<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
HORIZON HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8050 91-1346899
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
<TABLE>
<S> <C>
SCOT SAUDER
SECRETARY AND GENERAL COUNSEL
HORIZON HEALTHCARE CORPORATION
6001 INDIAN SCHOOL ROAD, N.E., SUITE 530 6001 INDIAN SCHOOL ROAD, N.E., SUITE 530
ALBUQUERQUE, NEW MEXICO 87110 ALBUQUERQUE, NEW MEXICO 87110
(505) 881-4961 (505) 881-4961
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of telephone number, including area
registrant's principal executive offices) code, of agent for service)
</TABLE>
Copies to:
<TABLE>
<S> <C> <C>
WILLIAM E. JOOR III BARRY A. BRYER F. DOUGLAS RAYMOND III
VINSON & ELKINS L.L.P. WACHTELL, LIPTON, ROSEN & KATZ DRINKER BIDDLE & REATH
1001 FANNIN, SUITE 2300 51 WEST 52ND STREET PHILADELPHIA NATIONAL BANK BLDG.
HOUSTON, TEXAS 77002-6760 NEW YORK, NEW YORK 10019-6150 1345 CHESTNUT STREET
(713) 758-2222 (212) 403-1000 PHILADELPHIA, PA 19107-3496
(215) 988-2700
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable following the effectiveness of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM REGISTRATION
TITLE OF EACH CLASS OF AMOUNT OFFERING AGGREGATE AMOUNT OF FILING FEE FEE PAID
SECURITIES TO BE TO BE PRICE PER OFFERING REGISTRATION PREVIOUSLY WITH THIS
REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE PAID(3) FILING
<S> <C> <C> <C> <C> <C> <C>
Common Stock, $.001 par value(4) 23,356,067 $17.14 $400,322,989 $138,043 $96,432 $41,611
</TABLE>
(1) Consists of the following numbers of shares of Horizon Common Stock that may
be issued in connection with the acquisition by merger of Continental
Medical Systems, Inc. ("CMS"): (a) up to 20,849,844 through conversion of
shares of CMS Stock outstanding on May 12, 1995 and (b) up to 2,506,224
through conversion of shares of CMS Common Stock issued prior to the
Effective Time upon exercise of CMS Options, exercise of the CMS Warrants,
conversion of the CMS Debenture and pursuant to the CMS Earnout Agreements.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Rule 457(c), based on the average of the low
and high sales prices of CMS Common Stock on the New York Stock Exchange on
May 19, 1995 of $9.25 and the maximum Exchange Ratio of .5397 shares of
Horizon Common Stock for each share of CMS Common Stock.
(3) Pursuant to Securities Act Rule 457(b), the registration fee has been offset
by the indicated filing fee. Such filing fee was previously paid in
connection with the joint preliminary proxy statement on Schedule 14A filed
by the Registrant and CMS on April 12, 1995.
(4) This Registration Statement also pertains to rights to purchase shares of
Series A Junior Participating Preferred Stock of the Registrant. One right
is attached to and trades with each share of Horizon Common Stock. Until the
occurrence of certain events, the rights are not exercisable and will not be
evidenced or transferred apart from the Horizon Common Stock. Any value
attributable to such rights is reflected in the market price of Horizon
Common Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
HORIZON HEALTHCARE CORPORATION
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION IN PROSPECTUS
------------------------------------------------------------------------ ---------------------------------------------------
<S> <C> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page of Prospectus; Available
Information; Incorporation of Certain Documents by
Reference; Table of Contents
3. Risk Factors and other Information................ Outside Front Cover Page of Prospectus; Summary
4. Terms of the Transaction.......................... Outside Front Cover Page of Prospectus; Summary;
The Special Meetings; The Merger; Certain Terms of
the Merger Agreement; Stock Option Agreement;
Voting Agreement; Description of Horizon Capital
Stock; Comparative Rights of Horizon and CMS
Stockholders
5. Pro Forma Financial Information................... Unaudited Pro Forma Condensed Financial Information
6. Material Contacts with the Company Being
Acquired......................................... The Merger; Certain Terms of the Merger Agreement;
Stock Option Agreement; Voting Agreement;
Description of Horizon Capital Stock
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters.... *
8. Interests of Named Experts and
Counsel.......................................... Legal Matters
9. Disclosure of Commission Position on
Indemnification For Securities Act Liabilities... *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants....... The Companies
11. Incorporation of Certain Information by
Reference........................................ Incorporation of Certain Documents by Reference;
Description of Horizon Capital Stock; Outside
Front Cover Page of Pros-pectus; Summary; The
Special Meetings; The Merger; Certain Terms of the
Merger Agreement
12. Incorporation with Respect to S-2 or S-3
Registrants...................................... *
13. Incorporation of Certain Information by
Reference........................................ *
14. Information with Respect to Registrants other than
S-3 or S-2 Registrants *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION IN PROSPECTUS
------------------------------------------------------------------------ ---------------------------------------------------
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
<S> <C> <C> <C>
15. Information with Respect to S-3 Companies......... Incorporation of Certain Documents by Reference;
Outside Front Cover Page of Prospectus; Summary;
The Companies; The Special Meetings; The Merger;
Certain Terms of the Merger Agreement
16. Information with Respect to S-2 or S-3
Companies........................................ *
17. Information with Respect to Companies other than
S-3 or S-2 Companies............................. *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited.............................. Outside Front Cover Page of Prospectus; Summary;
The Special Meetings; The Merger; Certain Terms of
the Merger Agreement; Principal Stockholders of
Horizon and CMS; Stockholder Proposals
19. Information if Proxies, Consents or Authorizations
are not to be Solicited in an Exchange Offer..... *
<FN>
------------------------
* Not applicable or answer is negative.
</TABLE>
<PAGE>
HORIZON HEALTHCARE CORPORATION
6001 INDIAN SCHOOL ROAD, N.E., SUITE 530
ALBUQUERQUE, NEW MEXICO 87110
May __, 1995
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
Horizon Healthcare Corporation at the Albuquerque Marriott Hotel, 2102 Louisiana
Avenue, N.E., Albuquerque, New Mexico on June 29, 1995, at 10:00 a.m., local
time (the "Special Meeting").
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Amended and Restated Agreement and Plan of
Merger dated as of May 23, 1995 (the "Merger Agreement") providing for the
merger (the "Merger") of a wholly owned subsidiary of Horizon Healthcare
Corporation with and into Continental Medical Systems, Inc. ("CMS"). The Merger
Agreement provides that, upon consummation of the Merger, each issued and
outstanding share of common stock of CMS would be converted into .5397 shares of
Horizon Common Stock and CMS would become a wholly owned subsidiary of Horizon.
The Merger Agreement and the Merger are discussed in more detail in the
accompanying Joint Proxy Statement/Prospectus. Please review and consider the
enclosed materials carefully.
For the reasons set forth in the accompanying Joint Proxy
Statement/Prospectus, your Board of Directors believes that the Merger is fair
to, and in the best interests of, the stockholders of Horizon and recommends
that you vote in favor of approval and adoption of the Merger Agreement. In
making that determination, the Board of Directors received and took into account
the opinion dated March 31, 1995 of Salomon Brothers Inc ("Salomon Brothers"),
an investment banking firm retained by Horizon for that purpose, that, as of
such date, the consideration to be paid by Horizon in the Merger was fair to the
stockholders of Horizon from a financial point of view. Salomon Brothers
subsequently delivered its written opinion dated the date of this Joint Proxy
Statement/Prospectus (the "Salomon Brothers Opinion") that, as of such date, the
consideration to be paid by Horizon in the Merger was fair to the stockholders
of Horizon from a financial point of view. A copy of the Salomon Brothers
Opinion is included in the accompanying Joint Proxy Statement/Prospectus as
Appendix B thereto.
At the Special Meeting, stockholders will also be asked to approve, subject
to consummation of the transactions contemplated by the Merger Agreement, an
amendment to Horizon's Restated Certificate of Incorporation to change Horizon's
name to Horizon/CMS Healthcare Corporation upon the effectiveness of the Merger.
If you have any questions prior to the Special Meeting or need further
assistance, please call Georgeson & Company Inc., who will be assisting in
connection with the Special Meeting, at (800) 223-2064.
Whether or not you plan to be at the Special Meeting, please be sure to
sign, date and return the enclosed proxy or voting instruction card in the
enclosed envelope as promptly as possible so that your shares may be represented
at the Special Meeting and voted in accordance with your wishes. Your vote is
important regardless of the number of shares you own.
Sincerely,
NEAL M. ELLIOTT
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
HORIZON HEALTHCARE CORPORATION
6001 INDIAN SCHOOL ROAD, N.E., SUITE 530
ALBUQUERQUE, NEW MEXICO 87110
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 29, 1995
To the Stockholders of Horizon Healthcare Corporation:
A Special Meeting of Stockholders (the "Horizon Special Meeting") of Horizon
Healthcare Corporation, a Delaware corporation ("Horizon"), will be held on
Thursday, June 29, 1995 at 10:00 a.m., local time, at the Albuquerque Marriott
Hotel, 2102 Louisiana Avenue, N.E., Albuquerque, New Mexico for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt the Amended
and Restated Agreement and Plan of Merger (the "Merger Agreement") dated
as of May 23, 1995 among Horizon, CMS Merger Corporation, a wholly owned
subsidiary of Horizon ("Merger Sub"), and Continental Medical Systems,
Inc. ("CMS"), the terms of which require the issuance and reservation for
issuance of up to 25,244,662 shares of common stock, par value $.001 per
share ("Horizon Common Stock"), of Horizon. Pursuant to the Merger
Agreement, Merger Sub would merge with and into CMS (the "Merger") and,
among other things, each issued and outstanding share of common stock,
par value $.01 per share, of CMS would be converted in the Merger into
.5397 shares of Horizon Common Stock, all as more fully set forth in the
accompanying Joint Proxy Statement/Prospectus and in the Merger
Agreement, a copy of which is included as Appendix A thereto;
2. To consider and vote upon a proposal, subject to consummation of the
Merger, to amend Horizon's Restated Certificate of Incorporation to
change Horizon's name to Horizon/CMS Healthcare Corporation upon the
effectiveness of the Merger; and
3. To transact such other business as may properly come before the Horizon
Special Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 19, 1995 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Horizon Special Meeting or any adjournment thereof. Only holders
of record of shares of Horizon Common Stock at the close of business on the
record date are entitled to notice of, and to vote at, the meeting. A complete
list of such stockholders will be available for examination at the offices of
Horizon in Albuquerque, New Mexico during normal business hours by any Horizon
stockholder, for any purpose germane to the Special Meeting, for a period of 10
days prior to the Special Meeting.
Stockholders are urged, whether or not they plan to attend the Horizon
Special Meeting, to sign, date and mail the enclosed proxy or voting instruction
card in the postage-paid envelope provided. If a stockholder who has returned a
proxy attends the Horizon Special Meeting in person, such stockholder may revoke
the proxy and vote in person on all matters submitted at the Horizon Special
Meeting.
By Order of the Board of Directors
SCOT SAUDER
SECRETARY
Albuquerque, New Mexico
May __, 1995
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC.
600 WILSON LANE, P.O. BOX 715
MECHANICSBURG, PENNSYLVANIA 17055
May , 1995
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders to be
held at 11:00 a.m., local time, on Thursday, June 29, 1995 at the executive
offices of Continental Medical Systems, Inc. ("CMS") at 600 Wilson Lane,
Mechanicsburg, Pennsylvania (the "Special Meeting").
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Amended and Restated Agreement and Plan of
Merger dated as of May 23, 1995 (the "Merger Agreement") providing for the
merger (the "Merger") of a wholly owned subsidiary of Horizon Healthcare
Corporation into CMS. Under the terms of the Merger Agreement, each outstanding
share of CMS common stock would be converted into .5397 shares of common stock
of Horizon Healthcare Corporation and CMS would become a wholly owned subsidiary
of Horizon. Horizon will thereupon change its name to Horizon/CMS Healthcare
Corporation.
The Board of Directors of CMS has received an opinion dated March 31, 1995
from its financial advisor, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), that, as of such date, the exchange ratio contemplated by the
Merger Agreement was fair to the stockholders of CMS from a financial point of
view. Merrill Lynch subsequently delivered its written opinion dated the date of
this Joint Proxy Statement/Prospectus (the "Merrill Lynch Opinion") that, as of
such date, the Exchange Ratio was fair to the stockholders of CMS from a
financial point of view. A copy of the Merrill Lynch Opinion is included as
Appendix C to the Joint Proxy Statement/Prospectus.
For the reasons set forth in the accompanying Joint Proxy
Statement/Prospectus, your Board of Directors believes that the Merger is fair
to and in the best interests of CMS and its stockholders, and recommends that
stockholders vote FOR approval and adoption of the Merger Agreement.
The Merger Agreement, the Merrill Lynch Opinion and financial and other
information concerning the business of Horizon Healthcare Corporation and CMS
are included in the enclosed Joint Proxy Statement/Prospectus. Please review the
Joint Proxy Statement/Prospectus carefully.
If you have any questions prior to the Special Meeting or need further
assistance, please call Corporate Investor Communications, Inc., who will be
assisting in connection with the Special Meeting, at (800) 242-4410.
The affirmative vote of the holders of a majority of the outstanding shares
of CMS common stock is required to approve and adopt the Merger Agreement, so
failure to vote will have the same effect as a vote against the Merger
Agreement. Accordingly, we urge you to complete, sign and date the enclosed
proxy or voting instruction card and return it in the enclosed return envelope,
whether or not you plan to attend the meeting. Your vote is important,
regardless of the number of shares you own.
Sincerely,
ROCCO A. ORTENZIO
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
CONTINENTAL MEDICAL SYSTEMS, INC.
600 WILSON LANE, P.O. BOX 715
MECHANICSBURG, PENNSYLVANIA 17055
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 29, 1995
To the Stockholders of Continental Medical Systems, Inc.:
A Special Meeting of Stockholders (the "CMS Special Meeting") of Continental
Medical Systems, Inc., a Delaware corporation ("CMS"), will be held on Thursday,
June 29, 1995 at 11:00 a.m., local time, at the executive offices of CMS at 600
Wilson Lane, Mechanicsburg, Pennsylvania, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Amended
and Restated Agreement and Plan of Merger, dated as of May 23, 1995 (the
"Merger Agreement"), among Horizon Healthcare Corporation ("Horizon"),
CMS Merger Corporation, a wholly owned subsidiary of Horizon ("Merger
Sub"), and CMS. Pursuant to the Merger Agreement, Merger Sub would be
merged with and into CMS (the "Merger") and, among other things, each
outstanding share of common stock, par value $.01 per share, of CMS ("CMS
Common Stock") would be converted into .5397 shares of common stock, par
value $.001 per share, of Horizon and CMS would become a wholly owned
subsidiary of Horizon, all as more fully set forth in the accompanying
Joint Proxy Statement/Prospectus and in the Merger Agreement, a copy of
which is included as Appendix A thereto; and
2. To transact such other business as may properly come before the CMS
Special Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 12, 1995 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Special Meeting or any adjournment thereof. Only holders of
record of shares of CMS Common Stock at the close of business on the record date
are entitled to notice of, and to vote at, the CMS Special Meeting. Stockholders
of CMS are not entitled to any appraisal or dissenter's rights under the
Delaware General Corporation Law in respect of the Merger.
Your vote is important. The affirmative vote of the holders of a majority of
the outstanding shares of CMS Common Stock is required for approval and adoption
of the Merger Agreement. Even if you plan to attend the CMS Special Meeting in
person, we request that you sign and return the enclosed proxy or voting
instruction card and thus ensure that your shares will be represented at the CMS
Special Meeting if you are unable to attend. If you do attend the CMS Special
Meeting and wish to vote in person, you may withdraw your proxy and vote in
person.
By Order of the Board of Directors
DAVID G. NATION
SECRETARY
Mechanicsburg, Pennsylvania
May __, 1995
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 23, 1995
HORIZON HEALTHCARE CORPORATION CONTINENTAL MEDICAL SYSTEMS, INC.
JOINT PROXY STATEMENT/PROSPECTUS
This Joint Proxy Statement/Prospectus relates to the proposed merger of CMS
Merger Corporation ("Merger Sub"), a Delaware corporation and wholly owned
subsidiary of Horizon Healthcare Corporation, a Delaware corporation
("Horizon"), with and into Continental Medical Systems, Inc., a Delaware
corporation ("CMS"), pursuant to the Amended and Restated Agreement and Plan of
Merger dated as of May 23, 1995 among Horizon, Merger Sub and CMS (the "Merger
Agreement"). The merger contemplated by the Merger Agreement is referred to
herein as the "Merger."
As a result of the Merger, (i) each share of common stock, par value $.01
per share, of CMS ("CMS Common Stock") outstanding immediately prior to the
effective time of the Merger (other than CMS Common Stock held directly or
indirectly by Horizon or CMS) will be converted into .5397 shares of common
stock, par value $.001 per share, of Horizon ("Horizon Common Stock") and (ii)
CMS will become a wholly owned subsidiary of Horizon.
This Joint Proxy Statement/Prospectus is being furnished to holders of
Horizon Common Stock and CMS Common Stock in connection with the solicitation of
proxies by the respective Boards of Directors of Horizon and CMS for use at
special meetings of stockholders of each company to be held on June 29, 1995.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of Horizon and CMS on or about ,
1995.
At the CMS Special Meeting, holders of CMS Common Stock will be asked to
approve and adopt the Merger Agreement. At the Horizon Special Meeting, holders
of Horizon Common Stock will be asked to approve and adopt (i) the Merger
Agreement, the terms of which require the issuance and reservation for issuance
of up to 25,244,662 shares of Horizon Common Stock and (ii) an amendment to
Horizon's Restated Certificate of Incorporation to change Horizon's name to
Horizon/CMS Healthcare Corporation, subject to the effectiveness of the Merger.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Horizon with respect to up to 25,244,662 shares of Horizon Common Stock to be
issued pursuant to the Merger Agreement in exchange for currently outstanding
shares of CMS Common Stock and any additional shares of CMS Common Stock that
may become outstanding prior to the Merger upon the exercise of outstanding
options to purchase CMS Common Stock ("CMS Options") or of warrants expiring on
October 22, 1996 to purchase shares of CMS Common Stock (the "CMS Warrants"),
upon conversion of $2,000,000 in principal amount of 7 3/4% Subordinated
Convertible Debenture due May 1, 2002 of CMS (the "CMS Convertible Debenture")
or upon the satisfaction of certain conditions pursuant to earnout agreements
entered into by CMS in connection with certain acquisitions (the "CMS Earnout
Agreements"). The shares of Horizon Common Stock issued pursuant to the Merger
will be listed on the New York Stock Exchange ("NYSE").
On May 22, 1995, the closing prices of Horizon Common Stock and CMS Common
Stock, as reported on the NYSE Composite Tape, were $19 and $9 1/2,
respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY OTHER STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS MAY __, 1995
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HORIZON OR
CMS. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED HEREBY SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF
HORIZON OR CMS SINCE THE DATE HEREOF OR THAT THE INFORMATION SET FORTH OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY
SOLICITATION.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY
REFERENCE THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. HORIZON AND CMS
EACH UNDERTAKES TO PROVIDE COPIES OF SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE),
WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS
JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO,
IN THE CASE OF DOCUMENTS RELATING TO HORIZON, MICHAEL H. SEELIGER, VICE
PRESIDENT OF INVESTOR AND PUBLIC RELATIONS, HORIZON HEALTHCARE CORPORATION, 6001
INDIAN SCHOOL ROAD, N.E., SUITE 530, ALBUQUERQUE, NEW MEXICO 87110 (TELEPHONE
(505) 881-4961), AND, IN THE CASE OF DOCUMENTS RELATING TO CMS, LISA CASE,
INVESTOR RELATIONS DEPARTMENT, CONTINENTAL MEDICAL SYSTEMS, INC., 600 WILSON
LANE, P.O. BOX 715, MECHANICSBURG, PENNSYLVANIA 17055 (TELEPHONE (717)
790-8300). IN ORDER TO ENSURE DELIVERY OF DOCUMENTS PRIOR TO THE APPLICABLE
STOCKHOLDERS MEETING, REQUESTS SHOULD BE RECEIVED BY JUNE 22, 1995.
AVAILABLE INFORMATION
Horizon and CMS are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by Horizon and CMS can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, 13th Floor, New York, New York 10048 and CitiCorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained by mail from the Public Reference Section of the
Commission at 450 West Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, reports, proxy statements and other information concerning
Horizon and CMS may be inspected at the offices of the NYSE, 20 Broad Street,
New York, New York 10005.
Horizon has filed with the Commission a Registration Statement on Form S-4
(together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Horizon Common Stock to be issued
pursuant to the Merger Agreement, of which this Joint Proxy Statement/Prospectus
constitutes a part. The information contained herein with respect to Horizon and
its affiliates, including Merger Sub, has been provided by Horizon, and the
information contained herein with respect to CMS and its affiliates has been
provided by CMS. This Joint Proxy Statement/Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
were omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission
are not necessarily complete, and in each instance reference is made to the copy
of such document so filed. Each such statement is qualified in its entirety by
such reference.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are incorporated herein by reference:
1. For Horizon, its:
(a) Annual Report on Form 10-K for the fiscal year ended May 31, 1994,
as amended by Amendment No. 1 on Form 10-K/A dated October 25, 1994 and
Amendment No. 2 on Form 10-K/A dated April 10, 1995 (the "Horizon 1994 Form
10-K");
(b) Quarterly Reports on Form 10-Q for the quarters ended August 31,
1994 and November 30, 1994;
(c) Quarterly Report on Form 10-Q for the quarter ended February 28,
1995, as amended by Amendment No. 1 on Form 10-Q/A dated May 18, 1995 and
Amendment No. 2 on Form 10-Q/A dated May 19, 1995;
(d) Current Reports on Form 8-K dated August 12, 1994, (as amended by
Amendment No. 1 on Form 8-K/A dated October 10, 1994); September 16, 1994;
and March 31, 1995;
(e) Exhibits 99.1 and 99.3 to its Current Report on Form 8-K dated
February 25, 1994 (consolidated balance sheets of Greenery Rehabilitation
Group, Inc. as of September 30, 1993 and 1992 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the
three years in the period ended September 30, 1993 and the report of Ernst &
Young LLP thereon);
(f) Registration Statement on Form 8-A dated March 17, 1987, as amended
by Amendment No. 1 on Form 8-A/A dated June 23, 1994 and Amendment No. 2 on
Form 8-A/A dated September 22, 1994; and
(g) Registration Statement on Form 8-A dated September 16, 1994.
2. For CMS, its:
(a) Annual Report on Form 10-K for the fiscal year ended June 30, 1994
(the "CMS 1994 Form 10-K");
(b) Quarterly Reports on Form 10-Q for the quarters ended September 30,
1994, December 31, 1994 and March 31, 1995;
(c) Current Report on Form 8-K dated March 31, 1995; and
(d) Registration Statement on Form 8-A dated June 17, 1991.
All documents filed by Horizon or CMS pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to the date of the special meetings of the
stockholders of each company shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Joint Proxy Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed document that also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
3
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TABLE OF CONTENTS
<TABLE>
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<S> <C>
AVAILABLE INFORMATION............................ 2
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE....................................... 3
SUMMARY.......................................... 5
The Companies.................................. 5
The Special Meetings........................... 5
The Merger and the Merger Agreement............ 7
Stock Option................................... 10
Compensation Arrangements...................... 11
Voting Agreement............................... 11
Certain Federal Income Tax
Consequences.................................. 11
Anticipated Accounting Treatment............... 11
No Appraisal Rights............................ 11
Exchange of CMS Common Stock Certificates...... 11
Interests of Certain Persons in the
Merger........................................ 11
Comparative Rights of CMS and Horizon
Stockholders.................................. 12
Market Price Data.............................. 12
Horizon Dividend Policy........................ 12
Horizon Selected Historical and Unaudited Pro
Forma Financial Information................... 13
CMS Selected Historical Consolidated Financial
Information................................... 15
Selected Unaudited Pro Forma Financial
Information................................... 17
Historical and Pro Forma Comparative Per Share
Data.......................................... 19
THE COMPANIES.................................... 21
Horizon........................................ 21
Recent Developments............................ 22
Merger Sub..................................... 23
CMS............................................ 23
THE SPECIAL MEETINGS............................. 24
Date, Time and Place........................... 24
Purposes of the Special Meetings............... 24
Record Date and Outstanding Shares............. 24
Voting and Revocation of Proxies............... 25
Vote Required.................................. 25
Solicitation of Proxies........................ 26
Other Matters.................................. 26
THE MERGER....................................... 26
General Description of the Merger.............. 26
Background..................................... 27
Certain Information Provided................... 29
Horizon's Reasons for the Merger;
Recommendation of Horizon Board of
Directors..................................... 30
CMS's Reasons for the Merger; Recommendation of
CMS Board of Directors........................ 32
Opinions of Financial Advisors................. 33
Horizon...................................... 33
CMS.......................................... 37
Interests of Certain Persons in the
Merger........................................ 42
<CAPTION>
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<S> <C>
Employment Arrangements........................ 43
Board Arrangements............................. 44
Certain Federal Income Tax
Consequences.................................. 44
Accounting Treatment........................... 45
Governmental and Regulatory Approvals and
Matters....................................... 46
CMS Debt....................................... 47
Restrictions on Resales by Affiliates.......... 48
Rights of Dissenting Stockholders.............. 48
CERTAIN TERMS OF THE MERGER AGREEMENT............ 49
Effective Time of the Merger................... 49
Manner and Basis of Converting Shares.......... 49
Assumption of Obligations to Issue CMS Common
Stock......................................... 50
Conditions to the Merger....................... 50
Representations and Warranties................. 51
Certain Covenants; Conduct of Business Prior to
the Merger.................................... 51
No Solicitation................................ 52
Certain Post-Merger Matters.................... 53
Termination or Amendment of the Merger
Agreement..................................... 53
Expenses and Termination Fees.................. 54
Indemnification................................ 55
STOCK OPTION AGREEMENT........................... 55
VOTING AGREEMENT................................. 57
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS............................ 58
PRINCIPAL STOCKHOLDERS OF HORIZON AND CMS........ 72
DESCRIPTION OF HORIZON CAPITAL STOCK............. 73
COMPARATIVE RIGHTS OF HORIZON AND CMS
STOCKHOLDERS.................................... 78
Number, Classification and Removal of
Directors..................................... 78
Voting Rights.................................. 78
Power to Call Special Meetings................. 78
Stockholder Vote Required for Certain
Transactions.................................. 78
Action by Written Consent...................... 78
Amendments of Bylaws........................... 79
INDEPENDENT PUBLIC
ACCOUNTANTS..................................... 79
LEGAL MATTERS.................................... 79
EXPERTS.......................................... 79
STOCKHOLDER PROPOSALS............................ 79
APPENDICES
A -- Merger Agreement
B -- Fairness Opinion of Salomon Brothers Inc
C -- Fairness Opinion of Merrill Lynch, Pierce, Fenner &
Smith Incorporated
</TABLE>
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE
APPENDICES HERETO. STOCKHOLDERS ARE URGED TO READ CAREFULLY THIS JOINT PROXY
STATEMENT/ PROSPECTUS AND THE APPENDICES HERETO IN THEIR ENTIRETY. AS USED IN
THIS JOINT PROXY STATEMENT/PROSPECTUS, UNLESS OTHERWISE REQUIRED BY THE CONTEXT,
THE TERM "HORIZON" MEANS HORIZON HEALTHCARE CORPORATION AND ITS CONSOLIDATED
SUBSIDIARIES, AND THE TERM "CMS" MEANS CONTINENTAL MEDICAL SYSTEMS, INC. AND ITS
CONSOLIDATED SUBSIDIARIES. CAPITALIZED TERMS USED HEREIN WITHOUT DEFINITION ARE,
UNLESS OTHERWISE INDICATED, DEFINED IN THE MERGER AGREEMENT AND USED HEREIN WITH
SUCH MEANINGS. REFERENCES TO THE MERGER AGREEMENT IN CONNECTION WITH ACTIVITIES
OCCURRING PRIOR TO ITS AMENDMENT AND RESTATEMENT RELATE TO THE AGREEMENT AND
PLAN OF MERGER DATED AS OF MARCH 31, 1995.
THE COMPANIES
HORIZON AND MERGER SUB. Horizon is a leading provider of quality specialty
health care services and long-term nursing care. Horizon's specialty health care
services include subacute care, pharmacy services, rehabilitation therapies,
laboratory services and Alzheimer's care. Horizon currently operates 16
specialty hospitals and specialty centers, 15 specialty subacute units and 133
long-term care centers totalling 17,760 beds in 18 states. In addition, Horizon
provides institutional pharmacy services to more than 36,400 beds from 19
pharmacies in 16 states. Horizon also provides contract rehabilitation therapy
services through 442 contracts in 21 states serving 40,300 beds. Merger Sub is a
wholly owned subsidiary of Horizon incorporated on March 30, 1995. The principal
executive offices of Horizon, a Delaware corporation, are located at 6001 Indian
School Road, N.E., Suite 530, Albuquerque, New Mexico 87110, and its telephone
number at such offices is (505) 881-4961.
CMS. CMS is a diversified provider of medical rehabilitation and physician
services. CMS operates 37 freestanding rehabilitation hospitals, provides
outpatient rehabilitation services at more than 130 locations and manages 13
inpatient rehabilitation units for general acute care hospitals. These services
are provided in 20 states. CMS provides contract therapy in more than 30 states
with physical, occupational and speech therapy services. CMS also provides
physician staffing services. The principal executive offices of CMS, a Delaware
corporation, are located at 600 Wilson Lane, P.O. Box 715, Mechanicsburg,
Pennsylvania 17055, and its telephone number at such offices is (717) 790-8300.
THE SPECIAL MEETINGS
DATE, TIME AND PLACE
HORIZON. The Special Meeting of Stockholders of Horizon (the "Horizon
Special Meeting") will be held on Thursday, June 29, 1995, at the Albuquerque
Marriott Hotel, 2102 Louisiana Avenue, N.E., Albuquerque, New Mexico commencing
at 10:00 a.m. local time.
CMS. The Special Meeting of Stockholders of CMS (the "CMS Special Meeting")
will be held on Thursday, June 29, 1995, at the executive offices of CMS at 600
Wilson Lane, Mechanicsburg, Pennsylvania commencing at 11:00 a.m. local time.
PURPOSES OF THE SPECIAL MEETINGS
HORIZON. The purposes of the Horizon Special Meeting are to consider and
vote upon (i) a proposal to approve and adopt, as required by the rules of the
NYSE, the Merger Agreement, the terms of which require the issuance and
reservation for issuance of up to 25,244,662 shares of Horizon Common Stock,
(ii) a proposal, subject to consummation of the Merger, to amend Horizon's
Restated Certificate of Incorporation to change Horizon's name to Horizon/CMS
Healthcare Corporation upon the effectiveness of the Merger (the "Horizon
Charter Amendment") and (iii) such other matters as may properly be brought
before the Horizon Special Meeting.
CMS. The purposes of the CMS Special Meeting are to consider and vote upon
(i) a proposal to approve and adopt the Merger Agreement and (ii) such other
matters as may properly be brought before the CMS Special Meeting.
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RECORD DATES; SHARES ENTITLED TO VOTE
HORIZON. Only holders of record of shares of Horizon Common Stock at the
close of business on May 19, 1995 (the "Horizon Record Date") are entitled to
notice of and to vote at the Horizon Special Meeting. On such date, there were
29,469,296 shares of Horizon Common Stock outstanding, each of which will be
entitled to one vote on each matter to be acted upon at the Horizon Special
Meeting.
CMS. Only holders of record of shares of CMS Common Stock at the close of
business on May 12, 1995 (the "CMS Record Date") are entitled to notice of and
to vote at the CMS Special Meeting. On such date, there were 38,632,286 shares
of CMS Common Stock outstanding, each of which will be entitled to one vote on
each matter to be acted upon at the CMS Special Meeting.
QUORUM; VOTE REQUIRED
HORIZON. The presence, in person or by proxy, at the Horizon Special
Meeting of the holders of a majority of the shares of Horizon Common Stock
outstanding and entitled to vote at the Horizon Special Meeting is necessary to
constitute a quorum at the meeting. The affirmative vote of the holders of a
majority of the shares present in person or by proxy at the Horizon Special
Meeting is required under the rules of the NYSE to approve and adopt the Merger
Agreement, the terms of which requires the issuance and reservation for issuance
of up to 25,244,662 shares of Horizon Common Stock, provided that the total of
the votes cast with respect to such proposal constitute a majority of the shares
of Horizon Common Stock issued and outstanding and entitled to vote with respect
thereto. The affirmative vote of the holders of a majority of the outstanding
shares of Horizon Common Stock entitled to vote thereon is required under the
General Corporation Law of the State of Delaware (the "DGCL") to approve the
Horizon Charter Amendment.
CMS. The presence, in person or by proxy, at the CMS Special Meeting of the
holders of a majority of the shares of CMS Common Stock outstanding and entitled
to vote at the CMS Special Meeting is necessary to constitute a quorum at the
meeting. The affirmative vote of the holders of a majority of the shares of CMS
Common Stock outstanding and entitled to vote thereon at the CMS Special Meeting
is required under the DGCL to approve and adopt the Merger Agreement.
SECURITY OWNERSHIP OF MANAGEMENT
HORIZON. As of the Horizon Record Date, the directors and executive
officers of Horizon owned approximately 7.6% of the outstanding shares of
Horizon Common Stock entitled to vote at such meeting. Each of such directors
and executive officers has advised Horizon that he plans to vote or direct the
vote of all such shares of Horizon Common Stock entitled to vote in favor of the
proposal to approve the issuance and reservation for issuance of Horizon Common
Stock pursuant to the Merger Agreement.
CMS. As of the CMS Record Date, the directors and executive officers of CMS
owned approximately 9.9% of the outstanding shares of CMS Common Stock entitled
to vote at such meeting. Rocco A. Ortenzio, Chairman and Chief Executive Officer
of CMS, Robert A. Ortenzio, President and Chief Operating Officer of CMS, and
certain corporations controlled by them have entered into a Voting Agreement
with Horizon dated March 31, 1995 (the "Voting Agreement") whereby they have
agreed, among other things, to vote all shares of CMS Common Stock owned by them
in favor of the Merger Agreement. As of March 31, 1995, approximately 8.9% of
the outstanding shares of CMS Common Stock were subject to the Voting Agreement.
See "Voting Agreement." In addition, each of the other directors and executive
officers of CMS has advised CMS that he or she plans to vote or to direct the
vote of all shares of CMS Common Stock owned by him or her and entitled to vote
thereon in favor of the Merger Agreement.
THE MERGER AND THE MERGER AGREEMENT
TERMS OF THE MERGER. At the Effective Time (as hereinafter defined), Merger
Sub will merge with and into CMS, with CMS being the surviving corporation and
becoming a wholly owned subsidiary of Horizon (the "Surviving Corporation"). In
the Merger, each share of CMS Common Stock outstanding at the Effective Time
(other than shares held directly or indirectly by Horizon or CMS) will be
converted into .5397 shares of Horizon Common Stock (the "Exchange Ratio").
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<PAGE>
Based on the number of shares of Horizon Common Stock and CMS Common Stock
outstanding as of the record dates for the Horizon Special Meeting and the CMS
Special Meeting, 20,849,844 shares of Horizon Common Stock will be issuable
pursuant to the Merger Agreement (assuming no issuance prior to the Effective
Time of CMS Common Stock upon exercise of CMS Options or the CMS Warrants, upon
conversion of the CMS Convertible Debenture or pursuant to the CMS Earnout
Agreements), representing approximately 41% of the total Horizon Common Stock to
be outstanding after such issuance.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS. THE BOARD OF DIRECTORS OF
HORIZON HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF,
THE STOCKHOLDERS OF HORIZON AND RECOMMENDS THAT THE STOCKHOLDERS OF HORIZON
APPROVE THE ISSUANCE AND RESERVATION FOR ISSUANCE OF HORIZON COMMON STOCK
PURSUANT TO THE TERMS OF THE MERGER AGREEMENT.
Management of Horizon believes that the Merger would create one of the
nation's major post-acute care companies and the largest specialty health care
providers. In the course of its evaluation of the proposed Merger, the Horizon
Board of Directors considered the numerous positive factors set forth under
"Horizon's Reasons for the Merger; Recommendation of Board of Directors of
Horizon". In addition, it considered certain factors that it regarded as
negative, such as anticipated dilution of up to 10% in Horizon's projected net
income per share for fiscal 1995, the financial performance of and special
charges recorded by CMS for the fiscal years 1993 and 1994 and the six months
ended December 31, 1994 and certain regulatory matters regarding CMS, all of
which are more fully described under "Horizon's Reasons for the Merger;
Recommendation of Board of Directors of Horizon." Based on the total mix of
information available to it, however, the Horizon Board of Directors unanimously
approved the Merger Agreement and recommended its approval to the stockholders
of Horizon.
THE BOARD OF DIRECTORS OF CMS HAS DETERMINED THAT THE MERGER IS FAIR TO, AND
IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF CMS AND RECOMMENDS THAT THE
STOCKHOLDERS OF CMS APPROVE AND ADOPT THE MERGER AGREEMENT. See "The Merger --
Background" and "CMS's Reasons for the Merger; Recommendation of the Board of
Directors of CMS." In considering the recommendation of the CMS Board with
respect to the Merger, CMS stockholders should be aware that certain officers
and directors of CMS have certain interests respecting the Merger, apart from
their interests as stockholders of CMS. See "The Merger -- Interests of Certain
Persons in the Merger."
OPINIONS OF FINANCIAL ADVISORS. Salomon Brothers Inc ("Salomon Brothers")
has delivered its written opinion dated March 31, 1995 to the Board of Directors
of Horizon that, as of such date, the consideration to be paid by Horizon in the
Merger was fair to the holders of Horizon Common Stock from a financial point of
view. Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") has
delivered its written opinion dated March 31, 1995 to the Board of Directors of
CMS that, as of such date, the exchange ratio contemplated by the Merger
Agreement was fair to the stockholders of CMS from a financial point of view.
Salomon Brothers subsequently delivered its written opinion dated the date of
this Joint Proxy Statement/Prospectus (the "Salomon Brothers Opinion") that, as
of such date, the consideration to be paid by Horizon in the Merger was fair to
the holders of Horizon Common Stock from a financial point of view. Merrill
Lynch subsequently delivered its written opinion dated the date of this Joint
Proxy Statement/Prospectus (the "Merrill Lynch Opinion") that, as of such date,
the Exchange Ratio was fair to the stockholders of CMS from a financial point of
view.
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For information regarding the Salomon Brothers Opinion and the Merrill Lynch
Opinion, including the assumptions made and matters considered in, and the
limitations on, the review undertaken by Salomon Brothers and Merrill Lynch as
set forth in their respective opinions, see "The Merger -- Opinions of Financial
Advisors." Stockholders of Horizon and CMS are urged to read in their entirety
the Salomon Brothers Opinion and the Merrill Lynch Opinion, attached as
Appendices B and C, respectively, to this Joint Proxy Statement/Prospectus.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware (the "Effective Time"),
unless the certificate of merger specifies a later Effective Time. Assuming all
conditions to the Merger contained in the Merger Agreement are satisfied or, to
the extent susceptible to waiver, waived prior thereto, it is anticipated that
the Effective Time of the Merger will occur as soon as practicable following the
Horizon and CMS Special Meetings.
CERTAIN CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligations of both Horizon and CMS to consummate the Merger are subject
to the satisfaction of certain conditions, including the following: (i) approval
by the stockholders of Horizon of the issuance of Horizon Common Stock pursuant
to the Merger Agreement, and approval and adoption of the Merger Agreement by
the stockholders of CMS; (ii) the absence of any order making the Merger illegal
or otherwise prohibiting consummation of the Merger; (iii) Horizon having been
advised in writing by Arthur Andersen LLP that the Merger should be treated for
financial accounting purposes as a "pooling of interests;" and (iv) the absence
of certain regulatory conditions. None of the foregoing conditions will be
waived by either Horizon or CMS. In addition, the obligations of each of Horizon
and CMS are subject to the accuracy of the representations and warranties of the
other party and to compliance with all agreements and covenants on the part of
the other party contained in the Merger Agreement. Either Horizon or CMS may
extend the time for performance of any of the obligations of the other party or,
except as aforesaid, waive compliance with those obligations at its discretion.
See "Certain Terms of the Merger Agreement -- Conditions to the Merger".
Horizon and CMS anticipate that all of the conditions to the consummation of
the Merger (other than receipt of the required approvals of the stockholders of
Horizon and CMS) will be satisfied prior to or at the time of the Horizon
Special Meeting and the CMS Special Meeting.
GOVERNMENTAL APPROVALS
On April 20, 1995, Horizon and CMS each filed a notification and report,
together with requests for early termination of the waiting period, under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), with the Federal Trade Commission and the Antitrust Division of the
Department of Justice in respect of the Merger. Expiration or early termination
of the applicable waiting period under the HSR Act is a condition to the
obligations of Horizon and CMS to consummate the Merger. On May 20, 1995, the
applicable waiting period expired with no request for additional information
having been made.
Horizon and CMS have provided the appropriate regulatory authorities in all
of the states in which CMS operates rehabilitation hospitals with any required
notices, disclosures and/or applications for determination of need consistent
with applicable licensure and/or certificate of need statutory and regulatory
provisions. Horizon and CMS are currently awaiting the issuance of a
determination of need from the Commonwealth of Massachusetts. Virtually all of
the remaining states in which CMS operates rehabilitation hospitals have
concurred with Horizon's and CMS's view that the proposed Merger does not
constitute a change of ownership for either licensure or certificate of need
purposes. See "The Merger -- Governmental and Regulatory Approvals." Neither
Horizon nor CMS is aware of any other governmental or regulatory approval
required for consummation of the Merger, other than compliance with applicable
securities laws.
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NO SOLICITATION
The Merger Agreement provides that CMS will not initiate, solicit or
encourage (including by way of furnishing information or assistance) any
inquiries or the making of any proposal relating to any Competing Transaction
(as defined below), or enter into discussions or negotiations with any person in
furtherance of a Competing Transaction, or agree to, or endorse, a Competing
Transaction; PROVIDED, HOWEVER, that CMS may furnish information or enter into
discussions or negotiations with respect to an unsolicited bona fide proposal in
writing relating to a Competing Transaction for which financing, to the extent
required, is then committed (except that a financing commitment is not required
for purposes of furnishing information only), if, and only to the extent that,
the Board of Directors of CMS, after consultation with and based upon the
written advice of outside legal counsel, determines in good faith that such
action is required for such Board to comply with its fiduciary duties to
stockholders imposed by the DGCL. CMS is required to provide Horizon written
notice prior to taking any such actions, to notify Horizon of any inquiries or
proposals received by CMS and to provide copies of any written inquiry or
proposal. Further, the Board of Directors of CMS may determine not to solicit
proxies in favor of the approval and adoption of the Merger Agreement if such
Board determines in good faith after consultation with legal counsel and its
financial advisors that other action is necessary due to applicable fiduciary
duties of the directors of CMS. A "Competing Transaction" means any merger,
consolidation, share exchange, business combination or similar transaction
involving CMS or any of its Significant Subsidiaries (as defined in the Merger
Agreement) or the acquisition in any manner, directly or indirectly, of a
material interest in any voting securities of, or a material equity interest in
a substantial portion of the assets of, CMS or any of its Significant
Subsidiaries, other than the transactions contemplated by the Merger Agreement.
See "Certain Terms of the Merger Agreement -- No Solicitation."
TERMINATION OF THE MERGER AGREEMENT
GENERAL. The Merger Agreement may be terminated at any time prior to the
Effective Time (i) by mutual consent of Horizon and CMS or (ii) by either party
if (a) the Merger has not been consummated on or before December 31, 1995 (or
March 31, 1996, if the Merger shall not have been consummated as a result of
either party having failed by December 31, 1995 to receive all required
regulatory approvals or consents with respect to the Merger), (b) any final
court or governmental order shall have prohibited consummation of the Merger or
(c) the required approvals of the stockholders of Horizon or CMS are not
received at the applicable meeting of stockholders.
BY HORIZON. Horizon may terminate the Merger Agreement (i) upon a breach of
any material representation, warranty, covenant or agreement on the part of CMS
set forth in the Merger Agreement or the Stock Option Agreement, or if any such
representation or warranty shall have become untrue, in either case such that
Horizon's conditions to closing of the Merger would be incapable of being
satisfied, or (ii) if the Board of Directors of CMS withdraws, modifies or
changes its recommendation of the Merger in a manner adverse to Horizon or
recommends to the stockholders of CMS any Competing Transaction or resolves to
do so, or (iii) if a tender or exchange offer for 20% or more of the outstanding
CMS Common Stock is commenced, and the Board of Directors of CMS does not
recommend that stockholders not tender their shares into such offer, or (iv) if
any person (other than Horizon or its affiliates) acquires or has the right to
acquire beneficial ownership of, or any group shall have been formed that
beneficially owns, or has the right to acquire beneficial ownership of, 20% or
more of the outstanding CMS Common Stock.
BY CMS. CMS may terminate the Merger Agreement (i) upon a breach of any
material representation, warranty, covenant or agreement on the part of Horizon
set forth in the Merger Agreement, or if any such representation or warranty
shall have become untrue, in either case such that CMS's conditions to closing
of the Merger would be incapable of being satisfied, or (ii) if a tender or
exchange offer for 20% or more of the outstanding Horizon Common Stock is
commenced, and the Board of Directors of Horizon does not recommend that
stockholders not tender their shares into such offer, or (iii) if any person
acquires or has the right to acquire beneficial ownership of, or any group shall
have been formed that beneficially owns, or has the right to acquire beneficial
ownership of, 20% or more of
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the outstanding Horizon Common Stock, or (iv) if CMS accepts a bona fide written
proposal relating to a Competing Transaction on terms that the Board of
Directors of CMS determines that it cannot reject in favor of the Merger, based
upon applicable fiduciary duties and the advice of counsel, and for which
financing, to the extent required, is then committed (a "Superior Proposal").
See "Certain Terms of the Merger Agreement -- Termination or Amendment of
the Merger Agreement."
TERMINATION FEES
If the Merger Agreement is terminated upon the occurrence of certain of the
events described above, CMS will be required to pay to Horizon an amount,
subject to certain limitations, equal to $20 million plus Horizon's expenses
incurred in connection with the transactions contemplated by the Merger
Agreement, not to exceed $5 million. In addition, under those circumstances, the
Stock Option granted by CMS to Horizon to acquire up to 5,793,567 shares of CMS
common stock would become exercisable. If the Merger Agreement is terminated
upon the occurrence of certain other events described above, Horizon will be
required to pay CMS a termination fee of $10 million. See "-- Stock Option;"
"Stock Option Agreement;" "Certain Terms of the Merger Agreement -- Expenses and
Termination Fees."
ASSUMPTION OF CMS OPTIONS AND OTHER OBLIGATIONS
As of the Effective Time, Horizon will assume each CMS Option that remains
unexercised in whole or in part. Accordingly, each CMS Option will be deemed to
remain outstanding as an option to purchase, in lieu of the shares of CMS Common
Stock previously subject thereto, that number of shares of Horizon Common Stock
equal to the product of the number of shares of CMS Common Stock subject to the
CMS Option multiplied by the Exchange Ratio. The exercise price per share of
Horizon Common Stock will be equal to the previous exercise price per share
under the CMS Option divided by the Exchange Ratio. See "Certain Terms of the
Merger Agreement -- Assumption of Obligations to Issue CMS Common Stock."
In addition, Horizon has agreed in the Merger Agreement to assume, at the
Effective Time, the obligations of CMS with respect to the issuance of CMS
Common Stock under the CMS Warrants, the CMS Debenture and the CMS Earnout
Agreements by agreeing to issue in lieu thereof Horizon Common Stock on the
basis described under "Certain Terms of the Merger Agreement -- Assumption of
Obligations to Issue CMS Common Stock." Assuming that no shares of CMS Common
Stock are issued prior to the Effective Time on exercise of any CMS Options or
any of the CMS Warrants, on conversion of the CMS Debenture or pursuant to the
CMS Earnout Agreements, Horizon will be required to reserve for issuance an
aggregate of 4,394,818 shares of Horizon Common Stock for such purposes. Of such
shares, 3,917,916 will be reserved in connection with CMS Options, 188,895 will
be reserved in connection with the CMS Warrants, 126,097 will be reserved in
connection with the CMS Debenture and 161,910 will be reserved in connection
with the CMS Earnout Agreements.
HORIZON BOARD OF DIRECTORS
Prior to the Merger, Horizon will expand its Board of Directors from eight
to 13 positions, and will ensure that the five newly created directorships will
be filled with individuals designated by CMS. At least one of such CMS designees
will serve on each of the Horizon Audit Committee, the Horizon Compensation
Committee and the Horizon Executive Committee (subject to their determination to
not serve).
INDEMNIFICATION
The Merger Agreement provides that, for a period of six years after the
Effective time, Horizon (i) will not amend certain indemnification and liability
limitation provisions of CMS's charter or bylaws in a manner that would
adversely affect the rights of individuals who were officers or directors of CMS
and (ii) will cause to be maintained in effect CMS's current directors' and
officers' liability insurance, subject to certain limitations. See "Certain
Terms of the Merger Agreement -- Indemnification."
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STOCK OPTION
Horizon and CMS have entered into a Stock Option Agreement in connection
with, and as consideration for, Horizon's and Merger Sub's execution of the
Merger Agreement. Under the Stock Option Agreement, CMS has granted to Horizon
an irrevocable option to purchase up to 5,793,567 shares, subject to certain
adjustments, of CMS Common Stock for an exercise price of $13.00 per share,
subject to certain adjustments, which option is exercisable in whole or in part
and from time to time after the Merger Agreement becomes terminable by Horizon
under circumstances that would, if the Merger Agreement were terminated as a
result thereof, entitle Horizon to payment of the termination fee described
above. See "Certain Terms of the Merger Agreement -- Termination or Amendment of
the Merger Agreement" and "Stock Option Agreement."
COMPENSATION ARRANGEMENTS
At the Effective Time, Rocco A. Ortenzio, Chairman and Chief Executive
Officer of CMS, will become Vice Chairman of Horizon's Board of Directors.
Immediately following that time, in satisfaction of his rights under his
existing employment arrangements with CMS, he will receive certain payments
aggregating $15.3 million and his employment with CMS will cease. Robert A.
Ortenzio, President and Chief Operating Officer of CMS, will at the same time
become a director and enter into a new employment agreement with Horizon
initially at his current salary level. In addition, the other senior executive
officers of CMS are parties to previously existing change in control agreements
with CMS pursuant to which they may become entitled to certain payments upon a
termination of their employment. See "The Merger -- Employment Arrangements."
VOTING AGREEMENT
Pursuant to the Voting Agreement, Rocco A. Ortenzio, Chairman and Chief
Executive Officer of CMS, Robert A. Ortenzio, President and Chief Operating
Officer of CMS, and certain corporations controlled by them have agreed, among
other things, to vote all shares of CMS Common Stock owned by them in favor of
the Merger Agreement. As of the CMS Record Date, approximately 8.9% of the
outstanding shares of CMS Common Stock were subject to the Voting Agreement. See
"Voting Agreement."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and should,
therefore, constitute a non-taxable transaction for Horizon, CMS and the holders
of CMS Common Stock, except to the extent of cash received, if any, in lieu of
fractional shares of Horizon Common Stock. For a discussion of these and other
federal income tax considerations in connection with the Merger, see "The Merger
-- Certain Federal Income Tax Consequences."
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a "pooling of interests" for
financial accounting purposes. See "The Merger -- Accounting Treatment."
NO APPRAISAL RIGHTS
Under Delaware law, neither Horizon's nor CMS's stockholders will be
entitled to any appraisal or dissenter's rights in connection with the Merger.
See "The Merger -- Rights of Dissenting Stockholders."
EXCHANGE OF CMS COMMON STOCK CERTIFICATES
Promptly after consummation of the Merger, Horizon will mail a letter of
transmittal with instructions to each holder of record of CMS Common Stock
outstanding immediately before the Effective Time for use in exchanging
certificates formerly representing shares of CMS Common Stock for certificates
representing shares of Horizon Common Stock and cash in lieu of any fractional
shares. Certificates should not be surrendered by the holders of CMS Common
Stock until they have received the letter of transmittal from Horizon. See
"Certain Terms of the Merger Agreement -- Manner and Basis of Converting
Shares."
11
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Boards of Directors and management of CMS and Horizon
have certain interests respecting the Merger separate from their interests as
holders of CMS Common Stock or Horizon Common Stock, as the case may be,
including those referred to above in this Summary under "-- The Merger and the
Merger Agreement -- Horizon Board of Directors; and -- Indemnification" and "--
Compensation Arrangements." See "The Merger -- Interests of Certain Persons in
the Merger."
COMPARATIVE RIGHTS OF CMS AND HORIZON STOCKHOLDERS
Rights of stockholders of CMS are currently governed by the DGCL, the
Restated Certificate of Incorporation, as amended, of CMS (the "CMS Charter")
and CMS's By-Laws, as amended (the "CMS By-Laws"). Upon consummation of the
Merger, CMS stockholders will become stockholders of Horizon and their rights as
stockholders of Horizon will be governed by the DGCL, the Restated Certificate
of Incorporation, as amended, of Horizon (the "Horizon Charter") and Horizon's
Amended and Restated Bylaws, as amended (the "Horizon Bylaws"). There are
certain differences between the rights of CMS stockholders and the rights of
Horizon stockholders. See "Comparative Rights of Horizon and CMS Stockholders"
and "Description of Horizon Capital Stock."
MARKET PRICE DATA
Horizon Common Stock is traded on the NYSE under the symbol "HHC" and CMS
Common Stock is traded on the NYSE under the symbol "CNM." The following table
sets forth, for the periods indicated, the range of high and low per share sales
prices for Horizon Common Stock and CMS Common Stock as reported on the NYSE
Composite Tape. No cash dividends were paid on Horizon Common Stock or CMS
Common Stock during the periods presented.
<TABLE>
<CAPTION>
HORIZON CMS
-------------------- --------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1993*
First Quarter............... $ 14 7/8 $ 9 3/8 $ 18 1/4 $ 10
Second Quarter.............. 14 1/8 11 1/8 13 7/8 7 1/8
Third Quarter............... 16 5/8 12 1/8 8 3/4 7 1/8
Fourth Quarter.............. 20 7/8 14 1/2 10 3/8 7 1/2
1994*
First Quarter............... $ 26 1/2 $ 18 3/4 $ 12 3/8 $ 7 7/8
Second Quarter.............. 25 3/4 20 3/4 11 8
Third Quarter............... 28 1/4 21 1/2 9 7/8 7 1/2
Fourth Quarter.............. 30 24 1/2 9 5
1995*
First Quarter............... $ 28 1/4 $ 22 5/8 $ 7 7/8 $ 4 5/8
Second Quarter (through May
22)........................ 25 16 5/8 12 8
<FN>
------------------------
* Calendar years. Horizon's fiscal year ends on May 31, and CMS's fiscal year
ends on June 30.
</TABLE>
On March 30, 1995, the last trading day prior to the date of the joint
announcement by Horizon and CMS that they had executed the Merger Agreement, the
closing per share sales prices of Horizon Common Stock and CMS Common Stock, as
reported on the NYSE Composite Tape, were $27 1/4 and $7 1/8, respectively. See
the cover page of this Joint Proxy Statement/Prospectus for a recent closing
price of Horizon Common Stock and CMS Common Stock.
HORIZON DIVIDEND POLICY
Horizon has not paid or declared any dividends on Horizon Common Stock since
its inception and anticipates that future earnings will be retained to finance
the continuing development of its business. The payment of any future dividends
will be at the discretion of Horizon's Board of Directors and will depend upon,
among other things, future earnings, the success of Horizon's business
activities, regulatory and capital requirements, the general financial condition
of Horizon and general business conditions. In addition, Horizon's credit
facility restricts the payment of dividends.
12
<PAGE>
HORIZON
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following selected historical income statement and balance sheet data
for the periods ended May 31, 1990 through May 31, 1994 have been derived from
Horizon's Consolidated Financial Statements, which have been audited by Arthur
Andersen LLP, independent public accountants, with respect to 1992, 1993 and
1994 and by other accountants with respect to 1990 and 1991. The selected
consolidated financial data as of February 28, 1995 and for the nine months
ended February 28, 1994 and 1995 have been derived from the unaudited
consolidated financial statements of Horizon, have been prepared on the same
basis of accounting as the other financial statements of Horizon and, in the
opinion of Horizon, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations of Horizon for such periods. Results for the nine month
period ended February 28, 1995 are not necessarily indicative of the results
which may be expected for any other interim period or for the year as a whole.
The information set forth below is qualified by reference to and should be read
in conjunction with the consolidated financial statements and related notes
included in the Horizon 1994 Form 10-K and Horizon's Quarterly Report on Form
10-Q for the quarter ended February 28, 1995, incorporated by reference in this
Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------------------------------------------
PRO FORMA
AFTER
HISTORICAL ACQUISITIONS(1)
----------------------------------------------------- --------------
1990 1991 1992 1993 1994 1994
--------- --------- --------- --------- --------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATING DATA:
Total operating revenues...................... $ 105,706 $ 110,672 $ 158,979 $ 232,199 $ 375,095 $ 611,087
--------- --------- --------- --------- --------- --------------
OPERATING EXPENSES:
Cost of services............................ 87,555 91,159 130,884 186,709 293,863 478,748
Administrative and general.................. 12,622 12,941 17,076 25,489 40,165 78,986
Interest expense............................ 2,851 2,569 2,207 4,252 6,240 23,945
Depreciation and amortization............... 1,670 1,873 2,157 4,007 8,081 16,028
--------- --------- --------- --------- --------- --------------
Total operating expenses.................. 104,698 108,542 152,324 220,457 348,349 597,707
--------- --------- --------- --------- --------- --------------
Earnings before income taxes.................. 1,008 2,130 6,655 11,742 26,746 13,380
Income taxes.................................. 383 300 1,628 4,026 10,140 5,285
--------- --------- --------- --------- --------- --------------
Earnings before extraordinary item............ 625 1,830 5,027 7,716 16,606 8,095
Extraordinary item(2)......................... 383 -- -- -- -- --
--------- --------- --------- --------- --------- --------------
Net earnings.................................. $ 1,008 $ 1,830 $ 5,027 $ 7,716 $ 16,606 $ 8,095
--------- --------- --------- --------- --------- --------------
--------- --------- --------- --------- --------- --------------
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE:
Earnings before extraordinary item.......... $ 0.10 $ 0.25 $ 0.44 $ 0.66 $ 0.99 $ 0.41
Extraordinary item(2)....................... 0.06 -- -- -- -- --
--------- --------- --------- --------- --------- --------------
Net earnings per share.................... $ 0.16 $ 0.25 $ 0.44 $ 0.66 $ 0.99 $ 0.41
--------- --------- --------- --------- --------- --------------
--------- --------- --------- --------- --------- --------------
EARNINGS PER COMMON SHARE -- ASSUMING FULL
DILUTION:
Earnings before extraordinary item.......... $ 0.10 $ 0.25 $ 0.44 $ 0.62 $ 0.91 $ 0.41
Extraordinary item(2)....................... 0.06 -- -- -- -- --
--------- --------- --------- --------- --------- --------------
Net earnings per share.................... $ 0.16 $ 0.25 $ 0.44 $ 0.62 $ 0.91 $ 0.41
--------- --------- --------- --------- --------- --------------
--------- --------- --------- --------- --------- --------------
Weighted average shares outstanding:
Primary..................................... 6,287 7,280 11,402 11,712 16,751 19,771
--------- --------- --------- --------- --------- --------------
--------- --------- --------- --------- --------- --------------
Fully diluted............................... 6,287 7,280 12,778 16,276 19,724 22,744
--------- --------- --------- --------- --------- --------------
--------- --------- --------- --------- --------- --------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
FEBRUARY 28,
------------------------------------
PRO FORMA
AFTER
HISTORICAL ACQUISITIONS(3)
-------------------- --------------
1994 1995 1995
--------- --------- --------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total operating revenues.................................................... $ 242,500 $ 459,457 $ 510,524
--------- --------- --------------
OPERATING EXPENSES:
Cost of services.......................................................... 190,792 348,507 387,915
Administrative and general................................................ 25,376 47,163 53,090
Interest expense.......................................................... 4,051 13,335 17,137
Depreciation and amortization............................................. 4,681 13,063 14,683
--------- --------- --------------
Total operating expenses................................................ 224,900 422,068 472,825
--------- --------- --------------
Earnings before income taxes................................................ 17,600 37,389 37,699
Income taxes................................................................ 6,800 14,555 14,891
--------- --------- --------------
Net earnings................................................................ $ 10,800 $ 22,834 $ 22,808
--------- --------- --------------
--------- --------- --------------
Net earnings per common and common equivalent share......................... $ 0.74 $ 0.88 $ 0.85
--------- --------- --------------
--------- --------- --------------
Net earnings per common share -- assuming full dilution..................... $ 0.66 $ 0.88 $ 0.85
--------- --------- --------------
--------- --------- --------------
Weighted average shares outstanding:
Primary................................................................... 14,651 25,932 26,979
--------- --------- --------------
--------- --------- --------------
Fully diluted............................................................. 18,539 25,932 26,979
--------- --------- --------------
--------- --------- --------------
</TABLE>
<TABLE>
<CAPTION>
AT MAY 31,
----------------------------------------------------- FEBRUARY 28, 1995
---------------------------
HISTORICAL PRO FORMA
----------------------------------------------------- AFTER
1990 1991 1992 1993 1994 HISTORICAL ACQUISITIONS(4)
--------- --------- --------- --------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................... $ 1,819 $ 4,479 $ 31,658 $ 18,898 $ 58,639 $ 122,533 $ 123,198
Total assets............................. 52,942 55,740 103,619 153,170 406,451 683,701 700,256
Long-term debt, excluding current
portion................................. 20,796 23,790 502 22,876 76,673 188,543 188,543
Convertible subordinated notes and
debentures.............................. -- -- 47,985 52,584 30,906 26,620 26,620
Total stockholders' equity............... 17,171 19,999 39,780 48,196 229,326 398,069 412,054
<FN>
------------------------------
(1) To give effect to (i) the merger with Greenery Rehabilitation Group, Inc.
("Greenery") and related transactions, (ii) the acquisition of peopleCARE
Heritage Group ("peopleCARE"), and (iii) the consummation of individually
insignificant acquisitions as though all such transactions occurred on June
1, 1993. See the unaudited pro forma condensed financial statements and the
notes thereto included elsewhere in this Joint Proxy Statement/Prospectus.
(2) Extraordinary item consists of the utilization of net operating loss
carryforwards.
(3) To give effect to (i) the peopleCARE acquisition and (ii) the consummation
of individually insignificant acquisitions as though all such transactions
occurred on June 1, 1994. See the unaudited pro forma condensed financial
statements and the notes thereto included elsewhere in this Joint Proxy
Statement/Prospectus.
(4) To give effect to consummation of certain individually insignificant
acquisitions as though all such transactions occurred on February 28, 1995.
See the unaudited pro forma condensed financial statements and the notes
thereto included elsewhere in this Joint Proxy Statement/Prospectus.
</TABLE>
14
<PAGE>
CMS
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected historical consolidated financial information of CMS and
subsidiaries shown below for the five fiscal periods ended June 30, 1994 has
been derived from CMS's audited consolidated financial statements. The financial
information for the nine-month periods ended March 31, 1994 and 1995 has been
derived from CMS's unaudited consolidated financial statements and includes, in
the opinion of CMS's management, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the information for such
periods. The information set forth below is qualified by reference to and should
be read in conjunction with CMS's consolidated financial statements and related
notes included in the CMS 1994 Form 10-K and in CMS's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995, incorporated by reference in this
Joint Proxy Statement/Prospectus. Results for the nine-month period ended March
31, 1995, are not necessarily indicative of the results which may be expected
for any other interim period or for the fiscal year as a whole.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------
HISTORICAL
----------------------------------------------------------------
1990 1991 1992 1993 1994
--------- --------- ------------ ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
NET OPERATING REVENUES................................. $ 291,712 $ 429,921 $ 681,825 $ 901,397 $ 1,004,839
--------- --------- ------------ ------------ --------------
COSTS AND EXPENSES:
Cost of services..................................... 254,614 380,443 607,737 787,574 894,488
Interest expense..................................... 10,007 10,791 6,216 22,747 38,156
Depreciation and amortization........................ 8,040 11,045 17,766 29,735 38,266
Special charge....................................... -- -- -- 14,556(1) 74,834(2)
--------- --------- ------------ ------------ --------------
272,661 402,279 631,719 854,612 1,045,744
--------- --------- ------------ ------------ --------------
Income (loss) from operations.......................... 19,051 27,642 50,106 46,785 (40,905)
Other income, principally interest..................... 1,615 3,104 2,936 2,762 3,442
Merger expenses........................................ -- -- (4,319)(3) (2,598)(4) --
--------- --------- ------------ ------------ --------------
Income (loss) before minority interests, income taxes
and cumulative effect of accounting change............ 20,666 30,746 48,723 46,949 (37,463)
Minority interests..................................... (1,176) (3,320) (6,771) (6,663) (4,730)
--------- --------- ------------ ------------ --------------
Income (loss) before income taxes and cumulative effect
of accounting change.................................. 19,490 27,426 41,952 40,286 (42,193)
Income taxes........................................... 6,789 8,925 14,861 17,563 (7,648)
--------- --------- ------------ ------------ --------------
Income (loss) before cumulative effect of accounting
change................................................ 12,701 18,501 27,091 22,723 (34,545)
Cumulative effect of accounting change................. -- -- -- (3,204) --
--------- --------- ------------ ------------ --------------
Net income (loss)...................................... $ 12,701 $ 18,501 $ 27,091 $ 19,519 $ (34,545)
--------- --------- ------------ ------------ --------------
--------- --------- ------------ ------------ --------------
INCOME (LOSS) PER COMMON SHARE AND COMMON EQUIVALENT
SHARE:
Primary:
Income (loss) before cumulative effect of
accounting change................................. $ 0.48 $ 0.63 $ 0.73 $ 0.59 $ (0.92)
Cumulative effect of accounting change............. -- -- -- (0.08) --
--------- --------- ------------ ------------ --------------
Net income (loss).................................. $ 0.48 $ 0.63 $ 0.73 $ 0.51 $ (0.92)
--------- --------- ------------ ------------ --------------
--------- --------- ------------ ------------ --------------
Fully diluted:
Income (loss) before cumulative effect of
accounting change................................. $ 0.46 $ 0.60 $ 0.72 $ 0.59 $ (0.92)
Cumulative effect of accounting change............. -- -- -- (0.08) --
--------- --------- ------------ ------------ --------------
Net income (loss).................................. $ 0.46 $ 0.60 $ 0.72 $ 0.51 $ (0.92)
--------- --------- ------------ ------------ --------------
--------- --------- ------------ ------------ --------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary.............................................. 26,254 29,356 37,169 38,051 37,663
--------- --------- ------------ ------------ --------------
--------- --------- ------------ ------------ --------------
Fully diluted........................................ 30,425 32,262 37,403 38,290 37,663
--------- --------- ------------ ------------ --------------
--------- --------- ------------ ------------ --------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED MARCH 31,
-----------------------
HISTORICAL
-----------------------
1994 1995
--------- ------------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
NET OPERATING REVENUES................................................................... $ 751,789 $ 738,363
COSTS AND EXPENSES:
Cost of services....................................................................... 667,634 655,918
Interest expense....................................................................... 28,688 26,363
Depreciation and amortization.......................................................... 28,486 27,952
Special charge......................................................................... -- 18,443(5)
--------- ------------
724,808 728,676
--------- ------------
Income from operations................................................................... 26,981 9,687
Other income, principally interest....................................................... 2,538 2,361
--------- ------------
Income before minority interests, income taxes and extraordinary gain.................... 29,519 12,048
Minority interests....................................................................... (3,416) (5,197)
--------- ------------
Income before income taxes and extraordinary gain........................................ 26,103 6,851
Income taxes............................................................................. 10,572 4,955
--------- ------------
Net income before extraordinary gain..................................................... 15,531 1,896
--------- ------------
Extraordinary gain, net of income taxes.................................................. 1,958(6)
Net income............................................................................... $ 15,531 $ 3,854
--------- ------------
--------- ------------
INCOME PER COMMON SHARE AND COMMON EQUIVALENT SHARE:
Net income before extraordinary item................................................... $ 0.40 $ 0.05
--------- ------------
--------- ------------
Extraordinary item..................................................................... -- 0.05
--------- ------------
Net income per share................................................................. $ 0.40 $ 0.10
--------- ------------
--------- ------------
INCOME PER COMMON SHARE -- ASSUMING FULL DILUTION:
Net income before extraordinary item................................................... $ 0.40 $ 0.05
Extraordinary item..................................................................... -- 0.05
--------- ------------
Net income per share................................................................. $ 0.40 $ 0.10
--------- ------------
--------- ------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary................................................................................ 38,610 39,016
--------- ------------
--------- ------------
Fully diluted.......................................................................... 38,610 39,530
--------- ------------
--------- ------------
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, MARCH 31,
----------------------------------------------------- ------------
HISTORICAL HISTORICAL
----------------------------------------------------- ------------
1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital...................................... $ 32,383 $ 92,166 $ 119,432 $ 208,301 $ 166,403 $ 138,597
Total assets......................................... 219,676 327,796 475,230 772,228 766,742 722,168
Long-term debt, excluding current portion............ 60,292 55,947 132,835 380,602 351,752 308,895
Convertible subordinated notes and debentures........ 32,000 2,000 2,000 2,000 2,000 2,000
Total stockholders' equity........................... 65,398 187,691 223,987 257,696 235,552 241,320
<FN>
------------------------------
(1) Related to the write-down of certain rehabilitation facility development
costs.
(2) Related to the impairment of selected assets of CMS's hospital division of
approximately $50,244, the costs associated with the consolidation of its
contract therapy services companies and the losses related to the
termination of certain relationships in the contract therapy services
businesses of approximately $22,842 and costs related to the reduction of
work force at CMS's corporate office and other restructuring costs of
$1,748.
(3) Reflects $1,000 of merger expenses in connection with the CompHealth
acquisition and $3,319 relating to a terminated merger agreement.
(4) Reflects merger expenses in connection with the Kron Medical Corporation
acquisition and Kron's subsequent consolidation with CompHealth.
(5) Reflects the effect of a revision in the estimate of receivables from third
party payors and the costs of certain organizational changes at CMS
Therapies, Inc.
(6) Related to gain recognized on open market purchases of CMS's Subordinated
Debt at a discount.
</TABLE>
16
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following selected unaudited pro forma financial information has been
derived from and should be read in conjunction with the unaudited pro forma
condensed financial information and notes thereto included elsewhere in this
Joint Proxy Statement/Prospectus. The following unaudited selected pro forma
financial information is based on adjustments to the historical consolidated
balance sheets and related consolidated statements of earnings of Horizon and
CMS to give effect to the Merger using the pooling of interests method of
accounting for business combinations. The unaudited selected pro forma financial
information for the most recent full year and interim period has also been
presented to give effect to the Merger and other acquisitions completed by
Horizon. The following selected unaudited pro forma financial information may
not necessarily reflect the financial condition or results of operations of
Horizon that would have actually resulted had the transactions referred to above
occurred as of the date and for the periods indicated or reflect the future
earnings of Horizon.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MAY 31, FEBRUARY 28,
------------------------------------------------- -----------------------------
PRO FORMA 1995
COMBINED AFTER --------------
ACQUISITIONS 1995 PRO FORMA
PRO FORMA COMBINED (1) (2) ------------- COMBINED AFTER
--------------------------------- -------------- PRO FORMA ACQUISITIONS
1992 1993 1994 1994 COMBINED (1) (3)
--------- ---------- ---------- -------------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Total operating revenues....... $ 843,740 $1,136,358 $1,383,376 $1,619,368 $ 1,200,181 $1,251,248
--------- ---------- ---------- -------------- ------------- --------------
Operating expenses:
Cost of services............. 727,546 960,086 1,168,408 1,353,293 989,236 1,028,644
Administrative and general... 32,470 42,284 60,108 98,929 62,352 68,279
Interest expense............. 8,423 26,999 44,396 62,101 39,698 43,500
Depreciation and
amortization................ 19,923 33,742 46,347 54,294 41,015 42,635
Special charge............... -- 14,556 74,834 74,834 18,443 18,443
--------- ---------- ---------- -------------- ------------- --------------
Total operating expenses... 788,362 1,077,667 1,394,093 1,643,451 1,150,744 1,201,501
--------- ---------- ---------- -------------- ------------- --------------
Earnings (loss) before minority
interests and income taxes.... 55,378 58,691 (10,717) (24,083) 49,437 49,747
Minority interests............. (6,771) (6,663) (4,730) (4,730) (5,197) (5,197)
--------- ---------- ---------- -------------- ------------- --------------
Earnings (loss) before income
taxes......................... 48,607 52,028 (15,447) (28,813) 44,240 44,550
Income taxes................... 16,489 21,589 2,492 (2,363) 19,510 19,846
--------- ---------- ---------- -------------- ------------- --------------
Net earnings (loss) from
continuing operations......... $ 32,118 $ 30,439 $ (17,939) $ (26,450) $ 24,730 $ 24,704
--------- ---------- ---------- -------------- ------------- --------------
--------- ---------- ---------- -------------- ------------- --------------
Earnings (loss) from continuing
operations
Per Common and Common
Equivalent Share:........... $ 1.02 $ 0.94 $ (0.48) $ (0.66) $ 0.53 $ 0.51
--------- ---------- ---------- -------------- ------------- --------------
--------- ---------- ---------- -------------- ------------- --------------
Earnings (loss) from continuing
operations
Per Common Share -- Assuming
Full Dilution:.............. $ 1.00 $ 0.89 $ (0.48) $ (0.66) $ 0.52 $ 0.51
--------- ---------- ---------- -------------- ------------- --------------
--------- ---------- ---------- -------------- ------------- --------------
Weighted average shares
outstanding:
Primary........................ 31,462 32,248 37,078 40,097 46,989 48,036
--------- ---------- ---------- -------------- ------------- --------------
--------- ---------- ---------- -------------- ------------- --------------
Fully diluted.................. 32,964 36,941 40,051 43,071 47,266 48,313
--------- ---------- ---------- -------------- ------------- --------------
--------- ---------- ---------- -------------- ------------- --------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1995
-----------------------------
PRO FORMA
COMBINED AFTER
PRO FORMA ACQUISITIONS
COMBINED (1) (4)
------------- --------------
SELECTED BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Working capital................ $ 238,130 $ 238,795
Total assets................... 1,405,869 1,422,424
Long-term debt, excluding
current portion............... 497,438 497,438
Convertible subordinated notes
and debentures................ 28,620 28,620
Total stockholders' equity..... 616,389 630,374
<FN>
------------------------------
(1) To give effect to the Merger accounted for as a pooling of interests. See
the unaudited pro forma condensed financial statements and the notes
thereto included elsewhere in this Joint Proxy Statement/Prospectus.
(2) To give effect to (i) the Merger, (ii) the Greenery merger and related
transactions, (iii) the peopleCARE acquisition and (iv) the consummation of
individually insignificant acquisitions as though the Merger is accounted
for as a pooling of interests and the acquisitions occurred on June 1,
1993. See the unaudited pro forma condensed financial statements and the
notes thereto included elsewhere in this Joint Proxy Statement/Prospectus.
(3) To give effect to (i) the Merger, (ii) the peopleCare acquisition and (iii)
the consummation of individually insignificant acquisitions as though the
Merger is accounted for as a pooling of interests and the acquisitions
occurred on June 1, 1994. See the unaudited pro forma condensed financial
statements and the notes thereto included elsewhere in this Joint Proxy
Statement/Prospectus.
(4) To give effect to consummation of certain individually insignificant
acquisitions as though all such transactions occurred on February 28, 1995.
See the unaudited pro forma condensed financial statements and the notes
thereto included elsewhere in this Joint Proxy Statement/Prospectus.
</TABLE>
18
<PAGE>
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
Set forth below are the comparative net income and book value per common
share data of (a) each of Horizon and CMS on an historical basis, (b) Horizon on
a pro forma basis after acquisitions, (c) Horizon on a pro forma combined basis
giving effect to the Merger and (d) CMS on an equivalent pro forma basis, giving
effect to the Merger under the pooling of interests method of accounting for
business combinations, all on the bases described in the unaudited pro forma
condensed financial information and notes thereto included elsewhere in this
Joint Proxy Statement/Prospectus. The equivalent pro forma data for CMS was
calculated by multiplying the Horizon pro forma per common share data by the
Exchange Ratio of .5397. Neither Horizon nor CMS paid any dividends to their
stockholders during the periods presented.
The information set forth below should be read in conjunction with the
respective audited and unaudited consolidated financial statements and related
notes of Horizon and CMS incorporated by reference in this Joint Proxy
Statement/Prospectus and the unaudited pro forma condensed financial information
and notes thereto included elsewhere in this Joint Proxy Statement/Prospectus.
HORIZON
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED MAY 31 ENDED
------------------------------- FEBRUARY 28,
1992 1993 1994 1995
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
HISTORICAL PER COMMON SHARE DATA:
Net income -- primary................................................ $ 0.44 $ 0.66 $ 0.99 $ 0.88
Net income -- fully diluted.......................................... 0.44 0.62 0.91 0.88
Book value........................................................... 10.23 13.96
PRO FORMA AFTER ACQUISITIONS:(1)(6)
Net income -- primary................................................ $ 0.41 $ 0.85
Net income -- fully diluted.......................................... 0.41 0.85
Book value........................................................... 13.93
PRO FORMA COMBINED PER COMMON SHARE DATA:(2)(6)
Net income -- primary................................................ $ 1.02 $ 0.94 $ (0.48) $ 0.53
Net income -- fully diluted.......................................... 1.00 0.89 (0.48) 0.52
Book value........................................................... 10.25 12.49
PRO FORMA COMBINED AFTER ACQUISITIONS(3)(6)
Net income-primary................................................... $ (0.66) $ 0.51
Net income-fully diluted............................................. (0.66) 0.51
Book value........................................................... 12.50
</TABLE>
19
<PAGE>
CMS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 NINE MONTHS
------------------------------- ENDED MARCH
1992 1993 1994 31, 1995
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
HISTORICAL PER COMMON SHARE DATA:
Net income -- primary................................................ $ 0.73 $ 0.51 $ (0.92) $ 0.05
Net income -- fully diluted.......................................... 0.72 0.51 (0.92) 0.05
Book value........................................................... 6.14 6.25
EQUIVALENT PRO FORMA COMBINED PER COMMON SHARE DATA:(4)
Net income -- primary................................................ $ 0.55 $ 0.51 $ (0.26) $ 0.29
Net income -- fully diluted.......................................... 0.54 0.48 (0.26) 0.28
Book value........................................................... 5.53 6.74
EQUIVALENT PRO FORMA COMBINED AFTER ACQUISITIONS:(5)
PER COMMON SHARE DATA:
Net income -- primary................................................ $ (0.36) $ 0.28
Net income -- fully diluted.......................................... (0.36) 0.28
Book value........................................................... 6.75
<FN>
------------------------
(1) Represents Horizon on a pro forma basis after acquisitions, excluding the
Merger.
(2) Represents Horizon and CMS on a pro forma combined basis.
(3) Represents Horizon and CMS on a pro forma combined basis, including Horizon
historical acquisitions.
(4) Represents Horizon and CMS on an equivalent pro forma combined basis,
calculated by multiplying pro forma combined amounts by the .5397 Exchange
Ratio.
(5) Represents Horizon and CMS on an equivalent pro forma combined basis,
including Horizon acquisitions, calculated by multiplying pro forma
combined after acquisitions amounts by the .5397 Exchange Ratio.
(6) Pro forma per share data is presented based upon earnings from continuing
operations. See unaudited pro forma condensed financial statements.
</TABLE>
20
<PAGE>
THE COMPANIES
HORIZON
Horizon is a leading provider of long-term care and specialty health care
services in selected geographic markets in the United States, principally in the
Midwest, Southwest and Northeast. Horizon's long-term care facilities provide
skilled nursing care and basic patient services with respect to daily living and
general medical needs. Horizon's specialty hospitals and subacute facilities
provide a range of high acuity, complex medical services. Horizon also provides
specialty health care services to third parties and to its long-term care
facilities. Of total operating revenues, long-term care services accounted for
71% and 60% and specialty health care services accounted for 27% and 38% for the
years ended May 31, 1993 and May 31, 1994, respectively. At April 1, 1995,
Horizon owned, leased or managed 133 long-term care facilities. At that date,
Horizon operated 16 licensed specialty hospitals and centers and 15 subacute
care units, all of which, except two stand-alone specialty hospitals, are
located in discrete areas of the physical structures of certain of Horizon's
long-term care facilities. These facilities contain an aggregate of 17,760 beds
located in 18 states.
Horizon's broad range of specialty health care services consists of (i)
subacute care, which includes dedicated programs for ventilator care, wound
management, general rehabilitation, head trauma/coma stimulation and infusion
therapy, (ii) contract rehabilitation therapies, such as occupational, speech,
physical and respiratory therapies, (iii) institutional pharmacy services
designed to provide full pharmaceutical services and supplies to patients
residing in institutional settings, (iv) Alzheimer's care, (v) non-invasive
medical diagnostic testing services, such as echocardiography, peripheral venous
and arterial imaging, holter monitoring, doppler scanning and sleep diagnostic
services, (vi) home respiratory care services and supplies and home infusion and
intravenous therapies and (vii) clinical laboratory services that provide body
fluid testing to assist in detecting, diagnosing and monitoring diseases in the
subacute and long-term care settings.
LONG-TERM CARE. Horizon's long-term care facilities provide skilled nursing
care and routine basic patient services with respect to daily living activities
and general medical needs. Such basic patient services include daily dietary
services, recreational activities, social services, housekeeping and laundry
services, pharmaceutical and medical supplies and 24 hour-a-day access to
registered nurses, licensed practical nurses and related services prescribed by
the patient's physician. At April 1, 1995, the Company operated 133 long-term
care facilities in 18 states.
SUBACUTE CARE. Horizon provides subacute care to high acuity patients with
medically complex conditions who require ongoing, multi-disciplinary nursing and
medical supervision and access to specialized equipment and services, but do not
require many of the other services provided by an acute care hospital. Subacute
services are provided under both hospital licenses (specialty hospital) and
skilled nursing facility licenses. Subacute care services are provided in a
discrete area within the physical structure of a specialty hospital and are
supervised by a separate medical staff employed by Horizon. Such units also
provide ventilator care, intravenous therapy and various forms of coma, pain and
wound management. Horizon believes that private insurance companies and other
third party payors, including certain state Medicaid programs, recognize that
treating patients requiring subacute care in subacute care units such as those
operated by Horizon is a cost effective alternative to treatment in acute care
hospitals. In addition, Horizon has 14 facilities which provide comprehensive
in-patient rehabilitation and skilled and intermediate nursing services to
patients who have sustained traumatic head injuries or other neurological
impairments.
CONTRACT REHABILITATION THERAPIES. Horizon provides a comprehensive range
of rehabilitation therapies, including physical, occupational, respiratory and
speech therapies through contracts with third parties and in most of its
long-term care facilities. As of April 1, 1995, Horizon provided comprehensive
physical, occupational and speech therapy services through 442 contracts in 21
states serving approximately 40,300 beds, of which approximately 14,200 beds are
in Horizon-operated long-term care facilities and specialty hospitals and
approximately 26,100 are in third party long-term care facilities, home health
agencies, hospitals, outpatient clinics and school systems.
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INSTITUTIONAL PHARMACY SERVICES. Horizon has established a network of 19
regionally located pharmacies through which it provides a full range of
prescription drugs and infusion therapy services, such as antibiotic therapy,
pain management and chemotherapy, to facilities operated by Horizon and by third
parties. These pharmacy operations (certain of which are managed by third
parties) enable Horizon to generate revenues from services previously provided
to Horizon by third-party pharmacy vendors.
ALZHEIMER'S LIVING CENTERS. Horizon offers a specialized program for
persons with Alzheimer's disease through its Alzheimer's Living Centers. At
April 1, 1995, this program had been instituted at 28 of the Company's long-term
care facilities with a total of 851 beds. Each Alzheimer's Living Center, which
is located in a designated wing of a long-term care facility, is designed to
address the problems of disorientation experienced by Alzheimer's patients and
to help reduce stress and agitation resulting from a short attention span and
hyperactivity. Each Alzheimer's Living Center employs a specially-trained
nursing staff and an activities director and engages a medical director with
expertise in the treatment of Alzheimer's disease. The program also provides
education and support to the patient's family.
NON-INVASIVE MEDICAL DIAGNOSTICS. During fiscal 1994, Horizon began
providing non-invasive, portable and static diagnostic testing services for
physicians and acute care hospitals. These services include cardiovascular (both
cardiac imaging and vascular imaging), pelvic and abdominal testing services and
sleep diagnostic services. Horizon has recently expanded its diagnostic
expertise and its diagnostic market through acquisitions. As a consequence, it
now provides these diagnostic services in 11 states.
HOME RESPIRATORY CARE. Commencing in the first quarter of fiscal 1995,
Horizon began providing home respiratory care services and supplies to home care
patients in Texas, Oklahoma, Arkansas, Louisiana, Tennessee and Kentucky through
a physician referral base. These supplies include gas and liquid oxygen
cylinders, oxygen concentrators and aerosol nebulizers. These services include
the provision of home respiratory supplies and home infusion and intravenous
therapies.
CLINICAL LABORATORY. Horizon owns and operates a comprehensive clinical
laboratory to serve the long-term care industry. At April 1, 1995, the
laboratory provided services to approximately 9,300 beds in 73 facilities and
anticipates serving a total of approximately 12,000 beds by the end of the
fourth quarter of fiscal 1995.
RECENT DEVELOPMENTS
PEOPLECARE HERITAGE GROUP. On July 29, 1994, Horizon consummated its
acquisition of 13 peopleCARE nursing centers in the greater Dallas and Houston,
Texas areas. Pursuant to the related agreements, Horizon paid $56 million in
cash and issued 449,438 shares of Horizon Common Stock (valued at closing at
approximately $10 million) to acquire capital leases with purchase options on
six facilities and ownership of seven facilities, aggregating 2,192 beds.
TRI-STATE HOME RESPIRATORY CARE. On July 29, 1994, Horizon consummated its
acquisition of the assets of Tri-State Home Respiratory Care ("Tri-State") in
Texarkana, Texas, an entity that provides home respiratory care services in
Texas, Arkansas, Louisiana and Oklahoma. Horizon paid $4.4 million in cash for
these assets.
PROFESSIONAL REHABILITATION CENTER, INC. On October 12, 1994, Horizon
consummated the acquisition of Professional Rehabilitation Center, Inc. ("PRC")
and its affiliates based in St. Louis, Missouri. PRC and its affiliates provide
physical, occupational and speech therapy services in Missouri and Illinois.
Under the terms of the stock exchange agreement, Horizon exchanged 221,606
shares of its Common Stock (valued at closing at approximately $6 million) for
all the outstanding capital stock of PRC and its affiliates.
MILESTONE HEALTH SERVICES, INC. On January 3, 1995, Horizon completed its
acquisition of the assets of Milestone Health Services, Inc., of Nashville,
Tennessee, an entity that provides home respiratory
22
<PAGE>
care services, home infusion and intravenous therapy services, and sleep
diagnostic services in the Middle Tennessee and South Central Kentucky area.
Under the terms of the stock exchange and asset purchase agreements, Horizon
paid $2.2 million in cash and issued 78,888 shares of Horizon Common Stock
(valued at closing at approximately $2.2 million) for these assets.
TEXAS HEALTH ENTERPRISES, INC. On January 3, 1995, Horizon completed the
last stage of its acquisition of the operations of seven long-term care
facilities located throughout the State of Texas from Texas Health Enterprises,
Inc., consisting of 1,081 beds. In addition, Horizon acquired Texas Health
Enterprises' equity interest in its Texas pharmacy joint venture. Under the
terms of the agreements between the parties, Horizon paid Texas Health
Enterprises, Inc. the sum of approximately $24 million in cash for these
operational and related assets.
DOCTORS HEALTH CARE CENTER. On March 1, 1995, Horizon consummated the
acquisition of the Doctors Health Care Center, a 325-bed long-term care facility
located in Dallas, Texas. Under the terms of the transaction documents, the
Company issued approximately 507,813 shares of Horizon Common Stock (valued at
closing at approximately $13 million) for this facility.
TOTAL REHABILITATION, INC. On March 20, 1995, Horizon consummated the
acquisition of Total Rehabilitation, Inc. ("Total Rehab") and its affiliates
based in the Detroit, Michigan area. Total Rehab and its affiliates provide
physical, occupational and speech therapy services in Michigan. Under the terms
of the merger agreements, Horizon issued approximately 253,906 shares of Horizon
Common Stock (valued at closing at approximately $6.5 million) in the merger
transaction involving one of Horizon's wholly owned subsidiaries.
OTHER ACQUISITIONS. In addition to those referred to above, Horizon has
completed several other acquisitions since June 1, 1994, including the
acquisitions of seven long-term care facilities (four in New Mexico and one in
each in Texas, Colorado and Nevada) consisting of 881 beds, a medical diagnostic
services company, a medical diagnostic laboratory and two sleep diagnostic
companies. Horizon also undertook the management of 1,020 long-term care beds
and entered into a joint venture with another health care provider to provide
pharmaceutical services and supplies in three states in the Northeast. In
connection with these acquisitions, Horizon paid $11.2 million in cash, issued
73,214 shares of Horizon Common Stock, guaranteed approximately $6.7 million of
lease and note obligations and became obligated to provide approximately $2.8
million of working capital with respect to certain of the managed facilities.
MERGER SUB
Merger Sub is a wholly owned subsidiary of Horizon incorporated on March 30,
1995 for the purpose of consummating the Merger.
CMS
CMS is one of the largest providers of comprehensive inpatient and
outpatient medical rehabilitation programs and services in the country. CMS has
a significant presence in each of the rehabilitation industry's three principal
sectors -- inpatient rehabilitation care, outpatient rehabilitation care and
contract therapy. CMS has developed and provides inpatient and outpatient
rehabilitation programs and services for patients suffering from stroke and
other neurological and cardiac disorders, orthopedic problems, head injuries,
spinal cord injuries, work-related disabilities and multiple trauma. CMS's
inpatient and outpatient rehabilitation programs and services are delivered to
patients through a plan of treatment developed by an interdisciplinary team that
includes physician specialists, therapists and other medical personnel as
determined by the individual patient's needs.
CMS currently operates 37 freestanding comprehensive medical rehabilitation
hospitals with a total, as of March 31, 1995, of 2,437 licensed beds located in
15 states. Many of CMS's rehabilitation hospitals are operated through joint
ventures with local general acute care hospitals, physicians and other
investors. CMS's rehabilitation unit management group operates inpatient and
outpatient rehabilitation programs within acute care hospitals and currently
manages 13 rehabilitation units with more than 250 beds.
23
<PAGE>
CMS's comprehensive freestanding medical rehabilitation hospitals typically
provide on-site outpatient services. As of March 31, 1995, CMS also provided
outpatient services through 136 outpatient rehabilitation clinics, 102 of which
are operated as satellite facilities to CMS's inpatient rehabilitation
hospitals. The remaining 34 outpatient clinics are operated through CMS's
contract therapy subsidiaries.
Through its contract therapy subsidiaries, CMS provides physical,
occupational, speech and respiratory therapy services on a contract basis to
over 2,300 skilled nursing facilities, general acute care hospitals, schools,
home health agencies, inpatient rehabilitation hospitals and outpatient clinics
in 32 states.
CMS provides physician locum tenens services to institutional providers and
physician practice groups throughout the United States. "Locum Tenens" is a term
used in the health care field to describe one physician covering for another.
CMS also offers management and managed care services to independent physician
associations, physicians and outpatient rehabilitation providers under various
contractual arrangements.
THE SPECIAL MEETINGS
DATE, TIME AND PLACE
HORIZON. The Horizon Special Meeting will be held on Thursday, June 29,
1995, at the Albuquerque Marriott Hotel, 2102 Louisiana Avenue, N.E.,
Albuquerque, New Mexico commencing at 10:00 a.m. local time.
CMS. The CMS Special Meeting will be held on Thursday, June 29, 1995, at
the executive offices of CMS at 600 Wilson Lane, Mechanicsburg, Pennsylvania
commencing at 11:00 a.m. local time.
PURPOSES OF THE SPECIAL MEETINGS
HORIZON. The purposes of the Horizon Special Meeting are to consider and
vote upon (i) a proposal to approve and adopt, as required by the rules of the
NYSE, the Merger Agreement, the terms of which require the issuance and
reservation for issuance of up to shares of Horizon Common Stock, (ii) a
proposal, subject to consummation of the Merger, to approve and adopt the
Horizon Charter Amendment and (iii) such other matters as may properly be
brought before the Horizon Special Meeting.
CMS. The purposes of the CMS Special Meeting are to consider and vote upon
(i) a proposal to approve and adopt the Merger Agreement and (ii) such other
matters as may properly be brought before the CMS Special Meeting.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Horizon Common Stock at the close of business on
the Horizon Record Date (May 19, 1995) are entitled to notice of, and to vote
at, the Horizon Special Meeting. Only holders of record of CMS Common Stock at
the close of business on the CMS Record Date (May 12, 1995) are entitled to
notice of, and to vote at, the CMS Special Meeting.
On the Horizon Record Date, there were approximately 1,450 holders of record
of the 29,469,296 shares of Horizon Common Stock then issued and outstanding.
Each share of Horizon Common Stock entitles the holder thereof to one vote on
each matter submitted for stockholder approval. See "Principal Stockholders of
Horizon and CMS -- Horizon" for information regarding persons known to the
management of Horizon to be the beneficial owners of more than 5% of the
outstanding Horizon Common Stock. A complete list of stockholders entitled to
notice of, and to vote at, the Horizon Special Meeting will be available for
examination at the offices of Horizon in Albuquerque, New Mexico, during normal
business hours by any Horizon stockholder, for any purpose germane to the
Horizon Special Meeting for a period of 10 days prior thereto.
On the CMS Record Date, there were approximately 1,100 holders of record of
the 38,632,286 shares of CMS Common Stock then issued and outstanding. Each
share of CMS Common Stock
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<PAGE>
entitles the holder thereof to one vote on each matter submitted for stockholder
approval. See "Principal Stockholders of Horizon and CMS -- CMS" for information
regarding persons known to the management of CMS to be the beneficial owners of
more than 5% of the outstanding CMS Common Stock. A complete list of
stockholders entitled to notice of, and to vote at, the CMS Special Meeting will
be available for examination at the offices of CMS in Mechanicsburg,
Pennsylvania during normal business hours by any CMS stockholder, for any
purpose germane to the CMS Special Meeting, for a period of 10 days prior to the
Special Meeting.
VOTING AND REVOCATION OF PROXIES
All properly executed proxies that are not revoked will be voted at the
Horizon Special Meeting and the CMS Special Meeting, as applicable, in
accordance with the instructions contained therein. If a holder of Horizon
Common Stock executes and returns a proxy and does not specify otherwise, the
shares represented by such proxy will be voted "for" approval and adoption of
the Merger Agreement and the Horizon Charter Amendment in accordance with the
recommendation of the Board of Directors of Horizon. If a holder of CMS Common
Stock executes and returns a proxy and does not specify otherwise, the shares
represented by such proxy will be voted "for" approval and adoption of the
Merger Agreement in accordance with the recommendation of the Board of Directors
of CMS. A stockholder of Horizon or a stockholder of CMS who has executed and
returned a proxy may revoke it at any time before it is voted at the appropriate
Special Meeting by (i) executing and returning a proxy bearing a later date,
(ii) filing written notice of such revocation with the Secretary of Horizon or
CMS, as appropriate, stating that the proxy is revoked or (iii) attending the
appropriate Special Meeting and voting in person.
VOTE REQUIRED
HORIZON. Horizon's Bylaws provide that the presence at the Horizon Special
Meeting, in person or by proxy, of the holders of a majority of the outstanding
shares of Horizon Common Stock entitled to vote thereat will constitute a quorum
for the transaction of business. On the Horizon Record Date, there were
29,469,296 shares of Horizon Common Stock outstanding and entitled to vote at
the Horizon Special Meeting. The issuance of Horizon Common Stock by Horizon
pursuant to the Merger Agreement, does not, under the DGCL, require stockholder
approval. The rules of the NYSE require, however, that such issuance be
submitted to the stockholders of Horizon and be approved by a majority of the
votes cast on the proposal, provided that the total vote cast on the proposal
represents over 50% of the shares of Horizon Common Stock outstanding and
entitled to vote on the proposal. Abstentions, but not broker non-votes, will be
included in the total vote and, assuming that holders of over 50% of the shares
of Horizon Common Stock entitled to vote on the proposal cast votes in favor of
or against the proposal or abstain, broker non-votes will have no effect upon
the outcome of the vote. Abstentions will have the same effect as votes against
the proposal.
Under the applicable provisions of the DGCL, the Horizon Charter Amendment
will require the affirmative vote of a majority of the issued and outstanding
Horizon Common Stock entitled to vote thereon for approval. In determining
whether the Horizon Charter Amendment has received the requisite number of
affirmative votes, abstentions and broker non-votes will have the same effect as
a vote against the Horizon Charter Amendment.
CMS. The presence at the CMS Special Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of CMS Common Stock entitled to
vote thereat will constitute a quorum for the transaction of business, and
approval and adoption of the Merger Agreement require the affirmative vote of a
majority of the issued and outstanding CMS Common Stock entitled to vote
thereon. On the CMS Record Date, there were 38,632,286 shares of CMS Common
Stock outstanding and entitled to vote at the CMS Special Meeting. In
determining whether the Merger Agreement has received the requisite number of
affirmative votes, abstentions and broker non-votes will have the same effect as
a vote against the Merger Agreement.
Rocco A. Ortenzio, Chairman and Chief Executive Officer of CMS, Robert A.
Ortenzio, President of CMS, and certain corporations controlled by them have
agreed pursuant to the Voting Agreement to
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<PAGE>
vote all shares of CMS Common Stock owned by them in favor of the Merger
Agreement. As of the CMS Record Date, approximately 8.9% of the outstanding
shares of CMS Common Stock were subject to the Voting Agreement. The signatories
to the Voting Agreement have also agreed to vote such shares against any
business combination proposal or other matter that may interfere or be
inconsistent with the Merger or the Merger Agreement (including, without
limitation, a Competing Transaction). The obligations of the signatories to the
Voting Agreement are not subject to the continued support of the Board of
Directors of CMS in recommending approval and adoption of the Merger Agreement
(although the Voting Agreement would terminate upon a termination of the Merger
Agreement). See "Voting Agreement."
SOLICITATION OF PROXIES
In addition to solicitation by mail, the directors, officers, employees and
agents of each of Horizon and CMS may solicit proxies from their respective
stockholders by personal interview, telephone, telegram or otherwise. Horizon
and CMS will each bear the costs of the solicitation of proxies from their
respective stockholders, except that Horizon and CMS will each pay one-half of
the cost of printing this Joint Proxy Statement/Prospectus. Arrangements will
also be made with brokerage firms and other custodians, nominees and fiduciaries
who hold of record voting securities of Horizon or CMS for the forwarding of
solicitation materials to the beneficial owners thereof. Horizon and CMS will
reimburse such brokers, custodians, nominees and fiduciaries for the reasonable
out-of-pocket expenses incurred by them in connection therewith. CMS has engaged
the services of Corporate Investor Communications, Inc. to distribute proxy
solicitation materials to brokers, banks and other nominees and to assist in the
solicitation of proxies from CMS stockholders for a fee of $5,000 plus
reasonable out-of-pocket expenses. Horizon has engaged the services of Georgeson
& Company Inc. to distribute proxy solicitation materials to brokers, banks and
other nominees and to assist in the solicitation of proxies from Horizon
stockholders for a fee of $12,000, plus reasonable out-of-pocket expenses.
OTHER MATTERS
At the date of this Joint Proxy Statement/Prospectus, the Boards of
Directors of Horizon and CMS do not know of any business to be presented at
their respective Special Meetings other than as set forth in the notices
accompanying this Joint Proxy Statement/Prospectus. If any other matters should
properly come before the respective Special Meetings, it is intended that the
shares represented by proxies will be voted with respect to such matters in
accordance with the judgment of the persons voting such proxies.
THE MERGER
GENERAL DESCRIPTION OF THE MERGER
The Merger Agreement provides that, at the Effective Time, Merger Sub will
merge with and into CMS with CMS becoming the Surviving Corporation, and each
outstanding share of CMS Common Stock (other than shares of CMS Common Stock
held in the treasury of CMS or owned by Horizon or by any direct or indirect
wholly owned subsidiary of Horizon or of CMS, all of which will be canceled),
will be converted into .5397 shares of Horizon Common Stock. Any resulting
fractional shares will be settled in cash. As a consequence of the Merger, CMS
will become a wholly owned subsidiary of Horizon.
Based on the number of shares of CMS Common Stock outstanding as of the CMS
Record Date, 20,849,844 shares of Horizon Common Stock will be issuable pursuant
to the Merger Agreement (assuming no issuance prior to the Effective Date of
shares of CMS Common Stock upon exercise of CMS Options or CMS Warrants, upon
conversion of the CMS Debentures or pursuant to the CMS Earnout Agreements)
representing approximately 41% of the total Horizon Common Stock to be
outstanding after such issuance (based on the number of shares of Horizon Common
Stock outstanding as of the Horizon Record Date).
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<PAGE>
BACKGROUND
The terms of the Merger Agreement are the result of arm's-length
negotiations between representatives of CMS and Horizon. The following is a
brief discussion of the background of these negotiations and related
transactions.
During late 1994, in response to Horizon's increased equity base,
representatives of a commercial bank and several investment banking firms met
with the Chief Executive Officer, Neal M. Elliott, and other officers of
Horizon, and identified certain companies that they considered might be
interested in a sale of certain assets. The Hillhaven Corporation ("Hillhaven"),
a company engaged in substantially the same business as Horizon, and CMS's
contract therapy services operations were cited by these organizations. Horizon
had previously been exploring the possibility of making a proposal for a
combination with Hillhaven.
Mr. Elliott, who had been acquainted with Rocco A. Ortenzio, the Chief
Executive Officer of CMS, for a number of years, contacted Mr. Ortenzio in
December 1994 by telephone to determine whether Mr. Ortenzio would be interested
in discussing the possibility of a joint venture with Horizon in the area of
contract therapy services operations. Mr. Ortenzio expressed a willingness to
listen to Mr. Elliott's views.
On January 26, 1995, Horizon announced publicly that it had made a proposal
to Hillhaven for a business combination involving the issuance of Horizon Common
Stock to the stockholders of Hillhaven.
On February 3, 1995, the two chief executive officers and certain other
officers met at the offices of CMS to discuss the potential for a contract
therapy services joint venture between the two companies. This meeting was
introductory and exploratory in nature and did not deal with the details of any
particular form or terms of a transaction.
On February 6, 1995, Hillhaven publicly rejected Horizon's initial proposal
for a business combination without entering into discussions or negotiations
with Horizon.
On February 9 and 10, the Chief Financial Officer of CMS and the Senior Vice
President of Subsidiary Operations of Horizon met at Horizon's headquarters to
continue the discussions related to the proposed joint venture. These
discussions were preliminary and exploratory and were focused on each party
acquiring an understanding of the contract therapy services business of the
other, but not on the terms of any particular transaction. At that time, the
parties executed a confidentiality agreement prior to exchanging confidential
information with each other in connection with their investigations of each
other's contract therapy services business. The parties also consulted technical
advisors concerning tax, reimbursement, accounting and other structural issues
relating to a possible joint venture.
On February 20, 1995, a dinner meeting was held at a hotel in Boston,
Massachusetts. In attendance at that meeting were the two chief executive
officers, the Executive Vice President of Horizon, the Senior Vice President of
Subsidiary Operations of Horizon, and the Chief Financial Officer of CMS. At
this meeting, the parties worked on structuring the proposed contract therapy
services joint venture and reviewed its economic potential. As a result of that
meeting, Horizon's Senior Vice President of Subsidiary Operations went to
Mechanicsburg on February 21, 1995, with CMS's Chief Financial Officer to gather
more information regarding the contract therapy services operations of CMS. At
that time, CMS's Chief Financial Officer and Horizon's Senior Vice President of
Subsidiary Operations initialed an amendment to the February 9, 1995,
confidentiality agreement to expand its coverage to potential transactions
beyond the contract therapy services joint venture, and information regarding
CMS's operations was provided.
Preparatory to meetings during the following days, both chief executive
officers and other officers of Horizon and CMS met for dinner at a hotel in
Mechanicsburg on February 26, 1995. On February 27 and 28, 1995, the chief
executive officers and other officers of both companies met in CMS's
Mechanicsburg office to discuss further the feasibility of the contract therapy
joint venture and to discuss
27
<PAGE>
a broader business combination. A variety of personnel were assigned
responsibilities to review and visit operating facilities of the respective
companies. These visits occurred during the period from February 28, 1995
through March 1, 1995.
On March 6 and 7, 1995, there were meetings between officers of Horizon and
CMS for the purpose of acquiring further information regarding the businesses of
the two companies. All these discussions were exploratory regarding primarily
the formation of a joint venture in the contract therapy services business or,
secondarily, a possible business combination.
On March 7, 1995, Horizon publicly announced an increase in the amount of
Common Stock that it would be willing to issue in a business combination with
Hillhaven and that the offer would expire on March 21, 1995. Specifically, total
consideration was increased from approximately $1.3 billion to $1.7 billion.
On March 8, 1995, at a regular meeting of the Board of Directors of CMS, the
Board reviewed CMS's continuing discussions with Horizon with respect to the
potential joint venture in the contract therapy services business. At that time,
management of CMS also reported to the Board that the analysis and due diligence
discussions had been extended to include a possible merger of CMS and Horizon.
The CMS Board discussed the potential strategic benefits to CMS of a combination
with a company in the long-term health care field and of the specific advantages
of a combination with Horizon.
On March 13, 1995, the Board of Directors of Horizon, at its regularly
scheduled meeting, discussed management's request for authority to enter into a
contract therapy services joint venture with CMS. Included in that discussion
was the possibility of some other form of business combination and the directors
were furnished with detailed financial information with respect to both the
proposed joint venture and a possible business combination. After exploring the
subject in detail, the Board of Directors authorized management to negotiate a
joint venture arrangement. Promptly thereafter, management of Horizon presented
a draft letter of intent to CMS regarding the formation of a joint venture.
The objective of management of Horizon in pursuing a joint venture with CMS
in the contract therapy services business had been to enhance the potential
synergies of a transaction with Hillhaven. As the negotiations progressed, the
parties determined that the joint venture, in the form contemplated, could
potentially prevent one or both parties from subsequently engaging in a
transaction accounted for as a pooling of interests, a matter deemed to be of
importance to both companies, especially to Horizon in light of its proposed
transaction with Hillhaven.
On March 21, 1995, Horizon's proposal to Hillhaven expired without having
been accepted by Hillhaven and was not renewed.
On March 22, 1995, Mr. Elliott contacted Mr. Ortenzio by telephone and
suggested that, in lieu of a joint venture transaction, the parties begin
serious negotiations concerning a merger of the two companies. Mr. Ortenzio was
amenable to this proposal. At that time, Merrill Lynch, CMS's financial advisor,
began to work on the preparation of its valuation analyses.
On March 23, 1995, at a special meeting of the CMS Board of Directors,
senior management of CMS explained in detail Horizon's proposal and discussed
Horizon, its business and financial condition and operating results. The Board
discussed the Horizon proposal and reviewed the significant strategic advantages
and synergies identified in connection with the proposed joint venture of the
two companies' contract therapy services business and considered the strategic
benefits of also combining CMS's rehabilitation hospitals and out-patient
services with Horizon's long-term and subacute care facilities. At the
conclusion of this meeting, the CMS Board of Directors authorized senior
management to continue with negotiating the merger transaction.
On March 24, 1995, Horizon engaged Salomon Brothers to render an opinion to
the Board of Directors of Horizon with respect to the fairness of such a
business combination, from a financial point of view, to the stockholders of
Horizon.
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On March 27, 1995, the chief executive officers, together with other senior
officers of both companies and their outside advisors, met in Albuquerque and
reached a mutual understanding with respect to the basic framework of the
proposed transaction. From March 27, 1995, through March 31, 1995,
representatives, including their financial advisors, of Horizon and CMS
conducted further investigations of each other. Commencing on March 29, 1995,
representatives of Horizon and CMS, including their financial advisors and legal
counsel, met to discuss and resolve business and legal issues related to the
proposed combination. During the course of these discussions, the
representatives of the parties negotiated the terms and provisions of the Merger
Agreement, the Voting Agreement and the Stock Option Agreement.
On March 29, 1995, CMS's Board of Directors met and, together with its
outside advisors, considered in detail the proposed business combination with
Horizon. CMS's Board of Directors reviewed the material terms of the business
combination that representatives of Horizon and CMS had discussed to that point,
including the material terms of the draft Merger Agreement, Stock Option
Agreement and Voting Agreement, and the Board requested CMS's management to
negotiate further certain of such terms with Horizon. Merrill Lynch made a
presentation to the Board analyzing the proposed transaction, including a
valuation of CMS using various methodologies. See " -- Opinions of Financial
Advisors -- CMS." CMS's legal counsel made a presentation to the Board
concerning the Board's fiduciary duties to CMS's stockholders in considering a
business combination.
On March 31, 1995, the CMS Board of Directors met again and resumed its
discussion of the proposed merger. At this time, Merrill Lynch reviewed certain
aspects of its valuation presentation with the Board of Directors of CMS and
delivered its oral opinion, which was subsequently confirmed in writing, that as
of such date and based on the assumptions made and matters considered in, and
the limitations on, the review undertaken by Merrill Lynch as reviewed by
Merrill Lynch with the Board of Directors of CMS, the Exchange Ratio was fair,
from a financial point of view, to the CMS stockholders. See "-- Opinions of
Financial Advisors -- CMS." After consideration of the opinion of Merrill Lynch
and additional consideration of the topics presented at the March 29, 1995
meeting, the directors present at the meeting unanimously approved the Merger
Agreement and the related transactions. The CMS Board also amended the CMS
Rights Agreement, dated March 11, 1991, between CMS and Mellon Bank, N.A., as
rights agent, as amended to date (the "CMS Rights Agreement"), to provide that
neither the Merger nor any of the transactions contemplated by the Merger
Agreement, the Voting Agreement or the Stock Option Agreement would be an event
that triggers the distribution or exercisability of rights under the CMS Rights
Agreement.
On March 31, 1995, Horizon's Board of Directors met. After reviewing the
results of Horizon's due diligence with respect to CMS, reviewing the material
terms of the Merger Agreement, the Voting Agreement, the Stock Option Agreement
and other transaction documents and receiving Salomon Brothers' oral opinion
(which was later confirmed in writing) that, as of such date, the consideration
to be paid by Horizon in the Merger was fair to Horizon's stockholders from a
financial point of view, Horizon's Board authorized the execution and delivery
of the Merger Agreement, the Voting Agreement, the Stock Option Agreement and
other transaction documents. After the meeting, an officer of Horizon
communicated the results of the meeting to an officer of CMS.
On the afternoon of March 31, 1995, the Merger Agreement, the Voting
Agreement, the Stock Option Agreement and other transaction documents were
executed and delivered, and Horizon and CMS issued a joint press release
announcing the execution of the definitive agreements.
CERTAIN INFORMATION PROVIDED
In connection with the discussions between Horizon and CMS described above,
Horizon provided to CMS certain preliminary financial projections with respect
to Horizon's operating results, cash flows and financing activities,
capitalization and capital expenditures for fiscal years 1995 and 1996, and the
assumptions on which such financial forecasts were based. Such financial
forecasts were developed for internal use only, were not prepared with the
intent that they would be publicly distributed, were based on numerous
assumptions (many of which are beyond the control of Horizon) and are not
necessarily indicative of future results. Such preliminary financial projections
assumed a
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consolidated compound average annual revenue growth of 19.5% and average EBITDAR
(earnings before interest, taxes, depreciation, amortization and rent expenses
for hospitals and similar facilities) margins of 20.7% (the "Horizon Base
Case").
In connection with the discussions between Horizon and CMS described above,
CMS provided to Horizon certain preliminary financial projections relating to
CMS's fiscal years 1995 and 1996 and the assumptions on which such projections
were based. Such preliminary financial projections were prepared by CMS for
internal use only, were not prepared with the intent that they would be publicly
distributed, were based on numerous assumptions (many of which are beyond the
control of CMS) and are not necessarily indicative of future results. These
financial projections were prepared by management of CMS based on the assumption
of a consolidated compound average annual revenue growth of 7.3% and average
EBITDA (earnings before interest, taxes, depreciation and amortization) margins
of 12.5% (the "CMS Base Case"). The CMS projections were adjusted to eliminate
any special charge reflected in the unaudited consolidated financial statements
of CMS (which, for the nine months ended March 31, 1995, reflected special
charges of $18.4 million). (See "CMS Selected Historical Consolidated Financial
Information.") The projections included the anticipated expense reductions
resulting from the special charges reported by CMS during fiscal 1994 and fiscal
1995, including the special charge recorded for the third quarter ended March
31, 1995.
Once each party had received each other's financial forecasts as indicated
above, the parties, with the assistance of their financial advisors, extended
such forecasts through the fiscal year 2000. The extended forecasts were,
however, largely mathematical derivations from the initial forecasts.
HORIZON'S REASONS FOR THE MERGER; RECOMMENDATION OF HORIZON BOARD OF DIRECTORS
CMS is engaged in the businesses of operating 37 rehabilitation hospitals in
15 states, providing outpatient rehabilitation services at more than 125
locations, managing 13 inpatient rehabilitation units and providing contract
therapy services in more than 30 states to more than 2,300 facilities.
Management of Horizon believes that the Merger of CMS with Horizon will create
one of the nation's major post-acute care companies and will be the nation's
largest specialty health care provider. The combined company will have a
substantial capability in a large array of post-acute care services: acute
medical rehabilitation; outpatient rehabilitation; subacute care; long-term
care; contract therapy; institutional pharmacy services; clinical laboratory
services; medical diagnostic services; and home care services. Moreover,
management of Horizon believes that the combined company will have significant
growth opportunities, particularly in acquisitions of additional long-term care,
subacute care and outpatient facilities, internal development of specialty and
rehabilitation hospitals, the expansion of contract therapy services and the
addition of other specialty services.
The analyses of the combined company performed by management of Horizon and
Salomon Brothers indicate that there are significant synergies to be realized
through the combination, particularly through (i) revenue enhancement and cost
savings from consolidation of contract therapy operations; (ii) margin
improvements from enhanced utilization of contract therapists; (iii) the
expansion of Horizon's institutional pharmacy services into CMS facilities and
new markets; (iv) the consolidation of corporate overhead; and (v) the
introduction of other specialty services.
Management of Horizon also believes that there are other synergies to be
realized from a combination of the companies which are not susceptible of
quantification. Among them are (i) the potential to increase business through
the ability to provide a full range of care to managed care payors; (ii) the
ability to increase capacity and margins in rehabilitation hospitals by
transferring patients to Horizon subacute and long-term care facilities; (iii)
the potential to increase patient volume by expanding the continuum of care of
each company on a stand alone basis; (iv) the potential to retain therapist
employees by providing an exceptional career path ranging from acute
rehabilitation hospital positions to skilled nursing contracts; (v) the
potential for improved buying power with respect to suppliers; and (vi) reduced
capital costs through the refinancing of CMS indebtedness.
These analyses also indicate that the valuation of CMS under the Merger
Agreement falls within the range suggested by market measures of value. See "--
Opinions of Financial Advisors." They further suggest that, based on the
preliminary financial projections adjusted as discussed under "--
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Certain Information Provided," (i) CMS should contribute over half the revenues
and almost half the net income of the combined company for fiscal 1996 and (ii)
while it would likely be dilutive to Horizon's net income per share in fiscal
1995, the proposed Merger should be neutral to somewhat accretive to Horizon's
net income per share in fiscal 1996 before giving effect to any expected
synergies from the transaction. For more detailed information, see "-- Opinion
of Financial Advisors -- Horizon -- Pro Forma Merger Consequences Analysis."
The Board of Directors of Horizon believes that the Exchange Ratio and the
other terms of the Merger Agreement are fair to, and in the best interests of,
Horizon and the stockholders of Horizon. In reaching its conclusion, Horizon's
Board considered (i) the matters set forth above, (ii) the judgment and advice
of Horizon's management, (iii) the prior financial performance and future
operating prospects of CMS, (iv) the reasonableness of achieving prospective
cost savings and future incremental revenues from the combined operation, (v)
the financial flexibility offered by the combination, (vi) the historical prices
and trading information for Horizon Common Stock and CMS Common Stock, (vii) the
respective valuations of each company based on several different methods of
valuation, (viii) detailed financial information, including historical financial
information for each company and pro forma combined financial statements
reflecting effectuation of the Merger, (ix) the results of the due diligence
review of the business and operations of CMS, (x) the complementary nature of
the expertise of employees and other resources of each company, (xi) the terms
of the Merger Agreement, the Voting Agreement and the Stock Option Agreement
(including the termination fee arrangements and the proposed employment
arrangements (which were subsequently modified in certain respects) with respect
to the Chairman and President of CMS), (xii) the opinion of Salomon Brothers
described below and (xiii) the probability of achieving expected results. In
evaluating these factors, the Board of Directors understood that the
implications of some of the factors were negative rather than positive.
1995 DILUTION. The analyses of the combined company performed by management
of Horizon and Salomon Brothers indicated that, based on the preliminary
financial projections adjusted as discussed under "-- Certain Information
Provided," the proposed Merger would be likely to be dilutive to Horizon's net
income per share in fiscal 1995. In fact, the Salomon Brothers Report, as
discussed under "Opinions of Financial Advisors -- Horizon -- Pro Forma Merger
Consequences Analysis," indicates that the analysis described therein showed pro
forma dilution to the stockholders of Horizon in earnings per share (without
giving effect to any projected synergies) for the projected period ending May
31, 1995 ranging (depending on the final exchange ratio) from 10% to 2.3%. Based
on the final Exchange Ratio, the projected dilution would be 10%.
PRIOR FINANCIAL PERFORMANCE. In its evaluation of CMS, the Horizon Board of
Directors reviewed the historical financial information relating to CMS and its
consolidated subsidiaries. The Horizon Board was apprised of, and took into
account, the consolidated results of operations of CMS and its consolidated
subsidiaries during the fiscal years 1993 and 1994, in which CMS recorded
special charges of $14.5 million and $74.8 million, and for the six months ended
December 31, 1994, in which CMS recorded special charges of $13.4 million.
DUE DILIGENCE. As part of its review, the Board of Directors of Horizon
also considered certain compliance and regulatory issues currently affecting
CMS. During the course of Horizon's examination of CMS, Horizon's management
reviewed information provided by CMS regarding an employment tax audit currently
being conducted by the Internal Revenue Service (the "IRS Audit") and the
pending inquiries of the U.S. Department of Justice with respect to certain CMS
operations (the "DOJ Inquiry"). Horizon's management and legal counsel attended
a presentation by CMS and its tax and regulatory counsel on March 30, 1995
regarding these matters. During the course of that presentation, the Horizon
representatives were advised that (i) the IRS Audit was in its preliminary
stages and that no assessment had been asserted, (ii) the DOJ Inquiry had been
previously reported by CMS (in the Quarterly Report on Form 10-Q for the quarter
ended December 31, 1994) and (iii) these matters were not expected to have any
material adverse effect on the financial condition or results of operations of
CMS. In reaching its determination with respect to the Merger, the Horizon Board
of Directors assessed these matters on the basis of the information made
available to Horizon's representatives
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and the evaluation by them of that information in the context of the proposed
Merger and the Horizon Board of Directors recognized that, notwithstanding the
expectations of CMS and its advisors, there was no assurance that these matters
would not have a material adverse effect on the financial position or results of
operations or business of CMS.
These factors were regarded by the Board of Directors of Horizon as
negative. All of the other factors to which reference is made above were
regarded by the Board of Directors as positive. The Board of Directors did not
assign relative weights to any of the factors considered by it; rather, the
Board evaluated the proposed Merger based on the total mix of information
available to it. Based on the totality of that information, all members of the
Board of Directors of Horizon, at the special meeting held on March 31,1995,
expressed support for the Merger and the Board of Directors unanimously approved
the Merger Agreement and recommended that the stockholders of Horizon vote "FOR"
approval and adoption of the Merger Agreement.
In analyzing the Merger Agreement, the Horizon Board of Directors received
an oral opinion from Salomon Brothers at its March 31, 1995 meeting (which was
subsequently confirmed in writing) that, as of such date, the consideration to
be paid by Horizon in the Merger was fair to the holders of Horizon Common Stock
from a financial point of view. (Salomon Brothers subsequently delivered the
Salomon Brothers Opinion dated the date of this Joint Proxy Statement/Prospectus
that, as of such date, the consideration to be paid by Horizon in the Merger was
fair to the holders of Horizon Common Stock from a financial point of view.) See
"-- Opinions of Financial Advisors -- Horizon" for information regarding
Horizon's agreement to compensate and indemnify Salomon Brothers.
CMS'S REASONS FOR THE MERGER; RECOMMENDATION OF CMS BOARD OF DIRECTORS
At a meeting held on March 31, 1995 the Board of Directors of CMS concluded
that the Merger was fair to and in the best interests of the stockholders of
CMS, approved the Merger Agreement and recommended that the stockholders of CMS
approve and adopt the Merger Agreement.
As part of its review, the CMS Board of Directors considered, among other
things, information presented by CMS management, Merrill Lynch and legal
counsel, including information relating to the relative resources and strengths
of each company, and their respective business lines, geographic dispersion and
long-term strategic focus. See "-- Opinions of Financial Advisors." The CMS
Board of Directors considered information concerning the current and prospective
status of the rehabilitation and long-term care industries and the relative
capabilities and strengths of the management of each company. The CMS Board of
Directors also considered the unique strategic opportunities the Merger would
provide for CMS to extend its clinical expertise and expand the continuum of
health care services it can offer to include the complementary long-term care,
contract services and other related businesses of Horizon. The CMS Board of
Directors also considered certain other financial information, including (among
other things) historical financial information for each of the companies and pro
forma combined financial information reflecting the effects of the Merger, the
results of the due diligence review of the business and operations of Horizon
conducted by CMS's management and advisors, the ability of the combined entity
to raise additional debt and equity capital on a favorable basis, the
complementary nature of the employee expertise and other resources of CMS and
Horizon and the possibility of achieving specific savings by reducing
duplicative administrative costs. In addition, the Board considered the
prospects of CMS on both a stand-alone and combined basis, and the likelihood of
obtaining by other means the strategic advantages offered by the Merger. The
Board also reviewed in detail the terms of the Merger Agreement, the related
transactions, including the terms of the Stock Option Agreement, the Voting
Agreement and the proposed employment arrangements with the Chief Executive
Officer and the President of CMS (which were subsequently modified in certain
respects), and the termination fee payable to Horizon in certain circumstances
if the transaction is not consummated.
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In reaching its determination, the CMS Board of Directors consulted with its
financial and legal advisors and with CMS management, and considered a number of
factors, including, without limitation, the matters discussed above and the
following:
(i) the immediate and potential long-term benefits to CMS's stockholders
inherent in the terms of the Merger and the long-term prospects for the
combined entities;
(ii) the oral opinion of Merrill Lynch (which was subsequently confirmed
in writing) that, as of March 31, 1995 and based on the assumptions made and
matters considered in, and the limitations on, the review undertaken by
Merrill Lynch as discussed by Merrill Lynch with the Board of Directors of
CMS, the exchange ratio contemplated by the Merger Agreement was fair to the
stockholders of CMS from a financial point of view;
(iii) the strategic benefits of significantly expanding CMS's continuum
of offered health care services and of taking advantage of CMS's existing
expertise in clinical care, rehabilitation services and contract services to
enhance CMS's competitive position in an increasingly managed care
environment;
(iv) a conclusion that further consolidations in the health care industry
were inevitable, that CMS could be at a competitive disadvantage as a
stand-alone entity in such an environment, and that market conditions were
favorable to a transaction in the current time frame;
(v) the compatibility of the respective businesses and management
philosophies of CMS and Horizon with a common emphasis on low-cost,
efficient health care delivery systems;
(vi) the potential cost savings in management and general and
administrative expenses;
(vii) the opportunity to achieve significant synergies through exploiting
economies of scale afforded by the transaction, including greater leverage
as a purchaser;
(viii) the diversification of market risks inherent in the combination of
the two entities' businesses;
(ix) the relative prospects for growth and growth in shareholder values,
as a stand-alone entity and as a part of a substantially larger organization
operating in economically diversified trading areas;
(x) the relative prospects for raising capital in current industry
conditions as a stand-alone entity and as part of a larger organization; and
(xi) the tax-free nature of the transaction to CMS stockholders and the
advantageous effects on the combined enterprise as treating the transaction
as a pooling for accounting purposes.
For all the reasons discussed above, and without assigning any particular
weight to any one factor, the members of the Board of CMS present at the special
meeting held on March 31, 1995 unanimously approved the Merger Agreement and
recommended that the stockholders of CMS vote FOR the adoption and approval of
the Merger Agreement. Prior to reaching its conclusion as to the fairness of the
Merger, the Board of Directors of CMS also considered the matters described in
the first paragraph under "-- Interests of Certain Persons in the Merger."
OPINIONS OF FINANCIAL ADVISORS
HORIZON
Salomon Brothers delivered to the Horizon Board its written opinion that, as
of March 31, 1995, the consideration to be paid by Horizon in connection with
the Merger was fair to the holders of Horizon Common Stock from a financial
point of view. No limitations were imposed by the Horizon Board upon Salomon
Brothers with respect to the investigations made or the procedures followed by
it in rendering its opinion.
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SALOMON BROTHERS SUBSEQUENTLY DELIVERED THE SALOMON BROTHERS OPINION DATED
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS THAT, AS OF SUCH DATE, THE
CONSIDERATION TO BE PAID BY HORIZON IN CONNECTION WITH THE MERGER WAS FAIR TO
THE HOLDERS OF HORIZON COMMON STOCK FROM A FINANCIAL POINT OF VIEW. THE SALOMON
BROTHERS OPINION IS SUBSTANTIALLY SIMILAR TO THE OPINION OF SALOMON BROTHERS
DATED MARCH 31, 1995. THE FULL TEXT OF THE SALOMON BROTHERS OPINION, WHICH SETS
FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN,
IS ATTACHED AS APPENDIX B TO THIS JOINT PROXY STATEMENT/ PROSPECTUS. HORIZON
STOCKHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY. THE OPINIONS OF
SALOMON BROTHERS ARE DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE
PAID BY HORIZON AND DO NOT CONSTITUTE A RECOMMENDATION TO ANY HORIZON
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE. THE SUMMARY OF THE OPINIONS
OF SALOMON BROTHERS SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS ARE
QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE SALOMON
BROTHERS OPINION.
In arriving at its opinions, Salomon Brothers (i) reviewed the Merger
Agreement and its related schedules, (ii) reviewed certain publicly available
business and financial information relating to Horizon and CMS, (iii) reviewed
certain other information, including financial projections, provided to Salomon
Brothers by Horizon and CMS and (iv) met with members of senior management of
both Horizon and CMS to discuss the past and current operations and financial
condition and prospects of Horizon and CMS. Salomon Brothers also considered
such other information, financial studies, analyses, investigations and
financial, economic and market criteria as it deemed relevant.
In connection with its review, Salomon Brothers did not assume any
responsibility for independently verifying any of the foregoing information and
relied on such information being complete and accurate in all material respects.
With respect to the financial projections, Salomon Brothers assumed that they
had been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of Horizon or CMS, as the case may be,
as to the future financial performance of Horizon or CMS, as the case may be.
Salomon Brothers did not express any opinion with respect to such projections or
the assumptions on which they are based, including assumptions regarding the
effects of any outstanding or potential litigation, investigations, inquiries or
other actions. In addition, Salomon Brothers did not make an independent
evaluation or appraisal of any of the assets of Horizon or of CMS, nor was it
furnished with any such appraisals. Each of Salomon Brothers' opinions was
necessarily based upon business, market, economic and other conditions as they
existed on, and could be evaluated as of, the respective dates of such opinions,
and does not address Horizon's underlying business decision to effect the
Merger. Salomon Brothers' opinions do not imply any conclusion as to the likely
trading range for the Horizon Common Stock following the consummation of the
Merger, which may vary depending on, among other factors, changes in interest
rates, dividend rates, market conditions, general economic conditions and other
factors that generally influence the price of securities.
The following is a summary of the report presented by Salomon Brothers to
the Horizon Board of Directors on March 31, 1995 in connection with its March
31, 1995 fairness opinion (the "Salomon Brothers Report"):
OVERVIEW OF CMS. Salomon Brothers reviewed the businesses of CMS (including
its latest twelve months ("LTM") revenues by business segment for the year ended
December 31, 1994). Salomon Brothers also reviewed CMS's historical financial
performance for 1992, 1993, 1994 and the LTM, and its projected financial
performance for the twelve month periods ending June 30, 1995-99 (including in
each case revenues, earnings before depreciation, interest, amortization and
taxes ("EBDIAT"), earnings before interest and taxes ("EBIT"), net income and
capital expenditures). Salomon Brothers compared certain growth and operating
ratios of CMS (including LTM EBDIAT/ Revenue, LTM EBIT/Revenue, LTM Net
Income/Revenue, LTM Historical Revenue Growth, LTM Historical EBDIAT Growth and
LTM Historical EBIT Growth) to those of a group of comparable companies
including HEALTHSOUTH Corporation, NovaCare, Inc., Advantage Health Corporation,
Rehabcare Corporation, TheraTx Incorporated and Rehability Corporation (the
"Comparable Group").
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DISCOUNTED CASH FLOW ANALYSIS. Using a discounted cash flow analysis,
Salomon Brothers estimated the present value of the future cash flows that CMS
could produce over a five-year period from 1995 through 1999, under various
assumptions, if CMS were to perform on a stand-alone basis (without giving
effect to any operating or other efficiencies pursuant to the Merger) in
accordance with management's forecasts. Salomon Brothers set forth certain
equity market value reference ranges for CMS based upon the sum of (i) the
aggregate discounted value (using various discount rates ranging from 10% to
14%) of the five-year unlevered free cash flows of CMS, plus (ii) the discounted
value (using various discount rates ranging from 10% to 14%) of (a) the final
year's projected EBDIAT multiplied by (b) numbers representing various terminal
or exit multiples (ranging from 5.0x to 9.0x). From this analysis Salomon
derived an equity value reference range per share of CMS Common Stock on a fully
diluted basis from $15.00 to $18.00. Salomon Brothers also reviewed the pre-tax
value of the synergies that management expects to achieve following the Merger
and performed a second discounted cash flow analysis incorporating the expected
synergies. From this analysis Salomon Brothers derived an equity value reference
range per share of CMS Common Stock on a fully diluted basis from $17.00 to
$21.00.
COMPARABLE COMPANY ANALYSIS. Salomon Brothers reviewed and compared the
financial and market performance of the Comparable Group with that of CMS.
Salomon Brothers examined certain publicly available financial data of the
Comparable Group, including multiples of total revenues, EBDIAT, EBIT and net
income, for the latest available twelve month period (and in the case of net
income, analysts' consensus estimates for the twelve months ending June 30,
1995). Salomon Brothers then derived from this data (based on the relative
comparability of the financial performance of the comparable companies to that
of CMS) the ranges of these multiples deemed most meaningful for its analysis,
which were as follows: total revenues (from 82% to 94%), EBDIAT (from 7.5x to
9.8x), EBIT (from 9.5x to 12.7x) and net income (from 13.0x to 20.0x). Salomon
Brothers then applied these multiples to CMS's reported revenues, EBDIAT, EBIT
and net income for the twelve months ended December 31, 1994, and management's
estimates for the twelve months ending June 30, 1995 and, in the case of net
income, also the twelve months ending June 30, 1996. This analysis resulted in
an equity value reference range per share of CMS Common Stock on a fully diluted
basis from $11.50 to $15.60.
COMPARABLE TRANSACTION ANALYSIS. Salomon Brothers also reviewed the
consideration paid or proposed to be paid in other recent transactions involving
long-term and rehabilitative health care companies and analyzed the multiples of
revenues, EBDIAT, EBIT and net income (for the LTM preceding the date of
announcement of the transaction and, in the case of net income, also the
analysts' consensus estimates at the time of the announcement for the twelve
months following the date of announcement of the transaction) represented by
such consideration. Specifically, Salomon Brothers reviewed the following
acquiror/target transactions: Sun Healthcare/CareerStaff Unlimited (announced
March 30, 1995), HEALTHSOUTH/Relife (announced September 19, 1994), Multicare
Companies/Providence Health Care (announced February 2, 1994), Sun
Healthcare/Mediplex Group (announced January 4, 1994), Regency Health/Care
Enterprises (announced December 22, 1993), HEALTHSOUTH/Rehabilitation Hospitals
(announced December 6, 1993), Genesis Health Ventures/ Meridian Healthcare
(announced September 21, 1993), Horizon/Greenery Rehabilitation (announced
August 2, 1993), Mariner Health/Pinnacle Care (announced January 6, 1994) and
NovaCare/Rehab Clinics (announced October 21, 1993). Salomon Brothers then
derived from this data (based on the relative comparability of the transactions
to the Merger) the ranges of the multiples deemed most meaningful for its
analysis, which were as follows: total revenues (from 76% to 86%), EBDIAT (from
7.6x to 10.1x), EBIT (from 9.5x to 12.3x) and net income (from 15.6x to 20.0x).
Salomon Brothers then applied the multiples derived from the comparable
transactions to CMS's reported revenues, EBDIAT, EBIT and net income for the
twelve months ended December 31, 1994, and management's estimates for the twelve
months ending June 30, 1995 and, in the case of net income, also the twelve
months ending June 30, 1996. This analysis resulted in an equity value reference
range per share of CMS Common Stock on a fully diluted basis from $11.00 to
$15.40.
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PRO FORMA MERGER CONSEQUENCES ANALYSIS. Salomon Brothers analyzed certain
pro forma effects on Horizon resulting from the Merger for the projected
twelve-month periods ending May 31, 1995 and 1996. This analysis, based upon the
assumptions described above and management's estimates of Horizon's 1995 and
1996 stand-alone earnings per share, showed pro forma dilution to the
stockholders of Horizon in earnings per share for the projected period ending
May 31, 1995 ranging (depending on the final exchange ratio) from 10% to 2.3%.
For the projected period ending May 31, 1996, the analysis showed the
transaction to result in pro forma dilution or accretion to the stockholders of
Horizon (depending on the final exchange ratio) ranging from dilution of 0.3% to
accretion of 7.7%. No revenue or operating synergies were taken into account in
this analysis. Salomon Brothers also performed a pro forma merger consequences
analysis giving effect to the synergies that management expects to result from
the Merger. This analysis showed pro forma accretion to the stockholders of
Horizon in earnings per share for the projected period ending May 31, 1995
ranging (depending on the final exchange ratio) from 29.4% to 40.5%. For the
projected period ending May 31, 1996, the analysis showed the transaction to
result in pro forma accretion to the stockholders of Horizon (depending on the
final exchange ratio) ranging from 30.9% to 41.4%.
In arriving at its opinion dated March 31, 1995 and the Salomon Brothers
Opinion, and in presenting the Salomon Brothers Report, Salomon Brothers
performed certain financial analyses, the material portions of which are
summarized above. The summary set forth above does not purport to be a complete
description of Salomon Brothers' analyses. Salomon Brothers believes that its
analyses and the summary set forth above must be considered as a whole and that
selecting portions of its analyses could create an incomplete view of the
process underlying the analyses set forth in the opinions and the Salomon
Brothers Report. In performing its analyses, Salomon Brothers made numerous
assumptions with respect to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Horizon and CMS. The trading values specified in the Salomon Brothers
Report do not purport to be indicative of actual trading values of CMS Common
Stock, which may be significantly more or less than the amounts set forth in the
Salomon Brothers Report. Actual values will depend upon several factors,
including events affecting the rehabilitative health care industry, general
economic, market and interest rate conditions and other factors which generally
influence the price of securities.
No company used in the comparable company analysis nor any transaction used
in the comparable transaction analysis summarized above is identical to CMS or
the Merger, respectively. Accordingly, any such analysis of the value of the
proposed Merger involves complex considerations and judgments concerning
differences in the potential financial and operating characteristics of the
comparable companies and other factors in relation to the trading and
acquisition values of the comparable companies and publicly announced
transactions.
Salomon Brothers is an internationally recognized investment banking firm
and regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. The Horizon
Board of Directors selected Salomon Brothers to act as its financial advisor on
the basis of Salomon Brothers' international reputation and its familiarity with
Horizon and CMS and the health care industry in general. In the course of its
business, Salomon Brothers actively trades the securities of Horizon and CMS for
its own account and for the accounts of customers. Accordingly, Salomon Brothers
may at any time hold a long or short position in such securities.
FEES PAID TO SALOMON BROTHERS. Horizon has paid Salomon Brothers aggregate
fees of $250,000 in consideration for Salomon Brothers' services. Such fees were
payable regardless of the outcome of Salomon Brothers' opinions. Horizon has
also agreed to reimburse Salomon Brothers for its out-of-pocket expenses,
including reasonable fees and disbursements of counsel. Horizon has agreed to
indemnify Salomon Brothers, and its affiliates, their respective directors,
officers, partners, agents and employees and each person, if any, controlling
Salomon Brothers or any of its affiliates against certain liabilities, including
certain liabilities under the federal securities laws, relating to or arising
out of its engagement.
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CMS
On March 31, 1995, Merrill Lynch delivered its oral opinion to the Board of
Directors of CMS, which opinion was subsequently confirmed in writing, that, as
of such date and based upon the assumptions made and matters considered in, and
the limitations on, the review undertaken by Merrill Lynch as reviewed by
Merrill Lynch with the Board of Directors of CMS, the exchange ratio
contemplated by the Merger Agreement was fair to the stockholders of CMS from a
financial point of view. Merrill Lynch subsequently delivered its written
opinion dated as of the date of this Joint Proxy Statement/Prospectus that, as
of such date and based on the assumptions made and matters considered in, and
the limitations on, the review undertaken by Merrill Lynch as set forth in the
Merrill Lynch Opinion, the Exchange Ratio was fair to the stockholders of CMS
from a financial point of view. A copy of the Merrill Lynch Opinion, which sets
forth the assumptions made and matters considered in, and the limitations on,
the review undertaken by Merrill Lynch, is attached as Appendix C to this Joint
Proxy Statement/Prospectus. The summary of the Merrill Lynch Opinion set forth
in this Joint Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of such opinion. The March 31, 1995 opinion is
substantially similar to the Merrill Lynch Opinion. STOCKHOLDERS OF CMS ARE
URGED TO READ THE MERRILL LYNCH OPINION IN ITS ENTIRETY.
The Merrill Lynch Opinion is directed only to the fairness of the Exchange
Ratio to the stockholders of CMS from a financial point of view and does not
constitute a recommendation to any CMS stockholder as to how such stockholder
should vote at the CMS Special Meeting. The exchange ratio contemplated by the
Merger Agreement was determined through negotiations between Horizon and CMS and
was approved by the Board of Directors of CMS. Merrill Lynch provided advice to
CMS during the course of such negotiations, but did not make a recommendation
with respect to the exchange ratio contemplated by the Merger Agreement.
In arriving at its opinion dated March 31, 1995, Merrill Lynch, among other
things: (i) reviewed CMS's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended June 30, 1994 provided by CMS and
CMS's Forms 10-Q and the related unaudited financial information for the
quarterly periods ended September 30, 1994 and December 31, 1994, (ii) reviewed
Horizon's Annual Reports, Forms 10-K and related financial information for the
fiscal year ended May 31, 1994 and Horizon's Forms 10-Q and the related
unaudited financial information for the quarterly periods ended August 31, 1994
and November 30, 1994; (iii) reviewed certain information, including financial
forecasts, relating to the business, earnings, cash flow, assets and prospects
of CMS and Horizon, furnished to Merrill Lynch by CMS and Horizon; (iv)
conducted discussions with members of senior management of CMS and Horizon
concerning their respective businesses and prospects; (v) reviewed certain
information furnished to Merrill Lynch by CMS and conducted discussions with
members of senior management of CMS and Horizon concerning potential synergies
to be realized as a result of the Merger; (vi) reviewed the historical market
prices and trading activity for outstanding shares of CMS Common Stock and
outstanding shares of Horizon Common Stock and compared them with that of
certain publicly traded companies which Merrill Lynch deemed to be reasonably
similar to CMS and Horizon, respectively; (vii) compared the results of
operations of CMS and Horizon with that of certain companies which Merrill Lynch
deemed to be reasonably similar to CMS and Horizon, respectively; (viii)
compared the proposed financial terms of the transactions contemplated by the
Agreement with the financial terms of certain other mergers and acquisitions
which Merrill Lynch deemed to be relevant; (ix) reviewed a draft dated March 31,
1995 of the Merger Agreement; (x) reviewed a draft dated March 29, 1995 of the
Stock Option Agreement; and (xi) reviewed such other financial studies and
analyses and performed such other investigations and took into account such
other matters as Merrill Lynch deemed necessary, including its assessment of
general economic, market and monetary conditions.
In preparing its opinion dated March 31, 1995 and the Merrill Lynch Opinion,
Merrill Lynch relied upon the accuracy and completeness of all information
supplied or otherwise made available to it by CMS and Horizon, and Merrill Lynch
did not independently undertake an independent appraisal or evaluation of the
assets or liabilities of CMS or Horizon. With respect to financial forecasts
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furnished by CMS and Horizon, Merrill Lynch assumed that they were reasonably
prepared and reflected the best currently available estimates and judgment of
the management of CMS or Horizon as to the expected future financial performance
of CMS or Horizon, as the case may be. Moreover, with respect to the estimates
of potential synergies furnished by CMS, Merrill Lynch assumed that they were
reasonably prepared and reflected the best currently available estimates and
judgment of the management of CMS as to the potential synergies to be realized
as a result of the Merger. Merrill Lynch also assumed that the Merger will
qualify for pooling-of-interests accounting treatment and as a tax-free
transaction for the stockholders of CMS.
In connection with the preparation of its opinion dated March 31, 1995 and
the Merrill Lynch Opinion, Merrill Lynch was not authorized by CMS or its Board
of Directors to solicit, nor did it solicit, third-party indications of interest
for the acquisition of all or any part of CMS.
The following is a summary of certain analyses performed by Merrill Lynch in
connection with its opinion dated March 31, 1995. In connection with the Merrill
Lynch Opinion, Merrill Lynch performed certain procedures, including each of the
financial analyses described below, to update its analyses made in connection
with the delivery of its opinion dated March 31, 1995, and reviewed with the
managements of Horizon and CMS the financial information on which such analyses
were based and other factors, including the current financial results of such
companies and the future prospects for such companies.
DISCOUNTED CASH FLOW ANALYSIS -- CMS. Merrill Lynch calculated ranges of
equity value for CMS based upon the value, discounted to the present, of its
fiscal year end five-year stream of unlevered after-tax free cash flow and its
projected fiscal year 2000 terminal value based upon a range of multiples of its
projected fiscal year 2000 earnings before interest, taxes, depreciation and
amortization ("EBITDA"). In conducting its analysis, Merrill Lynch utilized the
CMS Base Case and also developed a sensitivity analysis based on the CMS Base
Case (the "CMS Conservative Case"), which assumed a consolidated compound
average annual revenue growth of 4.6% and average EBITDA margins of 11.6%. See
"-- Certain Information Provided." In both cases, Merrill Lynch utilized
discount rates reflecting a weighted average cost of capital ranging from 11.5%
to 15.5% and terminal value multiples of fiscal year 2000 EBITDA ranging from
5.0x to 8.0x. Based on this analysis, Merrill Lynch calculated a range of value
of between $10.00 and $16.00 per share of CMS Common Stock based on the CMS Base
Case, and of between $6.75 and $11.50 per share of CMS Common Stock based on the
CMS Conservative Case.
DISCOUNTED CASH FLOW ANALYSIS -- HORIZON. Merrill Lynch calculated ranges
of equity value for Horizon based upon the value, discounted to the present, of
its five-year stream of unlevered after-tax free cash flow and its fiscal year
2000 terminal value based upon a range of multiples of its projected fiscal year
2000 earnings before interest, taxes, depreciation, amortization and rent
expenses for hospitals and similar facilities ("EBITDAR"). In conducting its
analysis, Merrill Lynch utilized the Horizon Base Case, which assumed a
consolidated compound average annual revenue growth of 19.5% and average EBITDAR
margins of 20.7%. See "-- Certain Information Provided." In addition, Merrill
Lynch developed a sensitivity analysis based on the Horizon Base Case (the
"Horizon Conservative Case"), which assumed a consolidated compound average
annual revenue growth of 16.5% and average EBITDAR margins of 20.7%. In both
cases, Merrill Lynch utilized discount rates reflecting a weighted average cost
of capital ranging from 14.0% to 18.0% and terminal value multiples of fiscal
year 2000 EBITDAR ranging from 8.0x to 11.0x. Based on this analysis, Merrill
Lynch calculated a range of value of between $25.75 and $40.00 per share of
Horizon Common Stock based on the Horizon Base Case, and of between $19.50 and
$31.75 per share of Horizon Common Stock based on the Horizon Conservative Case.
Merrill Lynch also calculated ranges of equity value for Horizon based upon
a discounted cash flow analysis for each of the Horizon Base Case and the
Horizon Conservative Case assuming that annual savings from synergies projected
by the managements of CMS and Horizon as a result of the Merger (the
"Synergies") would be achieved. Based on this analysis, Merrill Lynch calculated
that the
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Horizon Base Case indicated a range of value of between $31.00 and $46.50 per
share of Horizon Common Stock, and the Horizon Conservative Case indicated a
range of value of between $24.75 and $38.50 per share of Horizon Common Stock.
SEGMENT DISCOUNTED CASH FLOW ANALYSIS -- CMS. Merrill Lynch calculated
ranges of equity value for CMS based upon the value, discounted to the present,
of its five-year stream of unlevered after-tax free cash flow and a fiscal year
2000 terminal value based upon a range of multiples of projected fiscal year
2000 EBITDA for CMS's medical rehabilitation hospital business (the
"Rehabilitation Hospital Group") and contract therapy and physician services
business (the "Contract Therapy and Physician Services Group"). Merrill Lynch
analyzed each segment based on both the CMS Base Case and the CMS Conservative
Case. In both cases, for the Rehabilitation Hospital Group, Merrill Lynch
utilized discount rates ranging from 12.0% to 14.0% and terminal value multiples
of fiscal year 2000 EBITDA ranging from 5.0x to 8.0x. In both cases, for the
Contract Therapy and Physician Services Group, taken as a whole, Merrill Lynch
utilized discount rates ranging from 10.0% to 14.0% and terminal value multiples
of fiscal year 2000 EBITDA ranging from 6.5x to 9.5x. Based on this analysis,
Merrill Lynch calculated a range of value of between $11.50 and $16.50 per share
of CMS Common Stock based on the CMS Base Case and a range of value of between
$7.50 and $11.75 per share of CMS Common Stock based on the CMS Conservative
Case.
ANALYSIS OF SELECTED COMPARABLE PUBLICLY TRADED COMPANIES -- CMS. Merrill
Lynch compared certain publicly available historical financial and operating
data and projections of future financial performance (reflecting a composite of
research analysts' estimates) of Advantage Health Corporation, HEALTHSOUTH
Corporation, NovaCare, Inc., RehabCare Corporation and Rehability Corporation
(collectively, the "Rehabilitation and Contract Services Comparables") with
similar historical financial and operating data and projected financial
performance of CMS which was provided to Merrill Lynch by the management of CMS.
Merrill Lynch compared the market value as multiples of fiscal 1995 and 1996
estimated earnings per share ("EPS") (which were obtained from First Call and
were arithmetically adjusted by Merrill Lynch to reflect a December 31 year end)
and compared market capitalization as a multiple of publicly reported last
twelve months ("LTM") EBITDA and publicly reported LTM revenues. For purposes of
this analysis, Merrill Lynch defined market value as the closing price per share
on March 24, 1995 multiplied by the number of shares outstanding and market
capitalization as the market value plus liquidation value of preferred stock
plus total debt and minority interests less cash, cash equivalents and
marketable securities. Merrill Lynch determined that these multiples were as
follows: (i) market value to estimated fiscal year 1995 estimated EPS was 14.4x
for CMS compared to those of the Rehabilitation and Contract Services
Comparables, which ranged from 11.2x to 18.8x; (ii) market value to estimated
fiscal year 1996 estimated EPS was 10.4x for CMS compared to those of the
Rehabilitation and Contract Services Comparables, which ranged from 8.4x to
15.0x; (iii) market capitalization to LTM EBITDA was 8.7x for CMS compared to
those of the Rehabilitation and Contract Services Comparables, which ranged from
6.1x to 11.1x; and (iv) market capitalization to LTM revenues was 0.59x for CMS
compared to those of the Rehabilitation and Contract Services Comparables, which
ranged from 0.62x to 2.29x. Based on the foregoing ranges for the Rehabilitation
and Contract Services Comparables, as well as Merrill Lynch's experience in
evaluating publicly traded companies, Merrill Lynch calculated that the
Rehabilitation and Contract Services Comparables indicated a range of value of
CMS ranging between $6.00 and $13.00 per share of CMS Common Stock.
ANALYSIS OF SELECTED COMPARABLE PUBLICLY TRADED COMPANIES --
HORIZON. Merrill Lynch compared certain publicly available financial and
operating data and projections of future financial performance (reflecting a
composite of research analysts' estimates) of Beverly Enterprises, Inc., Genesis
Health Ventures, Inc., Health Care and Retirement Corporation, The Hillhaven
Corporation, Integrated Health Services, Inc., Living Centers of America, Inc.,
Manor Care, Inc., The Multicare Companies, and Sun Healthcare Group Inc. (the
"Long-Term Care Comparables -- Group A"), as well as Arbor Health Care Company,
GranCare, Inc., Mariner Health Group, Inc. and Regency Health Services, Inc.
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(the "Long-Term Care Comparables -- Group B" and, together with the Long-Term
Care Comparables -- Group A, the "Long-Term Care Comparables") with similar
historical financial and operating data and projections of future financial
performance of Horizon. Merrill Lynch compared the market value as multiples of
fiscal 1995 and 1996 estimated EPS (which were obtained from First Call and were
arithmetically adjusted by Merrill Lynch to reflect a December 31 year end), and
compared market capitalization plus eight times the LTM rent expense as a
multiple of publicly reported LTM EBITDAR as well as market capitalization as a
multiple of publicly reported LTM revenues. Merrill Lynch also analyzed the
estimated five year EPS growth rates (which were obtained from Institutional
Brokerage Estimate Service) for Horizon and each of the Long-Term Care
Comparables. Merrill Lynch determined that these multiples were as follows: (i)
market value to estimated fiscal year 1995 estimated EPS was 19.1x for Horizon
compared to those of the Long-Term Care Comparables, which ranged from 10.7x to
20.6x; (ii) market value to estimated fiscal year 1996 estimated EPS was 15.3x
for Horizon compared to those of the Long-Term Care Comparables, which ranged
from 9.3x to 17.5x; (iii) market capitalization plus eight times LTM rents to
LTM EBITDAR was 11.8x for Horizon compared to those of the Long-Term Care
Comparables, which ranged from 7.8x to 12.8x; (iv) market capitalization to LTM
revenues was 1.65x for Horizon compared to those of the Long-Term Care
Comparables, which ranged from 0.31x to 3.43x; and (v) estimated five year EPS
growth rate was 24.9% for Horizon compared to those of the Long-Term Care
Comparables, which ranged from 14.9% to 30.0%. Based on the foregoing ranges for
the Long-Term Care Comparables, as well as Merrill Lynch's experience in
evaluating publicly traded companies, Merrill Lynch calculated that the
Long-Term Comparables indicated a range of value of between $25.00 and $30.00
per share of Horizon Common Stock.
No company utilized in the comparable publicly traded companies analysis was
identical to CMS or Horizon. Accordingly, an analysis of the results of such a
comparison is not purely mathematical; rather, it involves complex
considerations and judgments concerning differences in historical and projected
financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of the comparable companies
or company to which they are being compared.
ANALYSIS OF SELECTED COMPARABLE ACQUISITION TRANSACTIONS. Merrill Lynch
reviewed certain publicly available information regarding ten selected business
combinations involving companies involved in the medical rehabilitation and
contract services business announced since October 25, 1991 (the "Acquisition
Comparables"). The Acquisition Comparables included: HEALTHSOUTH Corporation's
acquisition of the rehabilitation hospital division of NovaCare, Inc.;
HEALTHSOUTH Corporation's acquisition of ReLife, Inc.; HEALTHSOUTH
Rehabilitation Corporation's acquisition of selected rehabilitation hospitals of
National Medical Enterprises, Inc.; NovaCare, Inc.'s acquisition of
RehabClinics, Inc.; NovaCare, Inc.'s acquisition of Rehabilitation Hospital
Corp.; RehabCare Corporation's acquisition of Advanced Rehabilitation Resources,
Inc.; ReLife, Inc.'s acquisition of Rebound Inc.; National Rehabilitation
Centers, Inc.'s acquisition of Healthfocus, Inc.; ReLife Acquisition Corp.'s
acquisition of American Health Resources, Inc.; and ReLife, Inc.'s acquisition
of Renaissance America, Inc.
Merrill Lynch compared the transaction value (which it defined for this
purpose as (i) the offer price per share multiplied by the sum of the number of
shares outstanding and the number of exercisable options outstanding plus (ii)
the liquidation value of preferred stock plus (iii) total debt and minority
interests less (iv) cash, cash equivalents and proceeds received upon exercise
of options) of each such transaction as a multiple of the publicly available LTM
EBITDA. The range of multiples for the Acquisition Comparables, based on
transaction value to LTM EBITDA, ranged from 2.4x to 9.9x.
Merrill Lynch then calculated aggregate and per share imputed equity values
of CMS Common Stock by applying CMS's actual and forecasted financial results to
the multiples derived from its
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analysis of the Acquisition Comparables described above. Based on its analysis,
Merrill Lynch concluded that the Acquisition Comparables indicated a range of
values of between $9.00 and $17.00 per share of CMS Common Stock.
No company utilized in the Selected Comparable Acquisition Analysis was
identical to CMS. Accordingly, an analysis of the results of this comparison is
not purely mathematical; rather, it involves complex considerations and
judgments concerning differences in historical and projected financial and
operating characteristics of the comparable acquired companies and other factors
that could affect the acquisition value of such companies and CMS.
RELATIVE EXCHANGE RATIO ANALYSIS. Merrill Lynch utilized a discounted cash
flow methodology to compare implied exchange ratios based on relative ranges of
value for CMS and Horizon. The comparison of the CMS Base Case to the Horizon
Base Case (without Synergies) yielded an implied exchange ratio of between
0.2532 and 0.6188 shares of Horizon Common Stock for each share of CMS Common
Stock. The comparison of the CMS Conservative Case to the Horizon Conservative
Case (without Synergies) yielded an implied exchange ratio of between 0.2130 and
0.5934 shares of Horizon Common Stock for each share of CMS Common Stock. The
comparison of the CMS Base Case to the Horizon Base Case (with Synergies)
yielded an implied exchange ratio of between 0.2170 and 0.5132 shares of Horizon
Common Stock for each share of CMS Common Stock. The comparison of the CMS
Conservative Case to the Horizon Conservative Case (with Synergies) yielded an
implied exhange ratio of between 0.1761 and 0.4665 shares of Horizon Common
Stock for each share of CMS Common Stock.
Merrill Lynch then utilized a comparable publicly traded company analysis to
compare implied exchange ratios based on relative ranges of value for CMS and
Horizon. The comparison of values imputed for CMS to the values imputed for
Horizon yielded an implied exchange ratio of between 0.2000 and 0.5200 shares of
Horizon Common Stock for each share of CMS Common Stock.
CONTRIBUTION ANALYSIS. Merrill Lynch also compared the relative ownership
of the stockholders of CMS and the stockholders of Horizon of the pro forma
combined operations of 40.0% and 60.0% (based on an exchange ratio of 0.4906) to
the relative contributions of CMS to the pro forma combined operations for the
years ending May 1996, 1997 and 1998 to net sales, EBITDAR, EBIT and fully
diluted net income. Based on the CMS Base Case and the Horizon Base Case
(without Synergies), CMS would contribute to the combined operations, for the
years ending May 1996, 1997 and 1998, respectively, (a) an estimated 56.3%,
53.6% and 51.1% of net sales; (b) an estimated 53.1%, 50.5% and 47.8% of
EBITDAR; (c) an estimated 49.7%, 47.8% and 45.2% of EBIT; and (d) an estimated
43.0%, 43.8% and 43.0% of fully-diluted net income.
PRO FORMA ANALYSIS. Merrill Lynch analyzed the potential impact of the
Merger on the estimated EPS of CMS and Horizon, respectively, for the years
1996-1999, assuming that the Merger will qualify for pooling-of-interests
accounting treatment in both the case where the Synergies would be achieved and
the case where the Synergies would not be achieved (based on an exchange ratio
of 0.4906). Merrill Lynch also analyzed certain pro forma effects on the
estimated EPS of CMS and Horizon, respectively, that could occur if the Merger
were not consummated. Based on the CMS Base Case and the Horizon Base Case, the
analysis indicated that for a holder of shares of CMS Common Stock, the Merger
would be accretive on an estimated EPS basis in the amount of 8.6% for the
fiscal year 1996, in the amount of 5.9% for the fiscal year 1997, in the amount
of 7.4% for the fiscal year 1998 and in the amount of 9.0% for the fiscal year
1999. Assuming the same cases as above, the analysis indicated that for a holder
of shares of Horizon Common Stock, the Merger would be accretive in the amount
of 23.8% in fiscal year 1996, in the amount of 23.7% in fiscal year 1997 and in
the amount of 20.9% in fiscal year 1998. Assuming the same cases as above, but
without Synergies, the analysis indicated that for a holder of Horizon Common
Stock, the Merger would be accretive in the amount of 6.6% in fiscal year 1996,
in the amount of 8.6% in fiscal year 1997 and in the amount of 7.8% in fiscal
year 1998. Based on the CMS Conservative Case and the Horizon Base Case
projections, the analysis indicated that for a holder of shares of Horizon
Common Stock, the Merger, with Synergies, would be accretive
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in the amount of 14.4% in fiscal year 1996, in the amount of 12.7% in fiscal
year 1997 and in the amount of 9.3% in fiscal year 1998. If no Synergies are
assumed, the analysis assuming the same cases indicated that for a holder of
shares of Horizon Common Stock, the Merger would be dilutive in the amounts of
2.8%, 2.4% and 3.9% in fiscal years 1996-1998, respectively.
HISTORICAL STOCK PRICE ANALYSIS. Merrill Lynch reviewed the per share daily
closing market price of CMS Common Stock over the period from March 24, 1994 to
March 30, 1995 compared with the performance of the Standard & Poor's 500 Index
and a composite index of the Rehabilitation and Contract Services Comparables.
Merrill Lynch also reviewed the performance of the per share daily closing
market price of Horizon Common Stock over the period from March 24, 1994 to
March 30, 1995 compared with the movement of the Standard & Poor's 500 Index and
a composite index of the Long-Term Care Comparables -- Group A.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch. In arriving at its opinion dated March
31, 1995, Merrill Lynch performed a variety of financial analyses, the material
portions of which are summarized above. In addition, Merrill Lynch 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 such
factors and analyses, could create a misleading view of the process underlying
its opinions. In performing its analyses, Merrill Lynch made numerous
macroeconomic, operating and financial assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond CMS's or Horizon's control. Any estimates incorporated in the
analyses performed by Merrill Lynch are not necessarily indicative of actual
past or future results or values, which may be significantly more or less
favorable than such estimates. Estimated values do not purport to be appraisals
and do not necessarily reflect the prices at which businesses or companies may
be sold in the future, and such estimates are inherently subject to uncertainty.
The preparation of a fairness opinion is a complex process not necessarily
susceptible to partial or summary description. Merrill Lynch did not assign any
relative weights to any of its analyses in preparing its opinion.
As part of its investment banking business, Merrill Lynch is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions. The Board of Directors of CMS selected Merrill Lynch
to act as its financial advisor because Merrill Lynch is an internationally
recognized investment banking firm with substantial experience in transactions
similar to the Merger and because it is familiar with CMS and its business.
Merrill Lynch has rendered from time to time various investment banking and
financial advisory services to Horizon for which it has received customary
compensation. In the ordinary course of business, Merrill Lynch may actively
trade the securities of both CMS and Horizon for its own account and the account
of its customers and, accordingly, may at any time hold a long or short position
in such securities.
For its financial advisory services in connection with the Merger, CMS has
agreed to pay Merrill Lynch a fee of $500,000 upon the execution of the Merger
Agreement and has agreed to pay Merrill Lynch an additional fee of 0.5% of the
aggregate purchase price paid in the Merger at the Effective Time (against which
the $500,000 fee will credited). In addition, CMS has agreed to reimburse
Merrill Lynch for its reasonable out-of- pocket expenses (including reasonable
fees and expenses of its legal counsel) and to indemnify Merrill Lynch and
certain related persons against certain liabilities, including liabilities under
securities laws, arising out of its engagement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of CMS's Board of Directors with respect
to the Merger, CMS's stockholders should be aware that certain members of CMS's
Board and management have certain interests respecting the Merger separate from
their interests as holders of CMS Common Stock, including those referred to in
"-- Employment Arrangements;" "-- Board Arrangements;" and "Certain Terms of the
Merger Agreement -- Indemnification."
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In addition, Mr. Neal M. Elliott, Horizon's Chairman and Chief Executive
Officer, beneficially owns 15,000 shares of CMS Common Stock. Of these shares,
10,000 shares were acquired in the aggregate on January 25 through January 26,
1995, for an average purchase price of approximately $4.74 per share, and 5,000
shares were acquired on February 23, 1995 for $5.875 per share. Mr. Elliott
acquired these shares in ordinary brokerage transactions. On April 12, 1995, Mr.
Elliott sold to CMS 5,000 shares of CMS Common Stock at $5.875 per share (an
aggregate of $29,375), representing the price paid by Mr. Elliott in his
February purchase. The closing price of the CMS Common Stock on the NYSE
Composite Tape on April 11, 1995 was $11.00 per share. Pursuant to these
arrangements, no profit was realized with respect to such 5,000 shares by Mr.
Elliott in order to eliminate any question concerning the propriety of the
purchase of shares by him in February. To Horizon's knowledge, no other
executive officer or director of Horizon owns any shares of CMS Common Stock.
EMPLOYMENT ARRANGEMENTS
At the Effective Time, Mr. Rocco A. Ortenzio, Chairman and Chief Executive
Officer of CMS, will become a director and Vice Chairman of Horizon's Board of
Directors. Immediately following that time, he will cease to be an employee of
CMS and will not become an employee of Horizon. In satisfaction of his rights
under his existing employment arrangements with CMS, upon the cessation of his
employment under these circumstances, Rocco Ortenzio will be paid an aggregate
of $3.7 million, which represents his termination payment following a change in
control of CMS, and $11.6 million, which, together with the other benefits
described below, will be paid in settlement of his existing right to receive an
annual bonus equal to 3% of the pretax profits (as adjusted) of CMS in excess of
$2.5 million per year, the value of which has been determined by independent
appraisal. In addition, pursuant to his existing employment arrangements with
CMS, Rocco Ortenzio's outstanding unvested options to purchase 800,000 shares of
CMS Common Stock (which by virtue of the Merger will have been converted into
options to purchase shares of Horizon Common Stock based on the Exchange Ratio)
will become fully vested. Rocco Ortenzio has agreed, following the cessation of
his employment with CMS, to consult with Horizon on an hourly basis at a rate of
$300 per hour. In addition, Rocco Ortenzio has agreed to enter into a mutually
acceptable non-competition agreement. Horizon has agreed that Rocco Ortenzio's
existing CMS term life insurance policy will be converted into a whole life
policy pursuant to a split-dollar arrangement with CMS prior to the Effective
Time.
At the Effective Time, Robert A. Ortenzio, President and Chief Operating
Officer of CMS will become Executive Vice President of Horizon and a member of
its Board of Directors. At that time, he will enter into a new employment
agreement (the "Employment Agreement") with Horizon containing terms and
conditions (including current salary) substantially similar to those in his
existing employment agreement with CMS. This agreement will be in lieu of his
existing arrangements and agreements with CMS. The Employment Agreement will
also provide for a retirement benefit equal to 5% of Robert Ortenzio's highest
annual base salary during his employment by Horizon multiplied by his number of
years of service, determined as described below. This retirement benefit is
subject to a maximum of 50% of Robert Ortenzio's highest annual base salary
during his employment with Horizon, reduced by all amounts payable under federal
social security or any Horizon retirement plan. For purposes of determining the
number of years of service, Robert Ortenzio will be granted full credit for
service retroactive to March 1986. For purposes of this calculation, Robert
Ortenzio will be granted full credit for service retroactive to March 1986. The
Employment Agreement will also provide for a death benefit to the surviving
spouse or minor children in an amount equal to one-half of the retirement
benefit payable at his death (whether before or after retirement). In addition,
the Employment Agreement will provide for disability benefits in an amount equal
to 50% of the annual base salary at the time of any disability, reduced by any
disability insurance benefits paid. Under the Employment Agreement, disability
payments will be payable until recovery from the disability or until he reaches
age 65. The Employment Agreement will provide that, upon termination of the
agreement (i) by Horizon without cause, (ii) by Robert Ortenzio after 18 months
following the Effective Time or (iii) by Robert Ortenzio prior to such date but
after a material diminution or limitation of his duties and powers or demotion
or removal from the Board of Directors, or in certain
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other circumstances, Robert Ortenzio will receive severance pay generally equal
to the aggregate of his cash compensation for the preceding three years. In
addition to such severance compensation, all options, warrants, stock bonuses
and similar awards held by Robert Ortenzio will immediately vest. Upon
termination by Horizon for cause or termination by Robert Ortenzio under any
other circumstances, Robert Ortenzio will receive no severance compensation.
Each of CMS's other senior executive officers is a party to previously
existing change in control agreement with CMS which, following a change of
control of CMS (which as defined in these agreements will occur as a consequence
of the Merger), provides for severance payments equal to approximately three
times his or her average annual cash compensation from CMS during the five
preceding taxable years (or, if such individual was not employed by CMS
throughout such period, the period during which he or she was so employed) upon
a termination of employment without cause or resignation following a material
limitation of the individual's duties and power or in certain other
circumstances. In addition to such severance compensation, the options held by
such an individual to purchase CMS Common Stock (which by virtue of the Merger
will be converted into options to purchase shares of Horizon Common Stock) will
immediately vest.
BOARD ARRANGEMENTS
Pursuant to the Merger Agreement, Horizon will expand its Board of Directors
prior to the Effective Time to thirteen and will ensure that five of such
directorships will be filled with individuals designated by CMS prior to the
Effective Time. CMS intends to designate five of its current directors, Russell
L. Carson, Brian C. Cressey, Rocco A. Ortenzio, Robert A. Ortenzio and LeRoy S.
Zimmerman, to fill such positions. Pursuant to the Merger Agreement, immediately
after being elected to the Horizon Board of Directors, one of such five nominees
shall be elected (subject to such nominee's determination to not serve) to the
Horizon Audit Committee, another shall be elected to the Horizon Compensation
Committee (provided such designee shall not be an employee of Horizon or any
subsidiary following the Effective Time) and Rocco A. Ortenzio will be elected
to the Horizon Executive Committee. The five directors appointed by CMS shall be
nominated for election as directors of Horizon at the first annual meeting of
stockholders of Horizon subsequent to the Effective Time and shall be nominated
for election in the class of directors whose term expires at the 1996 annual
meeting of stockholders of Horizon.
The Merger Agreement provides that Horizon will maintain certain
indemnification and limitation of liability provisions in CMS's Charter and
By-Laws for a period of six years after the Effective Time and will continue for
six years CMS's directors and officers liability insurance, subject to certain
limitations. See "Certain Terms of the Merger Agreement -- Indemnification."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material federal income tax
consequences of the
Merger to the holders of CMS Common Stock and is based upon current provisions
of the Code, existing regulations thereunder and current administrative rulings
and court decisions, all of which are subject to change. No attempt has been
made to comment on all federal income tax consequences of the Merger that may be
relevant to particular holders, including holders that are subject to special
tax rules such as dealers in securities, foreign persons, mutual funds,
insurance companies, tax-exempt entities and holders who do not hold their
shares as capital assets. Holders of CMS Common Stock are advised and expected
to consult their own tax advisers regarding the federal income tax consequences
of the Merger in light of their personal circumstances and the consequences
under state, local and foreign tax laws.
No ruling from the Internal Revenue Service ("IRS") has been or will be
requested in connection with the Merger. Horizon has received from its counsel,
Vinson & Elkins L.L.P., an opinion to the effect that the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, that Horizon, Merger Sub and CMS will each be a
party to the reorganization within the meaning of Section 368(b) of the Code,
and that Horizon, Merger Sub and CMS will not recognize any gain or loss as a
result of the Merger. It is a condition to the obligation of
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Horizon to consummate the Merger that such opinion shall not have been withdrawn
or modified in any material respect. CMS has received from its counsel, Drinker
Biddle & Reath, an opinion to the effect that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, that Horizon, Merger Sub and CMS will each be a party to the
reorganization within the meaning of Section 368(b) of the Code, and that
stockholders of CMS will not recognize any gain or loss from the receipt of
Horizon Common Stock for their CMS Common Stock, other than with respect to cash
received in lieu of fractional shares of Horizon Common Stock. Such opinions are
subject to certain assumptions and based on certain representations of Horizon,
Merger Sub and CMS. Stockholders of CMS should be aware that such opinions are
not binding on the IRS and no assurance can be given that the IRS will not adopt
a contrary position or that a contrary IRS position would not be sustained by a
court.
Assuming the Merger qualifies as a reorganization under Section 368(a) of
the Code, the following federal income tax consequences will occur:
(a) no gain or loss will be recognized by Horizon, Merger Sub or CMS in
connection with the Merger;
(b) no gain or loss will be recognized by a holder of CMS Common Stock
upon the exchange of all of such holder's shares of CMS Common Stock solely
for shares of Horizon Common Stock in the Merger;
(c) the aggregate basis of the shares of Horizon Common Stock received
by a CMS stockholder in the Merger (including any fractional share deemed
received) will be the same as the aggregate basis of the shares of CMS
Common Stock surrendered in exchange therefor;
(d) the holding period of the shares of Horizon Common Stock received by
a CMS stockholder in the Merger will include the holding period of the
shares of CMS Common Stock surrendered in exchange therefor, provided that
such shares of CMS Common Stock are held as capital assets at the Effective
Time; and
(e) a stockholder of CMS who receives cash in lieu of a fractional share
will recognize gain or loss equal to the difference, if any, between such
stockholder's basis in the fractional share (as described in paragraph (c)
above) and the amount of cash received. Such gain or loss will be a capital
gain or loss if the CMS Common Stock is held by such stockholder as a
capital asset at the Effective Time.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for using the "pooling of interests"
method of accounting pursuant to Opinion No. 16 of the Accounting Principles
Board. The pooling of interests method of accounting assumes that the combining
companies have been merged from inception, and the historical consolidated
financial statements for periods prior to consummation of the Merger are
restated as though the companies had been combined from inception. See the
Unaudited Pro Forma Condensed Financial Information and notes thereto included
elsewhere in this Joint Proxy Statement/ Prospectus.
Horizon has been preliminarily advised by its independent public
accountants, Arthur Andersen LLP, that the Merger should be treated as a pooling
of interests in accordance with generally accepted accounting principles.
Consummation of the Merger is conditioned upon the written confirmation of such
advice. Also, such advice contemplates that each person who may be deemed an
affiliate of CMS or Horizon will enter into an agreement with Horizon not to
sell or otherwise transfer any shares of CMS Common Stock or Horizon Common
Stock, as the case may be, within 30 days prior to the Effective Time or any
Horizon Common Stock thereafter prior to the publication of financial results
that include at least 30 days of post-Merger combined operations of Horizon and
CMS.
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GOVERNMENTAL AND REGULATORY APPROVALS AND MATTERS
ANTITRUST MATTERS. Transactions such as the Merger are reviewed by the
Department of Justice and the FTC to determine whether they comply with
applicable antitrust laws. Under the provisions of the HSR Act, the Merger may
not be consummated until such time as the specified waiting period requirements
of the HSR Act have been satisfied. Horizon and CMS filed notification reports,
together with requests for early termination of the waiting period, with the
Department of Justice and the FTC under the HSR Act on April 20, 1995. The
applicable waiting period expired on Saturday, May 20, 1995 with no request for
additional information having been made.
At any time before or after the Effective Time, the Department of Justice,
the FTC or a private person or entity could seek under the antitrust laws, among
other things, to enjoin the Merger or to cause Horizon to divest itself, in
whole or in part, of CMS or of other businesses conducted by Horizon. There can
be no assurance that a challenge to the Merger will not be made or that, if such
a challenge is made, Horizon and CMS will prevail.
STATE LICENSURE AND CERTIFICATE OF NEED REQUIREMENTS. Horizon and CMS have
provided the regulatory authorities in all of the states in which CMS operates
rehabilitation hospitals with any required notices, disclosures and/or
applications for determination of need consistent with applicable licensure
and/or certificate of need statutory and regulatory provisions. In
Massachusetts, CMS filed an application for determination of need on April 21,
1995. The application was accepted as of May 9, 1995. The public comment period
on the application expired on May 11, 1995 with no comments having been filed.
Horizon and CMS anticipate that the determination of need will be issued in due
course. At this time, virtually all of the remaining states in which CMS
operates rehabilitation hospitals have concurred with Horizon's and CMS's view
that the proposed Merger does not constitute a change of ownership for either
licensure or certificate of need purposes. At this time, however, neither
Horizon nor CMS anticipates that any such notification, disclosure or review
will hinder or delay the transactions contemplated by the Merger Agreement.
MASSACHUSETTS. In connection with Horizon's acquisition of Greenery in
February 1994, the Massachusetts Department of Public Health (the "Department")
deemed Horizon to be neither suitable nor responsible in connection with its
initial application to the Department for a license to acquire and operate the
Massachusetts facilities then operated by Greenery, due in part to certain of
Horizon's historical certification and decertification experiences in other
states. Horizon appealed that determination. In order to resolve the matter,
Horizon entered into an agreement with the Department under which the Department
agreed, subject to compliance by Horizon with the terms of the agreement, to
issue three successive six-month probationary licenses to Horizon for the
acquisition and operation of those facilities and, during the 18-month duration
of the agreement, Horizon agreed to commit the management of the Massachusetts
facilities and patient care oversight to a management company owned and operated
by Horizon's regional vice president. (During the pendency of the agreement,
Horizon derives substantially all of the financial benefits from the operation
of these facilities.) In addition, Horizon agreed not to file any application
seeking to acquire or manage any other long-term care or assisted living
facility in Massachusetts for the duration of the agreement. Horizon has been
advised by the Department that the agreement does not apply to the transactions
contemplated by the Merger Agreement. Horizon does not believe that the
agreement with the Department will hinder or delay the effectiveness of the
Merger.
The first of the probationary licenses contemplated under the agreement was
issued on May 24, 1994 and the second was issued effective as of November 26,
1994. Horizon recently filed its application for renewal probationary licenses
with the Department and anticipates that those probationary licenses should be
issued in June 1995. Horizon believes that its relationship with the Department
has improved since Horizon began operating in Massachusetts in February 1994.
Thus, absent the occurrence of unanticipated adverse circumstances (which cannot
now be anticipated), Horizon anticipates receiving full licensure at the
expiration of the agreement. Assuming, however, that the Department
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denies Horizon full licensure and gives Horizon sufficient time to market and
sell these facilities, the denial of such licensure should not have a material
impact upon the financial results of Horizon or the Merger.
MEDICARE. The parties to the Merger Agreement have been advised by their
counsel that the transactions contemplated by the Merger Agreement will not
constitute a "change of ownership" of the Horizon or the CMS "providers" for
purposes of the Medicare program, because the actual "providers" for Medicare
purposes are the CMS subsidiaries in the states in which CMS operates
rehabilitation facilities.
Except as described above, Horizon and CMS are not aware of any other
governmental or regulatory approvals required for consummation of the Merger,
other than compliance with applicable securities laws.
REIMBURSEMENT RATES FOR CONTRACT THERAPY SERVICES.__In April 1995, the
Health Care Financing Administration ("HCFA") issued a memorandum to its
Medicare fiscal intermediaries (the "Fiscal Intermediaries") as guidelines for
assessing costs incurred by inpatient providers ("Care Providers") relating to
Payment of Occupational and Speech Language Pathology Services furnished under
arrangements including contracts between therapy providers and Care Providers.
While not binding on the Fiscal Intermediaries, the HCFA memorandum suggested
certain rates to the Fiscal Intermediaries to assist them in making annual
"prudent buyer" assessments of speech and occupational therapy rates paid by
Care Providers during the Fiscal Intermediary's reviews of the Care Providers'
cost reports. The HCFA memorandum acknowledges that the rates noted in the
memorandum are not absolute limits and should only be used by the Fiscal
Intermediaries for comparative purposes. Following the issuance of the HCFA
memorandum, meetings between industry representatives and HCFA have been held
concerning the merits of the HCFA memorandum. HCFA has asked industry
associations and groups to provide recommendations for inclusion in clarifying
instructions to the Fiscal Intermediaries. In light of the fluid nature of the
HCFA memorandum, neither Horizon nor CMS can predict what effect, if any, the
HCFA memorandum will have on Horizon, CMS or the combined enterprise or if the
rates suggested in the HCFA memorandum will continue to be recommended by HCFA.
Additionally, neither Horizon nor CMS can determine at this time whether the
rates suggested in the HCFA memorandum would be used by HCFA as a basis for
developing possible future regulations creating a salary equivalency based
reimbursement system for speech and occupational therapy services. Although the
managements of Horizon and CMS have developed strategies to deal with potential
future changes, there can be no assurance that future changes in the
administration or interpretation of governmental health care programs will not
have an adverse effect on the results of operations of Horizon, CMS or the
combined enterprise.
HEALTH CARE REFORM AND BUDGETARY PROPOSALS.__Various federal legislators
have introduced health care reform and "balanced budget" proposals, which are
intended to control health care costs, improve access to medical services for
uninsured individuals and balance the federal budget by the year 2002. Certain
of these budgetary proposals have been reported out of committee in both Houses
of Congress. These proposals include reduced rates of growth in the Medicare and
Medicaid programs and proposals to block grant funds to the states to administer
the Medicaid program. While these proposals do not, at this time, appear to
affect adversely Horizon, CMS or the combined enterprise, significant changes in
reimbursement levels under Medicare or Medicaid and changes in applicable
governmental regulations could affect the future results of operations of the
combined enterprise whether positively or negatively. There can be no assurance
that future legislation, health care or budgetary, will not have an adverse
effect on the future results of operation of the combined enterprise.
CMS DEBT
The indentures pursuant to which CMS has issued its 10 3/8% and 10 7/8%
Senior Subordinated Notes contain provisions permitting each holder of such
notes, upon a "change in control" of CMS, to require that CMS repurchase such
holder's notes at a purchase price payable in cash in an amount
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equal to 100% of the principal amount thereof, together with accrued and unpaid
interest. As of March 31, 1995, there was approximately $264.8 million of Senior
Subordinated Notes outstanding pursuant to these indentures. In addition, CMS
will be required to repay amounts outstanding under its existing revolving
credit facility, aggregating approximately $72 million as of March 31, 1995,
upon a "change in control." A "change in control" will not occur upon completion
of the Merger for purposes of such indentures and credit facility because the
holders of CMS Common Stock immediately prior to the Merger will own, directly
or indirectly, at least 40% of the outstanding Horizon Common Stock upon the
completion of the Merger. Horizon may from time to time make open market
purchases of Senior Subordinated Notes subsequent to the Effective Time.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of Horizon Common Stock to be received by CMS stockholders in
connection with the Merger have been registered under the Securities Act and,
except as set forth in this paragraph, may be traded without restriction. The
shares of Horizon Common Stock to be issued in connection with the Merger and
received by persons who are deemed to be "affiliates" (as that term is defined
in Rule 144 under the Securities Act) of CMS prior to the Merger may be resold
by them only in transactions permitted by the resale provisions of Rule 145
under the Securities Act (or, in the case of such persons who become affiliates
of Horizon, Rule 144 under the Securities Act) or as otherwise permitted under
the Securities Act. Under guidelines published by the Commission, the sale or
other disposition of Horizon Common Stock or CMS Common Stock by an affiliate of
either Horizon or CMS, as the case may be, within 30 days prior to the Effective
Time or the sale or other disposition of Horizon Common Stock thereafter prior
to the publication of financial results that include at least 30 days of
post-Merger combined operations of Horizon and CMS (the "Pooling Period") could
preclude pooling of interests accounting treatment of the Merger. Accordingly,
the Merger Agreement provides that each of CMS and Horizon will use all
reasonable efforts to cause its affiliates to execute a written agreement to the
effect that such persons will not sell, transfer or otherwise dispose of any
shares of CMS Common Stock or Horizon Common Stock, as the case may be, during
the Pooling Period and, with respect to affiliates of CMS, that such persons
will not sell, transfer or otherwise dispose of Horizon Common Stock at any time
in violation of the Securities Act or the rules and regulations promulgated
thereunder, including Rule 145.
RIGHTS OF DISSENTING STOCKHOLDERS
Under Delaware law, neither Horizon's nor CMS's stockholders will be
entitled to any appraisal or dissenter's rights in connection with the Merger.
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CERTAIN TERMS OF THE MERGER AGREEMENT
The following description does not purport to be complete and is qualified
in its entirety by reference to the Merger Agreement, a copy of which is
attached as Appendix A to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that, as promptly as practicable after the
satisfaction or waiver of the conditions to effecting the Merger, the parties
shall cause the Merger to be consummated by filing a Certificate of Merger with
the Secretary of State of the State of Delaware, in such form as required by,
and executed in accordance with, the relevant provisions of the DGCL. It is
anticipated that, if the Merger Agreement is approved and adopted at each of the
Horizon Special Meeting and the CMS Special Meeting and all other conditions to
the Merger have been satisfied or waived, the Effective Time will occur on the
date of the Horizon and CMS Special Meetings or as soon thereafter as
practicable.
MANNER AND BASIS OF CONVERTING SHARES
At the Effective Time, each outstanding share of CMS Common Stock, other
than shares of CMS Common Stock held in the treasury of CMS or owned by Horizon
or any direct or indirect wholly-owned subsidiary of either Horizon or CMS
(which shares will be canceled at the Effective Time) will be converted into
.5397 shares of Horizon Common Stock. The Merger Agreement provides that the
Exchange Ratio is to be calculated by dividing $13.00 by the Horizon Transaction
Value (as defined below), rounded to four decimal places; PROVIDED, HOWEVER,
that the Exchange Ratio shall not be less than .4415 nor more than .5397.
"Horizon Transaction Value" means the average closing price on the NYSE
Composite Tape of Horizon Common Stock for the 20 NYSE trading days ending with
the third NYSE trading day immediately preceding the mailing of this Joint Proxy
Statement/Prospectus to the stockholders of CMS. Based on the foregoing, the
Horizon Transaction Value was equal to $ , resulting in the maximum
Exchange Ratio of .5397 shares of Horizon Common Stock for each share of CMS
Common Stock. Notwithstanding the foregoing, if between the date of the Merger
Agreement and the Effective Time the outstanding shares of Horizon Common Stock
or CMS Common Stock shall have been changed into a different number of shares or
a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares,
the Exchange Ratio will be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares.
As soon as practicable following the Effective Time, Horizon will mail to
each record holder of CMS Common Stock immediately prior to the Effective Time,
a letter of transmittal and other information advising such holder of the
consummation of the Merger and for use in exchanging CMS Common Stock
certificates for Horizon Common Stock certificates and cash in lieu of
fractional shares. Letters of transmittal will also be available following the
Effective Time at the offices of Horizon in Albuquerque, New Mexico. After the
Effective Time, there will be no further registration of transfers on the stock
transfer books of CMS of shares of CMS Common Stock that were outstanding
immediately prior to the Effective Time. Share certificates should not be
surrendered for exchange by stockholders of CMS prior to the Effective Time and
the receipt of a letter of transmittal.
No fractional shares of Horizon Common Stock will be issued in the Merger.
Each stockholder of CMS entitled to a fractional share will receive an amount in
cash equal to the value of such fractional share based upon the closing price of
Horizon Common Stock on the NYSE Composite Tape on the date of the Effective
Time. No interest will be paid on such amount, and all shares of CMS Common
Stock held by a record holder shall be aggregated for purposes of computing the
amount of such payment.
Until surrendered and exchanged, each certificate previously evidencing CMS
Common Stock shall represent solely Horizon Common Stock and the right to
receive cash in lieu of fractional shares. Unless and until any such
certificates shall be so surrendered and exchanged, no dividends or other
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distributions payable to the holders of record of Horizon Common Stock as of any
time after the Effective Time shall be paid to the holders of such certificates
previously evidencing CMS Common Stock; PROVIDED, HOWEVER, that, upon any such
surrender and exchange of such certificates, there shall be paid to the record
holders of the certificates issued and exchanged therefor (i) the amount,
without interest thereon, of dividends and other distributions, if any, with a
record date after the Effective Time theretofore paid with respect to such whole
shares of Horizon Common Stock, and (ii) at the appropriate payment date, the
amount of dividends or other distributions, if any, with a record date after the
Effective Time but prior to surrender and a payment date occurring after
surrender, payable with respect to such whole shares of Horizon Common Stock.
ASSUMPTION OF OBLIGATIONS TO ISSUE CMS COMMON STOCK
The Merger Agreement provides that Horizon and CMS will take such action as
may be necessary to permit Horizon to assume, at the Effective Time, each CMS
Option that remains unexercised in whole or in part and to substitute shares of
Horizon Common Stock for shares of CMS Common Stock purchasable under such
assumed CMS Option, subject to certain terms and conditions. The assumed CMS
Option will not give the optionee additional benefits that such optionee did not
have under the CMS Option, and shall be assumed on the same terms and conditions
as the CMS Option being assumed, subject to the matters described in the
following paragraph.
The number of shares of Horizon Common Stock purchasable under any CMS
Option assumed by Horizon will be equal to the number of shares of Horizon
Common Stock that the holder of the CMS Option would have received (without
regard to any vesting schedule) upon consummation of the Merger had such CMS
Option been exercised in full immediately prior to the Effective Time, and the
per share exercise price will be equal to the per share exercise price of the
CMS Option divided by the Exchange Ratio.
Horizon has agreed in the Merger Agreement to assume, at the Effective Time,
the obligations of CMS with respect to the issuance of CMS Common Stock under
the CMS Warrants, the CMS Debenture and the CMS Earnout Agreements by agreeing
to issue in lieu thereof Horizon Common Stock. Assuming that no shares of CMS
Common Stock are issued prior to the Effective Time on exercise of any CMS
Options or the CMS Warrants, on conversion of the CMS Debenture or pursuant to
the CMS Earnout Agreements, Horizon will be required to reserve for issuance an
aggregate of 4,394,818 shares of Horizon Common Stock for such purposes.
CONDITIONS TO THE MERGER
The respective obligations of Horizon and CMS to consummate the Merger are
subject to the satisfaction of the following conditions, any or all of which may
be waived in writing by CMS and Horizon, in whole or in part, to the extent
permitted by applicable law: (a) the Registration Statement shall have been
declared effective by the Commission under the Securities Act, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and no proceedings for that purpose shall have been
initiated by the Commission; (b) the Merger Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of CMS, and
the issuance of the Horizon Common Stock in the Merger shall have been approved
by the requisite vote of the stockholders of Horizon; (c) no Governmental Entity
(as defined in the Merger Agreement) or federal or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and which has
the effect of making the Merger illegal or otherwise prohibiting consummation of
the Merger; (d) the applicable waiting period under the HSR Act with respect to
the transactions contemplated by the Merger Agreement shall have expired or been
terminated; (e) Horizon and CMS shall have been advised in writing by Arthur
Andersen LLP on the date of the Effective Time that the Merger should be treated
for financial accounting purposes as a pooling of interests in accordance with
generally accepted accounting principles and the rules, regulations and
interpretations of the Commission and (f) there shall not be any action taken,
or any statute, rule, regulation or order enacted, entered, enforced or
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deemed applicable to the Merger by any Governmental Entity in connection with
the grant of a regulatory approval necessary to the continuing operation of the
business or future prospects of CMS, that imposes any condition or restriction
upon Horizon or the business or operations of CMS that, individually or when
taken together with all such conditions or restrictions, would be materially
adverse to the financial condition, results of operations, business or prospects
of CMS or Horizon.
The obligation of Horizon to effect the Merger is also subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived in writing by Horizon, in whole or in part: (a)
each of the representations and warranties of CMS contained in the Merger
Agreement and the Stock Option Agreement shall be true and correct in all
material respects as of the Effective Time as though made as of the Effective
Time; (b) CMS shall have performed or complied in all material respects with all
agreements and covenants required by the Merger Agreement to be performed or
complied with by it on or prior to the Effective Time; (c) Horizon shall have
received all "blue sky" permits and other authorizations necessary to consummate
the transaction contemplated by the Merger Agreement and (d) none of the events
described in Sections 11(a)(ii) or 13 of CMS's stockholder rights plan shall
have occurred, and the rights thereunder shall not have become unredeemable and
such rights shall not become exercisable for capital stock of Horizon upon
consummation of the Merger. Horizon will not waive the condition described in
clause (c) above.
The obligation of CMS to effect the Merger is also subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived in writing by CMS, in whole or in part: (a) each
of the representations and warranties of Horizon and Merger Sub contained in the
Merger Agreement shall be true and correct in all material respects as of the
Effective Time as though made as of the Effective Time; and (b) Horizon and
Merger Sub shall have performed or complied in all material respects with all
agreements and covenants required by the Merger Agreement to be performed or
complied with by them on or prior to the Effective Time.
There can be no assurance that all of the conditions to the Merger will be
satisfied.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of CMS,
Merger Sub and Horizon relating to, among other things, (i) the organization and
similar corporate matters of each, (ii) the capitalization of each, (iii) the
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and the Stock Option Agreement and related matters, and the absence of
conflicts, violations and defaults under their respective charters and bylaws
and certain other agreements and documents, (iv) compliance with law, (v) the
documents and reports filed by them with the Commission and the accuracy of the
information contained therein, (vi) the absence of certain changes and events,
(vii) litigation, (viii) employee benefit and labor matters, (ix) taxes and
matters relating to a tax-free reorganization, (x) certain matters relating to
pooling of interests accounting, (xii) certain business practices, (xiii) the
vote required to approve the Merger Agreement, (xiv) brokers, (xv) CMS's
stockholder rights plan, (xvi) insurance, (xvii) properties and (xviii) the
accuracy of certain information provided. The representations and warranties
expire at the Effective Time.
CERTAIN COVENANTS; CONDUCT OF BUSINESS PRIOR TO THE MERGER
Each of CMS and Horizon has agreed that, prior to the Effective Time, unless
expressly contemplated by the Merger Agreement or otherwise consented to in
writing by the other, it will and will cause its subsidiaries to (a) operate its
business in the usual and ordinary course consistent with past practices; (b)
use all reasonable efforts to preserve substantially intact its business
organization, maintain its material rights and franchises, retain the services
of its respective officers and key employees and maintain its relationships with
its material customers and suppliers; (c) maintain and keep its properties and
assets in as good repair and condition as at present, ordinary wear and tear
excepted, and maintain supplies and inventories in quantities consistent with
its customary business practice; and (d) use all reasonable efforts to keep in
full force and effect insurance and bonds comparable in amount and scope of
coverage to that currently maintained.
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Each of CMS and Horizon has agreed that, prior to the Effective Time, unless
expressly contemplated by the Merger Agreement or otherwise consented to in
writing by the other, it will not do, and will not permit any of its
subsidiaries to do, any of the following: (a)(i) increase the compensation
payable to or to become payable to any director or executive officer, subject to
certain exceptions; (ii) grant any severance or termination pay to, or enter
into or amend any employment or severance agreement with, any director, officer
or employee, subject to certain exceptions; (iii) establish, adopt or enter into
any employee benefit plan or arrangement; or (iv) amend, or take any other
actions with respect to, any benefit plans, subject to certain exceptions; (b)
declare or pay any dividend on, or make any other distribution in respect of,
outstanding shares of capital stock, with certain exceptions; (c)(i) except for
certain matters and subject to certain exceptions, redeem, purchase or otherwise
acquire any shares of its or any of its subsidiaries' capital stock or any
securities or obligations convertible into or exchangeable for any shares of its
or its subsidiaries' capital stock, or any options, warrants or conversion or
other rights to acquire any shares of its or its subsidiaries' capital stock or
any such securities or obligations; (ii) effect any reorganization or
recapitalization, subject to certain exceptions; or (iii) split, combine or
reclassify any of its or its subsidiaries' 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 or its subsidiaries' capital stock, subject to
certain exceptions; (d)(i) except for certain matters and except as contemplated
by the Stock Option Agreement, issue, sell, grant, award, deliver or limit the
voting rights of any class of its or its subsidiaries' capital stock, any
securities convertible into or exercisable or exchangeable for any such shares,
or any rights, warrants or options to acquire any such shares; (ii) amend or
otherwise modify the terms of any such rights, warrants or options the effect of
which shall be to make such terms more favorable to the holders thereof; (iii)
take any action to accelerate the vesting of CMS Options; (e) acquire or agree
to acquire any business or other entity, or otherwise acquire or agree to
acquire any assets of any other person (with certain exceptions) with an
aggregate purchase price in excess of $25 million; (f) sell or otherwise dispose
of any of its material assets or any material assets of any of its subsidiaries,
with certain exceptions; (g) release any third party from its obligations under
any existing standstill provision relating to a Competing Transaction or
otherwise under any confidentiality or other agreement relating to material
information; (h) propose to adopt certain amendments to its charter or bylaws;
(i) change any of its significant accounting policies or take certain actions
with respect to taxes; (j) incur any obligation for borrowed money or purchase
money indebtedness, with certain exceptions; (k) enter into certain material
contracts; or (l) agree in writing or otherwise to do any of the foregoing.
NO SOLICITATION
Additionally, CMS has agreed not to initiate, solicit or encourage
(including by way of furnishing information or assistance), or take any other
action to facilitate, any inquiries or the making of any proposal relating to,
or that may reasonably be expected to lead to, any Competing Transaction, or
enter into discussions or negotiate with any person or entity in furtherance of
such inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize or permit any of the officers, directors or
employees of CMS or any of its subsidiaries or any investment banker, financial
advisor, attorney, accountant or other representative retained by CMS or any of
CMS's subsidiaries to take any such action, and CMS has agreed to promptly
notify Horizon of all relevant terms of any such inquiries and proposals
received by CMS or any of its subsidiaries or by any such officer, director,
employee, investment banker, financial advisor, attorney, accountant or other
representative relating to any of such matters and if such inquiry or proposal
is in writing, CMS has agreed to promptly deliver or cause to be delivered to
Horizon a copy of such inquiry or proposal; PROVIDED, HOWEVER, that the Board of
Directors of CMS may (i) furnish information to, or enter into discussions or
negotiations with, any person or entity in connection with an unsolicited bona
fide proposal in writing by such person or entity relating to a Competing
Transaction, for which financing, to the extent required, is then committed
(except that a financing commitment is not required in order to furnish
information only), if, and only to the extent that (A) the Board of Directors of
CMS, after duly considering the written advice of outside legal counsel,
determines in good faith that such action is required for such Board of
Directors to comply with its fiduciary duties to stockholders imposed by
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<PAGE>
the DGCL and (B) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity, CMS provides written
notice to Horizon to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such person or entity or (ii)
comply with Rule 14e-2 promulgated under the Exchange Act with regard to a
Competing Transaction.
CERTAIN POST-MERGER MATTERS
Once the Merger is consummated, Merger Sub will cease to exist as a
corporation, and CMS as the Surviving Corporation will succeed to all of the
assets, rights and obligations of Merger Sub.
Pursuant to the Merger Agreement, the CMS Charter and the CMS By-laws, as in
effect immediately prior to the Effective Time, will be the certificate of
incorporation and bylaws of the Surviving Corporation until amended as provided
therein and pursuant to the DGCL.
TERMINATION OR AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger Agreement and the Merger by
the stockholders of CMS: (a) by mutual consent of Horizon and CMS; (b) by
Horizon, upon a breach of any material representation, warranty, covenant or
agreement on the part of CMS set forth in the Merger Agreement or the Stock
Option Agreement, or if any representation or warranty of CMS shall have become
untrue, in either case such that Horizon's conditions to effecting the Merger
would not be satisfied, subject to a cure period under certain circumstances (a
"Terminating CMS Breach"); (c) by CMS, upon a breach of any material
representation, warranty, covenant or agreement on the part of Horizon or Merger
Sub set forth in the Merger Agreement, or if any representation or warranty of
Horizon or Merger Sub shall have become untrue, in either case such that CMS's
conditions to effecting the Merger would not be satisfied, subject to a cure
period under certain circumstances (a "Terminating Horizon Breach"); (d) by
either Horizon or CMS, if there shall be any Order (as defined in the Merger
Agreement) which is final and nonappealable preventing the consummation of the
Merger, subject to a limited exception; (e) by either Horizon or CMS, if the
Merger shall not have been consummated before December 31, 1995; PROVIDED,
HOWEVER, that the Merger Agreement may be extended by written notice of either
Horizon or CMS to a date not later than March 31, 1996 if the Merger shall not
have been consummated as a direct result of CMS, Horizon or Merger Sub having
failed by December 31, 1995 to receive all required regulatory approvals or
consents with respect to the Merger or as the result of the entering of an
Order; (f) by either Horizon or CMS, if the Merger Agreement and the Merger
shall fail to receive the requisite vote for approval and adoption by the
stockholders of CMS at the CMS Special Meeting and by the stockholders of
Horizon at the Horizon Special Meeting; (g) by Horizon, if (1) the Board of
Directors of CMS withdraws, modifies or changes its recommendation of the Merger
Agreement or the Merger in a manner adverse to Horizon or shall have resolved to
do any of the foregoing; (2) the Board of Directors of CMS shall have
recommended to the stockholders of CMS any Competing Transaction or shall have
resolved to do so; (3) a tender offer or exchange offer for 20% or more of the
outstanding shares of capital stock of CMS is commenced, and the Board of
Directors of CMS does not recommend that stockholders not tender their shares
into such tender or exchange offer, or (4) any person (other than Horizon or an
affiliate thereof) shall have acquired beneficial ownership or the right to
acquire beneficial ownership of, or any "group" (as such term is defined under
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder) shall have been formed that beneficially owns, or has the right to
acquire beneficial ownership of, 20% or more of the then outstanding shares of
capital stock of CMS; (h) by CMS or Horizon, if CMS accepts a Superior Proposal;
or (i) by CMS, if (1) a tender offer or exchange Offer for 20% or more of the
outstanding shares of capital stock of Horizon is commenced, and the Board of
Directors of Horizon does not recommend that stockholders not tender their
shares into such tender or exchange offer or (2) any person shall have acquired
beneficial ownership or the right to acquire beneficial ownership of, or any
"group" shall have been formed that beneficially owns, or has the right to
acquire to beneficial ownership of, 20% or more of the then outstanding shares
of capital stock of Horizon.
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Subject to limited exceptions, including the survival of CMS's agreement to
pay a termination fee to Horizon under certain circumstances and Horizon's
agreement to pay a termination fee to CMS under certain circumstances, as
discussed below, in the event of the termination of the Merger Agreement, the
Merger Agreement shall become void, there shall be no liability on the part of
Horizon, Merger Sub or CMS to any other party and all rights and obligations of
the parties thereto shall cease, except that no party will be relieved from its
obligations with respect to any breach of the Merger Agreement.
The Merger Agreement may be amended by the parties thereto by action taken
by or on behalf of their respective Boards of Directors at any time prior to the
Effective Time; PROVIDED, HOWEVER, that, after approval of the Merger by the
stockholders of CMS, no amendment may be made that would reduce the amount or
change the type of consideration into which each share of CMS Common Stock shall
be converted pursuant to the Merger Agreement upon consummation of the Merger.
At any time prior to the Effective Time, any party to the Merger Agreement may
(a) extend the time for the performance of any of the obligations or other acts
of the other party thereto, (b) waive any inaccuracies in the representations
and warranties of the other party contained therein or in any document delivered
pursuant thereto and (c) waive compliance by the other party with any of the
agreements or conditions contained therein.
EXPENSES AND TERMINATION FEES
All expenses incurred by Horizon and CMS will be borne by the party
incurring such expenses; PROVIDED, HOWEVER, that all expenses related to
printing, filing and mailing this Joint Proxy Statement/ Prospectus and all
Commission and other regulatory filing fees incurred in connection with the
Registration Statement or this Joint Proxy Statement/Prospectus will be divided
equally between CMS and Horizon.
The Merger Agreement provides that CMS will pay to Horizon the Termination
Fee (as defined below, plus Horizon's expenses in connection with the
transaction contemplated by the Merger Agreement up to $5 million), if the
Merger Agreement is terminated in accordance with its terms: (a) by either
Horizon or CMS, if the Merger Agreement fails to receive the requisite vote for
approval and adoption by the stockholders of CMS at the CMS Special Meeting,
and, prior to the time of such meeting, CMS shall have furnished information to,
or entered into discussions or negotiations with, any person or entity with
respect to a Competing Transaction involving CMS or any of its subsidiaries and
the Board of Directors of CMS shall not have reaffirmed its recommendation to
the stockholders of CMS with respect to the transactions contemplated by the
Merger Agreement by the time of the CMS Special Meeting; (b) by Horizon, if the
Board of Directors of CMS withdraws, modifies or changes its recommendation of
the Merger Agreement or the Merger in a manner adverse to Horizon (or resolves
to do so); (c) by Horizon, if the Board of Directors of CMS shall recommend any
Competing Transaction to CMS's stockholders (or resolves to do so); (d) by
Horizon, if a tender or exchange offer for 20% or more of the capital stock of
CMS is commenced, and CMS's Board of Directors does not recommend that
stockholders not tender their shares into such tender offer or exchange offer;
(e) by Horizon, if any person acquires beneficial ownership or the right to
acquire beneficial ownership of, or any "group" is formed that beneficially
owns, or has the right to acquire beneficially ownership of, 20% or more of the
then outstanding shares of capital stock of CMS; (f) by CMS or Horizon, if CMS
accepts a Superior Proposal; or (g)(i) by Horizon, as a result of a Terminating
CMS Breach or (ii) by Horizon or CMS, if the Merger shall not have been
consummated before December 31, 1995 (or March 31, 1996 if extended) and at the
time of termination a Terminating CMS Breach exists and, with respect to (i) and
(ii) above, within nine months after such termination a Competing Transaction is
consummated or any person shall have acquired beneficial ownership or the right
to acquire beneficial ownership of, or any "group" shall have been formed that
beneficially owns, or has the right to acquire beneficial ownership of, 20% or
more of the then outstanding capital stock of CMS; PROVIDED, HOWEVER, that, for
such purpose only, a breach of a representation shall not be deemed to be a
Terminating CMS Breach if the representation was true and correct as of the date
of the Merger Agreement. The "Termination Fee" is equal to $20 million, less the
aggregate amount of any cash
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<PAGE>
payments to Horizon in excess of $10 million pursuant to provisions of the Stock
Option Agreement requiring CMS, under the circumstances described therein, to
repurchase the Option or the Option Shares (each as defined below).
The Merger Agreement also provides that Horizon will pay to CMS a
termination fee of $10 million if the Merger Agreement is terminated in
accordance with its terms: (a) by CMS, if a tender or exchange offer for 20% or
more of the capital stock of Horizon is commenced, and Horizon's Board of
Directors does not recommend that stockholders not tender their shares into such
tender offer or exchange offer; (b) by CMS, if any person acquires beneficial
ownership or the right to acquire beneficial ownership of, or any "group" is
formed that beneficially owns, or has the right to acquire beneficially
ownership of, 20% or more of the then outstanding shares of capital stock of
Horizon; or (c)(i) by CMS, as a result of a Terminating Horizon Breach or (ii)
by Horizon or CMS, if the Merger shall not have been consummated before December
31, 1995 (or March 31, 1996 if extended) and at the time of termination a
Terminating Horizon Breach exists and, with respect to (i) and (ii) above,
within nine months after such termination a Horizon Competing Transaction is
consummated or any person shall have acquired beneficial ownership or the right
to acquire beneficial ownership of, or any "group" shall have been formed that
beneficially owns, or has the right to acquire beneficial ownership of, 20% or
more of the then outstanding capital stock of Horizon; PROVIDED, HOWEVER, that,
for such purpose only, a breach of a representation shall not be deemed to be a
Terminating Horizon Breach if the representation was true and correct as of the
date of the Merger Agreement. A "Horizon Competing Transaction" means any
merger, consolidation, share exchange, business combination or similar
transaction involving Horizon or any of its Significant Subsidiaries or the
acquisition in any manner, directly or indirectly, of a material interest in any
voting securities of, or a material equity interest in a substantial portion of
the assets of, Horizon or any of its Significant Subsidiaries.
INDEMNIFICATION
The Merger Agreement provides that, for a period of six years after the
Effective Time, Horizon (i) shall not amend or otherwise modify certain
limitation of liability and indemnification provisions of CMS's Charter and
By-Laws in a manner that would adversely affect the rights thereunder of any
individuals who at any time prior to the Effective Time were directors or
officers of CMS in respect of acts or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
the Merger Agreement), unless such amendment or modification is required by law
and (ii) shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by CMS (or substitute
policies under certain circumstances) with respect to claims arising from facts
or events which occurred before the Effective Time; PROVIDED, HOWEVER, that in
no event shall Horizon be required to expend more than 200% of the current
annual premiums paid by CMS for such insurance.
STOCK OPTION AGREEMENT
Pursuant to the Stock Option Agreement, Horizon has an option ("the Option")
to acquire from CMS up to 5,793,567 shares, subject to certain adjustments (the
"Option Shares"), of CMS Common Stock for $13.00 per share in cash, subject to
certain adjustments (the "Exercise Price"). The number of Option Shares
represents 15% of the outstanding shares of CMS Common Stock on March 31, 1995,
the date of the Stock Option Agreement. The Option was granted by CMS as a
condition of and in consideration for Horizon's entering into the Merger
Agreement.
The Option may be exercised by Horizon, in whole or in part, at any time or
from time to time after the Merger Agreement becomes terminable by Horizon under
circumstances that would, if the Merger Agreement were terminated as a result
thereof, entitle Horizon to the Termination Fee described under "Certain Terms
of the Merger Agreement -- Expenses and Termination Fee." The circumstances
giving rise to the exercisability of the Option are referred to in the Stock
Option Agreement as "Trigger Events."
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<PAGE>
At any time during which the Option is exercisable (the "Repurchase
Period"), Horizon may require CMS to purchase the Option or Option Shares
purchased by Horizon pursuant to the Option (the "Put Right") at the prices
described below under "Option Repurchase Price" and "Option Share Repurchase
Price," respectively.
OPTION REPURCHASE PRICE. The repurchase price for the Option would be
calculated by reference to the underlying Option Shares and would be equal to
the excess, if any, of (i) the "Market/Offer Price" for shares of CMS Common
Stock as of the date Horizon exercises the Put Right (the "Repurchase Exercise
Date") over (ii) the Exercise Price. The "Market/Offer Price" is the higher of
(A) the highest price per share offered as of the Repurchase Exercise Date
pursuant to any tender or exchange offer or other Competing Transaction that was
made prior to such date and not terminated or withdrawn as of such date and (B)
the Fair Market Value of CMS Stock as of such date. The "Fair Market Value" of
any share shall be the average of the daily closing sales price for such share
on the NYSE during the ten NYSE trading days prior to the fifth NYSE trading day
preceding the date such is to be determined.
OPTION SHARE REPURCHASE PRICE. Under the second alternative, the aggregate
repurchase price per Option Share to be repurchased would be equal to the sum of
(i) the Exercise Price paid by Horizon for Option Shares acquired pursuant to
the Option and (ii) the difference between the Market/Offer Price and the
Exercise Price, but only if the Market/Offer Price is greater than the Exercise
Price.
Horizon may not exercise its Put Right in a manner that would result in the
cash payment to Horizon of an aggregate amount pursuant to the Put Right of more
than $30 million, less the amount, if any, of the Termination Fee paid to
Horizon pursuant to the Merger Agreement. This limitation, however, relates only
to the repurchase obligation, and does not limit Horizon's ability to exercise
the Option in accordance with its terms.
The Option will terminate upon the earlier of: (i) the Effective Time; (ii)
the termination of the Merger Agreement in accordance with its terms (other than
upon or during the continuance of a Trigger Event); or (iii) 180 days following
any termination of the Merger Agreement upon or during the continuance of a
Trigger Event (or if, at the expiration of such 180 day period the Option cannot
be exercised by reason of any applicable judgment, decree, order, law or
regulation, ten business days after such impediment to exercise shall have been
removed or shall have become final and not subject to appeal, but in no event
under this circumstance later than December 31, 1996). The Option may not,
however, be exercised if Horizon is in material breach of any of its material
representations or warranties, or in material breach of any of its covenants or
agreements, contained in the Stock Option Agreement or in the Merger Agreement.
The obligation of CMS to issue Option Shares to Horizon pursuant to the
Stock Option Agreement is subject to certain conditions, including, among
others, that (i) all waiting periods, if any, under the HSR Act, applicable to
the issuance of Option Shares shall have expired or have been terminated; and
(ii) all consents, approvals, orders or authorizations of, or registrations,
declarations or filings with, any Governmental Entity, if any, required in
connection with the issuance of Option Shares shall have been obtained or made,
as the case may be.
Horizon has agreed that for the five year period ending March 31, 2000 (the
"Expiration Date"), it will vote any shares of capital stock of CMS acquired by
Horizon pursuant to the Option ("Restricted Shares) or otherwise beneficially
owned by Horizon (within the meaning of Rule 13d-3 under the Exchange Act) on
each matter submitted to a vote of stockholders of CMS for and against such
matter in the same proportion as the vote of all other stockholders of CMS are
voted (whether by proxy or otherwise) for and against such matter. Horizon has
also agreed that prior to the Expiration Date, it will not, directly or
indirectly, by operation of law or otherwise, sell, assign, pledge, or otherwise
dispose of or transfer any Restricted Shares beneficially owned by Horizon,
other than (i) pursuant to an exercise of the Put Right described above, (ii) in
connection with a "Qualifying Offer" or (iii) in connection with the exercise of
certain registration rights granted in the Stock Option Agreement. A
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"Qualifying Offer" is a tender or exchange offer that has been approved or
recommended, or otherwise determined to be fair to and in the best interests of
the stockholders of the CMS, by a majority of the members of the Board of
Directors of CMS, which majority shall include a majority of directors who were
directors prior to the announcement of such tender or exchange offer.
The Stock Option Agreement has been filed as an exhibit to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part, and is
incorporated herein by reference.
VOTING AGREEMENT
In order to induce Horizon to enter into the Merger Agreement, Rocco A.
Ortenzio, Chairman of the Board and Chief Executive Officer of CMS, Robert A.
Ortenzio, President and Chief Operating Officer of CMS and two corporations
controlled by them (collectively, the "Stockholders") entered into the Voting
Agreement with Horizon. As of the CMS Record Date, the Stockholders held shares
of CMS Common Stock representing in the aggregate approximately 8.9% of the
voting power of CMS.
Pursuant to the Voting Agreement, the Stockholders have, among other things,
agreed to vote all shares of CMS Common Stock beneficially owned by them in
favor of the Merger and (if requested by Horizon, not (i) to attend, or vote any
CMS Common Stock beneficially owned by them at, any annual or special meeting of
stockholders or (ii) to execute any written consent of stockholders) against any
combination proposal or other matter that may interfere or be inconsistent with
the Merger.
The Stockholders have also agreed that no Stockholder or any corporation or
other person controlled by any Stockholder or any affiliate or associate
thereof, other than CMS and its subsidiaries (collectively, the "Stockholder
Group"), will, directly or indirectly, sell, transfer, pledge or otherwise
dispose of, or grant a proxy with respect to, any shares of CMS Common Stock
beneficially owned by any member of the Stockholder Group to any person other
than Horizon or its designee, or grant an option with respect to any of the
foregoing, or enter into any other agreement or arrangement with respect to any
of the foregoing.
The Voting Agreement also provides that no Stockholder or any other member
of the Stockholder Group will initiate, solicit or encourage (including by way
of furnishing information or assistance), or take any other action to
facilitate, any inquiries or the making of any proposal relating to, or that may
reasonably be expected to lead to, any Competing Transaction, or enter into
discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to, or endorse, any
Competing Transaction, or authorize or permit any of the officers, directors or
employees of any Stockholder or any member of the Stockholder Group or any
investment banker, financial advisor, attorney, accountant or other
representative retained by any Stockholder or any other member of the
Stockholder Group to take any such action.
The parties to the Voting Agreement have agreed that nothing in the Voting
Agreement will be deemed to prohibit any Stockholder from acting in accordance
with such Stockholder's fiduciary duties solely to the extent that such
Stockholder is acting in the capacity of officer or director of CMS. The Voting
Agreement terminates upon the termination of the Merger Agreement.
The Voting Agreement has been filed as an exhibit to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part, and is
incorporated herein by reference.
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INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma condensed balance sheet at February 28, 1995 gives
effect to (i) the combination of Horizon's historical assets, liabilities and
stockholders' equity at February 28, 1995 with the historical assets,
liabilities and stockholders' equity of CMS as of March 31, 1995 accounted for
as a pooling of interests as if the Merger had occurred on February 28, 1995,
and (ii) as adjusted to give effect to the individually insignificant
acquisitions effected subsequent to February 28, 1995 as if the transactions had
occurred on February 28, 1995. Such adjustments are more fully described in the
notes to the unaudited pro forma condensed balance sheet.
The unaudited pro forma condensed statement of earnings for the year ended
May 31, 1994 gives effect to (i) the Merger accounted for as a pooling of
interests, (ii) the merger of Greenery into Horizon, (iii) the acquisition of
peopleCARE and (iv) individually insignificant acquisitions effected subsequent
to June 1, 1993 by Horizon, as if all such transactions had occurred on June 1,
1993. The unaudited pro forma condensed statement of earnings for the year ended
May 31, 1994 includes historical results of operations as follows: (i) the
results of operations of Horizon for its fiscal year ended May 31, 1994, (ii)
the results of operations of CMS for its fiscal year ended June 30, 1994, (iii)
the results of operations of Greenery for the eight and one-half months ended
February 10, 1994, (iv) the results of operations of peopleCARE for the twelve
months ended April 30, 1994 and (v) the results of operations of the
individually insignificant acquisitions for varying fiscal periods to the extent
not already included in the historical amounts of Horizon. The combined
historical amounts have been adjusted by giving effect to the assumptions and
adjustments included in the accompanying notes to the unaudited pro forma
condensed financial statements.
The unaudited pro forma condensed statement of earnings for the nine months
ended February 28, 1995 gives effect to (i) the Merger accounted for as a
pooling of interests, (ii) the acquisitions of peopleCARE and individually
insignificant acquisitions by Horizon, as if all such transactions had occurred
on June 1, 1994. The unaudited pro forma condensed statement of earnings for the
nine months February 28, 1995 includes historical results of operations as
follows: (i) the results of operations of Horizon for the nine months ended
February 28, 1995, (ii) the results of operations of CMS for the nine months
ended March 31, 1995, (iii) the results of peopleCARE for the two months ended
July 31, 1994 and (iv) the results of operations of the individually
insignificant acquisitions for varying interim periods to the extent not already
included in the historical amounts of Horizon. The combined historical amounts
have been adjusted by giving effect to the assumptions and adjustments included
in the accompanying notes to the unaudited pro forma condensed financial
statements.
The unaudited pro forma condensed statements of earnings for the years ended
May 31, 1993 and 1992 give effect to the Merger accounted for as a pooling of
interests as if the transaction had occurred on June 1, 1992 and 1991,
respectively. The unaudited pro forma condensed statement of earnings for the
years ended May 31, 1993 and 1992 includes the historical results of operations
as follows: (i) the results of operations of Horizon for its fiscal years ended
May 31, 1993 and 1992 and (ii) the results of operations of CMS for its fiscal
years ended June 30, 1993 and 1992.
The following pro forma financial information may not necessarily reflect
the financial condition or results of operations of Horizon or Horizon and CMS
combined, which would have actually resulted had the transactions referred to
above occurred as of the date and for the periods indicated or reflect the
future earnings of Horizon or Horizon and CMS combined. The pro forma financial
information should be read in conjunction with the accompanying notes to the
unaudited pro forma condensed financial statements and the financial statements
of Horizon, CMS, Greenery and peopleCARE incorporated by reference herein.
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HORIZON HEALTHCARE CORPORATION AND SUBSIDIARIES AND
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AT FEBRUARY 28, 1995
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL POOLING OF
---------------------- INTERESTS PRO FORMA HISTORICAL ACQUISITION
HORIZON CMS ADJUSTMENTS (1) COMBINED ACQUISITIONS(2) ADJUSTMENTS(3)
---------- ---------- --------------- ------------ --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ 14,135 $ 23,142 $ -- $ 37,277 $ 3 $ --
Accounts receivable............ 133,659 216,025 -- 349,684 3,151 --
Other current assets........... 26,038 44,844 -- 70,882 59 --
---------- ---------- --------------- ------------ ------- ---------------
Total current assets........... 173,832 284,011 -- 457,843 3,213 --
Land, buildings and equipment,
net........................... 360,496 240,464 -- 600,960 494 10,056(a)
Notes receivable............... 19,690 29,390 -- 49,080 8 --
Goodwill....................... 75,182 89,871 -- 165,053 -- 2,716(a)
Other long-term assets......... 54,501 78,432 -- 132,933 68 --
---------- ---------- --------------- ------------ ------- ---------------
Total assets................. $ 683,701 $ 722,168 $ -- $ 1,405,869 $ 3,783 $ 12,772
---------- ---------- --------------- ------------ ------- ---------------
---------- ---------- --------------- ------------ ------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities............ $ 51,299 $ 145,414 $ 23,000(b) $ 219,713 $ 2,548 $ --
Long-term debt and capital
lease obligations............. 215,163 310,895 -- 526,058 -- --
Other long-term liabilities and
minority interest............. 19,170 24,539 -- 43,709 22 --
Stockholders' equity:
Preferred stock ($.001 par
value, 500,000 shares
authorized, nonissued....... -- -- -- -- -- --
Common stock ($.001 par
value, 150,000,000 shares
authorized, 29,027,527
shares issued with
28,523,752 shares
outstanding, 49,226,237
shares pro forma combined
issued...................... 29 386 (366)(a) 49 10 (9)(a)
Additional paid-in
capital..................... 351,073 194,485 366(a) 545,924 -- 13,984(a)
Retained earnings............ 52,554 46,449 (23,000)(b) 76,003 1,203 (1,203)(a)
Treasury stock............... (5,587) -- -- (5,587) -- --
---------- ---------- --------------- ------------ ------- ---------------
Total stockholders' equity... 398,069 241,320 (23,000) 616,389 1,213 12,772
---------- ---------- --------------- ------------ ------- ---------------
Total liabilities and
stockholders' equity........ $ 683,701 $ 722,168 $ -- $ 1,405,869 $ 3,783 $ 12,772
---------- ---------- --------------- ------------ ------- ---------------
---------- ---------- --------------- ------------ ------- ---------------
<CAPTION>
PRO FORMA
COMBINED
AFTER
ACQUISITIONS
------------
<S> <C>
Cash and cash equivalents....... $ 37,280
Accounts receivable............ 352,835
Other current assets........... 70,941
------------
Total current assets........... 461,056
Land, buildings and equipment,
net........................... 611,510
Notes receivable............... 49,088
Goodwill....................... 167,769
Other long-term assets......... 133,001
------------
Total assets................. $ 1,422,424
------------
------------
Current liabilities............ $ 222,261
Long-term debt and capital
lease obligations............. 526,058
Other long-term liabilities and
minority interest............. 43,731
Stockholders' equity:
Preferred stock ($.001 par
value, 500,000 shares
authorized, nonissued....... --
Common stock ($.001 par
value, 150,000,000 shares
authorized, 29,027,527
shares issued with
28,523,752 shares
outstanding, 49,226,237
shares pro forma combined
issued...................... 50
Additional paid-in
capital..................... 559,908
Retained earnings............ 76,003
Treasury stock............... (5,587)
------------
Total stockholders' equity... 630,374
------------
Total liabilities and
stockholders' equity........ $ 1,422,424
------------
------------
</TABLE>
(See Notes to Unaudited Pro Forma Condensed Financial
Statements for explanations of adjustments.)
59
<PAGE>
HORIZON HEALTHCARE CORPORATION AND SUBSIDIARIES AND
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1995
<TABLE>
<CAPTION>
HISTORICAL POOLING OF
-------------------- INTERESTS PRO FORMA HISTORICAL ACQUISITION
HORIZON CMS ADJUSTMENTS(4) COMBINED ACQUISITIONS(5) ADJUSTMENTS(6)
--------- --------- --------------- ---------- --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues......................... $ 459,457 $ 740,724 $ -- $1,200,181 $ 51,100 $ (33)(g)
--------- --------- --------------- ---------- --------------- ---------------
Cost of services........................... 348,507 655,918 (15,189)(a) 989,236 40,364 (35)(g)
(921)(k)
Administrative and general................. 47,163 -- 15,189(a) 62,352 5,977 (50)(h)
Interest expense........................... 13,335 26,363 -- 39,698 1,737 641(i)
1,424(l)
Depreciation and amortization.............. 13,063 27,952 -- 41,015 783 682(m)
155(j)
Special charge............................. -- 18,443 -- 18,443 -- --
--------- --------- --------------- ---------- --------------- ---------------
Total operating expenses................. 422,068 728,676 -- 1,150,744 48,861 1,896
--------- --------- --------------- ---------- --------------- ---------------
Earnings (loss) before minority interests
and income taxes........................ 37,389 12,048 -- 49,437 2,239 (1,929)
Minority interests......................... -- (5,197) -- (5,197) -- --
--------- --------- --------------- ---------- --------------- ---------------
Earnings (loss) before income taxes...... 37,389 6,851 -- 44,240 2,239 (1,929)
Income taxes............................... 14,555 4,955 -- 19,510 -- 336(7)
--------- --------- --------------- ---------- --------------- ---------------
Earnings (loss) from continuing
operations.............................. $ 22,834 $ 1,896 $ -- $ 24,730 $ 2,239 $ (2,265)
--------- --------- --------------- ---------- --------------- ---------------
--------- --------- --------------- ---------- --------------- ---------------
Earnings (loss) from continuing operations
per common and common equivalent share.... $ 0.88 $ 0.05 $ 0.53
--------- --------- ----------
--------- --------- ----------
Earnings (loss) from continuing operations
per common share -- Assuming full
dilution.................................. $ 0.88 $ 0.05 $ 0.52
--------- --------- ----------
--------- --------- ----------
Weighted average shares outstanding:
Primary.................................. 25,932 39,016 46,989
--------- --------- ----------
--------- --------- ----------
Fully diluted............................ 25,932 39,530 47,266
--------- --------- ----------
--------- --------- ----------
<CAPTION>
PRO FORMA
COMBINED
AFTER
ACQUISITIONS
-----------
<S> <C>
Operating revenues......................... $1,251,248
-----------
Cost of services........................... 1,028,644
Administrative and general................. 68,279
Interest expense........................... 43,500
Depreciation and amortization.............. 42,635
Special charge............................. 18,443
-----------
Total operating expenses................. 1,201,501
-----------
Earnings (loss) before minority interests
and income taxes........................ 49,747
Minority interests......................... (5,197)
-----------
Earnings (loss) before income taxes...... 44,550
Income taxes............................... 19,846
-----------
Earnings (loss) from continuing
operations.............................. $ 24,704
-----------
-----------
Earnings (loss) from continuing operations
per common and common equivalent share.... $ 0.51
-----------
-----------
Earnings (loss) from continuing operations
per common share -- Assuming full
dilution.................................. $ 0.51
-----------
-----------
Weighted average shares outstanding:
Primary.................................. 48,036
-----------
-----------
Fully diluted............................ 48,313
-----------
-----------
</TABLE>
(See Notes to Unaudited Pro Forma Condensed Financial
Statements for explanations of adjustments.)
60
<PAGE>
HORIZON HEALTHCARE CORPORATION AND SUBSIDIARIES AND
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF EARNINGS
FOR THE YEAR ENDED MAY 31, 1994
<TABLE>
<CAPTION>
HISTORICAL POOLING OF
--------------------- INTERESTS PRO FORMA HISTORICAL ACQUISITION
HORIZON CMS ADJUSTMENTS(4) COMBINED ACQUISITIONS(5) ADJUSTMENTS(6)
--------- ---------- --------------- ---------- -------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues........................ $ 375,095 $1,008,281 $ -- $1,383,376 $ 257,514 $ (3,695)(a)
--------- ---------- --------------- ---------- --------------
(17,429)(b)
1,220(b)
46(c)
(1,464)(d)
(200)(g)
---------------
(21,522)
---------------
Cost of services.......................... 293,863 894,488 (19,943)(a) 1,168,408 204,921 (2,144)(a)
(16,860)(b)
(211)(g)
(821)(k)
Administrative and general................ 40,165 -- 19,943(a) 60,108 45,698 (552)(a)
(1,402)(b)
(4,747)(e)
124(f)
(300)(h)
Interest expense.......................... 6,240 38,156 -- 44,396 9,970 1,599(a)
2,483(l)
3,653(i)
Depreciation and amortization............. 8,081 38,266 -- 46,347 5,139 1,045(a)
(163)(b)
1,105(m)
821(j)
Special charge............................ -- 74,834 -- 74,834 5,881 (5,881)(a)
--------- ---------- --------------- ---------- -------------- ---------------
Total operating expenses................ 348,349 1,045,744 -- 1,394,093 271,609 (22,251)
--------- ---------- --------------- ---------- -------------- ---------------
Earnings (loss) before minority
interests and income taxes............. 26,746 (37,463) -- (10,717) (14,095) 729
Minority interests........................ -- (4,730) (4730) -- --
--------- ---------- --------------- ---------- -------------- ---------------
Earnings (loss) before income taxes..... 26,746 (42,193) -- (15,447) (14,095) 729
Income taxes.............................. 10,140 (7,648) -- 2,492 (9,202) 4,347(7)
--------- ---------- --------------- ---------- -------------- ---------------
Earnings (loss) from continuing
operations............................. $ 16,606 $ (34,545) $ -- $ (17,939) $ (4,893) $ (3,618)
--------- ---------- --------------- ---------- -------------- ---------------
--------- ---------- --------------- ---------- -------------- ---------------
Earnings (loss) from continuing operations
per common and common equivalent share... $ 0.99 $ (0.92) $ (0.48)
--------- ---------- ----------
--------- ---------- ----------
Earnings (loss) from continuing operations
per common share -- Assuming full
dilution................................. $ 0.91 $ (0.92) $ (0.48)
--------- ---------- ----------
--------- ---------- ----------
Weighted average shares outstanding:
Primary................................. 16,751 37,663 37,078
--------- ---------- ----------
--------- ---------- ----------
Fully diluted........................... 19,724 37,663 40,051
--------- ---------- ----------
--------- ---------- ----------
<CAPTION>
PRO FORMA
COMBINED
AFTER
ACQUISITIONS
-----------
<S> <C>
Operating revenues........................ $1,619,368
-----------
Cost of services.......................... 1,353,293
Administrative and general................ 98,929
Interest expense.......................... 62,101
Depreciation and amortization............. 54,294
Special charge............................ 74,834
-----------
Total operating expenses................ 1,643,451
-----------
Earnings (loss) before minority
interests and income taxes............. (24,083)
Minority interests........................ (4,730)
-----------
Earnings (loss) before income taxes..... (28,813)
Income taxes.............................. (2,363)
-----------
Earnings (loss) from continuing
operations............................. $ (26,450)
-----------
-----------
Earnings (loss) from continuing operations
per common and common equivalent share... $ (0.66)
-----------
-----------
Earnings (loss) from continuing operations
per common share -- Assuming full
dilution................................. $ (0.66)
-----------
-----------
Weighted average shares outstanding:
Primary................................. 40,097
-----------
-----------
Fully diluted........................... 43,071
-----------
-----------
</TABLE>
(See Notes to Unaudited Pro Forma Condensed Financial
Statements for explanations of adjustments.)
61
<PAGE>
HORIZON HEALTHCARE CORPORATION AND SUBSIDIARIES AND
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF EARNINGS
FOR THE YEAR ENDED MAY 31, 1993
<TABLE>
<CAPTION>
HISTORICAL POOLING OF
------------------------ INTERESTS PRO FORMA
HORIZON CMS ADJUSTMENTS(4) COMBINED
----------- ----------- --------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Operating revenues................................................. $ 232,199 $ 904,159 $ -- $ 1,136,358
----------- ----------- --------------- -------------
Cost of services................................................... 186,709 790,172 (16,795)(a) 960,086
Administrative and general......................................... 25,489 -- 16,795(a) 42,284
Interest expense................................................... 4,252 22,747 -- 26,999
Depreciation and amortization...................................... 4,007 29,735 -- 33,742
Special charge..................................................... -- 14,556 -- 14,556
----------- ----------- --------------- -------------
Total operating expenses........................................... 220,457 857,210 -- 1,077,667
----------- ----------- --------------- -------------
Earnings before minority interests and income taxes................ 11,742 46,949 -- 58,691
Minority interests................................................. -- (6,663) -- (6,663)
----------- ----------- --------------- -------------
Earnings before income taxes................................... 11,742 40,286 -- 52,028
Income taxes....................................................... 4,026 17,563 -- 21,589
----------- ----------- --------------- -------------
Earnings from continuing operations................................ $ 7,716 $ 22,723 $ -- $ 30,439
----------- ----------- --------------- -------------
----------- ----------- --------------- -------------
Earnings from continuing operations per common and common
equivalent share.................................................. $ 0.66 $ 0.59 $ 0.94
----------- ----------- -------------
----------- ----------- -------------
Earnings from continuing operations per common share -- Assuming
full dilution..................................................... $ 0.62 $ 0.59 $ 0.89
----------- ----------- -------------
----------- ----------- -------------
Weighted average shares outstanding:
Primary.......................................................... 11,712 38,051 32,248
----------- ----------- -------------
----------- ----------- -------------
Fully diluted.................................................... 16,276 38,290 36,941
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
(See Notes to Unaudited Pro Forma Condensed Financial
Statements for explanations of adjustments)
62
<PAGE>
HORIZON HEALTHCARE CORPORATION AND SUBSIDIARIES AND
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF EARNINGS
FOR THE YEAR ENDED MAY 31, 1992
<TABLE>
<CAPTION>
HISTORICAL POOLING OF
------------------------ INTERESTS PRO FORMA
HORIZON CMS ADJUSTMENTS(4) COMBINED
----------- ----------- --------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Operating revenues................................................... $ 158,979 $ 684,761 $ -- $ 843,740
----------- ----------- --------------- -----------
Cost of services..................................................... 130,884 612,056 (15,394)(a) 727,546
Administrative and general........................................... 17,076 -- 15,394(a) 32,470
Interest expense..................................................... 2,207 6,216 8,423
Depreciation and amortization........................................ 2,157 17,766 -- 19,923
----------- ----------- --------------- -----------
Total operating expenses......................................... 152,324 636,038 -- 788,362
----------- ----------- --------------- -----------
Earnings before minority interests and income taxes.............. 6,655 48,723 -- 55,378
Minority interests................................................... -- (6,771) -- (6,771)
----------- ----------- --------------- -----------
Earnings before income taxes..................................... 6,655 41,952 48,607
Income taxes......................................................... 1,628 14,861 -- 16,489
----------- ----------- --------------- -----------
Earnings from continuing operations.............................. $ 5,027 $ 27,091 $ -- $ 32,118
----------- ----------- --------------- -----------
----------- ----------- --------------- -----------
Earnings from continuing operations per common and common equivalent
share............................................................... $ 0.44 $ 0.73 $ 1.02
----------- ----------- -----------
----------- ----------- -----------
Earnings from continuing operations per common share -- Assuming full
dilution............................................................ $ 0.44 $ 0.72 $ 1.00
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding:
Primary............................................................ 11,402 37,169 31,462
----------- ----------- -----------
----------- ----------- -----------
Fully diluted...................................................... 12,778 37,403 32,964
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(See Notes to Unaudited Pro Forma Condensed Financial
Statements for explanations of adjustments)
63
<PAGE>
HORIZON HEALTHCARE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AT FEBRUARY 28, 1995
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------- ACQUISITION AFTER
HORIZON ACQUISITIONS(2) ADJUSTMENTS(3) ACQUISITIONS
----------- --------------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents........................................ $ 14,135 $ 3 $ -- $ 14,138
Accounts receivable............................................. 133,659 3,151 -- 136,810
Other current assets............................................ 26,038 59 -- 26,097
----------- ------- --------------- -----------
Total current assets............................................ 173,832 3,213 -- 177,045
Land, buildings and equipment................................... 360,496 494 10,056(a) 371,046
Notes receivable................................................ 19,690 8 -- 19,698
Goodwill........................................................ 75,182 -- 2,716(a) 77,898
Other long-term assets.......................................... 54,501 68 -- 54,569
----------- ------- --------------- -----------
Total assets.................................................. $ 683,701 $ 3,783 $ 12,772 $ 700,256
----------- ------- --------------- -----------
----------- ------- --------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities............................................. $ 51,299 $ 2,548 $ -- $ 53,847
Long-term debt and capital lease obligations.................... 215,163 -- -- 215,163
Other long-term liabilities..................................... 19,170 22 -- 19,192
Stockholders' equity............................................ 398,069 1,213 (1,213)(a) 412,054
13,985(a)
----------- ------- --------------- -----------
Total liabilities and stockholders' equity.................... $ 683,701 $ 3,783 $ 12,772 $ 700,256
----------- ------- --------------- -----------
----------- ------- --------------- -----------
</TABLE>
(See Notes to Unaudited Pro Forma Condensed Financial
Statements for explanations of adjustments)
64
<PAGE>
HORIZON HEALTHCARE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1995
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------ INDIVIDUALLY
INDIVIDUALLY PEOPLECARE INSIGNIFICANT PRO FORMA
INSIGNIFICANT ACQUISITION ACQUISITION AFTER
HORIZON PEOPLECARE ACQUISITIONS ADJUSTMENTS(6) ADJUSTMENTS(6) ACQUISITIONS
-------- ---------- ------------- -------------- -------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues...................... $459,457 $9,021 $42,079 $ (33)(g) $-- $510,524
-------- ---------- ------------- ------- ------- ------------
Cost of services........................ 348,507 6,882 33,482 (35)(g) (921)(k) 387,915
Administrative and general.............. 47,163 301 5,676 (50)(h) -- 53,090
Interest expense........................ 13,335 765 972 641(i) 1,424(l) 17,137
Depreciation and amortization........... 13,063 320 463 155(j) 682(m) 14,683
-------- ---------- ------------- ------- ------- ------------
Total operating expenses............ 422,068 8,268 40,593 711 1,185 472,825
-------- ---------- ------------- ------- ------- ------------
Earnings before income taxes........ 37,389 753 1,486 (744) (1,185) 37,699
Income taxes............................ 14,555 -- -- 336(7) -- 14,891
-------- ---------- ------------- ------- ------- ------------
Earnings from continuing operations... $ 22,834 $ 753 $ 1,486 $(1,080) $(1,185) $ 22,808
-------- ---------- ------------- ------- ------- ------------
-------- ---------- ------------- ------- ------- ------------
Earnings from continuing operations per
common and common equivalent share..... $ 0.88 $ 0.85
-------- ------------
-------- ------------
Earnings from continuing operations per
common share -- Assuming full
dilution............................... $ 0.88 $ 0.85
-------- ------------
-------- ------------
Weighted average shares outstanding:
Primary............................... 25,932 26,979
-------- ------------
-------- ------------
Fully diluted......................... 25,932 26,979
-------- ------------
-------- ------------
</TABLE>
(See Notes to Unaudited Pro Forma Condensed Financial
Statements for explanations of adjustments)
65
<PAGE>
HORIZON HEALTHCARE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF EARNINGS
FOR THE YEAR ENDED MAY 31, 1994
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------------------- GREENERY AND INDIVIDUALLY
INDIVIDUALLY PEOPLECARE INSIGNIFICANT
INSIGNIFICANT ACQUISITION ACQUISITION
HORIZON GREENERY(5) PEOPLECARE(5) ACQUISITIONS(5) ADJUSTMENTS(6) ADJUSTMENTS(6)
---------- ------------ --------------- -------------- --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues............. $ 375,095 $ 129,358 $ 50,427 $ 77,729 $ (3,695)(a) $ --
---------- ------------ --------------- -------------- ---------------
(17,429)(b)
1,220(b)
46(c)
(1,464)(d)
(200)(g)
---------------
(21,522)
---------------
Cost of services............... 293,863 109,157 35,780 59,984 (2,144)(a) (821)(k)
(16,860)(b)
(211)(g)
Administrative and general..... 40,165 32,228 1,806 11,664 (552)(a) --
(1,402)(b)
(4,747)(e)
124(f)
(300)(h)
Interest expense............... 6,240 3,473 4,590 1,907 1,599(a) 2,483(l)
3,653(i)
Depreciation and
amortization.................. 8,081 2,156 1,968 1,015 1,045(a) 1,105(m)
(163)(b)
821(j)
Non-recurring items............ -- 5,881 -- -- (5,881)(a) --
---------- ------------ --------------- -------------- --------------- -------
Total operating expenses... 348,349 152,895 44,144 74,570 (25,018) 2,767
---------- ------------ --------------- -------------- --------------- -------
Earnings (loss) before
income taxes.............. 26,746 (23,537) 6,283 3,159 3,496 (2,767)
Income taxes................... 10,140 (9,297) 95 -- 4,347(7) --
---------- ------------ --------------- -------------- --------------- -------
Earnings (loss) from
continuing operations..... $ 16,606 $ (14,240) $ 6,188 $ 3,159 $ (851) $ (2,767)
---------- ------------ --------------- -------------- --------------- -------
---------- ------------ --------------- -------------- --------------- -------
Earnings from continuing
operations per common and
common equivalent share....... $ 0.99
----------
----------
Earnings from continuing
operations per common share --
Assuming full dilution........ $ 0.91
----------
----------
Weighted average shares
outstanding:
Primary...................... 16,751
----------
----------
Fully diluted................ 19,724
----------
----------
<CAPTION>
PRO FORMA
AFTER
ACQUISITIONS
-----------
<S> <C>
Operating revenues............. $ 611,087
Cost of services............... 478,748
Administrative and general..... 78,986
Interest expense............... 23,945
Depreciation and
amortization.................. 16,028
Non-recurring items............ --
-----------
Total operating expenses... 597,707
-----------
Earnings (loss) before
income taxes.............. 13,380
Income taxes................... 5,285
-----------
Earnings (loss) from
continuing operations..... $ 8,095
-----------
-----------
Earnings from continuing
operations per common and
common equivalent share....... $ 0.41
-----------
-----------
Earnings from continuing
operations per common share --
Assuming full dilution........ $ 0.41
-----------
-----------
Weighted average shares
outstanding:
Primary...................... 19,771
-----------
-----------
Fully diluted................ 22,744
-----------
-----------
</TABLE>
(See Notes to Unaudited Pro Forma Condensed Financial
Statements for explanations of adjustments)
66
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS)
I. (1) The Merger Agreement provides that each share of CMS Common Stock will
be converted into .5397 shares of Horizon Common Stock.
(2) Other income, principally interest and merger expenses of CMS which have
been reported separately on CMS' historical statements of operations, have
been reclassified to operating revenues and cost of services, respectively
for purposes of presentation in the unaudited pro forma statements of
earnings.
II. EXPLANATION OF PRO FORMA ADJUSTMENTS:
PRO FORMA BALANCE SHEETS
(1) MERGER COSTS
(a) Based on maximum exchange ratio of .5397 for conversion of CMS common
stock into Horizon common stock. At March 31, 1995, CMS had 38,623,786 shares,
with a par value of $.01, outstanding.
(b) Certain non-recurring adjustments estimated to approximate $23,000 will
be recorded in connection with the Merger. These adjustments include
approximately $14,900 for the settlement of obligations under existing
employment agreements with the chief executive officer of CMS as follows:
$11,000 related to the settlement of existing future bonus rights; $3,700
related to termination payments payable following a change in control of CMS;
and $200 related to the amortization of a non-compete agreement. The remaining
approximate $8,100 represents expenses related to effecting the Merger. These
costs have been accrued in the unaudited pro forma combined balance sheet as of
February 28, 1995. All of these costs are expected to be charged against income
of the combined company immediately upon closing of the Merger, which is
currently expected to be in Horizon's first quarter of fiscal year 1996.
Accordingly, the effects of these costs have not been reflected in the unaudited
pro forma condensed statements of earnings. The impact of these adjustments on
earnings from continuing operations for the nine months ended February 28, 1995
is expected to be $13,915, net of income taxes. Including these adjustments,
earnings from continuing operations per share-primary and fully diluted for the
nine months ended February 28, 1995 would have been $0.22 on a pro forma
combined after acquisitions basis.
(2)__HISTORICAL ACQUISITIONS
The unaudited pro forma condensed balance sheet at February 28, 1995
includes the historical aggregated balance sheets of insignificant acquisitions
by Horizon subsequent to February 28, 1995.
(3)__HISTORICAL INSIGNIFICANT ACQUISITIONS ADJUSTMENTS
(a) Adjustments for $10,056 and $2,716 have been recorded to land, buildings
and equipment and goodwill, respectively, in the Horizon and combined balance
sheets as of February 28, 1995 to record the value of assets purchased and the
excess purchase price related to the insignificant acquisitions by Horizon
completed after February 28, 1995. In addition, adjustments of $(9), $13,984 and
$(1,213) have been recorded to common stock, additional paid-in capital and
retained earnings, respectively, to eliminate the acquired entities' equity and
record the issuance of 761,719 shares of Horizon Common Stock, respectively.
67
<PAGE>
PRO FORMA STATEMENTS OF EARNINGS
(4) POOLING OF INTERESTS ADJUSTMENTS
(a) Adjustments have been recorded to conform CMS's financial statement
presentation to that of Horizon. Amounts reclassified represent historical
administrative and general expense which has been classified by CMS as cost of
services expense.
(5) The unaudited pro forma condensed statement of earnings for the nine months
ended February 28, 1995 includes the historical results of operations of
peopleCARE prior to its acquisition on July 29, 1994 and the results of
operations of individually insignificant acquisitions by Horizon for the
appropriate periods prior to each individual acquisition.
The unaudited pro forma condensed statement of earnings for the year ended
May 31, 1994 includes the historical results of operations of Greenery prior to
its acquisition on February 10, 1994, the historical results of operations of
peopleCARE for the twelve months ended April 30, 1994 and the results of
operations of individually insignificant acquisitions by Horizon for appropriate
twelve month periods.
(6) ACQUISITION ADJUSTMENTS:
GREENERY ACQUISITION ADJUSTMENTS
Horizon completed the Greenery merger and related transactions on February
10, 1994. As a result, the historical financial statements of Horizon for the
year ended May 31, 1994 include approximately three and one-half months of
Greenery operations. Following are adjustments recorded to reflect the effects
of the Greenery merger and related transactions for the approximate eight and
one-half month period ended February 10, 1994 as if the Greenery merger had
occurred on June 1, 1993:
(a) In connection with the Greenery merger, Horizon purchased three
facilities previously leased by Health and Rehabilitation Properties Trust
("HRP") to Greenery and incurred additional debt related to a Greenery-owned
facility to raise additional cash. In addition, certain assets for which a write
down of approximately $3,100 was recorded by Greenery during the eight and
one-half months ended February 10, 1994 were sold, along with two office
buildings owned and operated by Greenery. Greenery also recorded a $775 loss on
the sale of one facility to HRP and expenses of $2,006 related to severance pay
and other Greenery merger costs in preparation for the Greenery merger during
the eight and one-half months ended February 10, 1994. The impact of the above,
as well as the additional depreciation and amortization expense for the
allocation of excess purchase price to buildings and equipment and goodwill
(assuming a 40-year amortization period for goodwill), on earnings before income
taxes is as follows:
<TABLE>
<CAPTION>
EIGHT AND ONE-HALF
MONTHS ENDED
FEBRUARY 10, 1994
------------------
<S> <C>
Operating revenues........................................................ $ (3,695)
-------
Cost of services, net of facility leases.................................. (2,144)
Administrative and general................................................ (552)
Interest.................................................................. 1,599
Depreciation and amortization............................................. 1,045
Non-recurring write down to net realizable value of assets sold to M&P and
HRP and other Greenery merger related costs and losses................... (5,881)
-------
Total operating expenses................................................ (5,933)
-------
Increase in earnings before income taxes................................ $ 2,238
-------
-------
</TABLE>
68
<PAGE>
(b) Pursuant to the Greenery merger, Greenery's obligations under three
facility leases with HRP were assumed by the former majority owners of Greenery,
and Horizon entered into a management agreement with such former majority owners
for such facilities. The impact on earnings before income taxes was as follows:
<TABLE>
<CAPTION>
EIGHT AND ONE-HALF
MONTHS ENDED
FEBRUARY 10, 1994
------------------
<S> <C>
Operating revenues........................................................ $ (17,429)
--------
Costs of services......................................................... (16,860)
Administrative and general................................................ (1,402)
Depreciation and amortization............................................. (163)
--------
Total operating expenses................................................ (18,425)
--------
Net increase in earnings before income taxes............................ 996
Pro forma management revenues............................................. 1,220
--------
Increase in earnings before income taxes................................ $ 2,216
--------
--------
</TABLE>
(c) Interest income has been increased to reflect the impact of Horizon
financing the $20,000 sale to M&P of certain Greenery assets, including among
other assets, the office buildings discussed in (a) above and interest bearing
notes receivable, as follows:
<TABLE>
<CAPTION>
EIGHT AND ONE-HALF
MONTHS ENDED
FEBURARY 10, 1994
-------------------
<S> <C>
Interest on Horizon's $20,000 note receivable............................. $ 851
Less interest on notes receivable sold.................................... (805)
------
$ 46
------
------
</TABLE>
(d) Operating revenues have been reduced by $1,464 to eliminate consulting
fee revenues between Horizon and Greenery.
(e) As a result of the Greenery merger, the corporate offices of Greenery
were closed and specifically identified duplicate corporate administrative and
general expenses at Greenery totaling $4,747 for the eight and one-half months
ended February 10, 1994 have been eliminated.
(f) Horizon has entered into a management agreement with a director of
Greenery for a term of seven years at an annual rate of $175 ($124 for eight and
one-half months).
PEOPLECARE ACQUISITION ADJUSTMENT
Horizon completed the peopleCARE acquisition on July 29, 1994. As a result,
the historical financial statements of Horizon for the nine months ended
February 28, 1995 include approximately seven months of peopleCARE operations.
Following are adjustments recorded to reflect the effects of the peopleCARE
acquisition and related transactions for the twelve month period ended May 31,
1994 and two month period ended July 29, 1994 as if the peopleCARE acquisition
had occurred on June 1, 1993 and June 1, 1994, respectively. The adjustments for
the peopleCARE acquisition consist of the following:
(g) The historical financial information reported for peopleCARE includes
certain de minimis amounts which were not acquired or assumed by Horizon in
connection with this acquisition. Therefore, adjustments have been recorded to
eliminate interest and other operating revenues of $200 and $33 for the year
ended May 31, 1994 and the nine months ended February 28, 1995, respectively,
and cost of services expense of $211 and $35 for the year ended May 31, 1994 and
the nine months ended February 28, 1995, respectively, associated with the
predecessor entity operations which were not acquired by Horizon.
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<PAGE>
(h) Adjustments of $300 and $50 have been recorded to eliminate
distributions to peopleCARE's prior owners for the year ended May 31, 1994 and
the nine months ended February 28, 1995, respectively.
(i) The peopleCARE acquisition purchase price included the payment of
$55,616 in cash, which was funded from Horizon's line of credit, for title to
seven facilities. This acquisition also called for Horizon to enter into a
capital lease for six facilities formerly owned by peopleCARE. As a result,
interest expense has been adjusted as follows for the year ended May 31, 1994
and the nine months ended February 28, 1995, respectively:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
MAY 31, 1994 FEBRUARY 28, 1995
------------ -----------------
<S> <C> <C>
Increase in line of credit sufficient to retire outstanding peopleCARE debt
during the period ($49,716 for the period June 1, 1993 through September 30,
1993 and $55,716 for the period October 1, 1993 through May 31, 1994)
Interest at 7.25%.............................................................. $ 3,840 $ 672
Increase in capital lease obligations of $48,700.
Interest expense amortized based on an interest rate of 9.09%.................. 4,403 734
Less historical peopleCARE interest expense...................................... (4,590) (765)
------------ ------
Increase in interest expense................................................. $ 3,653 $ 641
------------ ------
------------ ------
</TABLE>
(j) Adjustments have been recorded to depreciation and amortization expense
to reflect the purchase of seven facilities and capital lease of six facilities
in connection with the peopleCARE acquisition for the year ended May 31, 1994
and the nine months ended February 28, 1995, respectively, as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
MAY 31, 1994 FEBRUARY 28, 1995
------------ -----------------
<S> <C> <C> <C>
Purchase price allocated to equipment................................ $ 5,500
Depreciable life in years............................................ 10
---------
$ 550 $ 91
Purchase price allocated to buildings................................ $ 86,240
Depreciable life in years............................................ 40
---------
2,156 370
Purchase price allocated to noncompete agreements.................... $ 250
Amortizable life in years............................................ 3
---------
83 14
Less historical peopleCARE depreciation expense...................... (1,968) (320)
------------ ------
Increase in depreciation and amortization expense................ $ 821 $ 155
------------ ------
------------ ------
</TABLE>
INDIVIDUALLY INSIGNIFICANT ACQUISITIONS AND ACQUISITIONS ADJUSTMENTS
Horizon has completed various individually insignificant transactions in the
period from June 1, 1994 to March 1, 1995. As a result, the historical financial
statements of Horizon for the nine months ended February 28, 1995 include
varying periods of operations related to these acquisitions. The following are
adjustments recorded to reflect the results of operations of these acquisitions
to the extent not included in Horizon's historical results of operations for the
periods ended February 28, 1995 and May 31, 1994 as if such acquisitions had
occurred on June 1, 1994 and June 1, 1993, respectively. The adjustments for the
insignificant acquisitions consist of the following:
70
<PAGE>
(k) Adjustments for ($821) and ($921) have been recorded to eliminate
historical lease expense for the purchase of leases for the year ended May 31,
1994 and the nine months ended February 28, 1995, respectively.
(l) Adjustments for $2,483 and $1,424 have been recorded to reflect
interest expense on long-term debt incurred to fund acquisitions for the year
ended May 31, 1994 and the nine months ended February 28, 1995, respectively.
(m) Adjustments for $1,105 and $682 have been recorded to depreciation and
amortization to reflect the additional costs associated with the purchased
entities for the year ended May 31, 1994 and the nine months ended February 28,
1995, respectively.
(7) INCOME TAXES:
An effective tax rate of 39.5% has been applied to all entities and to all
periods except with respect to historical CMS for which the actual historical
effective tax rate has been maintained.
71
<PAGE>
PRINCIPAL STOCKHOLDERS OF HORIZON AND CMS
HORIZON
The following table sets forth information with respect to the only
stockholder of Horizon who was known to Horizon to own more than 5% of the
Horizon Common Stock outstanding as of the Horizon Record Date. The information
set forth below is based solely upon information contained in filings made by
such person with the Commission, and is as of the dates specified in the
footnote below.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF HORIZON
NAME OF BENEFICIAL COMMON STOCK
BENEFICIAL OWNER OWNERSHIP OUTSTANDING
------------------------------------------------------------------- ------------------- -----------------
<S> <C> <C>
Putnam Investments, Inc. .......................................... 1,828,638(1) 6.21%
One Post Office Square
Boston, MA 02109
<FN>
------------------------
(1) Information is included in reliance upon the contents of Amendment No. 4
dated January 23, 1995, to Schedule 13G dated January 15, 1993, such
Amendment No. 4 being filed by Putnam Investments, Inc. ("PI") on behalf of
itself and Marsh & McLennan Companies, Inc. ("MMC"), Putnam Investment
Management, Inc. ("PIM") and The Putnam Advisory Company, Inc. ("PAC")
(such Amendment No. 4 to such Schedule 13G being referred to herein as the
"Putnam 13G"). According to the Putnam 13G, of the 1,828,638 shares
beneficially owned, (i) PI shares voting power with respect to 386,900
shares and shares dispositive power with respect to 1,828,638 shares, (ii)
MMC has no voting or dispositive power, (iii) PIM shares dispositive power
with respect to 1,380,195 shares and (iv) PAC shares voting power with
respect to 386,900 shares and shares dispositive power with respect to
448,443 shares. PI and MMC declare in the Putnam 13G that the filing of the
Putnam 13G shall not be deemed an admission by either of them or both of
them that they are the beneficial owners of the 1,828,638 shares and state
that neither of them has any power to vote or dispose of, or direct the
voting or disposition of, any such shares.
</TABLE>
CMS
The following table sets forth information with respect to stockholders of
CMS who were known to CMS to own more than 5% of the CMS Common Stock
outstanding as of the CMS Record Date. The information set forth below is based
solely upon information furnished by such stockholders or contained in filings
made by such persons with the Commission, and is as of the dates specified in
the footnotes below.
<TABLE>
<CAPTION>
NAME OF NUMBER OF PERCENT OF CMS COMMON
BENEFICIAL OWNER SHARES STOCK OUTSTANDING
------------------------------------------------------------------ --------------- ---------------------
<S> <C> <C>
Rocco A. Ortenzio ................................................ 4,646,576(1) 11.6%
c/o Continental Medical Systems, Inc.
P.O. Box 715, 600 Wilson Lane
Mechanicsburg, PA 17055
Robert A. Ortenzio ............................................... 2,863,607(2) 7.3
c/o Continental Medical Systems, Inc.
P.O. Box 715, 600 Wilson Lane
Mechanicsburg, PA 17055
State of Wisconsin Investment Board .............................. 3,793,000(3) 9.8
121 E. Wilson Street
Madison, Wisconsin 53707
Tweedy, Browne Company, L.P. ..................................... 2,080,422(4) 5.4
52 Vanderbilt Avenue
New York, NY 10017
Clover Capital Management, Inc. .................................. 2,349,125(5) 6.1
11 Tobey Village Office Park
Pittsford, NY 14634
Franklin Resources, Inc. ......................................... 2,336,500(6) 6.0
777 Mariners Island Blvd.
San Mateo, CA 94404
<FN>
------------------------
(1) Of the shares of CMS Common Stock beneficially owned by Mr. Ortenzio,
2,174,261 (or 5.6% of the total outstanding shares) are owned of record by
two corporations controlled by Mr. Ortenzio.
</TABLE>
72
<PAGE>
<TABLE>
<S> <C>
One of the corporations is Liberty Investors, Inc. ("Liberty"), which owns
of record 1,847,000 shares. The shares beneficially owned by Mr. Ortenzio
include 1,205,000 shares issuable under currently exercisable options,
100,000 shares issuable under options which become exercisable within 60
days and 233,644 shares issuable upon the exercise of Mr. Ortenzio's right
to convert the CMS Convertible Debenture into Common Stock.
(2) Robert A. Ortenzio is a director of Liberty and, as such, has shared power
to vote the 1,847,000 shares of CMS Common Stock owned by Liberty, which
shares are also included among the shares reported as beneficially owned by
Rocco A. Ortenzio in this table. The shares beneficially owned by Robert A.
Ortenzio include 684,300 shares issuable under currently exercisable
options.
(3) Based on a Schedule 13G dated February 13, 1995.
(4) Based on Amendment No. 3 to Schedule 13D dated April 12, 1995, of the
shares of stock beneficially owned by Tweedy, Browne Company, L.P. ("TBC"),
99,577 shares are owned by TBK Partners, L.P. ("TBK") and 43,000 shares are
owned by Vanderbilt Partners, L.P. ("Vanderbilt"). Certain of the general
partners of TBC and Vanderbilt have shared power to vote the shares owned
by TBK and Vanderbilt.
(5) Based on a Schedule 13G dated February 13, 1995.
(6) Based on a Schedule 13G dated February 6, 1995.
</TABLE>
DESCRIPTION OF HORIZON CAPITAL STOCK
GENERAL
The following descriptions of certain of the provisions of the Horizon
Charter and the Horizon Bylaws are necessarily general and do not purport to be
complete and are qualified in their entirety by reference to the Horizon Charter
and the Horizon Bylaws, which are included as exhibits to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part.
HORIZON COMMON STOCK
Horizon is authorized to issue 150,000,000 shares of Horizon Common Stock,
par value $.001. As of the Horizon Record Date, there were 29,469,296 shares of
Horizon Common Stock issued and outstanding and approximately 1,450 holders of
record of Horizon Common Stock. The holders of Horizon Common Stock are entitled
to one vote for each share on all matters submitted to a vote of stockholders.
The holders of Horizon Common Stock do not have cumulative voting rights in the
election of directors of Horizon unless and until a person or group of
affiliated or associated persons has acquired beneficial ownership in one
transaction or a series of related transactions of 40% or more of the stock of
any class or series thereof entitled to vote in the election of directors, in
which case cumulative voting will be in effect commencing with the first annual
election of directors subsequent to such acquisition. The holders of Horizon
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors of Horizon (the "Horizon Board of Directors")
out of legally available funds. In the event of liquidation, dissolution or
winding up of Horizon, the holders of Horizon Common Stock are entitled to share
ratably in all assets of Horizon remaining after provision for payment of
liabilities and satisfaction of the liquidation preference of any shares of
Horizon Preferred Stock (as defined below) that may be outstanding. The holders
of Horizon Common Stock have no preemptive, subscription, redemptive or
conversion rights. The outstanding shares are fully paid and nonassessable. The
rights, preferences and privileges of holders of Horizon Common Stock may become
subject to those of holders of Horizon Preferred Stock, if Horizon should issue
Horizon Preferred Stock in the future. See "Horizon Preferred Stock."
RIGHTS TO PURCHASE PREFERRED STOCK
On September 12, 1994, the Board of Directors of Horizon declared a dividend
of one preferred share purchase right (a "Right") for each outstanding share of
Horizon Common Stock held of record on September 22, 1994 and approved the
further issuance of Rights with respect to all shares of Horizon Common Stock
that are subsequently issued. Each Right entitles the registered holder to
purchase from Horizon one-thousandth of a share of Series A Junior Participating
Preferred Stock, par value $.001 per share ("Series A Preferred"), of Horizon,
at a price of $110 per one-thousandth of a share (the "Purchase Price"), subject
to adjustment. See "Horizon Preferred Stock -- Series A
73
<PAGE>
Preferred." Until the occurrence of certain events described below, the Rights
are not exercisable, will be evidenced by the certificates for Horizon Common
Stock and will not be transferable apart from the Horizon Common Stock.
DETACHMENT OF RIGHTS; EXERCISE. Initially, the Rights will attach to all
certificates representing outstanding shares of Horizon Common Stock and no
separate Right Certificates will be distributed. The Rights will separate from
the Horizon Common Stock and a Distribution Date will occur upon the earlier of
(i) 10 business days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired beneficial
ownership of 20% or more of the outstanding Voting Shares (as defined in the
Rights Agreement) of Horizon, or (ii) 10 business days following the
commencement or announcement of an intention to commence a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of such outstanding Voting Shares.
The Rights are not exercisable until the Distribution Date. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights (the "Right Certificates") will be mailed to holders of record of
Horizon Common Stock as of the close of business on the Distribution Date and
such separate Right Certificates alone will thereafter evidence the Rights.
If a person or group were to acquire 20% or more of the Voting Shares of
Horizon, each Right then outstanding (other than Rights beneficially owned by
the Acquiring Person which would become null and void) would become a right to
buy that number of shares of Horizon Common Stock (or under certain
circumstances, the equivalent number of one-thousandths of a share of Series A
Preferred) that at the time of such acquisition would have a market value of two
times the Purchase Price of the Right.
If Horizon were acquired in a merger or other business combination
transaction or more than 50% of its consolidated assets or earning power were
sold, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon the exercise thereof at the then
current Purchase Price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction would have a market
value of two times the Purchase Price of the Right.
ANTIDILUTION AND OTHER ADJUSTMENTS. The number of shares (or fractions
thereof) of Series A Preferred or other securities or property issuable upon
exercise of the Rights, and the Purchase Price payable, are subject to customary
adjustments from time to time to prevent dilution. The number of outstanding
Rights and the number of shares (or fractions thereof) of Series A Preferred
issuable upon exercise of each Right are also subject to adjustment in the event
of a stock split of the Horizon Common Stock or a stock dividend on the Horizon
Common Stock payable in Horizon Common Stock or subdivisions, consolidations or
combinations of the Horizon Common Stock occurring, in any such case, prior to
the Distribution Date.
EXCHANGE OPTION. At any time after the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 20% or more of the
outstanding Voting Shares of Horizon and before the acquisition by a person or
group of 50% or more of the outstanding Voting Shares of Horizon, the Horizon
Board of Directors may, at its option, issue Horizon Common Stock in mandatory
redemption of, and in exchange for, all or part of the then outstanding and
exercisable Rights (other than Rights owned by such person or group which would
become null and void) at an exchange ratio of one share of Horizon Common Stock
(or one-thousandth of a share of Series A Preferred) for each two shares of
Horizon Common Stock for which each Right is then exercisable, subject to
adjustment.
REDEMPTION OF RIGHTS. At any time prior to the first public announcement
that a person or group has become the beneficial owner of 20% or more of the
outstanding Voting Shares, the Horizon Board of Directors may redeem all but not
less than all the then outstanding Rights at a price of $.01 per Right (the
"Redemption Price"). The redemption of the Rights may be made effective at such
time, on
74
<PAGE>
such basis and with such conditions as the Horizon Board of Directors in its
sole discretion may establish. Immediately upon the action of the Horizon Board
of Directors ordering redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
EXPIRATION; AMENDMENT OF RIGHTS. The Rights will expire on September 22,
2004, unless earlier redeemed or exchanged. The terms of the Rights may be
amended by the Horizon Board of Directors without the consent of the holders of
the Rights, including an amendment to extend the expiration date of the Rights,
and, provided a Distribution Date has not occurred, to extend the period during
which the Rights may be redeemed, except that after the first public
announcement that a person or group has become the beneficial owner of 20% or
more of the outstanding Voting Shares, no such amendment may materially and
adversely affect the interests of the holders of the Rights.
The Rights have certain anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire Horizon
without the approval of the Horizon Board of Directors. The Rights should not,
however, interfere with any merger or other business combination that is
approved by the Horizon Board of Directors.
The description and terms of the Rights are set forth in a Rights Agreement
(the "Horizon Rights Agreement") dated as of September 15, 1994 between Horizon
and Chemical Trust Company of California, as Rights Agent. The foregoing
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement, a copy of which is available
free of charge from Horizon.
HORIZON PREFERRED STOCK
GENERAL. Horizon is authorized to issue 500,000 shares of Preferred Stock,
par value $.001 per share ("Horizon Preferred Stock"), of which 150,000 shares
had been designated as Series A Preferred as of September 12, 1994. No shares of
Horizon Preferred Stock were outstanding at September 12, 1994. The Horizon
Board of Directors has authority, without stockholder approval, to issue shares
of Horizon Preferred Stock in one or more series and to determine the number of
shares, designations, dividend rights, conversion rights, voting power,
redemption rights, liquidation preferences and other terms of any such series.
The issuance of Preferred Stock, while providing desired flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power of holders of Horizon Common Stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control of Horizon. Horizon has no present plans for any issuance of
Horizon Preferred Stock, other than the reserved shares of Series A Preferred
Stock issuable pursuant to the Rights.
SERIES A PREFERRED. The terms of the Series A Preferred are designed so
that the value of each one-thousandth of a share purchasable upon exercise of a
Right will approximate the value of one share of Horizon Common Stock. The
Series A Preferred is non-redeemable and will rank junior to all other series of
Horizon's Preferred Stock. Each whole share of Series A Preferred is entitled to
receive a quarterly preferential dividend in an amount per share equal to the
greater of (i) $1.00 in cash, or (ii) in the aggregate, 1,000 times the dividend
declared on the Horizon Common Stock. In the event of liquidation, the holders
of the Series A Preferred are entitled to receive a preferential liquidation
payment equal to the greater of (i) $1,000 per share, or (ii) in the aggregate,
1,000 times the payment made on the Horizon Common Stock. In the event of any
merger, consolidation or other transaction in which the Horizon Common Stock is
exchanged for or changed into other stock or securities, cash or other property,
each whole share of Series A Preferred is entitled to receive 1,000 times the
amount received per share of Horizon Common Stock. Each whole share of Series A
Preferred is entitled to 1,000 votes on all matters submitted to a vote of the
stockholders of Horizon, and Series A Preferred will generally vote together as
one class with the Horizon Common Stock and any other capital stock on all
matters submitted to a vote of stockholders of Horizon.
75
<PAGE>
CERTAIN PROVISIONS OF HORIZON CHARTER AND BYLAWS
Horizon's Charter provides for a classified Board of Directors with three
classes, each class to consist as nearly as possible of one-third of the
directors. Currently, the authorized number of directors on the Horizon Board of
Directors is eight. Each director serves for a term of three years and until his
or her successor is elected and qualified. A classified Board of Directors could
make it more difficult for stockholders, including those holding a majority of
the outstanding shares, to force an immediate change in the composition of a
majority of the Horizon Board of Directors. Staggered terms moderate the pace of
changes in the Horizon Board of Directors by extending the minimum time required
to elect a majority of directors from one to two years.
Directors may be removed only for cause by the affirmative vote of the
holders of two-thirds of outstanding shares entitled to vote, provided that any
director elected by holders of any series of Horizon Preferred Stock, voting
separately as a class, may be removed only for cause by the affirmative vote of
the holders of two-thirds of the outstanding shares of such series. For this
purpose "cause for removal" means an adjudication by a court of competent
jurisdiction that the director to be removed (i) is liable for negligence or
misconduct in the performance of his duty, (ii) has been convicted of a felony
or (iii) has acted or failed to act in a manner which is in derogation of the
director's duties.
The Horizon Charter provides that, except in the case of nominations by the
Horizon Board of Directors, written notice must be given of any nomination of a
director, (i) with respect to an election to be held at an annual meeting of
stockholders, not later than ten days prior to the date which is one year
following the date of the notice of the prior year's annual meeting, and (ii)
with respect to an election to be held at a special meeting of stockholders, not
later than the close of business on the seventh day following the day of notice
of such meeting.
Certain actions taken by the Horizon Board of Directors, including the
appointment and removal of officers of Horizon, designation of committees of the
Horizon Board of Directors and appointment of members of any committee
established by the Horizon Board of Directors, require the affirmative vote of
80% of the then authorized number of directors. The Horizon Charter also
provides that the number of directors on the Horizon Board of Directors cannot
be increased or decreased without the approval of 80% of the then authorized
number of directors. Newly created directorships resulting from any increase in
the authorized number of directors and any vacant directorships may be filled by
the affirmative vote of at least 80% of the directors then in office.
The Horizon Charter provides that special meetings of stockholders may be
called by the Horizon Board of Directors or by the holders of not less than 25%
of the outstanding shares of any class or any series thereof entitled to vote on
the election of directors. Holders of any series of Horizon Preferred Stock
entitled to elect or remove one or more directors separately as a class may do
so at special meetings, which may be called only for such purposes by the
holders of 25% of the outstanding shares of such series. The Horizon Bylaws
provide that at special meetings of stockholders only such business may be
conducted as is (i) specified in the written notice of meeting, (ii) brought
before the meeting at the direction of the Horizon Board of Directors or (iii)
specified in a written notice given by or on behalf of the stockholders not more
than ten days after the date of the official notice of the meeting. The Horizon
Charter also provides that all stockholder actions must be taken at stockholder
meetings and not by written consent in lieu of a meeting.
The provisions of the Horizon Charter described above may be amended or
repealed only by the vote of holders of two-thirds of Horizon's outstanding
shares of all classes or series thereof entitled to vote on the election of
directors. The Horizon Bylaws may be adopted, amended or rescinded by the
Horizon Board of Directors or by the vote of holders of two-thirds of the
outstanding shares of all classes or series of capital stock entitled to vote on
the election of directors.
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<PAGE>
STOCKHOLDER VOTE REQUIRED TO APPROVE CERTAIN BUSINESS COMBINATIONS
The Horizon Charter requires the approval by holders of at least two-thirds
of the outstanding shares of all classes or series of capital stock entitled to
vote on the election of directors for (i)(a) any merger or consolidation of
Horizon or any subsidiary of Horizon with or into, (b) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of any substantial
part (defined generally as 30% or more of the total assets of the relevant
entity or leasehold interests in more than ten facilities) of the assets of
Horizon or any subsidiary of Horizon to or with, or (c) the issuance or transfer
of securities of Horizon or any subsidiary in exchange for cash, securities
(other than securities of Horizon which by their terms are convertible into
other securities of Horizon) or other property to, a Related Person (as defined
below), (ii) any reclassification of securities or recapitalization of Horizon,
merger or consolidation of Horizon with any subsidiary or any similar
transaction which has the effect of increasing the proportionate interest of a
Related Person or any person associated or affiliated with a Related Person, or
(iii) the adoption of a plan of liquidation or dissolution of Horizon.
"Related Person" is defined as any person (other than a subsidiary of
Horizon, certain employee benefit plans and Continuing Directors (as defined
below)) that, together with such person's affiliates and associates, (i)
directly or indirectly, beneficially own or have the right to acquire or to vote
more than 5% of the Voting Shares (as defined in the Horizon Charter); or (ii)
within the preceding two years beneficially owned or had the right to acquire or
to vote not less than 5% of the Voting Shares; or (iii) is an assignee of or has
otherwise succeeded, within the preceding two years, to any shares of capital
stock of Horizon beneficially owned by any Related Person, in a transaction
other than a public offering within the meaning of the Securities Act.
Notwithstanding the foregoing, such stockholder approval is not required if
the transaction is approved by at least 80% of all Continuing Directors.
"Continuing Directors" are directors of Horizon who either (i) were first
elected prior to the date as of which any Related Person that proposes to enter
into or become a party to a business combination or other transaction described
above became a beneficial owner of more than 5% of the Voting Shares or (ii)
were designated as Continuing Directors (prior to being elected as a director)
by a majority of the then Continuing Directors; provided that all members of the
Horizon Board of Directors on July 27, 1994, and all persons nominated by the
Horizon Board of Directors as directors of Horizon and elected by the
stockholders at the 1994 Annual Meeting of Stockholders are Continuing
Directors.
The Horizon Charter allows the Continuing Directors, in evaluating any
business combination or other transaction listed above, to consider, in addition
to the adequacy of the amount to be paid in connection with any such
transaction, certain specified factors and any other factors the Continuing
Directors deem relevant. Among the factors the Continuing Directors may consider
are: (i) the social and economic effects of the transaction on Horizon, its
employees, patients and other elements of the communities in which Horizon's
facilities are located; (ii) the business and financial condition and earnings
prospects of the other party or parties to such transaction; and (iii) the
competence, experience and integrity of the other party or parties to such
transaction and its or their management.
The provisions described above may tend to deter any potential unfriendly
offers or other efforts to obtain control of Horizon that are not approved by
the Horizon Board of Directors and thereby deprive the stockholders of
opportunities to sell shares at above-market prices. Such provisions may also
have the effect of preventing changes in the management of Horizon. It is
possible that such provisions could make it more difficult to accomplish
transactions that stockholders may otherwise deem to be in their best interests.
The foregoing provisions of the Horizon Charter regarding business
combinations and other similar transactions may be amended or repealed only by
the vote of holders of two-thirds of Horizon's outstanding shares of all classes
or series of capital stock entitled to vote on the election of Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Horizon Common Stock is Chemical
Mellon Shareholder Services.
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<PAGE>
COMPARATIVE RIGHTS OF HORIZON AND CMS STOCKHOLDERS
If the Merger is consummated, the stockholders of CMS will become
stockholders of Horizon. The rights of the stockholders of both Horizon and CMS
are governed by and subject to the provisions of the DGCL. The rights of current
CMS stockholders following the Merger will be governed by the Horizon Charter
and Horizon's Bylaws rather than the provisions of the CMS Charter and By-Laws.
The following is a brief summary of certain differences between the rights of
Horizon stockholders and the rights of CMS stockholders, and is qualified in its
entirety by reference to the relevant provisions of the DGCL, the Horizon
Charter and Bylaws and the CMS Charter and By-Laws.
NUMBER, CLASSIFICATION AND REMOVAL OF DIRECTORS
The Horizon Charter and Bylaws provide for the classification of the Board
of Directors of Horizon into three classes, with directors serving staggered
three-year terms. The Horizon Charter also provides that the number of directors
shall be five unless otherwise determined by 80% of the then authorized number
of directors. The foregoing provisions cannot be altered, amended or repealed
without the affirmative vote of the holders of not less than 66 2/3% of the
Voting Shares (as defined in the Horizon Charter). Currently the number of
Horizon directors is eight, but will be increased upon consummation of the
Merger. See "The Merger -- Board Arrangements."
The CMS Charter and By-Laws provide for the classification of the Board of
Directors of CMS. CMS's By-Laws provide that the number of directors shall be
fixed from time to time by the CMS Board, but may not consist of less than five
nor more than 13 persons. Currently, the number of CMS directors is seven.
The Horizon Charter allows directors to be removed only for cause and such
removal must be approved by 66 2/3% of the outstanding shares of Horizon Common
Stock entitled to vote for the election of directors. The CMS Charter allows
directors to be removed only for cause and such removal must be approved by 75%
of the outstanding shares of capital stock entitled to vote for the election of
directors.
VOTING RIGHTS
Neither Horizon's nor CMS's Charter provides for cumulative voting rights
under current circumstances, although Horizon's Charter does provide for
cumulative voting rights if any stockholder attains ownership of 40% or more of
the shares of stock of any class or series entitled to vote for the election of
directors.
POWER TO CALL SPECIAL MEETINGS
Horizon's Charter provides that a special meeting of stockholders may be
called by a majority of directors then in office or by the holders of not less
than 25% of the issued and outstanding shares of stock of any class or series
entitled to vote for the election of directors. In addition, if the holders of
any preferred stock of Horizon are entitled to elect one or more directors
separately as a class, the holders of 25% of such preferred stock then
outstanding may call a special meeting for limited purposes. CMS's By-Laws
provide that a special meeting of stockholders may be called by the President,
by a majority of CMS's Directors or by the holders of a majority of the stock
entitled to vote at the meeting.
STOCKHOLDER VOTE REQUIRED FOR CERTAIN TRANSACTIONS
The Horizon Charter contains certain provisions that require that a higher
percentage of stockholders approve mergers, consolidations, sales of a
substantial amount of assets and other similar transactions involving a Related
Person (or an Affiliate or Associate thereof) than would otherwise be required
under the DGCL, subject to certain exceptions. See "Description of Horizon
Capital Stock." The CMS Charter does not contain a similar provision.
ACTION BY WRITTEN CONSENT
Horizon's Charter does not permit action to be taken by stockholders without
a meeting. Because the CMS Charter does not contain a similar provision, the
DGCL permits the taking of stockholder action by written consent.
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AMENDMENTS OF BYLAWS
Horizon's Bylaws may be amended by the Board of Directors of Horizon or by
the holders of not less than 66 2/3% of the Voting Shares outstanding. CMS's
By-Laws may be amended by the Board of Directors of CMS and by the holders of a
majority of the outstanding shares of stock present and entitled to vote at a
meeting.
Also see "Description of Horizon Capital Stock."
INDEPENDENT PUBLIC ACCOUNTANTS
It is expected that representatives of Arthur Andersen LLP will be present
at the Horizon Special Meeting and that representatives of Ernst & Young LLP
will be present at the CMS Special Meeting to respond to appropriate questions
of stockholders and to make a statement if they so desire.
LEGAL MATTERS
The validity of the Horizon Common Stock to be issued in the Merger has been
passed upon for Horizon by Vinson & Elkins L.L.P., Houston, Texas. Certain tax
consequences of the Merger have been passed upon for Horizon by Vinson & Elkins
L.L.P., Houston, Texas, and for CMS by Drinker Biddle & Reath, Philadelphia,
Pennsylvania. William M. Goldstein, a director of CMS, is a partner in the law
firm of Drinker Biddle & Reath.
EXPERTS
The consolidated financial statements and financial statement schedules,
included in the Horizon 1994 Form 10-K, to the extent and for the periods
indicated in their reports, have been audited by Arthur Andersen LLP,
independent public accountants, and have been incorporated by reference herein
and in the Registration Statement in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
The consolidated financial statements and schedules of CMS at June 30, 1994,
and for the year then ended, included in the CMS 1994 Form 10-K and incorporated
by reference herein and in the Registration Statement have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report thereon
incorporated by reference herein, and are incorporated by reference herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Greenery Rehabilitation Group, Inc.
at September 30, 1993 and 1992, and for each of the three years in the period
ended September 30, 1993, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The combined financial statements of peopleCARE Heritage Group incorporated
by reference in this Joint Proxy Statement/Prospectus have been audited by BDO
Seidman, independent certified public accountants, to the extent and for the
periods set forth in their report incorporated herein by reference, and are
incorporated herein in reliance upon such report given upon the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of CMS as of June 30, 1993 and for the
two years then ended incorporated in this Joint Proxy Statement/Prospectus and
in the Registration Statement by reference to the CMS 1994 Form 10-K have been
so incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
STOCKHOLDER PROPOSALS
Any proposals of holders of Horizon Common Stock intended to be presented at
the Annual Meeting of Stockholders of Horizon to be held in 1995 must be
received by Horizon, addressed to the
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Secretary of Horizon at 6001 Indian School Road, N.E., Suite 530, Albuquerque,
New Mexico 87110, no later than June 13, 1995, to be considered for inclusion in
the proxy statement and form of proxy relating to that meeting.
If the Merger is not consummated, any proposals of stockholders of CMS
intended to be presented at the Annual Meeting of Stockholders of CMS to be held
in 1995 must be received by CMS, addressed to the Secretary of CMS at 600 Wilson
Lane, P. O. Box 715, Mechanicsburg, Pennsylvania 17055, no later than June 6,
1995, to be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.
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APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
HORIZON HEALTHCARE CORPORATION,
CMS MERGER CORPORATION
AND
CONTINENTAL MEDICAL SYSTEMS, INC.
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER.................................................................................. A-1
SECTION 1.02. EFFECTIVE TIME.............................................................................. A-1
SECTION 1.03. EFFECT OF THE MERGER........................................................................ A-1
SECTION 1.04. CERTIFICATE OF INCORPORATION; BYLAWS........................................................ A-2
SECTION 1.05. DIRECTORS AND OFFICERS...................................................................... A-2
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. MERGER CONSIDERATION; CONVERSION AND CANCELLATION OF SECURITIES............................. A-2
SECTION 2.02. PAYMENT FOR COMPANY COMMON STOCK; SURRENDER OF CERTIFICATES................................. A-3
SECTION 2.03. STOCK TRANSFER BOOKS........................................................................ A-5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES................................................ A-5
SECTION 3.02. CERTIFICATE OF INCORPORATION AND BYLAWS..................................................... A-5
SECTION 3.03. CAPITALIZATION.............................................................................. A-5
SECTION 3.04. AUTHORITY................................................................................... A-7
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.................................................. A-7
SECTION 3.06. PERMITS; COMPLIANCE......................................................................... A-8
SECTION 3.07. REPORTS; FINANCIAL STATEMENTS............................................................... A-9
SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS........................................................ A-10
SECTION 3.09. ABSENCE OF LITIGATION....................................................................... A-10
SECTION 3.10. EMPLOYEE BENEFIT PLANS; LABOR MATTERS....................................................... A-11
SECTION 3.11. TAXES....................................................................................... A-12
SECTION 3.12. TAX MATTERS; POOLING........................................................................ A-12
SECTION 3.13. AFFILIATES.................................................................................. A-13
SECTION 3.14. CERTAIN BUSINESS PRACTICES.................................................................. A-13
SECTION 3.15. OPINION OF FINANCIAL ADVISOR................................................................ A-13
SECTION 3.16. VOTE REQUIRED............................................................................... A-13
SECTION 3.17. BROKERS..................................................................................... A-13
SECTION 3.18. ACQUIRING PERSON............................................................................ A-14
SECTION 3.19. INFORMATION SUPPLIED........................................................................ A-14
SECTION 3.20. INSURANCE................................................................................... A-14
SECTION 3.21. PROPERTIES.................................................................................. A-14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
SECTION 4.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES................................................ A-15
SECTION 4.02. CERTIFICATE OF INCORPORATION AND BYLAWS..................................................... A-15
SECTION 4.03. CAPITALIZATION.............................................................................. A-15
SECTION 4.04. AUTHORITY................................................................................... A-16
SECTION 4.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.................................................. A-17
SECTION 4.06. PERMITS; COMPLIANCE......................................................................... A-17
SECTION 4.07. REPORTS; FINANCIAL STATEMENTS............................................................... A-18
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SECTION 4.08. ABSENCE OF CERTAIN CHANGES OR EVENTS........................................................ A-19
SECTION 4.09. ABSENCE OF LITIGATION....................................................................... A-19
SECTION 4.10. EMPLOYEE BENEFIT PLANS; LABOR MATTERS....................................................... A-20
SECTION 4.11. TAXES....................................................................................... A-21
SECTION 4.12. TAX MATTERS; POOLING........................................................................ A-22
SECTION 4.13. AFFILIATES.................................................................................. A-22
SECTION 4.14. CERTAIN BUSINESS PRACTICES.................................................................. A-22
SECTION 4.15. OPINION OF FINANCIAL ADVISOR................................................................ A-22
SECTION 4.16. VOTE REQUIRED............................................................................... A-22
SECTION 4.17. BROKERS..................................................................................... A-22
SECTION 4.18. INFORMATION SUPPLIED........................................................................ A-22
SECTION 4.19. INSURANCE................................................................................... A-23
SECTION 4.20. PROPERTIES.................................................................................. A-23
ARTICLE V
COVENANTS
SECTION 5.01. AFFIRMATIVE COVENANTS OF THE COMPANY........................................................ A-23
SECTION 5.02. NEGATIVE COVENANTS OF THE COMPANY........................................................... A-23
SECTION 5.03. NEGATIVE COVENANTS OF ACQUIROR.............................................................. A-26
SECTION 5.04. ACCESS AND INFORMATION...................................................................... A-28
SECTION 5.05. AFFIRMATIVE COVENANTS OF ACQUIROR........................................................... A-28
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. MEETINGS OF STOCKHOLDERS.................................................................... A-29
SECTION 6.02. REGISTRATION STATEMENT; PROXY STATEMENTS.................................................... A-29
SECTION 6.03. APPROPRIATE ACTION; CONSENTS; FILINGS....................................................... A-31
SECTION 6.04. AFFILIATES; POOLING; TAX TREATMENT.......................................................... A-32
SECTION 6.05. PUBLIC ANNOUNCEMENTS........................................................................ A-32
SECTION 6.06. NYSE LISTING................................................................................ A-32
SECTION 6.07. RIGHTS AGREEMENT; STATE TAKEOVER STATUTES................................................... A-32
SECTION 6.08. COMFORT LETTERS............................................................................. A-32
SECTION 6.09. ASSUMPTION OF OBLIGATIONS TO ISSUE STOCK.................................................... A-33
SECTION 6.10. MERGER SUB.................................................................................. A-34
SECTION 6.11. BOARD OF DIRECTORS.......................................................................... A-34
SECTION 6.12. INDEMNIFICATION AND INSURANCE............................................................... A-34
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS AGREEMENT................................ A-35
SECTION 7.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE ACQUIROR COMPANIES.............................. A-36
SECTION 7.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY......................................... A-36
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION................................................................................. A-37
SECTION 8.02. EFFECT OF TERMINATION....................................................................... A-38
SECTION 8.03. AMENDMENT................................................................................... A-38
SECTION 8.04. WAIVER...................................................................................... A-38
SECTION 8.05. FEES, EXPENSES AND OTHER PAYMENTS........................................................... A-39
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ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS................................. A-40
SECTION 9.02. NOTICES..................................................................................... A-40
SECTION 9.03. CERTAIN DEFINITIONS......................................................................... A-41
SECTION 9.04. HEADINGS.................................................................................... A-42
SECTION 9.05. SEVERABILITY................................................................................ A-42
SECTION 9.06. ENTIRE AGREEMENT............................................................................ A-42
SECTION 9.07. ASSIGNMENT.................................................................................. A-42
SECTION 9.08. PARTIES IN INTEREST......................................................................... A-42
SECTION 9.09. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE....................................... A-42
SECTION 9.10. GOVERNING LAW............................................................................... A-42
SECTION 9.11. COUNTERPARTS................................................................................ A-43
SECTION 9.12. SPECIFIC PERFORMANCE........................................................................ A-43
EXHIBITS
Exhibit A Form of Company Affiliate Letter
Exhibit B Form of Acquiror Affiliate Letter
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AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of May 23,
1995 (this "Agreement"), is by and among HORIZON HEALTHCARE CORPORATION, a
Delaware corporation ("Acquiror"), CMS MERGER CORPORATION, a Delaware
corporation and wholly owned subsidiary of Acquiror ("Merger Sub"), and
CONTINENTAL MEDICAL SYSTEMS, INC., a Delaware corporation (the "Company").
Acquiror and Merger Sub are sometimes collectively referred to herein as the
"Acquiror Companies."
WHEREAS, the parties hereto are parties to that certain Agreement and Plan
of Merger dated as of March 31, 1995 (the "Merger Agreement");
WHEREAS, the parties hereto have entered into that certain Amendment No. 1
to Agreement and Plan of Merger dated as of the date of this Agreement whereby
the Merger Agreement was amended and restated as set forth herein;
WHEREAS, Merger Sub, upon the terms and subject to the conditions of this
Agreement and in accordance with the General Corporation Law of the State of
Delaware ("Delaware Law"), will merge with and into the Company (the "Merger");
WHEREAS, Acquiror and the Company, in connection with this Agreement and
prior to or contemporaneous with the execution of this Agreement, have entered
into a Stock Option Agreement (the "Stock Option Agreement");
WHEREAS, the Board of Directors of the Company has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of the Company and is fair to, and in the best interests of, the Company and its
stockholders and has approved and adopted this Agreement and the transactions
contemplated hereby, and recommended approval and adoption of this Agreement by
the stockholders of the Company;
WHEREAS, the Board of Directors of Acquiror (the Acquiror Board ) has
determined that the Merger is consistent with and in furtherance of the
long-term business strategy of Acquiror and is fair to, and in the best
interests of, Acquiror and its stockholders and has approved and adopted this
Agreement and the transactions contemplated hereby, and recommended approval and
adoption of this Agreement by the stockholders of Acquiror;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Merger is intended to be treated as a "pooling of interests"
for financial accounting purposes;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with Delaware Law, at the Effective
Time (as defined in Section 1.02 of this Agreement), Merger Sub shall be merged
with and into the Company. As a result of the Merger, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation of the Merger (the "Surviving Corporation"). The name of
the Surviving Corporation shall be "Continental Medical Systems, Inc."
SECTION 1.02. EFFECTIVE TIME. As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VII of this Agreement, the parties hereto shall cause the Merger to be
consummated by filing a Certificate of Merger with the Secretary of State of the
State of Delaware, in such form as required by, and executed in accordance with
the relevant provisions of, Delaware Law (the date and time of the completion of
such filing being the "Effective Time").
SECTION 1.03. EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise provided herein, all the property,
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rights, privileges, powers and franchises of Merger Sub and the Company shall
vest in the Surviving Corporation, and all debts, liabilities and duties of
Merger Sub and the Company shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.04. CERTIFICATE OF INCORPORATION; BYLAWS. At the Effective Time,
the Certificate of Incorporation and the Bylaws of the Company, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation and the Bylaws of the Surviving Corporation.
SECTION 1.05. DIRECTORS AND OFFICERS. The directors of Merger Sub
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. MERGER CONSIDERATION; CONVERSION AND CANCELLATION OF
SECURITIES. At the Effective Time, by virtue of the Merger and without any
action on the part of the Acquiror Companies, the Company or the holders of any
of the Company's securities:
(a) Subject to the other provisions of this Article II, each share of
common stock, par value $.01 per share, of the Company ("Company Common
Stock") issued and outstanding immediately prior to the Effective Time
(excluding any Company Common Stock described in Section 2.01(c) of this
Agreement) shall be converted into a number of shares of common stock, par
value $.001 per share ("Acquiror Common Stock") of Acquiror equal to $13.00
divided by the "Acquiror Transaction Value" as hereinafter defined, rounded
to four decimal places (the "Common Stock Exchange Ratio"); provided,
however, that notwithstanding the foregoing, the Common Stock Exchange Ratio
shall not be less than .4415 nor more than .5397. The term "Acquiror
Transaction Value" shall mean the average closing price on the New York
Stock Exchange Composite Tape of Acquiror Common Stock for the 20 New York
Stock Exchange trading days ending with the third New York Stock Exchange
trading day immediately preceding the date of mailing of the Company Proxy
Statement (as defined below). Notwithstanding the foregoing, if between the
date of this Agreement and the Effective Time the outstanding shares of
Acquiror Common Stock or Company Common Stock shall have been changed into a
different number of shares or a different class, by reason of any stock
dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Common Stock Exchange Ratio shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares.
(b) As a result of their conversion pursuant to subsection 2.01(a), all
shares of Company Common Stock shall cease to be outstanding and shall
automatically be canceled and retired, and each certificate ("Certificate")
previously evidencing Company Common Stock outstanding immediately prior to
the Effective Time (other than Company Common Stock described in Section
2.01(c) of this Agreement) ("Converted Shares") shall thereafter represent,
subject to Section 2.02(e) of this Agreement, that number of shares of
Acquiror Common Stock determined pursuant to the Common Stock Exchange Ratio
and, if applicable, the right to receive cash pursuant to Section 2.02(e) of
this Agreement (the "Merger Consideration"). The holders of Certificates
previously evidencing Converted Shares shall cease to have any rights with
respect to such Converted Shares except as otherwise provided herein or by
law. Such Certificates previously evidencing Converted Shares shall be
exchanged for certificates evidencing whole shares of Acquiror Common Stock
upon the surrender of such Certificates in accordance with the provisions of
Section 2.02 of this Agreement. No fractional shares of Acquiror Common
Stock shall be issued and, in lieu thereof, a cash payment shall be made
pursuant to Section 2.02(e) of this Agreement. From and after the Effective
Time, former stockholders of record of the Company shall be entitled to vote
at any meeting of holders of Acquiror Common Stock the number of whole
shares of Acquiror Common Stock into which their Converted Shares are
converted, regardless of whether such holders have exchanged their
certificates representing the Converted Shares for certificates representing
Acquiror Common Stock in accordance with the provisions of this Agreement.
Until surrendered for exchange in accordance with the provisions of Section
2.02 of this
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Agreement, each Certificate theretofore representing Converted Shares (other
than shares of Company Common Stock to be canceled pursuant to Section
2.01(c) of this Agreement) shall from and after the Effective Time represent
for all purposes only shares of Acquiror Common Stock and/or the right to
receive cash, as set forth in this Agreement.
(c) Notwithstanding any provision of this Agreement to the contrary,
each share of Company Common Stock held in the treasury of the Company and
each share of Company Common Stock owned by Acquiror or any direct or
indirect wholly owned subsidiary of Acquiror or of the Company immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof and no payment shall be made with respect thereto.
(d) Each share of common stock, par value $.001 per share, of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into 210,000 shares of common stock, par value $.01 per share, of
the Surviving Corporation.
SECTION 2.02. PAYMENT FOR COMPANY COMMON STOCK; SURRENDER OF
CERTIFICATES.
(a) EXCHANGE FUND. Promptly after the Effective Time, Acquiror shall
deposit, or cause to be deposited, with a bank or trust company mutually
agreeable to the parties to this Agreement (the "Exchange Agent"), for the
benefit of the former holders of Converted Shares, for exchange in
accordance with this Article II, through the Exchange Agent, (i)
certificates evidencing a number of shares of Acquiror Common Stock equal to
the product of the Common Stock Exchange Ratio multiplied by the number of
Converted Shares and (ii) cash in an amount equal to the aggregate amount
required to be paid in lieu of fractional interests of Acquiror Common Stock
pursuant to Section 2.02(e). Subject to the provisions of subsection (f) of
this Section 2.02, Acquiror shall, if and when a payment date has occurred
with respect to a dividend or distribution that has been declared subsequent
to the Effective Time, deposit with the Exchange Agent an amount in cash (or
property of like kind to that which is the subject to such dividend or
distribution) equal to the dividend or distribution per share of Acquiror
Common Stock times the number of shares of Acquiror Common Stock evidenced
by Certificates that have not theretofore been surrendered for exchange in
accordance with this Section 2.02. The certificates and cash (and property,
if any) deposited with the Exchange Agent in accordance with this subsection
2.02(a) are hereinafter referred to as the "Exchange Fund". The Exchange
Agent shall, pursuant to irrevocable instructions, deliver Acquiror Common
Stock (and any dividends or distribution related thereto) and/or cash, as
described above, in exchange for surrendered Certificates pursuant to the
terms of this Agreement out of the Exchange Fund. Except as contemplated by
Section 2.02(e) of this Agreement, the Exchange Fund shall not be used for
any other purpose.
(b) LETTER OF TRANSMITTAL. As soon as practicable after the Effective
Time, Acquiror will send to each record holder of Company Stock at the
Effective Time a letter of transmittal and other appropriate materials for
use in surrendering Certificates to the Exchange Agent.
(c) PAYMENT PROCEDURES. Promptly after the Effective Time, the Exchange
Agent shall distribute to each former holder of Converted Shares, upon
surrender to the Exchange Agent of one or more Certificates for
cancellation, together with a duly executed and properly completed letter of
transmittal, the Merger Consideration for each Converted Share formerly
represented thereby, in accordance with the provisions of Section 2.01 of
this Agreement. If payment is to be made to a person other than the person
in whose name the Certificate surrendered is registered, it shall be a
condition of payment that the Certificate so surrendered shall be properly
endorsed, with signatures guaranteed, or otherwise in proper form for
transfer and that 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 the Certificate surrendered, or such person shall
establish to the satisfaction of Acquiror that such tax has been paid or is
not applicable. Notwithstanding the foregoing, neither the Exchange Agent
nor any party hereto shall be liable to any former holder of Converted
Shares for any cash, Acquiror Common Stock or dividends thereon delivered to
a public official pursuant to applicable escheat law. No interest shall be
paid on any Merger Consideration payable to former holders of Converted
Shares.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF ACQUIROR COMMON
STOCK. No dividends or other distributions declared or made after the
Effective Time with respect to Acquiror Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Acquiror Common Stock evidenced
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thereby and no Merger Consideration shall be paid to any such holder, until
the holder of such Certificate shall surrender such Certificate. If any
holder of Converted Shares shall be unable to surrender such holder's
Certificates because such Certificates have been lost or destroyed, such
holder may deliver in lieu thereof an affidavit and indemnity bond in form
and substance and with surety reasonably satisfactory to Acquiror. Subject
to applicable laws, following surrender of any such Certificate, there shall
be paid to the holder of the certificates evidencing whole shares of
Acquiror Common Stock issued in exchange therefor, without interest, (i)
promptly, the amount of any cash payable with respect to a fractional share
of Acquiror Common Stock to which such holder is entitled pursuant to
Section 2.02(e) of this Agreement and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Acquiror Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions,
with a record date after the Effective Time but prior to surrender and a
payment date occurring after surrender, payable with respect to such whole
shares of Acquiror Common Stock.
(e) NO FRACTIONAL SHARES.
(i) Notwithstanding anything herein to the contrary, no certificates
or scrip evidencing fractional shares of Acquiror Common Stock shall be
issued upon the surrender for exchange of Certificates, and such
fractional share interests will not entitle the owner thereof to vote or
to any rights as a stockholder of Acquiror. In lieu of any such
fractional shares, each holder of Company Stock upon surrender of a
Certificate for exchange pursuant to this Article II shall be paid an
amount in cash (without interest), rounded to the nearest cent,
determined by multiplying (a) the per share closing price on the New York
Stock Exchange ("NYSE") of Acquiror Common Stock on the date of the
Effective Time (or, if shares of Acquiror Common Stock do not trade on
the NYSE on such date, the first date of trading of Acquiror Common Stock
on the NYSE after the Effective Time) by (b) the fractional interest of
Acquiror Common Stock to which such holder would otherwise be entitled
(after taking into account all Converted Shares held of record by such
holder at the Effective Time), subject to the provisions of Section
2.02(c) of this Agreement.
(ii) As soon as practicable after the determination of the amount of
cash, if any, to be paid to former holders of Converted Shares with
respect to any fractional share interests of Acquiror Common Stock, the
Exchange Agent shall promptly pay such amounts to such former holders of
Converted Shares subject to and in accordance with the terms of this
Section 2.02. Acquiror will make available to the Exchange Agent the cash
necessary for this purpose.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund that
remains unclaimed by the former holders of Converted Shares for six months
after the Effective Time shall be delivered to Acquiror, upon demand, and
any former holders of Converted Shares who have not theretofore complied
with this Article II shall thereafter look only to Acquiror for the Merger
Consideration and dividends or distributions to which they are entitled,
without any interest thereon.
(g) WITHHOLDING. Acquiror (or any affiliate thereof) shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to
this Agreement to any former holder of Converted Shares such amounts as
Acquiror (or any affiliate thereof) is required to deduct and withhold with
respect to the making of such payment under the Code, or any other provision
of federal, state, local or foreign tax law. To the extent that amounts are
so withheld by Acquiror, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the former holder of the
Converted Shares in respect of which such deduction and withholding was made
by Acquiror.
(h) EFFECT OF ESCHEAT LAWS. None Acquiror nor the Company shall be
liable to any holder of shares of Company Stock for any Merger Consideration
(or dividends or distributions with respect thereto) or cash delivered to a
public official pursuant to any applicable abandoned property escheat or
similar law.
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SECTION 2.03. STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Stock thereafter on the records
of the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Acquiror Companies that:
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. The Company is
a corporation, and each of the Company's subsidiaries is a corporation or
partnership, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization, has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted and is duly qualified and in good standing
to do business in each jurisdiction in which the nature of the business
conducted by it or the ownership or leasing of its properties makes such
qualification necessary, other than where the failure to be so duly qualified
and in good standing could not reasonably be expected to have a Company Material
Adverse Effect. The term "Company Material Adverse Effect" as used in this
Agreement shall mean any change or effect that, individually or when taken
together with all other such changes or effects, would be materially adverse to
the financial condition, results of operations, business or prospects of the
Company and its subsidiaries, taken as a whole, at the time of such change or
effect. Section 3.01 of the Disclosure Schedule delivered by the Company to the
Acquiror Companies concurrently with the execution of this Agreement (the
"Company Disclosure Schedule") sets forth, as of the date of this Agreement, a
true and complete list of all the Company's directly or indirectly owned
subsidiaries, together with (A) the jurisdiction of incorporation or
organization of each subsidiary and the percentage of each subsidiary's
outstanding capital stock or other equity interests owned by the Company or
another subsidiary of the Company and (B) an indication of whether each such
subsidiary is a "Significant Subsidiary" as defined in Section 9.03(f) of this
Agreement. Except as set forth in Section 3.01 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries owns an equity
interest in any partnership or joint venture arrangement or other business
entity that is material to the financial condition, results of operations,
business or prospects of the Company and its subsidiaries, taken as a whole.
SECTION 3.02. CERTIFICATE OF INCORPORATION AND BYLAWS. The Company has
heretofore furnished or made available to Acquiror complete and correct copies
of the Certificate of Incorporation and the Bylaws or the equivalent
organizational documents, in each case as amended or restated to the date
hereof, of the Company and each of its subsidiaries. Neither the Company nor any
of its corporate subsidiaries is in violation of any of the provisions of its
Certificate of Incorporation or Bylaws (or equivalent organizational documents).
Except as disclosed in the Company Disclosure Schedule, none of the Company s
noncorporate subsidiaries is in violation of any provisions of its
organizational documents (the "Constituent Documents") other than any such
violations that could not reasonably be expected to have a Company Material
Adverse Effect.
SECTION 3.03. CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 80,000,000
shares of Company Common Stock and 10,000,000 shares of preferred stock, par
value $.01 per share ("Company Preferred Stock"), of which 50,000 shares
have been designated as Series A Junior Participating Preferred Stock and
the balance of which are undesignated. At the close of business on March 28,
1995, 38,623,786 shares of Company Common Stock were issued and outstanding,
no shares of Company Common Stock were held by the Company in its treasury
or by the Company's subsidiaries and 10,227,050 shares of Company Common
Stock were reserved for issuance as follows: (i) 8,923,406 shares were
reserved for future issuance pursuant to stock options granted or that may
be granted pursuant to the 1986 Stock Option Plan, the 1992 CEO Stock Option
Plan, the 1993 Non-Qualified Stock Option Plan, the 1994 Stock Option Plan
and the 1989 Non-Employee
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Directors Stock Option Plan (collectively, the "Option Plans"), (ii) 300,000
shares were reserved for issuance upon the exercise of nonqualified stock
options granted pursuant to the Chief Executive Officer of the Company in
May 1989 (such stock option, together with outstanding stock options granted
pursuant to the Option Plans, being referred to herein as the "Stock
Options"), (iii) 233,644 shares were reserved for issuance upon conversion
of the Company's $2,000,000 7 3/4% Subordinated Convertible Debenture due
May 1, 2012 (the "Company Debenture"), (iv) 420,000 shares were reserved for
issuance pursuant to the Company's Restricted Stock Plan, (v) an
indeterminate number of shares (not reasonably expected to exceed 300,000
shares) were reserved for issuance, subject to the satisfaction of certain
conditions, under the earnout agreements described in Section 3.03(a) of the
Company Disclosure Schedule (the "Company Acquisition Agreements") and (vi)
350,000 shares were reserved for issuance upon the exercise of warrants
expiring October 22, 1996 (the "Warrants"). No shares of the Company
Preferred Stock are issued or outstanding. Except as described in this
Section 3.03 or in Section 3.03(a) of the Company Disclosure Schedule, as of
the date of this Agreement, no shares of capital stock of the Company are
reserved for issuance for any other purpose. Since March 28,1995, no shares
of capital stock have been issued by the Company except pursuant to
agreements for which shares were adequately reserved at such date as
described in this subsection (a). Since March 28, 1995, the Company has not
granted any options for, or other rights to purchase, any shares of capital
stock of the Company. Each of the issued shares of capital stock of, or
other equity interests in, each of the Company and its subsidiaries is duly
authorized, validly issued and, in the case of shares of capital stock,
fully paid and nonassessable, and has not been issued in violation of (nor
are any of the authorized shares of capital stock of, or other equity
interests in, the Company or any of its wholly owned subsidiaries subject
to) any preemptive or similar rights created by statute, the Certificate of
Incorporation or Bylaws (or the equivalent organizational documents) of the
Company or any of its subsidiaries, or any agreement to which the Company or
any of its subsidiaries is a party or is bound, and, except as set forth in
Section 3.21 of the Company Disclosure Schedule and in the Constituent
Documents, all such issued shares or other equity interests owned by the
Company or a subsidiary of the Company are owned free and clear of all
security interests, liens, claims, pledges, agreements, limitations on the
Company's or such subsidiaries' voting rights, charges or other encumbrances
of any nature whatsoever.
(b) Except as set forth in Section 3.03(a) above, no bonds, debentures,
notes or other indebtedness of the Company having the right to vote (or
convertible into or exercisable for securities having the right to vote) on
any matters on which stockholders may vote ("Voting Debt") is issued or
outstanding. All shares of Company Common Stock which may be issued pursuant
to the Option Plans will, when issued in accordance with the terms of the
related Option Plan and Stock Option, be validly issued, fully paid and
nonassessable and not subject to preemptive rights.
(c) Except (i) as set forth in Section 3.03(a) above, (ii) as set forth
in Section 3.03(c) of the Company Disclosure Schedule, (iii) pursuant to the
terms of that certain Rights Agreement dated as of March 11, 1991 by and
between the Company and Mellon Bank, N.A.(as substitute Rights Agent) (as
amended, the "Company Rights Agreement") and (iv) as set forth in the
Constituent Documents, there are no options, warrants or other rights
(including registration rights), agreements, arrangements or commitments of
any character to which the Company or any of its subsidiaries is a party
relating to the issued or unissued capital stock or other equity interests
of the Company or any of its subsidiaries or obligating the Company or any
of its subsidiaries to grant, issue or sell any shares of capital stock,
Voting Debt or other equity interests of the Company or any of its
subsidiaries. Except as set forth in Section 3.03(c) of the Company
Disclosure Schedule or in the Constituent Documents, there are no
obligations, contingent or otherwise, of the Company or any of its
subsidiaries to (i) repurchase, redeem or otherwise acquire any shares of
Company Common Stock or other capital stock of the Company or the capital
stock or other equity interests of any subsidiary of the Company; or (ii)
(other than advances to subsidiaries in the ordinary course of business)
provide material funds to, or make
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any material investment in (in the form of a loan, capital contribution or
otherwise), or provide any guarantee with respect to the material
obligations of, any subsidiary of the Company or any other person. Except
(i) as set forth in Section 3.03(c) of the Company Disclosure Schedule, (ii)
for subsidiaries of the Company set forth in Section 3.01 of the Company
Disclosure Schedule or (iii) as permitted pursuant to Section 5.02(e),
neither the Company nor any of its subsidiaries (x) directly or indirectly
owns, (y) has agreed to purchase or otherwise acquire for a purchase price
in excess of $1 million or (z) holds any interest convertible into or
exchangeable or exercisable for, 5% or more of the capital stock or other
equity interest of any corporation, partnership, joint venture or other
business association or entity with an aggregate fair market value of in
excess of $20 million. Except (q) as set forth in Section 3.03(c) of the
Company Disclosure Schedule, (r) for any agreements, arrangements or
commitments between the Company and its subsidiaries or between such
subsidiaries or (s) payments made pursuant to real property leases, there
are no agreements, arrangements or commitments of any character (contingent
or otherwise) pursuant to which any person is or may be entitled to receive
any payment based on the revenues or earnings, or calculated in accordance
therewith, of the Company or any of its subsidiaries. Except as set forth in
the Constituent Documents, there are no voting trusts, proxies or other
agreements or understandings to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound with
respect to the voting of any shares of capital stock or other equity
interests of the Company or any of its subsidiaries.
(d) The Company has delivered to Acquiror complete and correct copies of
the Option Plans and all forms of Stock Options issued pursuant to the
Option Plans or otherwise, including all amendments thereto. The Company has
previously delivered to Acquiror a complete and correct list setting forth
as of March 28, 1995, (i) the number of Stock Options outstanding, (ii) the
exercise price of each outstanding Stock Option and (iii) the number of
Stock Options exercisable.
SECTION 3.04. AUTHORITY. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and the Stock Option Agreement
(the "Transaction Documents"), to perform its obligations under the Transaction
Documents and to consummate the transactions contemplated by the Transaction
Documents (subject to, with respect to the Merger, the approval and adoption of
this Agreement by the stockholders of the Company as set forth in Section 3.16
of this Agreement). The execution and delivery of the Transaction Documents by
the Company and the consummation by the Company of the transactions contemplated
by the Transaction Documents have been duly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Company
are necessary to authorize the Transaction Documents or to consummate the
transactions contemplated by the Transaction Documents (subject to, with respect
to the Merger, the approval and adoption of this Agreement by the stockholders
of the Company as set forth in Section 3.16 of this Agreement). The Transaction
Documents have been duly executed and delivered by the Company and, assuming the
due authorization, execution and delivery thereof by the Acquiror Companies (to
the extent a party thereto), constitute the legal, valid and binding obligation
of the Company.
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Assuming that all consents, licenses, permits, waivers, approvals,
authorizations, orders, filings and notifications contemplated by the
exceptions to Section 3.05(b) are obtained or made, and except as disclosed
in Section 3.05(a) of the Company Disclosure Schedule, the execution and
delivery of the Transaction Documents by the Company does not, and the
consummation of the transactions contemplated by the Transaction Documents,
will not (i) conflict with or violate the Certificate of Incorporation or
Bylaws, or the equivalent organizational documents, in each case as amended
or restated, of the Company or any of its subsidiaries, (ii) conflict with
or violate any federal, state, foreign or local law, statute, ordinance,
rule, regulation, order, judgment or decree (collectively, "Laws")
applicable to the Company or any of its subsidiaries or by or to which any
of their respective properties is bound or subject 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)
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under, or give to others any rights of termination, amendment, acceleration
or cancellation of, or require payment under, or result in the creation of a
lien or encumbrance on any of the properties or assets of the Company or any
of its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation to which the Company or any of its subsidiaries is a party or
by or to which the Company or any of its subsidiaries or any of their
respective properties is bound or subject, except for any such conflicts,
violations, breaches, defaults, events, rights of termination, amendment,
acceleration or cancellation, payment obligations or liens or encumbrances
that could not reasonably be expected to have a Company Material Adverse
Effect. The Board of Directors of the Company has taken all actions
necessary under Delaware Law, including approving the transactions
contemplated by the Transaction Documents, to ensure that the prohibitions
on business combinations set forth in Section 203 of Delaware Law do not,
and will not, apply to the transactions contemplated by the Transaction
Documents or that certain Voting Agreement (the Voting Agreement ) dated as
of March 31, 1995 by and between Acquiror and the stockholders of the
Company named therein.
(b) The execution and delivery of the Transaction Documents by the
Company do not, and the performance of the Transaction Documents by the
Company will not, require the Company to obtain any consent, license,
permit, waiver, approval, authorization or order of, or to make any filing
with or notification to, any governmental or regulatory authority, federal,
state, local or foreign (collectively, "Governmental Entities"), except (i)
for applicable requirements, if any, of the Securities Act of 1933, as
amended (the "Securities Act"), and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), state securities or blue sky laws ("Blue Sky
Laws"), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the filing and recordation of appropriate merger
documents as required by Delaware Law, (ii) where the failure to obtain such
consents, licenses, permits, waivers, approvals, authorizations or orders,
or to make such filings or notifications could not reasonably be expected to
prevent the Company from performing its obligations under the Transaction
Documents and could not reasonably be expected to have a Company Material
Adverse Effect and (iii) as disclosed in Section 3.05(b) of the Company
Disclosure Schedule.
SECTION 3.06. PERMITS; COMPLIANCE.
(a) Except as disclosed in Section 3.06(a) of the Company Disclosure
Schedule, each of the Company and its subsidiaries is in possession of (i)
all franchises, grants, authorizations, licenses, permits, easements,
variances, exemptions, consents, certificates, identification and
registration numbers, approvals and orders necessary to own, lease and
operate its properties and to carry on its business as it is now being
conducted and (ii) agreements from all federal, state and local governmental
agencies and accrediting and certifying organizations having jurisdiction
over such facility or facilities that are required to operate the facility
or facilities in the manner in which it or they are currently operated and
receive reimbursement for care provided to patients covered under the
federal Medicare program or any applicable state Medicaid program
(collectively, the "Company Permits"), except where the failure to possess
such Company Permits could not reasonably be expected to have a Company
Material Adverse Effect. Without limiting the generality of the foregoing,
all of the Company's hospitals are certified for participation or enrollment
in the Medicare program, have a current and valid provider contract with the
Medicare program and are in substantial compliance with the conditions of
participation of such programs. Neither the Company nor any of its
subsidiaries has received notice from the regulatory authorities that
enforce the statutory or regulatory provisions in respect of either the
Medicare or the Medicaid program of any pending or threatened investigations
or surveys, and no such investigations or surveys are pending or, to the
knowledge of the Company, threatened or imminent that could reasonably be
expected to have a Company Material Adverse Effect. Section 3.06(a) of the
Company Disclosure Schedule sets forth, as of the date of this Agreement,
all actions, proceedings, investigations or surveys pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries that could reasonably be expected to result in (i) the loss or
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revocation of a Company Permit necessary to operate one or more facilities
or for a facility to receive reimbursement under the Medicare or Medicaid
programs, (ii) the suspension or cancellation of any other Company Permit
except any such Company Permit where such suspension or cancellation could
not reasonably be expected to have a Company Material Adverse Effect. Except
as set forth in Section 3.06(a) of the Company Disclosure Schedule, neither
the Company nor any of its subsidiaries is in conflict with, or in default
or violation of (a) any Law applicable to the Company or any of its
subsidiaries or by or to which any of their respective properties is bound
or subject or (b) any of the Company Permits, except for any such conflicts,
defaults or violations that could not reasonably be expected to have a
Company Material Adverse Effect. Except as set forth in Section 3.06(a) of
the Company Disclosure Schedule, since June 30, 1993, neither the Company
nor any of its subsidiaries has received from any Governmental Entity any
written notification with respect to possible conflicts, defaults or
violations of Laws, except for written notices relating to possible
conflicts, defaults or violations that could not reasonably be expected to
have a Company Material Adverse Effect.
(b) The Company and its subsidiaries, as appropriate, are approved
participating providers in and under all third party payment programs from
which they receive revenues. No action or investigation is pending, or to
the best of its knowledge, threatened to suspend, limit, terminate,
condition, or revoke the status of the Company or any of its subsidiaries as
a provider in any such program, and neither the Company nor any of its
subsidiaries has been provided notice by any third party payor of its
intention to suspend, limit, terminate, revoke, condition or fail to renew
in whole or in part or decrease the amounts payable under any arrangement
with the Company or such subsidiary as a provider, which action,
investigation or proceeding would have a Company Material Adverse Effect.
(c) The Company and its subsidiaries have filed on a timely basis all
claims, cost reports or annual filings required to be filed to secure
payments for services rendered by them under any third-party payment program
from which they receive or expect to receive revenues except where the
failure to file such claim, report or other filing would not have a Company
Material Adverse Effect. Except as indicated in its financial statements
included in the Company SEC Reports (as hereinafter defined), the Company or
its subsidiaries, as applicable, have paid, or caused to be paid, all
refunds, discounts, adjustments, or amounts owing that have become due to
such third party payors pursuant to such claims, reports or filings, and
neither the Company nor any of its subsidiaries has any knowledge or notice
of any material changes required to be made to any cost reports, claims or
filings made by them for any period or of any deficiency in any such claim,
report, or filing, except for changes and deficiencies that in the aggregate
would not have a Company Material Adverse Effect.
SECTION 3.07. REPORTS; FINANCIAL STATEMENTS.
(a) Since June 30, 1991, the Company and its subsidiaries have filed (i)
all forms, reports, statements and other documents required to be filed with
(A) the Securities and Exchange Commission (the "SEC"), including without
limitation (1) all Annual Reports on Form 10-K, (2) all Quarterly Reports on
Form 10-Q, (3) all proxy statements relating to meetings of stockholders
(whether annual or special), (4) all Current Reports on Form 8-K and (5) all
other reports, schedules, registration statements or other documents
(collectively referred to as the "Company SEC Reports"), and (B) any other
applicable state securities authorities and (ii) all forms, reports,
statements and other documents required to be filed with any other
Governmental Entities, including, without limitation, state insurance and
health regulatory authorities, except where the failure to file any such
forms, reports, statements or other documents could not reasonably be
expected to have a Company Material Adverse Effect (all such forms, reports,
statements and other documents in clauses (i) and (ii) of this Section
3.07(a) being referred to herein, collectively, as the "Company Reports").
The Company Reports were prepared in all material respects in accordance
with the requirements of applicable Law (including, with respect to the
Company SEC Reports, the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations
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of the SEC thereunder applicable to such Company SEC Reports) and the
Company SEC Reports did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports (i)
have been prepared in accordance with the published rules and regulations of
the SEC and generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except (A) to the extent disclosed
therein or required by changes in generally accepted accounting principles,
(B), with respect to Company SEC Reports filed prior to the date of this
Agreement, as may be indicated in the notes thereto and (c) in the case of
the unaudited financial statements, as permitted by the rules and
regulations of the SEC) and (ii) fairly present the consolidated financial
position of the Company and its subsidiaries as of the respective dates
thereof and the consolidated results of operations and cash flows for the
periods indicated (subject, in the case of unaudited consolidated financial
statements for interim periods, to adjustments, consisting only of normal,
recurring accruals, necessary to present fairly such results of operations
and cash flows), except that any pro forma financial statements contained in
such consolidated financial statements are not necessarily indicative of the
consolidated financial position of the Company and its subsidiaries as of
the respective dates thereof and the consolidated results of operations and
cash flows for the periods indicated.
SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Company SEC Reports filed prior to the date of this Agreement or as
contemplated in this Agreement or as set forth in Section 3.08 of the Company
Disclosure Schedule, since June 30, 1994 the Company and its subsidiaries have
conducted their respective businesses only in the ordinary course and in a
manner consistent with past practice and there has not been: (i) any damage,
destruction or loss with respect to any assets of the Company or any of its
subsidiaries that, if not covered by insurance, would constitute a Company
Material Adverse Effect; (ii) any change by the Company or its subsidiaries in
their significant accounting policies; (iii) except (x) for dividends by a
subsidiary of the Company to the Company or another wholly-owned subsidiary of
the Company, (y) as required by the Constituent Documents or (z) pursuant to the
Constituent Documents in accordance with past practice, any declaration, setting
aside or payment of any dividends or distributions in respect of shares of
Company Common Stock or the shares of stock of, or other equity interests in,
any subsidiary of the Company or any redemption, purchase or other acquisition
of any of the Company's securities or any of the securities of any subsidiary of
the Company; (iv) any material increase in the benefits under, or the
establishment or amendment of, any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, performance awards
(including, without limitation, the granting of stock appreciation rights or
restricted stock awards), stock purchase or other employee benefit plan, or any
increase in the compensation payable or to become payable to any of the
directors or officers of the Company or the employees of the Company or its
subsidiaries as a group, except for (A) increase in salaries or wages payable or
to become payable in the ordinary course of business and consistent with past
practice or (B) the granting of stock options in the ordinary course of business
to employees of the Company or its subsidiaries who are not directors or
executive officers of the Company; or (v) any other Company Material Adverse
Effect.
SECTION 3.09. ABSENCE OF LITIGATION. Except as disclosed in the Company
SEC Reports filed prior to the date of this Agreement or as set forth in Section
3.09 of the Company Disclosure Schedule, there is no claim, action, suit,
litigation, proceeding, arbitration or, to the knowledge of the Company,
investigation of any kind, at law or in equity (including actions or proceedings
seeking injunctive relief), pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries or any properties or
rights of the Company or any of its subsidiaries (except for claims, actions,
suits, litigation, proceedings, arbitrations, or investigations that could not
reasonably be expected to have a Company Material Adverse Effect), and neither
the Company nor any of its subsidiaries is subject to any continuing order of,
consent decree, settlement agreement or other
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similar written agreement with, or, to the knowledge of the Company, continuing
investigation by, any Governmental Entity, or any judgment, order, writ,
injunction, decree or award of any Government Entity or arbitrator, including,
without limitation, cease-and-desist or other orders, except for matters that
could not reasonably be expected to have a Company Material Adverse Effect.
SECTION 3.10. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) With respect to each employee benefit plan, program, arrangement and
contract (including, without limitation, any "employee benefit plan", as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), maintained or contributed to by the Company or
any of its subsidiaries, or with respect to which the Company or any of its
subsidiaries could incur liability under Section 4069, 4212(c) or 4204 of
ERISA (the "Benefit Plans"), the Company has delivered or made available to
Acquiror a true and correct copy of (i) the most recent annual report (Form
5500) filed with the Internal Revenue Service (the "IRS") for each Benefit
Plan for which a Form 5500 is required to be filed, (ii) such Benefit Plan,
(iii) each trust agreement, if any, relating to such Benefit Plan, (iv) the
most recent summary plan description for each Benefit Plan for which a
summary plan description is required, (v) the most recent actuarial report
or valuation relating to a Benefit Plan subject to Title IV of ERISA and
(vi) the most recent determination letter, if any, issued by the IRS with
respect to any Benefit Plan qualified under Section 401 of the Code.
(b) With respect to the Benefit Plans, no event has occurred and, to the
knowledge of the Company, there exists no condition or set of circumstances,
in connection with which the Company or any of its subsidiaries could be
subject to any liability under the terms of such Benefit Plans, ERISA, the
Code or any other applicable Law that could reasonably be expected to have a
Company Material Adverse Effect.
(c) The Company has delivered to Acquiror all collective bargaining or
other labor union contracts to which the Company or its subsidiaries is a
party applicable to persons employed by the Company or its subsidiaries and
no collective bargaining agreement is being negotiated by the Company or any
of its subsidiaries. There is no pending or, to the knowledge of the
Company, threatened labor dispute, strike or work stoppage against the
Company or any of its subsidiaries that may interfere with the respective
business activities of the Company or any of its subsidiaries and could
reasonably be expected to have a Company Material Adverse Effect. To the
knowledge of the Company, none of the Company, any of its subsidiaries or
any of their respective representatives or employees has committed any
unfair labor practices in connection with the operation of the respective
businesses of the Company or its subsidiaries that could reasonably be
expected to have a Company Material Adverse Effect, and there is no pending
or, to the knowledge of the Company, threatened charge or complaint against
the Company or any of its subsidiaries by the National Labor Relations Board
or any comparable state agency that, if not covered by insurance, would
constitute a Company Material Adverse Effect.
(d) The Company has delivered or made available to Acquiror (i) copies
of all employment agreements with officers of the Company; (ii) a schedule
listing all officers of the Company who have executed a non-competition
agreement with the Company; (iii) copies of all severance agreements,
programs and policies of the Company with or relating to its employees; and
(iv) copies of all plans, programs, agreements and other arrangements of the
Company with or relating to its employees. Except as set forth in Section
3.10(d) of the Company Disclosure Schedule, neither the Company nor any of
its subsidiaries will owe a severance payment or similar obligation to any
of their respective employees, officers or directors as a result of the
Merger or the transactions contemplated by this Agreement, and none of such
persons will be entitled to an increase in severance payments or other
benefits as a result of the Merger or the transactions contemplated by this
Agreement in the event of the subsequent termination of their employment.
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(e) Except as provided in Section 3.10(e) of the Company Disclosure
Schedule, no Benefit Plan provides retiree medical or retiree life insurance
benefits that could reasonably be expected to have a Company Material
Adverse Effect and (y) neither the Company nor any of its subsidiaries is
contractually or otherwise obligated (whether or not in writing) to provide
life insurance and medical benefits upon retirement or termination of
employment of employees that could reasonably be expected to have a Company
Material Adverse Effect.
(f) Except as provided in Section 3.10(f) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries contributes to or
has an obligation to contribute to, and has not within six years prior to
the date of this Agreement contributed to or had an obligation to contribute
to, a multiemployer plan within the meaning of Section 3(37) of ERISA.
(g) The Company has not taken any of the following or other similar
actions since January 1, 1994: the acceleration of vesting, waiving of
performance criteria or the adjustment of awards or any other actions
permitted upon a change in control of the Company or a filing under Sections
13(d) or 14(d) of the Exchange Act with respect to the Company) with respect
to any of the Benefit Plans or any of the plans, programs, agreements,
policies or other arrangements described in Section 3.10(d) of this
Agreement.
SECTION 3.11. TAXES. Except as set forth in Section 3.11 of the Company
Disclosure Statement,
(a) And except for matters that could not be expected to have a Company
Material Adverse Effect, (i) all returns and reports ("Tax Returns") of or
with respect to any Tax which is required to be filed on or before the
Closing Date by or with respect to Company or any its subsidiaries have been
or will be duly and timely filed, (ii) all items of income, gain, loss,
deduction and credit or other items required to be included in each such Tax
Return have been or will be so included and all information provided in each
such Tax Return is true, correct and complete, (iii) all Taxes which have
become or will become due with respect to the period covered by each such
Tax Return have been or will be timely paid in full, (iv) all withholding
Tax requirements imposed on or with respect to Company or any of its
subsidiaries have been or will be satisfied in full in all respects, and (v)
no penalty, interest or other charge is or will become due with respect to
the late filing of any such Tax Return or late payment of any such Tax.
(b) There is no claim against Company or any of its subsidiaries for any
material amount of Taxes, and no material assessment, deficiency or
adjustment has been asserted or proposed with respect to any Tax Return of
or with respect to Company or any of its subsidiaries other than those
disclosed (and to which are attached true and complete copies of all audit
or similar reports) in Section 3.11 of the Company Disclosure Schedule.
(c) The total amounts set up as liabilities for current and deferred
Taxes in the financial statements referred to in Section 3.07 of this
Agreement are sufficient to cover the payment of all Taxes, whether or not
assessed or disputed, which are, or are hereafter found to be, or to have
been, due by or with respect to Company and any of its subsidiaries up to
and through the periods covered thereby.
(d) Except for statutory liens for current Taxes not yet due, no
material liens for Taxes exist upon the assets of any of Company or its
subsidiaries.
(e) None of the transactions contemplated by this Agreement will result
in any Tax liability or the recognition of any item of income or gain to
Company or any of its subsidiaries.
(f) Neither Company nor any of its subsidiaries has made an election
under section 341(f) of the Code.
SECTION 3.12. TAX MATTERS; POOLING.
(a) Neither Company nor, to the knowledge of Company, any of its
affiliates has taken or agreed to take any action that would prevent the
Merger from (a) constituting a reorganization
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qualifying under the provisions of Section 368(a) of the Code or (b) being
treated for financial accounting purposes as a "pooling of interests" in
accordance with generally accepted accounting principles and the rules,
regulations and interpretations of the SEC (a "Pooling Transaction").
(b) There is no plan or intention by any stockholder of the Company
(other than institutional investors not affiliated with the Company) who
owns five percent or more of Company Common Stock, and to the best knowledge
of Company there is no plan or intention on the part of any of any other
stockholder of Company Common Stock, to sell, exchange or otherwise dispose
of a number of shares of Acquiror Common Stock to be received in the Merger
that would reduce the Company stockholders' ownership of Acquiror Common
Stock to a number of shares having a value, as of the Effective Time, of
less than 50 percent of the value of all of the Company Common Stock
(including shares of Company Common Stock exchanged for cash in lieu of
fractional shares of Acquiror Common Stock) outstanding immediately prior to
the Effective Time.
(c) Following the Merger, Company will hold at least 90 percent of the
fair market value of its net assets and at least 70 percent of the fair
market value of its gross assets held immediately prior to the Merger. For
purposes of this representation, amounts used by Company to pay Merger
expenses and all redemptions and distributions (except for regular, normal
dividends) made by Company will be included as assets of Company immediately
prior to the Merger.
(d) There is no intercorporate indebtedness existing between the Company
and Acquiror or between the Company and Merger Sub that was issued, acquired
or will be settled at a discount.
(e) The Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(f) The Company is not under the jurisdiction of a court in a title 11
or similar case within the meaning of section 368(a)(3)(A) of the Code.
(g) The total amount of cash to be received by stockholders of Company
Common Stock in lieu of fractional shares of Acquiror Common Stock will not
exceed one percent of the total fair market value of the Acquiror Common
Stock (as of the Effective Time) to be issued in the Merger.
SECTION 3.13. AFFILIATES. Section 3.13 of the Company Disclosure Schedule
identifies all persons who, to the knowledge of the Company, may be deemed to be
affiliates of the Company under Rule 145 of the Securities Act, including,
without limitation, all directors and executive officers of the Company.
SECTION 3.14. CERTAIN BUSINESS PRACTICES. None of the Company, any of its
subsidiaries or any directors, officers, agents or employees of the Company or
any of its subsidiaries (in their capacities as such) has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, (iii) consummated any transaction, made any payment, entered
into any agreement or arrangement or taken any other action in violation of
Section 1128B(b) of the Social Security Act, as amended, or (iv) made any other
unlawful payment.
SECTION 3.15. OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of Merrill Lynch & Co. to the effect that, as of the date of this
Agreement, the Common Stock Exchange Ratio is fair, from a financial point of
view, to the holders of Company Common Stock.
SECTION 3.16. VOTE REQUIRED. The only votes of the holders of any class or
series of Company capital stock necessary to approve the Merger are the
affirmative votes of the holders of a majority of the outstanding shares of the
Company Common Stock.
SECTION 3.17. BROKERS. Except as set forth in Section 3.17 of the Company
Disclosure Schedule, no broker, finder or investment banker (other than Merrill
Lynch & Co. is entitled to any
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brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. Prior to the date of this Agreement, the Company has
made available to Acquiror a complete and correct copy of all agreements between
the Company and Merrill Lynch & Co. pursuant to which such firm will be entitled
to any payment relating to the transactions contemplated by this Agreement.
SECTION 3.18. ACQUIRING PERSON. None of the Acquiror Companies is an
"Acquiring Person" (as defined in the Company Rights Plan) or will become an
"Acquiring Person" as a result of any of the transactions contemplated by this
Agreement. The execution of the Transaction Documents does not, and the
consummation of the Merger and the other transactions contemplated by the
Transaction Documents will not, result in the grant of any rights to any person
under the Company Rights Agreement or enable or require any outstanding rights
to be exercised, distributed or triggered.
SECTION 3.19. INFORMATION SUPPLIED. None of the information supplied or to
be supplied by the Company for inclusion or incorporation by reference in (i)
the registration statement on Form S-4 to be filed by Acquiror with the SEC in
connection with the issuance of shares of Acquiror Common Stock in the Merger
(the "S-4") will, at the time the S-4 is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the Company
Proxy Statement (as hereinafter defined) will, at the date of mailing to
stockholders and 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, in light of the circumstances in which they were made, not
misleading. All documents that the Company is responsible for filing with any
Governmental Entity in connection with the transactions contemplated hereby will
comply as to form in all material respects with the provisions of applicable
law, including applicable provisions of the Securities Act, the Exchange Act and
the rules and regulations thereunder. Without limiting any of the
representations and warranties contained herein, no representation or warranty
to the Acquiror Companies by the Company and no information contained in the
Company Disclosure Schedule or any document incorporated therein by reference
contains any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained therein, in light of the
circumstances in which such statements are or will be made, not misleading.
SECTION 3.20. INSURANCE. Except as set forth in the Company Disclosure
Schedule, the Company and each of its subsidiaries are presently insured, and
during each of the past five calendar years have been insured against such risks
as companies engaged in a similar business would, in accordance with good
business practice, customarily be insured. Except as set forth in the Company
Disclosure Schedule, the policies of fire, theft, liability and other insurance
maintained with respect to the assets or businesses of the Company and its
subsidiaries provide adequate coverage against loss.
SECTION 3.21. PROPERTIES. Except as set forth in Section 3.21 of the
Company Disclosure Schedule or specifically described in the Company SEC
Reports, the Company and its subsidiaries have good and marketable title, free
and clear of all liens, the existence of which could reasonably be expected to
have a Company Material Adverse Effect, to all their material properties and
assets whether tangible or intangible, real, personal or mixed, reflected in the
Company's consolidated financial statements contained in the Company's most
recent SEC Report on Form 10-K as being owned by the Company and its
subsidiaries as of the date thereof, other than (i) any properties or assets
that have been sold or otherwise disposed of in the ordinary course of business
since the date of such financial statements, (ii) liens disclosed in the notes
to such financial statements and (iii) liens arising in the ordinary course of
business after the date of such financial statements. All buildings, and all
fixtures, equipment and other property and assets that are material to its
business on a consolidated basis, held under leases or sub-leases by the Company
or any of its subsidiaries are held under valid instruments enforceable in
accordance with their respective terms, subject to applicable laws of
bankruptcy, insolvency or similar laws relating to creditors' rights generally
and to general
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principles of equity (whether applied in a proceeding in law or equity).
Substantially all of the Company's and its subsidiaries' equipment in regular
use has been reasonably maintained and is in serviceable condition, reasonable
wear and tear excepted.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
The Acquiror Companies hereby, jointly and severally, represent and warrant
to the Company that:
SECTION 4.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of the
Acquiror Companies is a corporation, and each of Acquiror's other subsidiaries
is a corporation or partnership, duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted and is duly qualified
and in good standing to do business in each jurisdiction in which the nature of
the business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to be so duly
qualified and in good standing could not reasonably be expected to have an
Acquiror Material Adverse Effect. The term "Acquiror Material Adverse Effect" as
used in this Agreement shall mean any change or effect that, individually or
when taken together with all such other changes or effects, would be materially
adverse to the financial condition, results of operations, business or prospects
of Acquiror and its subsidiaries, taken as a whole, at the time of such change
or effect. Section 4.01of the Disclosure Schedule delivered by the Acquiror
Companies to the Company concurrently with the execution of this Agreement (the
"Acquiror Disclosure Schedule") sets forth, as of the date of this Agreement, a
true and complete list of all the Acquiror's directly or indirectly owned
subsidiaries, together with (A) the jurisdiction of incorporation or
organization of each subsidiary and the percentage of each subsidiary's
outstanding capital stock or other equity interests owned by Acquiror or another
subsidiary of Acquiror and (B) an indication of whether each such subsidiary is
a "Significant Subsidiary" as defined in Section 9.03(f) of this Agreement.
Except as set forth in Section 4.01 of the Acquiror Disclosure Schedule, neither
Acquiror nor any of its subsidiaries owns an equity interest in any partnership
or joint venture arrangement or other business entity that is material to the
financial condition, results of operations, business or prospects of Acquiror
and its subsidiaries, taken as a whole.
SECTION 4.02. CERTIFICATE OF INCORPORATION AND BYLAWS. Acquiror has
heretofore furnished or made available to the Company complete and correct
copies of the Certificate of Incorporation and the Bylaws or the equivalent
organizational documents, in each case as amended or restated to the date
hereof, of Acquiror and each of its subsidiaries. Neither Acquiror nor any of
its corporate subsidiaries is in violation of any of the provisions of its
Certificate of Incorporation or Bylaws (or equivalent organizational Documents).
None of Acquiror s noncorporate subsidiaries is in violation of any provisions
of its organizational documents (the Acquiror Constituent Documents ) other than
any such violations that could not reasonably be expected to have an Acquiror
Material Adverse Effect.
SECTION 4.03. CAPITALIZATION.
(a) The authorized capital stock of Acquiror consists of (i) 150,000,000
shares of Acquiror Common Stock, of which, as of March 28, 1995: (A)
29,455,220 were issued and outstanding, all of which are duly authorized,
validly issued, fully paid and nonassessable and were not issued in
violation of any preemptive or similar rights created by statute, Acquiror's
Certificate of Incorporation or Bylaws or any agreement to which Acquiror is
a party or is bound; (B) 504,976 were held in the treasury of Acquiror; and
(C) 2,998,714 were reserved for future issuance and (ii) 500,000 shares of
preferred stock, par value $.001 per share ("Acquiror Preferred Stock"), of
which, as of March 28, 1995, 150,000 shares had been designated as Series A
Junior Participating Preferred Stock. No shares of Acquiror Preferred Stock
are issued and outstanding. Except (1) as disclosed in the Acquiror SEC
Reports (as hereinafter defined) or otherwise as set forth in this Section
4.03
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or in Section 4.03(a) of the Acquiror Disclosure Schedule and (2) pursuant
to the terms of that certain Rights Agreement dated as of September 15, 1994
by and between Acquiror and Chemical Trust Company of California (the
"Acquiror Rights Agreement"), there are no options, warrants or other rights
(including registration rights), agreements, arrangements or commitments of
any character to which Acquiror or any of its subsidiaries is a party
relating to the issued or unissued capital stock of, or other equity
interests in, Acquiror or any of its subsidiaries or obligating Acquiror or
any of its subsidiaries to grant, issue or sell any shares of the capital
stock of, or other equity interests in, Acquiror or any of its subsidiaries.
Except pursuant to the terms of the Acquiror Rights Agreement or as set
forth in Section 4.03(a) of the Acquiror Disclosure Schedule, there are no
obligations, contingent or otherwise, of Acquiror or any of its subsidiaries
to repurchase, redeem or otherwise acquire any shares of Acquiror Common
Stock or the capital stock of, or other equity interests in, any subsidiary
of Acquiror. Each of the issued shares of capital stock of, or other equity
interests in, each of Acquiror s subsidiaries is duly authorized, validly
issued and, in the case of shares of capital stock, fully paid and
nonassessable, and has not been issued in violation of (nor are any of the
authorized shares of capital stock of, or other equity interests in, such
entities subject to) any preemptive or similar rights created by statute,
the Certificate of Incorporation of Bylaws (or the equivalent organizational
documents) of any of Acquiror s subsidiaries, or any agreement to which the
Company or any of its subsidiaries is a party or is bound.
(b) The authorized capital stock of Merger Sub consists of 1,000 shares
of common stock, par value $.001 per share ("Merger Sub Common Stock"). An
aggregate of 100 shares of Merger Sub Common Stock are issued and
outstanding and held by Acquiror, all of which are duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights
created by statute, Merger Sub's Certificate of Incorporation or Bylaws or
any agreement to which Merger Sub is a party or is bound.
(c) The shares of Acquiror Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights created by statute, Acquiror s
Certificate of Incorporation or Bylaws or any agreement to which Acquiror is
a party or is bound. The offering, sale and delivery of such shares of
Acquiror Common Stock will, prior to the date of the Company Stockholders'
Meeting, have been registered under the Securities Act and will have been
qualified or registered or exempt therefrom under applicable Blue Sky Laws.
In addition, the Acquiror Common Stock will, prior to the Effective Time,
have been registered under the Exchange Act and listed on the New York Stock
Exchange, subject to official notice of issuance.
SECTION 4.04. AUTHORITY. Each of the Acquiror Companies has all requisite
corporate power and authority to execute and deliver the Transaction Documents
(to the extent a party thereto), to perform its obligations under the
Transaction Documents and to consummate the transactions contemplated by the
Transaction Documents (subject to the approval and adoption of this Agreement by
the holders of a majority of the outstanding shares of Acquiror Common Stock in
accordance with Delaware Law and Acquiror's Certificate of Incorporation). The
execution and delivery of the Transaction Documents by each of the Acquiror
Companies and the consummation by each of the Acquiror Companies (to the extent
a party thereto) of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no other corporate proceedings
on the part of any of the Acquiror Companies are necessary to authorize the
Transaction Documents or to consummate the transactions contemplated by the
Transaction Documents (subject to the approval and adoption of this Agreement by
the holders of a majority of the outstanding shares of Acquiror Common Stock in
accordance with Delaware Law and Acquiror's Certificate of Incorporation). The
Transaction Documents have been duly executed and delivered by each of the
Acquiror Companies (to the extent a party thereto) and, assuming the due
authorization, execution and delivery thereof by the Company, constitute the
legal, valid and binding obligation of each of the Acquiror Companies (to the
extent a party thereto).
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SECTION 4.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Assuming that all consents, licenses, permits, waivers, approvals,
authorizations, orders, filings and notifications contemplated by the
exceptions to Section 4.05(b) are obtained or made and except as otherwise
disclosed in Section 4.05(a) of the Acquiror Disclosure Schedule, the
execution and delivery of the Transaction Documents by each of the Acquiror
Companies does not, and the consummation of the transactions contemplated
hereby will not (i) conflict with or violate the Certificate of
Incorporation or Bylaws, or the equivalent organizational documents, in each
case as amended or restated, of Acquiror or any of Acquiror's subsidiaries,
(ii) conflict with or violate any Laws in effect as of the date of this
Agreement applicable to Acquiror or any of Acquiror's subsidiaries or by or
to which any of their properties is bound or subject or (iii) result in any
breach of or constitute a default (or an event that with or without 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
require payment under, or result in the creation of a lien or encumbrance on
any of the properties or assets of Acquiror or any of Acquiror's
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which Acquiror or any of Acquiror's subsidiaries is a party or
by or to which Acquiror or any of Acquiror's subsidiaries or any of their
respective properties is bound or subject, except for any such conflicts,
violations, breaches, defaults, events, rights of termination, amendment,
acceleration or cancellation, payment obligations or liens or encumbrances
that could not reasonably be expected to have an Acquiror Material Adverse
Effect.
(b) Except as disclosed in Section 4.05(b) of the Acquiror Disclosure
Schedule, the execution and delivery of the Transaction Documents by each of
the Acquiror Companies does not, and the performance of the Transaction
Documents by each of the Acquiror Companies will not, require any of the
Acquiror Companies to obtain any consent, license, permit, waiver approval,
authorization or order of, or to make any filing with or notification to,
any Governmental Entities, except (i) for applicable requirements, if any,
of the Securities Act, the Exchange Act, Blue Sky Laws and the HSR Act and
the filing and recordation of appropriate merger documents as required by
Delaware Law and (ii) where the failure to obtain such consents, licenses,
permits, waivers, approvals, authorizations or orders, or to make such
filings or notifications could not reasonably be expected to prevent any of
the Acquiror Companies from performing its obligations under the Transaction
Documents and could not reasonably be expected to have an Acquiror Material
Adverse Effect.
SECTION 4.06. PERMITS; COMPLIANCE.
(a) Each of Acquiror and its subsidiaries is in possession of all (i)
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, identification and registration numbers,
approvals and orders necessary to own, lease and operate its properties and
to carry on its business as it is now being conducted and (ii) agreements
from all federal, state and local governmental agencies and accrediting and
certifying organizations having jurisdiction over such facility or
facilities that are required to operate the facility or facilities in the
manner in which it or they are currently operated and receive reimbursement
for care provided to patients covered under the federal Medicare program or
any applicable state Medicaid program (collectively, the "Acquiror
Permits"), except where the failure to possess such Acquiror Permits could
not reasonably be expected to have an Acquiror Material Adverse Effect.
Without limiting the generality of the foregoing, all of Acquiror's
hospitals are certified for participation or enrollment in the Medicare
program, have a current and valid provider contract with the Medicare
program and are in substantial compliance with the conditions of
participation of such programs. Neither Acquiror nor any of its subsidiaries
has received notice from the regulatory authorities that enforce the
statutory or regulatory provisions in respect of either the Medicare or the
Medicaid program of any pending or threatened investigations or surveys, and
no such investigations or
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surveys are pending or, to the knowledge of Acquiror, threatened or imminent
that could reasonably be expected to have an Acquiror Material Adverse
Effect. Section 4.06 of Acquiror Disclosure Schedule sets forth, as of the
date of this Agreement, all actions, proceedings, investigations or surveys
pending or, to the knowledge of Acquiror, threatened against Acquiror or any
of its subsidiaries that could reasonably be expected to result in (i) the
loss or revocation of an Acquiror Permit necessary to operate one or more
facilities or for a facility to receive reimbursement under the Medicare or
Medicaid programs, (ii) the suspension or cancellation of any other Acquiror
Permit except any such Acquiror Permit where such suspension or cancellation
could not reasonably be expected to have an Acquiror Material Adverse
Effect. Neither Acquiror nor any of its subsidiaries is in conflict with, or
in default or violation of (1) any Law applicable to Acquiror or any of its
subsidiaries or by or to which any of their respective properties is bound
or subject or (2) any of Acquiror Permits, except for any such conflicts,
defaults or violations that could not reasonably be expected to have an
Acquiror Material Adverse Effect. Since June 30, 1993, neither Acquiror nor
any of its subsidiaries has received from any Governmental Entity any
written notification with respect to possible conflicts, defaults or
violations of Laws, except for written notices relating to possible
conflicts, defaults or violations that could not reasonably be expected to
have an Acquiror Material Adverse Effect.
(b) Acquiror and its subsidiaries, as appropriate, are approved
participating providers in and under all third party payment programs from
which they receive revenues. No action or investigation is pending, or to
the best of its knowledge, threatened to suspend, limit, terminate,
condition, or revoke the status of Acquiror or any of its subsidiaries as a
provider in any such program, and neither Acquiror nor any of its
subsidiaries has been provided notice by any third party payor of its
intention to suspend, limit, terminate, revoke, condition or fail to renew
in whole or in part or decrease the amounts payable under any arrangement
with Acquiror or such subsidiary as a provider, which action, investigation
or proceeding would have an Acquiror Material Adverse Effect.
(c) Acquiror and its subsidiaries have filed on a timely basis all
claims, cost reports or annual filings required to be filed to secure
payments for services rendered by them under any third-party payment program
from which they receive or expect to receive revenues except where the
failure to file such claim, report or other filing would not have an
Acquiror Material Adverse Effect. Except as indicated in its financial
statements included in the Acquiror SEC Reports (as hereinafter defined),
Acquiror or its subsidiaries, as applicable, have paid, or caused to be
paid, all refunds, discounts, adjustments, or amounts owing that have become
due to such third party payors pursuant to such claims, reports or filings,
and neither Acquiror nor any of its subsidiaries has any knowledge or notice
of any material changes required to be made to any cost reports, claims or
filings made by them for any period or of any deficiency in any such claim,
report, or filing, except for changes and deficiencies that in the aggregate
would not have an Acquiror Material Adverse Effect.
SECTION 4.07. REPORTS; FINANCIAL STATEMENTS.
(a) Since June 30, 1991, Acquiror and its subsidiaries have filed (i)
all forms, reports, statements and other documents required to be filed with
(A) the Securities and Exchange Commission (the "SEC"), including without
limitation (1) all Annual Reports on Form 10-K, (2) all Quarterly Reports on
Form 10-Q, (3) all proxy statements relating to meetings of stockholders
(whether annual or special), (4) all Current Reports on Form 8-K and (5) all
other reports, schedules, registration statements or other documents
(collectively referred to as the "Acquiror SEC Reports"), and (B) any other
applicable state securities authorities and (ii) all forms, reports,
statements and other documents required to be filed with any other
Governmental Entities, including, without limitation, state insurance and
health regulatory authorities, except where the failure to file any such
forms, reports, statements or other documents could not reasonably be
expected to have an Acquiror Material Adverse Effect (all such forms,
reports, statements and other documents in clauses (i) and (ii) of this
Section 4.07(a) being referred to herein, collectively,
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as the "Acquiror Reports"). Acquiror Reports were prepared in all material
respects in accordance with the requirements of applicable Law (including,
with respect to Acquiror SEC Reports, the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Acquiror SEC Reports) and Acquiror SEC Reports did not at
the time they were filed contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Acquiror SEC Reports (i)
have been prepared in accordance with the published rules and regulations of
the SEC and generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except (A) to the extent disclosed
therein or required by changes in generally accepted accounting principles,
(B), with respect to Acquiror SEC Reports filed prior to the date of this
Agreement, as may be indicated in the notes thereto and (C) in the case of
the unaudited financial statements, as permitted by the rules and
regulations of the SEC) and (ii) fairly present the consolidated financial
position of Acquiror and its subsidiaries as of the respective dates thereof
and the consolidated results of operations and cash flows for the periods
indicated (subject, in the case of unaudited consolidated financial
statements for interim periods, to adjustments, consisting only of normal,
recurring accruals, necessary to present fairly such results of operations
and cash flows), except that any pro forma financial statements contained in
such consolidated financial statements are not necessarily indicative of the
consolidated financial position of Acquiror and its subsidiaries as of the
respective dates thereof and the consolidated results of operations and cash
flows for the periods indicated.
SECTION 4.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
Acquiror SEC Reports filed prior to the date of this Agreement or as
contemplated in this Agreement or as set forth in Section 4.08 of the Acquiror
Disclosure Schedule, since May 31, 1994, Acquiror and its subsidiaries have
conducted their respective businesses only in the ordinary course and in a
manner consistent with past practice and there has not been: (i) any damage,
destruction or loss with respect to any assets of Acquiror or any of its
subsidiaries that, if not covered by insurance, would constitute an Acquiror
Material Adverse Effect; (ii) any change by Acquiror or its subsidiaries in
their significant accounting policies; (iii) except (x) for dividends by a
subsidiary of Acquiror to Acquiror or another wholly-owned subsidiary of
Acquiror, (y) as required by the Acquiror Constituent Documents, (z) pursuant to
the Acquiror Constituent Documents in accordance with pasts practice, any
declaration, setting aside or payment of any dividends or distributions in
respect of shares of Acquiror Common Stock or the shares of stock of, or other
equity interests in, any subsidiary of Acquiror or any redemption, purchase or
other acquisition of any of Acquiror's securities or any of the securities of
any subsidiary of Acquiror; (iv) any material increase in the benefits under, or
the establishment or amendment of, any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan, or any increase in the compensation payable or to become
payable to any of the directors or officers of Acquiror or its subsidiaries as a
group, except for (A) increase in salaries or wages payable or to become payable
in the ordinary course of business and consistent with past practice or (B) the
granting of stock options in the ordinary course of business to employees of
Acquiror or its subsidiaries who are not directors or executive officers of
Acquiror; or (v) any other Acquiror Material Adverse Effect.
SECTION 4.09. ABSENCE OF LITIGATION. Except as disclosed in Acquiror SEC
Reports filed prior to the date of this Agreement or as set forth in Section
4.09 of the Acquiror Disclosure Schedule, there is no claim, action, suit,
litigation, proceeding, arbitration or, to the knowledge of Acquiror,
investigation of any kind, at law or in equity (including actions or proceedings
seeking injunctive relief), pending or, to the knowledge of Acquiror, threatened
against Acquiror or any of its subsidiaries or any properties or rights of
Acquiror or any of its subsidiaries (except for claims, actions, suits,
litigation,
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proceedings, arbitrations, or investigations that could not reasonably be
expected to have an Acquiror Material Adverse Effect), and neither Acquiror nor
any of its subsidiaries is subject to any continuing order of, consent decree,
settlement agreement or other similar written agreement with, or, to the
knowledge of Acquiror, continuing investigation by, any Governmental Entity, or
any judgment, order, writ, injunction, decree or award of any Governmental
Entity or arbitrator, including, without limitation, cease-and-desist or other
orders, except for matters that could not reasonably be expected to have an
Acquiror Material Adverse Effect.
SECTION 4.10. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) With respect to each employee benefit plan, program, arrangement and
contract (including, without limitation, any "employee benefit plan", as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), maintained or contributed to by Acquiror or any
of its subsidiaries, or with respect to which Acquiror or any of its
subsidiaries could incur liability under Section 4069, 4212(c) or 4204 of
ERISA (the "Benefit Plans"), Acquiror has delivered or made available to the
Company a true and correct copy of (i) the most recent annual report (Form
5500) filed with the Internal Revenue Service (the "IRS") for each Benefit
Plan for which a Form 5500 is required to be filed, (ii) such Benefit Plan,
(iii) each trust agreement, if any, relating to such Benefit Plan, (iv) the
most recent summary plan description for each Benefit Plan for which a
summary plan description is required, (v) the most recent actuarial report
or valuation relating to a Benefit Plan subject to Title IV of ERISA and
(vi) the most recent determination letter, if any, issued by the IRS with
respect to any Benefit Plan qualified under Section 401 of the Code.
(b) With respect to the Benefit Plans, no event has occurred and, to the
knowledge of Acquiror, there exists no condition or set of circumstances, in
connection with which Acquiror or any of its subsidiaries could be subject
to any liability under the terms of such Benefit Plans, ERISA, the Code or
any other applicable Law that could reasonably be expected to have an
Acquiror Material Adverse Effect.
(c) Acquiror has delivered or made available to the Company all
collective bargaining or other labor union contracts to which Acquiror or
its subsidiaries is a party applicable to persons employed by Acquiror or
its subsidiaries and, except as set forth in Section 4.10(c) of the Acquiror
Disclosure Schedule, no collective bargaining agreement is being negotiated
by Acquiror or any of its subsidiaries. There is no pending or, to the
knowledge of Acquiror, threatened labor dispute, strike or work stoppage
against Acquiror or any of its subsidiaries that may interfere with the
respective business activities of Acquiror or any of its subsidiaries and
could reasonably be expected to have an Acquiror Material Adverse Effect. To
the knowledge of Acquiror, none of Acquiror, any of its subsidiaries or any
of their respective representatives or employees has committed any unfair
labor practices in connection with the operation of the respective
businesses of Acquiror or its subsidiaries that could reasonably be expected
to have an Acquiror Material Adverse Effect, and there is no pending or, to
the knowledge of Acquiror, threatened charge or complaint against Acquiror
or any of its subsidiaries by the National Labor Relations Board or any
comparable state agency that, if not covered by insurance, would constitute
an Acquiror Material Adverse Effect.
(d) Acquiror has delivered or made available to the Company (i) copies
of all employment agreements with officers of Acquiror; (ii) a schedule
listing all officers of Acquiror who have executed a non-competition
agreement with Acquiror; (iii) copies of all severance agreements, programs
and policies of Acquiror with or relating to its employees; and (iv) copies
of all plans, programs, agreements and other arrangements of Acquiror with
or relating to its employees. Except as set forth in Section 4.10(d) of the
Acquiror Disclosure Schedule, neither Acquiror nor any of its subsidiaries
will owe a severance payment or similar obligation to any of their
respective employees, officers or directors as a result of the Merger or the
transactions contemplated by this
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Agreement, and none of such persons will be entitled to an increase in
severance payments or other benefits as a result of the Merger or the
transactions contemplated by this Agreement in the event of the subsequent
termination of their employment.
(e) Except as provided in Section 4.10(e) of the Acquiror Disclosure
Schedule, no Benefit Plan provides retiree medical or retiree life insurance
benefits that could reasonably be expected to have an Acquiror Material
Adverse Effect and (y) neither Acquiror nor any of its subsidiaries is
contractually or otherwise obligated (whether or not in writing) to provide
life insurance and medical benefits upon retirement or termination of
employment of employees that could reasonably be expected to have an
Acquiror Material Adverse Effect.
(f) Except as provided in Section 4.10(f) of the Acquiror Disclosure
Schedule, neither Acquiror nor any of its subsidiaries contributes to or has
an obligation to contribute to, and has not within six years prior to the
date of this Agreement contributed to or had an obligation to contribute to,
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(g) Acquiror has not taken any of the following or other similar actions
since January 1, 1994: the acceleration of vesting, waiving of performance
criteria or the adjustment of awards or any other actions permitted upon a
change in control of Acquiror or a filing under Sections 13(d) or 14(d) of
the Exchange Act with respect to Acquiror) with respect to any of the
Benefit Plans or any of the plans, programs, agreements, policies or other
arrangements described in Section 4.10(d) of this Agreement.
SECTION 4.11. TAXES.
(a) Except for matters that could not be expected to have an Acquiror
Material Adverse Effect and except as set forth in Section 4.11(a) to the
Acquiror Disclosure Schedule, (i) all returns and reports ("Tax Returns") of
or with respect to any Tax which is required to be filed on or before the
Closing Date by or with respect to Acquiror or any its subsidiaries have
been or will be duly and timely filed, (ii) all items of income, gain, loss,
deduction and credit or other items required to be included in each such Tax
Return have been or will be so included and all information provided in each
such Tax Return is true, correct and complete, (iii) all Taxes which have
become or will become due with respect to the period covered by each such
Tax Return have been or will be timely paid in full, (iv) all withholding
Tax requirements imposed on or with respect to Acquiror or any of its
subsidiaries have been or will be satisfied in full in all respects, and (v)
no penalty, interest or other charge is or will become due with respect to
the late filing of any such Tax Return or late payment of any such Tax.
(b) There is no claim against Acquiror or any of its subsidiaries for
any material amount of Taxes, and no material assessment, deficiency or
adjustment has been asserted or proposed with respect to any Tax Return of
or with respect to Acquiror or any of its subsidiaries other than those
disclosed (and to which are attached true and complete copies of all audit
or similar reports) on Schedule 4.11(b) to the Acquiror Disclosure Schedule.
(c) The total amounts set up as liabilities for current and deferred
Taxes in the financial statements referred to in Section 4.07 of this
Agreement are sufficient to cover the payment of all Taxes, whether or not
assessed or disputed, which are, or are hereafter found to be, or to have
been, due by or with respect to Acquiror and any of its subsidiaries up to
and through the periods covered thereby.
(d) Except for statutory liens for current Taxes not yet due, no
material liens for Taxes exist upon the assets of any of Acquiror or its
subsidiaries.
(e) Except as set forth on Section 4.11(e) to the Acquiror Disclosure
Schedule, none of the transactions contemplated by this Agreement will
result in any Tax liability or the recognition of any item of income or gain
to Acquiror or any of its subsidiaries.
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(f) Neither Acquiror nor any of its subsidiaries has made an election
under section 341(f) of the Code.
SECTION 4.12. TAX MATTERS; POOLING. Neither Acquiror nor, to the knowledge
of Acquiror, any of its affiliates has taken or agreed to take any action that
would prevent the Merger from (a) constituting a reorganization qualifying under
the provisions of Section 368(a) of the Code or (b) being treated for financial
accounting purposes as a Pooling Transaction. Acquiror does not own, nor has it
owned during the past five years, any shares of Company Common Stock. There is
no intercorporate indebtedness existing between the Company and Acquiror, or
between the Company and Merger Sub, that was issued, acquired or will be settled
at a discount.
SECTION 4.13. AFFILIATES. Section 4.13 of the Acquiror Disclosure Schedule
identifies all persons who, to the knowledge of Acquiror, may be deemed to be
affiliates of Acquiror under Rule 145 of the Securities Act, including, without
limitation, all directors and executive officers of Acquiror.
SECTION 4.14. CERTAIN BUSINESS PRACTICES. None of Acquiror, any of its
subsidiaries or any directors, officers, agents or employees of Acquiror or any
of its subsidiaries (in their capacities as such) has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, (iii) consummated any transaction, made any payment, entered
into any agreement or arrangement or taken any other action in violation of
Section 1128B(b) of the Social Security Act, as amended, or (iv) made any other
unlawful payment.
SECTION 4.15. OPINION OF FINANCIAL ADVISOR. Acquiror has received the
opinion of Salomon Brothers Inc to the effect that, as of the date of this
Agreement, the Merger Consideration to be paid by Acquiror in the Merger is
fair, from a financial point of view, to the stockholders of Acquiror.
SECTION 4.16. VOTE REQUIRED. The only votes of the holders of any class or
series of Acquiror capital stock necessary to approve the Merger are the
affirmative votes of the holders of a majority of the shares of Acquiror Common
Stock present or represented by proxy at a meeting at which a quorum is present.
SECTION 4.17. BROKERS. Except as set forth in Section 4.17 of the Acquiror
Disclosure Schedule, no broker, finder or investment banker (other than Salomon
Brothers Inc) is entitled to any brokerage, finder's or other fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Acquiror. Prior to the date of this
Agreement, Acquiror has made available to the Company a complete and correct
copy of all agreements between Acquiror and Salomon Brothers Inc pursuant to
which such firm will be entitled to any payment relating to the transactions
contemplated by this Agreement.
SECTION 4.18. INFORMATION SUPPLIED. None of the information supplied or to
be supplied by Acquiror for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed by the Company with the SEC in
connection with the issuance of shares of the Company Common Stock in the Merger
(the "S-4") will, at the time the S-4 is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the
Acquiror Proxy Statement (as hereinafter defined) will, at the date of mailing
to stockholders and 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, in light of the circumstances in which they were made, not
misleading. All documents that Acquiror is responsible for filing with any
Governmental Entity in connection with the transactions contemplated hereby will
comply as to form in all material respects with the provisions of applicable
law, including applicable provisions of the Securities Act, the Exchange Act and
the rules and regulations thereunder. Without limiting any of the
representations and warranties contained herein, no representation or warranty
to the
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Company by Acquiror and no information contained in the Acquiror Disclosure
Schedule or any document incorporated therein by reference contains any untrue
statement of material fact or omits to state a material fact necessary in order
to make the statements contained therein, in light of the circumstances in which
such statements are or will be made, not misleading.
SECTION 4.19. INSURANCE. Except as set forth in the Acquiror Disclosure
Schedule, Acquiror and each of its subsidiaries are presently insured, and
during each of the past five calendar years have been insured against such risks
as companies engaged in a similar business would, in accordance with good
business practice, customarily be insured. Except as set forth in the Acquiror
Disclosure Schedule, the policies of fire, theft, liability and other insurance
maintained with respect to the assets or businesses of Acquiror and its
subsidiaries provide adequate coverage against loss.
SECTION 4.20. PROPERTIES. Except as set forth in Section 4.20 of the
Acquiror Disclosure Schedule or specifically described in Acquiror SEC Reports,
Acquiror and its subsidiaries have good and marketable title, free and clear of
all liens, the existence of which could reasonably be expected to have an
Acquiror Material Adverse Effect, to all their material properties and assets
whether tangible or intangible, real, personal or mixed, reflected in Acquiror's
consolidated financial statements contained in Acquiror's most recent SEC Report
on Form 10-K as being owned by Acquiror and its subsidiaries as of the date
thereof, other than (i) any properties or assets that have been sold or
otherwise disposed of in the ordinary course of business since the date of such
financial statements, (ii) liens disclosed in the notes to such financial
statements and (iii) liens arising in the ordinary course of business after the
date of such financial statements. All buildings, and all fixtures, equipment
and other property and assets that are material to its business on a
consolidated basis, held under leases or sub-leases by Acquiror or any of its
subsidiaries are held under valid instruments enforceable in accordance with
their respective terms, subject to applicable laws of bankruptcy, insolvency or
similar laws relating to creditors' rights generally and to general principles
of equity (whether applied in a proceeding in law or equity). Substantially all
of Acquiror's and its subsidiaries' equipment in regular use has been reasonably
maintained and is in serviceable condition, reasonable wear and tear excepted.
ARTICLE V
COVENANTS
SECTION 5.01. AFFIRMATIVE COVENANTS OF THE COMPANY. The Company hereby
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by Acquiror,
the Company will and will cause its subsidiaries to:
(a) operate its business in the usual and ordinary course consistent
with past practices;
(b) use all reasonable efforts to preserve substantially intact its
business organization, maintain its rights and franchises, retain the
services of its respective officers and key employees and maintain its
relationships with its respective customers and suppliers;
(c) maintain and keep its properties and assets in as good repair and
condition as at present, ordinary wear and tear excepted, and maintain
supplies and inventories in quantities consistent with its customary
business practice; and
(d) use all reasonable efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that
currently maintained.
SECTION 5.02. NEGATIVE COVENANTS OF THE COMPANY. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by Acquiror,
from the date of this Agreement until the Effective Time, the Company will not
do, and will not permit any of its subsidiaries to do, any of the following:
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(a) (i) increase the compensation payable to or to become payable to any
director or executive officer, other than in the ordinary course of
business; (ii) pay bonuses to employees of the Company after the date of
this Agreement in excess of $2.5 million in the aggregate (excluding
payments made pursuant to agreements disclosed on the Company Disclosure
Schedule), (iii) grant any severance or termination pay (other than pursuant
to the normal severance practices of the Company or its subsidiaries as in
effect on the date of this Agreement) to, or enter into any employment or
severance agreement with, any director, officer or employee; (iv) establish,
adopt or enter into any employee benefit plan or arrangement or (v) except
as may be required by applicable law and actions that are not inconsistent
with the provisions of Section 6.09 of this Agreement, amend, or take any
other actions (including, without limitation, the acceleration of vesting,
waiving of performance criteria or the adjustment of awards or any other
actions permitted upon a "change in control" (as defined in the respective
plans) of the Company or a filing under Section 13(d) or 14(d) of the
Exchange Act with respect to the Company) with respect to any of the Benefit
Plans or any of the plans, programs, agreements, policies or other
arrangements described in Section 3.10(d) of this Agreement;
(b) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of capital stock or other equity interests,
except for (i) dividends by a wholly owned subsidiary of the Company to the
Company or another wholly owned subsidiary of the Company, (ii)
distributions by subsidiaries of the Company required by the terms of the
Constituent Documents and (iii) distributions by subsidiaries of the Company
pursuant to the terms of the Constituent Documents and in accordance with
past practice;
(c) (i) except as described in Section 3.03(c) of the Company Disclosure
Schedule, redeem, purchase or otherwise acquire any shares of its or any of
its subsidiaries' capital stock or any securities or obligations convertible
into or exchangeable for any shares of its or its subsidiaries' capital
stock (other than any such acquisition directly from any wholly owned
subsidiary of the Company in exchange for capital contributions or loans to
such subsidiary), or any options, warrants or conversion or other rights to
acquire any shares of its or its subsidiaries' capital stock or any such
securities or obligations (except as permitted pursuant to Section 6.09 of
this Agreement, in connection with the exercise of outstanding Stock Options
in accordance with their terms and redemptions or repurchases of capital
stock or other equity interests of subsidiaries of the Company in an
aggregate amount not to exceed $10 million); (ii) effect any reorganization
or recapitalization of the Company or any of its Significant Subsidiaries,
(iii) split, combine or reclassify any of its or its Significant
Subsidiaries' 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 or its Significant Subsidiaries' capital stock or (iv) take
any action described in clause (ii) or (iii) above with respect to any other
subsidiary of the Company other than actions that, individually or in the
aggregate, could not reasonable be expected to (x) have a material adverse
effect on the financial condition, results of operations, business or
prospects affected subsidiary or subsidiaries, (y) a Company Material
Adverse Effect or (z) adversely affect in any material respect the Company s
ability to control any of its subsidiaries;
(d) (i) except as set forth in Section 3.03(a) herein or as described in
Section 3.03(c) of the Company Disclosure Schedule, issue (whether upon
original issue or out of treasury), sell, grant, award, deliver or limit the
voting rights of any class of its or its subsidiaries' capital stock, any
securities convertible into or exercisable or exchangeable for any such
shares, or any rights, warrants or options to acquire, any such shares
(except as permitted pursuant to Section 6.09 of this Agreement or for the
issuance of shares upon the exercise of outstanding Stock Options in
accordance with their terms); (ii) amend or otherwise modify the terms of
any such rights, warrants or options the effect of which shall be to make
such terms materially more favorable to the holders thereof; or (iii) take
any action to accelerate the vesting of any of the Stock Options;
(e) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation,
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partnership, association or other business organization or division thereof,
or otherwise acquire or agree to acquire any assets of any other person
(other than the purchase of assets from suppliers or vendors in the ordinary
course of business and consistent with past practice) with an
aggregate purchase price in excess of $25,000,000;
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, any of its material assets or any material assets of
any of its subsidiaries, except for (i) dispositions of inventories and of
assets in the ordinary course of business and consistent with past practice
and (ii) dispositions of assets having an aggregate fair market value of
less than $10 million;
(g) initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal relating to, or that may reasonably
be expected to lead to, any Competing Transaction, or enter into discussions
or negotiate with any person or entity in furtherance of such inquiries or
to obtain a Competing Transaction, or agree to, or endorse, any Competing
Transaction, or authorize or permit any of the officers, directors,
employees or agents of the Company or any of its subsidiaries or any
investment banker, financial advisor, attorney, accountant or other
representative retained by the Company or any of the Company's subsidiaries
to take any such action and the Company shall promptly notify Acquiror of
all relevant terms of any such inquiries or proposals received by the
Company or any of its subsidiaries or by any such officer, director,
employee, agent, investment banker, financial advisor, attorney, accountant
or other representative relating to any of such matters and if such inquiry
or proposal is in writing, the Company shall promptly deliver or cause to be
delivered to Acquiror a copy of such inquiry or proposal; PROVIDED, HOWEVER,
that nothing contained in this subsection (g) shall prohibit the Board of
Directors of the Company from (i) furnishing information to, or entering
into discussions or negotiations with, any persons or entity in connection
with an unsolicited bona fide proposal in writing by such person or entity
relating to a Competing Transaction if, and only to the extent that (A) such
unsolicited bona fide proposal is a bona fide written proposal made by a
third party relating to a Competing Transaction on terms that the Board of
Directors of the Company determines it cannot then reject in favor of the
Merger, based on applicable fiduciary duties and the advice of counsel and
(except with respect to furnishing information) for which financing, to the
extent required, is then committed, (B) the Board of Directors of the
Company, after duly considering the written advice of outside legal counsel
to the Company, determines in good faith that such action is required for
the Board of Directors of the Company to comply with its fiduciary duties to
stockholders imposed by Delaware Law and (C) prior to furnishing such
information to, or entering into discussions or negotiations with, such
person or entity the Company provides written notice to Acquiror to the
effect that it is furnishing information to, or entering into discussions or
negotiations with, such person or entity; or (ii) complying with Rule 14e-2
promulgated under the Exchange Act with regard to a Competing Transaction.
For purposes of this Agreement, "Competing Transaction" shall mean any
merger, consolidation, share exchange, business combination or similar
transaction involving the Company or any of its Significant Subsidiaries or
the acquisition in any manner, directly or indirectly, of a material
interest in any voting securities of, or a material equity interest in a
substantial portion of the assets of, the Company or any of its Significant
Subsidiaries, other than the transactions contemplated by this Agreement;
(h) release any third party from its obligations under any existing
standstill agreement or arrangement relating to a Competing Transaction or
otherwise under any confidentiality or other similar agreement relating to
information material to the Company or any of its subsidiaries;
(i) propose to adopt any amendments to its Certificate of Incorporation
or its Bylaws that would have an adverse effect on the consummation of the
transactions contemplated by this Agreement;
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(j) (A) change any of its significant accounting policies or (B) make
or rescind any express or deemed election relating to taxes, settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes (except where the
amount of such settlements or controversies, individually or in the
aggregate, does not exceed $5 million), or change any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of the federal income tax returns for the
taxable year ending June 30, 1994, except, in the case of clause (A) or
clause (B), as may be required by Law or generally accepted accounting
principles;
(k) incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or similar
instrument or under any financing lease, whether pursuant to a
sale-and-leaseback transaction or otherwise, except in the ordinary course
of business consistent with past practice, purchase money indebtedness
incurred in connection with acquisitions permitted pursuant to Section
5.02(e) or pursuant to the terms in effect on the date of this Agreement of
any revolving credit agreements disclosed on the Company Disclosure
Schedule;
(l) enter into any material arrangement, agreement or contract with any
third party (other than customers in the ordinary course of business) that
provides for an exclusive arrangement with that third party or is
substantially more restrictive on the Company or substantially less
advantageous to the Company than arrangements, agreements or contracts
existing on the date hereof; or
(m) agree in writing or otherwise to do any of the foregoing.
SECTION 5.03. NEGATIVE COVENANTS OF ACQUIROR. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by the
Company, from the date of this Agreement until the Effective Time, Acquiror will
not do, and will not permit any of its subsidiaries to do, any of the following:
(a) amend any of the material terms or provisions of the Acquiror Common
Stock;
(b) knowingly take any action that would result in a failure to maintain
the trading of the Acquiror Common Stock on the NYSE (other than as a result
of consummation of the transactions contemplated hereby);
(c) (i) increase the compensation payable to or to become payable to any
director or executive officer, other than in the ordinary course of
business; (ii) grant any severance or termination pay (other than pursuant
to the normal severance policy of Acquiror or its subsidiaries as in effect
on the date of this Agreement) to, or enter into any employment or severance
agreement with, any director, officer or employee; (iii) establish, adopt or
enter into any employee benefit plan or arrangement or (iv) except as may be
required by applicable law, amend, or take any other actions (including,
without limitation, the acceleration of vesting, waiving of performance
criteria or the adjustment of awards or any other actions permitted upon a
"change in control" (as defined in the respective plans) of Acquiror or a
filing under Section 13(d) or 14(d) of the Exchange Act with respect to
Acquiror) with respect to any of the Benefit Plans or any of the plans,
programs, agreements, policies or other arrangements described in Section
4.10(d) of this Agreement;
(d) except with respect to the 6.5% convertible subordinated notes due
June 2011 and the 8.75% convertible senior subordinated notes due 2015
assumed by Acquiror in connection with the merger of Greenery Rehabilitation
Group, Inc.into Acquiror (collectively, the "Greenery Notes"), declare or
pay any dividend on, or make any other distribution in respect of,
outstanding shares of capital stock or other equity interests, except for
(i) dividends by a wholly owned subsidiary of Acquiror to Acquiror or
another wholly owned subsidiary of Acquiror, (ii) distributions by
subsidiaries of Acquiror required by the terms of the Acquiror Constituent
Documents and (iii) distributions by subsidiaries of Acquiror pursuant to
the terms of the Acquiror Constituent Documents and in accordance with past
practice.;
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(e) (i) except as described in Section 4.03(c) of the Acquiror
Disclosure Schedule and with respect to the Greenery Notes, redeem, purchase
or otherwise acquire any shares of its or any of its subsidiaries' capital
stock or any securities or obligations convertible into or exchangeable for
any shares of its or its subsidiaries' capital stock (other than any such
acquisition directly from any wholly owned subsidiary of the Acquiror in
exchange for capital contributions or loans to such subsidiary), or any
options, warrants or conversion or other rights to acquire any shares of its
or its subsidiaries' capital stock or any such securities or obligations
(except as permitted pursuant to Section 6.09 of this Agreement or in
connection with the exercise of outstanding Stock Options in accordance with
their terms); (ii) effect any reorganization or recapitalization of the
Acquiror or any of its Significant Subsidiaries, (iii) split, combine or
reclassify any of its or its Significant Subsidiaries' 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 or its
Significant Subsidiaries' capital stock or (iv) take any action described in
clause (ii) or (iii) above with respect to any other subsidiary of the
Acquiror other than actions that, individually or in the aggregate, could
not reasonable be expected to (x) have a material adverse effect on the
financial condition, results of operations, business or prospects affected
subsidiary or subsidiaries, (y) a Acquiror Material Adverse Effect or (z)
adversely affect in any material respect the Acquiror s ability to control
any of its subsidiaries;
(f) (i) except as set forth in Section 4.03(a) herein or as described in
Section 4.03(c) of the Acquiror Disclosure Schedule, issue (whether upon
original issue or out of treasury), sell, grant, award, deliver or limit the
voting rights of, or agree or propose to do any of the foregoing, of any
class of its or its subsidiaries' capital stock, any securities convertible
into or exercisable or exchangeable for any such shares, or any rights,
warrants or options to acquire, any such shares (except or for the issuance
of shares upon the exercise of outstanding stock options in accordance with
their terms); (ii) amend or otherwise modify the terms of any such rights,
warrants or options the effect of which shall be to make such terms more
favorable to the holders thereof; or (iii) take any action to accelerate the
vesting of any of the stock options;
(g) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets of any other person (other than the purchase of
assets from suppliers or vendors in the ordinary course of business and
consistent with past practice) with an aggregate purchase price in excess of
$25,000,000;
(h) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, any of its material assets or any material assets of
any of its subsidiaries, except for (i) dispositions of inventories and of
assets in the ordinary course of business and consistent with past practice
and (ii) dispositions of assets having an aggregate fair market value of
less than $10 million;
(i) propose to adopt any amendments to its Certificate of Incorporation
or its Bylaws that would have an adverse effect on the consummation of the
transactions contemplated by this Agreement;
(j) (A) change any of its significant accounting policies or (B) make
or rescind any express or deemed election relating to taxes, settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes (except where the
amount of such settlements or controversies, individually or in the
aggregate, does not exceed $5 million), or change any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of the federal income tax returns for the
taxable year ending May 31, 1994, except, in the case of clause (A) or
clause (B), as may be required by Law or generally accepted accounting
principles;
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(k) incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or similar
instrument or under any financing lease, whether pursuant to a
sale-and-leaseback transaction or otherwise, except in the ordinary course
of business consistent with past practice, purchase money indebtedness
incurred in connection with acquisitions permitted pursuant to Section
5.03(g) or pursuant to the terms in effect on the date of this Agreement of
any revolving credit agreements.
(l) enter into any material arrangement, agreement or contract with any
third party (other than customers in the ordinary course of business) that
provides for an exclusive arrangement with that third party or is
substantially more restrictive on the Acquiror or substantially less
advantageous to the Acquiror than arrangements, agreements or contracts
existing on the date hereof; or
(m) agree in writing or otherwise to do any of the foregoing.
SECTION 5.04. ACCESS AND INFORMATION.
(a) The Company shall, and shall cause its subsidiaries to (i) afford to
Acquiror and its officers, directors, employees, accountants, consultants,
legal counsel, agents and other representatives (collectively, the "Acquiror
Representatives") reasonable access at reasonable times, upon reasonable
prior notice, to the officers, employees, accountants, agents, properties,
offices and other facilities of the Company and its subsidiaries and to the
books and records thereof and (ii) furnish promptly to Acquiror and the
Acquiror Representatives such information concerning the business,
properties, contracts, records and personnel of the Company and its
subsidiaries (including, without limitation, financial, operating and other
data and information) as may be reasonably requested, from time to time, by
Acquiror.
(b) Acquiror shall, and shall cause its subsidiaries to, (i) afford to
the Company and its officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives (collectively,
the "Company Representatives") reasonable access at reasonable times, upon
reasonable prior notice, to the officers, employees, accountants, agents,
properties, offices and other facilities of Acquiror and its subsidiaries
and to the books and records thereof and (ii) furnish promptly to the
Company and the Company Representatives such information concerning the
business, properties, contracts, records and personnel of Acquiror and its
subsidiaries (including, without limitation, financial, operating and other
data and information) as may be reasonably requested, from time to time, by
the Company.
(c) Notwithstanding the foregoing provisions of this Section 5.04,
neither party shall be required to grant access or furnish information to
the other party to the extent that such access or the furnishing of such
information is prohibited by law. No investigation by the parties hereto
made heretofore or hereafter shall affect the representations and warranties
of the parties that are contained herein and each such representation and
warranty shall survive such investigation.
SECTION 5.05. AFFIRMATIVE COVENANTS OF ACQUIROR. Acquiror hereby covenants
and agrees that, prior to the Effective Time, unless otherwise expressly
contemplated by this Agreement or consented to in writing by the Company,
Acquiror will and will cause its subsidiaries to:
(a) operate its business in the usual and ordinary course consistent
with past practices;
(b) use all reasonable efforts to preserve substantially intact its
business organization, maintain its rights and franchises, retain the
services of its respective officers and key employees and maintain its
relationships with its respective customers and suppliers;
(c) maintain and keep its properties and assets in as good repair and
condition as at present, ordinary wear and tear excepted, and maintain
supplies and inventories in quantities consistent with its customary
business practice; and
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(d) use all reasonable efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that
currently maintained.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. MEETINGS OF STOCKHOLDERS.
(a) The Company shall, promptly after the date of this Agreement, take
all actions necessary in accordance with Delaware Law and its Certificate of
Incorporation and Bylaws to convene a special meeting of the Company's
stockholders to act on this Agreement (the "Company Stockholders Meeting"),
and the Company shall consult with Acquiror in connection therewith. Unless
its Board of Directors in the good faith exercise of its fiduciary duties,
after consultation with legal counsel and its financial advisors, determines
not to recommend, or to withdraw its recommendation, that such matters be
approved by the Company's stockholders, the Company shall use all reasonable
efforts to solicit from stockholders of the Company proxies in favor of the
approval and adoption of this Agreement and to secure the vote or consent of
stockholders required by Delaware Law and its Certificate of Incorporation
and Bylaws to approve and adopt this Agreement.
(b) Acquiror shall, promptly after the date of this Agreement, take all
actions necessary in accordance with Delaware Law and its Certificate of
Incorporation and Bylaws to convene a special meeting of Acquiror's
stockholders to act on this Agreement (the "Acquiror Stockholders Meeting"),
and Acquiror shall consult with the Company in connection therewith.
Acquiror shall use all reasonable efforts to solicit from stockholders of
Acquiror proxies in favor of the approval and adoption of this Agreement and
to secure the vote or consent of stockholders required by Delaware Law and
its Certificate of Incorporation and Bylaws to approve and adopt this
Agreement.
SECTION 6.02. REGISTRATION STATEMENT; PROXY STATEMENTS.
(a) As promptly as practicable after the execution of this Agreement,
the Acquiror Companies shall prepare and file with the SEC a registration
statement on Form S-4 (such registration statement, together with any
amendments thereof or supplements thereto, being the "Registration
Statement"), containing a proxy statement/prospectus for stockholders of the
Company (the "Company Proxy Statement/Prospectus") and a proxy
statement/prospectus for stockholders of Acquiror (the "Acquiror Proxy
Statement/Prospectus"), in connection with the registration under the
Securities Act of the offer, sale and delivery of Acquiror Common Stock to
be issued in the Merger and the other transactions contemplated by this
Agreement. As promptly as practicable after the execution of this Agreement,
the Company shall prepare and file with the SEC a proxy statement that will
be the same as the Company Proxy Statement/Prospectus, and a form of proxy,
in connection with the vote of the Company's stockholders with respect to
this Agreement (such Company Proxy Statement/Prospectus, together with any
amendments thereof or supplements thereto, in each case in the form or forms
mailed to the Company's stockholders, being the "Company Proxy Statement").
As promptly as practicable after the execution of this Agreement, the
Acquiror shall prepare and file with the SEC a proxy statement that will be
the same as the Acquiror Proxy Statement/Prospectus, and a form of proxy, in
connection with the vote of the Acquiror's stockholders with respect to this
Agreement (such Acquiror Proxy Statement/Prospectus, together with any
amendments thereof or supplements thereto, in each case in the form or forms
mailed to the Acquiror's stockholders, being the "Acquiror Proxy
Statement"). Each of the Acquiror Companies and the Company will use all
reasonable efforts to have or cause the Registration Statement to become
effective as promptly as practicable, and shall take any action required to
be taken under any applicable federal or state securities laws in connection
with the issuance of shares of Acquiror Common Stock in the Merger. Each of
the Acquiror Companies and the Company shall furnish all information
concerning it and the holders of its capital stock as the other may
reasonably request in connection with such actions. As promptly as
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practicable after the Registration Statement shall have become effective,
the Company shall mail the Company Proxy Statement to its stockholders
entitled to notice of and to vote at the Company Stockholder Meeting and
Acquiror shall mail the Acquiror Proxy Statement to its stockholders
entitled to notice of and to vote at the Acquiror Stockholder Meeting. The
Company Proxy Statement shall, to the extent consistent with their fiduciary
duties, include the recommendation of the Company's Board of Directors in
favor of the Merger. The Acquiror Proxy Statement shall include the
recommendation of the Acquiror's Board of Directors in favor of the Merger.
(b) The information supplied by the Company for inclusion in the
Registration Statement shall not, at the time the Registration Statement is
declared effective, 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 not misleading. The information
supplied by the Company for inclusion in (i) the Company Proxy Statement to
be sent to the stockholders of the Company in connection with the Company
Stockholders Meeting shall not, at the date the Company Proxy Statement (or
any supplement thereto) is first mailed to stockholders, at the time of the
Company Stockholders Meeting or at the Effective Time and (ii) the Acquiror
Proxy Statement to be sent to the stockholders of Acquiror in connection
with the Acquiror Stockholders Meeting shall not, at the date the Acquiror
Proxy Statement (or any supplement thereto) is first mailed to stockholders,
at the time of the Acquiror Stockholders Meeting or at the Effective Time,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
are made, not misleading. If at any time prior to the Company Stockholders
Meeting any event or circumstance relating to the Company or any of its
affiliates, or its or their respective officers or directors, should be
discovered by the Company that should be set forth in an amendment to the
Registration Statement or a supplement to the Company Proxy Statement or
Acquiror Proxy Statement, the Company shall promptly inform Acquiror. All
documents that the Company is responsible for filing with the SEC in
connection with the transactions contemplated herein shall comply as to form
in all material respects with the applicable requirements of the Securities
Act and the rules and regulations thereunder and the Exchange Act and the
rules and regulations thereunder.
(c) The information supplied by the Acquiror Companies for inclusion in
the Registration Statement shall not, at the time the Registration Statement
is declared effective, 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 not misleading. The information
supplied by the Acquiror Companies for inclusion in (i) the Company Proxy
Statement to be sent to the stockholders of the Company in connection with
the Company Stockholders Meeting shall not, at the date the Company Proxy
Statement (or any supplement thereto) is first mailed to stockholders, at
the time of the Company Stockholders Meeting or at the Effective Time and
(ii) the Acquiror Proxy Statement to be sent to the stockholders of Acquiror
in connection with the Acquiror Stockholders Meeting shall not, at the date
the Acquiror Proxy Statement (or any supplement thereto) is first mailed to
stockholders, at the time of the Acquiror Stockholders Meeting or at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under
which they are made, not misleading. If at any time prior to the Acquiror
Stockholders Meeting any event or circumstance relating to Acquiror or any
of its respective affiliates, or to their respective officers or directors,
should be discovered by Acquiror that should be set forth in an amendment to
the Registration Statement or a supplement to the Company Proxy Statement or
Acquiror Proxy Statement, Acquiror shall promptly inform the Company. All
documents that the Acquiror Companies are responsible for filing with the
SEC in connection with the transactions contemplated hereby shall comply as
to form in all material respects with the applicable requirements of the
Securities Act and the rules and regulations thereunder and the Exchange Act
and the rules and regulations thereunder.
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SECTION 6.03. APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) The Company and Acquiror shall each use, and shall cause each of
their respective subsidiaries to use, all reasonable efforts promptly to
(i)take, or cause to be taken, all appropriate action, and do, or cause to
be done, all things necessary, proper or advisable under applicable Law or
otherwise to consummate and make effective the transactions contemplated by
the Transaction Documents, (ii) obtain from any Governmental Entities any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained by Acquiror or the Company or any of their
subsidiaries in connection with the authorization, execution and delivery of
the Transaction Documents and the consummation of the transactions
contemplated hereby, including, without limitation, the Merger, (iii) make
all necessary filings, and thereafter make any other required submissions,
with respect to the Transaction Documents and the Merger required under (A)
the Securities Act (in the case of Acquiror) and the Exchange Act and the
rules and regulations thereunder, and any other applicable federal or state
securities laws, (B) the HSR Act and (C) any other applicable Law; provided
that Acquiror and the Company shall cooperate with each other in connection
with the making of all such filings, including providing copies of all such
documents to the nonfiling party and its advisors prior to filing and, if
requested, shall accept all reasonable additions, deletions or changes
suggested in connection therewith. The Company and Acquiror shall furnish
all information required for any application or other filing to be made
pursuant to the rules and regulations of any applicable Law (including all
information required to be included in the Company Proxy Statement, the
Acquiror Proxy Statement or the Registration Statement) in connection with
the transactions contemplated by the Transaction Documents.
(b) The Acquiror Companies and the Company agree to, and shall cause
each of their respective subsidiaries to, cooperate and use all reasonable
efforts vigorously to contest and resist any action, including legislative,
administrative or judicial action, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order (whether
temporary, preliminary or permanent) (an "Order") that is in effect and that
restricts, prevents or prohibits the consummation of the Merger or any other
transactions contemplated by the Transaction Documents, including, without
limitation, by vigorously pursuing all available avenues of administrative
and judicial appeal and all available legislative action. Each of the
Acquiror Companies and the Company also agree to take any and all actions,
including, without limitation, the disposition of assets or the withdrawal
from doing business in particular jurisdictions, required by regulatory
authorities as a condition to the granting of any approvals required in
order to permit the consummation of the Merger or as may be required to
avoid, lift, vacate or reverse any legislative or judicial action that would
otherwise cause any condition to Closing not to be satisfied; PROVIDED,
HOWEVER, that in no event shall either party take, or be required to take,
any action that could reasonably be expected to have a Company Material
Adverse Effect or an Acquiror Material Adverse Effect.
(c) (i) Each of the Company and Acquiror shall promptly give (or shall
cause their respective subsidiaries to give) any notices to third parties,
and use, and cause their respective subsidiaries to use, all reasonable
efforts to obtain any third party consents (A) necessary, proper or
advisable to consummate the transactions contemplated by this Agreement, (B)
otherwise required under any contracts, licenses, leases or other agreements
in connection with the consummation of the transactions contemplated by the
Transaction Documents or (C) required to prevent a Company Material Adverse
Effect from occurring prior to or after the Effective Time or an Acquiror
Material Adverse Effect from occurring after the Effective Time.
(ii) If any party shall fail to obtain any third party consent described
in subsection (c)(i) above, such party shall use all reasonable efforts, and
shall take any such actions reasonably requested by the other parties, to
limit the adverse effect upon the Company and Acquiror, their respective
subsidiaries, and their respective businesses resulting, or which could
reasonably be expected to result after the Effective Time, from the failure
to obtain such consent.
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SECTION 6.04. AFFILIATES; POOLING; TAX TREATMENT.
(a) The Company shall use all reasonable efforts to obtain and deliver
to Acquiror an executed letter agreement, substantially in the form of
EXHIBIT A hereto, from (i) each person identified as an affiliate of the
Company in Section 3.13 of the Company Disclosure Schedule by April 14,
1995, (ii) any person who may be deemed to have become an affiliate of the
Company after the date of this Agreement and on or prior to the Effective
Time as soon as practicable after such person attains such status and (iii)
any person whose agreement thereto may be deemed reasonably necessary by
Acquiror to sustain the Merger's status as a Pooling Transaction on or prior
to the Effective Time.
(b) Acquiror shall use all reasonable efforts to obtain an executed
letter agreement, substantially in the form of EXHIBIT B hereto, from (i)
each person identified as an affiliate of Acquiror in Section 4.13 of
Acquiror Disclosure Schedule by April 14, 1995, (ii) any person who may be
deemed to have become an affiliate of Acquiror after the date of this
Agreement and on or prior to the Effective Time as soon as practicable after
such person attains such status and (iii) any person whose agreement thereto
may be deemed reasonably necessary by Acquiror to sustain the Merger's
status as a Pooling Transaction on or prior to the Effective Time.
(c) The Acquiror Companies shall not be required to maintain the
effectiveness of the Registration Statement for the purpose of resale by
stockholders of Acquiror who may be affiliates of the Company or Acquiror
pursuant to Rule 145 under the Securities Act.
(d) Each party hereto shall use all reasonable efforts to cause the
Merger to qualify, and shall not take, and shall use all reasonable efforts
to prevent any affiliate of such party from taking, any actions which could
prevent the Merger from qualifying, as a reorganization under the provisions
of Section 368(a) of the Code.
SECTION 6.05. PUBLIC ANNOUNCEMENTS. The initial press release relating to
this Agreement shall be a joint press release and thereafter, to the extent
practicable, Acquiror and the Company shall consult with each other before
issuing any press release or otherwise making any public statements with respect
to the Transaction Documents or the Merger and shall not issue any such press
release or make any such public statement prior to such consultation.
SECTION 6.06. NYSE LISTING. Acquiror shall use all reasonable efforts to
cause the shares of Acquiror Common Stock to be issued in the Merger to be
approved for listing (subject to official notice of issuance) on the NYSE prior
to the Effective Time.
SECTION 6.07. RIGHTS AGREEMENT; STATE TAKEOVER STATUTES. The Company shall
take all action (including, if necessary, redeeming all of the outstanding
rights issued pursuant to the Company Rights Agreement or amending or
terminating the Company Rights Agreement) so that the execution of the
Transaction Documents and the consummation of the Merger and the other
transactions contemplated by the Transaction Documents and do not and will not
result in the grant of any rights to any person under the Company Rights
Agreement or enable or require any outstanding rights to be exercised,
distributed or triggered. The Company will take all steps necessary to exempt
the transactions contemplated by the Transaction Documents and the Voting
Agreement from, and if necessary challenge the validity of, any applicable state
takeover law, including, without limitation, Section 203 of Delaware Law. The
Company shall take all actions necessary under Delaware Law, including approving
the transactions contemplated by the Transaction Documents and the Voting
Agreement, to ensure that the prohibitions on business combinations set forth in
Section 203 of Delaware Law do not, or will not, apply to the transactions
contemplated by the Transaction Documents and the Voting Agreement.
SECTION 6.08. COMFORT LETTERS.
(a) The Company shall use all reasonable efforts to cause Ernst & Young
to deliver a letter dated as of the date of the Company Proxy
Statement/Prospectus, and addressed to the Company and its Board of
Directors and Acquiror and its Board of Directors, in form and substance
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reasonably satisfactory to Acquiror and customary in scope and substance for
agreed upon procedures letters delivered by independent public accountants
in connection with registration statements and proxy statements similar to
the Registration Statement and the Company Proxy Statement.
(b) Acquiror shall use all reasonable efforts to cause Arthur Andersen
LLP to deliver a letter dated as of the date of the Acquiror Proxy
Statement, and addressed to Acquiror and its Board of Directors and the
Company and its Board of Directors, in form and substance reasonably
satisfactory to the Company and customary in scope and substance for agreed
upon procedures letters delivered by independent public accountants in
connection with registration statements and proxy statements similar to the
Registration Statement and the Acquiror Proxy Statement.
SECTION 6.09. ASSUMPTION OF OBLIGATIONS TO ISSUE STOCK.
(a) At the Effective Time, automatically and without any action on the
part of the holder thereof, each outstanding Company Stock Option shall be
assumed by Acquiror and become an option to purchase that number of shares
of Acquiror Common Stock obtained by multiplying the number of shares of
Company Common Stock issuable upon the exercise of such option by the Common
Stock Exchange Ratio at an exercise price per share equal to the per share
exercise price of such option divided by the Common Stock Exchange Ratio and
otherwise upon the same terms and conditions as such outstanding options to
purchase Company Common Stock; provided, however, that in the case of any
option to which Section 421of the Internal Revenue Code applies by reason of
the qualifications under Section 422 or 423 of such Code, the exercise
price, the number of shares purchasable pursuant to such option and the
terms and conditions of exercise of such option shall be determined in order
to comply with Section 424(a) of the Code.
(b) At the Effective Time, subject to the any requirements or
restrictions necessary in order for the Merger to constitute a Pooling
Transaction, automatically and without any action by any person, each
outstanding Company Stock Option then held by an employee of the Company or
any of its subsidiaries and granted prior to January 1, 1995 shall become
immediately exercisable.
(c) The Acquiror shall take all corporate actions necessary to reserve
for issuance a sufficient number of shares of Acquiror Common Stock for
delivery upon exercise of the Company Stock Options assumed by Acquiror
pursuant to Section 6.09(a) above.
(d) As promptly as practicable after the Effective Time, Acquiror shall
file a Registration Statement on Form S-8, as the case may be (or any
successor or other appropriate forms) with respect to the shares of Acquiror
Common Stock subject to the Company Stock Options and shall use its best
efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus
or prospectuses contained therein) for so long as such options remain
outstanding.
(e) Except as provided herein or as otherwise agreed to by the parties,
each of the Company Stock Option Plans providing for the issuance or grant
of options in respect to the stock of Company shall be assumed as of the
Effective Time by the Acquiror with such amendments thereto as may be
required to reflect the Merger.
(f) In connection with the submission of the Acquiror Proxy Statement to
its stockholders, the Acquiror shall seek such stockholder approval as may
be necessary so that grants of options and issuances of securities pursuant
to the exercise of such options under the Company Stock Option Plans assumed
by it hereunder, as amended, and all other Company Stock Option Plans as in
effect on the date hereof shall qualify for the exemption for such issuances
provided by Rule 16b-3 under the Exchange Act.
(g) At or prior the Effective Time the Acquiror shall (i) assume and
agree to perform the Company s obligations under its existing
change-in-control agreements identified on the Company Disclosure Schedule
and (ii) shall agree the to issue shares of Acquiror Common Stock
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pursuant to the Company Acquisition Agreements described in Section 3.03(a)
of the Company Disclosure Schedule, upon exercise of the Warrant and upon
conversion of the Company Debenture, in each case in lieu of shares of
Company Common Stock, the number of shares to be so issued to be obtained by
multiplying the number of shares of Company Common Stock otherwise issuable
thereunder by the Common Stock Exchange Ratio and the purchase of such
shares of Acquiror Common Stock, if applicable, to be obtained by dividing
the per share purchase price of a share of Acquiror Common Stock thereunder
by the Common Stock Exchange Ratio.
SECTION 6.10. MERGER SUB. Prior to the Effective Time, Merger Sub shall
not conduct any business or make any investments other than as specifically
contemplated by this Agreement and will not have any assets (other than a DE
MINIMIS amount of cash paid to Merger Sub for the issuance of their stock to
Acquiror) or liabilities.
SECTION 6.11. BOARD OF DIRECTORS. Acquiror shall take action to cause the
number of directors on the Acquiror Board at the Effective Time to be thirteen
and to ensure that five of such directorships be filled with individuals
designated by the Company prior to the Effective Time (the "Company Designees").
The Company shall designate (i) one Company Designee who, immediately after
being elected to the Acquiror Board, shall be elected to the Audit Committee
thereof, (ii) a second Company Designee who, immediately after being elected to
the Acquiror Board, shall be elected to the Compensation Committee thereof
(provided that such designee shall not be an employee of Acquiror or any
subsidiary following the Effective Time), and (iii) a third Company Designee
who, immediately after being elected to the Acquiror Board, shall be elected to
the Executive Committee thereof. The Company Designees shall be nominated for
election as directors of Acquiror at the first annual meeting of stockholders of
the Acquiror subsequent to the Effective Time and shall be nominated for
election in the class of directors whose term expires at the 1996 annual meeting
of stockholders. Acquiror shall make any amendments to its Certificate of
Incorporation or by-laws necessary to effect the foregoing.
SECTION 6.12. INDEMNIFICATION AND INSURANCE.
(a) The Company hereby agrees to indemnify and hold harmless Acquiror
and its directors and officers, and Acquiror hereby agrees to indemnify and
hold harmless the Company and its directors and officers, from and against
any loss, claim, damage, cost, liability, obligation or expense (including
reasonable attorney's fees and costs of investigation) to which any
indemnified party may become subject under the Securities Act, the Exchange
Act or otherwise, insofar as such loss, claim, damage, cost, liability,
obligation or expense or actions in respect thereof arises out of or is
based upon any untrue statement or alleged untrue statement of a material
fact relating to such indemnifying party and contained in the Registration
Statement or arises out of or is based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein with respect to such indemnifying party not
misleading.
(b) (i) The Company and Acquiror agree that, until six years from the
Effective Time, the Certificates of Incorporation and Bylaws of the
Company and Acquiror as in effect immediately after the amendments to the
Certificate of Incorporation of the Company contemplated by Section 1.04
have become effective shall not be amended to reduce or limit the rights
of indemnity afforded to the present and former directors and officers of
the Company and Acquiror thereunder or as to the ability of Acquiror and
the Company to indemnify such persons, or to hinder, delay or make more
difficult the exercise of such rights of indemnity or the ability to
indemnify. The Company and Acquiror agree that the Company, as the
surviving corporation of the Merger will at all times exercise the powers
granted to it by its Certificate of Incorporation, its Bylaws and by
applicable law to indemnify to the fullest extent possible present or
former directors, officers, employees and agents of the Company against
claims made against them arising from their service in such capacities.
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(ii) Should any claim or claims be made against any present or former
director, officer, employee or agent of the Company or Acquiror, arising
from his services as such, within six years of the Effective Time, the
provisions of this Section 6.12(b) respecting the Certificates of
Incorporation and Bylaws of Acquiror and the Company shall continue in
effect until the final disposition of all such claims. Notwithstanding
anything to the contrary in this Section 6.12, neither Acquiror nor the
Company shall be liable for any settlement effected without its written
consent, which shall not be unreasonably withheld.
(iii) The provisions of this Section 6.12(b) are intended to be for
the benefit of, and shall be enforceable by, each party entitled to
indemnification hereunder, his heirs and his representatives.
(c) Acquiror shall cause to be maintained in effect until six years from
the Effective Time the current policies of directors' and officers'
liability insurance maintained by the Company (or substitute policies
providing at least the same coverage and limits and containing terms and
conditions that are not materially less advantageous) with respect to claims
arising from facts or events which occurred before the Effective Time;
provided, however that in no event shall Acquiror or the Company be required
to expend more than 200% of the current annual premiums paid by the Company
for such insurance.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS
AGREEMENT. The respective obligations of each party to effect the Merger and
the other transactions contemplated hereby shall be subject to the satisfaction
at or prior to the Effective Time of the following conditions (any or all of
which may be waived by the parties hereto in writing, in whole or in part, to
the extent permitted by applicable Law):
(a) EFFECTIVENESS OF THE REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective by the SEC under the Securities
Act. No stop order suspending the effectiveness of the Registration
Statement shall have been issued by the SEC and no proceedings for that
purpose shall have been initiated by the SEC.
(b) STOCKHOLDER APPROVAL. This Agreement shall have been approved and
adopted by the requisite vote of the stockholders of the Company. This
Agreement shall have been approved and adopted by the requisite vote of the
stockholders of Acquiror.
(c) NO ORDER. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
(d) HSR ACT. The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
(e) ACQUIROR TAX OPINION. Acquiror shall have received from Vinson &
Elkins L.L.P. a written opinion dated as of the date (the "Mailing Date")
the Company Proxy Statement or the Acquiror Proxy Statement is mailed,
whichever is first mailed, to the stockholders of the Company or Acquiror to
the effect that the Merger, when effected in accordance with this Agreement,
will qualify as a reorganization under Section 368(a) of the Code and
Acquiror, Merger Sub and the Company will constitute parties to such
reorganization, and a copy of such opinion shall have been delivered to the
Company.
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(f) COMPANY TAX OPINION. The Company shall have received from Drinker
Biddle & Reath a written opinion dated as of the Mailing Date to the effect
that the receipt of the Merger Consideration by the stockholders of the
Company will be nontaxable to such stockholders, and a copy of such opinion
shall have been delivered to Acquiror.
(g) POOLING OPINION. Acquiror shall have received from Arthur Andersen
LLP a written opinion dated the Effective Date to the effect that the
transactions contemplated by this Agreement, including the Merger, when
effected in accordance with the terms thereof, shall be accounted for in the
consolidated financial statements of Acquiror and its subsidiaries as a
Pooling Transaction, and a copy of such opinion shall have been delivered to
the Company.
(h) ABSENCE OF REGULATORY CONDITIONS. There shall not be any action
taken, or any Law enacted, entered, enforced or deemed applicable to the
Merger by any Governmental Entity that, in connection with the grant of a
regulatory approval necessary to the continuing operation of the business or
future prospects of the Company, which action, statute, rule, regulation or
order imposes any condition or restriction upon the Acquiror Companies or
the business or operations of the Company that would constitute a Company
Material Adverse Effect or an Acquiror Material Adverse Effect.
SECTION 7.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE ACQUIROR
COMPANIES. The obligations of the Acquiror Companies to effect the Merger and
the other transactions contemplated by the Transaction Documents are also
subject to the following conditions (any or all of which may be waived by
Acquiror in writing, in whole or in part):
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company contained in the Transaction Documents shall be
true and correct in all material respects as of the Effective Time as though
made on and as of the Effective Time. The Acquiror Companies shall have
received a certificate of the President and the Chief Financial Officer of
the Company, dated the date of the Effective Time, to such effect.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required
by the Transaction Documents to be performed or complied with by it on or
prior to the Effective Time. The Acquiror Companies shall have received a
certificate of the President and the Chief Financial Officer of the Company,
dated the date of the Effective Time, to that effect.
(c) BLUE SKY. The Acquiror Companies shall have received all "blue sky"
permits and other authorizations necessary to consummate the transactions
contemplated by the Transaction Documents.
(d) RIGHTS AGREEMENT. None of the events described in sections 11(a)(ii)
or 13 of the Company Rights Agreement shall have occurred, and the rights
thereunder shall not have become nonredeemable and such rights shall not
become exercisable for capital stock of Acquiror upon consummation of the
Merger.
(e) FAIRNESS OPINION. Acquiror shall have received from Salomon Brothers
Inc written confirmation dated the Mailing Date of its opinion rendered
pursuant to Section 4.15 herein.
SECTION 7.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to effect the Merger and the other transactions
contemplated hereby are also subject to the following conditions (any or all of
which may be waived by the Company in writing, in whole or in part):
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Acquiror Companies contained in the Transaction Documents
shall be true and correct in all material respects as of the Effective Time
as though made on and as of the Effective Time. The Company shall have
received a certificate of the President and the Chief Financial Officer of
each of the Acquiror Companies, dated the date of the Effective Time, to
such effect.
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(b) AGREEMENTS AND COVENANTS. The Acquiror Companies shall have
performed or complied in all material respects with all agreements and
covenants required by the Transaction Documents to be performed or complied
with by them on or prior to the Effective Time. The Company shall have
received a certificate of the President and the Chief Financial Officer of
each of the Acquiror Companies, dated the date of the Effective Time, to
that effect.
(c) FAIRNESS OPINION. The Company shall have received from Merrill Lynch
& Co. written confirmation dated the Mailing Date of its opinion rendered
pursuant to Section 3.15 hereof.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this Agreement
and the Merger by the stockholders of the Company:
(a) by mutual consent of Acquiror and the Company;
(b) by Acquiror, upon a breach of any material representation, warranty,
covenant or agreement on the part of the Company set forth in the
Transaction Documents, or if any representation or warranty of the Company
shall have become untrue, in either case such that the conditions set forth
in Section 7.02(a) or Section 7.02(b) of this Agreement would not be
satisfied (a "Terminating Company Breach"); PROVIDED THAT, if such
Terminating Company Breach is curable by the Company through the exercise of
reasonable efforts and for so long as the Company continues to exercise such
reasonable efforts (or, if shorter, for 30 days), Acquiror may not terminate
this Agreement under this Section 8.01(b);
(c) by the Company, upon breach of any material representation,
warranty, covenant or agreement on the part of the Acquiror Companies set
forth in the Transaction Documents, or if any representation or warranty of
the Acquiror Companies shall have become untrue, in either case such that
the conditions set forth in Section 7.03(a) or Section 7.03(b) of this
Agreement would not be satisfied (a "Terminating Acquiror Breach"); PROVIDED
THAT, if such Terminating Acquiror Breach is curable by the Acquiror
Companies through the exercise of their reasonable efforts and for so long
as the Acquiror Companies continue to exercise such reasonable efforts (or,
if shorter, for 30 days), the Company may not terminate this Agreement under
this Section 8.01(c);
(d) by either Acquiror or the Company, if there shall be any Order which
is final and nonappealable preventing the consummation of the Merger, except
if the party seeking to terminate this Agreement has not complied with its
obligations under Section 6.03(b) of this Agreement;
(e) by either Acquiror or the Company, if the Merger shall not have been
consummated before December 31, 1995; PROVIDED, HOWEVER, that this Agreement
may be extended by written notice of either Acquiror or the Company to a
date not later than March 31, 1996, if the Merger shall not have been
consummated as a result of the Company or the Acquiror Companies having
failed by December 31, 1995 to receive all required regulatory approvals or
consents with respect to the Merger or as a result of the entering of an
Order;
(f) by either Acquiror or the Company, if this Agreement shall fail to
receive the requisite vote for approval and adoption by the stockholders of
the Company at the Company Stockholders Meeting;
(g) by either Acquiror or the Company, if this Agreement shall fail to
receive the requisite vote for approval and adoption by the stockholders of
Acquiror at the Acquiror Stockholders Meeting;
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(h) by Acquiror, if (i) the Board of Directors of the Company withdraws,
modifies or changes its recommendation of this Agreement or the Merger in a
manner adverse to the Acquiror Companies or shall have resolved to do any of
the foregoing or the Board of Directors of the Company shall have
recommended to the stockholders of the Company any Competing Transaction or
resolved to do so; (ii) a tender offer or exchange offer for outstanding
shares of capital stock of the Company then representing 20% or more of the
combined power to vote generally for the election of directors is commenced,
and the Board of Directors of the Company does not recommend that
stockholders not tender their shares into such tender or exchange offer or;
(iii) any person shall have acquired beneficial ownership or the right to
acquire beneficial ownership of, or any "group" (as such term is defined
under Section 13(d) of the Exchange Act and the rules and regulations
promulgated hereunder), shall have been formed which beneficially owns, or
has the right to acquire beneficial ownership of, outstanding shares of
capital stock of the Company then representing 20% or more of the combined
power to vote generally for the election of directors;
(i) by the Company or the Acquiror, if the Company accepts a Superior
Proposal and makes payment as required pursuant to Section 8.05(c)(i) of
this Agreement and of the Expenses for which the Company is responsible
under Section 8.05(a) of this Agreement. For purposes of this Agreement,
"Superior Proposal" means a bona fide written proposal made by a third party
relating to a Competing Transaction on terms that the Board of Directors of
the Company determines it cannot reject in favor of the Merger, based on
applicable fiduciary duties and the advice of counsel and for which
financing, to the extent required, is then committed; or
(j) by the Company, if (i) a tender offer or exchange offer for
outstanding shares of capital stock of Acquiror then representing 20% or
more of the combined power to vote generally for the election of directors
is commenced, and the Board of Directors of Acquiror does not recommend that
stockholders not tender their shares into such tender or exchange offer or
(ii) any person shall have acquired beneficial ownership or the right to
acquire beneficial ownership of, or any group (as such term is defined under
Section 13(d) of the Exchange Act and the rules and regulations promulgated
hereunder), shall have been formed which beneficially owns, or has the right
to acquire beneficial ownership of, outstanding shares of capital stock of
Acquiror then representing 20% or more of the combined power to vote
generally for the election of directors.
The right of any party hereto to terminate this Agreement pursuant to this
Section 8.01 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
employees, accountants, consultants, legal counsel, agents or other
representatives whether prior to or after the execution of this Agreement.
SECTION 8.02. EFFECT OF TERMINATION. Except as provided in Section 8.05 or
Section 9.01 of this Agreement, in the event of the termination of this
Agreement pursuant to Section 8.01, this Agreement shall forthwith become void,
there shall be no liability on the part of the Acquiror Companies or the Company
or any of their respective officers or directors to the other and all rights and
obligations of any party hereto shall cease, except that nothing herein shall
relieve any party from its obligations with respect to any breach of this
Agreement.
SECTION 8.03. AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; PROVIDED, HOWEVER, that, after approval
of the Merger by the stockholders of the Company, no amendment may be made that
would reduce the amount or change the type of consideration into which each
share of Company Common Stock shall be converted pursuant to this Agreement upon
consummation of the Merger. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 8.04. WAIVER. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained
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herein or in any document delivered pursuant hereto and (c) waive compliance by
the other party with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby. For purposes of this
Section 8.04, the Acquiror Companies as a group shall be deemed to be one party.
SECTION 8.05. FEES, EXPENSES AND OTHER PAYMENTS.
(a) Except as provided in Sections 8.05(c) and 8.05(d) of this
Agreement, all Expenses (as defined in paragraph (b) of this Section 8.05)
incurred by the parties hereto shall be borne solely and entirely by the
party which has incurred such Expenses; PROVIDED, HOWEVER, that the
allocable share of the Acquiror Companies as a group and the Company for all
Expenses related to printing, filing and mailing the Registration Statement,
the Company Proxy Statement and the Acquiror Proxy Statement and all SEC and
other regulatory filing fees incurred in connection with the Registration
Statement, the Company Proxy Statement and the Acquiror Proxy Statement
shall be one-half each; AND PROVIDED FURTHER that Acquiror may, at its
option, pay any Expenses of the Company.
(b) "Expenses" as used in this Agreement shall include all reasonable
out-of-pocket expenses (including, without limitation, all reasonable fees
and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on
its behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement, the preparation,
printing, filing and mailing of the Registration Statement, the Company
Proxy Statement and the Acquiror Proxy Statement, the solicitation of
stockholder approvals and all other matters related to the consummation of
the transactions contemplated hereby.
(c) The Company agrees that, if (i) this Agreement is terminated
pursuant to Section 8.01(f) and, prior to the Company Stockholders Meeting,
the Company shall have furnished information to, or entered into discussions
or negotiations with, any person or entity with respect to a Competing
Transaction involving the Company or any of its subsidiaries and the Board
of Directors of the Company shall not have reaffirmed its recommendation to
the stockholders of the Company with respect to the transactions
contemplated by this Agreement by the time of the Company Stockholders
Meeting; (ii) Acquiror terminates this Agreement pursuant to Section
8.01(h); (iii) (A) the Company or the Acquiror terminates this Agreement
pursuant to Section 8.01(i) or (iv) the Company or Acquiror terminates this
Agreement pursuant to Section 8.01(b) or 8.01(e) at a time that a
Terminating Company Breach exists (except solely for purposes of this
paragraph (c) a breach of a representation shall not be deemed to be a
Terminating Company Breach if the representation was true and correct as of
the date hereof), and (B) within nine months after such termination (1) a
Competing Transaction is consummated or (2) any person shall have acquired
beneficial ownership or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder), shall have been formed
which beneficially owns, or has the right to acquire beneficial ownership
of, outstanding shares of capital stock of the Company then representing 20%
or more of the combined power to vote generally for the election of
directors, then in any such case the Company shall pay to Acquiror the
Termination Fee (as defined below), plus the Expenses of the Acquiror
Companies up to $5 million. The Termination Fee shall be equal to $20
million, less the aggregate amount of any cash payments to Acquiror in
excess of $10 million pursuant to Section 7(a) of the Stock Option
Agreement.
(d) Acquiror agrees that, if (i) the Company terminates this Agreement
pursuant to Section 8.01(j) or (ii)(A) the Company or Acquiror terminates
this Agreement pursuant to Section 8.01(c) or 8.01(e) at a time that a
Terminating Acquiror Breach exists (except solely for purposes of this
paragraph (d) a breach of a representation shall not be deemed to be a
Terminating Acquiror Breach if the representation was true and correct as of
the date hereof), and (B) within nine months after such termination (1) an
Acquiror Competing Transaction is consummated or
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(2) any person shall have acquired beneficial ownership or the right to
acquire beneficial ownership of, or any "group" (as such term is defined
under Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder), shall have been formed which beneficially owns, or
has the right to acquire beneficial ownership of, outstanding shares of
capital stock of Acquiror then representing 20% or more of the combined
power to vote generally for the election of directors, then Acquiror shall
pay to the Company $10 million. For purposes of this Agreement, "Acquiror
Competing Transaction" shall mean any merger, consolidation, share exchange,
business combination or similar transaction involving Acquiror or any of its
Significant Subsidiaries or the acquisition in any manner, directly or
indirectly, of a material interest in any voting securities of, or a
material equity interest in a substantial portion of the assets of, Acquiror
or any of its Significant Subsidiaries.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS.
(a) Except as set forth in Section 9.01(b) of this Agreement, the
representations, warranties, covenants and agreements of each party hereto
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any other party hereto, any person
controlling any such party or any of their officers, directors,
representatives or agents whether prior to or after the execution of this
Agreement.
(b) The representations, warranties, covenants and agreements in this
Agreement shall terminate at the Effective Time or upon the termination of
this Agreement pursuant to Article VIII, except that the agreements set
forth in Articles I and II and Sections 6.07, 6.09, 6.11 and 6.12 shall
survive the Effective Time and those set forth in Sections 5.04(c), 8.02,
8.05 and Article IX hereof shall survive termination.
SECTION 9.02. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses ( or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier number
specified below:
(a) If to any of the Acquiror Companies, to:
Horizon Healthcare Corporation
6001 Indian School Road, N.E., Suite 530
Albuquerque, N.M. 87110
Attention: Chairman of the Board
Telecopier No.: (505) 881-5097
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with a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002-6760
Attention: William E. Joor III
Telecopier No.: (713) 758-2346
and
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019-6150
Attention: Barry A. Bryer
Telecopier No: (212) 403-2000
(b) If to the Company, to:
Continental Medical Systems, Inc.
P. O. Box 715
600 Wilson Lane
Mechanicsburg, PA 17055
Attention: General Counsel
Telecopier No.: (717) 790-9974
with a copy to:
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
Attention: F. Douglas Raymond III
Telecopier No.: (215) 988-2757
SECTION 9.03. CERTAIN DEFINITIONS. For the purposes of this Agreement, the
term:
(a) "affiliate" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "business day" means any day other than a day on which banks in the
State of New York are authorized or obligated to be closed;
(c) "control" (including the terms "controlled," "controlled by" and
"under common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock
or as trustee or executor, by contract or credit arrangement or otherwise;
(d) "knowledge" or "known" shall mean, with respect to any matter in
question, if an executive officer of the Company or Acquiror, as the case
may be, has actual knowledge of such matter;
(e) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d) of the Exchange Act);
(f) "Significant Subsidiary" means any subsidiary of the Company or
Acquiror, as the case may be, that would constitute a Significant Subsidiary
of such party within the meaning of Rule 1-02 of Regulation S-X of the SEC;
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(g) "subsidiary" or "subsidiaries" of the Company, Acquiror, the
Surviving Corporation or any other person, means any corporation,
partnership, joint venture or other legal entity of which the Company,
Acquiror, the Surviving Corporation or an such other person, as the case may
be (either alone or through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the stock or other equity interests
the holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other
legal entity; and
(h) "Tax" or "Taxes" shall mean any and all taxes, charges, fees,
levies, assessments, duties or other amounts payable to any federal, state,
local or foreign taxing authority or agency, including, without limitation,
(i) income, franchise, profits, gross receipts, minimum, alternative
minimum, estimated, ad valorem, value added, sales, use, service, real or
personal property, capital stock, license, payroll, withholding, disability,
employment, social security, workers compensation, unemployment
compensation, utility, severance, excise, stamp, windfall profits, transfer
and gains taxes, (ii) customs, duties, imposts, charges, levies or other
similar assessments of any kind, and (iii) interest, penalties and additions
to tax imposed with respect thereto.
SECTION 9.04. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.05. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 9.06. ENTIRE AGREEMENT. The Transaction Documents (together with
the Exhibits, the Company Disclosure Schedule and the Acquiror Disclosure
Schedule), constitute the entire agreement of the parties, and supersede all
prior agreements and undertakings, both written and oral, among the parties,
with respect to the subject matter of the Transaction Documents, other than that
certain Confidentiality Agreement dated February 9, 1995 between Acquiror and
the Company, as supplemented by letters dated March 4, 1995 and March 23, 1995,
which agreement shall remain in full force and effect.
SECTION 9.07. ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 9.08. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 9.09. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 9.10. 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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SECTION 9.11. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 9.12. SPECIFIC PERFORMANCE. The parties hereby acknowledge and
agree that the failure of any party to this Agreement to perform its agreement
and covenants hereunder, including its failure to take all actions as are
necessary on its part to the consummation of the Merger, will cause irreparable
injury to the other parties to this Agreement for which damages, even if
available, will not be an adequate remedy. Accordingly, each of the parties
hereto hereby consents to the issuance of injunctive relief by any court of
competent jurisdiction to compel performance of any party's obligations and to
the granting by any such court of the remedy of specific performance of such
party's obligations hereunder.
A-43
<PAGE>
EXHIBIT A
CONTINENTAL MEDICAL SYSTEMS, INC.
AFFILIATE'S AGREEMENT
Horizon Healthcare Corporation
6001 Indian School Road, N.E., Suite 530
Albuquerque, N.M. 87110
Gentlemen:
I have been advised that as of the date hereof, I may be deemed to be an
"affiliate" of Continental Medical Systems, Inc., a Delaware corporation (the
"Company"), as that term is defined for purposes of paragraphs (c) and (d) of
Rule 145 of the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act").
I understand that pursuant to the terms and subject to the conditions of
that certain Agreement and Plan of Merger by and among Horizon Healthcare
Corporation, a Delaware corporation ("Acquiror"), CMS Merger Corporation, a
Delaware corporation and wholly owned subsidiary of Acquiror ("Merger Sub"), and
the Company dated as of March 31, 1995 (the "Merger Agreement"), providing for,
among other things, the merger of Merger Sub with and into the Company (the
"Merger"), I will be entitled to receive shares of common stock, par value $.001
per share ("Acquiror Common Stock"), of Acquiror in exchange for shares of
common stock, par value $.01 per share ("Company Common Stock"), of the Company
owned by me at the effective time of the Merger (the "Effective Time") as
determined pursuant to the Merger Agreement.
I further understand that the Merger will be treated for financial
accounting purposes as a "pooling of interests" in accordance with generally
accepted accounting principles and that the staff of the SEC has issued certain
guidelines that should be followed to ensure the pooling of the entities.
I hereby represent and warrant that, since 30 days before closing to and
including the date hereof, I have not sold, transferred or otherwise disposed of
any shares of Company Common Stock.
In consideration of the agreements contained herein, Acquiror's reliance on
this letter in connection with the consummation of the Merger and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, I hereby represent, warrant and agree that (i) I will not make any
sale, transfer or other disposition of Company Common Stock prior to the earlier
of the Effective Time and the termination of the Merger Agreement, (ii) I will
not make any sale, transfer or other disposition of Acquiror Common Stock
received by me pursuant to the Merger or otherwise owned by me until such time
as financial results that include at least 30 days of combined operations of the
Company and Acquiror after the Merger shall have been published, unless I shall
have delivered to Acquiror prior to any such sale, transfer or other
disposition, a written opinion from Arthur Andersen LLP, independent public
accountants for Acquiror, or a written no-action letter from the accounting
staff of the SEC, in either case in form and substance reasonably satisfactory
to Acquiror, to the effect that such sale, transfer or other disposition will
not cause the Merger not to be treated as a "pooling of interests" for financial
accounting purposes in accordance with generally accepted accounting principles,
the Rules and Regulations and interpretations of the SEC and (iii) I will not
make any sale, transfer or other disposition of any shares of Acquiror Common
Stock received by me pursuant to the Merger in violation of the Securities Act
or the Rules and Regulations. I have been advised that the issuance of the
shares of Acquiror Common Stock pursuant to the Merger will have been registered
with the SEC under the Securities Act on a Registration Statement on Form S-4. I
have also been advised, however, that since I may be deemed to be an affiliate
of the Company at the time the Merger is submitted for a vote of the
stockholders of the Company, the Acquiror Common Stock received by me pursuant
to the Merger can be sold by me only (i) pursuant to an effective registration
statement
A-44
<PAGE>
under the Securities Act, (ii) in conformity with the volume and other
limitations of Rule 145 promulgated by the SEC under the Securities Act, or
(iii) in reliance upon an exemption from registration that is available under
the Securities Act.
I also understand that instructions will be given to Acquiror's transfer
agent with respect to the Acquiror Common Stock to be received by me pursuant to
the Merger and that there will be placed on the certificates representing such
shares of Acquiror Common Stock, or any substitutions therefor, a legend stating
in substance as follows:
"These shares were issued in a transaction to which Rule 145 promulgated
under the Securities Act of 1933 applies. These shares may only be
transferred in accordance with the terms of such Rule and an Affiliate's
Agreement between the original holder of such shares and Horizon
Healthcare Corporation, a copy of which agreement is on file at the
principal offices of Horizon Healthcare Corporation."
It is understood and agreed that the legend set forth above shall be removed
upon surrender of certificates bearing such legend by delivery of substitute
certificates without such legend if I shall have delivered to Acquiror an
opinion of counsel, in form and substance reasonably satisfactory to Acquiror,
to the effect that (i) the sale or disposition of the shares represented by the
surrendered certificates may be effected without registration of the offering,
sale and delivery of such shares under the Securities Act, and (ii) the shares
to be so transferred may be publicly offered, sold and delivered by the
transferee thereof without compliance with the registration provisions of the
Securities Act.
By its execution hereof, Acquiror agrees that it will, as long as I own any
Acquiror Common Stock to be received by me pursuant to the Merger, take all
reasonable efforts to make timely filings with the SEC of all reports required
to be filed by it pursuant to the Securities Exchange Act of 1934, as amended,
and will promptly furnish upon written request of the undersigned a written
statement confirming that such reports have been so timely filed.
If you are in agreement with the foregoing, please so indicate by signing
below and returning a copy of this letter to the undersigned, at which time this
letter shall become a binding agreement between us.
Very truly yours,
By: ----------------------------------
Name:
Title:
Date:
Address:
ACCEPTED this ------- day
of ------------------- , 1995
HORIZON HEALTHCARE CORPORATION
By -------------------------------------
Name:
Title:
A-45
<PAGE>
EXHIBIT B
HORIZON HEALTHCARE CORPORATION
AFFILIATE'S AGREEMENT
Horizon Healthcare Corporation
6001 Indian School Road, N.E., Suite 530
Albuquerque, N.M. 87110
Gentlemen:
I have been advised that as of the date hereof, I may be deemed to be an
"affiliate" of Horizon Healthcare Corporation, a Delaware corporation
("Acquiror"), as that term is defined for purposes of paragraphs (c) and (d) of
Rule 145 of the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act").
I understand that pursuant to the terms and subject to the conditions of
that certain Agreement and Plan of Merger by and among Horizon Healthcare
Corporation, a Delaware corporation ("Acquiror"), CMS Merger Corporation, a
Delaware corporation and wholly owned subsidiary of Acquiror ("Merger Sub"), and
the Company dated as of March 31, 1995 (the "Merger Agreement"), providing for,
among other things, the merger of Merger Sub with and into the Company (the
"Merger"), and the conversion of shares of common stock, par value $.01 per
share ("Company Common Stock"), of the Company into shares of common stock, par
value $.001 per share ("Acquiror Common Stock"), of Acquiror at the effective
time of the Merger (the "Effective Time") as determined pursuant to the Merger
Agreement.
I further understand that the Merger will be treated for financial
accounting purposes as a "pooling of interests" in accordance with generally
accepted accounting principles and that the staff of the SEC has issued certain
guidelines that should be followed to ensure the pooling of the entities.
I hereby represent and warrant that, since 30 days before closing to and
including the date hereof, I have not sold, transferred or otherwise disposed of
any shares of Acquiror Common Stock.
In consideration of the agreements contained herein, Acquiror's reliance on
this letter in connection with the consummation of the Merger and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, I hereby represent, warrant and agree that (i) I will not make any
sale, transfer or other disposition of Acquiror Common Stock prior to the
earlier of the Effective Time and the termination of the Merger Agreement and
(ii) I will not make any sale, transfer or other disposition of Acquiror Common
Stock owned by me until such time as financial results that include at least 30
days of combined operations of the Company and Acquiror after the Merger shall
have been published, unless I shall have delivered to Acquiror prior to any such
sale, transfer or other disposition, a written opinion from Arthur Andersen LLP,
independent public accountants for Acquiror, or a written no-action letter from
the accounting staff of the SEC, in either case in form and substance reasonably
satisfactory to Acquiror, to the effect that such sale, transfer or other
disposition will not cause the Merger not to be treated as a "pooling of
interests" for financial accounting purposes in accordance with generally
accepted accounting principles, the Rules and Regulations and interpretations of
the SEC. I have been advised that since I may be deemed to be an affiliate of
Acquiror at the time the Merger is submitted for a vote of the stockholders of
the Company, the Acquiror Common Stock owned by me at the Effective Time can be
sold by me only (i) pursuant to an effective registration statement under the
Securities Act, (ii) in conformity with the volume and other limitations of Rule
145 promulgated by the SEC under the Securities Act, or (iii) in reliance upon
an exemption from registration that is available under the Securities Act.
By its execution hereof, Acquiror agrees that it will, as long as I own any
Acquiror Common Stock owned by me at the Effective Time, take all reasonable
efforts to make timely filings with the SEC of
A-46
<PAGE>
all reports required to be filed by it pursuant to the Securities Exchange Act
of 1934, as amended, and will promptly furnish upon written request of the
undersigned a written statement confirming that such reports have been so timely
filed.
If you are in agreement with the foregoing, please so indicate by signing
below and returning a copy of this letter to the undersigned, at which time this
letter shall become a binding agreement between us.
Very truly yours,
By: ----------------------------------
Name:
Title:
Date:
Address:
ACCEPTED this ------- day
of ------------------- , 1995
HORIZON HEALTHCARE CORPORATION
By -------------------------------------
Name:
Title:
A-47
<PAGE>
APPENDIX B
[SALOMON BROTHERS INC LETTERHEAD]
May __, 1995
Board of Directors
Horizon Healthcare Corporation
6001 Indian School Road, N.E., Suite 530
Albuquerque, New Mexico 87110
Dear Sirs:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of common stock, par value $.001 per share ("Horizon Common
Stock"), of Horizon Healthcare Corporation ("Horizon"), of the consideration to
be paid by Horizon in connection with the proposed merger (the "Merger") of CMS
Merger Corporation, a wholly owned subsidiary of Horizon ("Merger Sub"), with
and into Continental Medical Systems, Inc. (the "Company") pursuant to the
Amended and Restated Agreement and Plan of Merger dated as of May 23, 1995 (the
"Merger Agreement"), by and among Horizon, Merger Sub and the Company. In the
Merger, each share of common stock, par value $.01 per share ("Company Common
Stock"), of the Company issued and outstanding immediately prior to the
effectiveness of the Merger (subject to certain exceptions) will be converted
into ____ of one share of Horizon Common Stock. We understand that the Merger is
intended to be accounted for as a pooling of interests in accordance with
generally accepted accounting principles as described in Accounting Principles
Board Opinion Number 16.
In arriving at our opinion, we have reviewed the Merger Agreement and its
related exhibits and schedules. We also have reviewed certain publicly available
business and financial information relating to Horizon and the Company, as well
as certain other information, including financial projections, provided to us by
Horizon and the Company. We have discussed the past and current operations and
financial condition and prospects of Horizon and the Company with members of
senior management of such companies. We have also considered such other
information, financial studies, analyses, investigations and financial,
economic, market and trading criteria which we deemed relevant.
We have assumed and relied on the accuracy and completeness of the
information reviewed by us for the purpose of this opinion and we have not
assumed any responsibility for independent verification of such information or
for any independent evaluation or appraisal of the assets of Horizon or the
Company. With respect to Horizon's and the Company's financial projections, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of Horizon's and the Company's
management and we express no opinion with respect to such forecasts or the
assumptions on which they are based, including assumptions regarding the effects
of any outstanding or potential litigation, investigations, inquiries or other
actions. Our opinion is necessarily based upon business, market, economic and
other conditions as they exist on, and can be evaluated as of, the date of this
letter and does not address Horizon's underlying business decision to effect the
Merger or constitute a recommendation to any holder of Horizon Common Stock as
to how such holder should vote with respect to the Merger. Our opinion as
expressed below does not imply any conclusion as to the likely trading range for
the Horizon Common Stock following the consummation of the Merger, which may
vary depending on, among other factors, changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities.
B-1
<PAGE>
We have acted as financial advisor to the Board of Directors of Horizon in
connection with the Merger and received a fee for our services which was payable
upon the earlier submission of an opinion substantially similar to this opinion.
In the ordinary course of our business, we actively trade the debt and equity
securities of Horizon and the Company, for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be paid by Horizon in connection with the
Merger is fair to the holders of Horizon Common Stock from a financial point of
view.
Very truly yours,
______________________________________
Salomon Brothers Inc
B-2
<PAGE>
APPENDIX C
[DRAFT]
________ __, 1995
Board of Directors
Continental Medical Systems, Inc.
600 Wilson Lane
Mechanicsburg, Pennsylvania 17055
Gentlemen:
Continental Medical Systems, Inc., a Delaware corporation (the "Company"),
Horizon Healthcare Corporation, a Delaware corporation (the "Acquiror"), and CMS
Merger Corporation, a Delaware corporation and a wholly owned subsidiary of the
Acquiror (the "Merger Sub"), have entered into an agreement dated as of March
31, 1995, as amended and restated as of May 23, 1995 (the "Merger Agreement")
pursuant to which the Company will be merged with the Merger Sub in a
transaction (the "Merger") in which each share of the Company's common stock,
par value $.01 per share (the "Shares"), will be converted into the right to
receive .5397 shares (the "Exchange Ratio") of the common stock, par value $.001
per share, of the Acquiror (the "Acquiror Shares"). In connection with the
Merger, the Company and the Acquiror also have entered into an agreement dated
as of March 31, 1995 (the "Option Agreement") pursuant to which the Company
granted the Acquiror an option to acquire 15% of the total Shares outstanding.
Also in connection with the Merger, the Acquiror and certain stockholders of the
Company have entered into an agreement dated as of March 31, 1995 (the "Voting
Agreement") pursuant to which such stockholders agreed to vote their Shares in
favor of the Merger.
You have asked us whether, in our opinion, the proposed Exchange Ratio is
fair to the Company's stockholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended June 30, 1994
and the Company's Forms 10-Q and the related unaudited financial
information for the quarterly periods ended September 30, 1994,
December 31, 1994 and March 31, 1995;
(2) Reviewed the Acquiror's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended May 31, 1994 and
the Acquiror's Forms 10-Q and the related unaudited financial
information for the quarterly periods ended August 31, 1994, November
30, 1994 and February 28, 1995 (as amended by Amendment No. 1 on Form
10-Q/A dated May 18, 1995 and Amendment No. 2 on Form 10-Q/A dated May
19, 1995);
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the
Company and the Acquiror, furnished to us by the Company and the
Acquiror;
(4) Conducted discussions with members of senior management of the Company
and the Acquiror concerning their respective businesses and prospects;
(5) Reviewed certain information furnished to us by the Company and
conducted discussions with members of senior management of the Company
and the Acquiror concerning potential synergies to be realized as a
result of the Merger.
(6) Reviewed the historical market prices and trading activity for the
Shares and the Acquiror Shares and compared them with that of certain
publicly traded companies which we deemed to be reasonably similar to
the Company and the Acquiror, respectively;
C-1
<PAGE>
(7) Compared the results of operations of the Company and the Acquiror
with that of certain companies which we deemed to be reasonably
similar to the Company and the Acquiror, respectively;
(8) Compared the proposed financial terms of the transactions contemplated
by the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(9) Reviewed the Merger Agreement;
(10) Reviewed the Option Agreement;
(11)__ Reviewed the Voting Agreement; and
(12) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by the Company and
the Acquiror, and we have not independently verified such information or
undertaken an independent appraisal of the assets or liabilities of the Company
or the Acquiror. With respect to the financial forecasts furnished by the
Company and the Acquiror, we have assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgment of the
management of the Company or the Acquiror as to the expected future financial
performance of the Company or the Acquiror, as the case may be. Moreover, with
respect to the estimates of potential synergies furnished by the Company, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgment of the management of the Company as
to the potential synergies to be realized as a result of the Merger. We have
also assumed that the Merger will qualify for pooling-of-interests accounting
treatment and as a tax-free transaction for the stockholders of the Company.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of the Company.
We have, in the past, provided financial advisory and investment banking
services to the Company and investment banking services to the Acquiror and have
received fees for the rendering of such services. In the ordinary course of
business, we may actively trade the securities of both the Company and the
Acquiror for our own account and the account of our customers and, accordingly,
may at any time hold a long or short position in securities of the Company and
the Acquiror.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed Exchange Ratio is fair to the Company's stockholders from a
financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the DGCL, a Delaware corporation has the power, under
specified circumstances, to indemnify its directors, officers, employees and
agents in connection with threatened, pending or completed actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in right of the corporation), brought against them by
reason of the fact that they were or are such directors, officers, employees or
agents, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in any such action, suit or proceeding. Article
XIV of the Restated Certificate of Incorporation of Horizon together with
Article IX of its Bylaws provide for indemnification of each person who is or
was made a party to any actual or threatened civil, criminal, administrative or
investigative action, suit or proceeding because such person is or was an
officer or director of Horizon or is a person who is or was serving at the
request of Horizon as a director, officer, employee or agent of another
corporation or of a partnership, joint venture trust or other enterprise,
including service relating to employee benefit plans, to the fullest extent
permitted by the DGCL as it existed at the time the indemnification provisions
of Horizon's Restated Certificate of Incorporation and the Bylaws were adopted
or as may be thereafter amended. Article IX of Horizon's Bylaws and Article XIV
of its Restated Certificate of Incorporation expressly provide that they are not
the exclusive methods of indemnification.
Article IX of the Bylaws and Article XIV of Horizon's Restated Certificate
of Incorporation also provide that Horizon may maintain insurance, at its own
expense, to protect itself and any director, officer, employee or agent of
Horizon or of another entity against any expense, liability or loss, regardless
of whether Horizon would have the power to indemnify such person against such
expense, liability or loss under the DGCL.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
liability for unauthorized acquisitions or redemptions of, or dividends on,
capital stock) or (iv) for any transaction from which the director derived an
improper personal benefit. Article XI of Horizon's Restated Certificate of
Incorporation contains such a provision.
The Merger Agreement provides that Horizon will maintain certain
indemnification and limitation of liability provisions in CMS's Charter and
By-laws for a period of six years after the Effective Time of the Merger (as
such terms are defined in the Merger Agreement) and will continue for six years
CMS's directors and officers liability insurance, subject to certain
limitations.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
---------- ---------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of March 31, 1995 among Horizon Healthcare Corporation, CMS
Merger Corporation and Continental Medical Systems, Inc. (incorporated by reference to Exhibit 2.1
to Horizon's Current Report on Form 8-K dated March 31, 1995).
+2.2 Amendment No. 1 to Agreement and Plan of Merger dated as of May 23, 1995 among Horizon Healthcare
Corporation, CMS Merger Corporation and Continental Medical Systems, Inc.
2.3 Amended and Restated Agreement and Plan of Merger dated as of May 23, 1995 among Horizon Healthcare
Corporation, CMS Merger Corporation and Continental Medical Systems, Inc. (included as Appendix A
to the Joint Proxy Statement/Prospectus).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
---------- ---------------------------------------------------------------------------------------------------
<C> <S>
2.4 Stock Option Agreement dated as of March 31, 1995 between Horizon Healthcare Corporation and
Continental Medical Systems, Inc. (incorporated by reference to Exhibit 2.2 to Horizon's Current
Report on Form 8-K dated March 31, 1995).
2.5 Voting Agreement dated as of March 31, 1995 among Horizon Healthcare Corporation and the
stockholders of Continental Medical Systems, Inc. named therein (incorporated by reference to
Exhibit 2.3 to Horizon's Current Report on Form 8-K dated March 31, 1995).
3.1 Restated Certificate of Incorporation of Horizon Healthcare Corporation dated March 6, 1987,
together with Certificate of Amendment of Restated Certificate of Incorporation dated January 6,
1992 (incorporated by reference to Exhibit 3.1 to Horizon's Annual Report on Form 10-K for the year
ended May 31, 1994).
3.2 Certificate of Amendment of Restated Certificate of Incorporation of Horizon Healthcare Corporation
dated September 12, 1994 (incorporated by reference to Exhibit 4.2 to Horizon's Registration
Statement on Form S-8 filed with the Securities and Exchange Commission on September 29, 1994).
3.3 Certificate of Designation of Series A Junior Participating Preferred Stock of Horizon Healthcare
Corporation dated September 16, 1994 (incorporated by reference to Exhibit 4.3 to Horizon's
Registration Statement on Form S-8 filed with the Securities and Exchange Commission on September
29, 1994).
3.4 Amended and Restated Bylaws of Horizon Healthcare Corporation dated as of February 28, 1987,
together with Amendment to Bylaws Section 9.1.1 dated August 30, 1993 (incorporated by reference to
Exhibit 3.2 to Horizon's Annual Report on Form 10-K for the year ended May 31, 1994).
3.5 Rights Agreement, dated as of September 15, 1994, between Horizon Healthcare Corporation and
Chemical Trust Company of California, as Rights Agent, specifying the terms of the rights to
purchase Horizon's Series A Junior Participating Preferred Stock, and the exhibits thereto
(incorporated by reference to Exhibit 1 to Horizon's Registration Statement on Form 8-A dated
September 16, 1994).
+5.1 Opinion of Vinson & Elkins L.L.P. regarding the legality of the securities.
+8.1 Opinion of Drinker Biddle & Reath regarding tax matters.
23.1 Consent of Vinson & Elkins L.L.P. (set forth in Exhibit 5.1).
23.2 Consent of Drinker Biddle & Reath (set forth in Exhibit 8.1).
*23.3 Consent of Arthur Andersen LLP (Horizon).
*23.4 Consent of Ernst & Young LLP (CMS).
*23.5 Consent of Ernst & Young LLP (Greenery).
*23.6 Consent of BDO Seidman (peopleCARE).
*23.7 Consent of Price Waterhouse LLP (prior CMS).
+23.8 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
+23.9 Consent of Salomon Brothers Inc.
24.1 Powers of Attorney (set forth on signature page).
+99.1 Form of Horizon Proxy.
+99.2 Form of CMS Proxy.
+99.3 Consents of proposed new Horizon directors.
<FN>
------------------------
+Filed herewith.
*To be filed by amendment.
</TABLE>
FINANCIAL STATEMENT SCHEDULES:
The Financial Statement Schedules have previously been filed as part of the
Company's Form 10-K for the fiscal year ended May 31, 1994.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required in Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;
(4) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona tide offering
thereof;
(5) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request;
(6) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form;
(7) That every prospectus (i) that is filed pursuant to paragraph (6)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
II-3
<PAGE>
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Albuquerque, State of New
Mexico, on the 23rd day of May, 1995.
HORIZON HEALTHCARE CORPORATION
By /s/ NEAL M. ELLIOTT
-----------------------------------
Neal M. Elliott
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND CHAIRMAN OF THE BOARD
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Klemett L. Belt, Jr., Ernest A. Schofield and
Scot Sauder, or any of them, his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------------------------------------------------- --------------------------------------- ----------------
<C> <S> <C>
President, Chief Executive
/s/ NEAL M. ELLIOTT Officer and Chairman of
---------------------------------------- the Board of Directors May 23, 1995
Neal M. Elliott (Principal Executive Officer)
/s/ KLEMETT L. BELT, JR.
---------------------------------------- Director May 23, 1995
Klemett L. Belt, Jr.
/s/ FRANK M. MCCORD
---------------------------------------- Director May 23, 1995
Frank M. McCord
/s/ RAYMOND N. NOVECK
---------------------------------------- Director May 23, 1995
Raymond N. Noveck
/s/ MICHAEL A. JEFFRIES
---------------------------------------- Director May 23, 1995
Michael A. Jeffries
/s/ CHARLES H. GONZALES
---------------------------------------- Director May 23, 1995
Charles H. Gonzales
/s/ GERARD M. MARTIN
---------------------------------------- Director May 23, 1995
Gerard M. Martin
/s/ BARRY M. PORTNOY
---------------------------------------- Director May 23, 1995
Barry M. Portnoy
Senior Vice President, Chief
/s/ ERNEST A. SCHOFIELD Financial Officer and Chief
---------------------------------------- Accounting Officer May 23, 1995
Ernest A. Schofield (Principal Financial and
Accounting Officer)
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
---------- -------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of March 31, 1995 among Horizon Healthcare
Corporation, CMS Merger Corporation and Continental Medical Systems, Inc.
(incorporated by reference to Exhibit 2.1 to Horizon's Current Report on Form 8-K
dated March 31, 1995).
+2.2 Amendment No. 1 to Agreement and Plan of Merger dated as of May 23, 1995 among Horizon
Healthcare Corporation, CMS Merger Corporation and Continental Medical Systems, Inc.
2.3 Amended and Restated Agreement and Plan of Merger dated as of May 23, 1995 among
Horizon Healthcare Corporation, CMS Merger Corporation and Continental Medical
Systems, Inc. (included as Appendix A to the Joint Proxy Statement/Prospectus).
2.4 Stock Option Agreement dated as of March 31, 1995 between Horizon Healthcare
Corporation and Continental Medical Systems, Inc. (incorporated by reference to
Exhibit 2.2 to Horizon's Current Report on Form 8-K dated March 31, 1995).
2.5 Voting Agreement dated as of March 31, 1995 among Horizon Healthcare Corporation and
the stockholders of Continental Medical Systems, Inc. named therein (incorporated by
reference to Exhibit 2.3 to Horizon's Current Report on Form 8-K dated March 31,
1995).
3.1 Restated Certificate of Incorporation of Horizon Healthcare Corporation dated March 6,
1987, together with Certificate of Amendment of Restated Certificate of Incorporation
dated January 6, 1992 (incorporated by reference to Exhibit 3.1 to Horizon's Annual
Report on Form 10-K for the year ended May 31, 1994).
3.2 Certificate of Amendment of Restated Certificate of Incorporation of Horizon
Healthcare Corporation dated September 12, 1994 (incorporated by reference to Exhibit
4.2 to Horizon's Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on September 29, 1994).
3.3 Certificate of Designation of Series A Junior Participating Preferred Stock of Horizon
Healthcare Corporation dated September 16, 1994 (incorporated by reference to Exhibit
4.3 to Horizon's Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on September 29, 1994).
3.4 Amended and Restated Bylaws of Horizon Healthcare Corporation dated as of February 28,
1987, together with Amendment to Bylaws Section 9.1.1 dated August 30, 1993
(incorporated by reference to Exhibit 3.2 to Horizon's Annual Report on Form 10-K for
the year ended May 31, 1994).
3.5 Rights Agreement, dated as of September 15, 1994, between Horizon Healthcare
Corporation and Chemical Trust Company of California, as Rights Agent, specifying the
terms of the rights to purchase Horizon's Series A Junior Participating Preferred
Stock, and the exhibits thereto (incorporated by reference to Exhibit 1 to Horizon's
Registration Statement on Form 8-A dated September 16, 1994).
+5.1 Opinion of Vinson & Elkins L.L.P. regarding the legality of the securities.
+8.1 Opinion of Drinker Biddle & Reath regarding tax matters.
23.1 Consent of Vinson & Elkins L.L.P. (set forth in Exhibit 5.1).
23.2 Consent of Drinker Biddle & Reath (set forth in Exhibit 8.1).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
---------- -------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
*23.3 Consent of Arthur Andersen LLP (Horizon).
*23.4 Consent of Ernst & Young LLP (CMS).
*23.5 Consent of Ernst & Young LLP (Greenery).
*23.6 Consent of BDO Seidman (peopleCARE).
*23.7 Consent of Price Waterhouse LLP (prior CMS).
+23.8 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
+23.9 Consent of Salomon Brothers Inc.
24.1 Powers of Attorney (set forth on signature page).
+99.1 Form of Horizon Proxy.
+99.2 Form of CMS Proxy.
+99.3 Consents of proposed new Horizon directors.
<FN>
------------------------
+Filed herewith.
*To be filed by amendment.
</TABLE>
<PAGE>
EXHIBIT 2.2
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER, dated as of May 23,
1995 (this "Amendment"), is by and among HORIZON HEALTHCARE CORPORATION,
a Delaware corporation ("Acquiror"), CMS MERGER CORPORATION, a Delaware
corporation and wholly owned subsidiary of Acquiror ("Merger Sub"), and
CONTINENTAL MEDICAL SYSTEMS, INC., a Delaware corporation (the "Company").
WHEREAS, the parties to this Amendment are parties to that certain
Agreement and Plan of Merger dated as of March 31, 1995 (the "Merger
Agreement"); and
WHEREAS, the parties hereto desire to amend the Merger Agreement as
hereinafter set forth and to restate the Merger Agreement in its entirety
as set forth in that certain Amended and Restated Agreement and Plan of
Merger dated as of May 23, 1995 attached hereto (the "Restated Merger
Agreement");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Amendment and the Restated Merger Agreement, the parties hereto agree as
follows:
1. Section 2.01 (d) of the Merger Agreement is hereby amended and
restated in its entirety to read as follows:
"(d) Each share of common stock, par value $.001 per share, of
Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into 210,000 shares of common stock, par value
$.01 per share, of the Surviving Corporation."
2. Section 6.12(a) of the Merger Agreement is hereby amended and
restated in its entirety to read as follows:
"(a) The Company hereby agrees to indemnify and hold harmless
Acquiror and its directors and officers, and Acquiror hereby agrees to
indemnify and hold harmless the Company and its directors and officers,
from and against any loss, claim, damage, cost, liability, obligation or
expense (including reasonable attorney's fees and costs of investigation)
to which any indemnified party may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such loss, claim,
<PAGE>
damage, cost, liability, obligation or expense or actions in respect
thereof arises out of or is based upon any untrue statement or alleged
untrue statement of a material fact relating to such indemnifying party
and contained in the Registration Statement or arises out of or is based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein with respect to such indemnifying party not misleading."
3. Section 6.12(c) of the Merger Agreement is hereby amended and
restated in its entirety to read as follows:
"(c) Acquiror shall cause to be maintained in effect until six
years from the Effective Time the current policies of directors' and
officers' liability insurance maintained by the Company (or substitute
policies providing at least the same coverage and limits and containing
terms and conditions that are not materially less advantageous) with
respect to claims arising from facts or events which occurred before the
Effective Time; provided, however that in no event shall Acquiror or the
Company be required to expend more than 200% of the current annual
premiums paid by the Company for such insurance."
4. The Merger Agreement shall be amended as set forth above and restated
in its entirety as set forth in the Restated Merger Agreement attached hereto.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
to be executed as of the date first written above by their respective
officers thereunto duly authorized.
HORIZON HEALTHCARE CORPORATION
By: /s/ ERNEST A. SCHOFIELD
____________________________________
Ernest A. Schofield
Senior Vice President
CMS MERGER CORPORATION
By: /s/ ERNEST A. SCHOFIELD
____________________________________
Ernest A. Schofield
Senior Vice President
CONTINENTAL MEDICAL SYSTEMS, INC.
By: /s/ DAVID G. NATION
____________________________________
David G. Nation
Senior Vice President
<PAGE>
EXHIBIT 5.1
[LETTERHEAD]
May 22, 1995
Horizon Healthcare Corporation
6001 Indian School Road, N.E.
Suite 530
Albuquerque, New Mexico 87110
Ladies and Gentlemen:
We have acted as counsel for Horizon Healthcare Corporation (the
"Company") in connection with the registration of an aggregate of 23,356,067
shares of Common Stock, $.001 par value, of the Company (the "Horizon Common
Stock"), pursuant to a registration statement on Form S-4 (the "Registration
Statement") filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"), relating to the proposed
merger (the "Merger") of CMS Merger Corporation, a wholly owned subsidiary of
the Company ("Merger Sub"), with and into Continental Medical Systems, Inc.
("CMS"), as set forth in that certain Amended and Restated Agreement and Plan
of Merger, dated May 23, 1995, among the Company, Merger Sub and CMS (the
"Merger Agreement"), included in the Registration Statement. In the Merger,
each outstanding share of Common Stock, $.01 par value, of CMS (other than
shares held directly or indirectly by the Company or CMS) will be converted
into the right to receive between .4415 and .5397 shares of Horizon Common
Stock as determined pursuant to the Merger Agreement.
In connection herewith, we have examined the Restated Certificate of
Incorporation and the Amended and Restated Bylaws of the Company, each as
amended to the date hereof, the records of certain corporate proceedings
which have occurred prior to the date hereof, the Registration Statement, and
such other documents, and have made such other investigations, as we
considered necessary for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that the shares of
Horizon Common Stock being registered pursuant to the Registration Statement,
when issued pursuant to the terms of the Merger Agreement as described in the
Registration Statement, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the Act
and the rules and regulations thereunder.
Very truly yours,
/s/ VINSON & ELKINS, L.L.P.
<PAGE>
EXHIBIT 8.1
DRINKER BIDDLE & REATH
[LETTERHEAD]
May 23, 1995
Continental Medical Systems, Inc.
600 Wilson Lane, P.O. Box 715
Mechanicsburg, PA 17055
RE: Amended and Restated Agreement and Plan of
Merger dated as of May 23, 1995 By and
Among Horizon Healthcare Corporation, CMS
Merger Corporation and Continental Medical
Systems, Inc.
------------------------------------------
Ladies and Gentlemen:
As counsel to Continental Medical Systems, Inc. ("CMS") in connection with
the above Amended and Restated Agreement and Plan of Merger (the "Plan"), we
have been asked to give our opinion as to certain Federal income tax
consequences to the stockholders of CMS of the merger (the "Merger")
contemplated in the Plan.
Background
Horizon Healthcare Corporation ("Horizon"), CMS and CMS Merger Corporation
("Merger Sub") are Delaware corporations. Merger Sub is a subsidiary of
Horizon that has been formed solely for the purpose of implementing the Plan.
Pursuant to the Plan, it is contemplated that Merger Sub will be merged with
and into CMS. All outstanding shares of common stock of CMS ("CMS Common
Stock") will be converted into shares of common stock of Horizon ("Horizon
Common Stock") at the conversion ratio set forth in the Plan, except that
cash will be paid in lieu of any fractional shares. The shares of Merger Sub
previously owned by Horizon will be converted into shares of CMS, so that
Horizon will own 100% of the outstanding shares of CMS immediately after the
Merger.
In rendering this opinion, we have reviewed the Plan and the Joint Proxy
Statement/Prospectus (the ""Proxy Statement") of Horizon and CMS, that is
part of the Registration Statement (the "Registration Statement") being filed
with the Securities and Exchange Commission (the "Commission"), regarding the
proposed Merger and have relied upon those documents, including the
representations, warranties, covenants and agreements made by the parties
thereto.
<PAGE>
Continental Medical Systems, Inc.
May 23, 1995
Page 2
Assumptions
For purposes of this opinion, we have, with your permission, made certain
assumptions. You have advised us that you are not aware of any facts
inconsistent with any of these assumptions:
First, there is no plan or intention by the stockholders of CMS who own
five percent (5%) or more of the outstanding CMS Common Stock and, to the
best of the knowledge of the management of CMS, no plan or intention on the
part of the remaining stockholders of CMS to sell, exchange or otherwise
dispose of a number of shares of Horizon Common Stock to be received in the
Merger that would reduce the CMS stockholders' ownership of Horizon Common
Stock to a number of shares having a value, as of the time of the Merger, of
less than fifty percent (50%) of the value of all of the formerly outstanding
stock of CMS immediately prior to the Merger. For purposes of this
assumption, shares of CMS and Horizon stock held by CMS stockholders and
otherwise sold, redeemed or disposed of in anticipation of the Merger, or
subsequent to the Merger pursuant to a plan or intention that existed at the
time of the Merger, also will be taken into account.
Second, following the Merger, CMS will hold at least 90% of the fair
market value of its net assets and at least 70% of the fair market value of
its gross assets held immediately prior to the Merger. For this purpose,
amounts paid to stockholders in lieu of fractional shares, amounts used by
CMS to pay reorganization expenses and all redemptions and distributions made
by CMS will be included as assets of CMS immediately before the Merger.
Third, Horizon has no plan or intention to cause CMS to issue additional
shares of its stock that would result in Horizon losing control of CMS within
the meaning of section 368(c)(1) of the Internal Revenue Code of 1986, as
amended (the "Code").
Fourth, Horizon has no plan or intention to reacquire any of its shares
issued in the Merger.
Fifth, Horizon has no plan or intention following the merger (a) to
liquidate CMS, (b) to merge CMS with or into another corporation, (c)
to sell or otherwise dispose of the stock of CMS except for transfers of
stock to a corporation or corporations controlled by Horizon, or (d) to
cause CMS to sell or otherwise to dispose of any of its assets, except for
dispositions made in the
<PAGE>
Continental Medical Systems, Inc.
May 23, 1995
Page 3
ordinary course of business or transfers of assets to a corporation or
corporations controlled by CMS.
Sixth, following the Merger, CMS will continue its historic business or
use a significant portion of its historic business assets in a business.
Seventh, Horizon, Merger Sub, CMS and the stockholders of CMS will pay
their respective expenses, if any, incurred in connection with the Merger.
Eighth, there is and will be no intercorporate indebtedness between
Horizon and CMS that was issued, acquired or will be settled at a discount.
Ninth, in the Merger, shares of CMS Common Stock, representing control of
CMS, as defined in section 368(c)(1) of the Code, will be exchanged for
shares of Horizon Common Stock. For purposes of this paragraph, shares of CMS
Common Stock exchanged for cash in lieu of fractional shares will be treated
as outstanding shares of CMS Common Stock on the date of the Merger.
Tenth, except for fifteen (15) shares of CMS Common Stock, Horizon does
not own, nor has it owned during the past five years, any stock of CMS.
Eleventh, at the time of the Merger the fair market value of the assets of
CMS will equal or exceed the sum of its liabilities plus the amount of
liabilities, if any, to which such assets are subject.
Twelfth, CMS is not under the jurisdiction of a court in a case under
Title 11 of the United States Code or a receivership, foreclosure or similar
proceeding in any Federal or State court.
Thirteenth, the payment of cash in lieu of fractional shares of Horizon
stock is solely for the purpose of avoiding the expense and inconvenience to
Horizon of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid in
the transaction to CMS stockholders instead of issuing fractional shares of
Horizon stock will not exceed 1% of the total consideration that will be
issued in the transaction to the CMS stockholders in exchange for their
shares of CMS stock.
Fourteenth, none of the compensation received by any shareholder-employees
of CMS will be separate consideration for,
<PAGE>
Continental Medical Systems, Inc.
May 23, 1995
Page 4
or allocable to, any of their shares of CMS stock; none of the shares of
Horizon stock received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees will be for services actually
rendered and will be commensurate with amounts paid to third-parties
bargaining at arms-length for similar services.
Fifteenth, the Plan substantially in the form included as an exhibit in the
Proxy Statement will be duly authorized by the parties and approved by the
stockholders of Horizon and CMS, and the appropriate documents will be filed
with the appropriate government agencies.
Conclusions
Based upon the Code, applicable Treasury Department regulations in effect
as of the date hereof, current published administrative positions of the
Internal Revenue Service contained in revenue rulings and procedures, and
judicial decisions, and upon the information, representations and assumptions
contained herein and in the documents provided to us by you (including the
Proxy Statement and the Plan), it is our opinion for Federal income tax
purposes that:
(i) the merger of Merger Sub into CMS pursuant to the Merger will
constitute a reorganization within the meaning of sections 368(a)(1)(A) and
368(a)(2)(E) of the Code, and Horizon, Merger Sub and CMS will each be a
party to the reorganization within the meaning of section 368(b) of the Code;
(ii) in accordance with section 354(a)(1) of the Code, no gain or loss will
be recognized by the stockholders of CMS on the receipt by them of shares of
Horizon Common Stock in exchange for their shares of CMS Common Stock, other
than with respect to cash received in lieu of fractional shares of Horizon
Common Stock;
(iii) in accordance with section 358(a)(1) of the Code, the aggregate basis
of the Horizon Common Stock shares received by each stockholder of CMS will
be the same as the aggregate basis of the stockholder's shares of CMS Common
Stock immediately prior to the Merger (other than basis allocable to cash
received in lieu of fractional shares); and
<PAGE>
Continental Medical Systems, Inc.
May 23, 1995
Page 5
(iv) in accordance with section 1223(1) of the Code, a stockholder's
holding period for shares of Horizon Common Stock will be determined by
including the period for which the stockholder held the shares of CMS Common
Stock exchanged therefor, provided that the stockholder held such shares of
CMS Common Stock as a capital asset.
We express no opinion relating to any Federal income tax matter except on
the basis of the documents and assumptions described above. In issuing our
opinion, we have relied solely upon existing provisions of the Code, existing
and proposed regulations thereunder, and current administrative positions
and judicial decisions. Such laws, regulations, administrative positions and
judicial decisions are subject to change at any time. Any such change could
affect the validity of the opinion set forth above.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to our firm under the captions
"THE MERGER -- Certain Federal Income Tax Consequences" and "LEGAL MATTERS" in
the Proxy Statement. This does not constitute a consent under section 7 of
the Securities Act of 1933, and in consenting to such references to our firm
we have not certified any part of the Registration Statement and do not
otherwise come within the categories of persons whose consent is required
under section 7 or under the rules and regulations of the Commission issued
thereunder.
Very truly yours,
/s/ Drinker Biddle & Reath
DRINKER BIDDLE & REATH
<PAGE>
EXHIBIT 23.8
CONSENT OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
We hereby consent to the use of our draft opinion letter to the Board of
Directors of Continental Medical Systems, Inc. ("CMS") included as Appendix C to
the Joint Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of CMS Merger Corporation,
a wholly owned subsidiary of Horizon Healthcare Corporation, with and into CMS
and to the references to such opinion in such Joint Proxy Statement/Prospectus
under the captions "Summary -- Opinions of Financial Advisors", "Summary -- The
Merger and the Merger Agreement -- Opinions of Financial Advisors", "The Merger
-- CMS's Reasons for the Merger; Recommendation of Board of Directors of CMS"
and "The Merger -- Background". In giving such consent, we do not admit and we
hereby disclaim that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
/s/ MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
May 23, 1995
<PAGE>
EXHIBIT 23.9
CONSENT OF SALOMON BROTHERS INC
We hereby consent to the use of our name and to the description of our
opinion letters under the caption "THE MERGER -- Opinions of Financial Advisors"
in, and to the inclusion of our draft opinion letter as Appendix B to, the Joint
Proxy Statement/Prospectus of Horizon Healthcare Corporation and Continental
Medical Systems, Inc., which Joint Proxy Statement/Prospectus is part of the
Registration Statement on Form S-4 of Horizon Healthcare Corporation. By giving
such consent we do not thereby admit that we are experts with respect to any
part of such Registration Statement within the meaning of the term "expert" as
used in, or that we come within the category of persons whose consent is
required under, the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
/s/ SALOMON BROTHERS INC
New York, New York
May 23, 1995
<PAGE>
PROXY
HORIZON HEALTHCARE CORPORATION
SPECIAL MEETING OF STOCKHOLDERS - JUNE 27, 1995
THIS PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned appoints Klemett L. Belt, Jr. and Michael H. Seeliger as
Proxies, each with the power to appoint his substitute, and hereby authorizes
each of them to represent and to vote as designated below, all the shares of
Common Stock of Horizon Healthcare Corporation, held of record by the
undersigned on May 19, 1995, at the Special Meeting of Stockholders of Horizon
Healthcare Corporation to be held on June 29, 1995 at the Albuquerque Marriott
Hotel at 2102 Louisiana Ave., N.E., Albuquerque, New Mexico, commencing at
10:00 a.m., local time, or any adjournment(s) or postponement(s) thereof.
The undersigned hereby revokes any proxy to vote said shares heretofore
given. THE UNDERSIGNED ACKNOWLEDGES THAT THIS PROXY WHEN PROPERLY EXECUTED WILL
BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER AND THAT
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED IN FAVOR OF PROPOSALS 1 AND 2.
Please sign exactly as your name appears on your stock certificates. When
shares are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
(continued on reverse side)
-------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
--------------------
I plan to attend
the meeting.
(Please check if yes)
/ /
--------------------
1. Approval and adoption of the Amended and Restated Agreement and Plan of
Merger described in the accompanying Joint Proxy Statement/Prospectus.
FOR AGAINST ABSTAIN
/ / / / / /
2. Approval, subject to consummation of the Merger, of the Amendment to
the Restated Certificate of Incorporation
FOR AGAINST ABSTAIN
/ / / / / /
3. In their discretion, the proxies are authorized to vote upon other
business as may properly come before the meeting, or any adjournment(s) or
postponement(s) thereof.
If you receive more than one proxy card, please sign and return all
cards in the accompanying envelope.
Date , 1995
--------------------------------
------------------------------------------
Signature
------------------------------------------
Signature if held jointly
This proxy may be revoked at any time prior to the voting of the proxy by the
execution and submission of a revised proxy, by written notice to the Secretary
of the Company or by voting in person at the meeting.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE
-------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
EXHIBIT 99.2
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
CONTINENTAL MEDICAL SYSTEMS, INC.
600 WILSON LANE MECHANICSBURG, PA 17055
The undersigned holder of Common Stock of Continental Medical Systems,
Inc. (the "Corporation"), revoking all prior proxies, hereby appoints Rocco
A. Ortenzio, Robert A. Ortenzio and David G. Nation, and each of them acting
individually, as the attorney and proxy of the undersigned, with full power
of substitution, to vote all shares of Common Stock of the Corporation which
the undersigned would be entitled to vote if personally present at the
special meeting of the stockholders of the Corporation to be held at the
offices of the Corporation, 600 Wilson Lane, Mechanicsburg, Pennsylvania,
17055 at 11:00 a.m. on June 29, 1995, and at any adjournment(s) and
postponement(s) thereof. Said proxies are specifically authorized and
directed to vote as indicated with respect to the matters set forth on the
reverse hereof.
(continued and to be signed on other side)
FOLD AND DETACH HERE
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDERS. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" PROPOSALS 1 AND 2.
1. Proposal to approve and adopt the Amended and Restated Agreement and Plan
of Merger dated as of May 23, 1995 among the Corporation, Horizon Healthcare
Corporation and CMS Merger Corporation and the merger of CMS Merger
Corporation with and into the Corporation.
FOR AGAINST ABSTAIN
/ / / / / /
2. In their discretion upon the transaction of such other business as may
properly come before the meeting, and any adjournment(s) or postponement(s)
thereof.
Please sign exactly as your name(s)
appear(s) below. When shares are held
by joint tenants, both should sign.
When signing as attorney-in-fact,
executor, administrator, trustee, or
guardian, please give full title as
such. If a corporation, please sign in
full corporate name by President or
other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
Dated _________________________, 1995
______________________________________
Signature
______________________________________
Signature if held jointly
Please SIGN, DATE and RETURN the proxy
card promptly in the enclosed
envelope.
"PLEASE MARK INSIDE BLUE BOXES SO THAT DATA
PROCESSING EQUIPMENT WILL RECORD YOUR VOTES"
FOLD AND DETACH HERE
<PAGE>
EXHIBIT 99.3
CONSENT
I anticipate becoming a director of Horizon Healthcare Corporation
("Horizon") upon consummation of the proposed merger of Continental Medical
Systems, Inc. with a subsidiary of Horizon, and hereby consent to the
reference to me and my becoming a director of Horizon which is included in
the Registration Statement on Form S-4 relating to such merger and in the
related Joint Proxy Statement/Prospectus included therein, and further
consent to the filing of this consent as an exhibit to said Registration
Statement.
/s/ ROCCO A. ORTENZIO
---------------------------
Rocco A. Ortenzio
May 22, 1995
<PAGE>
CONSENT
I anticipate becoming a director of Horizon Healthcare Corporation
("Horizon") upon consummation of the proposed merger of Continental Medical
Systems, Inc. with a subsidiary of Horizon, and hereby consent to the
reference to me and my becoming a director of Horizon which is included in
the Registration Statement on Form S-4 relating to such merger and in the
related Joint Proxy Statement/Prospectus included therein, and further
consent to the filing of this consent as an exhibit to said Registration
Statement.
/s/ ROBERT A. ORTENZIO
---------------------------
Robert A. Ortenzio
May 22, 1995
<PAGE>
CONSENT
I anticipate becoming a director of Horizon Healthcare Corporation
("Horizon") upon consummation of the proposed merger of Continental Medical
Systems, Inc. with a subsidiary of Horizon, and hereby consent to the
reference to me and my becoming a director of Horizon which is included in
the Registration Statement on Form S-4 relating to such merger and in the
related Joint Proxy Statement/Prospectus included therein, and further
consent to the filing of this consent as an exhibit to said Registration
Statement.
/s/ RUSSELL L. CARSON
---------------------------
Russell L. Carson
May 22, 1995
<PAGE>
CONSENT
I anticipate becoming a director of Horizon Healthcare Corporation
("Horizon") upon consummation of the proposed merger of Continental Medical
Systems, Inc. with a subsidiary of Horizon, and hereby consent to the
reference to me and my becoming a director of Horizon which is included in
the Registration Statement on Form S-4 relating to such merger and in the
related Joint Proxy Statement/Prospectus included therein, and further
consent to the filing of this consent as an exhibit to said Registration
Statement.
/s/ BRIAN C. CRESSEY
---------------------------
Brian C. Cressey
May 22, 1995
<PAGE>
CONSENT
I anticipate becoming a director of Horizon Healthcare Corporation
("Horizon") upon consummation of the proposed merger of Continental Medical
Systems, Inc. with a subsidiary of Horizon, and hereby consent to the
reference to me and my becoming a director of Horizon which is included in
the Registration Statement on Form S-4 relating to such merger and in the
related Joint Proxy Statement/Prospectus included therein, and further
consent to the filing of this consent as an exhibit to said Registration
Statement.
/s/ LEROY S. ZIMMERMAN
---------------------------
LeRoy S. Zimmerman
May 22, 1995
