholder" (as such term is defined in Section 203 of the DGCL) of the Company
for at least 3 years. Sub was formed following the approval of the Board of
Directors of the Company described in Section 4.15.
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ARTICLE VI
COVENANTS
SECTION 6.01. Covenants of the Company. Until such time as
Parent's designees shall constitute a majority of the members of the Board of
Directors of the Company, the Company agrees as to itself and its subsidiaries
that (except as expressly contemplated or permitted by the Agreement, or to the
extent that Parent shall otherwise consent in writing):
(a) Ordinary Course. The Company shall, and shall cause its
subsidiaries to, carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and
shall use all reasonable efforts to preserve intact their present business
organizations, and preserve their relationships with customers, suppliers,
employees and others having business dealings with the Company and its
subsidiaries.
(b) Dividends; Changes in Stock. The Company shall not, and
shall not permit any of its subsidiaries to, (i) declare or pay any dividends on
or make other distributions in respect of any of its capital stock, except for
dividends by a direct or indirect wholly owned subsidiary of the Company, (ii)
split, combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (iii) repurchase, redeem or
otherwise acquire any shares of capital stock of the Company or its subsidiaries
or any other securities thereof except pursuant to contracts referred to in
Section 4.24 or listed on Schedule 4.24.
(c) Issuance of Securities. The Company shall not, and shall
not permit any of its subsidiaries to, issue, deliver, sell, pledge or encumber,
or authorize or propose the issuance, delivery, sale, pledge or encumbrance of,
any shares of its capital stock of any class or any securities convertible into,
or any rights, warrants, calls, subscriptions or options to acquire, any such
shares or convertible securities, or any other ownership interest (including
stock appreciation rights or phantom stock) other than (i) the issuance of
shares of Company Common Stock upon the exercise of Options outstanding on the
date of the Agreement and in accordance with the terms of such Options,
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and (ii) the issuance of shares of Company Common Stock upon the exercise of
warrants outstanding on the date of the Agreement and in accordance with the
terms of such warrants as of the date of the Agreement.
(d) Governing Documents. The Company shall not, and shall not
permit any of its subsidiaries to, amend or propose to amend its certificate of
incorporation or by-laws (or similar organizational documents).
(e) No Acquisitions. The Company shall not, and shall not
permit any of its subsidiaries to, acquire or agree to acquire (i) by merging or
consolidating with, or by purchasing an equity interest in or a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, joint venture, association or other business
organization or division thereof; (ii) any assets that are material,
individually or in the aggregate, to the Company and its subsidiaries taken as a
whole, except purchases of inventory in the ordinary course of business
consistent with past practice or enter into any management agreement for any of
its assets.
(f) No Dispositions. Except as set forth in Schedule 6.01(f),
the Company shall not, and shall not permit any of its subsidiaries to, sell,
lease, license, encumber or otherwise dispose of, or agree to sell, lease,
license, encumber or otherwise dispose of, any of its assets, except for the
disposition of equipment in the ordinary course of business consistent with past
practice.
(g) Indebtedness. The Company shall not, and shall not permit
any of its subsidiaries to, (i) incur (which shall not be deemed to include
entering into credit agreements, lines of credit or similar agreements until
borrowings are made under such agreements) any indebtedness for borrowed money
or guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of the Company or any of its
subsidiaries, guarantee any debt securities of others, enter into any
"keep-well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, except for working capital borrowings consistent with past
practice, or (ii) make any loans, advances or capital contributions to, or
investments in, any other person, other than, with respect to both clause (i)
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and (ii) above any loan from the Company to a direct or indirect wholly owned
subsidiary of the Company.
(h) Advice of Filings. The Company shall promptly provide to
Parent (or its counsel) copies of all filings made by the Company with any
Governmental Entity in connection with the Agreement and the transactions
contemplated hereby.
(i) Tax Matters. Neither the Company nor any of its
subsidiaries shall make any tax election that would have a material effect on
the tax liability of the Company or any of its subsidiaries or settle or
compromise any material income tax liability of the Company or any of its
subsidiaries. The Company shall, before filing or causing to be filed any
material tax return of the Company or any of its subsidiaries, consult with
Parent and its advisors as to the positions and elections that may be taken or
made with respect to such return, and shall take such positions or make such
elections as the Company and Parent shall jointly agree.
(j) Discharge of Liabilities. The Company shall not, and shall
not permit any of its subsidiaries to, pay, discharge, settle or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past practice
or in accordance with their terms, of (i) liabilities recognized or disclosed in
the Company Financial Statements, or (ii) liabilities incurred since the date of
such financial statements in the ordinary course of business consistent with
past practice.
(k) Material Contracts. Except in the ordinary course of
business, neither the Company nor any of its subsidiaries shall (i) modify,
amend or terminate any material contract or agreement to which the Company or
such subsidiary is a party or (ii) waive, release or assign any rights or claims
under any such contract, including any contract listed on Schedule 4.24 or
referred to in Section 4.24.
(l) Compensation of Company Employees. Except as provided in
Section 7.04, the Company and its subsidiaries will not, without the prior
written consent of Parent, except as may be required by law, (i) enter into,
adopt, amend or terminate any Company Benefit Plan or other
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employee benefit plan or any agreement, arrangement, plan or policy for the
benefit of any director, officer or current or former employee, (ii) increase in
any manner the compensation or fringe benefits of, or pay any bonus to, any
director, executive officer or (iii) pay any benefit not required by any plan or
arrangement as in effect as of the date hereof (including the granting of,
acceleration of exercisability of or vesting of stock options, stock
appreciation rights or restricted stock).
SECTION 6.02. No Solicitation. (a) The Company and its
officers, directors, employees, representatives and agents shall immediately
cease any discussions or negotiations with any parties that may be ongoing with
respect to a Takeover Proposal (as hereinafter defined). The Company shall not,
nor shall it permit any of its subsidiaries to, authorize or permit any of its
officers, directors or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage
(including by way of furnishing information), or take any other action to
facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Takeover Proposal or (ii) participate
in any discussions or negotiations regarding any Takeover Proposal; provided,
however, that if, at any time prior to the acceptance for payment of Shares
pursuant to the Offer, the Board of Directors of the Company determines in good
faith, after consultation with outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to the Company's stockholders under
applicable law, the Company may, in response to an unsolicited Takeover
Proposal, and subject to compliance with Section 6.02(c), (x) furnish
information with respect to the Company to any person pursuant to a
confidentiality agreement and (y) participate in negotiations regarding such
Takeover Proposal. For purposes of the Agreement, "Takeover Proposal" means any
inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of 20% or more of the assets of the Company and its
subsidiaries or 20% or more of any class of equity securities of the Company or
any of its subsidiaries, any tender offer or exchange offer that if consummated
would result in any person beneficially owning 20% or more of any class of
equity securities of the Company or any of its subsidiaries, any merger,
consolidation, business combination, sale of substantially all the assets,
recapitalization, liquidation, dissolution
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or similar transaction involving the Company or any of its subsidiaries, other
than the transactions contemplated by the Agreement, or any other transaction
the consummation of which could reasonably be expected to impede, interfere
with, prevent or materially delay the Offer and/or the Merger or which would
reasonably be expected to dilute materially the benefits to Parent of the
transactions contemplated hereby.
(b) Except as set forth in this Section 6.02, neither the
Board of Directors of the Company nor any committee thereof shall (i) withdraw
or modify, or propose to withdraw or modify, in a manner adverse to Parent, the
approval or recommendation by such Board of Directors or such committee of the
Offer, the Agreement or the Merger, (ii) approve or recommend, or propose to
approve or recommend, any Takeover Proposal or (iii) cause the Company to enter
into any agreement with respect to any Takeover Proposal. Notwithstanding the
foregoing, in the event that prior to the acceptance for payment of Shares
pursuant to the Offer the Board of Directors of the Company determines in good
faith, after consultation with outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to the Company's stockholders under
applicable law, the Board of Directors of the Company may (subject to the other
provisions of Section 6.02) withdraw or modify its approval or recommendation of
the Offer, the Agreement and the Merger, approve or recommend a Superior
Proposal (as defined below), cause the Company to enter into an agreement with
respect to a Superior Proposal or terminate the Agreement, but in each case only
at a time that is after the first business day following Parent's receipt of
written notice (a "Notice of Superior Proposal") advising Parent that the Board
of Directors of the Company has received a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal. In the event that a Notice of Superior
Proposal is delivered and any material term or condition of the Superior
Proposal described therein is subsequently changed, the Company shall deliver a
supplemental Notice of Superior Proposal describing such change and may withdraw
or modify its approval or recommendation of the Offer, the Agreement and the
Merger, approve or recommend the modified Superior Proposal or cause the Company
to enter into an agreement with respect to the modified Superior Proposal only
at a time that is after the first business day following Parent's receipt of the
supplemental Notice of Superior Proposal. In
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addition, if the Company proposes to enter into an agreement with respect to any
Takeover Proposal, it shall concurrently with entering into such agreement pay,
or cause to be paid, to Parent the Termination Fee (as such term is defined in
Section 7.06(b)). For purposes of the Agreement, a "Superior Proposal" means any
bona fide proposal made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the shares
of Company Common Stock then outstanding or all or substantially all the assets
of the Company and otherwise on terms which the Board of Directors of the
Company determines in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation) to be more favorable to
the Company's stockholders than the Offer and the Merger.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 6.02, the Company shall immediately
advise Parent orally and in writing of any request for information or of any
Takeover Proposal, the material terms and conditions of such request or Takeover
Proposal and the identity of the person making such request or Takeover
Proposal. The Company will keep Parent fully informed of the status and details
(including amendments or proposed amendments) of any such request or Takeover
Proposal.
(d) Nothing contained in this Section 6.02 shall prohibit the
Company from taking and disclosing to its stockholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Company's stockholders if, in the good faith judgment of the
Board of Directors of the Company, after consultation with outside counsel,
failure so to disclose would be inconsistent with its fiduciary duties to the
Company's stockholders under applicable law; provided, however, neither the
Company nor its Board of Directors nor any committee thereof shall, except as
permitted by Section 6.02(b), withdraw or modify, or propose to withdraw or
modify, its position with respect to the Offer, the Agreement or the Merger or
approve or recommend, or propose to approve or recommend, a Takeover Proposal.
SECTION 6.03. Other Actions. The Company shall not, and shall
not permit any of its subsidiaries to, take any action that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of the Company set forth in the Agreement that are qualified
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as to materiality becoming untrue, (ii) any of such representations and
warranties that are not so qualified becoming untrue in any material respect or
(iii) any of the Offer Conditions not being satisfied (subject to the Company's
right to take actions specifically permitted by Section 6.02).
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01. Stockholder Approval; Preparation of Proxy
Statement. (a) If the Company Stockholder Approval is required by law, the
Company will, at Parent's request, as soon as practicable following the
acceptance for payment of, and payment for, any Shares by Sub pursuant to the
Offer and the expiration of the Offer, duly call, give notice of, convene and
hold a meeting of its stockholders (the "Stockholders Meeting") for the purpose
of obtaining the Company Stockholder Approval. The Company will, through its
Board of Directors, recommend to its stockholders that the Company Stockholder
Approval be given. Notwithstanding the foregoing, if Sub or any other subsidiary
of Parent shall acquire at least 90% of the outstanding Shares, the parties
shall, at the request of Parent, take all necessary and appropriate action to
cause the Merger to become effective as soon as practicable after the expiration
of the Offer without a Stockholders Meeting in accordance with Section 253 of
the DGCL. Without limiting the generality of the foregoing, the Company agrees
that its obligations pursuant to the first sentence of this Section 7.01(a)
shall not be affected by (i) the commencement, public proposal, public
disclosure or communication to the Company of any Takeover Proposal or (ii) the
withdrawal or modification by the Board of Directors of the Company of its
approval or recommendation of the Offer, the Agreement or the Merger.
(b) If the Company Stockholder Approval is required by law,
the Company will, at Parent's request, as soon as practicable following the
acceptance for payment of, and payment for, any Shares by Sub pursuant to the
Offer and the expiration of the Offer, prepare and file a preliminary Proxy
Statement with the SEC and will use its best efforts to respond to any comments
of the SEC or its staff and to cause the Proxy Statement to be mailed to the
Company's stockholders as promptly as practicable after responding to all such
comments to the satisfaction of the staff. The Company will notify Parent
promptly of the receipt of any
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comments from the SEC or its staff and of any request by the SEC or its staff
for amendments or supplements to the Proxy Statement or for additional
information and will supply Parent with copies of all correspondence between the
Company or any of its representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to the Proxy Statement or the Merger. If
at any time prior to the Stockholders Meeting there shall occur any event that
should be set forth in an amendment or supplement to the Proxy Statement, the
Company will promptly prepare and mail to its stockholders such an amendment or
supplement. The Company will not mail any Proxy Statement, or any amendment or
supplement thereto, to which Parent reasonably objects.
(c) Parent agrees to cause all Shares purchased pursuant to
the Offer and all other Shares owned by Parent or any subsidiary of Parent to be
voted in favor of the Company Stockholder Approval.
SECTION 7.02. Access to Information. The Company shall (and
shall cause each of its subsidiaries to) furnish promptly to Parent (a) a copy
of each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of the Federal or
state securities laws or the Federal tax laws and (b) all other information
concerning its business, properties and personnel as Parent may reasonably
request (including the Company's outside accountants' work papers).
SECTION 7.03. Reasonable Efforts. Each of the Company, Parent
and Sub agree to use its reasonable efforts to take, or cause to be taken, all
actions necessary to comply promptly with all legal requirements which may be
imposed on itself with respect to the Offer and the Merger (which actions shall
include furnishing all information required under the HSR Act, and in connection
with approvals of or filings with any other Governmental Entity) and will
promptly cooperate with and furnish information to each other in connection with
any such requirements imposed upon any of them or any of their subsidiaries in
connection with the Offer and the Merger. Each of the Company, Parent and Sub
will, and will cause its subsidiaries to, use its reasonable efforts to take all
reasonable actions necessary to obtain (and will cooperate with each other in
obtaining) any consent, authorization, order or approval of, or any exemption
by, any Governmental Entity or other public or private third party required to
be obtained or made by Parent, Sub, the Company or any of their subsidiaries in
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connection with the Offer and the Merger or the taking of any action
contemplated thereby or by the Agreement, except that no party need waive any
substantial rights or agree to any substantial limitation on its operations or
to dispose of any assets.
SECTION 7.04. Options; Warrants. (a) The Company shall amend
all Company plans ("Option Plans") pursuant to which there are holders of
options to purchase Shares granted by the Company (the "Options") to provide
that if the optionees do not exercise their unexercised Options within thirty
(30) days of a notice that the Company proposes to merge into another
corporation, to the extent that an optionee does not exercise within thirty (30)
days of the notice the optionee shall receive, in settlement of each Option held
by the optionee, a "Cash Amount" (less any applicable withholding taxes) with
respect to the number of previously unexercised Shares underlying the Option
immediately prior to the Effective Time. Each Option shall terminate as of the
Effective Time. The Cash Amount payable for each Option shall equal the product
of (i) the Merger Consideration minus the exercise price per Share of each such
Option and (ii) the number of previously unexercised Shares covered by each such
Option.
(b) The Company shall provide notice to participants in the
Company Option Plans that the Company proposes to merge into another
corporation; that the Optionee under the plans or program may exercise his
Options in full for all shares not theretofore purchased by him within thirty
(30) days after such notice; and that the plans and program have been amended to
provide that to the extent an optionee does not exercise such Options within
thirty (30) days of the notice the optionee shall receive, in settlement of each
Option held by the optionee, a "Cash Amount" (less any applicable withholding
taxes) with respect to the number of previously unexercised Shares underlying
the Option immediately prior to the Effective Time. Each Option shall terminate
as of the Effective Time. The Cash Amount payable for each Option shall equal
the product of (i) the Merger Consideration minus the exercise price per Share
of each such Option and (ii) the number of previously unexercised Shares covered
by each such Option.
(c) Except as may be otherwise agreed to by Parent or Sub and
the Company, the Company's Option Plans shall terminate as of the Effective Time
and the provisions in any other plan, program or arrangement providing for the
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issuance or grant of any other interest in respect of the capital stock of the
Company or any of its Subsidiaries shall be deleted as of the Effective Time.
(d) The Company shall use its best efforts so that following
the Effective Time no holder of employee stock options will have any right to
receive Shares upon exercise of an employee stock option.
(e) At the Effective Time, each holder of a then outstanding
warrant to purchase Shares granted by the Company ("Warrants"), whether or not
then exercisable, shall, in settlement thereof, receive for each Share subject
to such Warrant an amount (subject to any applicable withholding tax) in cash
equal to the difference between the Offer Price and the per share exercise price
of such Warrant to the extent such difference is a positive number. Prior to the
Effective Time, the Company shall use its best efforts to obtain all necessary
consents or releases from holders of Warrants, to the extent required by the
terms of the agreements governing such Warrants or pursuant to the terms of any
Warrant granted thereunder, and take all such other lawful action as may be
necessary to give effect to the transactions contemplated by this Section
7.04(f) (except for such action that may require the approval of the Company's
stockholders).
SECTION 7.05. Directors. Promptly upon the acceptance for
payment of, and payment for, any Shares by Sub pursuant to the Offer, Sub shall
be entitled to designate such number of directors on the Board of Directors of
the Company as will give Sub, subject to compliance with Section 14(f) of the
Exchange Act, a majority of such directors, and the Company shall, at such time,
cause Sub's designees to be so elected by its existing Board of Directors;
provided, however, that in the event that Sub's designees are elected to the
Board of Directors of the Company, until the Effective Time such Board of
Directors shall have at least two directors who are directors on the date of the
Agreement and who are not officers of the Company (the "Independent Directors");
and provided further that, in such event, if the number of Independent Directors
shall be reduced below two for any reason whatsoever, the remaining Independent
Director shall designate a person to fill such vacancy who shall be deemed to be
an Independent Director for purposes of the Agreement or, if no Independent
Directors then remain, the other directors shall designate
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two persons to fill such vacancies who shall not be officers or affiliates of
the Company or any of its subsidiaries, or officers or affiliates of Parent or
any of its subsidiaries, and such persons shall be deemed to be Independent
Directors for purposes of the Agreement. Subject to applicable law, the Company
shall take all action requested by Parent necessary to effect any such election,
including mailing to its stockholders the Information Statement containing the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, and the Company agrees to make such mailing with the
mailing of the Schedule 14D-9 (provided that Sub shall have provided to the
Company on a timely basis all information required to be included in the
Information Statement with respect to Sub's designees). In connection with the
foregoing, the Company will promptly, at the option of Parent, either increase
the size of the Company's Board of Directors and/or obtain the resignation of
such number of its current directors as is necessary to enable Sub's designees
to be elected or appointed to, and to constitute a majority of, the Company's
Board of Directors as provided above.
SECTION 7.06. Fees and Expenses. (a) Except as provided below
in this Section 7.06, all fees and expenses incurred in connection with the
Offer, the Merger, the Agreement and the transactions contemplated by the
Agreement shall be paid by the party incurring such fees or expenses, whether or
not the Offer or the Merger is consummated.
(b) If (w) the Company shall terminate this Agreement pursuant
to Section 9.01(d)(i), (x) Parent shall terminate this Agreement pursuant to
Section 9.01(c)(ii) hereof, or (y) either the Company or Parent terminates this
Agreement pursuant to Section 9.01(b)(i) and (a) prior thereto there shall have
been publicly announced another Takeover Proposal or an event set forth in
paragraph (d) of Exhibit A shall have occurred and (b) a Takeover Proposal shall
be consummated on or prior to March 31, 1998, the Company shall pay to Parent
one million ($1,000,000) Dollars as a termination fee (the "Termination Fee"),
which shall be payable in same day funds. The Termination Fee, together with the
balance of any loans between Parent or any Subsidiary thereof and the Company
shall be paid (1) in the case of termination's referenced in subparts (w) and
(x) above, concurrently with any such termination and (2) in the case of
termination referenced in subpart (y) above, at the time of consummation of a
Takeover Proposal as described in subpart (y)(b) above.
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SECTION 7.07. Indemnification; Insurance. (a) Parent and Sub
agree that all rights to indemnification for acts or omissions occurring prior
to the Effective Time now existing in favor of the current or former directors
or officers (the "Indemnified Parties") of the Company and its subsidiaries as
provided in their respective certificates of incorporation or by-laws (or
similar organizational documents) or existing indemnification contracts as filed
with the Company Filed SEC Documents shall survive the Merger and shall continue
in full force and effect in accordance with their terms. For six years from the
Effective Time, Parent shall, (i) guarantee the indemnification obligations set
forth in this Section 7.07(a) and (ii) maintain in effect the Company's current
directors' and officers' liability insurance covering those persons who are
currently covered by the Company's directors' and officers' liability insurance
policy (a copy of which has been heretofore delivered to Parent).
(b) This Section 7.07 shall survive the consummation of the
Merger at the Effective Time, is intended to benefit the Company, Parent, the
Surviving Corporation and the Indemnified Parties, and shall be binding on all
successors and assigns of Parent and the Surviving Corporation.
SECTION 7.08. Certain Litigation2. The Company agrees that it
will not voluntarily cooperate with any third party which may hereafter seek to
restrain or prohibit or otherwise oppose the Offer or the Merger and will
cooperate with Parent and Sub to resist any such effort to restrain or prohibit
or otherwise oppose the Offer or the Merger, unless the Board of Directors of
the Company determines in good faith, after consultation with outside counsel,
that failing so to cooperate with such third party or cooperating with Parent or
Sub, as the case may be, would constitute a breach of the Board's fiduciary
duties under applicable law.
ARTICLE VIII
CONDITIONS
SECTION 8.01. Conditions to Each Party's Obligation To Effect
the Merger. The respective obligation of each party to effect the Merger shall
be subject to the satisfaction prior to the Closing Date of the following
conditions:
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(a) Company Stockholder Approval. If required by applicable
law, the Company Stockholder Approval shall have been obtained.
(b) No Injunctions or Restraints. No statute, rule,
regulation, executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other Governmental Entity or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect;
provided, however, that each of the parties shall have used reasonable efforts
to prevent the entry of any such injunction or other order and to appeal as
promptly as possible any injunction or other order that may be entered.
(c) Purchase of Shares. Sub shall have previously accepted for
payment and paid for Shares pursuant to the Offer.
(d) Competition Approvals. The applicable waiting periods
under the HSR Act shall have expired or been terminated.
ARTICLE IX
TERMINATION AND AMENDMENT
SECTION 9.01. Termination. The Agreement may be terminated at
any time prior to the Effective Time, whether before or after approval of the
terms of the Agreement by the stockholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company
(i) if (x) as a result of the failure of any of the
Offer Conditions the Offer shall have terminated or expired in accordance with
its terms without Sub having accepted for payment any Shares pursuant to the
Offer or (y) Sub shall not have accepted for payment any Shares pursuant to the
Offer prior to November 30, 1997; provided, however, that the right to terminate
the Agreement pursuant to this Section 9.01(b)(i) shall not be available to any
party whose
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failure to perform any of its obligations under the Agreement results in the
failure of any such condition or if the failure of such condition results from
facts or circumstances that constitute a breach of representation or warranty
under the Agreement by such party; or
(ii) if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the acceptance for payment of, or payment
for, shares of Company Common Stock pursuant to the Offer or the Merger and such
order, decree or ruling or other action shall have become final and
nonappealable;
(c) by Parent or Sub
(i) prior to the purchase of Shares pursuant to the
Offer in the event of a breach by the Company of any representation, warranty,
covenant or other agreement contained in the Agreement which (i) would give rise
to the failure of a condition set forth in paragraph (e) or (f) of Exhibit A and
(ii) cannot be or has not been cured within 20 days after the giving of written
notice to the Company;
(ii) if either Parent or Sub is entitled to terminate
the Offer as a result of the occurrence of any event set forth in paragraph (d)
of Exhibit A to the Agreement; or
(iii) if, due to an occurrence, not involving a breach
by Parent or Sub of their obligations hereunder, which makes it impossible to
satisfy any of the conditions set forth in Exhibit A hereto, Parent, Sub or any
of their affiliates shall have failed to commence the Offer on or prior to five
business days following the date of the initial public announcement of the
Offer;
(d) by the Company
(i) in connection with entering into a definitive
agreement in accordance with Section 6.02(b), provided it has complied with all
provisions thereof, including the notice provisions therein, and that it makes
simultaneous payment of the Termination Fee;
(ii) if Sub or Parent shall have breached in any
material respect any of their respective representations, warranties, covenants
or other agreements
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contained in the Agreement, which breach or failure to perform is incapable of
being cured or has not been cured within 20 days after the giving of written
notice to Parent or Sub, as applicable, except, in any case, such breaches and
failures which are not reasonably likely to affect adversely Parent's or Sub's
ability to complete the Offer or the Merger; or
(iii) if Parent, Sub or any of their affiliates shall
have failed to commence the Offer on or prior to five business days following
the date of the initial public announcement of the Offer; provided, that the
Company may not terminate the Agreement pursuant to this Section 9.01(d)(iii) if
the Company is at such time in breach of its obligations under the Agreement
such as to cause a material adverse effect on the Company and its Subsidiaries,
taken as a whole.
SECTION 9.02. Effect of Termination. In the event of a
termination of the Agreement by either the Company or Parent as provided in
Section 9.01, the Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Parent, Sub or the Company or their
respective officers or directors, except with respect to the last sentence of
Section 1.02(c), Section 4.16, Section 5.06, the last sentence of Section 7.02,
Section 7.06, this Section 9.02 and Article X; provided, however, that nothing
herein shall relieve any party for liability for any breach hereof.
SECTION 9.03. Amendment. The Agreement may be amended by the
parties hereto, by action taken or authorized by their respective Boards of
Directors, at any time before or after obtaining the Company Stockholder
Approval (if required by law), but, after any such approval, no amendment shall
be made which by law requires further approval by such shareholders without
obtaining such further approval. The Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. Following
the election or appointment of the Sub's designees pursuant to Section 7.05 and
prior to the Effective Time, the affirmative vote of a majority of the
Independent Directors then in office shall be required by the Company to (i)
amend or terminate the Agreement by the Company, (ii) exercise or waive any of
the Company's rights or remedies under the Agreement or (iii) extend the time
for performance of Parent and Sub's respective obligations under the Agreement.
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SECTION 9.04. Extension; Waiver. At any time prior to the
Effective Time, the parties hereto, by action taken or authorized by their
respective Boards of Directors, may, to the extent legally allowed, (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto or
(iii) subject to the proviso of Section 9.03, waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. The failure of any party to
the Agreement to assert any of its rights under the Agreement or otherwise shall
not constitute a waiver of those rights.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Nonsurvival of Representations and Warranties.
The representations and warranties in the Agreement or in any instrument
delivered pursuant to the Agreement shall terminate at the Effective Time or, in
the case of the Company, shall terminate upon the acceptance for payment of, and
payment for, Shares by Sub pursuant to the Offer, unless the survival thereof is
provided for by their terms.
SECTION 10.02. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed), sent by overnight courier (providing proof of
delivery) or mailed by registered or certified mail (return receipt requested)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Sub, to:
Integrated Health Services, Inc.
10065 Red Run Blvd.
Owings Mills, MD 21117
Attention: Beth Kelly
Facsimile: (410) 902-2110
with a copy to:
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Integrated Health Services, Inc.
10065 Red Run Blvd.
Owings Mills, MD 21117
Attention: Marshall Elkins, Esq.
Facsimile: (410) 998-8500
and
Calo Agostino
27 Warren Street
Hackensack, NJ 07601
Attention: Frank Agostino, Esq.
Facsimile: (201) 488-5855
(b) if to the Company, to:
Community Care of America, Inc.
3050 North Horseshoe Drive, Suite 260
Naples, FL 34104
Attention: Deborah Lau
Facsimile: (941) 435-0408
with a copy to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, NY 10112
Attention: J. Allen Miller, Esq.
Facsimile: (212) 541-5369
SECTION 10.03. Interpretation. When a reference is made in the
Agreement to an Article or a Section, such reference shall be to an Article or a
Section of the Agreement unless otherwise indicated. The table of contents and
headings contained in the Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of the Agreement. Whenever
the words "include", "includes" or "including" are used in the Agreement, they
shall be deemed to be followed by the words "without limitation". The phrase
"made available" in the Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information is to
be made available. As used in the Agreement, the term "subsidiary" of any person
means another person, an amount of the voting securities, other voting ownership
or voting partnership interests of which is sufficient to elect at least a
majority of its Board of Directors or other governing body (or, if there are no
such
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<PAGE>
voting interests, 50% or more of the equity interests of which is owned directly
or indirectly by such first person). As used in the Agreement, "material adverse
change" or "material adverse effect" means, when used in connection with the
Company, any change or effect that, individually or in the aggregate with any
such other changes or effects, is materially adverse to the business, financial
condition or results of operations of the Company and its subsidiaries taken as
a whole.
SECTION 10.04. Counterparts. The Agreement may be executed in
two or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
SECTION 10.05. Entire Agreement; Third Party Beneficiaries.
The Agreement (including the documents and the instruments referred to herein)
(a) constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 7.07, are not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
SECTION 10.06. Governing Law. The Agreement shall be governed
and construed in accordance with the laws of the State of New York without
regard to any applicable conflicts of law, except to the extent the DGCL shall
be held to govern the terms of the Merger.
SECTION 10.07. Publicity. Except as otherwise required by law
or the rules of any exchange to which the Company or Parent is subject, for so
long as the Agreement is in effect, neither the Company nor Parent shall, or
shall permit any of its subsidiaries to, issue or cause the publication of any
press release or other public announcement with respect to the transactions
contemplated by the Agreement without the consent of the other party, which
consent shall not be unreasonably withheld.
SECTION 10.08. Assignment. Neither the Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written
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consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to any
direct or indirect wholly owned subsidiary of Integrated Health Services, Inc.
Subject to the preceding sentence, the Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective successors
and assigns.
SECTION 10.09. Enforcement. The parties agree that irreparable
damage would occur in the event that any of the provisions of the Agreement were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of the Agreement and to enforce
specifically the terms and provisions of the Agreement in any court of the
United States located in the State of Delaware or in a Delaware state court,
this being in addition to any other remedy to which they are entitled at law or
in equity. In addition, each of the parties hereto (i) consents to submit such
party to the personal jurisdiction of any Federal court located in the State of
Delaware or any Delaware state court in the event any dispute arises out of the
Agreement or any of the transactions contemplated hereby, (ii) agrees that such
party will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court, (iii) agrees that such party will
not bring any action relating to the Agreement or any of the transactions
contemplated hereby in any court other than a Federal court sitting in the state
of Delaware or a Delaware state court and (iv) waives any right to trial by jury
with respect to any claim or proceeding related to or arising out of the
Agreement or any of the transactions contemplated hereby.
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<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused
the Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Brian K. Davidson
---------------------------------
Name: Brian K. Davidson
Title: Executive Vice President-
Development
IHS ACQUISITION XXVI INC.
By: /s/ Brian K. Davidson
---------------------------------
Name: Brian K. Davidson
Title: Executive Vice President-
Development
COMMUNITY CARE OF AMERICA, INC.
By: /s/ Deborah A. Lau
---------------------------------
Name: Deborah A. Lau
Title: Chief Executive Officer
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<PAGE>
EXHIBIT A
Conditions of the Offer
Notwithstanding any other term of the Offer or the Agreement,
and in addition to (and not in limitation of) Sub's right to extend and amend
the Offer at any time in its sole discretion (subject to the provisions of the
Agreement), Sub shall not be required to accept for payment or, subject to
applicable rules and regulations of the SEC, including Rule 14e-1(c) under the
Exchange Act (relating to Sub's obligation to pay for or return tendered Shares
after the termination or withdrawal of the Offer), to pay for, and may delay the
acceptance for payment of or, subject to the restriction referred to above, the
payment for, any Shares tendered pursuant to the Offer unless (i) there shall
have been validly tendered and not withdrawn prior to the expiration of the
Offer such number of Shares that would constitute a majority of the outstanding
Shares (determined on a fully diluted basis for all outstanding stock options
and any other rights to acquire Shares) (the "Minimum Condition") and (ii) any
waiting period under the HSR Act applicable to the purchase of Shares pursuant
to the Offer shall have expired or been terminated. Furthermore, notwithstanding
any other term of the Offer or the Agreement, Sub shall not be required to
accept for payment or, subject as aforesaid, to pay for any Shares not
theretofore accepted for payment or paid for, and may terminate the Offer if, at
any time on or after the date of the Agreement and before the acceptance of such
Shares for payment or the payment therefor, any of the following conditions
exists:
(a) there shall be threatened, instituted or pending by any
person or Governmental Entity any suit, action, investigation or proceeding (i)
challenging the acquisition by Parent or Sub of any Shares under the Offer or
seeking to restrain or prohibit the making or consummation of the Offer or the
Merger or the performance of any of the other transactions contemplated by the
Agreement, or seeking to obtain from the Company, Parent or Sub any damages not
covered by insurance which in the reasonable judgment of Parent are material in
relation to the Company and its subsidiaries taken as a whole, (ii) seeking to
prohibit or impose any limitations on Parent's or Sub's ownership or operation
(or that of any of their respective Subsidiaries or affiliates) of the Company's
businesses or assets, or to compel Parent or Sub or their
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<PAGE>
respective Subsidiaries and affiliates to dispose of or hold separate any
portion of the business or assets of the Company or Parent and their respective
Subsidiaries, (iii) seeking to impose limitations on the ability of Sub, or
render Sub unable, to accept for payment, pay for or purchase some or all of the
Shares pursuant to the Offer and the Merger, (iv) seeking to impose limitations
on the ability of Sub or Parent effectively to exercise full rights of ownership
of the Shares, including, without limitation, the right to vote the Shares
purchased by it on all matters properly presented to the Company's stockholders,
or (v) which otherwise in the reasonable judgment of Parent are likely to have a
material adverse effect on the Company;
(b) there shall be any statute, rule, regulation, judgment,
order or injunction enacted, entered, enforced, promulgated or deemed applicable
to the Offer or the Merger, or any other action shall be taken by any
Governmental Entity or court, other than the application to the Offer or the
Merger of applicable waiting periods under the HSR Act that is in the reasonable
judgment of Parent likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (v) of paragraph (a) above;
(c) there shall have occurred any events that, either
individually or in the aggregate, have caused or in the reasonable judgment of
the Parent are likely to cause a material adverse change with respect to the
Company;
(d)(i) the Board of Directors of the Company or any committee
thereof shall have withdrawn or modified in a manner adverse to Parent or Sub
its approval or recommendation of the Offer, the Merger or the Agreement, or
approved or recommended any Takeover Proposal, (ii) the Company shall have
entered into any agreement with respect to any Superior Proposal in accordance
with Section 6.02(b) of the Agreement or (iii) the Board of Directors of the
Company or any committee thereof shall have resolved to take any of the
foregoing actions;
(e) any of the representations and warranties of the Company
set forth in the Agreement that are qualified as to materiality shall not be
true and correct or any such representations and warranties that are not so
qualified shall not be true and correct in any material respect, in each case at
the date of the Agreement and at the scheduled or extended expiration of the
Offer;
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<PAGE>
(f) the Company shall have failed to perform or cure within
the applicable cure period any material obligation or to comply in any material
respect with any material agreement or covenant of the Company to be performed
or complied with by it under the Agreement;
(g) the Agreement shall have been terminated in accordance
with its terms;
(h) there shall have occurred (i) any general suspension of,
or limitation on prices for, trading in securities on the New York Stock
Exchange or on NASDAQ, (ii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iii) a
commencement of a war, armed hostilities or other international or national
calamity directly involving the armed forces of the United States, (iv) any
general limitation (whether or not mandatory) by any governmental authority on
the extension of credit by banks or other lending institutions, and (v) in the
case of any of the foregoing existing at the time of the commencement of the
Offer, a material acceleration or worsening thereof.
(i) The Parent, Sub and Company shall not have procured the
consents described on Schedule A(i).
The foregoing conditions are for the sole benefit of Parent
and Sub, may be asserted by Parent or Sub regardless of the circumstances giving
rise to such condition (including any action or inaction by Parent or Sub not in
violation of the Agreement) and may be waived by Parent or Sub in whole or in
part at any time and from time to time in the sole discretion of Parent or Sub,
subject in each case to the terms of the Agreement. The failure by Parent or Sub
at any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
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<PAGE>
LIST OF SCHEDULES
Schedule Description
-------- -----------
4.02 Subsidiaries
4.03 Capitalization
4.05 Contractual Consents
4.07 Changes or Events
4.08 Undisclosed Liabilities
4.10 Benefit Plans
4.11 Compensation Arrangements
4.12 Litigation
4.14 Tax Matters
4.15 State Takeover Statutes
4.18 Intellectual Property
4.19 Labor Matters
4.20 Real Property, Leases and Assets
4.22 Environmental Matters
4.23 Reimbursement Matters
4.24 Contracts
4.25 Insurance
5.03 Parent/Sub Consents
6.01(f) Covenants of the Company
Dispositions
Exhibit A Conditions of the Offer
Exhibit B Questionnaire
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VOTING AND TENDER AGREEMENT
THIS VOTING AND TENDER AGREEMENT (this "Agreement"), dated as of the
1st day of August, 1997, by and between ROBERT N. ELKINS (the "Stockholder") and
INTEGRATED HEALTH SERVICES, INC., a Delaware Corporation ("Parent") and IHS
ACQUISITION XXVI, INC. ("Merger Subsidiary").
WHEREAS, Community Care of America, Inc., a Delaware Corporation (the
"Company"), Parent and Merger Subsidiary are entering into an Agreement and Plan
of Merger, dated as of the date hereof (the "Merger Agreement") which provides
for, among other things, an offer to purchase by Merger Subsidiary all of the
outstanding shares of the Company ("Company Common Stock"), at a purchase price
of Four and 0/100 ($4.00) Dollars per share, net to the seller in cash, without
interest thereon, followed by the merger of Merger Subsidiary with the Company
(the "Merger"); and
WHEREAS, as of the date hereof, the Stockholder owns, of record and
beneficially, 1,600,893 shares of Company Common Stock; and
WHEREAS, as a condition to the willingness of Parent and Merger
Subsidiary to enter into the Merger Agreement, each of Parent and Merger
Subsidiary has required that the Stockholder agree, and in order to induce
Parent and Merger Subsidiary to enter into the Merger Agreement, the Stockholder
has agreed, to enter into this Agreement with respect to (a) all shares of
Company Common Stock now owned, beneficially or otherwise, and which may
hereafter be acquired by the Stockholder (the "Shares") and (b) certain other
matters as set forth herein.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
Section 1.1 Tender Agreement. (a) The Stockholder shall, within five
(5) business days after the commencement of the Offer (as defined in the Merger
Agreement), tender, or cause to be tendered, for sale to Merger Subsidiary,
pursuant to the terms of the Offer, all of the Stockholder's Shares then owned
of record or beneficially by the Stockholder; and (b) except as provided in
clause (a) above, during the time this Agreement is in effect, the Stockholder
shall not otherwise sell, give, dispose of (whether by operation of law or by
agreement or otherwise) or tender any Shares or any right, title or interest
therein or thereto.
Section 1.2 Voting Agreement. The Stockholder hereby agrees that during
the time this Agreement is in effect, at any meeting of the stockholders of the
Company, however called, and in any action by consent of the stockholders of the
Company, the Stockholder shall vote the Shares, or cause the Shares to be voted:
(a) in favor of the
<PAGE>
Merger pursuant to the Merger Agreement; and (b) against any proposal for any
recapitalization, merger, sale of assets or other business combination between
the Company and any person or entity (other than Merger Subsidiary or Parent) or
any other action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or which could prevent any of the conditions to the
Company's obligations under the Merger Agreement from being fulfilled. If
requested by Parent, the Stockholder will grant Parent an irrevocable proxy to
vote the Shares in a manner consistent with this Section 1.2 for so long as this
Agreement is in effect. The Stockholder will not join in any suit or proceeding
or participate in any action that is inconsistent with, or designed or intended
to have the effect of discouraging, the completion of the Merger pursuant to the
terms of the Merger Agreement.
Section 1.3 General Release. As an inducement for Parent, Merger
Subsidiary and the Company to enter into the Merger Agreement: (a) upon the
Merger Subsidiary obtaining control of the Company, the Stockholder will remise,
release and forever discharge the Company, and its respective officers,
directors, shareholders, employees, agents, successors and assigns, from any and
all debts, obligations, suits, actions, causes of action, claims, demands, in
law or in equity, which the Stockholder ever had or now has, for, upon, or by
reason of any matter, cause or thing whatsoever, however arising; and (b) upon
the Merger Subsidiary obtaining control of the Company, the Company will remise,
release and forever discharge Stockholder and its partners, and their respective
officers, directors, shareholders, employees, agents, successors and assigns,
from any and all debts, obligations, suits, actions, claims, demands, in law or
in equity, which they ever had or now have, for, upon, or by reason of any
matter, cause or thing whatsoever, however arising. In the event any action is
instituted, the parties hereto agree to cause its immediate dismissal with
prejudice.
Section 1.4 Stockholder Capacity. The Stockholder makes this Agreement
solely in its capacity as the record and beneficial owner of the Shares. Nothing
in this Agreement shall prohibit the Stockholder or any of its officers,
directors, employees, representatives and agents from taking, or omitting to
take, any action as a director, employee, representative or agent of the Company
permitted to be taken or omitted under the Merger Agreement.
Section 1.5 Acknowledgment. The Stockholder acknowledges receipt and
review of a copy of the Merger Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Parent as follows:
Section 2.1 Authority Relative to This Agreement. The Stockholder has
all necessary power and authority to execute and deliver this Agreement, to
perform its
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<PAGE>
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by the Stockholder and the
consummation by the Stockholder of the transactions contemplated hereby have
been duly and validly authorized by the Stockholder and no other proceedings on
the part of the Stockholder are necessary to authorize this Agreement or to
consummate such transactions. This Agreement has been duly and validly executed
and delivered by the Stockholder and, assuming the due authorization, execution
and delivery by Parent and Merger Subsidiary, constitutes a legal, valid and
binding obligation of the Stockholder, enforceable against the Stockholder in
accordance with its terms, except to the extent enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting creditors'
rights generally or by general principles governing the availability of
equitable remedies.
Section 2.2 No Conflict. (a) The execution and delivery of this
Agreement by the Stockholder do not, and the performance of this Agreement by
the Stockholder shall not: (i) conflict with or violate the organizational
documents of the Stockholder; (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Stockholder or by which
the Shares are bound; or (iii) result in any breach of or constitute a default
(or an event that with notice, or lapse of time, or both, would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the Shares pursuant to any note, bond, mortgage, other
instrument or obligation to which the Stockholder is a party or by which the
Stockholder or the Shares are bound or affected, except in case of clauses (ii)
and (iii), for any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay the performance by the Stockholder
of its obligations under this Agreement; and (b) the execution and delivery of
this Agreement by the Stockholder do not, and the performance of this Agreement
by the Stockholder shall not, require any consent, approval, authorization or
permit of, or filing with, or notification to, any court or arbitrator or any
governmental body, agency or official, except for applicable requirements, if
any of the Securities Exchange Act of 1934, as amended, and except where the
failure to obtain such consents, approvals authorizations or permits, or to make
such filings or notifications, would not prevent or delay the performance by the
Stockholder of its obligations under this Agreement.
Section 2.3 Title to the Shares. As of the date hereof, the Stockholder
is the record and/or beneficial owner of 1,600,893 shares of Company Common
Stock. Such Shares are all the securities of the Company owned, either of record
or beneficially, by the Stockholder and the Stockholder owns no other rights or
interests exercisable for or convertible into any securities of the Company. The
Shares are owned free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations on the
Stockholder's voting rights, charges and other encumbrances of any nature
whatsoever. The Stockholder has not appointed or granted any proxy, which
appointment or grant is still effective with respect to the Shares.
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<PAGE>
Section 2.4 No Fees or Commissions. No broker, financial advisor or
other intermediary is entitled to any fee or other commission in connection with
the transaction contemplated by this Agreement based on an arrangement made by
or on behalf of the Stockholder.
ARTICLE III
COVENANTS OF THE STOCKHOLDER
Section 3.1 No Inconsistent Agreement. The Stockholder hereby covenants
and agrees that, except as contemplated by this Agreement and the Merger
Agreement, the Stockholder shall not enter into any agreement or grant a proxy
or power of attorney with respect to the Shares which is inconsistent with this
Agreement.
Section 3.2 No Encumbrances. The Stockholder hereby covenants and
agrees that the Stockholder shall not by any action or omission cause any
security interests, liens, claims, pledges, charges, encumbrances, options,
rights of first refusals, agreements or limitations on the Stockholder's voting
rights, to attach to the Shares to be tendered to the Merger Subsidiary pursuant
to Section 1.1 hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARTIES
Each of the Stockholder, Parent and Merger Subsidiary has full right, power
and authority to enter into and perform this Agreement and this Agreement has
been duly authorized, executed and delivered by each of the Stockholder, Parent
and Merger Subsidiary and is a valid and binding agreement of each of the
Stockholder, Parent and Merger Subsidiary enforceable against each of the
Stockholder, Parent and Merger Subsidiary in accordance with its terms.
ARTICLE V
MISCELLANEOUS
Section 5.1 Termination. This Agreement shall terminate upon the
termination of the Merger Agreement or if the Shares shall have not theretofore
been sold pursuant to the Offer, on November 30, 1997, whichever is earlier.
Section 5.2 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or in equity.
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<PAGE>
Section 5.3 Entire Agreement. This Agreement constitutes the entire
agreement between Parent and the Stockholder with respect to the subject matter
hereof and supersedes all prior agreements and understandings, both written and
oral, between Parent and the Stockholder with respect to the subject matter
hereof.
Section 5.4 Amendment. This Agreement may not be amended, except by an
instrument in writing signed by the parties hereto.
Section 5.5 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
regardless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereby shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible to the fullest extent permitted by applicable law
in a mutually acceptable manner in order that the terms of this Agreement remain
as originally contemplated.
Section 5.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware regardless of the
laws that might otherwise govern under applicable principles of conflicts of
law.
Section 5.7 Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the Stockholder, Parent and Merger Subsidiary have
caused this Agreement to be duly executed as the date and year first above
written.
/s/ Robert N. Elkins
-----------------------------------
ROBERT N. ELKINS
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Brian K. Davidson
----------------------------
Name: Brian K. Davidson
Title: Executive Vice President -
Development
IHS ACQUISITION XXVI, INC.
By: /s/ Brian K. Davidson
----------------------------
Name: Brian K. Davidson
Title: Executive Vice President -
Development
-6-
VOTING AND TENDER AGREEMENT
THIS VOTING AND TENDER AGREEMENT (this "Agreement"), dated as of the
1st day of August, 1997, by and between EQUITY-LINKED INVESTORS, L.P.
("Stockholder I"), EQUITY-LINKED INVESTORS-II, L.P. ("Stockholder II")
(Stockholder I and Stockholder II collectively the "Stockholders") and
INTEGRATED HEALTH SERVICES, INC., a Delaware Corporation ("Parent") and IHS
ACQUISITION XXVI, INC. ("Merger Subsidiary").
WHEREAS, Community Care of America, Inc., a Delaware Corporation (the
"Company"), Parent and Merger Subsidiary are entering into an Agreement and Plan
of Merger, dated as of the date hereof (the "Merger Agreement") which provides
for, among other things, an offer to purchase by Merger Subsidiary all of the
outstanding shares of the Company ("Company Common Stock"), at a purchase price
of Four and 0/100 ($4.00) Dollars per share, net to the seller in cash, without
interest thereon, followed by the merger of Merger Subsidiary with the Company
(the "Merger"); and
WHEREAS, as of the date hereof, Stockholder I owns, of record and
beneficially, 665,907 shares of Company Common Stock and Stockholder II owns, of
record and beneficially, 665907 shares of Company Common Stock; and
WHEREAS, as a condition to the willingness of Parent and Merger
Subsidiary to enter into the Merger Agreement, each of Parent and Merger
Subsidiary has required that the Stockholders agree, and in order to induce
Parent and Merger Subsidiary to enter into the Merger Agreement, the
Stockholders have agreed, to enter into this Agreement with respect to (a) all
shares of Company Common Stock now owned, beneficially or otherwise, and which
may hereafter be acquired by the Stockholders (the "Shares") and (b) certain
other matters as set forth herein.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
Section 1.1 Tender Agreement. (a) The Stockholders shall, within five
(5) business days after the commencement of the Offer (as defined in the Merger
Agreement), tender, or cause to be tendered, for sale to Merger Subsidiary,
pursuant to the terms of the Offer (as long as the Offer is at least $4.00 net
to the Stockholders in cash, without interest thereon), all of the Stockholders'
Shares then owned of record or beneficially by the Stockholder; and (b) except
as provided in clause (a) above, during the time this Agreement is in effect,
the Stockholders shall not otherwise sell, give, dispose of (whether by
operation of law or by agreement or otherwise) or tender any Shares or any
right, title or interest therein or thereto.
<PAGE>
Section 1.2 Voting Agreement. The Stockholders hereby agree that during
the time this Agreement is in effect, at any meeting of the stockholders of the
Company, however called, and in any action by consent of the stockholders of the
Company, the Stockholders shall vote the Shares, or cause the Shares to be
voted: (a) in favor of the Merger pursuant to the Merger Agreement; and (b)
against any proposal for any recapitalization, merger, sale of assets or other
business combination between the Company and any person or entity (other than
Merger Subsidiary or Parent) or any other action or agreement that would result
in a breach of any covenant, representation or warranty or any other obligation
or agreement of the Company under the Merger Agreement or which could prevent
any of the conditions to the Company's obligations under the Merger Agreement
from being fulfilled. If requested by Parent, the Stockholders will grant Parent
an irrevocable proxy to vote the Shares in a manner consistent with this Section
1.2 for so long as this Agreement is in effect. The Stockholders will not join
in any suit or proceeding or participate in any action that is inconsistent
with, or designed or intended to have the effect of discouraging, the completion
of the Merger pursuant to the terms of the Merger Agreement; provided, however,
that the Stockholders hereby reserve any and all rights to defend themselves in
any such suit or proceeding or to take any actions required by applicable law.
Section 1.3 General Release. As an inducement for Parent, Merger
Subsidiary and the Company to enter into the Merger Agreement: (a) upon the
Merger Subsidiary obtaining control of the Company, the Stockholders will
remise, release and forever discharge Parent, Merger Subsidiary and the Company,
and their respective officers, directors, shareholders, employees, agents,
successors and assigns, from any and all debts, obligations, suits, actions,
causes of action, claims, demands, in law or in equity, which the Stockholders
ever had or now have, for, upon, or by reason of any matter, cause or thing her
than any obligations under this Agreement or under the Merger Agreement,
including, without limitation, the obligations under Section 7.07 of the Merger
Agreement respecting the continuation of officers and directors indemnity
obligations and insurance after the consummation of the Merger; and (b) upon the
Merger Subsidiary obtaining control of the Company, Parent, Merger Subsidiary
and the Company will remise, release and forever discharge the Stockholders and
their partners, and their respective officers, directors, shareholders,
employees, agents, successors and assigns, from any and all debts, obligations,
suits, actions, claims, demands, in law or in equity, which they ever had or now
have, for, upon, or by reason of any matter, cause or thing whatsoever, however
arising. In the event any action or proceeding covered by the foregoing release
has been filed or instituted, the parties hereto agree to cause its immediate
dismissal with prejudice.
Section 1.4 Stockholder Capacity. The Stockholders make this Agreement
solely in their capacity as the record and beneficial owners of the Shares.
Nothing in this Agreement shall prohibit the Stockholders or any of their
partners, officers, directors, employees, representatives and agents from
taking, or omitting to take, any action as a director, employee, representative
or agent of the Company permitted to be taken or omitted under the Merger
Agreement.
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<PAGE>
Section 1.5 Acknowledgment. The Stockholders acknowledge receipt and
review of a copy of the Merger Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
The Stockholders hereby represent and warrant to Parent as follows:
Section 2.1 Authority Relative to This Agreement. The Stockholders have
all necessary power and authority to execute and deliver this Agreement, to
perform their obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Stockholders and the consummation by the Stockholders of the transactions
contemplated hereby have been duly and validly authorized by the Stockholders
and no other proceedings on the part of the Stockholders are necessary to
authorize this Agreement or to consummate such transactions. This Agreement has
been duly and validly executed and delivered by the Stockholders and, assuming
the due authorization, execution and delivery by Parent and Merger Subsidiary,
constitutes a legal, valid and binding obligation of the Stockholders,
enforceable against the Stockholders in accordance with its terms, except to the
extent enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting creditors' rights generally or by general
principles governing the availability of equitable remedies.
Section 2.2 No Conflict. (a) The execution and delivery of this
Agreement by the Stockholders do not, and the performance of this Agreement by
the Stockholders shall not: (i) conflict with or violate the organizational
documents of the Stockholders; (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Stockholders or by which
the Shares are bound; or (iii) result in any breach of or constitute a default
(or an event that with notice, or lapse of time, or both, would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the Shares pursuant to any note, bon franchise or other
instrument or obligation to which either of the Stockholders is a party or by
which either of the Stockholders or the Shares are bound or affected, except in
case of clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults or other occurrences which would not prevent or delay the performance
by the Stockholders of their obligations under this Agreement; and (b) the
execution and delivery of this Agreement by the Stockholders do not, and the
performance of this Agreement by the Stockholders shall not, require any
consent, approval, authorization or permit of, or filing with, or notification
to, any court or arbitrator or any governmental body, agency or official, except
for applicable requirements, if any of the Securities Exchange Act of 1934, as
amended, and except where the failure to obtain such consents, approvals
authorizations or permits, or to make such filings or notifications, would not
prevent or delay the performance by the Stockholders of their obligations under
this Agreement.
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<PAGE>
Section 2.3 Title to the Shares. As of the date hereof, Stockholder I
is the record and beneficial owner of 665,907 shares of Company Common Stock and
Stockholder II is the record and beneficial owner of 665,907 shares of the
Company Common Stock. Such Shares are all the securities of the Company owned,
either of record or beneficially, by the Stockholders and the Stockholders own
no other rights or interests exercisable for or convertible into any securities
of the Company. The Shares are owned free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the Stockholders' voting rights, charges and other encumbrances
of any nature whatsoever. Neither of the Stockholders has appointed or granted
any proxy, which appointment or grant is still effective with respect to the
Shares.
Section 2.4 No Fees or Commissions. No broker, financial advisor or
other intermediary is entitled to any fee or other commission in connection with
the transaction contemplated by this Agreement based on an arrangement made by
or on behalf of the Stockholders.
ARTICLE III
COVENANTS OF THE STOCKHOLDERS
Section 3.1 No Inconsistent Agreement. The Stockholders hereby covenant
and agree that, except as contemplated by this Agreement and the Merger
Agreement, the Stockholders shall not enter into any agreement or grant a proxy
or power of attorney with respect to the Shares which is inconsistent with this
Agreement.
Section 3.2 No Encumbrances. The Stockholders hereby covenant and agree
that the Stockholders shall not by any action or omission cause any security
interests, liens, claims, pledges, charges, encumbrances, options, rights of
first refusals, agreements or limitations on the Stockholders' voting rights, to
attach to the Shares to be tendered to the Merger Subsidiary pursuant to Section
1.1 hereof.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF PARENT AND MERGER SUBSIDIARY
Section 4.1 Authority. Parent and Merger Subsidiary each have full
right, power and authority to enter into and perform this Agreement and this
Agreement has been duly authorized, executed and delivered by Parent and Merger
Subsidiary and is a valid and binding agreement of Parent and Merger Subsidiary
enforceable against Parent and Merger Subsidiary in accordance with its terms.
Section 4.2 Offer Price. Parent and Merger Subsidiary each hereby
confirms to the Stockholders that it has not, in connection with the Merger,
purchased, and each agrees with the Stockholders that it hereafter will not buy,
any shares of stock of the
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<PAGE>
Company for a price higher than the price to be received by the Stockholders in
the Offer.
ARTICLE V
MISCELLANEOUS
Section 5.1 Termination. It is a condition precedent to the
effectiveness of this Agreement that the Merger Agreement shall have been duly
executed and delivered and shall be in full force and effect. This Agreement
shall automatically terminate: (i) upon the termination of the Merger Agreement;
or (ii) if the Shares shall have not theretofore been sold pursuant to the
Offer, on November 30, 1997; or (iii) if the price contained in the Offer is
reduced below a price of $4.00 per share net in cash, without interest thereon;
or (iv) if the Board of Directors of the Company changes its recommendation to
its stockholders in respect of the Merger, whichever of the four is the earlier
to occur.
Section 5.2 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or in equity.
Section 5.3 Entire Agreement. This Agreement constitutes the entire
agreement among Parent, Merger Subsidiary and the Stockholders with respect to
the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, among Parent, Merger Subsidiary and the
Stockholders with respect to the subject matter hereof.
Section 5.4 Amendment. This Agreement may not be amended, except by an
instrument in writing signed by the parties hereto.
Section 5.5 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
regardless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term orties hereby shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible to the fullest extent permitted by applicable
law in a mutually acceptable manner in order that the terms of this Agreement
remain as originally contemplated.
Section 5.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware regardless of the
laws that might otherwise govern under applicable principles of conflicts of
law.
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<PAGE>
Section 5.7 Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Stockholders, Parent and Merger Subsidiary have
caused this Agreement to be duly executed as the date and year first above
written.
EQUITY-LINKED INVESTORS, L.P.
BY: Rohit M. Desai Associates,
--------------------------
General Partner
By: /s/
----------------------------
Name:
Title:
EQUITY-LINKED INVESTORS-II, L.P.
BY: Rohit M. Desai Associates-II,
General Partner
By: /s/
----------------------------
Name:
Title:
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Brian K. Davidson
----------------------------
Name: Brian K. Davidson
Title: Executive Vice President -
Development
IHS ACQUISITION XXVI, INC.
By: /s/ Brian K. Davidson
----------------------------
Name: Brian K. Davidson
Title: Executive Vice President -
Development
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EXHIBIT (C)(8)
July 31, 1997
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Re: Acquisition of Community Care of America, Inc.
Ladies and Gentlemen:
Reference is made to that certain Agreement and Plan of Merger dated as of
August 1, 1997 (the "Agreement") whereby Integrated Health Services Inc. ("IHS")
will acquire all of the outstanding shares of Community Care of America, Inc.
("CCA"). Unless otherwise defined, all capitalized terms shall have the meaning
given to them in the Agreement. The purpose of this letter is to memorialize my
pledge with respect to the proceeds generated from the sale of my shares of CCA.
Annexed as Exhibit A to this letter are projections (the "Projections") of
the net income to IHS after the incorporation of the CCA's assets described in
the Projections into IHS's operation ("CCA's Net Income") prepared by Shattuck
Hammond Partners Inc. The period covered by the Projections is the one (1) year
ending on the anniversary of the merger of CCA into IHS Acquisition XXVI, Inc.
(the "Guaranty Period"). The net income to IHS reflected in the Projections is
net of certain contemplated extraordinary transactions described on Exhibit B to
this letter.
In order to induce IHS to enter into the Agreement, I agree that, to the
extent CCA's Net Income for the Guaranty Period(1) is less than the CCA Net
Income set forth in the Projections, then I will pay to IHS an amount equal to
the shortfall subject to the Cap (hereinafter defined) (the "Guaranty
Payment")(2). Simply stated, I am guaranteeing the CCA Net Income for the
Guaranty Period (the "Guaranty").(3)
The Guaranty is limited in amount to the net proceeds (after payment of
applicable taxes) derived by me from the sale of my shares in CCA (the "Cap"); a
computation of the Cap is attached to this letter as Exhibit C. The Guaranty
Payment shall be payable ninety (90) days after the final computation thereof as
described in note 3 hereof.
The Guaranty is conditioned on reimbursement rates for CCA's services, in
general, remaining stable or increasing. If reimbursement rates decrease then my
Guaranty shall be reduced in proportion to the decrease in the reimbursement
rate decreases.
- ----------
1. Whenever the term calculation of the CCA Net Income or words of similar
content is used herein, they shall refer to a calculation thereof made by
applying the accounting policies and procedures presently utilized by IHS
in preparing IHS's financial statements, which are intended to enable the
calculation to be made in a manner consistent with the preparation of the
Projections. In the event an extraordinary transaction is not provided for
in Exhibit B, the calculation shall be made in accordance with generally
accepted accounting principles consistent with IHS's accounting practices,
as both are in effect as of the end of the Guaranty Period. In all events,
the calculation of the CCA's Net Income shall disregard any effect of IHS's
accounting treatment of the extraordinary transactions described on Exhibit
B.
2. IHS shall cause distinct accounting records to be maintained for the
business of CCA. The CCA Net Income shall include all income derived from
the CCA facilities existing at the beginning of the Guaranty Period and
shall also include all ancillary therapy services revenue generated from
CCA's facilities. If any CCA facilities currently included in the CCA Net
Income calculation are disposed of during the Guaranty Period, there shall
be added to the CCA Net Income calculation made by IHS for purposes of this
Guaranty the net income and ancillary therapy service revenue ascribed to
such facilities in the Projections.
3. Upon completion of the calculation, IHS will advise Elkins in writing as to
the amount of the CCA Net Income at the end of the Guaranty Period. Upon
receipt of such advice, Elkins shall be entitled to review the CCA Net
Income calculations so made by IHS and, within 15 days after receipt, shall
advise IHS if Elkins disagrees with the calculation. Any disagreement or
controversy between Elkins and IHS, which is not resolved by IHS and
Elkins, as to the calculation of CCA Net Income for the periods in question
shall be determined by arbitration as follows: on ten days' written notice
by either Elkins or IHS, each party shall designate a firm of independent
certified accountants of recognized national standing to resolve such
disagreement or controversy. If the two firms cannot agree on a resolution
within the two weeks from the date it is submitted to them, they shall
jointly agree on a third firm of independent certified accountants of
recognized national standing. The decision of any two of such accounting
firms on the correct calculation of CCA Net Income in accordance with the
terms of this Agreement shall be binding on both Elkins and IHS. If two of
such firms have not agreed within two weeks following the appointment of
the third firm, all of such firms will be dismissed and the controversy
shall be settled by arbitration in accordance with the Rules of the
American Arbitration Association. The party prevailing in any such
arbitration proceeding shall be entitled to recover its costs (including
reasonable attorneys' fees) from the other party thereto.
<PAGE>
This Guaranty should not be (a) considered as a substitute for due diligence
on the part of IHS and its advisors, or (b) construed confirmation or adoption
of any representation or warranty of CCA set forth in the Agreement.
Any notice or demand required or permitted to be made or given hereunder
shall be deemed sufficiently given or made if given by personal service or by
certified or registered mail, return receipt requested. This Guaranty may not be
changed or terminated orally, but only an agreement in writing signed by the
party against whom enforcement of any change, modification, termination, waiver,
or discharge is sought. This Guaranty shall be construed and enforced in
accordance with the laws of New York.
Please acknowledge your acceptance of the Guaranty be countersigning the
enclosed copy of this letter and returning the same to me.
Very truly yours,
/s/ Robert N. Elkins
ROBERT N. ELKINS
ACCEPTED AND AGREED:
INTEGRATED HEALTH SERVICES, INC.
By /s/ Brian Davidson
--------------------------------
Name: Brian Davidson
Title: Executive Vice President-
-Development
<PAGE>
EXHIBIT A
Years ended December 31
-------------------------
Projected
-------------------------
12 mos FY
1997 1998
---------- ----------
Patient Service Revenue $ 107,475 $ 117,423
Other Oper. Revenue 0 0
---------- ----------
Total Revenue 107,475 117,423
Operating Expense 87,187 91,874
Gross Income 20,289 25,549
SG&A 2,200 2,507
EBITDAR 18,089 23,042
Lease/Rent Exp. 7,430 7,745
EBITDA 10,659 15,297
Depreciation 2,323 2,396
Amortization 608 608
EBIT 7,728 12,293
Investment Income 80 157
Revolver Expense 0 0
Interest Expense (4,635) (4,814)
Pretax Income 3,172 7,636
Income Taxes 1,205 2,902
Net Inc. Bef. Extra. Item 1,967 4,734
Ex. Item, net of tax (2) 0 0
Net Income $ 1,967 $ 4,734
========== ==========
<PAGE>
EXHIBIT B
ASSUMPTIONS
-----------
o Financial analysis is performed on a pro-forma basis assuming the sale or
closure of 12 facilities.
o The 12 month 1997 income statement represents the 12 month period from the
date of closure of the transaction.
o Pre-tax income of $3.172 million for the 12 months following the close of
the transaction is calculated based upon routine Medicare, Medicaid, and
private rate increases, as well as normal expense growth.
