<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 2)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
Veterinary Centers of America, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$61,208
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(2) Form, Schedule or Registration Statement No.:
Schedule 14A
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(3) Filing Party:
Veterinary Centers of America, Inc.
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(4) Date Filed:
May 30, 2000
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<PAGE>
[LOGO OF VCA]
Dear Stockholder: August 14, 2000
You are cordially invited to attend a special meeting of stockholders of
Veterinary Centers of America, Inc. to be held at VCA's offices at 12401 West
Olympic Boulevard, Los Angeles, California 90064, on September 19, 2000 at
10:00 a.m., Los Angeles time.
At the special meeting, we are asking you to consider and vote upon the
transfer of all of VCA's assets, properties, business operations and
liabilities, the "Asset Drop Down," to Vicar Operating, Inc., a Delaware
corporation and wholly owned by VCA, and an Amended and Restated Agreement and
Plan of Merger, dated August 11, 2000, providing for the Asset Drop Down and
the merger of VCA with Vicar Recap, Inc., a Delaware corporation and wholly
owned by Green Equity Investors III, L.P., with VCA as the surviving
corporation, which we will refer to as the "Surviving Company." We will refer
to Vicar Operating, Inc. and Vicar Recap, Inc. as "Vicar Operating" and "Vicar
Recap," respectively. Pursuant to the Merger Agreement, you will be entitled
to receive $15.00 in cash, without interest, for each of your shares of VCA
common stock. In connection with the Merger, 133,333 shares of VCA common
stock or a lesser amount, subject to the consent of Vicar Recap, held by
Robert L. Antin, Chief Executive Officer of VCA, will remain outstanding as
shares of common stock of the Surviving Company. Certain other members of
management and employees of VCA will retain shares of VCA common stock as
common stock of the Surviving Company or provide other consideration of
equivalent value to acquire, in the aggregate, approximately 133,333 shares of
common stock of the Surviving Company. We will refer to Robert L. Antin and
the certain other members of management and employees of VCA as the
"Continuing Stockholders." The Continuing Stockholders will receive $15.00 per
share for any of their shares that they do not retain as shares of the
Surviving Company. In addition, the Continuing Stockholders will receive for
their outstanding options (except those options which may be tendered for
common stock of the Surviving Company or which may be assumed by the Surviving
Company pursuant to any written agreements entered into between them and Vicar
Recap) the difference between $15.00 per share and the per share exercise
prices of their options. As a result, upon completion of the Merger (after
taking into account the issuance of employee incentive options and warrants to
be issued in connection with financing the Merger), Green Equity Investors
III, L.P., along with certain other investors, and the Continuing Stockholders
will own, in the aggregate, approximately 94.25% of the common stock of the
Surviving Company, on a fully diluted basis. The accompanying proxy statement
provides detailed information about the proposed Merger. We encourage you to
read the entire proxy statement, including the annexes, completely and
carefully.
The board of directors of VCA, acting on the unanimous recommendation of a
special committee, composed of directors with no financial interest in the
Merger that is different from the interests of VCA stockholders generally, has
unanimously approved the Merger Agreement, the Asset Drop Down and the
transactions contemplated thereby. The special committee and the entire board
of directors believe that the terms and provisions of the Merger Agreement are
fair and in your best interest. Therefore, THE BOARD OF DIRECTORS, ACTING UPON
THE RECOMMENDATION OF THE SPECIAL COMMITTEE, RECOMMENDS THAT YOU VOTE IN FAVOR
OF THE ADOPTION OF THE MERGER AGREEMENT, THE ASSET DROP DOWN AND THE
TRANSACTIONS CONTEMPLATED THEREBY. In reaching its decision, the Board of
Directors considered, among other things, the written opinions of Jefferies &
Company, Inc. and Houlihan Lokey Howard & Zukin Capital, that the $15.00 per
share cash consideration to be received by you in the proposed Merger is fair
to you from a financial point of view.
<PAGE>
Your vote is very important. The proposed Merger cannot occur unless, among
other things, both the Merger Agreement and the Asset Drop Down are adopted by
the affirmative vote of the holders of a majority of outstanding shares of
common stock of VCA. Whether or not you plan to attend the special meeting, we
urge you to sign, date and promptly return the enclosed proxy card. YOUR
FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST ADOPTION OF
THE MERGER AGREEMENT, THE ASSET DROP DOWN AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
Sincerely,
/s/ Robert L. Antin
Robert L. Antin
CHAIRMAN OF THE BOARD OF DIRECTORS
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
2
<PAGE>
VETERINARY CENTERS OF AMERICA, INC.
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held September 19, 2000
----------------
To Our Stockholders:
Notice is hereby given that a special meeting of stockholders of Veterinary
Centers of America, Inc., which we will refer to as "VCA," will be held at
VCA's offices at 12401 West Olympic Boulevard, Los Angeles, California 90064,
on September 19, 2000 at 10:00 a.m., Los Angeles time. The special meeting is
being held for the following purposes:
1. To consider and vote on proposals to approve and adopt the transfer of
all of VCA's assets, properties, business operations and liabilities to
Vicar Operating, Inc., wholly owned by VCA, which we will refer to as
the "Asset Drop Down," and to approve and adopt the Amended and Restated
Agreement and Plan of Merger, dated as of August 11, 2000, by and among
VCA, Vicar Operating, Inc. and Vicar Recap, Inc., and the transactions
contemplated thereby. Pursuant to the Merger Agreement:
. VCA will transfer all of its assets, business operations and
liabilities to Vicar Operating in the Asset Drop Down;
. At the effective time, Vicar Recap will merge with and into VCA,
with VCA as the "Surviving Company";
. Robert L. Antin, the Chief Executive Officer of VCA, will agree to
have 133,333 shares of VCA common stock or a lesser amount, subject
to the consent of Vicar Recap, remain outstanding as shares of
common stock of the Surviving Company;
. Certain other members of management and employees of VCA will retain
shares of VCA common stock as common stock of the Surviving Company
or provide other consideration of equivalent value to acquire, in
the aggregate, approximately 133,333 shares of common stock of the
Surviving Company; and
. All issued and outstanding shares of common stock, par value $0.001
per share, of VCA (other than shares held by the Continuing
Stockholders (as defined below) that are retained as shares of the
Surviving Company, shares held by dissenting stockholders, Green
Equity Investors III, L.P. and Vicar Recap, and shares held in VCA's
treasury) will be cancelled and converted automatically into the
right to receive a cash payment per share, without interest, of
$15.00.
We collectively refer to the foregoing transactions as the "Merger." Robert
L. Antin and certain other members of management and employees of VCA who will
be acquiring shares of common stock of the Surviving Company will be
collectively referred to as the "Continuing Stockholders." As a result of the
Merger (after taking into account the issuance of employee incentive options
and warrants to be issued in connection with financing the Merger), Green
Equity Investors III, L.P. (along with certain other investors) and the
Continuing Stockholders will own approximately 71.75% and 22.5%, respectively,
on a fully diluted basis, of the common stock of the Surviving Company. The
transfer of VCA's assets to Vicar Operating will not occur unless the Merger
occurs.
2. To transact such other business as may properly come before the special
meeting or any adjournments or postponements thereof.
The consummation of the Merger requires the approval and adoption of both
the Merger Agreement and the Asset Drop Down. In addition, the consummation of
the Merger is a condition to the consummation of the Asset Drop Down.
Accordingly, the consummation of the Asset Drop Down and the transactions
contemplated by the Merger Agreement are dependent upon the approval and
adoption of each other.
<PAGE>
The board of directors of VCA, acting upon the unanimous recommendation of
a special committee of the board of directors, comprised of directors with no
financial interest in the Merger that is different from the interests of VCA
stockholders generally, has determined that the Merger is fair and in the best
interests of VCA's public stockholders. Accordingly, the board of directors
has unanimously approved, and recommends that you vote in favor of, the
approval and adoption of the Merger Agreement, the Asset Drop Down and the
transactions contemplated thereby at the special meeting.
The Merger is an important matter and is described in detail in the
accompanying proxy statement. Please read the proxy statement, including the
annexes thereto, carefully. In addition, you may obtain information about VCA
from documents that VCA has filed with the Securities and Exchange Commission,
including the Schedule 13E-3 transaction statement filed in connection with
the proposed Merger. A copy of the Merger Agreement is attached as Annex A to
the proxy statement.
Only stockholders of record of VCA common stock at the close of business on
August 9, 2000 are entitled to notice of, and to vote at, the special meeting
or any adjournments or postponements thereof. A list of these stockholders
will be available for review at VCA's principal executive office during normal
business hours for a period of ten days prior to the special meeting.
Stockholders of VCA who do not vote in favor of approval and adoption of
the Merger Agreement will have the right to seek appraisal of the fair value
of their shares if the Merger is completed, but only if they submit a written
demand for an appraisal prior to the taking of the vote on the Merger
Agreement and they comply with the other Delaware law procedures explained in
the accompanying proxy statement.
We welcome your attendance at the special meeting. Whether or not you
expect to attend the special meeting in person, we urge you to complete, sign,
date and promptly return the enclosed proxy card in the accompanying return
envelope. Your proxy is revocable and will not affect your right to vote in
person if you decide to attend the special meeting. Simply attending the
special meeting, however, will not revoke your proxy. For an explanation of
the procedures for revoking your proxy, see the section of the proxy statement
captioned "The Special Meeting--Voting, Revocation, and Solicitation of
Proxies." Returning your proxy card without indicating how you want to vote
will have the same effect as a vote FOR the approval and adoption of the
Merger Agreement, the Asset Drop Down and the transactions contemplated
thereby.
Failure to return a properly executed proxy card or vote in person at the
special meeting will have the same effect as a vote against the approval and
adoption of the Merger Agreement, the Asset Drop Down and the transactions
contemplated thereby.
Our principal executive offices are located at 12401 West Olympic
Boulevard, Los Angeles, California 90064. Our telephone number is (310) 584-
6500. This proxy statement is dated August 14, 2000 and is first being mailed
to stockholders on or about August 15, 2000.
By Order of the Board of Directors
/s/ Arthur J. Antin
Arthur J. Antin
Secretary
Los Angeles, California 90064
August 14, 2000
YOUR VOTE IS IMPORTANT. IN ORDER TO ENSURE YOUR REPRESENTATION AT THE
SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY
IN THE ENCLOSED ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU DO ATTEND THE SPECIAL
MEETING AND ARE A STOCKHOLDER OF RECORD, YOU MAY, IF YOU PREFER, VOTE YOUR
SHARES IN PERSON.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY................................................................... 4
The Participants........................................................ 4
Our Recommendations to Stockholders..................................... 5
Record Date; Voting Power............................................... 5
Share Ownership of Certain Stockholders and Management.................. 5
The Merger Agreement.................................................... 6
Appraisal Rights........................................................ 6
Interests of VCA Directors and Officers in the Merger................... 6
Recommendations; Fairness of the Merger................................. 7
Fairness Opinions....................................................... 7
Effects of the Merger................................................... 7
Conditions to the Merger................................................ 8
Termination of the Merger Agreement..................................... 8
What Happens if VCA Receives a Better Offer............................. 8
Payment of Fees Upon Other Termination Events........................... 8
Amending or Waiving Terms of the Merger Agreement....................... 9
Regulatory Approvals.................................................... 9
Financing for the Merger................................................ 9
Litigation Related to the Merger........................................ 9
Price Range of Common Stock............................................. 10
Cautionary Statement Regarding Forward-Looking Statements............... 10
SUMMARY SELECTED HISTORICAL FINANCIAL DATA................................ 11
THE SPECIAL MEETING....................................................... 12
Time, Place and Date.................................................... 12
Record Date and Voting.................................................. 12
Voting, Revocation and Solicitation of Proxies.......................... 12
Appraisal Rights........................................................ 13
SPECIAL FACTORS........................................................... 14
Background of the Merger................................................ 14
Recommendations of the Special Committee and the Board of Directors;
Fairness of the Merger................................................. 21
Opinion of Jefferies & Company, Inc..................................... 25
Opinion of Houlihan Lokey Howard & Zukin Capital........................ 31
The Green Entities', the Management Continuing Stockholders' and Vicar
Operating's Reasons for the Merger .................................... 34
Positions of the Green Entities, the Management Continuing Stockholders
and Vicar Operating as to the Fairness of the Merger................... 35
Structure of the Merger................................................. 37
Effects of the Merger................................................... 38
Risk that the Merger will not be Completed.............................. 39
Interests of VCA Directors and Officers in the Merger................... 39
Financing for the Merger................................................ 44
Certain Litigation Related to the Merger................................ 48
Accounting Treatment of the Merger...................................... 48
Certain Federal Regulatory Matters...................................... 48
Material Federal Income Tax Consequences of the Merger.................. 49
Appraisal Rights........................................................ 50
</TABLE>
i
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE MERGER AGREEMENT..................................................... 54
Structure, Timing...................................................... 54
Consideration to be Received in the Merger............................. 54
Exchange of Stock Certificates......................................... 55
Representations and Warranties......................................... 55
Certain Covenants...................................................... 56
Conditions to Obligations to Effect the Merger......................... 59
Termination; Termination Fees and Expenses............................. 61
Amendment and Waiver................................................... 61
Rights Agreement....................................................... 61
EXPENSES................................................................. 62
PRICE RANGE OF COMMON STOCK.............................................. 63
DIVIDENDS................................................................ 63
COMMON STOCK PURCHASE INFORMATION........................................ 63
INFORMATION ABOUT VICAR RECAP, INC., GREEN EQUITY INVESTORS III, L.P. AND
GEI CAPITAL III, LLC.................................................... 64
INFORMATION ABOUT VICAR OPERATING, INC................................... 65
DIRECTORS AND EXECUTIVE OFFICERS OF VCA.................................. 65
Directors.............................................................. 65
Executive Officers..................................................... 66
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT AND OTHERS...... 67
INDEPENDENT PUBLIC ACCOUNTANTS........................................... 68
OTHER MATTERS............................................................ 68
FUTURE STOCKHOLDER PROPOSALS............................................. 68
WHERE YOU CAN FIND MORE INFORMATION...................................... 68
ANNEXES..................................................................
Amended and Restated Agreement and Plan of Merger...................... A
Opinion of Jefferies & Company, Inc.................................... B
Opinion of Houlihan Lokey Howard & Zukin Capital....................... C
Voting Agreement....................................................... D
Section 262 of the General Corporation Law of the State of Delaware.... E
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are for your convenience only, and
briefly address some commonly asked questions about the Merger. You should
still carefully read this proxy statement in its entirety, including the
attached annexes.
Q: What am I being asked to vote upon?
A: You are being asked to approve and adopt an Amended and Restated Merger
Agreement that provides for Vicar Recap, Inc., a newly formed Delaware
corporation formed by Green Equity Investors III, L.P., to be merged with
and into VCA, with VCA as the surviving corporation. Further, you are being
asked to approve and adopt the Asset Drop Down, by which VCA will transfer
all of its assets, properties, business operations and liabilities to Vicar
Operating as provided for in the Merger Agreement. If the Merger Agreement
and the Asset Drop Down are approved and adopted, we will no longer be a
publicly-held corporation.
Q: What is the proposed transaction?
A: In the proposed transaction, Vicar Recap will merge with and into VCA, with
VCA being the surviving corporation. As a result of the Merger, (after
giving effect to the issuance of employee incentive options and warrants to
be issued to GS Mezzanine Partners II, L.P. and other mezzanine lenders),
Green Equity Investors III, L.P., an affiliate of Leonard Green & Partners,
L.P., along with certain other investors, and certain members of management
and employees of VCA, which we will refer to as the "Continuing
Stockholders," will own, in the aggregate, approximately 94.25%, on a fully
diluted basis, of the common stock of the Surviving Company. All holders of
VCA common stock will receive $15.00 in cash for each of their shares, other
than shares held by Vicar Recap and Green Equity, shares held in VCA's
treasury, shares retained by the Continuing Stockholders, and shares held by
stockholders who properly perfect appraisal rights under Delaware law.
Q: Why is the board of directors recommending that I vote in favor of the
Merger Agreement and the Asset Drop Down?
A: The board of directors, acting upon the unanimous recommendation of the
special committee, composed of directors with no financial interest in the
Merger that is different from the interests of VCA stockholders generally,
has unanimously determined that the Merger is fair and in the best interests
of the VCA public stockholders, and accordingly unanimously recommends that
stockholders vote FOR the approval and adoption of the Merger Agreement, the
Asset Drop Down and the transactions contemplated thereby.
Q: What will I receive in the Merger?
A: If the Merger is completed, you will have the right to receive a payment of
$15.00 in cash, without interest, for each share of your VCA common stock.
Q: What will happen to present members of management?
A: We expect all members of our current management to continue to serve as
officers and employees of VCA. Members of management will be entitled to
receive $15.00 per share in cash for each of their shares of VCA common
stock, other than the shares that they retain as Continuing Stockholders.
Like all other VCA employees, members of management will receive for their
outstanding options an amount equal to the difference, if any, between the
$15.00 per share Merger consideration and the per share exercise price of
their options, other than any options that they may exchange for common
stock of the Surviving Company in the Merger or that are assumed by the
Surviving Company pursuant to written agreements between Vicar Recap and the
holders of these options. In addition, 133,333 shares of VCA common stock or
a lesser amount, subject to the consent of Vicar Recap, held by Robert L.
Antin will remain outstanding as common stock of the Surviving Company. The
other Continuing Stockholders will retain VCA common stock as common stock
of the Surviving Company or provide consideration of equivalent value
to acquire, in the aggregate, approximately 133,333 shares of common stock
of the Surviving Company.
<PAGE>
Q: When do you expect the Merger to be completed?
A: We are working toward completing the Merger as quickly as possible. In
addition to stockholder approvals, we must obtain certain regulatory
approvals. We hope to complete the Merger by the end of the third quarter of
2000.
Q: Will I owe any federal income tax as a result of the Merger?
A: The receipt of cash for shares of common stock in the Merger will be a
taxable transaction for federal income tax purposes and may also be a
taxable transaction under applicable state, local, foreign or other tax
laws. Generally, you will recognize gain or loss for these purposes equal to
the difference between the cash received in connection with the Merger and
your tax basis for the shares of common stock that you owned immediately
prior to the Merger. For federal income tax purposes, this gain or loss
generally would be a capital gain or loss if you held the shares of common
stock as a capital asset.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR
TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER
TO YOU.
Q: When and where is the special meeting?
A: The special meeting of VCA stockholders will be held on September 19, 2000
at VCA's offices at 12401 West Olympic Boulevard, Los Angeles, California
90064 at 10:00 a.m. local time.
Q: Who can vote on the Merger Agreement and the Asset Drop Down?
A: Holders of VCA's common stock at the close of business on August 9, 2000,
the record date relating to the special meeting, may vote in person or by
proxy on the Merger Agreement and the Asset Drop Down at the special
meeting.
Q: What vote is required to approve the Merger Agreement and the Asset Drop
Down?
A: The Merger Agreement and the Asset Drop Down must be approved by the
affirmative vote of at least a majority of the outstanding shares of common
stock. In addition, the approval and adoption of the Merger Agreement and
the Asset Drop Down are dependent on the approval and adoption of each
other. Pursuant to the Merger Agreement, Robert L. Antin has entered into a
voting agreement agreeing to vote his shares in favor of the Merger. Certain
other members of management of VCA may also enter into voting agreements
agreeing to vote their shares in favor of the Merger.
As of the record date, the total number of shares of common stock with
respect to which a vote in favor of the Merger is required was
10,922,586 shares, representing approximately 50.1% of the total number of
shares of common stock outstanding as of such date.
Q: What do I need to do now?
A: After you have carefully reviewed this proxy statement, including the
attached annexes, please indicate how you want to vote on your proxy card
and sign and mail it in the enclosed return envelope as soon as possible.
This will ensure that your shares will be represented at the special
meeting. If you sign and send in the proxy card and do not indicate how you
want to vote, your proxy will be voted FOR the approval and adoption of the
Merger Agreement, the Asset Drop Down and the transactions contemplated
thereby. If you do not vote by either sending in your proxy card or voting
in person at the special meeting, it will have the same effect as a vote
AGAINST the approval and adoption of the Merger Agreement, the Asset Drop
Down and the transactions contemplated thereby.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide written instructions
as to how to vote your shares. You should follow the directions provided by
your broker regarding how to
2
<PAGE>
instruct your broker to vote your shares. Without instructions, your shares
will not be voted by that broker and the failure to vote will have the same
effect as a vote AGAINST the approval and adoption of the Merger Agreement,
the Asset Drop Down and the transactions contemplated thereby.
Q: Is the Merger subject to the fulfillment of certain conditions?
A: Yes. The consummation of the Asset Drop Down is a condition to the
consummation of the Merger. In addition, prior to completion of the
transactions contemplated by the Merger Agreement, we and Vicar Recap must
fulfill or waive, if permissible, several conditions. These conditions
include, among others, obtaining all financing necessary to complete the
transactions contemplated by the Merger Agreement and all financing
reasonably necessary to continue the business of VCA as it is currently
being conducted.
Q: What rights do I have to dissent from the Merger?
A: If you wish, you may dissent from the Merger and seek an appraisal of the
fair value of your shares, but only if you comply with all requirements of
Delaware law summarized on pages 50 through 53 of this proxy statement.
Based on the determination of the Delaware Chancery Court, the appraised
fair value of your VCA shares of common stock may be more than, less than or
equal to the $15.00 per share to be paid in the Merger.
Q: Can I change my vote after I have mailed my signed proxy card?
A: Yes. You can change your vote at any time before the vote is taken at the
special meeting. If you are the record holder of your shares, you can do
this in one of the following three ways:
. You can send a written notice dated later than your proxy card stating
that you would like to revoke your current proxy.
. You can complete and submit a new proxy card dated later than your
original proxy card.
If you choose either of the above two methods, you must submit your notice
of revocation or your new proxy card to the Secretary of VCA at 12401 West
Olympic Boulevard, Los Angeles, California 90064. VCA must receive the
notice or new proxy card before the vote is taken at the special meeting.
. You can attend the special meeting and vote in person.
Simply attending the special meeting, however, will not revoke your proxy.
If you hold your shares in "street name" and have instructed a broker to
vote your shares, you must follow the directions received from your broker
as to how to change your vote.
Q: Should I send in my stock certificates now?
A: No. If the Merger is completed, we will promptly send you written
instructions for sending in your stock certificates in exchange for the
$15.00 cash payment for your shares.
Q: Who can help answer my questions?
A: The information provided above in "question and answer" format is for your
convenience only and is merely a summary of the information contained in
this proxy statement. You should carefully read this proxy statement,
including the attached annexes, in its entirety.
If you have more questions about the Merger you should contact:
MacKenzie Partners, Inc.
156 5th Ave.
New York, NY 10010
(800) 322-2885
or
(212) 929-5500 (call collect)
3
<PAGE>
SUMMARY
This summary only highlights selected information contained elsewhere in
this proxy statement and may not contain all of the information that is
important to you. To fully understand the Merger and for a description of the
legal terms of the Merger, you should carefully read this entire proxy
statement, including its annexes, and the documents to which we have referred
you. See "Where You Can Find More Information" on page 68.
The Participants
Veterinary Centers of America, Inc.
12401 West Olympic Boulevard
Los Angeles, California 90064
Telephone: (310) 584-6500
Veterinary Centers of America, Inc., a Delaware corporation, was founded in
1986 and is a leading animal health care company. VCA has established a
premier position in two core businesses, animal hospitals and veterinary
diagnostic laboratories. VCA operates the largest network of freestanding,
full-service animal hospitals in the country and the largest network of
veterinary-exclusive laboratories in the nation. As of June 30, 2000, VCA
operated 197 animal hospitals in 29 states.
VCA's animal hospitals offer a full range of general medical and surgical
services for companion animals. VCA's veterinary laboratories, servicing over
13,000 animal hospitals in all 50 states, offer a full range of diagnostic and
reference tests.
Vicar Operating, Inc.
12401 West Olympic Boulevard
Los Angeles, California 90064
Telephone: (310) 584-6500
Vicar Operating, Inc. , a Delaware corporation and a wholly owned
subsidiary of VCA, was formed on March 29, 2000, solely for purposes of
completing the Asset Drop Down. We will refer to Vicar Operating, Inc. as
"Vicar Operating" throughout this proxy statement. Pursuant to the Merger
Agreement, VCA will transfer all of its assets, properties, business
operations and liabilities to Vicar Operating prior to completing the Merger.
Vicar Operating has not carried on any activities to date other than
activities incident to its formation and as contemplated by the Merger
Agreement.
Vicar Recap, Inc.
11111 Santa Monica Boulevard
Los Angeles, California 90025
Telephone: (310) 954-0444
Vicar Recap, Inc., a Delaware corporation, is the entity that will be
merged with VCA in the Merger. We will refer to Vicar Recap, Inc. as "Vicar
Recap" throughout this proxy statement. Vicar Recap was formed on March 29,
2000 solely for the purpose of completing the Merger. Vicar Recap has not
carried on any activities to date other than those activities incident to its
formation and as contemplated by the Merger Agreement.
Green Equity Investors III, L.P.
11111 Santa Monica Boulevard
Los Angeles, California 90025
Telephone: (310) 954-0444
Green Equity Investors III, L.P., a Delaware limited partnership, is a
private investment fund that was formed in 1998 by Leonard Green & Partners,
L.P., a Delaware limited partnership. We will refer to Green Equity Investors
III, L.P. as "Green Equity" throughout this proxy statement. Leonard Green &
Partners, L.P., which we will refer to as "Green," is a private merchant
banking firm specializing in organizing, structuring and sponsoring going
private transactions and recapitalizations of established public and private
companies.
GEI Capital III, LLC
11111 Santa Monica Boulevard
Los Angeles, California 90025
Telephone: (310) 954-0444
GEI Capital III, LLC, a Delaware limited liability company, is the sole
general partner of Green Equity. We will refer to GEI Capital III, LLC as "GEI
Capital" throughout this proxy statement. The principal business of GEI
Capital is being the sole general partner of Green Equity. Throughout this
proxy statement, we sometimes will refer to GEI Capital, Green Equity and
Vicar Recap collectively as the "Green Entities."
The Green Entities may permit certain other investors (principally
institutional investors) to
4
<PAGE>
purchase common stock of Vicar Recap and a portion of the equity of the
Surviving Company that otherwise would be purchased by Green Equity. For
additional information, see "Special Factors--Financing for the Merger--Equity
Contributions." Throughout this proxy statement, we will refer to Green
Equity, together with any other permitted investors, as the "Green Investors."
The Management Continuing Stockholders
c/o Veterinary Centers of America, Inc.
12401 West Olympic Boulevard
Los Angeles, California 90064
Telephone: (310) 584-6500
The Continuing Stockholders include VCA employees and certain executive
officers and directors of VCA. The directors and executive officers who are
Continuing Stockholders include Robert L. Antin (Chief Executive Officer,
President and Chairman of the Board), Arthur J. Antin (Chief Operating
Officer, Senior Vice President, Secretary and Director), Neil Tauber (Senior
Vice President, Treasurer and Director) and Tomas W. Fuller (Chief Financial
Officer, Vice President and Assistant Secretary). We will refer to these four
Continuing Stockholders throughout this proxy statement as the "Management
Continuing Stockholders." For additional information regarding the Management
Continuing Stockholders, see "Directors and Executive Officers of VCA."
Our Recommendations to Stockholders
(See Pages 21 through 24)
The board of directors, acting on the unanimous recommendation of the
special committee of directors, has determined that the Merger is fair and in
the best interests of VCA's public stockholders, and unanimously recommends
that you vote FOR the approval and adoption of the Merger Agreement, the Asset
Drop Down and the transactions contemplated thereby.
The special committee was formed on December 31, 1999 at a meeting of the
board of directors following the receipt from Green of the proposal to acquire
VCA. The participation by certain members of management of VCA in the Merger
called for the creation of the special committee. The special committee is
comprised of Messrs. John B. Chickering and Richard Gillespie, two members of
VCA's board of directors, with no financial interest in the Merger that is
different from the interests of VCA stockholders generally. The special
committee was delegated exclusive authority for consideration of Green's
proposal and any other transaction proposal received by VCA. For additional
information regarding the special committee, see "Special Factors--Background
of the Merger."
Record Date; Voting Power
(See Page 12)
At the special meeting, you will be entitled to one vote for each share of
VCA common stock you hold of record as of August 9, 2000. On the record date,
there were 21,801,569 shares of VCA common stock entitled to vote at the
special meeting.
The Merger Agreement and the Asset Drop Down must be approved by the
affirmative vote of at least a majority of the outstanding shares of VCA's
common stock. In addition, the approval and adoption of the Merger Agreement
and the Asset Drop Down are dependent on the approval and adoption of each
other.
We do not expect to ask you to vote on any other matters at the special
meeting. However, if any other matters are properly presented at the special
meeting for consideration, the holders of the proxies will have discretion to
vote on these matters in accordance with their best judgment. Proxies voting
against a specific proposal may not be used by the holders to vote for
adjournment of the meeting for the purpose of giving management additional
time to solicit votes in favor of that proposal.
Share Ownership of Certain Stockholders and Management
(See Pages 42, 43, 67 and 68)
VCA's directors and executive officers have indicated that they intend to
vote all of their VCA common stock in favor of the approval and adoption of
the Merger Agreement, the Asset Drop Down and the transactions contemplated
thereby. Robert L. Antin, VCA's Chief Executive Officer, has entered into a
voting agreement, whereby he has agreed to vote his shares of VCA common stock
in favor of the Merger Agreement, the Asset Drop Down and the transactions
contemplated thereby. As of the record
5
<PAGE>
date for the special meeting, VCA's directors and executive officers owned an
aggregate of 1,262,627 shares of VCA's common stock, representing
approximately 5.8% of the total number of shares of common stock entitled to
vote at the special meeting.
The Merger Agreement
(See Pages 54 through 62)
The Merger Agreement is described on pages 54 through 62 and is attached as
Annex A to this proxy statement. We encourage you to read carefully the Merger
Agreement in its entirety as it is the legal document that governs the Merger.
Appraisal Rights
(See Pages 50 through 53)
VCA is a corporation organized under Delaware law. Under Delaware law, if
you do not vote in favor of the Merger and you follow all of the procedures
for demanding your appraisal rights described on pages 50 through 53 and in
Annex E, you may receive a cash payment for the "fair value" of your shares of
common stock instead of the $15.00 cash payment to be received by the other
stockholders pursuant to the Merger Agreement. Generally, in order to exercise
appraisal rights, among other things:
. You must NOT vote in favor of the Merger Agreement; and
. You must make a written demand for appraisal in compliance with Delaware
law BEFORE the vote on the Merger Agreement.
Merely voting against the Merger Agreement will not preserve your right of
appraisal under Delaware law. Annex E to this proxy statement contains the
Delaware statute relating to your right of appraisal. If you properly exercise
and perfect your appraisal rights, the fair value of your shares will be
determined by the Delaware Court of Chancery and may be more than, the same as
or less than the $15.00 you would have received in the Merger if you had not
exercised your appraisal rights. IF YOU WANT TO EXERCISE YOUR APPRAISAL
RIGHTS, YOU ARE URGED TO READ AND CAREFULLY FOLLOW THE PROCEDURES ON PAGES 50
THROUGH 53 AND IN ANNEX E. FAILURE TO TAKE ANY OF THE STEPS REQUIRED UNDER
DELAWARE LAW WILL RESULT IN THE LOSS OF YOUR APPRAISAL RIGHTS.
Interests of VCA Directors and Officers in the Merger
(See Pages 39 through 44)
When considering the recommendation of VCA's board of directors with
respect to the Merger, you should be aware that some of VCA's directors and
officers have interests in approving the Merger that are different from, or in
addition to, yours as stockholders of VCA. For example, 133,333 shares of VCA
common stock or a lesser amount, subject to the consent of Vicar Recap, held
by Robert L. Antin will remain outstanding following the Merger as shares of
common stock of the Surviving Company. In addition, certain other members of
management and employees of VCA will retain shares of VCA common stock as
common stock of the Surviving Company or provide other consideration of
equivalent value to acquire, in the aggregate, approximately 133,333 shares of
common stock of the Surviving Company. As a result, after the Merger (after
taking into effect the issuance of employee incentive options and warrants to
be issued to GS Mezzanine Partners II, L.P. and other mezzanine lenders, which
we will refer to collectively as "GSMP II"), the Continuing Stockholders will
own approximately 22.5%, on a fully diluted basis, of the common stock of the
Surviving Company. In addition, Robert L. Antin and Arthur J. Antin will
continue to serve as members of the initial board of directors of the
Surviving Company. Further, it is expected that all officers of VCA will
continue to serve in their current capacities following the Merger.
Several officers of VCA have employment agreements with VCA that obligate
VCA to make cash payments to them upon the occurrence of a change in control.
Although these officers have agreed with Vicar Recap to a reduction in the
amount that would otherwise be payable to them in the event the Merger is
completed, Messrs. Robert L. Antin, Arthur J. Antin, Neil Tauber and Tomas W.
Fuller
6
<PAGE>
will each receive a payment of approximately one year base salary pursuant to
the terms of their current employment agreements with VCA as a consequence of
the Merger. In addition, they will each enter into new employment contracts and
non-competition agreements with the Surviving Company.
As a consequence of the Merger, all outstanding stock options of VCA with an
exercise price less than the $15.00 per share Merger consideration (including
those held by VCA management, except to the extent rolled over into shares of
common stock or options to purchase common stock of the Surviving Company) will
vest and be exchanged for a cash price equal to the difference between $15.00
per share and the per share exercise price of those options.
For more information on the interests of VCA officers, directors and
stockholders in the Merger, which may be different from, or in addition to,
yours as stockholders of VCA generally, see "Special Factors--Interests of VCA
Directors and Officers in the Merger."
In light of the different interests of certain directors of VCA in the
Merger, the board of directors constituted the special committee and delegated
exclusive authority to the special committee to consider the Merger. In
addition, the special committee retained and was assisted by separate legal
counsel and two separate financial advisors. For additional information
regarding the special committee, see "Special Factors--Background of the
Merger."
Recommendations; Fairness of the Merger
(See Pages 21 through 24)
The special committee's decision to recommend that the board of directors
approve, and the board of directors' decision to approve, the Merger Agreement,
the Asset Drop Down and the transactions contemplated thereby were based upon a
number of factors which are described in "Special Factors--Recommendations of
the Special Committee and the Board of Directors; Fairness of the Merger."
Fairness Opinions
(See Pages 25 through 34)
The board of directors and the special committee received separate opinions
from Jefferies & Company, Inc. and Houlihan Lokey Howard & Zukin Capital that,
based upon and subject to the various considerations set forth in their
opinions, the $15.00 per share cash consideration to be received in the Merger
is fair, from a financial point of view, to VCA's public stockholders.
VCA paid Jefferies & Company a retainer fee of $175,000 and paid $225,000
upon delivery of its opinion, which fee is not contingent upon closing the
Merger. In addition, VCA has agreed to pay Jefferies & Company a financial
advisory fee of up to 0.5% of the transaction value of the Merger. The
financial advisory fee is payable upon completion of the Merger.
VCA also paid Houlihan Lokey a fee for rendering its supplemental fairness
opinion to VCA. VCA paid Houlihan Lokey a retainer fee of $75,000 and paid
$150,000 upon delivery of its opinion, which fee is not contingent upon closing
the Merger. The full text of these opinions is attached as Annexes B and C to
this proxy statement. WE URGE YOU TO READ THESE OPINIONS CAREFULLY.
Effects of the Merger
(See Pages 38 and 39)
Following the Merger, the Green Investors will own approximately 71.75% and
the Continuing Stockholders will own approximately 22.5%, on a fully diluted
basis, of the common stock of the Surviving Company, after giving effect to the
issuance of employee incentive options and warrants to be issued to GSMP II. As
a result, VCA's public stockholders will not participate in any future earnings
and growth of the Surviving Company. Although an equity investment in the
Surviving Company involves substantial risk resulting from the limited
liquidity of the investment, the high debt to equity ratio and consequential
substantial fixed charges that will apply to the Surviving Company following
the Merger, if the Surviving Company is able to grow earnings and cash flow
sufficient to retire its debt, the Green Investors, the Continuing
7
<PAGE>
Stockholders, GSMP II and the holders of options will be the sole beneficiaries
of the future earnings and growth of the Surviving Company.
After the Merger, the Surviving Company will be a closely-held corporation.
As a result, there will be no public market for VCA's common stock, and the
common stock will cease to be quoted on The Nasdaq Stock Market. The
registration of VCA's common stock under the Securities Exchange Act of 1934,
as amended, will be terminated.
Conditions to the Merger
(See Pages 59 and 60)
We will complete the Merger only if a number of conditions are satisfied or
waived, including, but not limited to, the following:
. completion of the Asset Drop Down,
. the Merger Agreement and the transactions contemplated thereby are
approved by VCA's stockholders,
. we have obtained all necessary permits and approvals,
. no law, injunction or order restrains or prohibits the completion of the
Merger, and
. the financing necessary to complete the Merger has been obtained.
Termination of the Merger Agreement
(See Page 61)
VCA and Vicar Recap may mutually agree to terminate the Merger Agreement at
any time. In addition, either party may terminate the Merger Agreement if,
among other things:
. a court or other government body issues a final order or ruling that
restrains or prohibits the Merger, or
. the Merger is not completed on or before September 30, 2000 (other than
because the terminating party breached the Merger Agreement).
VCA also may terminate the Merger Agreement under the circumstances
described under "What Happens if VCA Receives a Better Offer" below.
Termination of the Merger Agreement by either party may be before or after
stockholder approval. Under certain circumstances, VCA will be required to pay
fees and expenses associated with the Merger as a result of the termination as
described under "Payment of Fees Upon Other Termination Events" below.
What Happens if VCA Receives a Better Offer
(See Pages 57 and 58)
VCA may terminate the Merger Agreement if someone other than Vicar Recap
proposes to acquire VCA in a transaction that the board of directors, acting
upon a recommendation from the special committee, determines to be more
favorable to VCA's stockholders than the Merger. VCA must provide written
notice to Vicar Recap advising Vicar Recap that VCA has received a superior
proposal, identifying the parties to the proposal and specifying the material
terms and conditions of such proposal. If VCA terminates the Merger Agreement
following its approval of a superior proposal, it must pay Vicar Recap a $10
million termination fee.
Payment of Fees Upon Other Termination Events
(See Page 61)
If the $10 million termination fee is not payable to Vicar Recap due to the
circumstances of the termination, and if Vicar Recap terminates the Merger
Agreement because of a breach by VCA of its covenants or representations and
warranties contained in the Merger Agreement, or because VCA is unable to
obtain the requisite stockholder approval, then VCA must pay Vicar Recap all of
the fees and expenses incurred by Vicar Recap and its affiliates in connection
with the Merger, not to exceed $1 million in the aggregate.
8
<PAGE>
Amending or Waiving Terms of the Merger Agreement
(See Page 61)
VCA and Vicar Recap may amend the Merger Agreement by mutual consent before
or after stockholder approval. However, following stockholder approval of the
Merger Agreement, applicable law and the terms of the Merger Agreement may
require stockholder approval of certain subsequent amendments or waivers of
the Merger Agreement. Under the Merger Agreement, any amendment following
stockholder approval which adversely affects the rights of the stockholders
requires the approval of stockholders. Any amendment that would adversely
affect VCA requires the approval of the special committee.
Regulatory Approvals
(See Page 48)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
requires the ultimate parent entities of each of Vicar Recap and VCA to
provide certain information to the Antitrust Division of the United States
Department of Justice and the United States Federal Trade Commission.
Subsequent to the submission, a waiting period must expire or be terminated
before the Merger can be completed. The ultimate parent entities of each of
Vicar Recap and VCA made the required filings with the Department of Justice
and the Federal Trade Commission on June 23, 2000. Early termination with
respect to the Merger was granted on July 10, 2000.
Financing for the Merger
(See Pages 44 through 48)
Green Equity estimates that approximately $539.9 million will be required
to complete the Merger and pay the related fees and expenses and provide
working capital for the Surviving Company following the Merger. Green Equity
expects to fund this amount through new credit facilities with a syndicate of
banks, private offerings of debt securities and equity financing. Green Equity
has received commitments from financial institutions in an amount that, along
with the equity contributions to be provided by the Green Investors and the
Continuing Stockholders, is sufficient to fund this amount.
Litigation Related to the Merger
(See Page 48)
As of the date of this proxy statement, we are aware of six lawsuits that
have been filed relating to the Merger. VCA and its directors are defendants
in all of the lawsuits. The lawsuits were filed by various stockholders
claiming to represent all stockholders of VCA.
While the allegations of each complaint are not identical, all of the
lawsuits generally assert that the $15.00 per share price to be paid to the
public stockholders of VCA is inadequate and does not represent the value of
the assets and future prospects of VCA and that the Merger Agreement serves no
legitimate business purpose. The complaints also allege that the defendants
engaged in self-dealing without regard to conflicts of interest and that the
defendants breached their fiduciary duties in approving the Merger Agreement.
All of the complaints seek to prohibit, among other things, completion of
the Merger. To date, no motion to enjoin any of the proceedings contemplated
by the Merger Agreement has been made. The complaints also seek unspecified
damages, attorneys' fees and other relief. We believe that the allegations
contained in the complaints are without merit and intend to contest the
actions vigorously. We do not believe that these matters will have any
significant impact on the timing or completion of the Merger; however, we
cannot assure you that a motion to enjoin the transactions contemplated by the
Merger Agreement will not be made and, if made, that it would not be granted.
We have filed an answer to the five separate class action complaints filed
in Delaware, which complaints have been consolidated. We have not yet filed a
response to the one class action complaint filed in California.
9
<PAGE>
Price Range of Common Stock
(See Page 63)
VCA's common stock is quoted on The Nasdaq Stock Market. On December 27,
1999, the day prior to VCA's receipt of the initial offer from Green, VCA's
common stock closed at $10.125 per share. On March 30, 2000, the last trading
day prior to VCA's public announcement of the execution of the Merger
Agreement, VCA's common stock closed at $13.375 per share. On the record date,
VCA's common stock closed at $14.25 per share.
Cautionary Statement Regarding Forward-Looking Statements
We have made certain forward-looking statements in this proxy statement (and
in documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements are not guarantees of performance.
You are cautioned not to place undue reliance on our forward-looking
statements. Forward-looking statements include the information concerning our
possible or assumed results of operations. Also, when we use words such as
"believe," "expect," "anticipate," "plan," "intend" or similar expressions, we
are making forward-looking statements. You should note that many factors could
affect our future financial results and could cause these results to differ
materially from those expressed in our forward-looking statements. These
factors include the following:
. the ability of VCA to maintain gross profit margins;
. the level of direct costs;
. the effect of economic conditions;
. future capital requirements;
. the impact of competition, including its impact on market share in each
of VCA's markets;
. the ability of VCA to manage its growth;
. the loss of key employees;
. the impact of current or pending litigation, legislation and regulation;
and
. other factors which may be described from time to time in filings of VCA
with the Securities and Exchange Commission.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein. We do not intend, or assume any obligation, to update
these forward-looking statements to reflect actual results, changes in
assumptions or changes in the factors affecting these forward-looking
statements.
10
<PAGE>
SUMMARY SELECTED HISTORICAL FINANCIAL DATA
Set forth below is selected consolidated financial data of VCA as of and for
each of the five years in the period ended December 31, 1999 and for the six
months ended June 30, 2000. The data should be read in conjunction with the
historical consolidated financial statements of VCA, and the notes thereto. No
pro forma data giving effect to the Merger is provided because VCA does not
believe such information is material to stockholders in evaluating the Merger
and the Merger Agreement since (1) the Merger consideration is all cash and (2)
if the Merger is completed, VCA's public stockholders will no longer have any
equity interest in VCA. VCA's consolidated financial statements for the year
ended December 31, 1999, which have been audited by Arthur Andersen LLP,
independent public accountants, are incorporated by reference in this proxy
statement from VCA's Annual Report on Form 10-K, as amended, for the year ended
December 31, 1999.
CONSOLIDATED STATEMENT OF OPERATIONS DATA
(Dollars in thousands, except for per share data)
<TABLE>
<CAPTION>
Six Months For the Years Ended December 31,
Ended June -----------------------------------------------
30, 2000 1999 1998 1997 1996 1995
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $177,285 $320,560 $281,039 $235,913 $181,428 $107,694
Gross profit............ 49,964 86,902 71,659 57,283 42,574 27,595
Selling, general and
administrative
expense................ 12,758 22,457 19,693 17,676 19,735 13,684
Depreciation and
amortization expense... 8,607 15,496 13,132 11,199 7,496 4,144
Year 2000 remediation
expenses............... -- 2,839 -- -- -- --
Year 2000 accelerated
depreciation........... -- 967 -- -- -- --
Merger costs............ -- -- -- -- 2,901 --
Restructuring charges
and write-down of
assets................. -- -- -- 2,074 15,213 3,234
Reversal of
restructuring charges.. -- (1,873) -- (2,074) -- --
Operating income
(loss)................. 28,599 47,016 38,834 28,408 (2,771) 6,533
Interest income......... 439 1,194 2,357 4,182 4,487 828
Interest expense........ 5,139 10,643 11,189 11,593 7,812 3,377
Gain on sale of
investment in
Veterinary Pet
Insurance, Inc. ....... 3,200 -- -- -- -- --
Minority interest in
income of
subsidiaries........... 515 850 780 424 6,577 2,960
Provision for income
taxes.................. 11,756 16,462 12,954 9,347 1,959 2,238
Income tax adjustment... -- (2,102) -- -- -- --
Net income (loss)....... 14,828 22,357 16,268 11,226 (14,632) (1,214)
Diluted earnings (loss)
per share:
Net earnings (loss) per
common share.......... $0.67 $1.02 $0.74 $0.53 $(0.92) $(0.13)
Shares used for
computing diluted
earnings (loss) per
share................. 24,355 21,985 21,940 21,013 15,942 9,224
Ratio of earnings to
fixed charges.......... 3.6:1.0 2.7:1.0 2.4:1.0 2.0:1.0 0.1:1.0 1.1:1.0
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
(Dollars in thousands)
<TABLE>
<CAPTION>
As of As of December 31,
June 30, --------------------------------------------
2000 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $1,099 $10,620 $8,977 $19,882 $29,621 $5,396
Marketable securities... 17,408 5,313 33,358 51,371 73,306 42,155
Total assets............ 446,889 426,500 393,960 386,089 354,009 153,416
Current portion of long-
term obligations and
notes payable.......... 18,468 21,901 17,431 19,369 14,055 7,496
Long-term obligations,
less current portion... 138,039 139,634 142,356 154,506 134,767 36,778
Total stockholders'
equity................. 247,692 231,229 202,685 180,851 167,350 90,217
Book value per share.... 11.29 10.63 9.74 8.89 8.43 6.72
</TABLE>
11
<PAGE>
THE SPECIAL MEETING
Time, Place and Date
This proxy statement is being furnished to stockholders of VCA as part of
the solicitation of proxies by VCA's board of directors for use at a special
meeting of stockholders to be held on September 19, 2000 at 12401 West Olympic
Boulevard, Los Angeles, California 90064 at 10:00 a.m. local time, or any
adjournment or postponement thereof.
Record Date and Voting
The board of directors has set August 9, 2000 as the record date for the
special meeting. Only holders of record of VCA's common stock as of the close
of business on the record date will be entitled to notice of and to vote at
the special meeting. VCA's only class of voting securities is its common
stock, par value $.001 per share. As of the record date, there were
outstanding and entitled to vote 21,801,569 shares of common stock, which
shares were held by approximately 642 holders of record. Each share of common
stock entitles the holder thereof to one vote, which may be cast either in
person or by properly executed proxy at the special meeting.
The approval and adoption of the Merger Agreement, the Asset Drop Down and
the transactions contemplated thereby will require the affirmative vote of at
least a majority of the shares of common stock outstanding on the record date.
In addition, the consummation of the Merger requires the approval and adoption
of both the Merger Agreement and the Asset Drop Down. Accordingly, the
approval and adoption of the Merger Agreement and the Asset Drop Down are
dependent on the approval and adoption of each other.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of common stock entitled to vote at the
special meeting is necessary to constitute a quorum at the special meeting.
Shares that are entitled to vote but that are not voted at the direction of
the beneficial owner ("abstentions") and votes withheld by brokers in the
absence of instruction from beneficial holders ("broker nonvotes") will be
counted for the purpose of determining whether there is a quorum for the
transaction of business at the special meeting. Abstentions and broker
nonvotes will have the same effect as a vote AGAINST the approval and adoption
of the Merger Agreement, the Asset Drop Down and the transactions contemplated
thereby. Failure either to return a properly executed proxy card or to vote in
person at the special meeting will have the same effect as a vote against the
approval and adoption of the Merger Agreement, the Asset Drop Down and the
transactions contemplated thereby.
Robert L. Antin has agreed, pursuant to a Voting Agreement dated March 30,
2000, to vote 919,259 shares of his common stock, representing approximately
4.3% of the common stock outstanding as of such date, in favor of the Merger
Agreement, the Asset Drop Down and the transactions contemplated thereby.
In addition, as of the record date, directors and executive officers of VCA
owned, or were otherwise entitled to vote, in the aggregate, 1,262,627 shares
of common stock, representing approximately 5.8% of the common stock
outstanding as of such date. These directors and officers have expressed their
present intent to vote their shares in favor of the approval and adoption of
the Merger Agreement, the Asset Drop Down and the transactions contemplated
thereby.
Voting, Revocation and Solicitation of Proxies
All shares of common stock entitled to vote at the special meeting and
represented by properly executed proxies received prior to or at the special
meeting, unless previously revoked, will be voted at the special meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated (other than in the case of broker nonvotes), such proxies will
be voted in favor of the approval and adoption of the Merger Agreement, the
Asset Drop Down and the transactions contemplated thereby.
The board of directors does not know of any matters to be presented at the
special meeting other than those described in the Notice of the Special
Meeting of Stockholders.
If any other matters are properly presented at the special meeting for
consideration, including, among other things, consideration of a motion to
adjourn the meeting to another time and/or place (including, without
12
<PAGE>
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the Merger), the persons
named in the enclosed forms of proxy and acting thereunder generally will have
discretion to vote on such matters in accordance with their best judgment.
Notwithstanding the foregoing, proxies voting against a specific proposal may
not be used by the persons named in the proxies to vote for adjournment of the
meeting for the purpose of giving management additional time to solicit votes
to approve that proposal.
The grant of a proxy on the enclosed form does not preclude you from
attending the special meeting and voting in person. You may revoke a proxy at
any time before it is voted. If you are a recordholder, you may revoke your
proxy by:
. delivering to the Secretary of VCA, before the vote is taken at the
special meeting, a written notice of revocation bearing a later date
than the proxy;
. duly executing a later dated proxy relating to the same shares of common
stock and delivering it to the Secretary of VCA before the vote is taken
at the special meeting; or
. attending the special meeting and voting in person.
Attendance at the special meeting will not in and of itself constitute a
revocation of a proxy. Any written notice of revocation or subsequent proxy
should be sent to VCA, 12401 West Olympic Boulevard, Los Angeles, California
90064, Attention: Secretary, or hand delivered to the Secretary of VCA before
the vote is taken at the special meeting. If you hold your shares in "street
name" and have instructed a broker to vote your shares, you must follow the
directions received from your broker as to how to change your vote.
All expenses of VCA's solicitation of proxies for the special meeting will
be borne by VCA. In addition to solicitation by use of the mails, proxies may
be solicited from the stockholders by directors, officers and employees of VCA
in person or by telephone, telefax or other means of communication. These
directors, officers and employees will not be additionally compensated, but
may be reimbursed for reasonable out-of-pocket expenses in connection with
such solicitation. VCA has retained MacKenzie Partners, Inc., a proxy
solicitation firm, to assist in connection with the solicitation of proxies
for the special meeting at a cost not to exceed $7,500, plus reimbursement of
out-of-pocket expenses. Arrangements may be made with brokerage houses,
custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares of common stock held of record by
such brokerage houses, custodians, nominees and fiduciaries, and VCA will
reimburse such brokerage houses, custodians, nominees and fiduciaries for
their reasonable expenses incurred in connection therewith.
Appraisal Rights
Stockholders who do not vote in favor of the approval and adoption of the
Merger Agreement and who otherwise comply with the applicable statutory
procedures of Section 262 of the General Corporation Law of the State of
Delaware (the "DGCL") summarized herein, will be entitled to seek appraisal of
their shares of common stock under Section 262 of the DGCL. See "Special
Factors--Appraisal Rights."
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. IF
THE MERGER IS COMPLETED, TRANSMITTAL FORMS AND INSTRUCTIONS WILL BE SENT TO
STOCKHOLDERS FOR THE SURRENDER OF THEIR SHARES OF COMMON STOCK.
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SPECIAL FACTORS
Background of the Merger
In late 1998, following several years of significant fluctuations in VCA's
stock market valuation, the members of VCA's board of directors and management
sought to analyze whether the price at which VCA's common stock was trading
properly reflected VCA's intrinsic value and longer-term prospects. VCA's
common stock had traded as high as $32.75 per share in April of 1996 and as
low as $8.00 per share in November of 1996. Although the stock price steadily
increased to a high of $21.00 per share in July of 1998, it subsequently
traded as low as $9.00 per share in October of 1999. The board of directors
and senior management were concerned that these lowered stock valuations made
the retention of high-caliber employees more difficult and jeopardized VCA's
longer-term strategy of using its equity securities as a form of currency in
acquisition transactions.
As a result, the board of directors directed VCA's senior management team
to analyze, informally and confidentially, VCA's prospects and the strategic
alternatives available to VCA to enhance stockholder value. On October 28,
1998, the board of directors met with the investment banking firms of
Donaldson, Lufkin & Jenrette Securities Corporation and Schroder & Co. Inc. At
that meeting, DLJ and Schroders suggested that VCA pursue a company-financed
leveraged recapitalization or institute a stock buy-back program. The board of
directors did not pursue these suggestions due in part to the poor financial
market prevailing at the time and the likely inability to obtain debt
financing at acceptable rates. The board of directors also determined that a
company-financed leveraged recapitalization would be unlikely at that time to
provide sufficient cash to our stockholders and that the resulting increased
debt would place additional pressure on our growth strategies and stock price.
From October 1998 to late 1999, the board of directors continued to
investigate other alternatives submitted to it on an unsolicited basis from
various investment banking firms, including Jefferies & Company, Inc. The
board of directors found no alternative that would appropriately enhance
stockholder value.
In late 1999, after approximately 10 months of a downward trend in VCA's
stock price, the board of directors became concerned that the public market
valuations of VCA and the diminished attention of the public market on small
capitalization stocks outside of the technology sector made it uncertain
whether the price of VCA's stock was likely to increase, at least in the
intermediate term. The board of directors also concluded that the inability to
achieve a reasonable stock price would have a negative impact on VCA's ability
to obtain its long-term business strategy, thereby creating a further
impediment to stockholder value. Because there were no signs of imminent
recovery in the public marketplace, Robert L. Antin and the board of directors
began considering the possibility of a "going private" transaction.
In the third quarter of 1999, at the direction of the board of directors,
Robert L. Antin held preliminary conversations with potential strategic
partners. However, neither VCA nor any of these parties pursued any type of
strategic relationship or business combination following these initial
conversations. In October 1999, a representative of Jefferies introduced
Robert L. Antin to Leonard Green & Partners, L.P. An introductory meeting was
held between Robert L. Antin and a representative of Green at which time Green
expressed an interest in becoming familiar with the veterinary hospital and
laboratory industries. No confidential information was exchanged at the
introductory meeting.
Informal contacts continued between Mr. Antin and Green into November 1999.
On November 15, 1999, Mr. Antin met with representatives of Green, where Green
raised the possibility of taking VCA private through a leveraged
recapitalization. At this meeting representatives of Green described to Mr.
Antin the process involved in a going private transaction and began
preliminary discussions about a possible structure and time frame for such a
transaction. Also at this meeting, VCA signed a confidentiality agreement with
Green and representatives of Green began their business "due diligence" review
of VCA.
During the months of November and December 1999, representatives of Green
proceeded with their business and financial due diligence of VCA, which
included written requests for information, on-site inspections of documents at
VCA's headquarters and telephone conferences with representatives of VCA.
Representatives of
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Green also met with Tomas W. Fuller, our Chief Financial Officer, who
described VCA's overall business and delivered financial and other
confidential information to Green.
In a telephone conference held on December 27, 1999, a representative of
Green communicated to Robert L. Antin Green's preliminary interest in
exploring a leveraged recapitalization of VCA at a price of $14.50 per share
and indicated that Green would be interested in retaining VCA's senior
management and having its senior management retain an equity interest in VCA
following the transaction.
Thereafter, on December 28, 1999, Green submitted a formal acquisition
proposal to the board of directors to pursue a recapitalization of VCA in a
going private transaction. Green proposed a cash purchase price of $14.50 per
share. A condition to Green's proposal was that Robert L. Antin and other
members of management retain an equity interest in the Surviving Company and
continue in the management of the Surviving Company and that terms of the
offer remain confidential. Green proposed to finance the transaction with a
combination of bank debt, subordinated debt and equity. The required equity
would be committed by an affiliate of Green, with the debt financing being
provided by third party financing sources. The $14.50 offer price represented
a 43% premium to the closing price of VCA's common stock on December 27, 1999.
On December 31, 1999, the board of directors held a special meeting by
telephone conference call to discuss the recapitalization proposal submitted
by Green. Thereafter, the board authorized VCA's management to pursue the
possibility of a transaction with Green. In addition, because Mr. Antin and
certain other members of the board of directors would have a continuing
financial interest in any transaction arising out of the proposal, the board
of directors established an independent special committee of the board of
directors to consider Green's proposal. The special committee was given
exclusive authority to:
. evaluate the current and any future proposals of Green or other third
parties;
. negotiate the terms of any proposed transaction; and
. advise the board of directors as to whether or not to engage in the
transaction proposed by Green or in any other transaction.
Mr. John Chickering and Dr. Richard Gillespie, members of the board of
directors with significant business and financial experience, were named as
the members of the special committee. These two directors were chosen because
they were both sufficiently independent in relation to the proposed
transaction. The board of directors authorized the special committee to
establish such procedures, review such information and engage such financial
advisors and legal counsel as it deemed necessary to fully and adequately make
determinations about Green's proposal. The special committee was also given
authority to accept the proposal, reject the proposal or seek to negotiate
with Green regarding the terms of the proposed transaction, and to fulfill its
other duties.
Following the board of directors' meeting, the special committee met with
representatives of Troop Steuber Pasich Reddick & Tobey, LLP, counsel to VCA.
At this meeting, the special committee discussed the selection of counsel and
a financial advisor. In addition, VCA's counsel reviewed the procedures to be
followed by the special committee and the need for and the role of the special
committee.
On January 3, 2000, Robert L. Antin met with representatives of Green at
the offices of DLJ, a possible source of financing for the transaction. At
this meeting, the parties discussed possible financing alternatives for the
proposed transaction and Mr. Antin provided DLJ with VCA's background
financial information.
On January 5, 2000, Robert L. Antin, Mr. Fuller and representatives of
Green met with several financial institutions to discuss possible financing
alternatives. The financial institutions included Bank of America, Citibank,
N.A., DLJ, Deutsche Bank, Wells Fargo Bank, N.A. and Credit Suisse First
Boston Corporation. At this meeting, the parties discussed, among other
things, VCA's business, the veterinary industry and VCA's competitive
position, financial performance and future prospects. Messrs. Antin and Fuller
described VCA's business to the potential financing sources and held a
question and answer session.
On January 11, 2000, representatives of Irell & Manella LLP, counsel to
Green, met with representatives of Troop Steuber, as part of their legal due
diligence review of VCA.
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During the week of January 3, 2000 to January 10, 2000, the special
committee interviewed several law firms to act as counsel to the special
committee. On January 14, 2000, the special committee held a meeting to
formally engage Latham & Watkins as its legal counsel to advise the special
committee regarding its duties in response to Green's proposal. At this
meeting, the special committee and representatives of Latham & Watkins
discussed the procedures to be followed in analyzing the proposal and any
other offers from Green or others to acquire VCA. Latham & Watkins advised the
special committee concerning the special committee's legal responsibilities
and the legal principles applicable to, and the legal consequences of, actions
taken by the special committee with respect to the proposal and any other
offers from Green or others.
Also at the January 14, 2000 meeting, the special committee discussed the
retention of an investment banking firm or firms for the purpose of advising
the special committee in connection with any proposed transaction, assisting
the special committee in any negotiations with Green and, if necessary,
delivering a fairness opinion to the special committee in connection with the
proposed transaction. Present at this meeting were representatives of
Jefferies and Houlihan Lokey Howard & Zukin Capital.
In early January, the special committee held preliminary discussions with
representatives of Jefferies regarding the possibility of Jefferies acting as
the committee's financial advisor in connection with the proposed transaction.
However, the special committee had some concerns about certain prior contacts
that the Jefferies firm had with Green and asked the Jefferies representatives
to brief the committee regarding such contacts at the January 14, 2000
meeting. These contacts included:
. the performance of a variety of investment banking services for Green;
. certain personal associations with principals of Green; and
. through a Jefferies affiliate, an investment of approximately $5.0
million in a Green investment fund, which investment the Jefferies
representatives described as irrelevant to its corporate finance
activities.
In response to questions from counsel and the special committee, the
Jefferies representatives stressed that they believed they could advise the
special committee on a completely independent, impartial and professional
basis, notwithstanding those prior contacts. The Jefferies representatives
also discussed their prior association with VCA, noting that they had made
certain presentations to VCA's management over the years, though they had
never received a fee for services rendered to VCA. Finally, the Jefferies
representatives reminded the special committee that a Jefferies employee had
introduced Green to Robert L. Antin and had suggested the possibility of a
leveraged buyout or similar transaction, although Jefferies had not acted as
the agent or representative of either VCA or Green in arranging that meeting.
After deliberation and discussion, the special committee determined that
Jefferies' prior contacts with VCA and Green did not, in their view,
unacceptably conflict with Jefferies's ability to serve as an independent
financial advisor to the special committee. The special committee acknowledged
the possible conflicts of loyalty, but concluded that those conflicts were
significantly outweighed by Jefferies' expertise, knowledge of and familiarity
with VCA and its industry and Jefferies' reputation for integrity.
Following these discussions, the special committee engaged Jefferies to
serve as its financial advisor. However, in order to mitigate any concern
regarding Jefferies' independence, the special committee resolved to retain a
second investment banking firm, Houlihan Lokey Howard & Zukin Capital, to
provide a supplemental fairness opinion. The special committee then met with
representatives of Houlihan Lokey to discuss the role Houlihan Lokey would
play in assisting the special committee and thereafter retained them to render
a supplemental fairness opinion.
During the period from January 14, 2000 to January 25, 2000, Jefferies and
Houlihan Lokey reviewed financial and other information concerning VCA,
including VCA's audited and interim financial statements, VCA's financial
models and other information concerning VCA described below in "--Opinion of
Jefferies & Company, Inc." and "--Opinion of Houlihan Lokey Howard & Zukin."
Representatives of Jefferies and Houlihan Lokey also met with members of VCA's
management on several occasions.
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On January 19, 2000, the special committee met with representatives of
Jefferies, Houlihan Lokey and Latham & Watkins. At the meeting,
representatives of Jefferies presented the preliminary conclusions of their
valuation analysis to the members of the special committee. The special
committee also had lengthy discussions with its legal and financial advisors
regarding the strategic alternatives available to VCA in light of Green's
proposed offer. Specifically, the members of the special committee considered
whether it would be in the best interest of VCA's public stockholders to:
. continue VCA's operation as an independent public concern;
. effect a change of control transaction involving VCA with a strategic
buyer, Green or a financial buyer other than Green; or
. pursue other strategic transactions and alternatives.
With respect to continuing VCA's operation as an independent public
concern, the special committee discussed the possible reasons underlying the
steady decline in VCA's stock price. The committee considered the fact that
the public market is generally disinterested in small capitalization stocks
and, in particular, companies that can be categorized as consolidators (such
as VCA). In addition, the committee discussed the fact that there continued to
be a lack of research coverage and strong analyst support for VCA's stock,
despite numerous meetings Robert Antin and Tomas Fuller held with analysts and
brokers in an attempt to remedy the situation. The committee determined that
each of these factors significantly contributed to VCA's relatively poor
trading valuation. The committee also discussed the fact that the significant
decline in VCA's stock price had resulted in low employee morale and the loss
of several key employees during the previous year.
With respect to the consummation of a change of control transaction, the
special committee discussed the advantages and disadvantages of pursuing an
"open" auction versus a "quiet" auction and, alternatively, negotiating a
transaction with a single offeror such as Green. The special committee
considered the fact that Green insisted that their offer would terminate if
VCA publicly disclosed the offer or "shopped" the company and, according to
VCA's management, Jefferies and Houlihan Lokey, there did not seem to be any
likely potential strategic buyers for VCA at that time and that no other
financial buyer had presented itself.
Thereafter, the committee adjourned the meeting and resolved to reconvene
the following day to give the members of the special committee additional time
to consider Jefferies' presentation and to decide whether to authorize
Jefferies to begin preliminary discussions with Green regarding its proposed
offer.
On January 20, 2000, the special committee held a telephonic meeting at
which Jefferies, Houlihan Lokey and Latham & Watkins participated. At the
meeting, the special committee concluded that it was in the best interest of
VCA and its public stockholders to consider Green's offer in greater detail.
The representatives of Jefferies outlined for the committee members the key
points of the offer, focusing in particular on the proposed offer price of
$14.50 per share and the lack of a financing commitment. The special committee
expressed concern that the proposed offer price should be higher and directed
Jefferies to convey their concerns to Green. With respect to the financing
commitment, the representatives of Jefferies explained to the special
committee that the high yield bond market had deteriorated significantly in
recent months as a result of, among other things, significant flows of monies
from high yield mutual funds. The members of the special committee were
concerned that if, after entering into an agreement, Green could not raise the
requisite debt financing and the deal terminated, it could have a severe
adverse effect on VCA's stock and the general market perception of VCA.
Accordingly, the special committee directed Jefferies to seek a financing
commitment from Green as a condition to proceeding further.
On January 21, 2000, representatives of Jefferies held a telephonic meeting
with Green to discuss the concerns expressed by the members of the special
committee at the January 20, 2000 meeting with respect to the offer price and
the lack of a financing commitment. Jefferies proposed that Green increase
their offer to a price in excess of $15.00 per share and indicated that
financing commitments would be required. Jefferies and Green concluded that
before further discussions regarding price would take place, Green would seek
to obtain financing commitments.
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On January 25, 2000, the special committee held another telephonic meeting
at which Jefferies, Houlihan Lokey and Latham & Watkins participated. At this
meeting, the Jefferies representatives described their discussions with Green
regarding the offer price and the financing commitment. Jefferies reported
that negotiation of the offer price was postponed pending Green's discussions
with its various proposed lenders to discuss the possibility of commitment
letters. Green advised Jefferies that the negotiation of commitment letters
would take time and could cause a delay in the transaction. At that time, the
special committee was presented a draft of a merger agreement proposed by
VCA's counsel.
From late January 2000 through early February 2000, Latham & Watkins, Irell
& Manella and Troop Steuber negotiated and revised the Merger Agreement.
During this time, Green evaluated the status of the high yield bond market and
the impact it could have on the proposed transaction. Green also began
considering additional financing sources, including the use of mezzanine debt.
On February 2, 2000, February 3, 2000 and February 8, 2000, Robert L. Antin,
Tomas W. Fuller and representatives of Green met with Trust Company of the
West, affiliates of Goldman Sachs & Co., and Northwestern Mutual,
respectively, to discuss possible financing for the proposed transaction. At
these meetings, the parties discussed VCA's business, the veterinary industry
and VCA's competitive position, financial performance and future prospects.
On February 25, 2000, Green submitted a revised offer to the board of
directors. The revised offer remained at $14.50 per share, but included a
financing commitment. The $14.50 offer price represented a 29% premium to the
closing price of VCA's common stock on February 24, 2000. In addition, a
revised draft of the Merger Agreement prepared by Green's counsel was
distributed to VCA, its counsel, the board of directors and the special
committee and its counsel.
On February 29, 2000, the special committee held a telephonic meeting at
which Jefferies, Houlihan Lokey and Latham & Watkins participated. At this
meeting, the Jefferies representatives presented the special committee with an
updated evaluation of VCA's financial condition and market position.
Thereafter, the special committee discussed whether it was an opportune time
to consider a sale of VCA. Although there had been some positive movement in
VCA's stock price (thus decreasing the premium being offered in the Merger),
the special committee concluded it continued to be in the best interest of VCA
and its public stockholders to actively consider Green's offer.
The focus of the remainder of the meeting was the proposed terms of the
revised offer and the terms of the Merger Agreement. The special committee
expressed concern that there had been no movement in the offer price. However,
the representatives of Jefferies and Houlihan Lokey advised the members of the
special committee that, based on their respective firms' preliminary valuation
analysis of VCA, and given VCA's current stock price (which closed at $11.06
per share on February 29, 2000) an offer of $14.50 per share with committed
financing appeared reasonable. With respect to the transaction documents,
Latham & Watkins indicated that it had concerns regarding several terms of the
proposed Merger Agreement, including, among others:
. the limitation on VCA's ability to consider unsolicited acquisition
proposals;
. the fact that the terms of the break-up fee had not been proposed;
. the circumstances under which the break-up fee would be payable were
considerable and included things such as VCA's breach of any
representation, warranty or covenant under the agreement and a
termination of the agreement by either party as a result of VCA's
failure to get stockholder approval of the proposed transaction; and
. the agreement contemplated a payment by VCA of Green's expenses in
addition to the break-up fee, which included expenses relating to the
debt financing.
At the conclusion of the meeting, the members of the special committee
directed Latham & Watkins to submit its proposed changes to the Merger
Agreement to VCA's and Green's legal advisors and directed Jefferies to
communicate to Green the special committee's concerns regarding the price and
financing.
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Also on February 29, 2000, Robert L. Antin met with VCA's and Green's legal
advisors to discuss the terms of the revised Merger Agreement and the proposed
structure and financing alternatives to the transaction. The parties also
discussed the terms on which management would continue as officers of the
Surviving Company and the structure and operations of the Surviving Company
following the Merger.
During March 2000, representatives of Green, VCA and their respective
counsel, continued to address Green's and interested financial institutions'
business and legal due diligence questions and to negotiate transaction
documents. In addition, discussions continued between Green and VCA's
management regarding the precise parameters of the management deal with the
Surviving Company. Also during this period, Jefferies continued discussions
with Green regarding the offer price. On March 24, 2000, representatives of
Green, in response to the special committee's concerns, verbally informed
Robert L. Antin that the offer price was being increased to $15.00 per share.
In addition, VCA received drafts of financing commitment letters from
affiliates of Goldman Sachs & Co. Representatives of Green, Robert L. Antin,
counsel to VCA and counsel to Green met to review the legal documentation for
the proposed merger. During the last week of March, representatives of Green,
VCA and their respective counsel restructured the Merger and made
corresponding changes to the Merger Agreement to reflect the drop down of
assets from VCA to Vicar Operating to create a holding company structure.
On March 27, 2000, the special committee held a telephonic meeting at which
representatives of Jefferies, Houlihan Lokey and Latham & Watkins
participated. At this meeting, the special committee discussed in detail the
terms of Green's proposal at an increased offer price of $15.00 per share. Of
particular concern to the members of the special committee was the recent
movement in VCA's stock price (an increase to $13.63 per share as of March 27,
2000) and the corresponding decrease in the premium that the offer price now
represented (an approximate 10% premium over the closing price of VCA's stock
on March 27, 2000). Jefferies and Houlihan Lokey explained to the special
committee that, although there had been an increase in VCA's stock price, the
conditions that may have contributed to the overall poor performance of VCA's
stock price in recent months were, in their view, unlikely to change in the
near term.
In light of the significant decrease in the premium over the course of the
negotiations of the offer, the special committee determined that the only
circumstances under which it would be willing to go forward would be if the
proposed transaction with Green was structured with diminished impediments to
VCA's ability to enter into an alternative transaction with a third party
transaction partner if one should approach VCA. Accordingly, the members of
the special committee directed Latham & Watkins to insist on certain key terms
in their negotiation of the Merger Agreement, including, but not limited to, a
reduced break-up fee, lessened circumstances under which the break-up fee
would be payable and that VCA have the ability to consider a broader range of
alternative acquisition proposals than Green had originally proposed.
On March 28, 2000 and again on March 29, 2000, the special committee held
telephonic meetings at which representatives of Jefferies, Houlihan Lokey and
Latham & Watkins participated. At these meetings, the special committee
continued to discuss the terms of Green's proposal and the unresolved legal
issues that the special committee identified as being particularly significant
following their review of the draft Merger Agreement. These issues included,
among others, the amount of the break-up fee, the proposed contractual right
of Green to "match" any alternative acquisition proposal during the pendency
of the Merger Agreement, a notice requirement in the "no shop" whereby VCA
would be required to give Green five days' notice prior to entering into an
alternative transaction with a third party and the conditions to close.
At the March 29, 2000 meeting, a representative of Troop Steuber joined the
call to summarize for the special committee the terms of management's deal
with Green and VCA upon and following the closing of the proposed transaction.
The Troop Steuber representative noted the following terms:
. management collectively will have the opportunity to roll over a portion
of its current equity in VCA into the Surviving Company and, assuming
the proposed transaction closes and the grant of employee incentive
options reserved for issuance, employees, including certain members of
management collectively, will hold approximately 22.5% of the common
stock (computed on a fully diluted basis) in the Surviving Company (of
which approximately 10% will be held by Robert L. Antin);
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. four executives will be entitled to cash payments from the Surviving
Company under their current employment agreements and in consideration
of new non-competition agreements;
. certain key employees, outside the management group, may receive "stay
bonuses," the amounts of which had not yet been determined; and
. each of Robert L. Antin and Arthur J. Antin, VCA's Chief Operating
Officer, are expected to enter into employment contracts with the
Surviving Company, the terms of which were in the process of being
negotiated.
At the conclusion of the March 29, 2000 meeting, the members of the special
committee directed Latham & Watkins to finalize the negotiations of the Merger
Agreement and related documentation and for Jefferies and Houlihan Lokey to
complete their analyses of the proposed transaction so that the committee
could make its recommendation to the board of directors at a meeting to be
held the following day.
On March 30, 2000, the special committee met in person (Mr. Gillespie by
telephone) with representatives of Jefferies, Houlihan Lokey and Latham &
Watkins to consider and vote upon Green's proposal. Representatives of Latham
& Watkins and Potter Anderson & Corroon LLP, Delaware counsel to the special
committee, discussed the duties of the special committee members in evaluating
the most recent proposal from Green. They reviewed with the special committee
the history of the process undertaken by the special committee to date. In
addition, they summarized the terms of the proposed Merger Agreement and
discussed the concessions that had been made by Green in the terms of the
transaction, as compared to what had been originally proposed. Thereafter,
representatives of Jefferies and Houlihan Lokey gave detailed presentations
regarding their views and analyses of various aspects of the proposed
transaction, the terms of the proposed Merger Agreement and other matters. At
this meeting, Jefferies and Houlihan Lokey each delivered their written
opinion that, based upon the matters presented to the special committee and as
set forth in their respective opinions, as of the date of their opinions, the
consideration to be received in the proposed transaction is fair, from a
financial point of view, to VCA's public stockholders. After discussion and
consideration, the special committee unanimously approved the Merger Agreement
and the transactions contemplated thereby, determined that the terms of the
Merger are fair to, and in the best interests of, VCA's public stockholders
and recommended that the board of directors approve and adopt the Merger
Agreement.
Following the special committee meeting, a meeting of the full board of
directors was convened at 8:00 pm. All directors were present, except for
Messrs. Gellespie and Heil who participated by telephone. In addition,
representatives of Jefferies, Houlihan Lokey, Latham & Watkins and Troop
Steuber were present. Mr. Chickering, on behalf of the special committee,
reported that the special committee had resolved to recommend to the board of
directors that the pending proposal from Green be accepted. He indicated that
the special committee had received a presentation from each of Jefferies and
Houlihan Lokey and their oral opinions, which were subsequently confirmed in
writing to the special committee and the board of directors in letters dated
March 30, 2000 to the effect that the consideration to be received in the
proposed transaction is fair, from a financial point of view, to VCA's public
stockholders. He indicated that the special committee had received a
presentation from Latham & Watkins and Potter Anderson on the terms of the
proposed Merger Agreement, including various provisions that had been
negotiated to improve the agreement from the perspective of VCA's public
stockholders. Representatives of Troop Steuber then summarized the terms of
the Merger Agreement, as finally negotiated, and reviewed with the board of
directors draft resolutions relating to the proposed transaction. A
representative of Troop Steuber also summarized the fiduciary standard
applicable to directors in approving transactions of this nature. A
representative of Latham & Watkins then summarized for the full board of
directors the activities of the special committee over the preceding three
months, including the numerous meetings and teleconferences. Representatives
of Jefferies and Houlihan Lokey then summarized their views and analysis of
the various terms and conditions of the proposed Merger and the opinions
delivered to the special committee.
Following further discussion, there was a motion to approve and adopt the
resolutions pertaining to the Merger Agreement and related transactions. The
resolutions were approved and adopted by the board of directors unanimously.
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Immediately following the meeting of the full board, VCA and Green entered
into the definitive Merger Agreement and VCA issued a press release announcing
that its board of directors had accepted Green's proposal and entered into the
definitive Merger Agreement.
Following the execution and delivery of the definitive Merger Agreement,
Green, with the concurrence of VCA, directed its counsel to prepare an Amended
and Restated Merger Agreement, primarily to eliminate the provision in the
definitive Merger Agreement allowing management to roll over a portion of
their current equity in VCA into Vicar Recap and instead to allow management
to retain a portion of their current equity in VCA as equity in the Surviving
Company.
On August 1, 2000, the special committee held a telephonic meeting to
consider and vote on the Amended and Restated Merger Agreement. After
discussion and consideration, the special committee unanimously approved the
Amended and Restated Merger Agreement and the transactions contemplated
thereby and recommended that the board of directors approve and adopt the
Amended and Restated Merger Agreement. Following the special committee
meeting, the full board of directors held a telephonic meeting and unanimously
approved and adopted the Amended and Restated Merger Agreement and the
transactions contemplated thereby.
Following the telephonic meeting of the full board of directors, VCA and
Green entered into the Amended and Restated Merger Agreement.
Recommendations of the Special Committee and the Board of Directors; Fairness
of the Merger
The Special Committee. At a meeting held on March 30, 2000, the special
committee unanimously:
. determined that the Merger is fair and in the best interests of VCA's
public stockholders, other than the Continuing Stockholders, and
. recommended that the board of directors approve the Merger Agreement and
the Asset Drop Down and recommend to VCA stockholders that they vote in
favor of approval and adoption of the Merger Agreement, the Asset Drop
Down and the transactions contemplated thereby.
In making the determination and recommendation set forth above, the members
of the special committee considered various factors, including, but not
limited to, the following:
. The special committee considered the manner in which the strategic
transaction process was conducted and that it was delegated exclusive
authority for conducting all aspects of the strategic transaction
process in its final stages. These responsibilities included, among
other things, the review and analysis of Green's proposals, the
engagement of legal and financial advisors, the negotiations with Green
and the ultimate determination with respect to the recommendation to the
board of directors of a definitive Merger Agreement and the transactions
contemplated thereby. The special committee also considered the fact
that the terms of the Merger Agreement were determined through extensive
arms-length negotiations between its advisors, on the one hand, and
Green and its advisors, on the other. The special committee also
considered that no additional parties had expressed an interest in a
transaction with VCA and that it had received the best and final offer
that Green was prepared to make. See the section entitled "Special
Factors--Background of the Merger" for additional information regarding
the negotiations.
. The special committee considered the terms of the Merger Agreement,
including the ability of the board of directors, in the exercise of its
fiduciary duties to stockholders, to consider competing proposals. See
the sections entitled "The Merger Agreement--Certain Covenants--No
Solicitation" and "--Termination; Termination Fees and Expenses" for
additional information regarding the ability of the board of directors
to consider competing proposals. The special committee considered that
the Merger Agreement permits the board of directors, following
consultation with its advisors and in the exercise of its fiduciary
obligations under applicable law, to furnish information to and
participate in negotiations with persons making bona fide unsolicited
offers and permits the board of directors to
21
<PAGE>
terminate the Merger Agreement and accept a financially superior
proposal under certain conditions, subject to a payment to Vicar Recap
of a termination fee of $10 million.
. The special committee considered the relationship between the $15.00
price per share to be paid in the Merger and the recent market prices of
VCA's common stock. The $15.00 price per share to be paid in the Merger
represents a 12% premium to the closing price of VCA's common stock on
March 30, 2000 (the day the Merger Agreement was signed).
. The special committee considered the opinion delivered by Jefferies. At
the March 30, 2000 meeting of the special committee, Jefferies made a
presentation to the special committee which included, among other
things, analyses of the value of VCA and comparisons with similar
companies and similar acquisition transactions, details of which are
described under the section entitled "Special Factors--Opinion of
Jefferies & Company, Inc." Jefferies also delivered its oral opinion to
the special committee, which was subsequently confirmed in writing to
the special committee and the board of directors in a letter dated March
30, 2000, to the effect that the $15.00 consideration to be received by
VCA's stockholders in the Merger was fair, from a financial point of
view, to such holders. Jefferies is a nationally recognized investment
banking firm. As part of its investment banking business, Jefferies is
frequently engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
secondary distributions of securities, private placements and other
purposes. The special committee concluded that the valuation analysis
performed by Jefferies, which considered the going concern, net book,
historical and current market values of VCA, supported the special
committee's conclusion that the Merger is fair and in the best interests
of VCA's public stockholders. The special committee found reasonable and
adopted the analyses presented and the opinion delivered by Jefferies.
The written opinion of Jefferies dated March 30, 2000 is included as
Annex B of this proxy statement. Stockholders are urged to read that
opinion in its entirety.
. The special committee considered the opinion delivered by Houlihan Lokey
Howard & Zukin Capital. At the March 30, 2000 meeting of the special
committee, Houlihan Lokey made a presentation to the special committee
which included, among other things, analyses of the value of VCA and
comparisons with similar companies and similar acquisition transactions,
details of which are described under the section entitled "Special
Factors--Opinion of Houlihan Lokey Howard & Zukin Capital." Houlihan
Lokey also delivered its oral opinion to the special committee, which
was subsequently confirmed in writing to the special committee and the
board of directors in a letter dated March 30, 2000, to the effect that
the $15.00 consideration to be received by VCA's public stockholders in
the Merger was fair, from a financial point of view, to such holders.
Houlihan Lokey is a nationally recognized investment banking firm with
special expertise in, among other things, valuing businesses and
securities and rendering fairness opinions. The special committee found
reasonable and adopted the analyses presented and the opinion delivered
by Houlihan Lokey. The written opinion of Houlihan Lokey dated March 30,
2000 is included as Annex C to this proxy statement. Stockholders are
urged to read that opinion in its entirety.
. The special committee considered the diminished attention of the public
market in small capitalization stocks outside the technology sector,
such as VCA's and, in particular, companies with a consolidation
strategy.
. The special committee considered VCA's imminent need for additional
financing, which could be difficult to raise in light of existing market
conditions.
. The special committee considered the conditions to the obligations of
Vicar Recap to consummate the Merger.
. The special committee was fully aware of and considered the possible
conflicts of interest of the Continuing Stockholders. See the sections
entitled "Special Factors--Background of the Merger," and "--Interests
of VCA Directors and Officers in the Merger" for a description of these
conflicts of interest. The special committee considered in this regard
that its composition, consisting of members
22
<PAGE>
of the board of directors with no financial interest in the Merger that
is different from the interests of VCA stockholders generally, permitted
it to represent effectively the interests of VCA's public stockholders.
. The special committee considered the ability of stockholders who may not
support the Merger to obtain "fair value" for their shares if they
properly perfect and exercise their appraisal rights under the General
Corporation Law of the State of Delaware, or the "DGCL." The special
committee felt that it was important that the DGCL provides stockholders
with the opportunity to exercise appraisal rights and to seek a
determination of the Delaware Court of Chancery of the fair value of
their shares of common stock. See the section entitled "Special
Factors--Appraisal Rights" for information on how to exercise your
appraisal rights.
In view of the variety of factors considered in connection with its
evaluation of the Merger Agreement, the special committee found it
impracticable to, and did not, quantify, rank or otherwise assign relative
weights to the factors considered or determine that any factor was of
particular importance in reaching its determination that the Merger Agreement
and the transactions contemplated thereby are fair to, and in the best
interests of, VCA's public stockholders. Rather, the special committee viewed
its recommendations as being based upon its judgment, in light of the totality
of the information presented and considered, of the overall effect of the
Merger on VCA's public stockholders compared to any alternative transaction.
The foregoing discussion of the information and factors considered by the
special committee is not intended to be exhaustive but is believed to include
the factors given primary consideration by the special committee. The special
committee did not analyze the fairness of the $15.00 per share consideration
in isolation from the other considerations referred to above. The special
committee did not attempt to distinguish between factors that support a
determination that the Merger is "fair" and factors that support a
determination that the Merger is in the "best interests" of VCA's public
stockholders.
The Board of Directors. At a special meeting held on March 30, 2000, the
board of directors, acting upon the unanimous recommendation of the special
committee, unanimously:
. determined that the Merger is fair and in the best interests of VCA's
public stockholders;
. approved the Merger Agreement, the Asset Drop Down and the transactions
contemplated thereby; and
. recommended that stockholders vote to approve and adopt the Merger
Agreement, the Asset Drop Down and the transactions contemplated
thereby.
See the section entitled "Special Factors--Background of the Merger" for
additional information on the board of director's recommendations.
In making the determination and recommendation set forth above, the members
of the board of directors considered and relied upon the special committee's
unanimous determination and recommendations to the board of directors in
conjunction with the factors relied upon by the special committee in making
such determination and recommendations. See "Special Factors--Recommendations
of the Special Committee and the Board of Directors; Fairness of the Merger--
The Special Committee." The board of directors also considered the opinions
delivered by both Houlihan Lokey and Jefferies to the board of directors at
its March 30, 2000 meeting. At that meeting, each of Houlihan Lokey and
Jefferies delivered its oral opinion to the board of directors, which were
subsequently confirmed in writing to the board of directors in letters dated
March 30, 2000, to the effect that, as of such date, the $15.00 consideration
to be received in the Merger is fair, from a financial point of view, to VCA's
public stockholders. The opinions of Jefferies and Houlihan Lokey were later
adopted by the board of directors. See "Special Factors--Opinion of Jefferies
& Company, Inc." and "--Opinion of Houlihan Lokey Howard Zukin Capital." The
written opinions of Jefferies and Houlihan Lokey dated March 30, 2000 are
included as Annexes B and C, respectively, to this proxy statement. We urge
you to read these opinions in their entirety.
23
<PAGE>
In view of the variety of factors considered in connection with its
evaluation of the Merger Agreement, the board of directors found it
impracticable to, and did not, quantify, rank or otherwise assign relative
weights to, the factors considered or determine that any factor was of
particular importance in reaching its determination that the Merger is fair to
and in the best interests of VCA's public stockholders. Rather, the board of
directors viewed its recommendations as being based upon its judgment, in
light of the totality of the information presented to and considered by it, of
what the overall effect of the Merger would be on VCA's public stockholders
compared to any alternative transaction.
The foregoing discussion of the information and factors considered and
given weight by the board of directors is not intended to be exhaustive but is
believed to include the factors given primary consideration by the board of
directors. The board of directors did not analyze the fairness of the $15.00
per share consideration in isolation from the other considerations referred to
above. The board of directors did not attempt to distinguish between factors
that support a determination that the Merger is "fair" and factors that
support a determination that the Merger is in the "best interests" of VCA's
public stockholders.
THE BOARD, ACTING UPON THE UNANIMOUS RECOMMENDATION OF THE SPECIAL
COMMITTEE, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE ASSET DROP
DOWN AND HAS DETERMINED THAT THE MERGER IS FAIR AND IN THE BEST INTERESTS OF
VCA'S PUBLIC STOCKHOLDERS. THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE ASSET DROP DOWN.
Procedural Fairness of the Merger. The board of directors and the members
of the special committee also determined that the Merger is procedurally fair,
because, among other things:
. the special committee consisted of two non-employee, independent
directors appointed to represent the interests of VCA's public
stockholders in connection with the negotiation and approval of the
terms of the Merger;
. none of the members of the special committee are Continuing
Stockholders;
. the special committee retained and received advice from independent
legal counsel and financial advisors, and the legal counsel, on behalf
of the special committee, aggressively negotiated the terms of the
Merger Agreement;
. the special committee received written opinions from Jefferies and
Houlihan Lokey as to the fairness from a financial point of view of the
Merger consideration to VCA's public stockholders, to assist it in
evaluating the Merger;
. the $15.00 per share cash consideration and the other terms and
conditions of the Merger Agreement resulted from active arm's length
bargaining between the special committee and its representatives, on the
one hand, and Green and its representatives, on the other hand; and
. the affirmative vote of a majority of the outstanding VCA shares
entitled to vote thereon is required under Delaware law to approve and
adopt the Merger Agreement and the Asset Drop Down and, under Delaware
law, VCA stockholders have the right to dissent from the Merger and
demand an appraisal of the value of their shares.
In light of the foregoing factors, the special committee and the board of
directors determined that the Merger is procedurally fair despite the fact
that the terms of the Merger Agreement do not require the approval of at least
a majority of the VCA public stockholders and that the special committee and
the board of directors did not retain an unaffiliated representative to act
solely on behalf of the VCA public stockholders for purposes of negotiating
the terms of the Merger Agreement.
The members of the board of directors and the members of the special
committee evaluated Green's proposal and the Merger in light of their
knowledge of the business, financial condition and prospects of VCA, and based
on the advice of financial and legal advisors. In view of the variety of
factors that the board of directors and the special committee considered in
connection with their evaluation of the Merger, neither the board of directors
nor the special committee quantified, ranked or otherwise assigned relative
weights to any of the foregoing factors.
24
<PAGE>
Opinion of Jefferies & Company, Inc.
Pursuant to an engagement letter dated January 25, 2000, the special
committee retained Jefferies & Company, Inc. to render an opinion to the board
of directors of VCA and the special committee as to the fairness of the $15.00
per share Merger consideration, from a financial point of view, to the holders
of VCA common stock.
On March 30, 2000, at a meeting of the board of directors of VCA held to
evaluate the proposed Merger, Jefferies delivered its oral opinion to the
board of directors and the special committee, which was subsequently confirmed
in writing to the board of directors and the special committee in a letter
dated March 30, 2000, that, as of March 30, 2000 and based on the assumptions
made, the matters considered and the limitations on the review undertaken
described in the opinion, the $15.00 per share consideration was fair from a
financial point of view to the holders of VCA common stock. No limitations
were imposed by the board of directors on Jefferies with respect to the
investigations made or procedures followed by it in rendering its opinion.
Jefferies' opinion was prepared for the benefit and use of the board of
directors and the special committee in their consideration of the Merger and
does not constitute a recommendation to stockholders of VCA as to how they
should vote upon, or take any other action with respect to, the Merger.
The full text of Jefferies' opinion, which sets forth the assumptions made,
matters considered and limitations on the review undertaken, is attached as
Annex B to this proxy statement. Stockholders are urged to read the opinion
carefully and in its entirety.
Jefferies' opinion is expressly intended for the benefit and use of the
special committee and the board of directors and does not address:
. the relative merits of the Merger and the other business strategies that
the board of directors has considered or may be considering; or
. the underlying business decision of the board of directors to proceed
with the Merger.
In addition, Jefferies' opinion does not constitute a recommendation to any
stockholder of VCA as to how such holder should vote with respect to the
Merger.
In the course of performing its review and analyses for rendering its
opinion, Jefferies, among other things:
. reviewed certain publicly available financial statements and other
business and financial information of VCA;
. reviewed certain internal financial statements and other financial and
operating data concerning VCA, prepared by management of VCA;
. reviewed certain financial forecasts and other forward looking financial
information based on information prepared by VCA's management;
. held discussions with the management of VCA concerning the business,
past and current operations, financial condition and future prospects of
VCA;
. reviewed the financial terms and conditions set forth in the Merger
Agreement;
. reviewed the stock price and trading history of the VCA common stock;
. compared the financial performance of VCA and the prices and trading
activity of the VCA common stock with that of certain other publicly-
traded companies comparable with VCA;
. compared the financial terms of the Merger with the financial terms, to
the extent publicly available, of other transactions it deemed relevant;
. prepared a discounted cash flow analysis of VCA;
. prepared a leveraged acquisition analysis of VCA;
. participated in discussions among representatives of VCA and their
financial and legal advisors; and
. made such other studies and inquiries, and took into account such other
matters, as it deemed relevant, including an assessment of general
economic, market and monetary conditions.
25
<PAGE>
In its review and analysis, and in arriving at its opinion, Jefferies
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to it including, without limitation,
information furnished to it orally or otherwise discussed with it by VCA's
management, or publicly available. Jefferies neither attempted to verify, nor
assumed responsibility for verifying, any of such information. Jefferies
relied upon the assurances of VCA's management that they were not aware of any
facts that would make such information inaccurate or misleading. Furthermore,
Jefferies did not obtain or make, or assume any responsibility for obtaining
or making, any independent evaluation or appraisal of the properties, assets
or liabilities, contingent or otherwise, of VCA, nor was Jefferies furnished
with any such evaluation or appraisal.
With respect to the financial forecasts and projections and the assumptions
and basis therefore of VCA that Jefferies reviewed, upon the advice of VCA's
management, Jefferies assumed that such forecasts and projections:
. had been reasonably prepared in good faith on the basis of reasonable
assumptions;
. reflected the best available estimates and judgments as to the future
financial condition and performance of VCA; and
. will be realized in the amounts and in the time periods estimated.
In addition, Jefferies assumed that:
. the Merger will be consummated upon the terms set forth in the Merger
Agreement without material alteration thereof; and
. the historical financial statements of VCA reviewed by it had been
prepared and fairly presented in accordance with U.S. generally accepted
accounting principles consistently applied.
Jefferies relied as to all legal matters relevant to rendering its opinion
on the advice of counsel.
Jefferies' opinion is necessarily based upon market, economic and other
conditions as in effect on, and information made available to Jefferies as of,
the date of Jefferies' opinion. It should be understood that subsequent
developments may affect the conclusion expressed in Jefferies' opinion and
that Jefferies disclaims any undertaking or obligation to advise any person of
any change in any matter affecting the opinion which may come or be brought to
its attention after the date of the opinion. Jefferies' opinion is limited to
the fairness, from a financial point of view and as of the date thereof, of
the $15.00 per share Merger consideration to the holders of VCA common stock.
Jefferies does not express any opinion as to:
. the value of any employee agreement or other arrangement entered into in
connection with the Merger; or
. any tax or other consequences that might result from the Merger.
26
<PAGE>
The following is a summary of the material financial analyses performed by
Jefferies in connection with rendering its opinion. The summary of the
financial analyses is not a complete description of all of the analyses
performed by Jefferies. Certain information in this section is presented in a
tabular form. IN ORDER TO BETTER UNDERSTAND THE FINANCIAL ANALYSES PERFORMED
BY JEFFERIES, THESE TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH
SUMMARY. JEFFERIES' OPINION IS BASED UPON THE TOTALITY OF THE VARIOUS ANALYSES
PERFORMED BY JEFFERIES AND NO PARTICULAR PORTION OF THE ANALYSES HAS ANY MERIT
STANDING ALONE.
Premiums Paid Analysis. Using publicly available information, Jefferies
analyzed, among other things, the premium paid to the VCA stock price as of
March 24, 2000 compared to a large sample of other acquisition transactions.
The results of such analysis are included in the table below.
<TABLE>
<CAPTION>
Period Prior to March 24,
2000
---------------------------
One Day One Week Four Week
------- -------- ---------
<S> <C> <C> <C>
VCA price per share during period................ $13.13 $12.95 $11.06
Proposed purchase price per share................ 15.00 15.00 15.00
------ ------ ------
Purchase premium--VCA............................ 14.2% 15.8% 35.6%
Trimmed average premium paid in other
public transactions(1)(2)(3)
All offers..................................... 25.1% 30.8% 37.8%
All cash offers................................ 24.8% 31.1% 37.1%
</TABLE>
--------
(1) Source: Securities Data Company.
(2) All public transactions announced and completed from January 1, 1997 to
March 24, 2000 with transaction value of $100 million to $1,500 million.
(3) Trimmed average, which excludes top 10% and bottom 10% of premiums paid.
In addition to analyzing the premium paid relative to other acquisitions,
Jefferies reviewed the premium paid relative to the trading history of VCA
shares as outlined in the table below.
<TABLE>
<CAPTION>
Period Prior to March 24, 2000 Price Premium
------------------------------ ------ -------
<S> <C> <C>
90 day average............................................... $11.48 30.6 %
52 week average.............................................. 12.35 21.5 %
52 week high (3/25/99)....................................... 15.06 (0.4)%
52 week low (10/22/99)....................................... 9.31 61.1 %
Diluted Net Book Value (12/31/99)............................ 10.80 38.9 %
</TABLE>
Comparable Companies Analysis. Using publicly available information,
Jefferies analyzed and compared, among other things, the trading multiples of
VCA to the corresponding trading multiples of selected publicly-traded
companies that Jefferies believed were generally comparable to VCA. These
comparable companies are set forth in the table below.
<TABLE>
<CAPTION>
Comparable Publicly-Traded Companies
-------------------------------------------------------------------------
Pet Companies Healthcare Companies
------------------------------------ ------------------------------------
<S> <C>
IDEXX Laboratories Inc. Interdent, Inc.
PETCO Animal Supplies, Inc. Monarch Dental Corporation
PETsMART, Inc. Orthalliance, Inc.
Orthodontic Centers of America, Inc.
Pediatrix Medical Group
Rehabcare Group, Inc.
Renal Care Group, Inc.
</TABLE>
27
<PAGE>
The purpose of the comparable company analysis was to establish that the
acquisition multiple being considered for VCA was in the range of the
comparable publicly-traded companies. This was accomplished by deriving a
range of multiples determined by dividing the total enterprise value and the
public market capitalizations of these companies by their operating results.
Multiples compared by Jefferies included total enterprise value ("TEV") to
revenues, earnings before interest, taxes, depreciation and amortization
("EBITDA"), and earnings before interest and taxes ("EBIT") in addition to
public market capitalization to net income and stockholder's equity for the
latest twelve month period ended September 30, 1999 ("LTM") and estimated
calendar years 1999 and 2000. All multiples were based on closing stock prices
as of March 24, 2000.
Results of Jefferies' analysis are summarized as follows:
<TABLE>
<CAPTION>
Comparable
Company
Multiples
------------------
LTM 1999E 2000E
---- ----- -----
<S> <C> <C> <C>
Total Enterprise Value/
/Revenue
High.................................................... 4.4x 3.4x 2.6x
Low..................................................... 0.3x 0.2x 0.2x
Trimmed Average(1)...................................... 1.2x 1.2x 1.0x
VCA Acquisition Multiple................................ 1.5x 1.5x 1.3x
/EBITDA
High.................................................... 13.7x 12.7x 10.0x
Low..................................................... 2.9x 3.1x 2.7x
Trimmed Average(1)...................................... 7.0x 6.5x 5.2x
VCA Acquisition Multiple................................ 8.5x 8.1x 6.6x
/EBIT
High.................................................... 19.0x 17.2x 12.5x
Low..................................................... 3.5x 3.9x 3.8x
Trimmed Average(1)...................................... 9.9x 8.9x 6.9x
VCA Acquisition Multiple................................ 11.6x 11.0x 8.8x
Public Market Capitalization/
/Net Income
High.................................................... 34.1x 32.4x 24.4x
Low..................................................... 4.2x 4.6x 4.8x
Trimmed Average(1)...................................... 15.0x 13.3x 10.2x
VCA Acquisition Multiple................................ 18.6x 17.8x 13.2x
/Stockholder's Equity
High.................................................... 3.3x NA NA
Low..................................................... 0.5x NA NA
Trimmed Average(1)...................................... 1.9x NA NA
VCA Acquisition Multiple................................ 1.4x NA NA
</TABLE>
--------
(1) Trimmed average is defined as the average of the values, excluding the
highest and lowest values.
28
<PAGE>
Similar Transaction Analysis. Using publicly available information,
Jefferies analyzed the consideration offered and the implied transaction value
multiples paid or proposed to be paid in acquisition transactions that were
completed in the past two years in the pet and healthcare industry that
Jefferies deemed generally comparable to the Merger. These transactions
included:
<TABLE>
<CAPTION>
Announcement
Target Acquiror Date
------------------------------- ----------------------------- ------------
<C> <S> <C>
Alliance Imaging, Inc. ........ Kohlberg Kravis Roberts & Co. 09/14/99
Physicians' Specialty Corp. ... TA Associates, Inc. 06/14/99
Unilab Corporation............. Kelso & Company 05/25/99
Sheridan Healthcare, Inc. ..... Vestar Capital Partners III,
L.P. 03/25/99
Concentra Managed Care, Inc. .. Welsh, Carson, Anderson &
Stowe VIII, L.P. 03/03/99
CompDent Corporation........... TA Associates, Inc. and
Golder, Thoma, Cressey,
Rauner, Inc. 01/19/99
MedCath Incorporated........... Kohlberg Kravis Roberts & Co.
and Welsh, Carson, Anderson &
Stowe VIII, L.P. 03/13/98
</TABLE>
The purpose of the similar transaction analysis was to establish that the
acquisition multiple being considered for VCA was in the range of the similar
public acquisition multiples. This was accomplished by dividing the aggregate
consideration paid in the selected similar transactions by the projected
operating results of the acquired companies.
Multiples compared by Jefferies included the total consideration in such
transactions as a multiple of the preceding twelve months ("LTM") revenues,
EBIT and EBITDA. In addition, multiples compared by Jefferies included the
total consideration in such transactions as a multiple of the run-rate, or
annualized, revenues, EBIT and EBITDA based on prior quarter results. All
multiples for the similar transactions were based on public information
available at the time of the announcement of such transactions. Based on this
information and other publicly available information, the following table
illustrates the implied VCA acquisition multiples compared to multiples that
Jefferies derived from the similar transactions.
<TABLE>
<CAPTION>
Similar Transaction Multiples
----------------------------------------
LTM Run-Rate
------------------- -------------------
Revenue EBITDA EBIT Revenue EBITDA EBIT
------- ------ ---- ------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
High............................... 2.9x 11.7x 20.3x 2.7x 11.8x 20.6x
Low................................ 1.1x 6.5x 8.4x 1.1x 6.0x 7.9x
Trimmed Average(1)................. 1.7x 8.6x 11.8x 1.5x 8.2x 12.3x
VCA Acquisition Multiple........... 1.5x 8.1x 11.0x 1.4x 7.7x 10.5x
</TABLE>
--------
(1) Trimmed average is defined as the average of the values, excluding the
highest and lowest values.
Jefferies noted that no company, business or transaction compared in the
comparable companies analysis or similar transaction analysis is identical to
VCA or the VCA transaction. Accordingly, an analysis of the results of the
foregoing is not entirely mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the acquisition, public
trading and other values of the comparable companies or the similar
transactions to which they are being compared.
Discounted Cash Flow Analysis. Jefferies also performed a discounted cash
flow analysis of the after-tax free cash flows of VCA using management's
projections for the years ended December 31, 2000 to 2004. The purpose of the
discounted cash flow analysis was to establish a range for the potential
equity value of VCA by determining a range for the net present value of VCA's
projected future cash flows. Jefferies first discounted the projected, after-
tax free cash flows through December 31, 2004 using discount rates ranging
from 14% to 15%, which discount rates were based upon VCA's weighted average
cost of capital as measured by Jefferies. VCA's after-tax free cash-flows were
calculated as the after-tax operating earnings of VCA adjusted to add back
non-
29
<PAGE>
cash expenses and deduct uses of cash not reflected in the income statement.
Jefferies then added to the present value of the free cash flows the terminal
value of VCA at December 31, 2004, discounted back at the same discount rate
to represent a present value. The terminal value was computed by growing the
projected free cash flow for VCA in calendar year 2004 by a perpetual growth
rate ranging from 7.0% to 8.0%, and then dividing such amount by a
capitalization rate equal to the discount rate minus the perpetual growth
rate. The perpetual growth rate represents the average long-term rate of
growth that can be expected beginning in 2005, as measured by Jefferies, based
upon VCA's business plan. The following table summarizes the resulting implied
VCA equity valuations and implied VCA equity values per share which can be
compared to the Merger consideration of $15.00 per share:
<TABLE>
<CAPTION>
Perpetual Growth
Rate
--------------------
Discount Rate 7.0% 7.5% 8.0%
------------- ------ ------ ------
<S> <C> <C> <C>
15.0%................................................... $12.26 $13.15 $14.16
14.5%................................................... 13.47 14.50 15.69
14.0%................................................... 14.85 16.05 17.48
</TABLE>
Leveraged Acquisition Analysis. Jefferies also performed a leveraged
acquisition analysis to ascertain the price that would be attractive to a
potential financial buyer, or sponsor, based upon current market conditions.
For this analysis, Jefferies reviewed financial projections of management and
assumed the following in performing this analysis:
. the leveraged acquisition analysis assumes VCA is leveraged to its
maximum financeable leverage measured by total debt divided by LTM
EBITDA of 5.0x;
. an acquisition of VCA would require management incentive options equal
to 15% of VCA's stock at the sponsor's purchase price, and the sponsor
would leave 2.5% of the shares outstanding to allow for favorable
recapitalization accounting;
. an acquisition of VCA would require a refinancing of existing
indebtedness;
. the sponsor of a buyout would require a rate of return of 20% to 30%;
and
. the sponsor of a buyout would expect an exit multiple within the range
of what the sponsor paid and at what comparable companies are currently
trading at, an exit multiple of TEV divided by EBITDA of 7.0x to 9.0x.
The following table summarizes the resulting implied VCA equity valuations
and implied VCA equity values per share which can be compared to the Merger
consideration of $15.00 per share:
<TABLE>
<CAPTION>
Required Rate on
Return
--------------------
Maximum Implied
Purchase Price per
Share
--------------------
2004
TEV/EBITDA
Exit Multiple 30.0% 25.0% 20.0%
------------- ------ ------ ------
<S> <C> <C> <C>
7.0x............................................... $10.65 $12.04 $13.84
8.0x............................................... 11.80 13.45 15.59
9.0x............................................... 12.95 14.86 17.34
</TABLE>
Jefferies believes that it is unlikely that a liquidation of VCA would
yield value in excess of the $15.00 per share Merger consideration, given
that, among other things, (a) the book values of VCA's working capital and
fixed assets are less than VCA's debt obligations and (b) the tangible net
worth of VCA (that is, the book value of stockholders' equity less the book
value of intangible assets such as goodwill and covenants not to compete) is
$(64.5) million. Therefore, Jefferies did not consider a liquidation analysis
relevant to its analysis of the fairness of the Merger consideration.
While the foregoing summary describes certain analyses and factors that
Jefferies deemed material in its presentation to the board of directors, it is
not a comprehensive description of all analyses and factors considered
30
<PAGE>
by Jefferies. The preparation of a fairness opinion is a complex process that
involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Jefferies believes that its analyses must
be considered as a whole and that selecting portions of its analyses and of
the factors considered by it, without considering all analyses and factors,
would create an incomplete view of the evaluation process underlying
Jefferies' opinion. Several analytical methodologies were employed and no one
method of analysis should be regarded as critical to the overall conclusion
reached by Jefferies. Each analytical technique has inherent strengths and
weaknesses, and the nature of the available information may further affect the
value of particular techniques. The conclusions reached by Jefferies are based
on all analyses and factors taken as a whole and also on application of
Jefferies' own experience and judgment. Such conclusions may involve
significant elements of subjective judgment and qualitative analysis.
Jefferies therefore gives no opinion as to the value or merit standing alone
of any one or more parts of the analysis it performed. In performing its
analyses, Jefferies considered general economic, market and financial
conditions and other matters, many of which are beyond the control of VCA. The
analyses performed by Jefferies are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable
than those suggested by such analyses. Accordingly, analyses relating to the
value of a business do not purport to be appraisals or to reflect the prices
at which the business actually may be purchased. Furthermore, no opinion is
being expressed as to the prices at which shares of VCA common stock may be
traded at any future time.
The special committee retained Jefferies based on Jefferies' experience as
a financial advisor in connection with mergers and acquisitions and in
securities valuations generally, as well as Jefferies' investment banking
relationship and familiarity with VCA.
The engagement letter between Jefferies and the special committee of the
board of directors provides that, for its services, Jefferies is entitled to
receive an opinion/retainer fee of $400,000, of which $175,000 was payable
upon its engagement and $225,000 was payable upon delivery of Jefferies'
opinion. In addition, Jefferies is entitled to receive a financial advisory
fee upon closing of the transaction equal to 0.5% of the transaction value,
with the opinion/retainer fee to be credited against this fee. VCA has also
agreed to reimburse Jefferies for certain of its out-of-pocket expenses,
including legal fees, and to indemnify and hold harmless Jefferies and its
affiliates and any director, employee or agent of Jefferies or any of its
affiliates, or any person controlling Jefferies or its affiliates, for certain
losses, claims, damages, expenses and liabilities relating to or arising out
of services provided by Jefferies as financial advisor to VCA. The terms of
the fee arrangement with Jefferies, which VCA and Jefferies believe are
customary in transactions of this nature, were negotiated at arm's length
between the special committee and Jefferies, and the VCA board was aware of
such fee arrangements. Jefferies maintains a market in the shares of VCA
common stock.
Jefferies is a nationally recognized investment banking firm. As part of
its investment banking business, Jefferies is frequently engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and other purposes. In the ordinary course of its business,
Jefferies may trade in VCA's securities for its own account and the account of
its customers and, accordingly, may at any time hold a long or short position
in VCA's securities. Jefferies has, in the past, been engaged by Green for
investment banking services. Jefferies also has a $5 million investment in
funds managed by Green.
Opinion of Houlihan Lokey Howard & Zukin Capital
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The
following is a brief summary and general description of the valuation
methodologies utilized by Houlihan Lokey. The summary does not purport to be a
complete statement of the analyses and procedures applied, the judgments made
or the conclusion reached by Houlihan Lokey or a complete description of its
presentation. Houlihan Lokey believes, and so advised the special committee,
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered
31
<PAGE>
by it, without considering all factors and analyses, could create an
incomplete view of the process underlying its analyses and opinions.
On behalf of the special committee, VCA retained Houlihan Lokey to render
an opinion as to the fairness, from a financial point of view, of the $15.00
per share consideration to VCA's public stockholders. At the March 30, 2000
meeting of the special committee of the board of directors, Houlihan Lokey
presented its analysis regarding the fairness, from a financial point of view,
of the $15.00 per share consideration. VCA agreed to pay Houlihan Lokey a fee
of $225,000 for its preparation and delivery of the fairness opinion. No
portion of Houlihan Lokey's fee is contingent upon the successful completion
of the Merger. No limitations were imposed by the board of directors on
Houlihan Lokey with respect to the investigations made or procedures followed
by it in rendering its opinion. VCA retained Houlihan Lokey solely to deliver
its fairness opinion. VCA agreed to indemnify Houlihan Lokey and its
affiliates against certain liabilities, including liabilities under federal
securities laws that arise out of the engagement of Houlihan Lokey.
At the March 30, 2000 meeting, Houlihan Lokey presented its analysis as
hereinafter described and delivered its oral opinion which was subsequently
confirmed in writing to the board of directors and the special committee in a
letter dated March 30, 2000, that as of such date and based on the matters
described therein, the $15.00 per share consideration is fair to VCA's public
stockholders from a financial point of view.
THE COMPLETE TEXT OF HOULIHAN LOKEY'S OPINION IS ATTACHED HERETO AS
ANNEX C. THE SUMMARY OF THE OPINION SET FORTH BELOW IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH OPINION. THE COMMON STOCKHOLDERS ARE URGED TO
READ SUCH OPINION CAREFULLY IN ITS ENTIRETY FOR A DESCRIPTION OF THE
PROCEDURES FOLLOWED, THE FACTORS CONSIDERED AND THE ASSUMPTIONS MADE BY
HOULIHAN LOKEY.
Houlihan Lokey's opinion to the special committee and the board of
directors addresses only the fairness from a financial point of view of the
$15.00 per share consideration to VCA's public stockholders, and does not
constitute a recommendation to the stockholders as to how any such stockholder
should vote at the special meeting. Houlihan Lokey's opinion does not address
VCA's underlying business decision to effect the Merger. Houlihan Lokey has
not been requested to, and did not, solicit third party indications of
interest in acquiring all or part of VCA. Furthermore, Houlihan Lokey did not
advise the special committee with respect to alternatives to the Merger.
In arriving at its opinion, among other things, Houlihan Lokey:
. reviewed VCA's annual reports to shareholders on Form 10-K for the five
fiscal years ended December 31, 1999 and VCA-prepared interim income
statement for the one-month period ended January 31, 2000, which VCA's
management has identified as being the most current financial statements
available;
. reviewed copies of the draft Agreement and Plan of Merger, dated March
30, 2000;
. reviewed copies of the draft of the commitment letter for the $70
million senior notes and $50 million senior subordinated notes between
GS Mezzanine Partners II, L.P. and Green Equity Investors III, L.P.,
dated March 30, 2000;
. reviewed copies of the draft of the commitment letter for the senior
secured bank financing between Goldman Sachs Credit Partners L.P. and
Green Equity Investors III, L.P.;
. met with certain members of the senior management of VCA to discuss the
operations, financial condition, future prospects and projected
operations and performance of VCA;
. visited certain facilities and the corporate offices of VCA;
. reviewed quarterly internal statements for the animal hospital and
laboratory divisions for four quarters of 1998 and four quarters of
1999;
. reviewed summary of individual animal hospital performance including
history of acquisitions;
32
<PAGE>
. reviewed VCA's equity ownership schedules including options and
repurchase programs;
. reviewed forecasts and projections based on information supplied by
VCA's management with respect to VCA for the years ending December 31,
2000 through 2005;
. reviewed the historical market prices and trading volume for VCA's
publicly traded securities;
. reviewed certain other publicly available financial data for certain
companies that it deemed comparable to VCA, and publicly available
prices and premiums paid in other transactions that it considered
similar to the Merger;
. reviewed drafts of certain documents to be delivered at the closing of
the Merger; and
. conducted such other studies, analyses and inquiries as it deemed
appropriate.
Houlihan Lokey used several methodologies to assess the fairness, from a
financial point of view, of the $15.00 per share consideration to be received
by VCA's public stockholders. Each methodology provided an estimate as to the
aggregate value of the enterprise equity.
Valuation of VCA; Assessment of VCA's Public Stock Price. As part of its
analysis, Houlihan Lokey analyzed the trading value of VCA's common stock.
Houlihan Lokey calculated the ratio of average daily trading volume to float
and float to total shares outstanding for common stock. Houlihan Lokey then
compared VCA's ratios to similar ratios of comparable publicly traded
companies. Houlihan Lokey considered the trading volume and float ratios of
AmSurg Corp., Castle Dental Centers, Inc., IDEXX Laboratories, Inc., Monarch
Dental Corporation, Orthodontic Centers of America, Orthalliance, Inc., Renal
Care Group, Inc., PETsMART, Inc., and PETCO Animal Supplies, Inc. Houlihan
Lokey noted that the 20-day and 6-month median daily trading volumes for the
comparable publicly traded companies as percentages of common shares
outstanding were approximately .076% and 0.79%, respectively, compared to the
20-day and 6-month daily trading volumes of 1.41% and 0.75%, respectively, for
VCA. Houlihan Lokey also noted that the median ratio of public float to total
shares outstanding was approximately 84% for the comparable public companies
compared to approximately 86% for VCA.
Based on these analyses, it was Houlihan Lokey's opinion that VCA's common
stock trading activity is similar to the trading activity of the comparable
public companies and has a similar float as the stock of comparable public
companies (as a percent of shares outstanding).
Fairness of Consideration to VCA's Public Stockholders. After determining
that the trading price of the common stock may reflect its fully distributed
value, Houlihan Lokey completed an independent valuation of VCA using the
market multiple, comparable transactions, and income methodologies. Each
methodology provided an estimate as to the aggregate control equity value of
VCA.
Comparable Company Analysis. The market multiple approach involved the
multiplication of various earnings and cash flow measures by appropriate risk-
adjusted multiples. Multiples were determined through an analysis of certain
publicly traded companies, selected on the basis of operational and economic
similarity with the principal business operations of VCA. Earnings and cash
flow multiples were calculated for the comparable companies based upon daily
trading prices. A comparative risk analysis between VCA and the public
companies formed the basis for the selection of appropriate risk adjusted
multiples for VCA. The risk analysis incorporates
both quantitative and qualitative risk factors, which relate to, among other
things, the nature of the industry in which VCA and the comparable companies
are engaged.
For purposes of this analysis, Houlihan Lokey selected nine publicly traded
companies. The companies included AmSurg Corp., Castle Dental Centers, Inc.,
IDEXX Laboratories, Inc., Monarch Dental Corporation, Orthodontic Centers of
America, Orthalliance, Inc., Renal Care Group, Inc., PETsMART, Inc., and PETCO
Animal Supplies, Inc.
Comparable Transaction Analysis. Houlihan Lokey analyzed the multiples of
certain financial performance measures implied by the consideration for 225
merger and acquisition transactions announced or
33
<PAGE>
consummated since January 1995, and involving companies in the specialty
retail and healthcare services industries. Among other factors, Houlihan Lokey
considered that the merger and acquisition transaction environment varies over
time. To the extent that information was publicly available for these
transactions, Houlihan Lokey analyzed the multiples of transaction enterprise
value (defined as aggregate equity plus interest bearing debt implied by the
transaction, net of cash) to trailing twelve months revenues, EBITDA and EBIT.
No company or transaction used in the analysis described above was directly
comparable to VCA or the VCA Merger. Accordingly, the analysis of the results
of the foregoing involved complex considerations and judgments concerning
differences in financial and operating characteristics of the companies that
could affect public trading values.
Discounted Cash Flow Analysis. Houlihan Lokey performed a discounted cash
flow analysis for the projected unleveraged after tax cash flows of VCA. In
conducting its analysis, Houlihan Lokey relied on certain assumptions,
financial forecasts and other information provided by the management of VCA
for the years ending December 31, 2000 through December 31, 2005. The
enterprise value indications from the discounted cash flow analysis of the
projected free cash flow of VCA were determined by adding (x) the present
value of the projected free cash flow over the six-year period from 2000
through 2005 and (y) the present value of the estimated terminal values of
VCA.
The conclusions resulting from the aforementioned analysis indicated that
the $15.00 per share consideration to be received by VCA's public stockholders
is fair from a financial point of view.
Houlihan Lokey relied upon and assumed, without independent verification,
that the historical and financial forecasts and projections provided to them,
and as adjusted based on their discussions with management, were reasonably
prepared and reflected the best currently available estimates of the future
financial results and condition of VCA, and that there had been no material
change in the assets, financial condition, business or prospects of VCA since
the date of the most recent financial statements made available to them.
Houlihan Lokey did not independently verify the accuracy and completeness
of the information supplied to it with respect to VCA and does not assume any
responsibility with respect to it. Houlihan Lokey has not made any independent
appraisal of any of the properties or assets of VCA. Houlihan Lokey's opinion
was necessarily based on business, economic, market and other conditions as
they existed and could be evaluated by them at the date of their letter.
Houlihan Lokey is a nationally recognized investment banking firm with
special expertise in, among other things, valuing businesses and securities
and rendering fairness opinions. Houlihan Lokey is continually engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, private placements of debt and equity,
corporate reorganizations, employee stock ownership plans, corporate and other
purposes. The special committee selected Houlihan Lokey because of its
experience and expertise in performing valuation and fairness analysis.
Houlihan Lokey does not beneficially own nor has it ever beneficially owned
any interest in VCA.
The Green Entities', the Management Continuing Stockholders' and Vicar
Operating's Reasons for the Merger
The Green Entities' purposes for engaging in the Merger are to enable the
Green Entities to make an investment in, and to obtain a controlling interest
in, VCA, and to enable existing VCA stockholders (other than the Continuing
Stockholders) to realize a premium on their shares of VCA common stock. Vicar
Recap was formed for the purpose of engaging in the Merger and the other
transactions contemplated by the Merger Agreement. Vicar Recap elected to
proceed with the Merger and the other transactions contemplated by the Merger
Agreement for the same purposes that motivated Green Equity and GEI Capital.
The Management Continuing Stockholders' purpose for engaging in the Merger
is to retain an investment in VCA as a private company. The Management
Continuing Stockholders believe that as a private company VCA will have
greater operating flexibility to focus on enhancing value by emphasizing
growth and operating cash
34
<PAGE>
flow without the constraint of the public market's emphasis on quarterly
earnings. While the Management Continuing Stockholders believe that there will
be significant opportunities associated with their continued participation in
VCA, there are also substantial risks that these opportunities may not be
realized. These risks include, among others, risks associated with holding
equity of privately held companies as opposed to public companies, which
translates into a lack of liquidity in the investment, risks associated with
the level of debt of VCA following the Merger, risks associated with the
operations of the business, and risks of loss of all or some of their
investment in VCA.
The Green Entities and the Management Continuing Stockholders presently
intend that, following the completion of the Merger, the business of VCA will
be conducted substantially as it has been conducted historically. The Green
Entities and the Management Continuing Stockholders are continuing to evaluate
VCA's business, assets, practices, properties, operations, corporate
structure, capitalization and personnel and will seek to cause changes as they
deem appropriate. The Green Entities and the Management Continuing
Stockholders have no present intention to dispose of their investment in VCA
or to cause VCA to engage in a significant business combination. VCA intends
to pursue potential acquisitions that it considers appropriate when and if
they become available.
Vicar Operating was formed solely for the purpose of completing the Asset
Drop Down. Pursuant to the Merger Agreement, VCA will transfer all of its
assets, properties, business operations and liabilities to Vicar Operating
prior to completing the Merger. Vicar Operating elected to proceed with the
Merger and the Asset Drop Down for the same purposes that motivated its
parent, VCA.
Positions of the Green Entities, the Management Continuing Stockholders and
Vicar Operating as to the Fairness of the Merger
Under a potential interpretation of the rules governing "going private"
transactions, the Green Entities, the Management Continuing Stockholders and
Vicar Operating may be deemed affiliates of VCA and required to express their
beliefs as to the fairness of the Merger to VCA's public stockholders. Each of
the Green Entities, the Management Continuing Stockholders and Vicar Operating
believes that the Merger is fair to VCA's public stockholders on the basis of
the factors described below.
The Green Entities. The Green Entities did not participate in the
deliberations of the special committee or the VCA board of directors
regarding, or receive advice from VCA's legal or financial advisors as to, the
fairness of the Merger to VCA's public stockholders. However, based upon their
own knowledge and analysis of available information regarding VCA, as well as
discussions with members of VCA senior management regarding the factors
considered by the special committee and the VCA board of directors discussed
in this proxy statement in the section entitled "--Recommendations of the
Special Committee and the Board of Directors; Fairness of the Merger," the
Green Entities believe that the Merger is fair to VCA's public stockholders
and have adopted the analyses and opinions of Jefferies and Houlihan Lokey in
determining the fairness of the transaction to VCA's public stockholders. In
addition, the results of the due diligence investigation conducted by the
Green Entities and their legal and financial advisors, which included
discussions with members of VCA senior management regarding VCA's business,
visits to VCA's facilities and analysis of comparable companies in VCA's
industry, confirmed the Green Entities' belief that the Merger is fair to
VCA's public stockholders.
In particular, the Green Entities considered:
. the historical market prices for shares of VCA common stock, including
the fact that the $15.00 per share Merger consideration represents a 12%
premium over the closing price of VCA common stock on March 30, 2000,
the last trading day prior to the public announcement of the Merger
Agreement;
. the arm's length negotiations between the special committee and the
Green Entities described in the section entitled "--Background of the
Merger";
. the unanimous recommendation of the special committee and the VCA board
of directors in favor of the Merger Agreement and the Asset Drop Down;
35
<PAGE>
. the receipt by the VCA board of directors and the special committee of
the written opinions of Jefferies and Houlihan Lokey to the effect that
the $15.00 per share Merger consideration to be paid is fair, from a
financial point of view, to VCA's public stockholders; see the sections
entitled "--Opinion of Jefferies & Company, Inc." and "--Opinion of
Houlihan Lokey Howard & Zukin Capital"; and
. the other analyses and factors examined by the special committee and the
VCA board of directors described in detail in the section entitled "--
Recommendations of the Special Committee and the Board of Directors;
Fairness of the Merger."
The Green Entities believe that these factors provide a reasonable basis
for their belief that the Merger is fair to VCA's public stockholders. This
belief should not, however, be construed as a recommendation to the VCA public
stockholders by the Green Entities to approve the Merger Agreement, the Asset
Drop Down and the transactions contemplated thereby. The Green Entities do not
make any recommendation as to how stockholders of VCA should vote their
shares. The Green Entities have not undertaken any formal evaluation of the
fairness of the Merger to VCA's public stockholders, nor have they assigned
specific relative weights to the factors considered by them.
Management Continuing Stockholders. None of the Management Continuing
Stockholders (other than in their respective capacities as members of the VCA
board of directors) participated in the deliberations of the special committee
regarding, or received advice from the special committee's financial advisor
as to, the Merger. Each of the Management Continuing Stockholders has,
however, considered the analyses and findings of the special committee and the
board of directors, as well as the opinions of Jefferies and Houlihan Lokey,
with respect to the fairness of the Merger to the public stockholders of VCA.
In particular, the Management Continuing Stockholders considered, among
others, the following factors:
. the recent market prices for VCA shares including the fact that the
$15.00 per share Merger consideration represented a 12% premium to the
closing price of VCA's common stock on March 30, 2000 (the last trading
day prior to the public announcement of the Merger Agreement);
. the $15.00 per share Merger consideration and the other terms and
conditions of the Merger Agreement resulted from active arm's length
bargaining between the special committee and its representatives, on the
one hand, and Green and its representatives, on the other hand;
. the unanimous recommendation of the special committee and the VCA board
of directors in favor of the Merger Agreement and the Asset Drop Down;
. the receipt by the VCA board of directors and the special committee of
the written opinions of Jefferies and Houlihan Lokey to the effect that
the $15.00 per share Merger consideration to be paid is fair from a
financial point of view to VCA's public stockholders (other than the
Continuing Stockholders); and
. the other analyses and factors examined by the special committee and the
VCA board of directors.
Each of the Management Continuing Stockholders believes that based on these
factors the Merger is fair to and in the best interests of VCA's public
stockholders. The Management Continuing Stockholders (other than in their
respective capacities as members of the board of directors of VCA) have not
undertaken any formal evaluation of the fairness of the Merger to VCA's public
stockholders, and have not assigned specific relative weights to the factors
considered by them. While the Management Continuing Stockholders did not rely
on Jefferies' and Houlihan Lokey's analyses in making their decision to have
an equity participation in the Surviving Company, the Management Continuing
Stockholders have adopted the analyses and opinions of Jefferies and Houlihan
Lokey in determining the fairness of the transaction to VCA's public
stockholders.
Vicar Operating. Vicar Operating considered the analyses of, and the
factors examined by, the special committee and the VCA board of directors.
Vicar Operating believes that these analyses and factors, when considered
together with the analyses and opinions of Jefferies and Houlihan Lokey,
provide a reasonable basis for Vicar Operating to determine that the Merger is
fair to VCA's public stockholders.
36
<PAGE>
In particular, Vicar Operating considered, among others, the following
factors:
. the recent market prices for VCA shares including the fact that the
$15.00 per share Merger consideration represented a 12% premium to the
closing price of VCA's common stock on March 30, 2000 (the last trading
day prior to the public announcement of the Merger Agreement);
. the $15.00 per share Merger consideration and the other terms and
conditions of the Merger Agreement resulted from active arm's length
bargaining between the special committee and its representatives, on the
one hand, and Green and its representatives, on the other hand;
. the unanimous recommendation of the special committee and the VCA board
of directors in favor of the Merger Agreement and the Asset Drop Down;
. the receipt by the VCA board of directors and the special committee of
the written opinions of Jefferies and Houlihan Lokey to the effect that
the $15.00 per share Merger consideration to be paid is fair from a
financial point of view to VCA's public stockholders (other than the
Continuing Stockholders); and
. the other analyses and factors examined by the special committee and the
VCA board of directors.
Vicar Operating did not assign specific weights to the factors it
considered in making its fairness determination. In addition, Vicar Operating
later adopted the analyses and opinions of Jefferies and Houlihan Lokey.
Procedural Fairness of the Merger. Each of the Management Continuing
Stockholders, the Green Entities and Vicar Operating also believes that the
Merger is procedurally fair, because, among other things:
. the special committee consisted of two non-employee, independent
directors appointed to represent the interests of VCA's public
stockholders in connection with the negotiation and approval of the
terms of the Merger;
. none of the members of the special committee are Continuing
Stockholders;
. the special committee retained and received advice from independent
legal counsel and financial advisors, and the legal counsel, on behalf
of the special committee, aggressively negotiated the terms of the
Merger Agreement;
. the special committee received written opinions from Jefferies and
Houlihan Lokey as to the fairness from a financial point of view of the
Merger consideration to VCA's public stockholders, to assist it in
evaluating the Merger;
. the special committee and the board of directors unanimously recommended
approval of the Merger Agreement and the Asset Drop Down; and
. the affirmative vote of a majority of the outstanding VCA shares
entitled to vote thereon is required under Delaware law to approve and
adopt the Merger Agreement and the Asset Drop Down and, under Delaware
law, VCA stockholders have the right to dissent from the Merger and
demand an appraisal of the value of their shares.
In light of the foregoing factors, the Green Entities, the Management
Continuing Stockholders and Vicar Operating determined that the Merger is
procedurally fair despite the fact that the terms of the Merger Agreement do
not require the approval of at least a majority of the VCA public stockholders
and that the special committee and the board of directors did not retain an
unaffiliated representative to act solely on behalf of the VCA public
stockholders for purposes of negotiating the terms of the Merger Agreement.
In view of the variety of factors that the Management Continuing
Stockholders, the Green Entities and Vicar Operating considered in connection
with their evaluation of the Merger, the Management Continuing Stockholders,
the Green Entities and Vicar Operating found it impracticable to, and did not,
quantify, rank or otherwise assign relative weights to any of the foregoing
factors.
Structure of the Merger
In order to provide a prompt and orderly transfer of ownership of VCA from
its stockholders to holders of the capital stock of Vicar Recap, in light of
relevant financial, legal, tax and other considerations, the acquisition
37
<PAGE>
has been structured as an asset drop down and merger. In particular, the
acquisition has been structured so that VCA will continue as the Surviving
Company in the Merger and the Continuing Stockholders will retain an interest
in VCA in order to (1) effect a recapitalization of VCA for accounting
purposes, (2) preserve the corporate identity of VCA and (3) allow the
Continuing Stockholders to manage and operate the Surviving Company. If the
Merger Agreement and Asset Drop Down are adopted by the requisite vote of the
stockholders and the remaining conditions to the completion of the Merger are
satisfied or waived, VCA will transfer all of its assets, properties, business
operations and liabilities to Vicar Operating, and Vicar Recap will be merged
with and into VCA, with VCA continuing as the Surviving Company. All the
outstanding shares of VCA common stock (other than shares retained by the
Continuing Stockholders, shares held by dissenting stockholders, Green Equity
and Vicar Recap, and shares held in VCA's treasury) will be converted into the
right to receive a cash payment per share, without interest, of $15.00.
Effects of the Merger
As a result of the Merger (after giving effect to the issuance of employee
incentive options and warrants to be issued to GSMP II), the Green Investors
and the Continuing Stockholders will own approximately 71.75% and 22.5% (on a
fully diluted basis), respectively, of the common stock of the Surviving
Company. After the effective time of the Merger, VCA's public stockholders
will cease to have ownership interests in, or rights as stockholders of, the
Surviving Company. Although an equity investment in the Surviving Company
involves substantial risk resulting from the limited liquidity of the
investment, the high debt to equity ratio and consequential substantial fixed
charges that will apply to the Surviving Company following the Merger, if the
Surviving Company is able to grow earnings and cash flow sufficient to retire
its debt, the Green Investors, the Continuing Stockholders, GSMP II and the
holders of options will be the sole beneficiaries of the future earnings and
growth of the Surviving Company. The benefit of the Merger to holders of VCA
common stock is the payment of a premium, in cash, above the market value for
such common stock prior to VCA's receipt of Green's initial offer. This cash
payment assures that all of VCA's public stockholders will receive the same
amount for their shares, rather than taking the risks associated with
attempting to sell their shares in the open market. The detriment to such
holders is their inability to participate as continuing stockholders in the
possible future growth of the Surviving Company.
As a result of the Merger, the Surviving Company will be a privately held
corporation and there will be no public market for its common stock. At the
effective time of the Merger, the common stock will cease to be quoted on The
Nasdaq Stock Market and price quotations with respect to sales of shares of
common stock in the public market will no longer be available. In addition,
registration of the common stock under the Securities Exchange Act of 1934, as
amended, which we refer to as the "Exchange Act," will be terminated. This
termination will make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b) and the requirement
under the proxy rules of Regulation 14A of furnishing a proxy or information
statement in connection with stockholders meetings, no longer applicable to
the Surviving Company. After the effective time of the Merger, the Surviving
Company will no longer be required to file periodic reports with the
Securities and Exchange Commission (the "SEC").
Upon completion of the Merger, the certificate of incorporation of the
Surviving Company (the "VCA Certificate of Incorporation") will be amended to
contain the identical terms of the certificate of incorporation of Vicar Recap
immediately prior to the effective time of the Merger, until duly amended in
accordance with the terms thereof and the DGCL. The bylaws of Vicar Recap in
effect at the effective time of the Merger will be the bylaws of the Surviving
Company (the "VCA By-laws"), until duly amended in accordance with the terms
thereof, the VCA Certificate of Incorporation and the DGCL.
After the Merger, Messrs. Robert L. Antin and Arthur J. Antin will be the
initial directors of the Surviving Company. Further, the executive officers of
VCA at the effective time of the Merger will be the initial executive officers
of the Surviving Company. Specifically, at the effective time of the Merger,
the following officers of VCA are expected to continue in their existing
capacities at the Surviving Company: Robert L. Antin (Chief Executive
Officer), Arthur J. Antin (Chief Operating Officer, Senior Vice President and
Secretary), Neil Tauber (Senior Vice President), and Tomas W. Fuller (Chief
Financial Officer, Vice President and Assistant Secretary).
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It is expected that following the completion of the Merger, the operations
of VCA will be conducted substantially as they are currently being conducted.
Neither VCA nor any of the Continuing Stockholders has any present plans or
proposals that relate to or would result in an extraordinary corporate
transaction involving VCA's corporate structure, business or management, such
as a merger, reorganization, liquidation, relocation of any operations, or
sale or transfer of a material amount of assets. However, VCA and the
Continuing Stockholders will continue to evaluate VCA's business and
operations after the Merger from time to time, and may propose to develop new
plans and proposals which either VCA or the Continuing Stockholders considers
to be in the best interests of VCA and its stockholders.
In the Merger, the Continuing Stockholders may tender certain of their
outstanding options for shares of common stock of the Surviving Company. Each
holder of these tendered options, if any, at the effective time of the Merger
will receive (i) shares of common stock of the Surviving Company that have an
aggregate value equal to the excess of the aggregate cash amount that would
have been paid in the Merger for the shares subject to the options had they
been exercised over the aggregate exercise price of the options (as reduced by
any required withholding taxes) and (ii) cash for any fractional share. In
addition, certain options of the Continuing Stockholders that are not tendered
for common stock of the Surviving Company may survive the Merger and may be
rolled over and assumed by the Surviving Company pursuant to written
agreements entered into between Vicar Recap and the holders of the options. At
the effective time of the Merger, all VCA stock options, with the exception of
any options to be assumed by the Surviving Company, with a per share exercise
price equal to or greater than $15.00 will be cancelled without any payment or
other consideration. All VCA stock options with a per share exercise price
less than $15.00, with the exception of options to be assumed by the Surviving
Company or to be tendered for common stock of the Surviving Company, whether
or not vested, will also be cancelled, but the option recipient will receive a
payment equal to the excess of the aggregate cash amount that would have been
paid in the Merger for the shares subject to the options had they been
exercised over the aggregate exercise price of such options (as reduced by any
required withholding of taxes).
Risk that the Merger will not be Completed
Completion of the Merger is subject to various conditions, including, but
not limited to, the following:
. approval of the Merger Agreement, the Asset Drop Down and the
transactions contemplated thereby, by the holders of a majority of the
outstanding common stock;
. securing certain consents to the Merger from third parties; and
. securing the financing necessary to complete the Merger.
As a result of the various conditions to the completion of the Merger, even
if the requisite stockholder approval is obtained, we cannot assure you that
the Merger will be completed.
It is expected that if the Merger Agreement is not approved and adopted by
stockholders, or if the Merger is not completed for any other reason, VCA's
current management, under the direction of the board of directors, will
continue to manage VCA as an on-going business. No other transaction is
currently being considered by VCA as an alternative to the Merger.
Interests of VCA Directors and Officers in the Merger
In considering the recommendations of the board of directors, you should be
aware that certain members of VCA's management and the board of directors have
interests that are different from, or in addition to, your interests as a VCA
stockholder generally. Each of the board of directors and the special
committee was aware of these interests and considered them, among other
matters, in approving the Merger Agreement.
Directors and Executive Officers. Pursuant to the terms of the Merger
Agreement, certain directors of VCA will become directors of the Surviving
Company. Presently, Messrs. Robert L. Antin and Arthur J. Antin,
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<PAGE>
directors of VCA, will become members of the initial board of directors of the
Surviving Company. Further, all of the current VCA executive officers will
become the initial executive officers of the Surviving Company. Each such
officer will continue to be an officer of the Surviving Company until a
successor is duly elected or appointed in the manner provided for in the VCA
Certificate of Incorporation and VCA By-laws, or as otherwise provided by law.
The current executive officers of VCA are Robert L. Antin (Chief Executive
Officer), Arthur J. Antin (Chief Operating Officer, Senior Vice President and
Secretary), Neil Tauber (Senior Vice President) and Tomas W. Fuller (Chief
Financial Officer, Vice President and Assistant Secretary). Each of the above
mentioned officers will serve in their current offices at the Surviving
Company.
In addition, 133,333 shares of VCA common stock or a lesser amount, subject
to the consent of Vicar Recap, held by Robert L. Antin will remain outstanding
as common stock of the Surviving Company. The other Continuing Stockholders
may:
. retain VCA common stock as common stock of the Surviving Company;
. exchange the value of the difference between $15.00 per share and the
per share exercise prices of their outstanding options for shares of
common stock of the Surviving Company;
. pay cash for shares of common stock of the Surviving Company; and/or
. subject to the consent of Vicar Recap, receive loans from the Surviving
Company or provide other consideration of equivalent value for shares of
common stock of the Surviving Company.
Upon completion of the Merger, the Continuing Stockholders (other than
Robert Antin) will hold, in the aggregate, approximately 133,333 shares of
common stock of the Surviving Company. After giving effect to the issuance of
employee stock options and warrants to be issued to GSMP II in the Merger, the
Continuing Stockholders will own approximately 22.5%, on a fully diluted
basis, of the common stock of the Surviving Company.
The opportunity to obtain an equity interest in the Surviving Company
following completion of the Merger may have presented the Continuing
Stockholders with actual and potential conflicts of interest in connection
with the Merger. These conflicts of interest arise because the Continuing
Stockholders will be offered the opportunity to obtain an equity interest in
the Surviving Company following the completion of the Merger, and the other
public stockholders will not have the same opportunity. In light of this
inherent conflict of interest, the board of directors appointed the special
committee, comprised solely of directors with no financial interest in the
Merger that is different from the interests of VCA stockholders generally, to
evaluate the fairness of the Merger to VCA's public stockholders.
Robert L. Antin has entered into a stock purchase agreement dated as of
March 30, 2000 with Green Equity, pursuant to which he agreed to sell to Green
Equity up to 919,259 shares of common stock of VCA at $15.00 per share
immediately prior to the closing of the Merger. These shares will be cancelled
in the Merger without consideration.
Employment Agreements. VCA currently has employment agreements with Robert
L. Antin, Arthur J. Antin and Neil Tauber and other agreements with Tomas W.
Fuller (collectively, the "Existing Agreements"). The Existing Agreements
provide, among other things, for a severance payment to the employee upon the
occurrence of a "change of control" of VCA. Completion of the Merger will
constitute a "change of control" under the Existing Agreements and entitle
Robert L. Antin, Arthur J. Antin, Neil Tauber and Tomas W. Fuller to a payment
equal to five years' base salary plus an amount equal to five times (i) 20% of
the employee's base salary (in the event no bonus has been paid or payable) or
(ii) the greater of the last bonus paid or payable or the average of all
annual bonuses paid or payable to the employee (in the event at least one
bonus was paid).
As a condition for Vicar Recap to close the Merger, these officers have
agreed to a reduction in the payments to which they are entitled under the
Existing Agreements. Robert L. Antin, Arthur J. Antin, Neil Tauber and Tomas
W. Fuller shall receive upon completion of the Merger reduced payments of one
year's base salary in the
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amounts of $364,000, $260,000, $197,600 and $187,200, respectively. Concurrent
with completion of the Merger, Robert L. Antin, Arthur J. Antin, Neil Tauber
and Tomas W. Fuller will enter into new employment agreements with the
Surviving Company (the "New Employment Agreements"). The material terms of the
New Employment Agreements are provided below.
Robert L. Antin's employment agreement with the Surviving Company will
provide for Mr. Robert Antin to serve as the Surviving Company's Chairman of
the Board of Directors, Chief Executive Officer and President. In addition to
standard termination provisions, Mr. Robert Antin's employment agreement will
allow for termination of employment for failure to meet certain EBITDA
targets. The employment agreement will also provide for Mr. Robert Antin to
receive the following:
. an annual base salary and additional compensation in the aggregate of
$500,000; and
. an annual target cash bonus of 50% of his annual base salary, depending
on whether the Surviving Company achieves certain EBITDA targets
(subject to an upward or downward adjustment depending on the extent to
which the EBITDA targets are achieved).
Arthur J. Antin's employment agreement with the Surviving Company will
provide for Mr. Arthur Antin to serve as Chief Operating Officer of the
Surviving Company. In addition to standard termination provisions, Mr. Arthur
Antin's employment agreement will allow for termination of employment for
failure to meet certain EBITDA targets. The employment agreement will further
provide for Mr. Arthur Antin to receive the following:
. an annual base salary and additional compensation in the aggregate of
$400,000; and
. an annual target cash bonus of 45% of his annual base salary, depending
on whether the Surviving Company achieves certain EBITDA targets
(subject to an upward or downward adjustment depending on the extent to
which the EBITDA targets are achieved).
Neil Tauber's employment agreement with the Surviving Company will provide
for Mr. Tauber to serve as the Surviving Company's Senior Vice President. Mr.
Tauber's employment agreement will include standard termination provisions,
including termination in case of death or disability and for various with and
without cause events. The employment agreement will also provide for Mr.
Tauber to receive the following:
. an annual base salary and additional compensation in the aggregate of
$197,600; and
. an annual target cash bonus of 35% of his annual base salary, depending
on whether the Surviving Company achieves certain EBITDA targets and
other performance criteria (subject to an upward or downward adjustment
depending on the extent to which the EBITDA targets are achieved and
satisfaction of performance criteria).
Tomas W. Fuller's employment agreement with the Surviving Company will
provide for Mr. Fuller to serve as the Surviving Company's Chief Financial
Officer. Mr. Fuller's employment agreement will include standard termination
provisions, including termination in case of death or disability and for
various with and without cause events. The employment agreement further will
provide for Mr. Fuller to receive the following:
. an annual base salary and additional compensation in the aggregate of
$187,200; and
. an annual target cash bonus of 35% of his annual base salary, depending
on whether the Surviving Company achieves certain EBITDA targets
(subject to an upward or downward adjustment depending on the extent to
which the EBITDA targets are achieved).
The New Employment Agreements will provide for group life, medical,
disability and all other insurance provided to executives of the Surviving
Company. In addition, the New Employment Agreements for Neil Tauber and Tomas
W. Fuller will require the Surviving Company to contribute an amount equal to
at least 24% of the employee's cash compensation to the payment of premiums on
a split dollar life insurance policy for the benefit of the officer or his
estate. Further, the New Employment Agreements will call for execution of
indemnification agreements, pursuant to which the Surviving Company shall
indemnify the employee against certain claims
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arising out of his position at the Surviving Company. Subject to certain
conditions, the New Employment Agreements will also entitle the employee to a
payment upon the occurrence of a "change of control," as defined in the New
Employment Agreements of the Surviving Company.
Non-Competition Agreements. Upon completion of the Merger, the Surviving
Company will be the beneficiary of non-competition agreements binding on
Robert L. Antin, Arthur J. Antin, Neil Tauber and Tomas W. Fuller with a term
which commences upon completion of the Merger and terminates in three years.
Generally, the non-competition agreements restrict these individuals from:
. owning, operating, managing or controlling or in any way being connected
with a veterinary medical or laboratory practice within certain
geographical areas;
. disclosing confidential information of the Surviving Company; and
. soliciting or diverting away customers and employees of the Surviving
Company.
In consideration for executing the non-competition agreements, the
Surviving Company has agreed to pay approximately $6.2 million, $4.0 million,
$2.7 million and $2.5 million to Robert L. Antin, Arthur J. Antin, Neil Tauber
and Tomas W. Fuller, or their affiliates, respectively.
Stockholders Agreement. Immediately prior to the completion of the Merger,
the Green Investors, VCA, GSMP II and the Continuing Stockholders will enter
into a stockholders agreement. The stockholders agreement will restrict the
ability of the stockholder parties thereto to freely transfer the securities
of the Surviving Company held by them and will establish a right of first
refusal in favor of the Surviving Company and the stockholder parties thereto
in the event any Continuing Stockholder seeks to make certain transfers of
such stockholder's securities to a third party. In the event any of the
Continuing Stockholders cease to be employed by the Surviving Company, the
Surviving Company and Green Equity will be able to purchase a portion of their
securities at specified prices. In addition, Green Equity will have drag-along
rights, meaning that, under certain circumstances, if Green Equity desires to
sell a specified portion of its securities to a third party, it could compel
the other stockholders to do the same. Also, certain stockholders will have
tag-along rights to participate in certain sales by Green Equity and its
related entities of its securities to a third party, which means that these
stockholders would be allowed to include a portion of their securities in such
sale. Furthermore, the stockholders agreement will grant demand and piggyback
registration rights under specific circumstances. The stockholders agreement
also will provide that Robert L. Antin and Arthur J. Antin will be nominated
to the board of directors of the Surviving Company and that each stockholder
party to the stockholders agreement will vote in favor of these nominations.
In addition, the stockholders agreement will provide for the discharge of all
indebtedness owing to VCA through January 3, 2001 from Robert L. Antin and
Arthur J. Antin not to exceed $700,000 and any and all interest accrued
thereon.
Voting Agreement. In connection with the Merger Agreement, Robert L. Antin
has entered into a voting agreement dated March 30, 2000, with Vicar Recap,
pursuant to which Robert L. Antin will, among other things:
. vote to approve and adopt the Merger Agreement, the Asset Drop Down and
the transactions contemplated thereby, and in favor of any other matter
necessary to consummate the transactions contemplated by the Merger
Agreement;
. vote against any competing acquisition proposal or any other proposal
inconsistent with the Merger Agreement or that may delay or adversely
affect the likelihood of the completion of the Merger or the Asset Drop
Down;
. vote against any change in a majority of the persons who constitute the
board of directors of VCA inconsistent with the Merger Agreement, the
Merger or the Asset Drop Down;
. vote against any change in the capitalization of VCA or any amendment to
the certificate of incorporation or bylaws of VCA inconsistent with the
Merger Agreement, the Merger or the Asset Drop Down;
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. not sell, transfer, pledge or otherwise dispose of any shares of capital
stock of VCA, other than a transfer pursuant to a bona fide charitable
gift or by will or applicable laws of descent and distribution or for
estate planning purposes if the transferee agrees in writing to be bound
by the provisions of the voting agreement;
. not restrict or take any action adversely affecting his ability to
exercise his voting rights with respect to his shares of capital stock;
and
. refrain from directly or indirectly soliciting, initiating, or otherwise
facilitating any acquisition inquiries of VCA.
The voting agreement will terminate at the earlier of the effective time of
the Merger or the date on which the Merger Agreement is terminated in
accordance with its terms. For a more complete description of the voting
agreement, you should refer to the voting agreement attached as Annex D to
this proxy statement. Certain other members of management of VCA may also
enter into voting agreements agreeing to vote their shares in favor of the
Merger.
Management Services Provided by Green. In connection with the Merger, VCA
will enter into a management services agreement with Green. Pursuant to the
management services agreement, Green will provide to VCA investment banking,
management, consulting and financial planning services on an ongoing basis. In
consideration of these services, VCA will pay Green an annual fee in an amount
that will be determined prior to the consummation of the Merger. Pursuant to
the management services agreement, Green also will provide to VCA financial
advisory and investment banking services in connection with major financial
transactions that may be undertaken by VCA from time to time in the future. In
consideration of these services, VCA will pay Green fees that are reasonable
and customary for services of like kind. In addition, the management services
agreement will provide that, upon the successful consummation of the Merger,
VCA will pay Green transaction fees in an amount that will be determined prior
to such consummation.
Indemnification of Directors and Officers; Directors' and Officers'
Insurance. The Merger Agreement provides that VCA will indemnify and hold
harmless each present and former director and officer of VCA for acts and
omissions occurring prior to the effective time of the Merger. The Merger
Agreement further provides that for a period of six years after the effective
time of the Merger, the Surviving Company will maintain officers' and
directors' liability insurance covering the persons who, on the date of the
Merger Agreement, were covered by VCA's officers' and directors' liability
insurance policies with respect to acts and omissions occurring prior to the
effective time of the Merger, subject to certain limitations. The persons
benefiting from these provisions include all of VCA's current directors and
executive officers. See "The Merger Agreement--Certain Covenants--Director and
Officers Indemnification and Insurance."
Common Stock. As of the record date, VCA's directors and executive officers
owned, or were otherwise entitled to vote, in the aggregate, 1,262,627 shares
of common stock. In accordance with the Merger Agreement, 133,333 shares of
VCA common stock or a lesser amount, subject to the consent of Vicar Recap,
held by Robert L. Antin will remain outstanding as common stock of the
Surviving Company. In addition, the other Continuing Stockholders may:
. retain VCA common stock as common stock of the Surviving Company;
. exchange the value of the difference between $15.00 per share and the
per share exercise prices of their outstanding options for shares of
common stock of the Surviving Company;
. pay cash for shares of common stock of the Surviving Company; and/or
. subject to the consent of Vicar Recap, receive loans from the Surviving
Company or provide other consideration of equivalent value for shares of
common stock of the Surviving Company.
Upon completion of the Merger, the Continuing Stockholders (other than
Robert Antin) will hold, in the aggregate, approximately 133,333 shares of
common stock of the Surviving Company. All remaining VCA common stock owned by
VCA's directors and executive officers will be converted into the right to
receive $15.00 per share cash consideration if the Merger is consummated.
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Treatment of Stock Options. As of the record date, VCA's directors and
executive officers directly held options to purchase an aggregate of 2,979,667
shares of common stock. In the Merger, the Continuing Stockholders may tender
certain of their outstanding options for shares of common stock of the
Surviving Company. Each holder of these tendered options, if any, at the
effective time of the Merger will receive (i) shares of common stock of the
Surviving Company that have an aggregate value equal to the excess of the
aggregate cash amount that would have been paid in the Merger for the shares
subject to the options had they been exercised over the aggregate exercise
price of the options (as reduced by any required withholding taxes) and (ii)
cash for any fractional share. In addition, certain options of the Continuing
Stockholders that are not tendered for common stock of the Surviving Company
may survive the Merger and may be rolled over and assumed by the Surviving
Company pursuant to written agreements entered into between Vicar Recap and
the holders of such options. At the effective time of the Merger, all VCA
stock options, with the exception of any options to be assumed by the
Surviving Company, with a per share exercise price equal to or greater than
$15.00 will be cancelled without any payment or other consideration. All VCA
stock options with a per share exercise price less than $15.00, with the
exception of options to be assumed by the Surviving Company or to be tendered
for common stock of the Surviving Company, whether or not vested, will also be
cancelled, but the option recipient will receive a payment equal to the excess
of the aggregate cash amount that would have been paid in the Merger for the
shares subject to the options had they been exercised over the aggregate
exercise price of such options (as reduced by any required withholding of
taxes).
Financing for the Merger
Completion of the Merger is subject to, among other things, the condition
that all financing that is necessary in connection with the completion of the
transactions contemplated by the Merger Agreement shall have been obtained.
The total amount expected to be required is $539.9 million, as described
below.
The expected sources and uses of funds in connection with the Merger and
related transactions are as follows:
Sources and Uses of Funds
(in millions of U.S. dollars)
(all figures are approximate)
<TABLE>
<CAPTION>
Uses
Sources of
of Funds Funds
-------- ------
<S> <C> <C> <C>
VCA Cash............................ $ 13.0 Merger Consideration................ $336.6
Credit Facilities................... 250.9 Repay Existing Debt................. 159.0
Debentures.......................... 120.0 Fees & Expenses..................... 44.3
Equity Contribution................. 156.0
------ ------
Total............................... 539.9 Total............................... 539.9
====== ======
</TABLE>
Equity Contributions. Subject to the terms and conditions of the Merger
Agreement, Green Equity has committed to purchase at least $152 million of
shares of common stock of Vicar Recap and preferred stock of the Surviving
Company. Certain other investors (principally institutional investors) may
purchase shares of common stock of Vicar Recap and preferred stock of the
Surviving Company that otherwise would be purchased by Green Equity. In
addition, the Continuing Stockholders will contribute equity in the aggregate
amount of approximately $4 million by retaining VCA common stock or providing
other consideration of equivalent value.
Under the terms of the Merger Agreement, Vicar Recap's outstanding common
stock will be converted into common stock of the Surviving Company at the
effective time of the Merger. The equity commitment by the Green Entities and
certain other investors may be satisfied in part by the purchase of shares of
Series A senior preferred stock and Series B junior preferred stock of the
Surviving Company immediately following the Merger. The terms of the Series A
senior preferred stock include, among others, the following:
. will be entitled to a quarterly cash dividend of 14% per year, subject
to the legal availability of funds, when and if declared by the board of
directors of the Surviving Company;
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. will provide for all unpaid dividends to cumulate, and dividends shall
compound and accrue on the cumulation;
. will rank senior to all other classes of capital stock of the Surviving
Company;
. will be mandatorily redeemed by the Surviving Company in whole after 12
years at $25.00 per share, together with cumulated but unpaid dividends;
. may be redeemed by the Surviving Company, subject to the legal
availability of funds, beginning on a specified anniversary of issuance
pursuant to a customary declining-percentage-of-face matrix, together
with cumulated but unpaid dividends;
. may be exchanged by the Surviving Company for debt securities under
certain circumstances;
. will not be convertible into common stock or securities convertible into
common stock of the Surviving Company;
. will have certain "put" rights at 101% of face upon a change of control
of the Surviving Company, together with cumulated but unpaid dividends;
and
. will have no voting rights, except (1) as required by state and other
applicable law and (2) that holders of a majority of the outstanding
shares of Series A senior preferred stock, voting as a separate class,
will (a) have the right to approve each issuance by the Surviving
Company of any equity securities ranking senior to the Series A senior
preferred stock with respect to dividends or upon a liquidation, and (b)
have the right to approve any adverse amendment to the certificate of
incorporation of the Surviving Company.
The terms of the Series B junior preferred stock include, among others, the
following:
. will be entitled to a quarterly cash dividend of 12% per year, subject
to the legal availability of funds, when and if declared by the board of
directors of the Surviving Company;
. will provide for all unpaid dividends to cumulate, and dividends shall
compound and accrue on the cumulation;
. will rank senior to all other classes of capital stock of the Surviving
Company other than the Series A senior preferred stock and will rank
junior to the Series A senior preferred stock;
. will be mandatorily redeemed by the Surviving Company in whole after 12
years at $25.00 per share, together with cumulated but unpaid dividends;
. may be redeemed by the Surviving Company, subject to the legal
availability of funds, beginning on a specified anniversary of issuance
pursuant to a customary declining-percentage-of-face matrix, together
with cumulated but unpaid dividends;
. will not be convertible into common stock or securities convertible into
common stock of the Surviving Company;
. will have certain "put" rights at 101% of face upon a change of control
of the Surviving Company, together with the cumulated but unpaid
dividends; and
. will have no voting rights, except (1) as required by state and other
applicable law and (2) that holders of a majority of the outstanding
shares of Series B junior preferred stock, voting as a separate class,
will (a) have the right to approve each issuance of any equity
securities ranking senior to the Series B junior preferred stock with
respect to dividends or upon a liquidation or securities that rank on a
parity with the Series B junior preferred stock as to dividends or upon
liquidation, and (b) have the right to approve any adverse amendment to
the certificate of incorporation of the Surviving Company.
Debentures. Pursuant to a letter agreement, dated March 30, 2000, GS
Mezzanine Partners II, L.P. and certain affiliated investment funds have
committed to purchase (1) in a private placement by Vicar Operating, $50
million of subordinated unsecured debt securities and (2) in a private
placement by the Surviving Company, $70 million of senior unsecured debt
securities (both series of debt securities collectively, the "Debentures"). It
is contemplated that at the closing of the Merger two other institutional
mezzanine lending firms and their
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affiliates will provide 20% of the total mezzanine financing to be provided by
GS Mezzanine Partners II, L.P. and certain affiliated investment funds.
The Debentures will mature ten years from the date of closing of the
Merger. Interest on the Vicar Operating debentures and the Surviving Company
debentures will accrue at a rate of 13.5% and 14.5%, respectively, per annum
and will be payable semi-annually in arrears. The letter agreement provides
that, with respect to the Surviving Company debentures, on any semiannual
interest payment date on or prior to the fifth anniversary of the closing date
of the Merger, the Surviving Company will have the option to pay all or any
portion of the interest payable on such date by issuing additional Surviving
Company debentures ("PIK Notes")After the fifth anniversary of the closing
date of the Merger, all of the interest with respect to the Surviving Company
debentures will be payable in cash in arrears.
Subject to certain exceptions, prepayment of the Debentures will be
permitted at any time after three years from the closing date of the Merger,
in whole or in part, based upon an agreed upon schedule of prices. At any time
during the third year after the closing date of the Merger, the entire
aggregate principal amount of the Debentures may be prepaid concurrently with
the consummation of an initial public offering or a change of control in the
Surviving Company at a price of 110% of the principal amount plus accrued
interest. At any time prior to two years from the closing date of the Merger,
up to 35% of the aggregate principal amount of the Debentures may be prepaid
from the proceeds of an initial public offering of common stock of the
Surviving Company at a price of 110% of the principal amount plus accrued
interest; provided that any prepayment made prior to two years from the
closing date of the Merger must first be applied to the Surviving Company
debentures and then to the Vicar Operating debentures; provided further that,
after giving effect to any such prepayment, at least 65% of the original
principal amount of the Debentures plus the aggregate principal amount of any
PIK Notes issued since the closing date of the Merger must remain outstanding.
Each prepayment must relate to an aggregate principal amount of Debentures of
at least $5 million. Upon the occurrence of a change of control, Vicar
Operating and the Surviving Company will be required to offer to purchase the
Debentures at 101% of the outstanding principal amount of the Debentures
(including any PIK Notes) then outstanding, plus accrued interest on the date
of payment.
The sale of the Debentures to GSMP II will be subject to the following
conditions, among others:
. negotiation and execution of certain definitive agreements relating to
the issuance of the Debentures reasonably satisfactory to GSMP II;
. no material adverse change in the business and operations of VCA and
Vicar Operating;
. receipt of all necessary third party and governmental consents relating
to the Merger and financing;
. pro forma EBITDA of VCA for the twelve month period ending March 31,
2000 of not less then $63 million;
. ratio of the consolidated debt of VCA at March 31, 2000 to the pro forma
EBITDA of VCA for the twelve month period ending March 31, 2000 of not
greater than 5.9:1;
. completion of the Merger; and
. accounting, legal and regulatory due diligence satisfactory to GSMP II.
In connection with the issuance of the Debentures, the Surviving Company
will issue to GSMP II (1) warrants representing the right to acquire, at a
nominal price, up to 5.75%, on a fully diluted basis, of the common stock of
the Surviving Company and (2) shares of Series A senior preferred stock and
Series B junior preferred stock of the Surviving Company.
Credit Financing. Pursuant to a letter agreement, Goldman Sachs Credit
Partners L.P. has committed to make loans to Vicar Operating and to act as
exclusive advisor and arranger under credit facilities consisting of a
$75 million senior revolving credit facility, a $100 million Tranche A senior
term loan facility and a $150 million Tranche B senior term loan facility,
upon the terms and conditions set forth in the letter agreement.
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The revolving credit facility and the Tranche A facility will bear
interest, at Vicar Operating's option, of either the Base Rate, as defined
below, plus 2.25% per annum or the reserve adjusted Eurodollar Rate, as
defined below, plus 3.25% per annum. The Tranche B facility will bear
interest, at Vicar Operating's option, of either the Base Rate plus 2.75% per
annum or the reserve adjusted Eurodollar Rate plus 3.75% per annum. The terms
Base Rate and "reserve adjusted Eurodollar Rate" will have the meanings
customary and appropriate for financings of this type.
The revolving credit facility and the Tranche A facility will mature on the
sixth anniversary of the closing date of the Merger. The Tranche B facility
will mature on the eighth anniversary of the closing date of the Merger. Both
the Tranche A facility and the Tranche B facility will amortize in scheduled
quarterly installments. The revolving credit facility, the Tranche A facility
and the Tranche B facility will be subject to certain mandatory prepayments
under agreed upon terms. Amounts repaid on the revolving credit facility prior
to maturity may be reborrowed. Amounts repaid on the Tranche A facility and
the Tranche B facility may not be reborrowed.
The revolving credit facility shall be used to finance the working capital
and general corporate needs of Vicar Operating and its subsidiaries. Subject
to certain restrictions, a portion of the revolving credit facility may also
be used to finance a portion of the Merger. The Tranche A facility and the
Tranche B facility will be used for the following purposes:
. to finance the Merger,
. to repay outstanding indebtedness of Vicar Operating and its
subsidiaries; and
. to pay fees and expenses associated with the Merger.
Funding of the above mentioned credit facilities will be subject to the
following conditions and other customary closing conditions:
. since December 31, 1999, no material adverse change in or affecting the
business, financial condition, results of operations or prospects of VCA
and its subsidiaries, except as disclosed in the Merger Agreement;
. no material disruptions or adverse change in the financial or capital
markets generally, or in the market for loan syndications in particular;
. assignment of a credit rating to the credit facilities by two nationally
recognized rating agencies;
. satisfactory negotiation, execution and delivery of appropriate loan
documents relating to the credit facilities;
. receipt of at least $152 million of equity contributions by the Green
Investors and the retention of at least $3.5 million of VCA common stock
by existing VCA management stockholders;
. receipt by Vicar Operating of $120 million from the private placement of
the Debentures;
. ratio of the total senior debt of VCA at March 31, 2000 to the pro forma
EBITDA of VCA for the twelve month period ending March 31, 2000 of not
greater than 3.9:1;
. pro forma EBITDA of VCA for the twelve month period ending March 31,
2000 of not less than $63 million;
. discharge by VCA of substantially all pre-existing indebtedness;
. grant by VCA to the administrative agent of a first priority security
interest in assets described in the loan documents;
. execution of satisfactory employment contracts with key employees and
organizational documents;
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. all necessary governmental and third party consents; and
. no existing or threatened litigation or proceedings that materially
impairs the Merger or any transactions contemplated by the Merger
Agreement.
Certain Litigation Related to the Merger
As of the date of this proxy statement, VCA is aware of six lawsuits that
have been filed relating to the Merger. VCA and its directors are defendants
in all of the lawsuits. All of the lawsuits were filed by various public
stockholders of VCA seeking to represent a putative class of all public
stockholders of VCA. Five of the lawsuits were filed in the Delaware Court of
Chancery and one was filed in the Los Angeles Superior Court.
While the allegations of each complaint are not identical, all of the
lawsuits assert that the $15.00 per share price to be paid to VCA's
stockholders is inadequate and does not represent the value of the assets and
future prospects of VCA and that the Merger Agreement serves no legitimate
business purpose. The complaints also allege that the defendants engaged in
self-dealing without regard to conflicts of interest and that the defendants
breached their fiduciary duties in approving the Merger Agreement.
All of the complaints seek preliminary and permanent injunctive relief
prohibiting VCA from, among other things, consummating the Merger. To date, no
motion to enjoin any of the proceedings contemplated by the Merger Agreement
has been made. The complaints also seek unspecified damages, attorneys' fees
and other relief. VCA believes that the allegations contained in the
complaints are without merit and intends to contest the actions vigorously.
The individual defendants have advised VCA that they also believe that the
allegations in the complaints are without merit and that they intend to
contest the actions vigorously. VCA does not believe that these matters will
have any significant impact on the timing or completion of the Merger;
however, we cannot assure you that a motion to enjoin the transactions
contemplated by the Merger Agreement will not be made and, if made, that it
would not be granted.
We have filed an answer to the five separate class action complaints filed
in Delaware, which complaints have been consolidated. We have not yet filed a
response to the one class action complaint filed in California.
Accounting Treatment of the Merger
We intend to treat the Merger as a recapitalization for accounting
purposes, as we will not meet the requirements for a new accounting basis as a
result of the continuing stockholder interests. A recapitalization is a
transaction structured to transfer the controlling interest of an operating
entity to a new investor, with some owners also retaining an ownership
interest. A recapitalization results in no change in the accounting basis of
the assets or liabilities presented in the stand-alone financial statements of
the operating entity. The consideration for the shares is accounted for as a
reduction in equity.
Certain Federal Regulatory Matters
The Department of Justice and the Federal Trade Commission, state antitrust
authorities or a private person or entity can seek to enjoin the Merger under
the antitrust laws at any time prior to its completion or to compel recession
or divestiture at any time subsequent to the Merger. The Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "HSR Act") require that the ultimate parent
entities of each of VCA and Vicar Recap file, with the Antitrust Division of
the United States Department of Justice and the United States Federal Trade
Commission, Notification and Report Forms with respect to the Merger and
related transactions. The parties thereafter are required to observe a waiting
period before consummating the reported transaction. In compliance with the
HSR Act, the ultimate parent entities of each of VCA and Vicar Recap filed the
necessary forms on June 23, 2000 with the Department of Justice and the
Federal Trade Commission with respect to the Merger. The Merger is conditioned
on the expiration or termination of the applicable waiting period under the
HSR Act. Early termination with respect to the Merger was granted on July 10,
2000.
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Material Federal Income Tax Consequences of the Merger
The following summary of certain anticipated federal income tax
consequences to a holder of common stock in connection with the Merger is
based upon current provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), currently applicable Treasury regulations and judicial and
administrative rulings and decisions as of the date hereof. Legislative,
judicial or administrative changes may be forthcoming that could alter or
modify the statements set forth herein, possibly on a retroactive basis. The
summary does not purport to deal with all aspects of federal income taxation
that may affect particular holders of common stock in light of their
individual circumstances, nor with certain types of holders subject to special
treatment under the federal income tax laws (e.g., life insurance companies,
tax-exempt organizations, financial institutions or broker-dealers, holders
owning stock as part of a "straddle," "hedge" or "conversion transaction,"
holders who acquired their common stock pursuant to the exercise of an
employee stock option or otherwise as compensation, and holders who are
neither citizens nor residents of the United States, or that are foreign
corporations, foreign partnerships or foreign estates or trusts for U.S.
federal income tax purposes). The following summary does not address the
federal income tax consequences to a holder of options or to any person who
acquired shares in a compensatory transaction. In addition, the summary
assumes that any common stock exchanged in or in connection with the Merger is
held as a capital asset. CONSEQUENTLY, EACH STOCKHOLDER SHOULD CONSULT HIS OR
HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE MERGER IN LIGHT OF
SUCH HOLDER'S OWN SITUATION, INCLUDING THE APPLICATION AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS.
Tax Treatment of Holders of Common Stock. THE PAYMENT OF CASH FOR THE
SHARES OF COMMON STOCK IN THE MERGER WILL BE FULLY TAXABLE TO STOCKHOLDERS.
Accordingly, except to the extent otherwise provided below, a stockholder who,
pursuant to the Merger, receives cash for such holder's common stock will
recognize a gain or loss equal to the difference between (i) the amount of
cash received in the Merger and (ii) such stockholder's tax basis in the
common stock. In the case of a stockholder who is an individual, estate or
trust, such capital gain or loss will be taxable at a maximum capital gain
rate of 20% if the holder held the common stock for more than one year at the
time of the Merger.
For federal income tax purposes, the source of a portion of the cash
consideration issued in the Merger will be deemed to be VCA (including the
proceeds from debt used to fund the Merger that is assumed by VCA in the
Merger). Therefore, to the extent that the cash received by a stockholder is
from such sources, the receipt of cash in exchange for such stockholder's
common stock in the Merger will be treated as a redemption of common stock for
federal income tax purposes. If a stockholder's interest in VCA will terminate
as a result of the Merger, taking into account the constructive ownership
rules of Section 318 of the Code, then the stockholder will continue to
receive sale or exchange treatment, and consequently the stockholder will
recognize a gain or loss equal to the difference between (i) the amount of
cash received and (ii) such stockholder's tax basis in the common stock, as
described in the preceding paragraph. However, if a stockholder's interest in
VCA, taking into account the constructive ownership rules of Section 318 of
the Code, is not terminated as a result of the Merger, then the stockholder
will recognize gain or loss as described above only if the deemed redemption
is either "not essentially equivalent to a dividend" or "substantially
disproportionate" within the meaning of Section 302 of the Code. Whether or
not a stockholder qualifies for sale or exchange treatment under these
provisions depends on the stockholder's individual facts and circumstances.
Stockholders are urged to consult their tax advisors with respect to the
potential applicability of these provisions.
If, for the foregoing reasons, a portion of the cash received by a
stockholder in the Merger does not qualify for sale or exchange treatment as
described in the preceding paragraph, such portion of the cash will instead be
treated as a distribution by VCA with respect to its stock, taxable as a
dividend (without any reduction for the holder's basis in the stock) and,
hence, as ordinary income, to the extent that VCA has current or accumulated
earnings and profits for federal income tax purposes. If the amount of such
distribution exceeds VCA's earnings and profits, it will be treated first as a
return of capital (thereby reducing basis) and then, to the extent of any
excess, as gain from the sale or exchange of the stock. For purposes of
determining the amount of such distribution which is a return of capital and
gain from the sale or exchange of the stock, the stockholder would
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use a portion of his or her tax basis in the common stock based upon the ratio
of (i) the portion of cash treated as a distribution to (ii) the $15.00 per
share Merger consideration. With respect to the balance of the cash
consideration received in the Merger, the stockholder would receive sale or
exchange treatment on that component, and the gain or loss on such component
would equal the difference between (a) the balance of the cash received and
(b) a portion of the stockholder's tax basis in the common stock based upon
the ratio of (i) the balance of cash received to (ii) the $15.00 per share
Merger consideration.
Backup Withholding. In order to avoid "backup withholding" of federal
income tax on payments of cash to a stockholder who exchanges his or her
common stock in the Merger, a stockholder must, unless an exception applies
under the applicable law and regulations, provide the payor of such cash with
such stockholder's correct taxpayer identification number ("TIN") on a Form W-
9 and certify under penalties of perjury that such number is correct and that
such stockholder is not subject to backup withholding. A Form W-9 is included
as part of the letter of transmittal to be sent to stockholders by the
exchange agent. If the correct TIN and certifications are not provided, a
penalty may be imposed on a stockholder by the Internal Revenue Service and
the cash payments received by a stockholder in consideration for shares of
common stock in the Merger may be subject to backup withholding tax at a rate
of 31%.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER, IT IS RECOMMENDED THAT
STOCKHOLDERS CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY STATE,
LOCAL AND FOREIGN) TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
Appraisal Rights
Stockholders who do not vote for the approval and adoption of the Merger
Agreement at the special meeting and who otherwise comply with the applicable
statutory procedures of Section 262 of the DGCL summarized herein may be
entitled to appraisal rights under Section 262 of the DGCL. In order to
exercise and perfect appraisal rights, the record holder of common stock must
follow the steps summarized below properly and in a timely manner. A person
having a beneficial interest in shares of common stock held of record in the
name of another person, such as a broker or nominee, must act promptly to
cause the record holder to follow the steps summarized below properly and in a
timely manner to perfect appraisal rights.
SECTION 262 OF THE DGCL IS REPRINTED IN ITS ENTIRETY AS ANNEX E TO THIS
PROXY STATEMENT. SET FORTH BELOW IS A SUMMARY DESCRIPTION OF SECTION 262. THE
FOLLOWING SUMMARY DESCRIBES THE MATERIAL ASPECTS OF SECTION 262 AND THE LAW
RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
ANNEX E. ALL REFERENCES IN SECTION 262 AND THIS SUMMARY TO "STOCKHOLDER" ARE
TO THE RECORD HOLDER OF THE SHARES OF COMMON STOCK IMMEDIATELY PRIOR TO THE
EFFECTIVE TIME AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED. FAILURE TO COMPLY
STRICTLY WITH THE PROCEDURES SET FORTH IN SECTION 262 OF THE DGCL WILL RESULT
IN THE LOSS OF APPRAISAL RIGHTS.
Under the DGCL, holders of common stock who follow the procedures set forth
in Section 262 will be entitled to have their shares appraised by the Delaware
Court of Chancery and to receive payment in cash of the "fair value" of those
shares, exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, as
determined by that court.
Under Section 262, where a proposed Merger is to be submitted for approval
at a meeting of stockholders, as in the case of the special meeting, the
corporation, not less than 20 days prior to such meeting, must notify each of
its stockholders who was a stockholder on the record date with respect to such
shares for which appraisal rights are available, that appraisal rights are so
available, and must include in each such notice a copy of Section 262. This
proxy statement constitutes such notice to the holders of common stock and
Section 262 of the
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DGCL is attached to this proxy statement as Annex E. Any stockholder who
wishes to exercise such appraisal rights or who wishes to preserve his right
to do so should review the following discussion and Annex E carefully, because
failure to timely and properly comply with the procedures specified will
result in the loss of appraisal rights under the DGCL.
A STOCKHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS (A) MUST NOT VOTE FOR
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND (B) MUST DELIVER TO VCA,
BEFORE THE VOTE ON THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT, A
WRITTEN DEMAND FOR APPRAISAL OF SUCH HOLDER'S SHARES OF COMMON STOCK. A
STOCKHOLDER WHO SIGNS AND RETURNS A PROXY CARD WITHOUT EXPRESSLY DIRECTING
THAT HIS OR HER SHARES OF COMMON STOCK BE VOTED AGAINST THE MERGER AGREEMENT
WILL EFFECTIVELY WAIVE HIS, HER OR ITS APPRAISAL RIGHTS BECAUSE SUCH SHARES
REPRESENTED BY THE PROXY CARD WILL BE VOTED FOR THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT. ACCORDINGLY, A STOCKHOLDER WHO DESIRES TO EXERCISE AND
PERFECT APPRAISAL RIGHTS WITH RESPECT TO ANY OF HIS OR HER SHARES OF COMMON
STOCK MUST EITHER (I) REFRAIN FROM EXECUTING AND RETURNING THE ENCLOSED PROXY
CARD AND FROM VOTING IN PERSON IN FAVOR OF THE PROPOSAL TO APPROVE THE MERGER
AGREEMENT, OR (II) CHECK EITHER THE "AGAINST" OR THE "ABSTAIN" BOX NEXT TO THE
PROPOSAL ON SUCH CARD OR AFFIRMATIVELY VOTE IN PERSON AGAINST THE PROPOSAL OR
REGISTER IN PERSON AN ABSTENTION WITH RESPECT THERETO. A VOTE OR PROXY AGAINST
THE MERGER AGREEMENT SHALL NOT, IN AND OF ITSELF, CONSTITUTE A DEMAND FOR
APPRAISAL.
A demand for appraisal will be sufficient if it reasonably informs VCA of
the identity of the stockholder and that such stockholder intends thereby to
demand appraisal of such stockholder's shares of common stock. This written
demand for appraisal must be separate from any proxy or vote abstaining from
or voting against the approval and adoption of the Merger Agreement. A
stockholder wishing to exercise appraisal rights must be the record holder of
such shares of common stock on the date the written demand for appraisal is
made and must continue to hold such shares through the effective time of the
Merger. Accordingly, a stockholder who is the record holder of shares of
common stock on the date the written demand for appraisal is made, but who
thereafter transfers such shares prior to the effective time of the Merger,
will lose any right to appraisal in respect of such shares.
Only a holder of record of shares of common stock is entitled to assert
appraisal rights for the shares of common stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder
of record, fully and correctly, as the holder's name appears on the stock
certificates and must state that such person intends thereby to demand
appraisal of his, her or its shares of common stock. If the shares are owned
of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, execution of the demand for appraisal should be made in that
capacity, and if the shares are owned of record by more than one person, as in
a joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one for two or more
joint owners, may execute the demand for appraisal on behalf of a holder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, he or she is acting
as agent for such owner or owners.
A record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares of
common stock held for one or more beneficial owners while not exercising such
rights with respect to the shares held for other beneficial owners; in such
case, the written demand should set forth the number of shares as to which
appraisal is sought. Where the number of shares of common stock is not
expressly stated, the demand will be presumed to cover all shares held in the
name of the record owner. Stockholders who hold their shares in brokerage
accounts or other nominee form and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures
for the making of a demand for appraisal by such nominee.
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ALL WRITTEN DEMANDS FOR APPRAISAL OF SHARES MUST BE MAILED OR DELIVERED TO:
VETERINARY CENTERS OF AMERICA, INC., ATTENTION: SECRETARY, 12401 WEST OLYMPIC
BOULEVARD, LOS ANGELES, CALIFORNIA 90064, OR SHOULD BE DELIVERED TO THE
SECRETARY AT THE SPECIAL MEETING, PRIOR TO THE VOTE ON THE MERGER AGREEMENT.
Within ten days after the effective time of the Merger, VCA will notify
each stockholder of the effective time of the Merger who properly asserted
appraisal rights under Section 262 and has not voted for the approval and
adoption of the Merger Agreement.
Within 120 days after the effective time of the Merger, but not thereafter,
VCA or any stockholder who has complied with the statutory requirements
summarized above may file a petition in the Delaware Court demanding a
determination of the fair value of the shares held by such stockholder. If no
such petition is filed, appraisal rights will be lost for all stockholders who
had previously demanded appraisal of their shares. VCA is not under any
obligation, and has no present intention, to file a petition with respect to
appraisal of the value of the shares. Accordingly, stockholders who wish to
exercise their appraisal rights should regard it as their obligation to take
all steps necessary to perfect their appraisal rights in the manner prescribed
in Section 262.
Within 120 days after the effective time of the Merger, any stockholder who
has complied with the provisions of Section 262 will be entitled, upon written
request, to receive from VCA a statement setting forth the aggregate number of
shares of common stock not voted in favor of the approval and adoption of the
Merger Agreement and with respect to which demands for appraisal were received
by VCA, and the number of holders of such shares. Such statement must be
mailed within ten days after the written request therefore has been received
by VCA.
If a petition for an appraisal is timely filed and a copy thereof served
upon VCA, VCA will then be obligated within 20 days to file with the Delaware
Register in Chancery a duly verified list containing the names and addresses
of the stockholders who have demanded appraisal of their shares and with whom
agreements as to the value of their shares have not been reached. After notice
to the stockholders as required by the Delaware Court, the Delaware Court is
empowered to conduct a hearing on such petition to determine those
stockholders who have complied with Section 262 and who have become entitled
to appraisal rights thereunder. The Delaware Court may require the
stockholders who demanded appraisal rights of their shares of common stock to
submit their stock certificates to the Register in Chancery for notation
thereon of the pendency of the appraisal proceeding; and if any stockholder
fails to comply with such direction, the Delaware Court may dismiss the
proceedings as to such stockholder.
After determining which stockholders are entitled to appraisal, the
Delaware Court will appraise the "fair value" of their shares of common stock,
exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. Holders considering
seeking appraisal should be aware that the fair value of their shares as
determined under Section 262 could be more than, the same as or less than the
consideration they are entitled to receive pursuant to the Merger Agreement if
they did not seek appraisal of their shares and that investment banking
opinions as to fairness from a financial point of view are not necessarily
opinions as to fair value under Section 262. In determining "fair value" of
shares, the Delaware Court shall take into account all relevant factors. In
Weinberger v. UOP, Inc., the Delaware Supreme Court has stated that such
factors include "market value, asset value, dividends, earnings prospects, the
nature of the enterprise and any other facts which were known or which could
be ascertained as of the date of the Merger which throw any light on future
prospects of the merged corporation." In Weinberger, the Delaware Supreme
Court stated, among other things, that "proof of value by any techniques or
methods generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in an appraisal
proceeding. In addition, the Delaware Court has decided that the statutory
appraisal remedy, depending on factual circumstances, may or may not be a
dissenter's exclusive remedy.
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The Delaware Court will also determine the amount of interest, if any, to
be paid on the amounts to be received by persons whose shares of common stock
have been appraised. The costs of the action may be determined by the Delaware
Court and taxed upon the parties as the Delaware Court deems equitable. The
Delaware Court may also order that all or a portion of the expenses incurred
by any stockholder in connection with an appraisal, including without
limitation reasonable attorneys' fees and the fees and expenses of experts
utilized in the appraisal proceeding, be charged pro rata against the value of
all of the shares entitled to appraisal. In the absence of such determination
or assessment, each party bears its own expenses.
Any stockholder who has duly demanded and perfected an appraisal in
compliance with Section 262 will not, after the effective time of the Merger,
be entitled to vote his or her shares for any purpose or be entitled to the
payment of dividends or other distributions thereon, except dividends or other
distributions payable to holders of record of shares of common stock as of a
date prior to the effective time of the Merger.
At any time within 60 days after the effective time of the Merger, any
stockholder will have the right to withdraw his or her demand for appraisal
and to accept the $15.00 per share consideration. After this period, a
stockholder may withdraw his or her demand for appraisal only with the written
consent of VCA. If no petition for appraisal is filed with the Delaware Court
within 120 days after the effective time of the Merger, a stockholder's right
to appraisal will cease and he or she will be entitled to receive the $15.00
per share consideration, without interest, as if he or she had not demanded
appraisal of his or her shares. No petition timely filed in the Delaware Court
demanding appraisal will be dismissed as to any stockholder without the
approval of the Delaware Court, and such approval may be conditioned on such
terms as the Delaware Court deems just.
If any stockholder who properly demands appraisal of his or her shares of
common stock under Section 262 fails to perfect, or effectively withdraws or
loses, his right to appraisal, as provided in the DGCL, the shares of such
stockholder will be converted into the right to receive the consideration
receivable with respect to such shares in accordance with the Merger
Agreement. A stockholder will fail to perfect, or effectively lose or
withdraw, his right to appraisal if, among other things, no petition for
appraisal is filed within 120 days after the effective time of the Merger, or
if the stockholder delivers to VCA a written withdrawal of his demand for
appraisal. Any such attempt to withdraw an appraisal demand more than 60 days
after the effective time of the Merger will require the written approval of
VCA.
STOCKHOLDERS DESIRING TO EXERCISE THEIR APPRAISAL RIGHTS MUST NOT VOTE FOR
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND MUST STRICTLY COMPLY
WITH THE PROCEDURES SET FORTH IN SECTION 262 OF THE DGCL.
FAILURE TO TAKE ANY REQUIRED STEP IN CONNECTION WITH THE EXERCISE OF
APPRAISAL RIGHTS WILL RESULT IN THE TERMINATION OR WAIVER OF SUCH RIGHTS.
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THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement, a
copy of which is attached as Annex A to this proxy statement and is
incorporated herein by reference. This summary is qualified in its entirety by
reference to the Merger Agreement. Stockholders are urged to read the Merger
Agreement in its entirety for a more complete description of the terms and
conditions of the Merger.
Structure, Timing
Pursuant to the Merger Agreement, VCA will transfer all its assets,
properties, business operations and liabilities to Vicar Operating.
Thereafter, Vicar Recap will be merged with and into VCA. VCA will survive the
Merger and continue to exist after the Merger. The Merger will become
effective at the time a certificate of merger is filed with the Secretary of
State of Delaware, or at a later time as specified in the certificate of
merger. The Merger is expected to occur as soon as practicable after all
conditions of the Merger have been satisfied or waived.
Consideration to be Received in the Merger
Consideration and Appraisal Rights. Pursuant to the Merger Agreement, at
the effective time of the Merger:
. each share of common stock of VCA issued and outstanding immediately
prior to the effective time of the Merger (other than shares retained by
the Continuing Stockholders and shares held by dissenting stockholders,
Vicar Recap and Green Equity, and shares held in VCA's treasury) will be
cancelled and converted into the right to receive a cash payment,
without interest, of $15.00;
. each share of common stock of VCA that is held by a Continuing
Stockholder immediately prior to the effective time of the Merger and
that is identified in a "rollover shares" schedule to be delivered by
VCA to Vicar Recap prior to the consummation of the Merger will not be
cancelled or converted but will remain outstanding as an issued, fully
paid and non-assessable share of common stock of the Surviving Company;
. each share of common stock of VCA held in the treasury of VCA or held by
Vicar Recap or Green Equity, if any, immediately prior to the effective
time of the Merger, will be canceled and will cease to exist and no
payment or distribution will be made with respect to each such share;
and
. each share of Vicar Recap common stock issued and outstanding
immediately prior to the effective time of the Merger will be converted
into an issued, fully paid and non-assessable share of common stock of
the Surviving Company.
The Merger Agreement further provides that any shares of common stock of
VCA which are issued and outstanding immediately prior to the effective time
of the Merger and held by a stockholder who has not voted in favor of the
Merger and who has delivered a written demand for relief in compliance with
all the provisions of the DGCL, concerning the right of holders of shares of
capital stock to dissent from the Merger and require appraisal of their
shares, will not be converted into or represent the right to receive the
$15.00 per share consideration, as described above. Instead, such shares will
be converted at the effective time of the Merger, into a right to receive any
consideration that may be determined to be due pursuant to Section 262 of the
DGCL.
Treatment of Options. The Merger Agreement provides that at the effective
time of the Merger, each option issued pursuant to VCA's 1996 Employee Stock
Purchase Plan, 1996 Stock Incentive Plan, and 1993 Stock Incentive Plan (with
the exception of any options assumed by the Surviving Company pursuant to
written agreements entered into between Vicar Recap and the holders of such
options and options tendered for shares of common stock of the Surviving
Company) with an exercise price of equal to or greater then the $15.00 per
share consideration will be cancelled at the effective time of the Merger
without any payment or consideration
54
<PAGE>
therefor. The Merger Agreement further provides that all other options (other
than any options assumed by the Surviving Company and options tendered for
shares of common stock of the Surviving Company), whether or not presently
exercisable, will be entitled to receive, in settlement of the options, a cash
payment equal to the excess of the aggregate consideration that would have
been paid in the Merger for the options had they been exercised over the
aggregate exercise price of the options (as reduced by any required
withholding of taxes).
In accordance with the Merger Agreement, the Continuing Stockholders may
tender certain of their outstanding options for shares of common stock of the
Surviving Company. Each holder of these tendered options, if any, at the
effective time of the Merger will receive (i) shares of common stock of the
Surviving Company that have an aggregate value equal to the excess of the
aggregate cash amount that would have been paid in the Merger for the shares
subject to the options had they been exercised over the aggregate exercise
price of such options (as reduced by any required withholding taxes) and (ii)
cash for any fractional share. No fractional shares of common stock of the
Surviving Company will be issued to any holders of the tendered options. For
each fractional share that would otherwise be issued to a holder of such
tendered options, the holder will receive an amount in cash, without interest,
determined by multiplying the fraction by $15.00.
In addition, in accordance with the Merger Agreement, any options that are
to be assumed by the Surviving Company, if any, pursuant to written agreements
entered into between Vicar Recap and the holders of such options will survive
the Merger and the Surviving Company will assume all of the rights,
liabilities and obligations of such options.
Exchange of Stock Certificates
Prior to the effective time of the Merger, Vicar Recap will designate a
bank or trust company reasonably satisfactory to VCA to act as the exchange
agent in the Merger. Promptly after the effective time of the Merger, VCA will
mail to each record holder of VCA common stock, a letter of transmittal and
instructions for use in effecting the surrender of the holder's stock
certificates in exchange for the $15.00 per share consideration, subject to
any required back-up withholding taxes. Upon surrender of a certificate for
cancellation to the exchange agent, together with such letter of transmittal,
duly executed, the holder of such certificate will be entitled to receive the
$15.00 per share consideration, subject to any withholding taxes, without any
interest thereon, and the certificates so surrendered will promptly be
canceled.
No Further Ownership Rights in VCA. At and after the effective time of the
Merger, each holder of a certificate that represented outstanding shares of
VCA common stock (other than shares of VCA common stock retained by the
Continuing Stockholders) immediately prior to the effective time of the Merger
will cease to have any rights as a stockholder of VCA, except for the right to
surrender his or her certificates in exchange for the $15.00 per share merger
consideration or to perfect his or her right to receive payment for his or her
shares pursuant to Section 262 of the DGCL and the Merger Agreement. There
shall be no further transfers on the stock transfer books of VCA of any shares
that were entitled to receive the $15.00 per share merger consideration. If,
after the effective time of the Merger, certificates that formerly represented
shares of common stock of VCA are presented to the Surviving Company, such
certificates will be cancelled and exchanged for cash in the manner described
above, subject to applicable law with respect to dissenting shareholders.
Representations and Warranties
In the Merger Agreement, VCA has made to Vicar Recap various customary
representations and warranties, subject to identified exceptions, with respect
to, among other things:
. due organization, valid existence and good standing of VCA and its
subsidiaries;
. the capital structure of VCA and its subsidiaries;
. the authorization, execution, delivery and enforceability of the Merger
Agreement;
55
<PAGE>
. conflicts under VCA's certificate of incorporation or by-laws, required
consents or approvals and violations of instruments or law;
. documents and financial statements filed by VCA with the SEC and any
governmental agency and the accuracy of information contained therein;
. the accuracy of the information, other than information supplied by
Vicar Recap, included in this proxy statement;
. the absence of certain facts or circumstances related to VCA that are
likely to prevent or delay governmental consents for completion of the
Merger;
. necessary action on behalf of VCA to consummate the Merger;
. receipt by the special committee of VCA's board of directors of written
opinions regarding the fairness of the merger consideration to VCA's
public stockholders;
. VCA has disclosed all material contracts and is not in breach or
violation of any contract that would be reasonably expected to have a
material adverse effect on VCA;
. VCA earn out cash payments schedule; and
. non-applicability of anti-takeover statutes to the Merger.
In the Merger Agreement, Vicar Recap has made to VCA various customary
representations and warranties, subject to identified exceptions, with respect
to, among other things:
. due organization, valid existence and good standing of, and certain
similar corporate matters regarding, Vicar Recap;
. the authorization, execution, delivery and enforceability of the Merger
Agreement;
. all necessary consents and approvals for the consummation of the Merger
Agreement;
. the capital structure of Vicar Recap;
. the absence of certain facts or circumstances related to Vicar Recap
that are likely to impede or delay receipt of consent of any
governmental agency;
. the receipt by Vicar Recap of financing commitment letters and the
adequacy of financing arrangements necessary to complete the Merger
Agreement and the transactions contemplated thereby;
. the accuracy of the information supplied by Vicar Recap to any
governmental agency; and
. the absence of certain prior activities and liabilities.
None of the representations and warranties in the Merger Agreement will
survive after the effective time of the Merger.
Certain Covenants
Conduct of Business. Pursuant to the Merger Agreement, VCA has agreed that,
during the period from March 30, 2000 (the original execution date of the
Merger Agreement) to the effective time of the Merger, except as contemplated
by the Merger Agreement or as otherwise consented to in writing by Vicar
Recap, VCA will, among other things:
. carry on its operations according to its ordinary course of business and
consistent with past practices;
. use reasonable efforts to preserve intact VCA's business organization,
goodwill and compliance with applicable law;
. not incur additional indebtedness except as permitted in the Merger
Agreement;
. not make any change in the outstanding capital stock of VCA;
56
<PAGE>
. not amend the terms of any current option or other right to purchase any
VCA capital stock existing on the original execution date of the Merger
Agreement;
. not declare or pay any dividend or make any distribution or transfer of
assets to any stockholder;
. not purchase all or any substantial part of the assets of, or otherwise
acquire, merge or consolidate with, any other party;
. not sell, lease, transfer, assign or otherwise dispose of any material
portion of VCA's assets;
. not increase the compensation of any VCA executive officer;
. not make any material change in the character of the business or
operations of VCA;
. not change its significant accounting principles, methods or practices
other than in the ordinary course of business;
. not take any action that would result in a breach of any covenants or
representations or warranties contained in the Merger Agreement;
. not take any action that would restrict VCA from consummating the Merger
Agreement and the transactions contemplated thereby;
. not settle or resolve any litigation, arbitration or other adjudication
matter not covered by insurance; and
. not make or incur any capital expenditures in excess of $15 million.
No Solicitation. The Merger Agreement provides that VCA will not, nor will
VCA permit its officers, directors, employees and representatives, directly or
indirectly, to, initiate, solicit, or have discussions with, or provide any
non-public information to, any party, other than Vicar Recap, concerning the
following:
. the acquisition of VCA by merger or otherwise;
. the acquisition of more than 20% of the total assets of VCA;
. the acquisition of more than 20% of the outstanding shares of common
stock of VCA;
. the adoption by VCA of a plan of liquidation or the declaration or
payment of an extraordinary dividend;
. the repurchase by VCA of more than 20% of the outstanding shares of
common stock of VCA; or
. the acquisition by VCA by merger, purchase of stock or assets, joint
venture or otherwise of a direct or indirect ownership interest or
investment in any business the annual revenues, net income or assets of
which are equal to or greater than 20% of the annual revenues, net
income or assets of VCA.
Each of the foregoing actions is referred to as an "Acquisition Proposal."
However, nothing contained in the Merger Agreement will prevent VCA or the
board of directors from:
. complying with Rule 14d-9 or Rule 14e-2 promulgated under the Exchange
Act with regard to any tender offer, provided that the board of
directors will not recommend that stockholders tender their shares in
connection with any such tender offer unless the board of directors,
acting upon the recommendation of the special committee, and after
consultation with legal counsel, determines that there is substantial
likelihood that the board of directors is required to do so in order to
comply with its fiduciary duties to VCA's stockholders; and
. furnishing non-public information to, or entering into discussions or
negotiations with, any person or entity in connection with an
Acquisition Proposal, provided that the board of directors, acting upon
the recommendation of the special committee, and after consulting with
legal counsel, determines that
57
<PAGE>
there is substantial likelihood that the board of directors is required
to do so in order to comply with its fiduciary duties to VCA's
stockholders.
Pursuant to the Merger Agreement, the board of directors may withdraw its
recommendation of the Merger Agreement or approve, recommend or cause VCA to
enter into any agreement with respect to any Acquisition Proposal if, upon the
recommendation of the special committee, and after consulting with legal
counsel, the board of directors determines that there is a substantial
likelihood that the board of directors is required to do so in order to comply
with its fiduciary duties to VCA's stockholders. The board of directors may
only approve, recommend or cause VCA to enter into an agreement with respect
to an Acquisition Proposal that is a Superior Proposal. A Superior Proposal is
a proposal, the terms of which the board of directors, acting upon a
recommendation of the special committee, after taking into consideration the
advice of financial advisors, determines to be more favorable to the
stockholders (other than the Continuing Stockholders) than the Merger.
In order for VCA to enter into an agreement with respect to a Superior
Proposal, VCA must provide written notice to Vicar Recap advising Vicar Recap
that the board of directors has received a Superior Proposal. The notice must
specify the terms and conditions of, and identify the party making, such
Superior Proposal. In addition, VCA may not enter an agreement with regard to
a Superior Proposal without terminating the Merger Agreement and paying Vicar
Recap a $10 million termination fee.
Stockholders' Meetings. The Merger Agreement provides for VCA to call a
special meeting of its stockholders to be held as promptly as practicable for
the purpose of voting upon the Merger Agreement and the Asset Drop Down. VCA
has agreed that the board of directors will recommend to VCA's stockholders at
the special meeting the adoption of the Merger Agreement and the transactions
contemplated thereby.
Proxy Statement. VCA has also agreed, as soon as reasonably practicable, to
file this proxy statement relating to the special meeting with the SEC and to
respond to any comments made by the SEC. In addition, VCA has agreed to mail
this proxy statement to its stockholders at the earliest practicable time.
Director and Officers Indemnification and Insurance. The Merger Agreement
provides that the Surviving Company will indemnify each person who is now, or
has been at any time prior to the original execution date of the Merger
Agreement, a director, officer, employee or agent of VCA or its subsidiaries,
for any claim, liability, loss, damage, judgment, fine, penalty, amount paid
in settlement or compromise, cost or expense, including reasonable attorney
fees and expenses, based on any matter existing or occurring at or prior to
the effective time of the Merger. Further, the Surviving Company will maintain
in effect for not less than six years after the effective time of the Merger
the current directors' and officers' liability insurance maintained by VCA
with respect to matters existing or occurring at or prior to the effective
time of the Merger.
HSR Notification. Subject to the terms and conditions in the Merger
Agreement, Vicar Recap and VCA have agreed, as soon as reasonably practical,
to file with the United States Federal Trade Commission and the Antitrust
Division of the United States Department of Justice the notification and
documentary material required under the HSR Act.
Financing. The parties have agreed to use their reasonable best efforts to
cooperate in obtaining, on terms reasonably satisfactory, all of the financing
necessary in connection with the consummation of the transactions contemplated
by the Merger Agreement.
Options. VCA will use its reasonable best efforts to obtain the rollover,
exercise or cancellation of its outstanding options. At the effective time of
the Merger, the Surviving Company may assume certain VCA options held by
directors and officers of VCA pursuant to written agreements entered into
between Vicar Recap and the holders of such options. After the Merger, the
Surviving Company shall assume these rollover options in accordance with the
options' respective stock option plans and the exercise price of, and the
number of shares underlying, each option will be adjusted equitably to reflect
the effect of the Merger.
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<PAGE>
Regulatory Applications. VCA and Vicar Recap will cooperate and use their
reasonable best efforts to prepare all documentation, to effect all filings
and to obtain all permits, consents, approvals and authorizations from all
third parties and governmental agencies necessary to consummate the
transactions contemplated in the Merger Agreement.
Asset Drop Down. VCA and Vicar Operating will use reasonable best efforts
to effect and consummate the transfer of all assets, properties, business
operations and liabilities of VCA to Vicar Operating prior to the closing date
of the Merger.
Conditions to Obligations to Effect the Merger
The obligations of the parties to effect the Merger are subject to the
following conditions, among others, unless waived in writing by Vicar Recap
and VCA:
. no governmental agency will have initiated proceedings to restrain or
prohibit the Merger or force rescission of the Merger Agreement;
. any applicable waiting period under the HSR Act must have been
terminated with respect to the Merger and the transactions contemplated
thereby;
. stockholder approval of the Merger Agreement and the Asset Drop Down
must have been obtained;
. all regulatory or governmental permits, approvals or waivers required to
consummate the Merger and the transactions contemplated thereby must
have been obtained; and
. VCA must have received all third-party consents required by any contract
between any third parties and VCA and any of its subsidiaries.
The obligations of Vicar Recap to effect the Merger are subject to the
satisfaction or waiver, on or prior to the closing date of the Merger, of the
following conditions, among others:
. the representations and warranties of VCA set forth in the Merger
Agreement must be true and correct in all material respects on the date
when made and as of the closing date of the Merger;
. VCA must have performed or complied with all covenants contained in the
Merger Agreement;
. there must not have occurred after the execution date of the Merger
Agreement events which individually or in the aggregate have had or are
reasonably expected to have a material adverse effect on VCA;
. VCA must have delivered resolutions authorizing the Merger Agreement and
the transactions contemplated thereby and an officers certificate
certifying certain representations, warranties and covenants made by
VCA;
. all necessary financing in connection with the consummation of the
Merger must have been obtained;
. all parties to the Recapitalization, as defined in the Merger Agreement,
must have entered into the agreements contemplated by the
Recapitalization, and performed all actions required by them to
consummate the Recapitalization;
. the aggregate number of shares of VCA common stock where the holder did
not vote in favor of the Merger and has delivered a written demand for
relief as a dissenting stockholder in the manner provided for in the
DGCL must not equal 15% or more of the shares of VCA common stock
outstanding as of the record date for the special meeting;
. prior to the closing of the Merger, VCA must have delivered to Recap a
schedule identifying shares of VCA common stock held by the Continuing
Stockholders that will remain outstanding following the Merger as shares
of common stock of the Surviving Company and other forms of
consideration, if any, that may be exchanged by the Continuing
Stockholders (other than Robert L. Antin) for shares of common stock of
the Surviving Company; such schedule must have identified: (i) shares of
VCA
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<PAGE>
common stock held by Robert L. Antin that have an aggregate value equal
to $2,000,000, provided however, that such shares may have a value of
less than $2,000,000 if VCA has received the prior written consent of
Vicar Recap (the aggregate value of such shares, the "Robert Antin
Rollover Value"), and (ii) (a) a number of shares of VCA common stock
(the "Additional Rollover Shares Number") held by Other Contributing
Stockholders (as defined below), (b) certain outstanding Options (the
"Contributed Options") held by Other Contributing Stockholders, (c)
certain cash payments (the "Rollover Payments") that may be made by the
Other Contributing Stockholders, and (d) certain loans ("Loans") that
may be made by the Surviving Company to Other Contributing Stockholders
and any other consideration ("Other Consideration") that may be provided
by Other Contributing Stockholders (the value of any Other
Consideration, together with the principal amount of any Loans, the
"Other Consideration Amount") (provided, however, that Loans and Other
Consideration may be set forth on the Rollover Schedule only with the
prior written consent of Vicar Recap), such that the sum of (A) the
Robert Antin Rollover Value, (B) the product of the Additional Rollover
Shares Number and $15.00, (C) the Aggregate Spread Amount (as defined
below), (D) the Rollover Payments and (E) the Other Consideration Amount
shall be equal to $4,000,000. The "Aggregate Spread Amount" shall be
equal to the excess of the aggregate cash amount that would be paid in
the Merger with respect to the shares of VCA common stock subject to the
Contributed Options, if the Contributed Options were exercised, over the
aggregate exercise price with respect to the Contributed Options, as
reduced by any required withholdings of taxes. The "Other Contributing
Stockholders" shall mean certain members of management and employees of
VCA (other than Robert Antin);
. there must not have occurred any material change in accounting rules or
in applicable federal and state securities laws which results in push
down accounting treatment of the Merger;
. VCA must have executed a management services agreement and a stockholder
agreement, and Robert L. Antin and Arthur J. Antin each must have
executed employment agreements pursuant to the Merger Agreement;
. VCA must have obtained the rollover, the exercise or the cancellation of
VCA options and rollover options;
. all directors of VCA, other than those specified in the Merger
Agreement, will have resigned from the board of directors; and
. VCA and Vicar Operating must have consummated the Asset Drop Down.
The obligation of VCA to effect the Merger is subject to the satisfaction
or waiver, on or prior to the closing date of the Merger, of the following
conditions:
. the representations and warranties of Vicar Recap set forth in the
Merger Agreement are true and correct in all material respects on the
date when made and as of the closing date of the Merger;
. Vicar Recap must have performed or complied in all material respects
with all covenants contained in the Merger Agreement;
. Vicar Recap must have delivered resolutions authorizing the Merger
Agreement and the transactions contemplated thereby and any other
documents, instruments or certificates as shall be reasonably requested
by VCA or its counsel, including an officers certificate certifying
certain representations, warranties and covenants made by Vicar Recap;
. all necessary financing in connection with the consummation of the
Merger and the transactions contemplated by the Merger Agreement must
have been obtained; and
. all parties to the Recapitalization, as defined in the Merger Agreement,
must have entered into the agreements contemplated by the
Recapitalization, and performed all actions required by them to
consummate the Recapitalization.
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Termination; Termination Fees and Expenses
The Merger Agreement may be terminated and the Merger contemplated may be
abandoned at any time prior to the effective time of the Merger, whether
before or after stockholder approval, for the following reasons:
. the board of directors of VCA and Vicar Recap both consent in writing to
terminate the Merger;
. by Vicar Recap, if any of the conditions set forth in Sections 8.1 and
8.3 of the Merger Agreement become incapable of fulfillment or the board
of directors of VCA or any committee thereof fails to recommend or
withdraws or modifies its recommendation of the Merger, whether or not
in compliance with Section 7.5 of the Merger Agreement, regarding
Acquisition Proposals; or
. by VCA, if any of the conditions set forth in Sections 8.1 and 8.2 of
the Merger Agreement become incapable of fulfillment or the board of
directors of VCA either approves a Superior Proposal or withdraws its
recommendation of the transactions contemplated by the Merger Agreement
in accordance with the terms of Section 7.5 of the Merger Agreement; or
. by VCA or Vicar Recap, if the Merger is not completed on or before
September 30, 2000, but only if the failure to complete the Merger did
not result from the breach of any representation or warranty or
agreement in the Merger Agreement by the party seeking termination; or
. by VCA or Vicar Recap, if the other party is in material breach of any
of its covenants or representations or warranties contained in the
Merger Agreement and such breach either is incapable of cure or is not
cured within twenty (20) business days after notice from the party
wishing to terminate, subject to certain conditions; or
. by VCA or Vicar Recap, if any governmental authority issues a non-
appealable final order, decree or ruling or takes any other action
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger or VCA's recapitalization, subject to certain
conditions.
VCA will be required to pay Vicar Recap a termination fee in the amount of
$10 million if the board of directors of VCA approves a Superior Proposal or
withdraws its recommendation of the Merger in accordance with Section 7.5 of
the Merger Agreement. In the event that the termination fee is not payable and
the Merger Agreement is terminated by Vicar Recap because of a breach by VCA
of its covenants or representations and warranties, or because VCA is unable
to obtain stockholder approval of the Merger and the Asset Drop Down, VCA will
pay Vicar Recap all fees and expenses incurred by Vicar Recap and its
affiliates in connection with the Merger Agreement and the transactions
contemplated thereby, up to $1 million, including those of counsel,
accountants and other advisors and in connection with the financings.
Amendment and Waiver
The Merger Agreement may be amended at any time, whether before or after
stockholder approval, only with written consent of all parties to the Merger
Agreement. However, the Merger Agreement may not be amended following
stockholder approval of the Merger without the further approval of the
stockholders if such amendment would adversely affect the stockholders. In
addition, any amendment that would adversely affect VCA would require the
approval of the special committee. No waiver by any party to the Merger
Agreement of any provision of Merger Agreement shall be effective unless set
forth in writing and executed by the party so waiving.
Rights Agreement
Pursuant to the Merger Agreement, VCA and Continental Stock Transfer and
Trust Corporation entered into a Rights Agreement Amendment dated as of March
30, 2000 (the "Amendment") to the Rights Agreement dated as of December 30,
1997 (the "Rights Agreement").
On December 22, 1997, the board of directors of VCA declared a dividend of
one preferred stock purchase right for each issued and outstanding share of
VCA common stock (the "Right"). Pursuant to the Rights
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Agreement, each Right entitles the registered holder of common stock to
purchase 1/100th of a share of VCA Series B preferred stock at a purchase
price of $60 per 1/100th of a share of VCA Series B preferred stock, subject
to certain adjustments. The Right may be exercisable upon certain conditions,
including upon the acquisition by a person or group of affiliated or
associated persons (an "Acquiring Person") of a beneficial ownership of 15% or
more of the outstanding common stock of VCA (the date of any such acquisition,
the "Distribution Date"), subject to certain conditions. Further, in a merger,
consolidation or sale or transfer of 50% or more of the consolidated assets or
earning power of VCA, each Right will be converted into a right to purchase
shares of common stock of the Surviving Company, subject to certain
conditions. In addition, the Rights may be redeemed in certain situations by
VCA at a price of $0.01 per Right. The Rights expire on January 5, 2008.
The Amendment provides that no party to the Merger Agreement will become an
Acquiring Person as a result of entering into, performing the terms of, or
consummating the transactions contemplated by, the Merger Agreement or any
other ancillary agreements entered into in connection with the Merger
Agreement (the "Ancillary Agreements"). The Amendment further provides that a
Distribution Date will not be deemed to have occurred solely as a result of
the approval, execution or delivery of the Merger Agreement or the Ancillary
Agreements, or the consummation of the Merger or the performance of the terms
of the Merger Agreement or the Ancillary Agreements.
EXPENSES
It is estimated that, if the Merger is completed, expenses incurred in
connection with the Merger will be approximately as follows:
<TABLE>
<CAPTION>
Expenses
-----------
<S> <C>
Financing fees................................................ $12,500,000
Financial advisory fees and expenses.......................... 12,000,000*
Contract payments and non-competes............................ 16,400,000
SEC filing fees............................................... 61,208
Legal fees and expenses....................................... 2,000,000
Accounting fees and expenses.................................. 1,000,000
Printing costs................................................ 105,000
Proxy solicitation, distribution and exchange agent fees and
expenses..................................................... 35,000
Miscellaneous................................................. 500,000
-----------
Total....................................................... $44,601,208
===========
</TABLE>
--------
* Includes $1 million payable to Donaldson, Lufkin & Jenrette upon
consummation of the Merger.
All costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby will be paid by the party incurring such
expenses.
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PRICE RANGE OF COMMON STOCK
VCA's common stock is quoted on The Nasdaq Stock Market under the symbol
"VCAI." The following table sets forth, for the fiscal quarters indicated, the
range of high and low closing sale prices of the common stock as reported by
Nasdaq.
<TABLE>
<CAPTION>
High Low
-------- --------
<S> <C> <C>
Fiscal 1998 by Quarter
First.................................................... 16 1/2 13 5/6
Second................................................... 19 7/16 15 1/2
Third.................................................... 20 5/8 16 1/2
Fourth................................................... 20 3/16 13 3/8
Fiscal 1999 by Quarter
First.................................................... 20 1/8 14 1/8
Second................................................... 15 13
Third.................................................... 14 7/16 10 15/16
Fourth................................................... 13 3/8 9 5/16
Fiscal 2000 by Quarter
First.................................................... 13 13/16 10 5/16
Second................................................... 13 3/4 12 3/4
</TABLE>
The closing price of the common stock on March 30, 2000, the last trading
day prior to the public announcement of the execution of the Merger Agreement,
was $13.375. On August 9, 2000, the closing price of the common stock was
$14.25 per share. On August 9, 2000, there were approximately 642 record
holders of common stock. The market price of VCA's common stock is subject to
fluctuations and we urge you to obtain current market quotations.
DIVIDENDS
VCA has never declared or paid any dividends with respect to its common
stock. Any determination to pay dividends in the future will be at the
discretion of VCA's board of directors and will be dependent upon VCA's
results of operations, financial condition, capital expenditures, working
capital requirements, any contractual restrictions and other factors deemed
relevant by VCA's board of directors. VCA does not anticipate that any cash
dividends will be paid on the common stock in the foreseeable future if, for
any reason, the Merger is not completed.
COMMON STOCK PURCHASE INFORMATION
VCA did not purchase any VCA common stock in 1998 or the first half of
2000. VCA purchased VCA common stock in 1999 as described below.
<TABLE>
<CAPTION>
Aggregate
------------------------------------------
Shares Avg. $/SH Value High Low
------- --------- ---------- ------ ------
<S> <C> <C> <C> <C> <C>
First quarter 1999................ 62,000 $14.685 $ 910,444 $20.13 $14.13
Third quarter 1999................ 294,200 11.678 3,435,735 14.44 10.94
Fourth quarter 1999............... 37,146 11.195 415,852 14.38 10.94
------- ------- ---------- ------ ------
Total............................. 393,346 -- $4,762,031 -- --
======= ==========
</TABLE>
None of VCA, its directors or executive officers, Vicar Operating, Vicar
Recap, Green Equity or GEI Capital have engaged in any transaction with
respect to VCA common stock within 60 days of the date of this proxy
statement. Robert L. Antin acquired 45,000 shares of VCA common stock at a
price of $10.56 per share on October 8, 1999. There have been no other
acquisitions by the Management Continuing Stockholders of VCA common stock
within two years of the date of this proxy statement.
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INFORMATION ABOUT VICAR RECAP, INC., GREEN EQUITY INVESTORS III, L.P. AND GEI
CAPITAL III, LLC
Under a potential interpretation of the rules governing "going private"
transactions, Vicar Recap, Green Equity and GEI Capital may be deemed
affiliates of VCA. Therefore, each of Vicar Recap, Green Equity and GEI
Capital has been included as a filing person on the Schedule 13E-3 filed in
connection with the Merger. Information with respect to such companies, as
well as their controlling persons, directors and executive officers, is set
forth below.
Vicar Recap, Inc., a Delaware corporation, is the entity that will be
merged with VCA in the Merger. Vicar Recap was formed on March 29, 2000 solely
for purposes of completing the Merger. Vicar Recap has not carried on any
activities to date other than those activities incident to its formation and
as contemplated by the Merger Agreement.
Green Equity Investors III, L.P., a Delaware limited partnership, is a
private investment fund that was formed in 1998 by Leonard Green & Partners,
L.P., a Delaware limited partnership. Leonard Green & Partners, L.P. is a
private merchant banking firm specializing in organizing, structuring and
sponsoring going private transactions and recapitalizations of established
public and private companies.
GEI Capital III, LLC, a Delaware limited liability company, is and its
principal business is being, the sole general partner of Green Equity. The
Senior Manager of GEI Capital is Leonard I. Green, and the other Managers of
GEI Capital are Jonathan D. Sokoloff, John G. Danhakl, Peter J. Nolan, Gregory
J. Annick and Jonathan A. Seiffer. Throughout this proxy statement, we
sometimes have referred to GEI Capital, Green Equity and Vicar Recap
collectively as the "Green Entities."
Leonard I. Green is a founding partner of Green, which he formed in July
1989. Mr. Green is the Senior Manager of GEI Capital.
Jonathan D. Sokoloff has been a partner of Green since 1990. Mr. Sokoloff
is a Manager of GEI Capital.
John G. Danhakl has been a partner of Green since 1995. Mr. Danhakl is a
Manager of GEI Capital. Mr. Danhakl has served as a Director and the President
of Vicar Recap since its formation on March 29, 2000.
Peter J. Nolan has been a partner of Green since April 1997. Mr. Nolan is a
Manager of GEI Capital. Prior to joining Green, Mr. Nolan was a Managing
Director and the Co-Head of Donaldson, Lufkin & Jenrette's Los Angeles
Investment Banking Division.
Gregory J. Annick has been a partner of Green since January 1994. Mr.
Annick is a Manager of GEI Capital.
Jonathan A. Seiffer has been a partner of Green since January 1999. Mr.
Seiffer is a Manager of GEI Capital. Prior to becoming a partner, Mr. Seiffer
had been a Vice President at Green since 1997 and an Associate at Green since
1994.
John M. Baumer has been a Vice President at Green since May 1999. Mr.
Baumer has served as a Director of Vicar Recap since its formation on March
29, 2000. Prior to joining Green, Mr. Baumer was a Vice President in the
Corporate Finance Division of Donaldson, Lufkin & Jenrette in Los Angeles.
James R. Gillette has been the Chief Financial Officer of Green since
January 1998. Mr. Gillette has served as the Secretary and Treasurer of Vicar
Recap since its formation on March 29, 2000. Prior to joining Green,
Mr. Gillette was the Chief Financial Officer of Marvin Engineering Company, an
aerospace and defense contractor.
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<PAGE>
During the past five years, none of Vicar Recap, Green Equity, Green, GEI
Capital, Leonard I. Green, Jonathan D. Sokoloff, John G. Danhakl, Peter J.
Nolan, Gregory J. Annick, Jonathan A. Seiffer, John M. Baumer and James R.
Gillette has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors). In addition, during the past five years,
none of Vicar Recap, Green Equity, Green, GEI Capital and Messrs. Green,
Sokoloff, Danhakl, Nolan, Annick, Seiffer, Baumer and Gillette has been a
party to any judicial or administrative proceeding (except for matters that
were dismissed without sanction or settlement) that resulted in a judgment,
decree or final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities laws or a
finding of any violation of federal or state securities laws. Messrs. Green,
Sokoloff, Danhakl, Nolan, Annick, Seiffer, Baumer and Gillette are citizens of
the United States and are principally employed by Green.
The business address for Vicar Recap, Green Equity, Green and GEI Capital
is 11111 Santa Monica Boulevard, Los Angeles, California 90025. The business
address for the Los Angeles office of Donaldson, Lufkin & Jenrette is 2121
Avenue of the Stars, Los Angeles, California 90067. The business address for
Marvin Engineering Company is 260 W. Beach Avenue, Inglewood, California
90302.
The Green Entities may permit certain other investors (principally
institutional investors) to purchase a portion of the equity of Vicar Recap
that otherwise would be purchased by Green Equity. For additional information,
see "Special Factors--Financing for the Merger."
INFORMATION ABOUT VICAR OPERATING, INC.
Vicar Operating is a Delaware corporation and a wholly owned subsidiary of
VCA. Vicar Operating was formed solely for the purpose of completing the Asset
Drop Down. Pursuant to the Merger Agreement, VCA will transfer all of its
assets, properties, business operations and liabilities to Vicar Operating
prior to completing the Merger. Vicar Operating has not carried on any
activities to date other than activities incident to its formation and as
contemplated by the Merger Agreement.
The business address and telephone number for Vicar Operating is 12401 West
Olympic Boulevard, Los Angeles, California 90064, (310) 584-6500.
The name, position and current principal occupation or employment of each
of the directors and executive officers of Vicar Operating are the same as for
VCA and are set forth below under "Directors and Executive Officers of VCA."
The material occupations, positions, offices and employment during the past
five years of each of the directors and executive officers of Vicar Operating
are described below under "Directors and Executive Officers of VCA."
DIRECTORS AND EXECUTIVE OFFICERS OF VCA
Directors
Mr. Arthur J. Antin, a founder of VCA, has served as Chief Operating
Officer, Senior Vice President, Secretary and a Director of VCA since its
inception, and currently is responsible for managing animal hospital and
veterinary laboratory operations for VCA. From October 1983 to September 1986,
Mr. Antin served as Director of Marketing/Investor Relations of AlternaCare
Corp. ("AlternaCare"), a publicly held company which owned, operated and
developed freestanding out-patient surgical centers. AlternaCare was acquired
by Medical Care International in 1988. At AlternaCare, Mr. Antin developed and
implemented marketing strategies for a network of outpatient surgical centers.
Mr. Antin received an MA degree in Community Health from New York University
and a Post Graduate Certificate in Structured Programming and Business
Application design from Columbia University.
Mr. Robert L. Antin, a founder of VCA, has served as Chief Executive
Officer, President and Chairman of the Board of VCA since its inception. Mr.
Antin is responsible for directing all aspects of VCA's business. From
September 1983 until founding VCA, Mr. Antin was President, Chief Executive
Officer, a director and
65
<PAGE>
co-founder of AlternaCare. From July 1978 until September 1983, Mr. Antin was
employed as an officer by American Medical International, Inc. ("AMI"), an
owner and operator of health care facilities. While at AMI, Mr. Antin
initially served as Director of Marketing of Professional Hospital Services,
then as Director of New Business Development responsible for non-hospital
related acquisitions and development, and most recently as a Vice President of
AMI and President of AMI Ambulatory Center, Inc., a subsidiary of AMI
operating a chain of ambulatory care centers. Mr. Antin received his MBA
degree with a certification in hospital and health administration from Cornell
University in 1975.
Mr. John B. Chickering, Jr., a certified public accountant, currently is a
private investor and independent consultant. Mr. Chickering served in a
variety of executive positions within Time Warner, Inc. and Warner Bros.,
Inc., most recently as the Vice President--Financial Administration for Warner
Bros. International Television Distribution until February 1996. Prior to his
employment at Warner Bros., Mr. Chickering served as a staff accountant at
KPMG Peat Marwick from August 1975 to June 1977. Mr. Chickering holds an MBA
degree with emphasis in accounting and finance from Cornell University.
Richard Gillespie, M.D., was elected to the Board of Directors in June
1995. Dr. Gillespie is a private investor who has investments in several
companies in the United States. From 1983 to 1987, Dr. Gillespie was Vice
President, a director and co-founder of AlternaCare. Dr. Gillespie also has
served as a director for several other companies, including Lansinoh
Laboratories, Inc. and Geriatric Medical Center, and as the general partner of
Outpatient Diagnostics Center. Dr. Gillespie holds an MD degree from the
University of Tennessee College of Medicine.
Mr. John A. Heil, currently serves as the President--Heinz Specialty Pet
Food. Since 1978, Mr. Heil has served in various capacities with the H.J.
Heinz Company, including Vice President-Marketing for Heinz Pet Products,
General Manager, Marketing of Ore-Ida Foods, Inc. and Vice President--
Marketing and Sales of Star-Kist Foods, Inc. Mr. Heil holds a BA degree in
economics from Lycoming College.
Mr. Neil Tauber, a founder of VCA, has served as Senior Vice President of
Development and a Director of VCA since its inception and is currently
responsible for identifying and effecting the acquisition of independent
animal hospitals and veterinary diagnostic laboratories. From 1984 to 1986,
Mr. Tauber served as the Director of Corporate Development at AlternaCare. At
AlternaCare, Mr. Tauber was responsible for the acquisition of new businesses
and syndication to hospitals and physician groups. From 1981 to 1984, Mr.
Tauber served as Chief Operating Officer of MDM Services, a wholly owned
subsidiary of Mediq, a publicly held health care company, where he was
responsible for operating and developing a network of retail dental centers
and industrial medical clinics. Mr. Tauber holds an MBA from Wagner College.
Executive Officers
Mr. Tomas W. Fuller joined VCA in January 1988 and served as Vice President
and Controller until November 1990 when he became Chief Financial Officer.
Prior to joining VCA, from 1980 to 1987, Mr. Fuller served as an audit manager
for Arthur Andersen LLP. Mr. Fuller holds a BA degree in business/economics
from the University of California at Los Angeles.
Ms. Dawn R. Olsen joined VCA in January 1997 as Vice President, Controller.
Prior to joining VCA, from November 1993 to March 1996, Ms. Olsen served as
Senior Vice President, Controller of OpTel, Inc., a privately held
telecommunications company. From 1987 to 1993, Ms. Olsen served as Assistant
Controller and later as Vice President, Controller of Qintex Entertainment,
Inc., a publicly held television film distribution and production company.
From 1981 to 1987, Ms. Olsen served as an audit manager for Arthur Andersen
LLP. Ms. Olsen is a certified public accountant and holds a BS degree from
California State University, Northridge.
During the past five years, to the best knowledge of VCA and Vicar
Operating, none of the above-mentioned directors and executive officers have
been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or has been a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction and as a result of such
proceeding, was or is subject to a judgement, decree or final order enjoining
further violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws. Each of the above-
mentioned directors and executive officers is a citizen of the United States.
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<PAGE>
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth as of June 30, 2000 certain information
relating to the ownership of the common stock by (i) each person known by VCA
to be the beneficial owner of more than five percent of the outstanding shares
of the common stock, (ii) each of VCA's directors, (iii) each of the Named
Executive Officers, and (iv) all of VCA's directors and executive officers as
a group. Except as may be indicated in the footnotes to the table and subject
to applicable community property laws, each such person has the sole voting
and investment power with respect to the shares owned. The address of each
person listed is in care of VCA, 12401 West Olympic Boulevard, Los Angeles,
California 90064, telephone (310) 584-6500, unless otherwise set forth below
such person's name.
<TABLE>
<CAPTION>
Number of Shares of
Common Stock
Name and Address Beneficially Owned(1) Percent(1)
---------------- --------------------- ----------
<S> <C> <C>
Robert L. Antin(2)........................... 1,794,259 8.1%
Arthur J. Antin(3)........................... 776,131 3.6
Neil Tauber(4)............................... 487,058 2.2
Tomas W. Fuller(5)........................... 392,645 1.8
Dawn R. Olsen(6)............................. 22,902 *
John B. Chickering, Jr.(7)................... 13,750 *
Richard Gillespie, M.D.(8)................... 48,075 *
John A. Heil(9).............................. 26,667 *
ICM Asset Management, Inc.(10)............... 1,572,455 7.3
Merrill Lynch & Co., Inc.(11)................ 1,337,997 6.2
Dimensional Fund Advisors Inc.(12)........... 1,272,400 5.9
Directors and executive officers as a group
(8 persons)(13)............................. 3,480,821 14.8
</TABLE>
--------
* Less than one percent.
(1) Under Rule 13d-3 of the Exchange Act, certain shares may be deemed to be
beneficially owned by more than one person (if, for example, persons
share the power to vote or the power to dispose of the shares). In
addition, shares are deemed to be beneficially owned by a person if the
person has the right to acquire the shares (for example, upon exercise of
an option) within 60 days of the date as of which the information is
provided. In computing the percentage ownership of any person, the amount
of shares outstanding is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason of
these acquisition rights. As a result, the percentage of outstanding
shares of any person as shown in this table does not necessarily reflect
the person's actual ownership or voting power with respect to the number
of shares of common stock actually outstanding at June 30, 2000.
(2) Includes (i) 146,866 shares held by Robert L. Antin's minor children and
(ii) 875,000 shares of common stock reserved for issuance upon exercise
of stock options which are or will become exercisable on or prior to
August 31, 2000.
(3) Includes (i) 80,666 shares which Arthur J. Antin holds as custodian for
Robert L. Antin's minor children under the California Uniform Gifts to
Minors Act, (ii) 48,666 shares held by Arthur J. Antin's minor children;
and (iii) 513,500 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
prior to August 31, 2000.
(4) Includes 393,000 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
prior to August 31, 2000.
(5) Includes 345,167 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
prior to August 31, 2000.
(6) Includes 17,361 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
prior to August 31, 2000.
(7) Consists of 13,750 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
prior to August 31, 2000.
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<PAGE>
(8) Includes 33,750 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
prior to August 31, 2000.
(9) Consists of 26,667 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
prior to August 31, 2000.
(10) Based on information contained in a Schedule 13G dated February 8, 2000.
ICM Asset Management, Inc. is located at 601 West Main Avenue, Suite 600,
Spokane, Washington 99201.
(11) Based on information contained in a Schedule 13G dated February 4, 2000.
Merrill Lynch & Co., Inc. is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10381.
(12) Based on information contained in a Schedule 13G dated February 3, 2000.
Dimensional Fund Advisors Inc. is located at 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401.
(13) Includes 2,218,195 shares of common stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
prior to August 31, 2000.
None of Vicar Recap, Green Equity, Green, GEI Capital, Leonard I. Green,
Jonathan D. Sokoloff, John G. Danhakl, Peter J. Nolan, Gregory J. Annick,
Jonathan A. Seiffer, John M. Baumer and James R. Gillette beneficially owns
shares of VCA common stock.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited consolidated financial statements and the related financial
statement schedule incorporated in this proxy statement by reference to VCA's
Annual Report on Form 10-K for the year ended December 31, 1999, as amended by
Amendment No. 1 to Form 10-K filed on March 30, 2000 and Amendment No. 2 to
Form 10-K filed on May 1, 2000, have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their reports which are
incorporated herein by reference. It is expected that a representative of
Arthur Andersen will be present at the special meeting to respond to
appropriate questions of stockholders and to make a statement if such
representative desires.
OTHER MATTERS
As of the date of this proxy statement, the board of directors is not aware
of any matters to be presented at the special meeting other than those
described in this proxy statement. If other matters should properly come
before the special meeting or any adjournments or postponements thereof and be
voted upon, the enclosed proxies will be deemed to confer discretionary
authority on the individuals named as proxies therein to vote the shares
represented by such proxies as to any such matters. The persons named as
proxies intend to vote or not to vote in accordance with the recommendations
of the management of VCA.
FUTURE STOCKHOLDER PROPOSALS
If the Merger is completed there will be no public stockholders of VCA and
no public participation in any future meetings of stockholders of VCA.
However, if the Merger is not completed, VCA's public stockholders will
continue to be entitled to attend and participate in VCA stockholders'
meetings. Pursuant to Rule 14a-8 under the Exchange Act promulgated by the
SEC, stockholders of VCA had until January 12, 2000 to deliver proposals for
inclusion at the next Annual Meeting (in the event that the Merger is not
completed) and in VCA's proxy statement for that meeting.
WHERE YOU CAN FIND MORE INFORMATION
A Rule 13e-3 Transaction Statement (including any amendments thereto, the
"Schedule 13E-3") under the Exchange Act was filed concurrently with the
filing of this proxy statement. This proxy statement does not contain all of
the information set forth in the Schedule 13E-3 and the exhibits thereto.
VCA files annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any such reports, statements
or other information, including the Schedule 13E-3, VCA files at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please
68
<PAGE>
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. VCA's SEC filings are also available to the public from commercial
document retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov." All documents related to any of the pending litigation
described herein are also available to the public upon request to the court
before which such litigation is pending.
Shares of VCA's common stock are presently traded on Nasdaq under the
symbol "VCAI." Reports and other information concerning VCA can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., Reports Section, 1735 K Street, N.W., Washington, DC 20006.
The SEC allows us to "incorporate by reference" information into this proxy
statement, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this proxy
statement, except for any information superseded by information in this proxy
statement. This proxy statement incorporates by reference the documents set
forth below that we have previously filed with the SEC. These documents
contain important information about our company and its finances.
<TABLE>
<CAPTION>
VCA SEC Filings Period
--------------- ------
<S> <C>
1. Annual Report on Form 10-K filed on March 24, 2000, as
amended by Amendment No. 1 to Form 10-K filed on March
30, 2000 and by Amendment No. 2 to Form 10-K filed on
May 1, 2000............................................ December 31, 1999
2. Current Report on Form 8-K, filed on April 14, 2000... April 1, 2000
3. Current Report on Form 8-K filed on April 6, 2000..... March 30, 2000
4. Current Report on Form 8-K filed on April 4, 2000..... March 30, 2000
5. Quarterly Report on Form 10-Q filed on August 14,
2000.................................................... June 30, 2000
6. Quarterly Report on Form 10-Q filed on May 12, 2000... March 31, 2000
</TABLE>
In addition, each document filed by VCA pursuant to Sections 13(a), 3(c),
14 or 15(d) of the Exchange Act subsequent to the date of this proxy statement
and prior to the date of the special meeting shall be deemed to be
incorporated by reference in this proxy statement and to be a part hereof from
the date such document is filed with the SEC.
VCA has supplied all information contained or incorporated by reference in
this proxy statement relating to VCA and Vicar Recap has supplied all
information contained in this proxy statement relating to Vicar Recap.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the
SEC. Documents incorporated by reference are available from us without charge,
excluding all exhibits, unless we have specifically incorporated by reference
an exhibit in this proxy statement. Stockholders may obtain documents
incorporated by reference in this proxy statement by requesting them in
writing or by telephone at the following address:
Veterinary Centers of America, Inc.
12401 West Olympic Boulevard
Los Angeles, California 90064
Telephone: (310) 584-6500
Attn: Chief Financial Officer
If you would like to request documents from us, please do so by September
5, 2000 in order to ensure timely receipt before the special meeting.
You should rely only on the information contained or incorporated by
reference in this proxy statement to vote on the Merger. We have not
authorized anyone to provide you with information that is different from what
is contained in this proxy statement. This proxy statement is dated August 14,
2000. You should not assume that the information contained in this proxy
statement is accurate as of any date other than August 14, 2000, and the
mailing of this proxy statement to stockholders shall not create any
implication to the contrary.
69
<PAGE>
ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN MERGER
By and Among
VICAR RECAP, INC.,
a Delaware corporation
VETERINARY CENTERS OF AMERICA, INC.,
a Delaware corporation
and
VICAR OPERATING, INC.,
a Delaware corporation
Dated as of August 11, 2000
<PAGE>
ANNEX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement")
is entered into as of August 11, 2000, by and among Vicar Recap, Inc., a
Delaware corporation ("Recap") wholly owned by Green Equity Investors III,
L.P. ("Parent"), Veterinary Centers of America, Inc., a Delaware corporation
(together with its Subsidiaries from time to time (except as the context may
otherwise require), the "Company"), and Vicar Operating, Inc., a Delaware
corporation and wholly owned subsidiary of the Company ("Operating Company"),
with respect to the facts and circumstances set forth below. Capitalized terms
used herein without definition have the meanings set forth elsewhere in this
Agreement. This Agreement amends and restates the Agreement and Plan of Merger
entered into by the parties as of March 30, 2000 (the "Original Agreement
Date").
A. The Company Board (acting upon a recommendation of the Special
Committee) and the Board of Directors of Operating Company have each
determined that it is advisable and in the best interests of their respective
stockholders to effect a transfer of all of the assets, properties, business
operations and liabilities of the Company to Operating Company prior to the
Merger (the "Asset Drop Down"), to create a holding company and operating
company structure, in order to facilitate the consummation of the Merger in
accordance with this Agreement. Upon consummation of the Asset Drop Down,
Operating Company will remain and continue to be a wholly owned subsidiary of
the Company.
B. The Company Board (acting upon a recommendation of the Special
Committee) and the Board of Directors of Recap have each determined that it is
advisable and in the best interests of their respective stockholders to effect
a merger, following the consummation of the Asset Drop Down, of Recap with and
into the Company, with the Company as the surviving corporation, pursuant to
the Certificate of Merger and upon the terms and subject to the conditions set
forth herein.
C. Pursuant to the Merger, all shares of capital stock of the Company
(other than Dissenting Shares, Rollover Shares, shares held by Parent or
Recap, and shares held in the Company's treasury) shall be cancelled and
converted automatically into the right to receive an amount in cash per share,
without interest, as set forth in Section 2.2.1 of this Agreement.
D. Certain members of management and employees of the Company (the
"Rollover Holders"): (i) hold shares of Common Stock of the Company (the
"Rollover Shares") that shall remain outstanding following the Merger as
shares of common stock of the Surviving Corporation; (ii) may hold Contributed
Options that shall be tendered in the Merger for shares of common stock of the
Surviving Corporation with a value equal to the excess of the aggregate cash
amount that would be paid in the Merger with respect to the shares of Common
Stock subject to the Contributed Options, if the Contributed Options were
exercised, over the aggregate exercise price with respect to the Contributed
Options (as reduced by any required withholdings of taxes); (iii) may make
Rollover Payments for shares of common stock of the Surviving Corporation;
(iv) may receive Loans from the Surviving Corporation to enable them to
purchase shares of common stock of the Surviving Corporation; and (v) may
provide Other Consideration in exchange for shares of common stock of the
Surviving Corporation (the "Recapitalization").
E. As a result of the Merger and the transactions contemplated by this
Agreement, all of the outstanding equity interests of the Surviving
Corporation will be owned by Parent, certain co-investors, the Rollover
Holders, the holders of any options to purchase common stock of the Surviving
Corporation, and certain mezzanine lenders that are providing financing in
connection with the Merger.
F. In order to induce Recap to enter into this Agreement, Recap and certain
Rollover Holders have previously entered into Voting Agreements in the form
attached hereto as EXHIBIT A, pursuant to which, among other things, the
Rollover Holders will agree to vote their shares of Common Stock of the
Company in favor of the Merger.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants contained herein and intending to be
legally bound, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
1.1. Certain Terms. For all purposes of this Agreement, except as otherwise
expressly provided:
1.1.1. the terms defined in this Article 1 have the meanings assigned to
them in this Article 1 and include the plural as well as the singular;
1.1.2. all accounting terms not otherwise defined herein have the
meanings assigned under GAAP;
1.1.3. all references in this Agreement to "Articles," "Sections,"
"Exhibits," "Annexes" and "Schedules" shall be deemed to be references to
Articles and Sections of, and Exhibits, Annexes and Schedules to, this
Agreement, unless the context shall otherwise require;
1.1.4. pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms;
1.1.5. the words "include," "includes" and "including" shall be deemed
in each case to be followed by the words "without limitation";
1.1.6. the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision;
1.1.7. the term "party" or "parties" when used herein refer to Recap,
the Company and Operating Company; and
1.1.8. unless otherwise expressly provided herein, any agreement, plan,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented, including
(in the case of agreements or instruments) by waiver or consent and (in the
case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
1.2. Definitions. As used in this Agreement and the Exhibits, Annexes and
Schedules delivered pursuant to this Agreement, the following terms have the
meanings set forth below:
1.2.1. "Acquisition Proposal" has the meaning set forth in Section 7.5.2
hereof.
1.2.2. "Action" means any action, complaint, petition, investigation,
suit, litigation or other proceeding, whether civil or criminal, in law or
in equity, before any court, tribunal, arbitrator or Governmental Entity.
1.2.3. "Additional Rollover Shares Number" has the meaning set forth in
Section 8.3.9 hereof.
1.2.4. "Affiliate" means, with respect to any Person, any other Person
that directly or indirectly controls, is controlled by, or is under common
control with, such Person. The term "control" means possession, directly or
indirectly, of the power to direct or cause the direction of the management
or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
1.2.5. "Aggregate Spread Amount" has the meaning set forth in Section
8.3.9.
1.2.6. "Agreement" means this Agreement, as amended or supplemented,
together with all Annexes and Schedules attached or incorporated by
reference, in each case as amended or supplemented.
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1.2.7. "Asset Drop Down" has the meaning set forth in the recitals
hereof.
1.2.8. "Business Day" means any day that is not a Saturday, Sunday or
legal holiday in the State of California.
1.2.9. "Certificate of Merger" has the meaning set forth in Section
2.1.2 hereof.
1.2.10. "Closing" has the meaning set forth in Section 3.1 hereof.
1.2.11. "Closing Date" means the date and time of the Closing.
1.2.12. "Code" means the Internal Revenue Code of 1986, as amended.
1.2.13. "Common Share Exchange Ratio" has the meaning set forth in
Section 2.2.4 hereof.
1.2.14. "Common Stock" means the Company's common stock, $.001 par
value.
1.2.15. "Company" has the meaning set forth in the preamble hereof.
1.2.16. "Company Board" means the Board of Directors of the Company.
1.2.17. "Company Computer System" has the meaning set forth in Section
5.15 hereof.
1.2.18. "Company Plans" has the meaning set forth in Section 5.13
hereof.
1.2.19. "Company Proxy Statement" has the meaning set forth in Section
7.9 hereof.
1.2.20. "Contributed Options" has the meaning set forth in Section
8.3.9.
1.2.21. "Convertible Debentures" means the Company's 5.25% convertible
subordinated debentures issued April 17, 1996.
1.2.22. "DGCL" means the Delaware General Corporation Law.
1.2.23. "Disclosure Schedule" has the meaning set forth in Article 5
hereof.
1.2.24. "Dissenting Shares" has the meaning set forth in Section 2.5
hereof.
1.2.25. "Effective Time" has the meaning set forth in Section 2.1.2
hereof.
1.2.26. "Encumbrance" means any charge, encumbrance, security interest,
lien, option, equity, adverse claim or restriction, except for any
restrictions on transfer generally arising under any applicable Law.
1.2.27. "Environmental Law" has the meaning set forth in Section 5.16.2
hereof.
1.2.28. "ERISA" means the Employee Retirement Income Security Act of
1934, as amended.
1.2.29. "ERISA Affiliate" has the meaning set forth in Section 5.13
hereof.
1.2.30. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.2.31. "Executive Officer" means each of Robert Antin, Arthur Antin,
Tomas Fuller and Neil Tauber.
1.2.32. "Expenses" has the meaning set forth in Section 9.3.2 hereof.
1.2.33. "Financial Statements" means the Company's audited consolidated
balance sheet as of December 31, 1999, and the related consolidated income
statements, statement of stockholders' equity and comprehensive income and
statement of cash flows for the year ended December 31, 1999, in each case
as contained in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 filed with the SEC on March 24, 2000.
1.2.34. "Financing" has the meaning set forth in Section 6.6 hereof.
1.2.35. "Financing Entities" has the meaning set forth in Section 6.6
hereof.
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1.2.36. "Financing Letters" has the meaning set forth in Section 6.6
hereof.
1.2.37. "GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time, consistently applied.
1.2.38. "Governmental Entity" means any government or any agency,
bureau, board, commission, court, department, official, political
subdivision, tribunal or other instrumentality of any government, whether
federal, state or local, domestic or foreign.
1.2.39. "Hazardous Substance" has the meaning set forth in Section
5.16.2 hereof.
1.2.40. "HSR Act" has the meaning set forth in Section 7.6.1 hereof.
1.2.41. "Indebtedness" means all obligations for borrowed money, however
evidenced, including principal and interest.
1.2.42. "Indemnified Party" has the meaning set forth in Section 7.13
hereof.
1.2.43. "Insurance Policies" has the meaning set forth in Section 5.18
hereof.
1.2.44. "Knowledge" means, with respect to any Person other than the
Company, the actual knowledge of such Person and its Representatives, and
with respect to the Company, the actual knowledge of the Company's Chief
Executive Officer, Chief Financial Officer, Chief Operating Officer and
Senior Vice President of Development.
1.2.45. "Law" means any applicable statute, rule, regulation,
administrative requirement, code or ordinance of any Governmental Entity.
1.2.46. "Leased Real Estate" has the meaning set forth in Section 5.22.2
hereof.
1.2.47. "Liabilities" means all liabilities, obligations or Indebtedness
of any kind, whether matured or unmatured, liquidated or unliquidated,
fixed or contingent.
1.2.48. "Loans" has the meaning set forth in Section 8.3.9 hereof.
1.2.49. "Material Adverse Effect" means a material adverse effect on (i)
the ability of the subject Person to perform its obligations under, and
consummate the transactions contemplated by, this Agreement on a timely
basis or (ii) the financial condition, business, results of operations, or
prospects of such Person and its Subsidiaries, taken as a whole; provided,
however, the parties hereto acknowledge and agree that the adverse effect
(if any) on (a) the Company's ability to perform its obligations under, and
consummate the transactions contemplated by, this Agreement on a timely
basis or (b) the Company's financial condition, business, results of
operations, or prospects directly or indirectly resulting from, or which is
reasonably likely to result from, (A) this Agreement or the transactions
contemplated hereby or the public announcement of this Agreement and the
Merger, (B) the economy or securities markets in general, or (C) the
Company's industry in general, and not specifically related to the Company,
shall not constitute a Material Adverse Effect with respect to the Company
hereunder.
1.2.50. "Merger" has the meaning set forth in Section 2.1.1 hereof.
1.2.51. "Merger Consideration" means the cash paid to the holders of the
Other Shares pursuant to Article 2 hereof.
1.2.52. "NASD" has the meaning set forth in Section 5.5.1 hereof.
1.2.53. "New Financing Letters" has the meaning set forth in Section 6.6
hereof.
1.2.54. "New Series A Preferred Stock" has the meaning set forth in
Section 7.11 hereof.
1.2.55. "New Series B Preferred Stock" has the meaning set forth in
Section 7.11 hereof.
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1.2.56. "NLRB" has the meaning set forth in Section 5.14.3 hereof.
1.2.57. "Notice of Superior Proposal" has the meaning set forth in
Section 7.5.2 hereof.
1.2.58. "Operating Company" has the meaning set forth in the preamble
hereof.
1.2.59. "Options" means the options to purchase shares of Common Stock
of the Company.
1.2.60. "Order" means any decree, injunction, judgment, order, ruling,
arbitration award, assessment or writ issued by any Governmental Entity.
1.2.61. "Other Consideration" has the meaning set forth in Section 8.3.9
hereof.
1.2.62. "Other Consideration Amount" has the meaning set forth in
Section 8.3.9 hereof.
1.2.63. "Other Contributing Stockholders" has the meaning set forth in
Section 8.3.9 hereof.
1.2.64. "Other Shares" has the meaning set forth in Section 2.2.1
hereof.
1.2.65. "Owned Real Estate" has the meaning set forth in Section 5.22.1
hereof.
1.2.66. "Parent" has the meaning set forth in the preamble.
1.2.67. "Paying Agent" has the meaning set forth in Section 2.3.1
hereof.
1.2.68. "Per Share Amount" has the meaning set forth in Section 2.2.1
hereof.
1.2.69. "Permit" means any license, permit, franchise or authorization.
1.2.70. "Permitted Acquisitions" has the meaning set forth in Section
7.1.3 hereof.
1.2.71. "Permitted Encumbrances" means (i) Encumbrances disclosed on the
Disclosure Schedule, (ii) liens for Taxes, assessments, governmental
charges or levies or mechanics' and other statutory liens which are not
material in amount relative to the property affected, or which are not yet
delinquent or can be paid without penalty or are being contested in good
faith and by appropriate proceedings in respect thereof, and (iii)
imperfections of title which are not substantial in amount relative to the
property affected and which do not materially interfere with the present
use of the property subject thereto or affected thereby.
1.2.72. "Person" means an association, a corporation, an individual, a
partnership, a limited liability company or limited liability partnership,
a trust or any other entity or organization, including a Governmental
Entity.
1.2.73. "Preferred Stock" means the Company's preferred stock, $.001 par
value.
1.2.74. "Recap" has the meaning set forth in the preamble hereof.
1.2.75. "Recap Common Stock" means the common stock, $.01 par value, of
Recap.
1.2.76. "Recapitalization" has the meaning set forth in the recitals
hereof.
1.2.77. "Representatives" means Persons acting on behalf of another
Person, including such Person's officers, directors, employees,
representatives, agents, independent accountants, investment bankers and
counsel.
1.2.78. "Rights Agreement" has the meaning set forth in Section 5.28
hereof.
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1.2.79 "Robert Antin Rollover Value" has the meaning set forth in
Section 8.3.9 hereof.
1.2.80. "Rollover Holders" has the meaning set forth in the recitals
hereof.
1.2.81. "Rollover Options" means the Options issued under the Stock
Option Plans that, pursuant to written agreements entered into between
Recap and the holders of such Options,will continue in the Surviving
Corporation.
1.2.82. "Rollover Payments" has the meaning set forth in Section 8.3.9
hereof.
1.2.83. "Rollover Schedule" has the meaning set forth in Section 2.2.3
hereof.
1.2.84. "Rollover Shares" has the meaning set forth in the recitals
hereof.
1.2.85. "SEC" means the United States Securities and Exchange Commission
or any successor entity.
1.2.86 "SEC Reports" has the meaning set forth in Section 5.6.1 hereof.
1.2.87 "Securities Act" means the Securities Act of 1933, as amended.
1.2.88 "Service" means the Internal Revenue Service or any successor
entity.
1.2.89 "Share Certificates" has the meaning set forth in Section 2.3.1
hereof.
1.2.90. "Special Committee" means the special committee of the Company
Board consisting entirely of non-management independent directors
established to make recommendations to the Company Board with respect to,
among other matters, the advisability of the consummation of the
transactions contemplated by this Agreement.
1.2.91. "Special Meeting" has the meaning set forth in Section 7.10
hereof.
1.2.92. "Stockholder Agreement" means the stockholders agreement to be
entered into by the Company, Parent and the Rollover Holders on or prior to
the Closing Date.
1.2.93. "Stock Option Plans" means, collectively, the Veterinary Centers
of America, Inc. 1996 Employee Stock Purchase Plan, the 1996 Stock
Incentive Plan, and the 1993 Stock Incentive Plan.
1.2.94. "Subsidiary" of a company means any Person in which such company
has a direct or indirect equity or ownership interest by vote or value of
in excess of 50%.
1.2.95. "Surviving Corporation" has the meaning set forth in Section
2.1.1 hereof.
1.2.96 "Superior Proposal" has the meaning set forth in Section 7.5.2
hereof.
1.2.97 "Takeover Statute" has the meaning set forth in Section 7.15
hereof.
1.2.98 "Tax" or "Taxes", as the context may require, include: (i) any
income, alternative or add-on minimum tax, gross income, gross receipts,
franchise, profits, sales, use, ad valorem, business license, withholding,
payroll, employment, excise, stamp, transfer, recording, occupation,
premium, property, value added, custom duty, severance, windfall profit or
license tax, governmental fee, including estimated taxes relating to any of
the foregoing, or other similar tax or other like assessment or charge of
similar kind whatsoever together with any interest and any penalty,
addition to tax or additional amount imposed by any Governmental Entity
responsible for the imposition of any such Tax; or (ii) any liability of a
Person for the payment of any taxes, interest, penalty, addition to tax or
like additional amount resulting from the application of Treas. Reg.
Section 1.1502-6 or comparable provisions of any Governmental Entity in
respect of a consolidated or combined return.
1.2.99 "Tax Return" means any return (including any information return),
report, statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted to,
any Governmental Entity in connection with the determination, assessment,
collection, or payment of any Tax or in connection with the administration,
implementation, or enforcement of or compliance with any Law relating to
any Tax.
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1.2.100. "Termination Fee" shall have the meaning set forth in Section
9.3.1 hereof.
1.2.101. "Third Party" has the meaning set forth in Section 7.5.2
hereof.
1.2.102. "Updated Financial Statements" has the meaning set forth in
Section 7.7 hereof.
1.2.103. "Voting Agreement" means the Voting Agreement in the form
attached hereto as EXHIBIT A.
ARTICLE 2.
THE MERGER
2.1. The Merger.
2.1.1. Upon the terms and subject to the conditions hereof, and in
accordance with the DGCL, Recap shall be merged with and into the Company
at the Effective Time (the "Merger"). Upon consummation of the Merger, the
separate existence of Recap shall cease and the Company shall be the
surviving corporation (the "Surviving Corporation").
2.1.2. As soon as practicable after satisfaction of (or, to the extent
permitted hereunder, waiver of) all conditions to the Merger, the Company
and Recap will file a certificate of merger (the "Certificate of Merger")
with the Secretary of State of the State of Delaware in accordance with the
DGCL and make all other filings or recordings required by Law in connection
with the Merger. The Merger shall become effective at such time as the
Certificate of Merger is filed with the Secretary of State of the State of
Delaware or at such later time as is specified in the Certificate of Merger
(the "Effective Time").
2.1.3. The Merger shall have the effects set forth in Sections 251, 259
and 261 of DGCL.
2.2. Merger Consideration and Conversion (or Retention) of Shares. At the
Effective Time, pursuant to this Agreement and by virtue of the Merger and
without any action on the part of Recap, the Company, or the holders of any of
the following securities:
2.2.1. Each share of Common Stock issued and outstanding immediately
prior to the Effective Time (including shares of Common Stock issued upon
exercise of Options and other convertible securities of the Company, but
excluding any Dissenting Shares, Rollover Shares and shares to be cancelled
pursuant to Section 2.2.2) shall be cancelled and shall be converted
automatically into the right to receive an amount equal to $15.00 in cash
(the "Per Share Amount"), without interest, payable to the holder thereof
upon surrender of the certificate formerly representing such share of
Common Stock in the manner provided in Section 2.3 (the shares of Common
Stock being converted into the right to receive the Per Share Amount are
hereinafter referred to as the "Other Shares").
2.2.2. Each share of Common Stock held in the treasury of the Company
or held by Recap or Parent, if any, immediately prior to the Effective
Time, shall be cancelled without any conversion thereof and no payment or
distribution shall be made with respect thereto.
2.2.3. Each Rollover Share that is issued and outstanding shall not be
converted or cancelled as provided in Section 2.2.1 or 2.2.2 above, but
shall remain outstanding as an issued, fully paid and nonassessable share
of common stock of the Surviving Corporation. The Rollover Shares shall be
identified in a schedule prepared by the Company (the "Rollover Schedule"),
which shall be delivered by the Company to Recap prior to the Closing.
2.2.4. Each share of Recap Common Stock that is issued and outstanding
immediately prior to the Effective Time shall be converted into one newly
issued, fully paid and nonassessable share of common stock of the Surviving
Corporation (the "Common Share Exchange Ratio").
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2.2.5. If between the Original Agreement Date and the Effective Time the
number of outstanding shares of capital stock of the Company shall have
been changed into a different number of shares or a different class, by
reason of any stock dividend, subdivision, reclassification,
recapitalization, split-up, combination, exchange of shares or the like
other than pursuant to the Merger, the Per Share Amount and the Common
Share Exchange Ratio shall be correspondingly adjusted.
2.3. Payment of Cash for Other Shares and Options.
2.3.1 At the Effective Time, the Surviving Corporation shall irrevocably
deposit or cause to be deposited with a paying agent appointed by Recap
with the Company's prior approval (the "Paying Agent"), as agent for the
holders of Other Shares, cash in the aggregate amount required to pay the
Merger Consideration in respect of the Other Shares outstanding immediately
prior to the Effective Time. Pending distribution pursuant to Section 2.3.2
hereof of the cash deposited with the Paying Agent, such cash shall be held
in trust for the benefit of the holders of the Other Shares and such cash
shall not be used for any other purposes, and shall be held in obligations
of, or guaranteed by, the United States of America, or any agency thereof,
and backed by the full faith and credit of the United States of America, in
commercial paper obligations rated A-1 or P-1 or better by Moody's Investor
Services, Inc. or Standard & Poors Corporation, respectively, or in deposit
accounts, certificates of deposit or bankers' acceptances of, repurchase or
reverse repurchase agreements with, or Eurodollar time deposits purchased
from commercial banks with capital, surplus and undivided profits
aggregating in excess of $1,000,000,000 (based on the most recent financial
statements of such bank which are then publicly available at the SEC or
otherwise). Promptly after the Effective Time, the Surviving Corporation
shall cause to be mailed to each Person who was, at the Effective Time, a
holder of record of Other Shares, a form of letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title
to the certificates evidencing the Other Shares (the "Share Certificates")
shall pass, only upon proper delivery of the Share Certificate to the
Paying Agent) and instructions for use in effecting the surrender of the
Share Certificate pursuant to such letter of transmittal. Upon surrender to
the Paying Agent of a Share Certificate, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required pursuant
to such instructions, the holder of such Share Certificate shall be
entitled to receive in exchange therefor the Per Share Amount for the Other
Shares formerly evidenced by such Share Certificate, and such Share
Certificate shall thereupon be cancelled. No interest shall accrue or be
paid on the Per Share Amount payable upon the surrender of any Share
Certificate for the benefit of the holder of such Share Certificate.
2.3.2. After surrender to the Paying Agent of any Share Certificate or
other instrument which prior to the Effective Time shall have represented
any Other Shares, the Paying Agent shall promptly distribute to the Person
in whose name such Share Certificate or other instrument shall have been
registered, a check in the amount into which such Other Shares shall have
been converted at the Effective Time pursuant to Section 2.2 hereof. Until
so surrendered and cancelled, each such Share Certificate or other
instrument shall, after the Effective Time, be deemed to represent only the
right to receive the Per Share Amount, and until such surrender and
cancellation, no cash shall be paid to the holder of such outstanding Share
Certificate or other instrument in respect thereof. From and after the
Effective Time, the holders of Other Shares outstanding immediately prior
to the Effective Time shall cease, except as required by law, to have any
rights with respect to such Other Shares, other than the right to receive
the Per Share Amount as provided in this Agreement.
2.3.3. If payment is to be made to a Person other than the registered
holder of the Other Shares represented by the Share Certificate or other
instrument so surrendered in exchange therefor, it shall be a condition to
such payment that the Share Certificate or other instrument so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and
that the Person requesting such payment shall pay to the Paying Agent any
transfer or other taxes required as a result of such payment to a Person
other than the registered holder of such Other Shares or establish to the
satisfaction of the Paying Agent that such tax has been paid or is not
payable.
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2.3.4. After the Effective Time, there shall be no further transfers on
the stock transfer books of the Surviving Corporation of the Other Shares
that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Share Certificates representing Other Shares are
presented to the Surviving Corporation, they shall be cancelled and
exchanged for the cash amount provided for, and in accordance with the
procedures set forth, in this Article 2.
2.3.5. If any cash deposited with the Paying Agent for purposes of
payment in exchange for Other Shares remains unclaimed six months after the
Effective Time, such cash shall be returned to the Surviving Corporation,
upon demand, and any such holder who has not converted his Other Shares
into the Per Share Amount or otherwise received the Per Share Amount
pursuant to this Agreement prior to that time shall thereafter look only to
the Surviving Corporation for payment of the Per Share Amount.
Notwithstanding the foregoing, the Surviving Corporation shall not be
liable to any holder of Other Shares for any amount paid to a public
official pursuant to applicable unclaimed property laws. Any amounts
remaining unclaimed by holders of Other Shares seven (7) years after the
Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any Governmental
Entity) shall, to the extent permitted by applicable Law, become the
property of the Surviving Corporation, free and clear of any claims or
interest of any Person previously entitled thereto.
2.3.6. Any portion of the Merger Consideration made available to the
Paying Agent pursuant to Section 2.5 to pay for shares of Common Stock for
which dissenters' rights have been perfected as provided in Section 2.5
hereof shall be returned to the Surviving Corporation upon demand.
2.3.7. No dividends or other distributions with respect to capital stock
of the Surviving Corporation with a record date after the Effective Time
shall be paid to the holder of any unsurrendered certificate for Other
Shares.
2.3.8. In the event that any Share Certificate or other instrument
representing Other Shares shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such
certificate or other instrument to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such holder of a bond
in such reasonable amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against it with respect to
such Share Certificate or other instrument, the Paying Agent will issue in
exchange for and in lieu of such lost, stolen or destroyed certificate or
other instrument representing the Other Shares, the Per Share Amount, and
unpaid dividends and distributions on Other Shares deliverable in respect
thereof, pursuant to this Agreement and the Merger.
2.4. Exchange of Stock Certificates. Immediately after the Effective Time,
the Surviving Corporation shall deliver to the record holders of the
certificates that immediately prior to the Effective Time represented all of
the outstanding shares of Recap Common Stock that were converted into the right
to receive shares of common stock of the Surviving Corporation in accordance
with Section 2.2.4, in exchange for such certificates, duly endorsed in blank,
share certificates, registered in the names of such record holders,
representing the number of shares of common stock of the Surviving Corporation
to which such record holders are so entitled by virtue
of Section 2.2.4. Such certificates will bear legends restricting the
transferability of such shares to the extent contemplated by the Stockholder
Agreement, which restrictions will include restrictions designed to assure the
Surviving Corporation that these shares will not be offered or sold in
contravention of any federal or state securities laws.
2.5. Dissenting Shares. Notwithstanding any other provisions of this
Agreement, shares of Common Stock which are issued and outstanding immediately
prior to the Effective Time and which are held by a holder who has not voted
such shares of capital stock of the Company in favor of the Merger and who has
delivered a written demand for relief as a dissenting stockholder in the manner
provided by DGCL and who, as of the Effective Time, shall not have effectively
withdrawn or lost such right to relief as a dissenting stockholder ("Dissenting
Shares") shall not be converted into a right to receive the Per Share Amount.
The holders thereof shall be entitled only to such rights as are granted by
Section 262 of DGCL. Each holder of Dissenting Shares who becomes entitled to
payment for such Dissenting Shares pursuant to Section 262 of DGCL shall
receive
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payment therefor from the Surviving Corporation in accordance with DGCL;
provided, however, that if any such holder of Dissenting Shares (i) shall have
failed to establish his entitlement to relief as a dissenting stockholder as
provided in Section 262 of DGCL, (ii) shall have effectively withdrawn his
demand for relief as a dissenting stockholder with respect to such Dissenting
Shares or lost his right to relief as a dissenting stockholder and payment for
his Dissenting Shares under Section 262 of DGCL or (iii) shall have failed to
file a complaint with the appropriate court seeking relief as to determination
of the value of all Dissenting Shares within the time provided in Section 262
of DGCL, such holder shall forfeit the right to relief as a dissenting
stockholder with respect to such Dissenting Shares and each such Dissenting
Share shall be converted into the right to receive the Per Share Amount from
the Surviving Corporation as provided in Section 2.2. The Company shall give
Recap prompt notice of any demands received by the Company prior to the
Effective Time for relief as a dissenting stockholder, and Recap shall have the
right to participate in all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior written consent of Recap,
make any payment with respect to, or settle or offer to settle, any such
demands.
2.6. Stock Options.
2.6.1. Except as may be otherwise agreed to in writing between Recap and
the holder of any Rollover Options, each Option that has an exercise price
of equal to or greater than the Per Share Amount shall be cancelled at the
Effective Time, without any payment or other consideration therefor.
2.6.2. At the Effective Time, all other Options (other than any
Contributed Options or Rollover Options), whether or not vested, shall be
cancelled and, in lieu thereof, as soon as reasonably practicable after the
Effective Time, each holder of such Options shall receive a cash payment
from the Surviving Corporation equal to the excess of the aggregate cash
amount that would be paid in the Merger with respect to the shares of
Common Stock subject to such Options, if the Options were exercised, over
the aggregate exercise price with respect to such Options, as reduced by
any required withholding of taxes. The Rollover Options at the Effective
Time shall survive the Closing and the Surviving Corporation shall assume
all the rights, liabilities and obligations of such Rollover Options in
accordance with the respective Stock Option Plan or any successor or
replacement stock option plan of the Surviving Corporation.
2.6.3. Each holder of any Contributed Options at the Effective Time
shall receive shares of common stock of the Surviving Corporation that have
an aggregate value equal to the excess of the aggregate cash amount that
would be paid in the Merger with respect to the shares of Common Stock
subject to such holder's Contributed Options, if such holder's Contributed
Options were exercised, over the aggregate exercise price with respect to
such holder's Contributed Options (as reduced by any required withholdings
of taxes). Notwithstanding the foregoing, no fractional shares of common
stock of the Surviving Corporation shall be issued in the Merger; instead,
each holder of Contributed Options who otherwise would be entitled to a
fractional share of common stock of the Surviving Corporation shall receive
an amount in cash (without interest) determined by multiplying such
fraction by the Per Share Amount.
2.6.4. Prior to the Effective Time, the Company shall (i) take all
reasonable steps necessary to make any amendments to the terms of such
Stock Option Plans, individual Option agreement or Options that are
necessary to give effect to the transactions contemplated by this
Agreement, and (ii) use all reasonable and necessary efforts to obtain at
the earliest practicable date all written consents (if necessary) from
holders of Options to effect the cancellation of such holders' Options to
take effect at the Effective Time.
2.6.5. At or prior to the Effective Time, the Company shall take all
reasonable and necessary action to fully advise the holders of Options of
their respective rights under this Agreement, the Options and the
respective Stock Option Plan, to facilitate the timely exercise of such
rights and obligations to effectuate the provisions of this Section 2.6.
From and after the Effective Time, other than as expressly set forth in
this Section 2.6 or in any written agreement between Recap and a holder of
Rollover Options, no holder of Options shall have any rights in respect of
such Options, other than to receive shares of common stock of the Surviving
Corporation in the manner described in Section 2.6.3 and/or to receive a
cash payment in the manner described in this Section 2.6. The surrender of
any Options, the receipt of cash in cancellation of
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any Options, or the receipt of shares of common stock of the Surviving
Corporation in exchange for any Options (and a cash payment for any
fractional share) by the holder thereof shall be deemed a release of any
and all rights the holder of such Options had or may have had in respect of
such Options.
ARTICLE 3.
CLOSING
3.1. Closing. The closing of the Merger (the "Closing") shall take place
(i) at the offices of Troop Steuber Pasich Reddick & Tobey LLP, 2029 Century
Park East, Los Angeles, California 90067 at 9:00 A.M. (Los Angeles time) on
the Business Day on which the parties hereto designate as the closing date
following the fulfillment or waiver of the conditions set forth in Article 8
hereof in accordance with this Agreement or (ii) at such other place and time
and/or on such other date as the Company and Recap may agree.
ARTICLE 4
CERTIFICATE OF INCORPORATION AND BYLAWS; OFFICERS AND
DIRECTORS OF THE SURVIVING CORPORATION
4.1. The Certificate of Incorporation of Surviving Corporation. The
certificate of incorporation of the Surviving Corporation shall be amended in
the Merger to contain the identical terms of the certificate of incorporation
of Recap immediately prior to the Effective Time until duly amended in
accordance with the terms thereof and the DGCL, except that Article First
thereof shall continue to read, "The name of this Corporation is Veterinary
Centers of America, Inc."
4.2. The Bylaws of Surviving Corporation. The bylaws of Recap in effect at
the Effective Time shall be the bylaws of the Surviving Corporation (with the
name of the Surviving Corporation changed, as appropriate) until duly amended
in accordance with the terms thereof and in accordance with the certificate of
incorporation of the Surviving Corporation and the DGCL.
4.3. Officers and Directors of Surviving Corporation. From and after the
Effective Time, the directors of the Surviving Corporation shall be as set
forth in the Disclosure Schedule, and the officers of the Company at the
Effective Time shall be the officers of the Surviving Corporation, until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's certificate of incorporation and bylaws.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure letter delivered at or prior to the
execution of this Agreement by the Company which shall refer to the relevant
sections of this Agreement (the "Disclosure Schedule"), the Company hereby
represents and warrants to Recap as of the Original Agreement Date (or such
other specific date as is indicated below with respect to a particular
representation and warranty) as follows:
5.1. Organization, Standing and Authority. Each of the Company and its
Subsidiaries is a corporation, limited liability company or partnership duly
organized, validly existing and in good standing under the laws of its
respective state of incorporation or organization. Each of the Company and its
Subsidiaries is duly qualified to do business and is in good standing in the
states of the United States and any foreign jurisdictions where its respective
ownership or leasing of property or assets or the conduct of its business
requires it to be so qualified, except where the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company. The Company has made available to Recap a complete and correct
copy of the certificate of incorporation, bylaws, operating agreements,
partnership agreements or other organizational documents, each as amended to
date, of each of the Company and its Subsidiaries. Each of the certificates of
incorporation,
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bylaws, operating agreements, partnership agreements or other organizational
documents so made available is in full force and effect. The corporate records
and minute books or other applicable records of the Company and its
Subsidiaries reflect all material action taken and authorizations made at
meetings of such companies' partners, members, boards of directors or any
committees thereof and at any stockholders' meetings thereof.
5.2. Subsidiaries.
5.2.1. (i) The Company has previously provided a list of the true,
accurate and complete legal names, jurisdiction of incorporation or
organization and foreign qualification of each of the Company and its
Subsidiaries, which list is included as part of the Disclosure Schedule,
(ii) no equity securities of any of its Subsidiaries are or may become
required to be issued (other than to it or its wholly owned Subsidiaries)
by reason of any options, warrants, or otherwise, (iii) there are no
contracts, commitments, understandings or arrangements by which any of such
Subsidiaries is or may be bound to sell or otherwise transfer any equity
securities of any such Subsidiaries (other than to it or its wholly owned
Subsidiaries), and (iv) there are no contracts, commitments,
understandings, or arrangements relating to the Subsidiary's rights to vote
or to dispose of such securities.
5.2.2. The Company does not own beneficially, directly or indirectly,
any equity securities or similar interests of any Person, or any interest
in a partnership, limited liability company, joint venture or other entity
or organization, other than its Subsidiaries.
5.3. Company Capital Stock. As of March 30, 2000, the authorized capital
stock of the Company consists solely of 60,000,000 shares of Common Stock, of
which 21,913,336 are issued and outstanding (of which 620,511 are held in the
Company treasury) and 2,000,000 shares of Preferred Stock of which
583,333 shares of Series A Preferred Stock are authorized and no shares of
Preferred Stock are outstanding. As of the Original Agreement Date, no shares
of Common Stock or Preferred Stock were held in treasury by the Company or
otherwise beneficially owned by the Company or its Subsidiaries. The
outstanding shares of Common Stock have been duly authorized and validly
issued, are fully paid and nonassessable, subject to no preemptive rights, and
were not issued in violation of any preemptive rights. Each of the outstanding
shares of capital stock of each of the Company's Subsidiaries have been duly
authorized, and validly issued and are fully paid and nonassessable and not
subject to any preemptive right and owned, either directly or indirectly, by
the Company free and clear of all Encumbrances. Except as set forth on the
Disclosure Schedule, other than Options to purchase 3,779,244 shares of Common
Stock of the Company, with an average weighted exercise price of $10.43 and the
issuance of rights pursuant to the terms and conditions of the Rights
Agreement, there are no preemptive rights or outstanding subscriptions,
options, warrants, rights, convertible securities or other agreements or
commitments of any character relating to the issued or unissued capital stock
or other securities of the Company or any of its Subsidiaries.
5.4. Corporate Power. The Company and its Subsidiaries each has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets. Subject to receipt of the
requisite approval of the Merger by the holders of its capital stock entitled
to vote thereon, this Agreement and the transactions contemplated hereby and
thereby have been authorized by all necessary corporate action of the Company
and the Company Board and Operating Company on or prior to the Original
Agreement Date. This Agreement has been duly executed and delivered by each of
the Company and Operating Company and is a valid and legally binding obligation
of each of the Company and Operating Company enforceable against each of the
Company and Operating Company in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles).
5.5. Consents and Approvals; No Defaults.
5.5.1 No consents or approvals of, or filings or registrations with, any
Governmental Entity or with any third party are required to be made or
obtained by the Company or any of its Subsidiaries in connection with the
execution, delivery or performance by the Company or Operating Company of
this Agreement or
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to consummate the Asset Drop Down or the Merger except for (i) filings of
applications, registrations, statements, reports or notices (and expiration
of any applicable notice periods) with the United States Department of
Justice, the Federal Trade Commission, the National Association of
Securities Dealers, Inc. ("NASD"), the NASDAQ National Market, the SEC and
state securities authorities, (ii) the requisite approval of this Agreement
by the holders of the capital stock of the Company or Operating Company
entitled to vote thereon, (iii) the filing of the Certificate of Merger
with the Delaware Secretary of State pursuant to the DGCL, and (iv)
consents, approvals, filings, or registrations which would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
5.5.2. Subject to receipt of the approvals referred to in the preceding
paragraph, and the expiration of related waiting periods, the execution,
delivery and performance of this Agreement, the consummation of the
transactions contemplated hereby, and compliance with the provisions hereof
do not and will not (i) violate, or conflict with, or result in any breach
of the terms, conditions, or provisions of, the respective charters, bylaws
or other organizational documents of the Company and each of its
Subsidiaries; (ii) violate, or conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or give rise to a
right of termination, cancellation, modification or acceleration of the
performance required by or a loss of a material benefit under, or result in
the creation or imposition of (or the obligation to create or impose) any
Encumbrance (other than Permitted Encumbrances) upon any of the properties
or assets of the Company under, any of the terms, conditions or provisions
of any material agreement, indenture, note, bond, mortgage, deed of trust,
undertaking, permit, lease, franchise, license or other instrument to which
the Company is a party or by which it or any of its properties or assets
may be bound or affected; or (iii) to the Knowledge of the Company, violate
any Law or Order applicable to the Company; except, in the case of the
preceding clauses (i), (ii) or (iii), for any such violation, conflict,
breach, default, event, right or Encumbrance which would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse
Effect on the Company.
5.6. SEC Reports.
5.6.1. The Company has made available to Recap a true and complete copy
of each form, report, schedule, registration statement and definitive proxy
statement filed by the Company with the SEC since January 1, 1997 (as such
documents have since the time of their filing been amended or supplemented,
the "SEC Reports"), which are all of the documents that the Company was
required to file with the SEC since January 1, 1997. As of their respective
dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act, as applicable, and
none of the SEC Reports (including all financial statements included
therein and all exhibits and schedules thereto and documents incorporated
by reference therein) contained (as of their respective filing dates) any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
in light of the circumstances under which they were made, not misleading,
except for such statements, if any, as have been modified or superseded by
any subsequent filings. The Financial Statements included in such SEC
Reports delivered by the Company to Recap comply in all material respects
with the rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in
the case of the unaudited Financial Statements, as permitted by Exchange
Act Form 10-Q) and fairly present (subject, in the case of the unaudited
Financial Statements, to normal, recurring audit adjustments that,
individually and in the aggregate, were not material) the financial
position of the Company and its Subsidiaries as at the dates thereof and
the results of each of their operations and cash flows for the periods then
ended.
5.6.2. As of the Original Agreement Date, none of the Subsidiaries of
the Company is a reporting company under the Exchange Act, and none is
required to file any regular and periodic filings, notices, forms, reports,
or statements with the United States Department of Justice, the Federal
Trade Commission, the NASD or the SEC.
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5.6.3. Except as disclosed in the SEC Reports or the Disclosure
Schedule, or as contemplated by this Agreement, since January 1, 2000 to
the Original Agreement Date, the Company's business has been conducted in
the ordinary course, and there has not been any:
(a) event, situation or occurrence that individually or in the
aggregate has had a Material Adverse Effect on the Company;
(b) amendment to the Company's or any of the Company's Subsidiaries'
charter, bylaws or other organizational documents;
(c) sale, assignment, disposition, transfer, pledge, mortgage or
lease of any material portion of the assets primarily used in the
Company's business taken as a whole;
(d) incurrence of any additional Indebtedness in excess of
$1,000,000, other than accounts payable arising in the ordinary course
of business, consistent with past practice, and in connection with
Permitted Acquisitions;
(e) any increase in the compensation or fringe benefits payable or
to become payable to any Executive Officer of the Company, other than
routine increases made in the ordinary course of business and
consistent with past practice or as required by law or under any
existing agreements heretofore disclosed to Recap;
(f) any amendment, alteration or modification in the terms of any
currently outstanding options, warrants or other rights to purchase any
capital stock or equity interest in the Company or any securities
convertible into or exchangeable for such capital stock or equity
interest, including without limitation any reduction in the exercise or
conversion price of any such rights or securities, any change to the
vesting or acceleration terms of any such rights or securities, or any
change to terms relating to the grant of any such rights or securities;
(g) declaration or payment of any dividend or other distribution, or
the transfer of any assets, by the Company to any stockholders of the
Company with respect to the Common Stock, or any redemption, repurchase
or other acquisition by the Company of its capital stock, except in the
ordinary course of business;
(h) change by the Company in any of its significant accounting
principles, methods or practices;
(i) any material closure, shut down or other elimination of any of
the Company's offices, franchises or any other change in the character
of its business, properties or assets, except for closures, shut downs,
or other eliminations that have not had a Material Adverse Effect on
the Company;
(j) loan or advance to or other such agreement with any of its
stockholders, officers, directors, employees, agents, consultants or
other Representatives, except in the ordinary course of business,
consistent with past practice;
(k) damage, destruction or loss with respect to any of the
properties or assets of the Company that would reasonably be expected
to have a Material Adverse Effect on the Company; or
(l) agreement to do, cause or suffer any of the foregoing.
5.7. Disclosure Documents. The proxy statement on Schedule 14A in respect of
the Special Meeting of the Company's stockholders to vote upon the Asset Drop
Down and the Merger to be filed with the SEC in connection with the Merger as
the same may be amended or supplemented, will not, at the date it is first
mailed to stockholders of the Company or at the time of the Special Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Company Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act. No representation is made
by the Company with respect to statements made in the Company Proxy Statement
based on information supplied by Recap for inclusion therein.
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5.8. Litigation. There are no Actions pending or, to the Knowledge of the
Company, claims threatened against the Company, at law or in equity, and there
is no investigation or proceeding pending or, to the Knowledge of the Company,
threatened before or by any Governmental Entity nor is there any currently
effective Order against the Company or to the Knowledge of the Company, any
Order expected to be issued, except for any such Actions, claims,
investigations, proceedings or Orders that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company. The Disclosure Schedule identifies those pending or, to the Knowledge
of the Company, threatened proceedings before a Governmental Entity and
threatened claims listed therein which (i) may not be covered by third party
insurance or (ii) with respect to which the insurance carrier has denied
coverage or has advised the Company that it is defending such claim under
reservation of rights or (iii) for which the Company is self-insured.
5.9. Compliance With Laws.
5.9.1. Except as set forth on the Disclosure Schedule, the Company and
each of its Subsidiaries: (i) is in compliance with all Laws and Orders
applicable thereto or to the business of the Company and its Subsidiaries
or to the employees conducting such businesses, except where the failure to
so comply would not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect; (ii) has all Permits, Orders
and approvals of, and has made all filings, applications and registrations
with, all Governmental Entities that are required in order to permit them
to own or lease their properties and to conduct their businesses as
presently conducted; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect and, to the Company's
Knowledge, no suspension or cancellation of any of them is threatened,
other than such failure to obtain or maintain the same would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect on the Company; and (iii) has not received any notification
or communication from any Governmental Entity (a) asserting that the
Company or any of its Subsidiaries is not in compliance with any of the
statutes, regulations or ordinances which such Governmental Entity enforces
or (b) threatening to revoke any license, franchise, permit or governmental
authorization (nor, to the Company's Knowledge, do any grounds for any of
the foregoing exist), except such notifications or communications which
would not, individually or in the aggregate, be reasonably expected to have
a Material Adverse Effect on the Company.
5.10. Material Contracts; Defaults.
5.10.1. The Disclosure Schedule lists all management contracts and
administrative services contracts with the hospitals and/or professional
corporations and all contracts or commitments that provide for an aggregate
payment from the Company in excess of $500,000 in any contract year other
than (i) contracts or commitments that can or in reasonable probability
will be completed within 90 days of the Closing Date or can be terminated
within such 90 day period without payment of a penalty in excess of
$100,000, (ii) contracts or commitments for goods and services purchased in
the ordinary course of the Company's business in amounts consistent with
past practice, (iii) contracts or commitments in connection with capital
expenditures that provide for expenditures consistent with the capital
expenditure budget previously supplied by the Company to Recap, and (iv)
contracts or commitments reflected on the Financial Statements included as
part of the SEC Reports or disclosed in the SEC Reports.
5.10.2. The Company is not in breach or violation of any contract, or in
default with respect thereto, except for such violations, breaches or
defaults that would not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect on the Company. None of the
contracts of the Company contain any provisions that upon a change in
control of the Company would have a Material Adverse Effect on the Company.
5.11. No Brokers. Except for financial advisory fees payable to Jefferies &
Company, Inc. and Houlihan Lokey Howard & Zukin Capital, no action has been
taken by the Company that would give rise to any valid claim against any party
hereto for a brokerage commission, finder's fee or other like payment with
respect to the transactions contemplated by this Agreement.
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5.12. Absence of Undisclosed Liabilities. Except as set forth on the
Disclosure Schedule, there are no Liabilities of any kind that would be
required to be reflected on, or reserved against in the consolidated Financial
Statements of the Company or in the notes thereto, prepared in accordance with
GAAP that are not disclosed, reflected or reserved against in the consolidated
Financial Statements of the Company and its Subsidiaries, except for such
Liabilities incurred (i) since December 31, 1999, in the ordinary course of
business, consistent with past practice, (ii) which would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
the Company, (iii) related to the transactions contemplated by this Agreement,
and (iv) payments required as a result of the consummation of the Merger under
the terms of the existing employment agreements with the Executive Officers of
the Company.
5.13. Employee Benefit Plans. The Company has previously supplied Recap a
list which is attached to the Disclosure Schedule of all plans and other
arrangements which provide compensation or benefits to officers, directors or
consultants or employee benefits to employees of the Company or its
Subsidiaries, including, without limitation, all "employee benefit plans" as
defined in Section 3(3) of ERISA, and all bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and other
similar fringe or employee benefit plans, and all employment or executive
compensation agreements (collectively, the "Company Plans"). All Company Plans
comply with and are and have been operated in material compliance with each
applicable provision of ERISA, the Code, other federal statutes, state law
(including, without limitation, state insurance law) and the regulations and
rules promulgated pursuant thereto or in connection therewith. Neither the
Company nor any member of the same controlled group of businesses as the
Company within the meaning of Section 4001(a)(14) of ERISA (an "ERISA
Affiliate") is or ever was a sponsor or obligated to contribute to any plan
covered by Title IV of ERISA or Section 412 of the Code, or any "multi-employer
plan," within the meaning of Section 3(37) of ERISA. Each Company Plan which is
required to comply with the provisions of Sections 4980B and 4980C of the Code,
or with the requirements referred to in Section 4980D(a) of the Code, has
complied in all material respects, and, except as required by such sections of
the Code, no Company Plan which is a "welfare benefit plan," as defined in
Section 3(1) of ERISA, provides for post-employment benefits. Notwithstanding
any statement or indication in this Agreement to the contrary, there are no
Company Plans which the Company or Recap will not be able to terminate (or in
which the Company or Recap will not be able to terminate the participation of
their Employees) immediately after the Closing in accordance with their terms
and ERISA, and without incurring any expenses (including, but not limited to,
loads or termination charges imposed with respect to insurance policies or
mutual funds used to fund such Company Plans), other than administrative
expenses in connection with such termination. Neither the Company, any of its
Subsidiaries, nor any ERISA Affiliate has failed to make any material
contributions or to pay any material amounts due and owing as required by the
terms of any Company Plan. Each of the Company Plans which is intended to be a
qualified plan under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service, and has been operated
substantially in accordance with its terms and with the provisions of the Code.
No amounts payable under the Company Plans will fail to be deductible for
federal income tax purposes by virtue of Sections 162(m) or 280G of the Code.
Other than routine claims for benefits under the Company Plans, there are no
pending, or, to the best Knowledge of the Company, threatened, investigations,
proceedings, claims, lawsuits, disputes, actions, audits or controversies
involving the Company Plans, or the fiduciaries, administrators, or trustees of
any of the Company Plans or the Company or any ERISA Affiliate of either as the
employer or sponsor under any Company Plan, with any of the Internal Revenue
Service, the Department of Labor, the Pension Benefit Guaranty Corporation, any
participant in or beneficiary of any Company Plan or any other Person
whomsoever. The Company knows of no reasonable basis for any such claim,
lawsuit, dispute, action or controversy. The Company has delivered to Recap
true and complete copies of: (i) each of the Company Plans and any related
funding agreements thereto (including insurance contracts) including all
amendments, all of which are legally valid and binding and in full force and
effect and there are no defaults thereunder, (ii) the currently effective
Summary Plan Description pertaining to each of the Company Plans, (iii) the
three most recent annual reports for each of the Company Plans (including all
relevant schedules), (iv) the most recent Internal Revenue Service
determination letter for each Company Plan which is intended to constitute a
qualified plan under Section 401 of the Code and each amendment to each of the
foregoing documents, and (v) financial statements for each funded Company Plan.
Neither the Company nor any Subsidiary is a party or subject to any
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agreement, contract or other obligation which would require the making of any
payment, other than payments as contemplated by this Agreement, to any employee
of the Company or to any other Person as a result of the consummation of the
transactions contemplated herein.
5.14. Labor and Employment Matters.
5.14.1 Neither the Company nor any of its Subsidiaries is a party to or
is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is
the Company or any of its Subsidiaries the subject of a proceeding
asserting that it or any such Subsidiary has committed an unfair labor
practice (within the meaning of the National Labor Relations Act) or
seeking to compel the Company or any such Subsidiary to bargain with any
labor organization as to wages or conditions of employment, nor is there
any strike involving it or any of its Subsidiaries pending or, to the
Company's Knowledge, threatened, nor is the Company aware of any activity
during the past three years involving its or any of its Subsidiaries'
employees seeking to certify a collective bargaining unit or engaging in
other organizational activity.
5.14.2. The Disclosure Schedule contains an accurate list of all
employment contracts between the Company and each of the Executive
Officers. Except in accordance with the contracts, agreements, plans or
programs identified in the Disclosure Schedule, no individual will accrue
or receive material additional benefits, service or accelerated rights to
payment of benefits as a result of the transactions contemplated by this
Agreement (either alone or combined with any other event or transaction).
5.14.3 As of the Original Agreement Date, and except as set forth in the
Disclosure Schedule, there is no (i) unfair labor practice complaint
against the Company pending before the National Labor Relations Board (the
"NLRB") or any other federal, state, local or foreign agency; (ii) pending
labor strike or lockout affecting the Company; (iii) pending material
grievance or unfair dismissal proceeding before the NLRB relating to the
Company; (iv) pending representation question or union organizing
activities respecting a significant number of the employees of the Company;
or (v) to the Knowledge of the Company, threat, investigation, charge or
complaint with regard to any of the foregoing relating to the Company.
5.15. Year 2000 Compliance. Except as set forth on the Disclosure Schedule
the computer software and related hardware of the Company and its Subsidiaries
(the "Company Computer System") used for the storage and processing of data
have not suffered any adverse effects from the changing of the year from 1999
to 2000 that has had or would reasonably be expected to have a Material Adverse
Effect.
5.16. Environmental Matters.
5.16.1. (i) The Company and each of its Subsidiaries is in compliance
with applicable Environmental Laws, except where the failure to so comply
would not have or be reasonably expected to have a Material Adverse Effect;
(ii) to the Knowledge of the Company, no real property (including buildings
or other structures) currently or formerly owned, leased or operated by the
Company or any of its Subsidiaries has been contaminated with, or has had
any release of, any Hazardous Substance that the Company would reasonably
be expected to be liable for any potential material investigation, clean
up, claim or liability from such real property that would have or be
reasonably expected to have a Material Adverse Effect on the Company; (iii)
neither the Company nor any of its Subsidiaries is subject to liability for
any Hazardous Substance disposal or contamination by their agents or
employees on any third party property, except where the failure to so
comply would not have or be reasonably expected to have a Material Adverse
Effect; (iv) neither the Company nor any of its Subsidiaries has received
any notice, demand letter, claim or request for information alleging any
current material violation of, or material liability under, any
Environmental Law; (v) neither the Company nor any of its Subsidiaries is
subject to any Order or other agreement with any Governmental Entity or any
third party relating to any Environmental Law; and (vi) the Company has
delivered to Recap copies of all environmental reports, studies, sampling
data, correspondence, filings and other environmental information in its
possession or reasonably available to it relating to the Company, any
Subsidiary of the Company and any currently owned, leased or operated
property.
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5.16.2. As used herein, the term "Environmental Law" means any federal,
state or local law, regulation, order, decree, permit, authorization,
opinion, common law or agency requirement relating to: (i) the protection
or restoration of the environment, health, safety, or natural resources but
specifically excluding worker safety laws such as OSHA and Cal-OSHA, (ii)
the handling, use, presence, disposal, release or threatened release of any
Hazardous Substance or (iii) wetlands, indoor air, pollution, contamination
or any injury or threat of injury to persons or property in connection with
any Hazardous Substance and the term "Hazardous Substance" means any
substance in any concentration that is: (i) listed, classified or regulated
as hazardous, toxic, infectious or carcinogenic pursuant to any
Environmental Law; or (ii) any petroleum product or by-product, asbestos-
containing material, lead-containing paint or plumbing, polychlorinated
biphenyls, radioactive materials or radon.
5.17. Tax Matters.
5.17.1. (i) All Tax Returns that are required to be filed (taking into
account any extensions of time within which to file) by or with respect to
the Company and its Subsidiaries have been duly filed, (ii) all Taxes due
have been paid in full or reserved on the Balance Sheet, (iii) all
deficiencies asserted or assessments made as a result of such examinations
have been paid in full or reserved on the Balance Sheet, (iv) no issues
that have been raised by the relevant taxing authority in connection with
the examination of any of the Tax Returns referred to in clause (i) are
currently pending, and (v) no waivers of statutes of limitation have been
given by or requested with respect to any Taxes of the Company or its
Subsidiaries. The Company has made available to Recap true and correct
copies of the United States federal income Tax Returns filed by the Company
and its Subsidiaries for each of the three most recent fiscal years ended
on or before December 31, 1998 and has provided the Tax Return for December
31, 1999, if available. Neither the Company nor any of its Subsidiaries has
any liability with respect to income, franchise or similar Taxes that
accrued on or before the end of the most recent period covered by the SEC
Reports filed prior to the Original Agreement Date in excess of the amounts
accrued with respect thereto that are reflected in the Financial
Statements. Neither the Company nor any of its Subsidiaries is a party to
any Tax allocation or sharing agreement, is or has been a member of an
affiliated group filing consolidated or combined Tax Returns (other than a
group the common parent of which is or was the Company) or otherwise has
any liability for the Taxes of any person (other than the Company and its
Subsidiaries).
5.18. Insurance. The Company has provided a list which is attached to the
Disclosure Schedule of the insurance policies, binders, or bonds maintained by
the Company or its Subsidiaries ("Insurance Policies"). All the Insurance
Policies are in full force and effect; the Company and its Subsidiaries are not
in material default thereunder; and all claims thereunder have been filed in
due and timely fashion. No material claim by the Company on or in respect of an
insurance policy or bond has ever been declined or refused by the relevant
insurer or insurers.
5.19. Assets. The Company holds title to or a leasehold, consignment or
license in each item of material tangible personal property owned or used by or
in the possession of the Company.
5.20. Statements True and Correct. None of the information (including this
Agreement) supplied or to be supplied by the Company or any of its Subsidiaries
to any Governmental Entity in connection with the transactions contemplated
hereby will, at the respective time such documents are supplied, be false or
misleading with respect to any material fact, or omit to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or omit to state any material fact
necessary to correct any statement in any earlier communication to any
Governmental Entity.
5.21. Regulatory Approvals. Neither the Company nor any of its Subsidiaries
has taken any action or has any Knowledge of any fact or circumstance that is
reasonably likely to materially impede or delay receipt of any consents of a
Governmental Entity necessary in connection with the consummation of the
Merger, which if not obtained, individually or in the aggregate, would be
reasonably expected to have a Material Adverse Effect on the Company.
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5.22. Real Property and Leaseholds.
5.22.1. The Company owns all material parcels of real property currently
indicated as owned in fee by the Company on the Financial Statements (the
"Owned Real Estate"). The Company holds marketable and legal title to each
of the real properties constituting Owned Real Estate, free and clear of
all Encumbrances, except for Permitted Encumbrances, and except for
Encumbrances the existence of which would not have a Material Adverse
Effect.
5.22.2. To the Knowledge of the Company, the Company holds valid and
subsisting leasehold interests in all material parcels of real property
leased or subleased to the Company (collectively, the "Leased Real
Estate"), free and clear of all Encumbrances, except for Permitted
Encumbrances, and except for Encumbrances the existence of which would not
have a Material Adverse Effect.
5.23. Company Action. The Company Board has adopted resolutions recommending
that this Agreement, the Asset Drop Down and the Merger be approved by its
stockholders and directing that this Agreement, the Asset Drop Down and the
Merger be submitted for consideration by its stockholders at the Special
Meeting.
5.24. Takeover Statutes. Except for Section 203 of the DGCL, no Takeover
Statute applicable to the Company is applicable to the Asset Drop Down or the
Merger, the Recapitalization or the other transactions contemplated hereby.
5.25. Earn Out Payments. The Disclosure Schedule lists and identifies all
earn out cash payments that exceed the payout of $600,000 in the aggregate or
earn out equity issuances required by the Company or any of its Subsidiaries.
5.26. Opinion. The Special Committee has received written opinions from
Jefferies & Company, Inc. and Houlihan Lokey Howard & Zukin Capital, to the
effect that, as of the Original Agreement Date, the Per Share Amount to be
received in the Merger by the holders of the shares of Common Stock (other than
the Rollover Holders) is fair to such holders from a financial point of view.
5.27. Operating Company. As of the Original Agreement Date, the authorized
capital stock of Operating Company consists solely of 1,000 shares of common
stock, of which 1,000 are issued and outstanding. The Company is the sole
stockholder of Operating Company. Since its incorporation, Operating Company
was not engaged in any activities other than in connection with or as
contemplated by this Agreement, the Asset Drop Down, the Merger and the
Recapitalization or in connection with arranging any financing required to
consummate the transactions contemplated hereby.
5.28. Rights Agreement. The Company and Continental Stock Transfer & Trust
Corporation, as Rights Agent, have executed and delivered, or within two (2)
days of the signing of this Agreement, will execute and deliver, the Rights
Agreement Amendment, pursuant to which, the execution and delivery of and the
performance of the transactions contemplated by this Agreement would not result
in the creation of an "Acquiring Person" or the occurrence of a "Distribution
Date" as defined in the Rights Agreement, dated as of December 30, 1997,
between the Company and the Rights Agent (the "Rights Agreement"). As of the
date hereof, the Rights Agreement Amendment has not been withdrawn, modified,
amended or supplemented and the Company is not aware of facts or circumstances
that may reasonably be expected to result in the occurrence of a "Distribution
Date" as defined in the Rights Agreement.
5.29. Asset Drop Down. The consummation of the Asset Drop Down as
contemplated in this Agreement will not result in a Material Adverse Effect on
the Company.
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ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF RECAP
Recap hereby represents and warrants to the Company as of the Original
Agreement Date (or such other specific date as is indicated below with respect
to a particular representation and warranty) as follows:
6.1. Organization, Standing and Authority. Recap is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Recap is duly qualified to do business and is in good standing in the
states of the United States and any foreign jurisdictions where its respective
ownership or leasing of property or assets or the conduct of its business
requires it to be so qualified, except where the failure to be so qualified
would not individually or in the aggregate have a Material Adverse Effect on
Recap. Recap has the corporate power and authority and has taken all corporate
action necessary in order to execute and deliver this Agreement and consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Recap and is a valid and legally binding obligation of it,
enforceable against Recap in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles). Since the date of its incorporation, Recap has not engaged in any
activities other than in connection with or as contemplated by this Agreement,
the Merger, and the Recapitalization or in connection with cooperating to
arrange any financing required to consummate the transactions contemplated
hereby.
6.2. Consents and Approvals; No Defaults.
6.2.1. No consents or approvals of, or filings or registrations with,
any Governmental Entity or with any third party are required to be made or
obtained by Recap in connection with the execution, delivery or performance
by Recap of this Agreement or to consummate the Merger except for (i)
filings of applications, registrations, statements, reports or notices (and
expiration of any applicable notice periods) with the United States
Department of Justice, the Federal Trade Commission, NASD, the SEC and
state securities authorities, (ii) the requisite approval of this Agreement
by the holders of the capital stock of Recap (which approval has been
secured), (iii) the filing of the Certificate of Merger with the Delaware
Secretary of State pursuant to the DGCL and (iv) consents, approvals,
filings, or registrations listed on SCHEDULE 6.2.1 or which would not,
individually or in the aggregate, have a Material Adverse Effect on Recap.
6.2.2. Subject to receipt of the approvals referred to in the preceding
paragraph, and the expiration of related waiting periods, the execution,
delivery and performance of this Agreement, the consummation of the
transactions contemplated hereby, and compliance with the provisions hereof
do not and will not (i) violate, or conflict with, or result in any breach
of the terms, conditions, or provisions of the charter, bylaws or other
organizational documents of Recap; (ii) violate, or conflict with, or
result in a breach of any provisions of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a
default) under, or give rise to a right of termination, cancellation,
modification or acceleration of the performance required by or a loss of a
material benefit under, or result in the creation or imposition of (or the
obligation to create or impose) any Encumbrance (other than Permitted
Encumbrances) upon any of the properties or assets of Recap under, any of
the terms, conditions or provisions of any material agreement, indenture,
note, bond, mortgage, deed of trust, undertaking, permit, lease, franchise,
license or other instrument to which Recap is a party or by which it or any
of its properties or assets may be bound or affected; or (iii) to the
Knowledge of Recap, violate any Law or Order applicable to Recap, except
for any such violation, conflict, breach, default, event, right or
Encumbrance which would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on Recap.
6.2.3. Other than the approvals of Governmental Entities set forth in
Section 6.2.1 hereof, to the Knowledge of Recap, there are no other
approvals required to be given or obtained by Recap from any and all
Governmental Entities in connection with the consummation of the
transactions contemplated by this Agreement, except where the failure to be
given or to obtain such approvals, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on Recap.
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6.3. Capitalization. As of the date hereof, the authorized capital stock of
Recap consists of 5,000 shares of Recap Common Stock, of which as of the date
hereof 1,000 shares are issued and outstanding, and 5,000 shares of preferred
stock, $.01 par value per share, of which as of the date hereof no shares are
outstanding. Immediately prior to the Effective Time, the authorized capital
stock of Recap will consist of (i) 10,000,000 shares of Recap Common Stock, of
which immediately prior to the Effective Time there will be outstanding at
least 956,667 shares. All outstanding shares of capital stock of Recap have
been duly authorized and validly issued and are fully paid and nonassessable.
Except as set forth in the Stockholder Agreement, there are no preemptive
rights or outstanding subscriptions, options, warrants, rights, convertible
securities or other agreements or commitments of any character relating to the
issued or unissued capital stock or other securities of Recap.
6.4. Regulatory Approvals. Recap has not taken any action and does not have
any Knowledge of any fact or circumstance that is reasonably likely to
materially impede or delay receipt of any consents of a Governmental Entity or
result in the imposition of a condition or restriction with respect to any
such consents.
6.5. Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been conducted by Recap and its
Affiliates in such manner as not to give rise to, and the consummation of the
transactions contemplated hereby will not give rise to, any valid claim
against any party hereto or any of their directors, officers, stockholders or
other Representatives or Affiliates for a brokerage commission, finder's fee
or other like payment to any Person.
6.6. Financing. Recap has received, and has delivered to the Company Board
copies of (a) a letter dated March 30, 2000 from Leonard Green & Partners,
L.P., pursuant to which such Person has committed, subject to the terms and
conditions set forth therein, to purchase equity securities of Recap
immediately prior to the Merger for an aggregate amount of at least
$152,000,000 (provided, that such equity commitment may be satisfied in part
by the purchase of shares of New Series A Preferred Stock and New Series B
Preferred Stock of the Surviving Corporation immediately following the Merger
pursuant to Section 7.11), (b) (i) a letter dated March 30, 2000 from GS
Mezzanine Partners II, L.P., pursuant to which such Person has committed, on
its own behalf and on behalf of affiliated investment funds, subject to the
terms and conditions set forth therein, to purchase notes from Company and
Operating Company in an aggregate amount of $120,000,000, and (ii) a letter
dated March 30, 2000 from Goldman Sachs Credit Partners L.P., pursuant to
which such Person has committed, subject to the terms and conditions set forth
therein, to enter into a credit agreement providing for loans to Operating
Company of up to $325,000,000. As used in this Agreement, the aforementioned
entities shall hereinafter be referred to as the "Financing Entities." The
aforementioned commitments shall be referred to as the "Financing Letters" and
the financing to be provided thereunder shall be referred to as the
"Financing." The aggregate proceeds of the Financing are in an amount
sufficient to pay when due, pursuant to the terms and conditions herein, the
full Merger Consideration as provided herein, to make all other necessary
payments by Recap and the Surviving Corporation in connection with the Merger
(including the repayment of Indebtedness of the Surviving Corporation as
contemplated by the Financing Letters and any amounts payable in respect of
Dissenting Shares), to provide a reasonable amount of working capital
financing and to pay related fees and expenses. As of the date hereof, none of
the Financing Letters has been withdrawn and Recap does not know of any facts
or circumstances that may reasonably be expected to result in any of the
conditions set forth in any of the Financing Letters not being satisfied.
The foregoing notwithstanding, the Financing Letters may be superseded at
the option of Recap after the date hereof but prior to the Effective Time by
letters (the "New Financing Letters") delivered to the Company Board which
contemplate a co-investment by a third party, which New Financing Letters
shall be otherwise identical in all material respects to the Financing Letters
except for changes necessary to reflect that co-investment, provided that the
terms of the New Financing Letters shall not have any adverse effect upon the
amount of or ability to consummate, or expand upon the conditions precedent
to, the Financing as set forth in the Financing Letters. In such event, the
term "Financing Letters" as used herein shall be deemed to refer to the New
Financing Letters.
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6.7. Litigation. There are no Actions pending, or to the Knowledge of Recap,
claims threatened against Recap, at law or in equity, and there is no
investigation or proceeding pending or, to the Knowledge of Recap, threatened
before or by any Governmental Entity nor is there any currently effective Order
against Recap, except for any such Actions, claims, investigations, proceedings
or Orders that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Recap.
6.8. Statements True and Correct. None of the information (including this
Agreement) supplied or to be supplied by or on behalf of Recap to any
Governmental Entity in connection with the transactions contemplated hereby
will, at the respective time such documents are supplied, be false or
misleading with respect to any material fact, or omit to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or omit to state any material fact
necessary to correct any statement in any earlier communication to any
Governmental Entity.
6.9. No Prior Activities. Recap has not incurred, directly or indirectly,
any material liabilities or obligations except those incurred in connection
with its organization or with the negotiation and execution of this Agreement
and the performance of the transactions contemplated hereby. Except as
contemplated by this Agreement or in connection with the Merger, or the
Recapitalization, Recap has not engaged, directly or indirectly, in any
business or activity of any type or kind, or entered into any agreement or
arrangement with any person or entity, and is not subject to or bound by any
material obligation or undertaking.
6.10. Fraudulent Transfer Laws. Assuming the Company is not insolvent
immediately prior to the Effective Time, and further assuming the
representations and warranties of the Company contained in this Agreement are
true and accurate, the Surviving Corporation will not be insolvent immediately
after the Effective Time, taking into account changes in assets and Liabilities
(including the Financing) of the Surviving Corporation as a result of the
Merger and the other transactions contemplated hereby.
ARTICLE 7.
COVENANTS
7.1. Conduct of Business Pending Closing. Except for actions contemplated by
subparagraphs below, the Company agrees that on and after the Original
Agreement Date and prior to the Closing Date, except as otherwise consented to
by Recap in writing (which consent shall not be unreasonably withheld, delayed
or conditioned), as set forth in the Disclosure Schedule, or as otherwise
contemplated by this Agreement (including specifically Section 7.19 hereof):
7.1.1. The Company shall conduct its business in the ordinary course and
consistent with past practice in all material respects;
7.1.2. The Company shall use reasonable best efforts to preserve the
business organization of the Company intact, to preserve the goodwill of
suppliers, customers, employees and others with whom business relationships
exist and maintain all Permits and approvals;
7.1.3. Other than in connection with acquisitions in the ordinary course
of business, not to exceed $10,000,000 individually or $17,500,000 in the
aggregate in total consideration (including but not limited to cash paid,
seller notes, Indebtedness assumed or other such consideration, including
earn out obligations) (the "Permitted Acquisitions"), the Company shall not
borrow any money, incur any Indebtedness or guarantee any Indebtedness or
financial obligation of any Person other than Subsidiaries, other than to
finance working capital requirements in the ordinary course of business and
consistent with past practice;
7.1.4. Other than in connection with Permitted Acquisitions, the Company
shall not issue, sell or dispose of any capital stock or other equity
interest in the Company or options, warrants or other rights to purchase
any such capital stock or equity interest or any securities convertible
into or exchangeable for such capital stock or equity interests or
otherwise make or effect any change in the issued and outstanding
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capitalization of the Company other than pursuant to agreements existing as
of the Original Agreement Date;
7.1.5. The Company shall not cause or permit any amendment, alteration
or modification in the terms of any currently outstanding options, warrants
or other rights to purchase any capital stock or equity interest in the
Company or any securities convertible into or exchangeable for such capital
stock or equity interest, including without limitation any reduction in the
exercise or conversion price of any such rights or securities, any change
to the vesting or acceleration terms of any such rights or securities, or
any change to terms relating to the grant of any such rights or securities
other than pursuant to agreements existing as of the Original Agreement
Date;
7.1.6. The Company shall not declare or pay any dividend or make any
other distribution, or transfer any assets, to any stockholders of the
Company with respect to the Common Stock, or redeem, repurchase or
otherwise reacquire any of its capital stock, except in the ordinary course
of business;
7.1.7. Other than Permitted Acquisitions, capital expenditures permitted
under this Agreement or agreements to manage practices pursuant to the
management agreements and administrative services agreements of the Company
with hospitals and professional corporations in accordance with past
practice, the Company shall not enter into any contracts or agreements
(written or oral) that provide for minimum mandatory payments in the
aggregate by any party in excess of $2,000,000 per contract per annum, and
to the extent the Company is a party to any such contract or agreement as
of the Original Agreement Date, the Company shall not amend or waive any
material rights under any such contract;
7.1.8. Subject to the provisions of Section 7.5 hereof, other than
Permitted Acquisitions, the Company shall not purchase all or any
substantial part of the properties or assets of, or otherwise acquire,
merge or consolidate with, any Person (or division thereof);
7.1.9. The Company shall not sell, lease, transfer, assign or otherwise
dispose of any material portion of its properties or assets, except for
sales in connection with any transaction to which the Company is
contractually obligated prior to the Original Agreement Date or as
consistent with past business practice, or as would not reasonably be
expected to have a Material Adverse Effect on the Company;
7.1.10. Except pursuant to any agreement in existence on the Original
Agreement Date, the Company shall not sell, lease, transfer, assign or
otherwise dispose of any material Owned Real Estate or Leased Real Estate,
and the Company shall not permit any lease or sublease of Leased Real
Estate to terminate or expire (except in accordance with its terms), in
each case except as otherwise provided in this Agreement or as consistent
with past business practices or would not reasonably be expected to have a
Material Adverse Effect on the Company;
7.1.11. Except as may be required by law or under any existing
agreements heretofore disclosed to Recap, the Company shall not increase
the compensation or fringe benefits payable or to become payable by the
Company to any of the Executive Officers of the Company, other than routine
or customary increases made in the ordinary course of business and
consistent with past practice;
7.1.12. Except as set forth in the Disclosure Schedule, the Company
shall not make any material change in the character of its business or
operations that would, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect on the Company;
7.1.13. Except as may be required by law or by GAAP, the Company shall
not change its significant accounting principles, methods or practices,
other than changes that are made in the ordinary course of business and/or
that would not have a detrimental impact on the financial condition of the
Company;
7.1.14. The Company shall (i) use reasonable best efforts to maintain
its existing Permits and approvals, and (ii) carry on its business in
compliance with applicable Law, except for failures to comply that would
not, individually or in the aggregate, be reasonably expected to have a
Material Adverse Effect on the Company;
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7.1.15. The Company shall not enter into any agreement or take or commit
to take any action with the intent that would, if taken on or before the
Closing, result in a breach of any of the foregoing covenants contained in
this Section 7.1 or of any representation or warranty of the Company
contained in this Agreement;
7.1.16. Subject to the provisions of Section 7.5 hereof, the Company
shall not take any action, enter into any agreement, alter any policy or
commit to any of the foregoing if such action, agreement or policy would
restrict the ability of the Company to consummate the Recapitalization or
the Merger, and the transactions contemplated herein;
7.1.17. The Company shall not settle or resolve any litigation,
arbitration or other adjudication matter not covered by insurance, if such
settlement or resolution would result in a payment in excess of $2,500,000
in the aggregate; and
7.1.18. The Company may not make any aggregate cash payment for or incur
any new obligations for capital expenditures other than capital
expenditures in the ordinary course of business consistent with past
practice in amounts not exceeding $15,000,000.
7.2. Access. The Company shall permit Recap and its Representatives to have
reasonable access during normal business hours, upon reasonable notice and in
such manner as will not unreasonably interfere with the conduct of the
Company's business, to all of the directors, officers, employees, agents and
Representatives of the Company and all properties, books, records, operating
instructions, procedures and Tax Returns of the Company and all other
information with respect to the Company, its business and operations and its
assets and properties as Recap or its Representatives may from time to time
reasonably request, and to make copies of such books, records and other
documents.
7.3. Permits and Approvals. The Company and Recap shall use reasonable best
efforts to obtain all Permits and approvals reasonably necessary for the
consummation of the transactions contemplated hereby and to permit the Company,
following the Closing, to continue to conduct its business in substantially the
manner it is being conducted as of the Original Agreement Date, except as would
not otherwise, individually or in the aggregate, be reasonably expected to have
a Material Adverse Effect on the Company. The Company shall use reasonable best
efforts to obtain all authorizations from any Person as may be required for it
to consummate the transactions contemplated hereby in accordance with the terms
of this Agreement, and if the Company, despite such efforts, is unable to
obtain any such authorizations, the Company shall take, or cause to be taken,
all other reasonable actions necessary, proper or advisable in order for it to
fulfill its obligations hereunder and to carry out the intentions of the
parties expressed herein.
7.4. Litigation. Until the Closing, each of the Company and Recap shall
promptly notify the other of any Action which is threatened or commenced that
materially relates to or materially affects the Company, its business, its
properties or assets, this Agreement or the transactions contemplated hereby.
7.5. Acquisition Proposals.
7.5.1. The Company agrees that neither it nor any of its officers and
directors shall, and the Company shall direct and use its reasonable best
efforts to cause its Representatives (including, without limitation, any
investment bankers, attorneys or accountants) not to, directly or
indirectly, initiate, solicit, encourage, enter into or conduct discussions
or negotiations with or provide any non-public information to any Person or
group (other than Recap and its designees) concerning any Acquisition
Proposal; provided, however, that (a) nothing herein shall prevent the
Company Board from taking and disclosing to the Company's stockholders a
position contemplated by Rules 14d-9 and 14e-2 promulgated under the
Exchange Act with regard to any tender offer and otherwise complying with
such rules, provided that the Company Board shall not recommend that the
stockholders of the Company tender their Shares in connection with any such
tender offer unless the Company Board, acting upon a recommendation of the
Special Committee, and after consultation with legal counsel, determines
that there is a substantial likelihood that it is required to do so in
order to comply with its fiduciary duties; and (b) if the Company Board,
acting upon a recommendation
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of the Special Committee, and after consultation with legal counsel,
determines that there is a substantial likelihood that it is required to do
so in order to comply with its fiduciary duties, the Company Board may, and
may authorize or permit any of its officers, directors, employees,
Representatives or agents to, respond to inquiries from, discuss with,
negotiate with, and provide non-public information to, any other Person
concerning an Acquisition Proposal. The Company will notify Recap
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with the Company, including setting
forth the material terms of the proposal and the identity of the party
making such proposal, and Company shall promptly notify Recap of the status
and any material developments concerning the same, including furnishing
copies of any such written inquiries or proposals. The Company will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing and shall make all reasonable efforts to
enforce any confidentiality agreements to which it is a party; provided,
that the Company may waive the enforcement of any such confidentiality
agreement if the Company Board, acting upon recommendations of the Special
Committee, and after consultation with legal counsel, determines that there
is a substantial likelihood that it is required to do so in order to comply
with its fiduciary duties. The Company will take the necessary steps to
inform the appropriate individuals or entities referred to in the prior
sentence of the obligations undertaken in this Section 7.5.
7.5.2. Except as set forth in this Section 7.5.2, the Company Board shall
not withdraw its recommendation of the transactions contemplated hereby or
approve or recommend, or cause the Company to enter into any agreement with
respect to, any Acquisition Proposal. Notwithstanding the foregoing, if the
Company Board, acting upon a recommendation of the Special Committee, and after
consultation with legal counsel, determines that there is a substantial
likelihood that it is required to do so in order to comply with its fiduciary
duties, the Company Board may withdraw its recommendation of the transactions
contemplated hereby or approve or recommend a Superior Proposal; provided,
however, that the Company shall not be entitled to enter into any agreement
with respect to a Superior Proposal unless and until the Company Board provides
written notice to Recap (a "Notice of Superior Proposal") advising Recap that
the Company Board has received a Superior Proposal, specifying the material
terms and conditions of such Superior Proposal and identifying the Person
making such Superior Proposal; provided, further, however, that the Company
shall not be entitled to enter into any agreement with respect to a Superior
Proposal unless and until this Agreement is terminated by its terms pursuant to
Section 9.1.3 and the Company has paid all amounts due to Recap pursuant to
Section 9.3. For the purposes of this Agreement, "Acquisition Proposal" means
the following: (i) the acquisition of the Company by merger or otherwise by any
Person (which includes a "person" as such term is defined in Section 13(d)(3)
of the Exchange Act) other than Recap or any Affiliate thereof (a "Third
Party"); (ii) the acquisition by a Third Party of more than 20% of the total
assets of the Company; (iii) the acquisition by a Third Party of more than 20%
of the outstanding shares of Common Stock (either directly from the Company or
from stockholders of the Company); (iv) the adoption by the Company of a plan
of liquidation or the declaration or payment of an extraordinary dividend; (v)
the repurchase by the Company of more than 20% of the outstanding shares of
Common Stock; or (vi) the acquisition by the Company by merger, purchase of
stock or assets, joint venture or otherwise of a direct or indirect ownership
interest or investment in any business the annual revenues, net income or
assets of which is equal or greater than 20% of the annual revenues, net income
or assets of the Company. For purposes of this Agreement a "Superior Proposal"
means any bona fide Acquisition Proposal with terms which the Company Board,
acting upon a recommendation of the Special Committee, after taking into
consideration advice of a financial adviser of nationally recognized
reputation, determines to be more favorable to the Company's stockholders
(other than the Rollover Holders) than the Merger.
7.6. HSR Notification.
7.6.1. Filings. As soon as reasonably practicable, each of the Company
and Recap shall file, or cause to be filed, with the Federal Trade
Commission and the Antitrust Division of the United States Department of
Justice pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), the notification and documentary material
required in connection with the transactions contemplated hereby.
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7.6.2. Cooperation. Recap and the Company shall promptly file any
additional information requested as soon as reasonably practicable after
receipt of a request for additional information. Recap and the Company
shall use their reasonable best efforts to obtain early termination of the
applicable waiting period under the HSR Act. The parties hereto will
coordinate and cooperate with one another in exchanging such information
and providing such reasonable assistance as may be requested in connection
with such filings.
7.6.3. Other Actions. The Company agrees that, in order to comply with
the HSR Act in connection with the transactions contemplated hereby, Recap
shall be entitled, in its sole discretion, to acquiesce to any
divestitures, operating restrictions or other constraints imposed or
required by any Governmental Entity; provided that such divestitures,
operating restrictions or other constraints shall not have any material
effect on the terms of the Merger; and provided, further, that such
divestitures, operating restrictions or other constraints shall only be
consummated or take effect (as the case may be) concurrently with or
following the consummation of the Merger.
7.7. Financial Statement Deliveries. As soon as is reasonably practicable
and in no event later than thirty-five (35) days from the last day of each
fiscal month between the Original Agreement Date and the Closing Date, the
Company shall prepare and provide to Recap the monthly financial reports
routinely prepared for management of the Company, including the profit and loss
column reports, same store revenue reports, detail hospital profit and loss and
regional consolidated reports, comparative profit and loss reports by region
and any other financial reports prepared for management (the "Updated Financial
Statements"), utilizing the same format and methodology used in preparing such
reports as are provided internally to management. As soon as reasonably
practicable between the Original Agreement Date and the Closing Date, the
Company shall deliver drafts of any Form 10-Q or Form 10-K, including any
revisions or amendments thereto, prepared or filed by the Company.
7.8. Covenant to Satisfy Conditions. Each of the Company and Recap will use
reasonable best efforts to ensure, and to cause their respective Affiliates to
ensure, that the conditions set forth in Article 8 hereof are satisfied,
insofar as such matters are within the control of such party. Each such party
shall promptly consult with the other with respect to, and provide to the other
any legally permitted information and copies of, all filings made by such party
with any Governmental Entity or any other information supplied by such party to
a Governmental Entity (other than confidential personnel information) in
connection with this Agreement and the transactions contemplated hereby. Recap
and the Company further covenant and agree, with respect to any pending or
threatened Action, preliminary or permanent injunction or other Order, decree
or ruling, or statute, rule, regulation or executive order that would adversely
affect the ability of the parties hereto to consummate the transactions
contemplated hereby, to use reasonable best efforts to prevent or lift the
entry, enactment or promulgation thereof, as the case may be. Upon the request
of Recap, the Company agrees that it shall use reasonable best efforts to
secure waivers and/or consents from such third parties as may be necessary or
desirable in Recap's reasonable judgment in order to consummate the
transactions contemplated hereby.
7.9. Proxy Statement. As soon as reasonably practicable, the Company shall
prepare and file the draft proxy statement relating to the Special Meeting and
such other reports, schedules or other information (including Schedule 13E-3
under the Exchange Act) as may be required with the SEC, respond to comments of
the staff of the SEC, if any, file the definitive proxy statement (the "Company
Proxy Statement") as soon as practicable, and promptly thereafter mail such
Company Proxy Statement to all holders of record (as of the applicable record
date) of shares of Common Stock. The Company and Recap shall cooperate
reasonably with each other in the preparation of the proxy statement and such
other materials. Recap shall provide, and shall cause its Affiliates to
provide, the Company and any of its Affiliates with any information for
inclusion in the Company Proxy Statement or any other filings required to be
made by the Company or any of its Affiliates with any Governmental Entity in
connection with the transactions contemplated by this Agreement which may be
required under applicable law and which is reasonably requested by the Company
or any of its Affiliates. The Company agrees that Recap shall be given
reasonable opportunity to review and comment on the draft proxy statement
relating to the Special Meeting and such other materials and to approve such
draft proxy statement and such
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other materials prior to their filing (which approval will not be unreasonably
withheld) and thereafter to participate in discussions concerning the comments
of the SEC staff and to approve all responses thereto (which approval will not
be unreasonably withheld, delayed or conditioned). The Company shall promptly
notify Recap of the receipt of the comments of the SEC and of any request from
the SEC for amendments or supplements to the Company Proxy Statement or for
additional information, and will promptly supply Recap with copies of all
correspondence between the Company or its Representatives, on the one hand,
and the SEC or members of its staff, on the other hand, with respect to the
Company Proxy Statement, the Asset Drop Down, or the Merger. If at any time
prior to the Special Meeting any event should occur which is required by
applicable law to be set forth in an amendment of, or a supplement to, the
Company Proxy Statement, the Company will promptly inform Recap. In such case,
the Company, with the cooperation of Recap, will, upon learning of such event,
promptly prepare and mail such amendment or supplement; provided, that prior
to such mailing, the Company shall consult with Recap with respect to such
amendment or supplement and shall afford Recap reasonable opportunity to
comment thereon. The Company will notify Recap at least 24 hours prior to the
mailing of the Company Proxy Statement, or any amendment or supplement
thereto, to the stockholders of the Company.
7.10. Stockholders' Meeting. The Company shall take all action necessary,
in accordance with applicable law and its certificate of incorporation and
bylaws, to convene a Special Meeting of the holders of the shares of Common
Stock (the "Special Meeting") as promptly as practicable for the purpose of
approving the Asset Drop Down and the Merger. The Company shall through the
Company Board recommend at such Special Meeting that the Asset Drop Down and
the Merger be approved by its stockholders; provided, however, that the
Company Board may withdraw its recommendation in accordance with the
provisions of Section 7.5 hereof.
7.11. Financing. Recap agrees to use its reasonable best efforts to
cooperate in obtaining, on terms reasonably satisfactory to Recap, all of the
financing necessary in connection with the consummation of the transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing, the Company acknowledges receipt of the "Financing Letters"
referred to in Section 6.6 hereof and undertakes to use its reasonable best
efforts to fulfill, or cause to be fulfilled, its obligations thereunder and
to cooperate in the obtaining of the Financing. Recap agrees to cause a
portion of the equity commitment pursuant to Section 6.6(a) to be satisfied as
follows: immediately following the Merger, (i) the certificate of
incorporation of the Surviving Corporation will be amended to create a new
series of preferred shares designated as the Series A Senior Preferred Stock,
$.01 par value, of the Surviving Corporation, the terms of which shall be as
summarized in Annex A hereto (the "New Series A Preferred Stock"), and to
create a new series of preferred shares designated as the Series B Junior
Preferred Stock, $.01 par value, of the Surviving Corporation, the terms of
which shall be as summarized in Annex A hereto (the "New Series B Preferred
Stock"), and (ii) the balance of the equity commitment pursuant to Section
6.6(a) (i.e., the amount of such commitment not satisfied by the purchase of
Recap Common Stock prior to the Merger) shall be satisfied by the purchase of
shares of New Series A Preferred Stock and New Series B Preferred Stock.
7.12. Disclosure Prior to Closing. In the event that, at any time prior to
the Closing, the Company or Recap becomes aware of any matter that, if
existing or known as of the date of this Agreement, would have been required
to be set forth or described in the Schedules hereto or would otherwise have
rendered any representation or warranty false, such party shall promptly
provide written notice of such matters to the other party. However, no such
notice provided under this Section 7.12 shall be deemed to cure any breach of
any representation or warranty made in this Agreement whether for purposes of
determining whether or not the conditions set forth in Article 8 hereof have
been satisfied or otherwise. In addition, the Company shall promptly provide
written notice of any events occurring after the date hereof and prior to the
Closing that individually or in the aggregate have had or are reasonably
expected to have a Material Adverse Effect on the Company.
7.13. Directors' and Officers' Insurance and Indemnification. The Surviving
Corporation will indemnify each person who is now, or has been at any time
prior to the Original Agreement Date, a director, officer, employee or agent
of the Company (including its Subsidiaries) or their successors and assigns
(individually an "Indemnified Party" and collectively the "Indemnified
Parties"), to the fullest extent permitted (i) by applicable law, (ii) under
the certificate of incorporation or bylaws of the Company, or (iii) under any
agreement
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with the Company as in effect immediately prior to the execution of this
Agreement, with respect to any claim, Liability, loss, damage, judgment, fine,
penalty, amount paid in settlement or compromise, cost or expense, including
reasonable fees and expenses of legal counsel (whenever asserted or claimed),
based in whole or in part on, or arising in whole or in part out of, any
matter, state of affairs or occurrence existing or occurring at or prior to
the Effective Time whether commenced, asserted or claimed before or after the
Effective Time, including, Liability arising under the Securities Act, the
Exchange Act or state law or Liability based in whole or in part on or arising
in whole or in part out of or pertaining to the Agreement or the transactions
contemplated hereby. The Surviving Corporation shall faithfully assume and
honor in all respects the obligations of the Company pursuant to the Company's
certificate of incorporation, bylaws and any indemnification agreements
between the Company and any of the Persons mentioned in the first sentence of
this Section 7.13 existing and in force as of the Original Agreement Date to
the extent permitted under applicable law. The Surviving Corporation will also
maintain in effect for not less than six years after the Effective Time the
current policies of directors' and officers' liability insurance maintained by
the Company on the Original Agreement Date (provided that the Surviving
Corporation may substitute therefor policies having at least the same
coverage, with a comparably rated insurer and containing terms and conditions
which are no less advantageous to the persons currently covered by such
policies) with respect to matters existing or occurring at or prior to the
Effective Time; provided, however, that if the aggregate annual premiums for
such insurance during such period exceed 200% of the per annum rate of the
aggregate premium currently paid by the Company for such insurance on the
Original Agreement Date, then the Surviving Corporation will provide the
maximum coverage that will then be available at an annual premium equal to
200% of such rate. The rights under this Section 7.13 are in addition to
rights that an Indemnified Party may have under the certificate of
incorporation, bylaws or other similar organizational documents of the Company
or any Subsidiary or under the DGCL. The rights under this Section 7.13 are
contingent upon the occurrence of, and will survive consummation of, the
Merger and are expressly intended to benefit each Indemnified Party.
Notwithstanding the provisions of the preceding sentence, in the event of any
claim (whether arising before or after the Effective Time) that may be subject
to indemnification hereunder, upon receipt from the Indemnified Party to whom
expenses are advanced of an undertaking to repay such advances to the extent
required by law, the Company shall advance expenses to each such Indemnified
Party, including the payment of the fees and expenses of counsel selected by
such Indemnified Party, which counsel shall be reasonably satisfactory to the
Company, promptly after statements therefore are received. Each Indemnified
Party (and their respective heirs and estates) is intended to be a third party
beneficiary of this Section 7.13 and may specifically enforce its terms.
7.14. Options and Convertible Debentures. The Company shall use its
reasonable best efforts to obtain the rollover, the exercise or the
cancellation of the Options and Rollover Options as set forth in Section 2.6.
The Surviving Corporation shall assume the Rollover Options pursuant to
Section 2.6 and in accordance with the respective Stock Option Plan, and the
exercise price and number of shares underlying each such option shall be
adjusted equitably to reflect the effect of the Merger. The Company shall use
its reasonable best efforts to obtain the receipt of any approvals or consents
from the holders of the Convertible Debentures, if any, to this Agreement and
the transactions contemplated hereby; provided, however, that Recap
acknowledges that the consummation of the transactions contemplated hereby
will constitute a change of control under the terms of the Convertible
Debentures.
7.15. Antitakeover Statutes. If any Takeover Statute (as defined below) is
or may become applicable to the transactions contemplated hereby, the Company
Board will grant such approvals and take such actions as are necessary so that
the transactions contemplated hereby and thereby may be consummated as
promptly as practicable on the terms contemplated hereby and thereby and
otherwise act to eliminate the effects of any Takeover Statute on any of the
transactions contemplated hereby or thereby. For purposes of this Agreement, a
"Takeover Statute" means a "fair price", "moratorium", "control share
acquisition" or other similar antitakeover statute or regulation enacted under
state or federal laws in the United States, including Section 203 of the DGCL.
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7.16. Regulatory Applications.
7.16.1. Each of the Company and Recap and their respective Subsidiaries
shall cooperate and use their respective reasonable best efforts to prepare
all documentation, to effect all filings and to obtain all permits,
consents, approvals and authorizations of all third parties and
Governmental Entities necessary to consummate the transactions contemplated
by this Agreement. Each of the Company and Recap shall have the right to
review in advance, and to the extent practicable each will consult with the
other, in each case subject to applicable laws relating to the exchange of
information, with respect to all material written information submitted to
any third party or any Governmental Entity in connection with the
transactions contemplated by this Agreement. In exercising the foregoing
right, each of the parties hereto agrees to act reasonably and as promptly
as practicable. Each party hereto agrees that it will consult with the
other parties hereto with respect to the obtaining of all material permits,
consents, approvals and authorizations of all third parties and
Governmental Entities necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the other parties
appraised of the status of material matters relating to completion of the
transactions contemplated hereby.
7.16.2. Each party agrees, upon request, to furnish the other parties
with all information concerning itself, its Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with any filing, notice or application
made by or on behalf of such other parties or any of their respective
Subsidiaries to any third party or Governmental Entity.
7.17. Notices of Certain Events. Each of the parties hereto shall promptly
notify the other parties of:
7.17.1. the receipt by such party of any notice or other communication
from any Person alleging that the consent of such Person is or may be
required in connection with the transactions contemplated by this
Agreement;
7.17.2. the receipt by such party of any notice or other communication
from any Governmental Authority in connection with the transactions
contemplated by this Agreement; and
7.17.3. any Actions commenced or, to the best of such party's Knowledge,
threatened against, or affecting, such party which, if pending on the
Original Agreement Date, would have been required to have been disclosed
pursuant to this Agreement or which relate to the consummation of the
transactions contemplated by this Agreement.
7.18. Delivery of Opinion of Financial Advisor. The Company agrees to
deliver to Recap a true and complete copy of the written opinions of Jefferies
& Company, Inc. and Houlihan Lokey Howard & Zukin Capital (if not already so
delivered), promptly following the execution and delivery of this Agreement.
7.19. Asset Drop Down. The Company and Operating Company shall use
reasonable best efforts to effect and consummate the Asset Drop Down (which is
necessary for the consummation of the Merger and the transactions contemplated
hereby) and to permit Recap to participate in the timing and structuring of
the Asset Drop Down.
ARTICLE 8.
CONDITIONS OF MERGER
8.1. General Conditions. The obligations of the parties to effect the
Closing shall be subject to the following conditions unless waived in writing
by Recap and the Company:
8.1.1. No Law or Orders. No Law or Order shall have been enacted,
entered, issued or promulgated by any Governmental Entity (and be in
effect) which prohibits the consummation of the Asset Drop Down, the Merger
or the Recapitalization.
8.1.2. HSR. Any applicable waiting period under the HSR Act shall have
expired or have been terminated with respect to the transactions
contemplated hereby.
8.1.3. Legal Proceedings. No Governmental Entity shall have initiated
proceedings to restrain or prohibit the Merger or the Recapitalization or
force rescission, unless such Governmental Entity shall have
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withdrawn and abandoned any such proceedings prior to the time which
otherwise would have been the Closing Date and there shall not have been
any Law or Order which would require the divestiture by the Company or its
Subsidiaries of a material portion of their respective businesses, assets
or properties, taken as a whole, or impose any material limitation on the
ability of the Company and its Subsidiaries, taken as a whole, to conduct
their respective businesses and own their assets and properties, taken as a
whole, following the Closing.
8.1.4. Stockholder Approval. The Asset Drop Down and the Merger shall
have been approved by the requisite vote of the holders of the outstanding
capital stock of the Company entitled to vote thereon at the Special
Meeting.
8.1.5. Regulatory Approval. All regulatory approvals or waivers required
to consummate the Asset Drop Down, the Merger or the Recapitalization shall
have been obtained and shall remain in full force and effect and all
statutory waiting periods in respect thereof shall have expired, other than
those the failure of which to be obtained or maintained would not have or
reasonably be expected to have a Material Adverse Effect on the Company or
Recap, and no such approvals or waivers shall contain any conditions,
restrictions or requirements which would (i) following the Effective Time,
have a Material Adverse Effect on the Surviving Corporation and its
Subsidiaries, taken as a whole or (ii) reduce the benefits of the
transactions contemplated hereby to such a degree that Recap would not have
entered into this Agreement had such conditions, restrictions or
requirements been known at the Original Agreement Date.
8.1.6. Third Party Consents. The Company shall have received all
requisite consents from third parties (other than Governmental Entities)
required by any contract between such third parties and the Company or any
of its Subsidiaries to be obtained prior to the consummation of the Asset
Drop Down, the Merger or the Recapitalization, which if not obtained,
individually or in the aggregate, would have a Material Adverse Effect.
8.1.7. Permits and Approvals. The Company shall have made or obtained
all Permits and approvals which are legally required to be obtained by the
Company or any Subsidiary from any Governmental Entity prior to
consummation of the Merger or the Recapitalization, which if not obtained,
individually or in the aggregate, would have a Material Adverse Effect.
8.2. Conditions Precedent to the Obligations of the Company. The obligations
of the Company to close the transactions contemplated by this Agreement shall
be subject to the satisfaction on or prior to the Closing Date of each of the
following conditions precedent, any of which may be waived by the Company:
8.2.1. Accuracy of Recap's Representations and Performance of
Obligations.
(a) All representations and warranties made by Recap in this
Agreement, any Schedule or any agreement, certificate or instrument to
be executed by Recap pursuant hereto shall be true and correct in all
material respects on the date when made and on and as of the Closing
Date (unless the representations and warranties address matters as of a
particular date, in which case they shall remain true and correct in
all respects as of such date; provided, that a "particular date" for
purposes of this parenthetical shall not include the fact that a
representation or warranty is given as of the Original Agreement Date,
it being the intention of the parties that representations and
warranties made as of the Original Agreement Date, without further
qualification as to the date as of which such representations and
warranties are given, shall be "brought down" to the Closing Date) with
the same effect as if made on and as of the Closing Date (without
regard to any amendment or supplement of any such Schedule, agreement
or instrument after the Original Agreement Date), except where such
failures, in each case or in the aggregate, have not had and are not
reasonably expected to have a Material Adverse Effect on Recap.
(b) Recap shall have performed or complied in all material respects
with all covenants contained in this Agreement, or any agreement,
certificate or instrument to be executed by Recap pursuant hereto
required to be performed or complied with by Recap either at or prior
to the Closing.
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8.2.2. Recap Deliveries. Recap shall have delivered, or shall have
caused to be delivered, to the Company at or prior to the Closing the
following:
(a) a certified copy of the resolutions duly adopted by the board of
directors of Recap authorizing this Agreement and the transactions
contemplated hereby and thereby;
(b) such other documents, instruments or certificates as shall be
reasonably requested by the Company or its counsel; and
(c) a certificate of the president or any vice president and
secretary or any assistant secretary of Recap certifying to the matters
set forth in Sections 8.2.1(a) and (b) above.
8.2.3 Financing. All financing necessary in connection with the
consummation of the transactions contemplated by this Agreement shall have
been obtained (including, without limitation, the purchase of shares of New
Series A Preferred Stock and New Series B Preferred Stock in accordance
with Section 7.11).
8.2.4. Recapitalization. All parties (other than the Company, Operating
Company and their respective Affiliates) to the Recapitalization have
entered into and delivered to the other parties thereto the agreements
contemplated by, and performed all actions required by them to consummate,
the Recapitalization.
8.3. Conditions Precedent to Obligations of Recap. The obligations of Recap
to close the transactions contemplated by this Agreement shall be subject to
the satisfaction on or prior to the Closing Date of each of the following
conditions precedent, any of which may be waived by Recap:
8.3.1. Accuracy of the Company's Representations and Performance of
Obligations.
(a) All representations and warranties made by the Company in this
Agreement, any Schedule or any agreement, certificate or instrument to
be executed by the Company pursuant hereto shall be true and correct in
all material respects on the date when made and on and as of the
Closing Date (unless the representations and warranties address matters
as of a particular date, in which case they shall remain true and
correct in all respects as of such date; provided, that a "particular
date" for purposes of this parenthetical shall not include the fact
that a representation or warranty is given as of the Original Agreement
Date, it being the intention of the parties that representations and
warranties made as of the Original Agreement Date, without further
qualification as to the date as of which such representations and
warranties are given, shall be "brought down" to the Closing Date) with
the same effect as if made on and as of the Closing Date (without
regard to any amendment or supplement of any such Schedule, agreement
or instrument after the Original Agreement Date), except where such
failures, in each case or in the aggregate, have not had and are not
reasonably expected to have a Material Adverse Effect on the Company.
(b) The Company shall have performed or complied with all covenants
contained in this Agreement, or any agreement, certificate or
instrument to be executed by the Company pursuant hereto required to be
performed or complied with by the Company either at or prior to the
Closing, except where such failure to perform or comply with,
individually or in the aggregate, has not had, and are not reasonably
expected to have a Material Adverse Effect on the Company.
8.3.2. Company Adverse Changes. There shall not have occurred after the
Original Agreement Date any events which individually or in the aggregate
have had or are reasonably expected to have a Material Adverse Effect on
the Company.
8.3.3. Deliveries. The Company shall have delivered, or shall have
caused to be delivered, to Recap at or prior to the Closing the following:
(a) certified copies of the resolutions duly adopted by the Company
Board and by the holders of the Company's Common Stock, authorizing
this Agreement and the transactions contemplated hereby; and
(b) a certificate of the chief executive officer, president or any
vice president and secretary or any assistant secretary of the Company
certifying to the matters set forth in Section 8.3.1(a) and (b) above.
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8.3.4. Financing. All financing set forth in the "Financing Letters"
referred to in Section 6.6 shall have been obtained, it being acknowledged
that if the parties to the Financing Letters or New Financing Letters
(other than Parent and Leonard Green & Partners, L.P.) are prepared to
perform thereon (or would have been prepared to perform had Parent and
Leonard Green & Partners, L.P. performed as contemplated thereby), this
condition contained in this Section 8.3.4 shall be deemed to have been
satisfied.
8.3.5. Recapitalization. All parties (other than Recap and its
Affiliates) to the Recapitalization have entered into and delivered to the
other parties thereto the agreements contemplated by, and performed all
actions required by them to consummate, the Recapitalization.
8.3.6. Accounting Principles. Except as set forth on the Disclosure
Schedule, from the fiscal year ended December 31, 1999 and prior to the
Effective Time, the Company shall not have altered, modified or amended, or
be required in the future to make any alteration, modification or amendment
of, any of its material accounting principles, methods or practices, other
than (a) such alterations, modifications or amendments that are applicable
generally and are not directed specifically to the Company, and (b) such
alterations, modifications or amendments that do not, individually or in
the aggregate, have a Material Adverse Effect on the Company.
8.3.7. Push-Down Accounting. There shall not have occurred after the
Original Agreement Date any material change in accounting rules (including
but not limited to GAAP), or in the applicable federal and state securities
Laws, or any action by the Company or its Subsidiaries, which results in or
triggers push-down accounting treatment for the Merger.
8.3.8. Dissenting Shares. The aggregate number of Dissenting Shares
shall not equal 15% or more of the shares of Common Stock outstanding as of
the record date for the Special Meeting.
8.3.9. Rollover Schedule. The Company shall have delivered, or shall
have caused to be delivered, the Rollover Schedule to Recap prior to the
Closing. The Rollover Schedule shall have identified the following forms of
consideration for shares of common stock of the Surviving Corporation: (i)
a number of shares of Common Stock held by Robert Antin or assigns on the
Original Agreement Date that have an aggregate value equal to $2,000,000
(each share to be valued at the Per Share Amount, subject to the adjustment
provided in Section 2.2.7), provided, however, that such number of shares
may have a value of less than $2,000,000, as adjusted, if the Company has
received the prior written consent of Vicar Recap (the aggregate value of
such number of shares, as adjusted or reduced, the "Robert Antin Rollover
Value"), and (ii) (a) a number of shares of Common Stock (the "Additional
Rollover Shares Number") held by certain Other Contributing Stockholders,
(b) certain outstanding Options (the "Contributed Options") held by certain
Other Contributing Stockholders, (c) certain cash payments (the "Rollover
Payments") that may be made by certain Other Contributing Stockholders, and
(d) certain loans ("Loans") that may be made by the Surviving Corporation
to certain Other Contributing Stockholders and any other consideration
("Other Consideration") that may be provided by certain Other Contributing
Stockholders (the value of any Other Consideration, together with the
principal amount of the Loans, the "Other Consideration Amount") (provided,
however, that Loans and Other Consideration may be set forth on the
Rollover Schedule only with the prior written consent of Vicar Recap), such
that the sum of (A) the Robert Antin Rollover Value, (B) the product of the
Additional Rollover Shares Number and the Per Share Amount (subject to the
adjustment provided in Section 2.2.7), (C) the Aggregate Spread Amount, (D)
any Rollover Payments and (E) the Other Consideration Amount shall be equal
to $4,000,000. The "Aggregate Spread Amount" shall be equal to the excess
of the aggregate cash amount that would be paid in the Merger with respect
to the shares of Common Stock subject to the Contributed Options, if the
Contributed Options were exercised, over the aggregate exercise price with
respect to the Contributed Options, as reduced by any required withholdings
of taxes. The "Other Contributing Stockholders" shall mean certain members
of management and employees of the Company (other than Robert Antin).
8.3.10. Management Services Agreement. The Company (and/or the
Subsidiaries) shall have executed and delivered the management services
agreement prior to the Closing.
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8.3.11. Stockholders Agreement. Each of the respective parties to the
Stockholders Agreement (other than Parent, Leonard Green & Partners, L.P.
or any of their Affiliates) shall have executed and delivered such
agreement prior to the Closing.
8.3.12. Employment Agreements. Each of Robert Antin and Arthur Antin
shall have executed and delivered an employment agreement substantially in
the forms attached hereto as EXHIBIT B and EXHIBIT C prior to the Closing.
8.3.13. Cancellation of Options. The Company shall have obtained the
rollover, the exercise or the cancellation of the Options and Rollover
Options as set forth in Section 2.6 and received any necessary agreements,
approvals or consents from the holders thereof.
8.3.14. Resignation of Directors. All of the directors of the Company,
other than those persons set forth on the Disclosure Schedule, shall have
resigned from the Company Board effective as of the Closing Date.
8.4. Asset Drop Down. The Company and Operating Company shall have
consummated the Asset Drop Down.
ARTICLE 9.
TERMINATION
9.1. Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Effective Time, whether
before or after stockholder approval of the Merger:
9.1.1. Mutual Consent. By mutual written consent of the parties hereto;
9.1.2. By Recap. By Recap, if (i) any of the conditions set forth in
Section 8.1 or 8.3 shall have become incapable of fulfillment (other than
as a result of a breach of this Agreement by Recap); or (ii) the Company
Board or any committee thereof fails to recommend or withdraws or modifies
or resolves to withdraw or modify its recommendation of the Merger, whether
or not in compliance with Section 7.5 hereof;
9.1.3. By The Company. By the Company, if (i) any of the conditions set
forth in Section 8.1 or 8.2 shall have become incapable of fulfillment
(other than as a result of a breach of this Agreement by the Company); (ii)
the Company Board has approved a Superior Proposal in accordance with the
terms of Section 7.5; or (iii) the Company Board withdraws its
recommendation of the transactions contemplated hereby in accordance with
the terms of Section 7.5;
9.1.4. Failure of Conditions. By Recap or the Company, if the
transactions contemplated hereby are not consummated on or before September
30, 2000, but only if the failure to consummate such transactions on or
before such date did not result from the breach of any representation,
warranty or agreement herein of the party seeking such termination;
9.1.5. Breach of Covenant. By Recap or the Company, if the other party
shall be in material breach of any of its covenants contained in this
Agreement and such breach either is incapable of cure or is not cured
within 20 Business Days after notice from the party wishing to terminate;
provided that the party seeking such termination shall not also then be in
material breach of this Agreement; provided, further, that any material
breach of the provisions of Section 7.5 hereof shall entitle Recap to an
immediate right to termination without any notice or cure requirement;
9.1.6. Breach of Representations and Warranties. By Recap or the
Company, if the other party shall be in breach of any of its
representations or warranties contained in this Agreement, which breach,
individually or together with all other breaches, is reasonably expected to
have a Material Adverse Effect on the Company or Recap, as applicable, and
such breach either is incapable of cure or is not cured within 20 Business
Days after notice from the party wishing to terminate; provided, that the
party seeking such termination shall not also then be in material breach of
this Agreement; or
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<PAGE>
9.1.7. By the Company or Recap: By either Recap or the Company, if a
Governmental Entity shall have issued a non-appealable final order, decree
or ruling or taken any other action having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger or the
Recapitalization (provided that (i) if the party seeking to terminate this
Agreement pursuant to this Section 9.1.7 is subject to such order, decree
or ruling, it shall have used all reasonable efforts to have such order,
decree or ruling removed and (ii) the right to terminate this Agreement
under this Section 9.1.7 shall not be available to any party who has not
complied with its obligations under Sections 7.8 and 7.16 and such
noncompliance materially contributed to the issuance of any such order,
decree or ruling or the taking of such action).
9.2. Manner and Effect of Termination. Termination shall be effected by the
giving of written notice to that effect by the party seeking termination. If
this Agreement is validly terminated and the transactions contemplated hereby
are not consummated, this Agreement shall become null and void and of no
further force and effect and no party shall be obligated to the others
hereunder; provided, however, that termination shall not affect (i) the rights
and remedies available to a party as a result of the breach by the other party
or parties hereunder (provided that the provisions of Section 9.3 shall
constitute the exclusive legal remedy of Recap with respect to a breach by the
Company described therein, and the payment by the Company of the Termination
Fee and any expenses shall constitute the exclusive legal remedy of Recap for
breaches of this Agreement in the event of the Company's acceptance of a
Superior Proposal or the withdrawal by the Company Board of its recommendation
of the transactions contemplated hereby, each as contemplated by Section 7.5),
(ii) the provisions of Sections 5.11, 6.5, 10.1, 10.2, 10.4 and 10.9 hereof, or
(iii) the obligations of the Company pursuant to Section 9.3 below.
9.3. Certain Payments Upon Termination.
9.3.1. In the event that: (A) the Company terminates this Agreement
under Section 9.1.3(ii) or Section 9.1.3(iii), or (B) Recap terminates this
Agreement under Section 9.1.2(ii), the Company shall pay to Recap a
termination fee in the amount of $10,000,000 (the "Termination Fee").
9.3.2. In the event that (A) a Termination Fee is not otherwise payable
to Recap pursuant to Section 9.3.1 and (B) (i) Recap terminates this
Agreement under Section 9.1.5 or 9.1.6, or (ii) this Agreement is
terminated due to a failure of the condition set forth in Section 8.1.4,
the Company shall pay to Recap all fees and expenses (including those of
counsel, accountants and other advisors and in connection with the
Financings) incurred by any of Recap and its Affiliates in connection with
the transactions contemplated by this Agreement ("Expenses"); provided,
however, such Expenses shall not exceed $1,000,000. All payments required
to be made hereunder shall be made by wire transfer of immediately
available funds within two (2) Business Days of the event giving rise to
the payment of such Expenses. The Company acknowledges that the agreements
contained in this Section 9.3 are an integral part of the transactions
contemplated by this Agreement and that, without said agreements, Recap
would not enter into this Agreement; accordingly, if the Company fails
promptly to pay the Termination Fee and Expenses due pursuant to this
Section 9.3, and, in order to obtain such payment, Recap commences a suit
which results in a judgment against the Company for the fees and expenses
set forth herein, the Company will pay to Recap its reasonable expenses
(including attorneys' fees and expenses) in connection with such suit,
together with interest on the amounts due hereunder at the legal rate
determined by the court rendering such judgment.
ARTICLE 10.
MISCELLANEOUS
10.1. Confidentiality. The Company agrees that from the Original Agreement
Date until the Closing Date or earlier termination of this Agreement it will
not, and will use reasonable best efforts to ensure that none of its directors,
officers, Representatives, agents or employees will, without the prior written
consent of Recap, submit or disclose to or file with any other Person, or use,
any confidential or non-public information relating to the Company or Recap,
except for such disclosure as may be required by Law, applicable accounting
regulations and as permitted pursuant to the provisions of Section 7.5 hereof.
Recap agrees that from the Original Agreement Date until the Closing Date or
earlier termination of this Agreement it will not, and will use reasonable best
A-34
<PAGE>
efforts to ensure that none of its directors, officers, Representatives, agents
or employees will, without the prior written consent of the Company, submit or
disclose to or file with any other Person, or use, any confidential or non-
public information relating to the Company, except for such disclosure as may
be required by Law or applicable accounting regulations. Without limiting the
generality of the foregoing, Recap and the Company agree and acknowledge that
they will continue to be bound by the Confidentiality Agreement dated
November 15, 1999 between the Company and Leonard Green & Partners, L.P.
10.2. Expenses. Except as otherwise specifically provided for herein
(including without limitation under Article 9 hereof), each of the Company, on
the one hand, and Recap, on the other, shall pay all of its costs and expenses
(including attorneys', accountants' and investment bankers' fees) incurred in
connection with this Agreement and the transactions contemplated hereby.
10.3. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given upon receipt if delivered personally or sent by facsimile
transmission (receipt of which is confirmed) or by courier service promising
overnight delivery (with delivery confirmed the next day) or three (3) Business
Days after sent by registered or certified mail (postage prepaid, return
receipt requested). Notices shall be addressed as follows:
To The Company:
Veterinary Centers of America, Inc.
12401 West Olympic Boulevard
Los Angeles, California 90064
Attention: Chief Executive Officer
Facsimile: (310) 584-6701
With a copy to:
Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East, Twenty-Fourth Floor
Los Angeles, California 90067
Attention: C.N. Franklin Reddick III, Esq.
Facsimile: (310) 728-2304
To Recap:
Vicar Recap, Inc.
11111 Santa Monica Blvd.
Los Angeles, California 90025
Attention: John Baumer
Facsimile: (310) 954-0404
With a copy to:
Irell & Manella LLP
333 S. Hope Street, Suite 3300
Los Angeles, California 90071
Attention: Anthony T. Iler, Esq.
Facsimile: (213) 229-0515
To the Special Committee:
c/o Veterinary Centers of America, Inc.
12401 West Olympic Boulevard
Los Angeles, California 90064
Attention: John Chickering
Facsimile: (310) 584-6701
A-35
<PAGE>
With a copy to:
Latham & Watkins LLP
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Paul Tosetti, Esq.
Facsimile: (213) 891-8763
Either party may from time to time change its address for the purpose of
notices by a similar notice specifying the new address but no such change shall
be effective as against any Person until such Person shall have actually
received it.
10.4. Entire Agreement. This Agreement contains the final and entire
agreement between the parties with respect to the transactions contemplated
hereby and supersedes all written or verbal representations, warranties,
commitments and other understandings prior to the date hereof, other than the
Confidentiality Agreement, dated November 15, 1999. No reference shall be made
to any draft of this Agreement for purposes of interpretation or resolution of
ambiguity or otherwise. All Schedules referred to herein, are hereby
incorporated in and made a part of this Agreement as if set forth in full
herein.
10.5. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
10.6. Severability. If any provision hereof shall be held to be
unenforceable or invalid by any court of competent jurisdiction or as a result
of future legislative action, such holding or action shall be strictly
construed and shall not alter the enforceability, validity or effect of any
other provision hereof.
10.7. Assignability. This Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the parties hereto and their respective
successors and permitted assigns; provided, however, that neither this
Agreement nor any right or obligation hereunder may be assigned by any party
without the prior written consent of the other parties to be given in the other
parties' sole discretion.
10.8. Captions. The descriptive headings herein are inserted for convenience
only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
10.9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
10.10. Specific Performance. The parties hereto agree that if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof (without requirement to post bond), in addition to any and all other
remedies at law or in equity.
10.11. Amendment and Waiver. This Agreement may be amended, modified or
supplemented at any time, whether before or after stockholder approval, only by
an instrument in writing signed by all parties hereto; provided, however, this
Agreement may not be amended, modified or supplemented following approval of
the Merger by the holders of the Company's outstanding capital stock entitled
to vote thereon without the further approval of such stockholders if such
amendment, modification or supplement would adversely affect such stockholders
and the further approval of the Special Committee if such amendment,
modification or supplement would adversely affect the Company. No waiver by any
party of any of the provisions hereof shall be effective unless set forth in
writing and executed by the party so waiving. Any waiver or failure to insist
upon strict compliance with any obligation, covenant, agreement, provision,
term or condition shall not operate as a waiver of, or estoppel with respect
to, any subsequent or other failure to comply.
A-36
<PAGE>
10.12. Actions by the Company. Any action requiring the approval of the
Company Board which is to be taken or which is made or required to be taken or
made by or for the benefit of the Company pursuant to, in connection with, or
in furtherance of this Agreement shall, prior to the Effective Time, be made
or taken, as applicable, upon the recommendation of and with the approval of
the Special Committee.
10.13. Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable best efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable, whether under applicable laws and
regulations or otherwise, to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement.
10.14. Publicity. Except as hereinafter provided, the Company and Recap
shall not, and each of them shall use reasonable best efforts to cause their
respective directors, officers, employees, Representatives and agents not to,
discuss publicly or make any public statement with respect to this Agreement
or the transactions contemplated hereby without the other party's approval.
Before making any such public announcements, the parties hereto shall use good
faith efforts to agree upon the text of a joint announcement to be made by the
parties hereto or use good faith efforts to obtain the other party's approval
of the text of any public announcement to be made solely on behalf of such
party. If the parties hereto are unable to agree on or approve such a public
statement or announcement and legal counsel for a party is of the opinion that
such statement or announcement is required by law or the rules of any stock
exchange on which the Company's securities are traded or the NASD, then such
party may make or issue the legally required statement or announcement.
10.15. Force Majeure. Anything to the contrary in this Agreement
notwithstanding, no party hereto shall be liable to the other parties hereto
for any loss, injury, delay, damages or other casualty suffered or incurred by
such other party hereto due to strikes, riots, storms, fires, explosions, acts
of God, war, governmental action, or any other cause similar thereto which is
beyond the reasonable control of such parties, and any failure or delay by any
party hereto in performance of any of its obligations under this Agreement due
to one or more of the foregoing causes shall not be considered as a breach of
this Agreement. In the event that performance of any of the material
obligations under this Agreement shall be suspended due to one or more of the
foregoing causes and such suspension shall have a material adverse impact on
consummation of the transactions as contemplated in this Agreement or on the
operations or financial condition or prospects of the Company, then the
aggrieved party which shall be materially and adversely affected thereby may
terminate this Agreement.
10.16. Attorneys' Fees. In any suit or proceeding arising out of this
Agreement or to interpret or enforce any provision of this Agreement, the
prevailing party shall be entitled to all reasonable out-of-pocket expenses
and reasonable attorneys' fees incurred by such party in connection with such
suit or proceeding.
10.17. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time.
10.18. Original Agreement Date; Construction. Certain covenants in this
Agreement refer to a party taking or omitting to take an action from and after
the Original Agreement Date. All such references, whether stated only in the
future tense, or in the past and future tense, shall be deemed to include both
the past (i.e. from and after the Original Agreement Date) and future tenses.
A-37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
VETERINARY CENTERS OF AMERICA, INC.,
a Delaware corporation
/s/ Robert Antin
By: _________________________________
Name: Robert Antin
Title: Chief Executive Officer
VICAR RECAP, INC.,
a Delaware corporation
/s/ John Danhakl
By: _________________________________
Name: John Danhakl
Title: President
VICAR OPERATING, INC.,
a Delaware corporation
/s/ Robert Antin
By: _________________________________
Name: Robert Antin
Title: Chief Executive Officer
A-38
<PAGE>
ANNEX A
Summary of Terms of Preferred Stock of the Surviving Corporation
Series A Preferred Stock
<TABLE>
<C> <S>
Security 14% Series A Senior Redeemable Exchangeable
Cumulative Preferred Stock ("Series A Preferred
Stock")
Issuer The Surviving Corporation (the "Issuer")
Dividends 14% per annum, payable quarterly in cash, subject to
the legal availability of funds, when and if declared
by the board of directors of the Issuer. Any
dividends that are not paid shall cumulate, and
dividends shall compound and accrue on such
cumulation (the "Dividend Cumulation").
Liquidation Preference $25.00 plus the Dividend Cumulation
Mandatory Redemption Mandatorily redeemable in whole after 12 years at the
Liquidation Preference.
Optional Redemption Subject to the legal availability of funds, the
Issuer shall have the option to redeem the Series A
Preferred Stock beginning on a specified anniversary
of issuance pursuant to a customary declining-
percentage-of-face matrix (subject to the reasonable
approval of the Board of Directors of Veterinary
Centers of America, Inc.), together with the Dividend
Cumulation.
Voting No voting rights, except (i) as required by state and
other applicable law and (ii) that holders of a
majority of the outstanding shares of Series A
Preferred Stock, voting as a separate class, will (a)
have the right to approve each issuance by the Issuer
of any securities that rank senior to the Series A
Preferred Stock as to dividends or upon a liquidation
and (b) have the right to approve any amendment to
the Issuer's certificate of incorporation that is
adverse to holders of the Series A Preferred Stock.
Change in Control Each holder will have the right to "put" the Series A
Preferred Stock to the Issuer at 101% of face upon a
change in control, together with the Dividend
Cumulation.
Ranking The Series A Preferred Stock will rank senior to all
classes of capital stock of the Issuer.
Exchange Feature The Series A Preferred Stock shall be exchangeable at
the option of the Issuer for debt securities (which
debt securities shall not be convertible into common
stock or securities convertible into common stock),
the terms of which are to be determined.
Not Convertible The Series A Preferred Stock shall not be convertible
into common stock or securities convertible into
common stock.
Series B Preferred Stock
Security 12% Series B Junior Redeemable Cumulative Preferred
Stock ("Series B Preferred Stock")
Issuer The Surviving Corporation (the "Issuer")
Dividends 12% per annum, payable quarterly in cash, subject to
the legal availability of funds, when and if declared
by the board of directors of the Issuer. Any
dividends that are not paid shall cumulate, and
dividends shall compound and accrue on such
cumulation (the "Dividend Cumulation").
Liquidation Preference $25.00 plus the Dividend Cumulation
</TABLE>
A-39
<PAGE>
<TABLE>
<C> <S>
Mandatorily redeemable in whole after 12 years at the
Mandatory Redemption Liquidation Preference.
Optional Redemption Subject to the legal availability of funds, the Issuer
shall have the option to redeem the Series B Preferred
Stock beginning on a specified anniversary of issuance
pursuant to a customary declining-percentage-of-face
matrix (subject to the reasonable approval of the Board
of Directors of Veterinary Centers of America, Inc.),
together with the Dividend Cumulation.
Voting No voting rights, except (i) as required by state and
other applicable law and (ii) that holders of a majority
of the outstanding shares of Series B Preferred Stock,
voting as a separate class, will (a) have the right to
approve each issuance by the Issuer of any securities
that rank senior to the Series B Preferred Stock as to
dividends or upon a liquidation or securities that rank
on a parity with the Series B Preferred Stock as to
dividends or upon a liquidation and (b) have the right to
approve any amendment to the Issuer's certificate of
incorporation that is adverse to holders of the Series B
Preferred Stock.
Change in Control Each holder will have the right to "put" the Series B
Preferred Stock to the Issuer at 101% of face upon a
change in control, together with the Dividend Cumulation.
Ranking The Series B Preferred Stock will rank senior to all
classes of capital stock of the Issuer other than the
Series A Preferred Stock and will rank junior to the
Series A Preferred Stock.
Not Convertible The Series B Preferred Stock shall not be convertible
into common stock or securities convertible into common
stock.
</TABLE>
A-40
<PAGE>
ANNEX B
March 30, 2000
The Special Committee of the Board of Directors
The Board of Directors
VETERINARY CENTERS OF AMERICA, INC.
12401 West Olympic Boulevard
Los Angeles, CA 90064-1022
To the Special Committee of the Board of Directors and the Board of Directors:
We understand that Veterinary Centers of America, Inc. a Delaware
corporation ("VCAI") and VICAR Recap, Inc., a Delaware corporation (the
"Purchaser") beneficially owned by funds managed by Leonard Green & Partners,
L.P. ("Green"), propose to enter into an Agreement and Plan of Merger dated as
of March 30, 2000 (the "Merger Agreement") whereby VCAI and the Purchaser will
merge (the "Transaction"). Pursuant to the Merger Agreement, each share of
VCAI common stock, par value $0.001 per share ("VCAI Common Stock"),
outstanding immediately prior to the effective time of the the Transaction
will receive $15.00 in cash (the "Acquisition Consideration"). You have
requested Jefferies & Company's ("Jefferies") opinion as investment bankers as
to whether the Acquisition Consideration is fair, from a financial point of
view, to the holders of VCAI Common Stock.
In our review and analysis and in rendering this opinion, we have with your
permission assumed and relied upon the accuracy and completeness of all
information provided to us by VCAI's management, as well as publicly available
information, and have not verified such information. We have not conducted a
physical inspection of any of the properties or facilities of VCAI, nor have
we made, been provided with or considered any independent evaluation or
appraisals of any of such properties or facilities. The Acquisition
Consideration was based on negotiations between VCAI and the Purchaser during
which Jefferies provided investment banking services to the Special Committee
of the Board of Directors of VCAI (the "Committee").
In conducting our analysis and rendering our opinion as expressed herein,
we have reviewed and considered such financial and other factors as we have
deemed appropriate under the circumstances including, among others, the
following (i) the Merger Agreement; (ii) the historical financial condition
and results of operations of VCAI, including the Annual Reports on Form 10-K
of VCAI for the years ended December 31, 1997, 1998, and 1999; (iii) certain
internal financial and non-financial information prepared by the management of
VCAI, which data was made available to us in our role as financial advisor to
the Committee; (iv) published information regarding the financial performance
and operating characteristics of a selected group of companies which we deemed
comparable; (v) business prospects of VCAI as projected by the management of
VCAI; (vi) the historical and current market prices for VCAI Common Stock and
for the equity securities of certain other companies with businesses that we
consider relevant to our inquiry; and (vii) publicly available information,
including research reports on companies we considered relevant to our inquiry.
We have met with certain officers and employees of VCAI to discuss the
foregoing as well as other matters we believed relevant to our opinion. We
have also taken into account general economic, monetary, political, market and
other conditions as well as our experience in connection with similar
transactions and securities valuation generally. Our opinion is based upon all
of such conditions as they exist currently and can be evaluated on the date
hereof. Existing conditions are subject to rapid and unpredictable changes and
such changes could impact our opinion. Our opinion does not constitute a
recommendation of the Transaction over any alternative transactions which may
be available to VCAI and does not address VCAI's underlying business decision
to effect the Transaction.
For purposes of rendering this opinion and based on your direction and with
your consent, Jefferies has assumed that, in all respects material to its
analysis, the representations and warranties of VCAI contained in the
<PAGE>
Merger Agreement are true and correct, VCAI and Green will each perform all of
the covenants and agreements to be performed by it under the Merger Agreement,
and all conditions to the obligations of VCAI to consummate the Transaction
will be satisfied without any waiver thereof.
Jefferies is a registered broker-dealer. Jefferies has acted as financial
advisor to the Committee in connection with the Transaction and will receive
(i) a cash fee upon rendering of the opinion and (ii) a cash fee at the
closing of the Transaction. Jefferies maintains a market in VCAI Common Stock
and regularly publishes research reports regarding securities of VCAI. In the
ordinary course of business, Jefferies and its affiliates may actively trade
or hold the securities of VCAI for their own account and the accounts of
customers and, accordingly, may at any time hold a long or short position in
securities of VCAI. Jefferies has, in the past, been engaged by Green for
investment banking services. Jefferies also has a $5 million investment in
funds managed by Green.
Based upon and subject to the foregoing, we are of the opinion as
investment bankers that the Acquisition Consideration to be received by the
holders of VCAI Common Stock pursuant to the Transaction is fair, from a
financial point of view, to such holders.
It is understood and agreed that this opinion is provided for the use and
benefit of the Committee as one element in its consideration of the
Transaction. Without limiting the foregoing, this opinion does not constitute
a recommendation to any shareholder of VCAI as to whether to tender such
holder's VCAI Common Stock or as to how such person should vote with respect
to the proposed Transaction.
Sincerely,
/s/ JEFFERIES & COMPANY, INC.
_____________________________________
Andrew Whittaker
Executive Vice President
B-2
<PAGE>
ANNEX C
March 30, 2000
The Special Committee
of the Board of Directors
The Board of Directors
Veterinary Centers of America, Inc.
12401 West Olympic Boulevard, Suite 1000
Santa Monica, CA 90405
Gentlemen:
We understand that Leonard Green & Partners, L.P. ("LGP") in partnership
with the management team of Veterinary Centers of America, Inc. (the
"Company") proposed a recapitalization of the Company to be carried out
pursuant to an Agreement and Plan of Merger (the" Agreement of Merger") dated
as of March 30, 2000 by and among the Company and VICAR Recap, Inc., VCA
Colorado-Anderson, Inc. and VICAR Operating, Inc. The recapitalization
described in the Agreement and Plan of Merger and related documents is
referred to herein as the "Transaction." In connection with the Transaction,
all of the Public Stockholders of the Company (as hereinafter defined) will
receive $15.00 in cash for each share of Company common stock.
Houlihan Lokey Howard & Zukin Capital ("Houlihan Lokey") has been retained
by the Special Committee of the Board of Directors of the Veterinary Centers
of America, Inc. (the "Committee") and the Company. However, Houlihan Lokey
will report only to the Committee and the final Opinion will be addressed to
the entire Board of Directors of the Company.
In connection with the proposed Transaction, the Committee has requested
that Houlihan Lokey render an opinion as to the fairness of the Transaction,
from a financial point of view, to the non-management stockholders of the
Company ("Public Stockholders") of the consideration to be received by the
Company or its public stockholders in connection with the Transaction.
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the
Company. Furthermore, at your request, we have not negotiated the Transaction
or advised you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders on Form 10-K for the
five fiscal years ended December 31, 1999 and Company-prepared interim
income statement for the one-month period ended January 31, 2000, which the
Company's management has identified as being the most current financial
statements available;
2. reviewed copies of the following agreements:
. draft of Agreement and Plan of Merger, dated March 30, 2000;
. draft of the commitment letter for the $70 million senior notes and
$50 million senior subordinated notes between GS Mezzanine Partners
II, L.P. and Green Equity Investors III, L.P., dated March 24, 2000;
. draft of the commitment letter for the senior secured bank financing
between Goldman Sachs Credit Partners L.P. and Green Equity
Investors III, L.P.
<PAGE>
3. met with certain members of the senior management of the Company to
discuss the operations, financial condition, future prospects and
projected operations and performance of the Company;
4. visited certain facilities and the corporate offices of the Company;
5. reviewed quarterly internal statements for the hospital and laboratory
divisions for four quarters of 1998 and four quarters of 1999;
6. reviewed summary of individual hospital performance including history of
acquisitions;
7. reviewed Company equity ownership schedules including options and
repurchase programs;
8. reviewed forecasts and projections prepared by the Company's management
with respect to the Company for the years ending December 31, 2000 through
2005;
9. reviewed the historical market prices and trading volume for the Company's
publicly traded securities;
10. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company, and publicly available
prices and premiums paid in other transactions that we considered similar
to the Transaction;
11. reviewed drafts of certain documents to be delivered at the closing of the
Transaction; and
12. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably
prepared and reflect the best currently available estimates of the future
financial results and condition of the Company, and that there has been no
material change in the assets, financial condition, business or prospects of
the Company since the date of the most recent financial statements made
available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any independent appraisal
or systematic physical inspection of any of the properties or assets of the
Company. Our opinion is necessarily based on business, economic, market and
other conditions as they exist and can be evaluated by us at the date of this
letter.
The Company, like other companies and any business entities analyzed by
Houlihan Lokey or which are otherwise involved in any manner in connection
with this Opinion, could be materially affected by complications that may
occur, or may be anticipated to occur, in computer-related applications as a
result of the year change from 1999 to 2000 (the "Y2K Issue"). In accordance
with long-standing practice and procedure, Houlihan Lokey's services are not
designed to detect the likelihood and extent of the effect of the Y2K Issue,
directly or indirectly, on the financial condition and/or operations of a
business. Further, Houlihan Lokey has no responsibility with regard to the
Company's efforts to make its systems, or any other systems (including its
vendors and service providers), Year 2000 compliant on a timely basis.
Accordingly, Houlihan Lokey shall not be responsible for any effect of the Y2K
Issue on the matters set forth in this Opinion.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the consideration to be received by the Public Stockholders of the Company in
connection with the Transaction is fair to them from a financial point of
view.
HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL
/s/ Houlihan Lokey Howard & Zukin Capital
C-2
<PAGE>
ANNEX D
VOTING AGREEMENT
VOTING AGREEMENT, dated as of March 30, 2000 (this "Agreement"), by and
between Vicar Recap, Inc., a Delaware corporation ("Recap"), and Robert L.
Antin, an individual (the "Stockholder").
WHEREAS, Recap, Veterinary Centers of America, Inc., a Delaware corporation
(the "Company"), and Vicar Operating, Inc., a Delaware corporation and a
wholly owned subsidiary of Company ("Operating Company"), are entering into
that certain Agreement and Plan of Merger, dated as of this date (as may be
modified or amended from time to time in a manner not adverse to the
Stockholder, the "Merger Agreement"), which provides, among other things, that
prior to the Merger Company shall contribute all of its assets, properties,
business operations, and liabilities to Operating Company (the "Asset Drop
Down"), followed by the merger of Recap with and into the Company with the
Company as the surviving corporation (the "Merger");
WHEREAS, in connection with the Merger Agreement, Recap has requested that
the Stockholder make certain agreements with respect to certain shares of
capital stock of the Company (the "Shares") beneficially owned by the
Stockholder, upon the terms and subject to the conditions of this Agreement;
WHEREAS, in connection with the Merger Agreement, Recap and certain
stockholders are entering into Exchange and Subscription Agreements (the
"Exchange Agreements"), which provide, among other things, for such
stockholders to exchange shares of capital stock of the Company for shares of
capital stock of Recap prior to the closing of the Merger; and
WHEREAS, the Stockholder is willing to make certain agreements with respect
to the Subject Shares (as defined below).
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements set forth in this Agreement, the parties agree as follows:
1. Voting Agreements. For so long as this Agreement is in effect, at any
meeting of the stockholders of the Company, and in any action by consent of
the stockholders of the Company, the Stockholder shall vote, or, if
applicable, give consents with respect to, all of the Subject Shares that are
held by the Stockholder on the record date applicable to the meeting or
consent (i) in favor of the Merger Agreement and the Merger and the Asset Drop
Down contemplated by the Merger Agreement; (ii) against any competing
Acquisition Proposal (as defined in the Merger Agreement) or other proposal
inconsistent with the Merger Agreement or which may delay or adversely affect
the likelihood of the completion of the Merger or the Asset Drop Down; (iii)
against any change in a majority of the persons who constitute the board of
directors of the Company inconsistent with the Merger Agreement, the Merger or
the Asset Drop Down; (iv) against any change in the capitalization of the
Company or any amendment of the Company's Certificate of Incorporation or
Bylaws inconsistent with the Merger Agreement, the Merger or the Asset Drop
Down; and (v) in favor of any other matter necessary for consummation of the
transactions contemplated by the Merger Agreement which is considered at any
such meeting or in any such consent. Such Stockholder shall not enter into any
agreement or understanding with any person the effect of which would be
inconsistent with or violate the provisions of agreements contained in this
Section 1. The Stockholder shall use his reasonable best efforts to cast the
Stockholder's vote or give the Stockholder's consent in accordance with the
procedures communicated to the Stockholder by the Company relating thereto so
that the vote or consent shall be duly counted for purposes of determining
that a quorum is present and for purposes of recording the results of that
vote or consent.
2. Subject Shares. The term "Subject Shares" shall mean the Shares set
forth on Schedule A hereto, together with any shares of capital stock of the
Company acquired by the Stockholder after the date hereof over which the
Stockholder has the power to vote or the power to direct the voting thereof.
<PAGE>
3. Stockholder Capacity. If the Stockholder is or becomes during the term
of this Agreement a director or officer of the Company or Operating Company,
the Stockholder shall not be deemed to have made any agreement or
understanding herein in his or her capacity as such director or officer, and
no action taken by the Stockholder in his capacity as an officer or director
of the Company or Operating Company shall be deemed a breach of this
Agreement. The Stockholder signs solely in Stockholder's capacity as the
beneficial owner of the Stockholder's Subject Shares and nothing herein shall
limit or affect any actions taken by the Stockholder in any capacity as an
officer or director of the Company or Operating Company to the extent
specifically permitted by the Merger Agreement. Nothing in this Agreement
shall be deemed to constitute a transfer of the beneficial ownership of the
Subject Shares by the Stockholder.
4. Covenants. For so long as this Agreement is in effect, except as
otherwise contemplated by the Merger Agreement or the Exchange Agreements, the
Stockholder agrees not to (i) sell, transfer, pledge, assign, hypothecate,
encumber, tender or otherwise dispose of, or enter into any contract with
respect to the sale, transfer, pledge, assignment, hypothecation, encumbrance,
tender or other disposition (each such disposition or contract, a "Transfer"),
of any Subject Shares or Shares the Stockholder then has or will have the
right to acquire pursuant to options, warrants, convertible securities or
other such rights to purchase Shares granted to the Stockholder by the
Company; (ii) grant any powers of attorney, consents, or proxies with respect
to any shares that then constitute Subject Shares, deposit any of the Subject
Shares into a voting trust, enter into a voting or option agreement with
respect to any of the Subject Shares inconsistent with the Merger Agreement or
this Agreement, or otherwise restrict or take any action adversely affecting
the ability of the Stockholder freely to exercise all voting rights with
respect to the Subject Shares; (iii) subject to Section 3, directly or
indirectly, solicit, initiate, encourage or otherwise facilitate any inquiries
or the making of any proposal or offer with respect to an Acquisition Proposal
(as defined in the Merger Agreement) or engage in any negotiation concerning,
or provide any confidential information or data to, or have any discussions
with any person relating to an Acquisition Proposal; and the Stockholder shall
notify Recap immediately if any such inquiries or proposals are received by,
any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with the Stockholder; or
(iv) permit, cause, or take any action, or fail to take any action, which
would make any representation, warranty, covenant, or other undertaking of the
Stockholder in this Agreement untrue or incorrect or prevent, burden or
materially delay the consummation of the transactions contemplated by this
Agreement; provided, however, that nothing in the foregoing provisions of this
Section 4 shall prohibit the Stockholder from effecting any transfer of
Subject Shares pursuant to any bona fide charitable gift or by will or
applicable laws of descent and distribution, or for estate planning purposes,
if the transferee agrees in writing to be bound by the provisions of this
Agreement. As used in this Agreement, "person" shall have the meaning
specified in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of
1934, as amended.
5. Waiver of Dissenters' Rights. The Stockholder hereby waives any rights
to dissent from the Merger or the Asset Drop Down.
6. Representations and Warranties of the Stockholder. The Stockholder
represents and warrants to Recap that:
(a) Capacity; No Violations. The Stockholder has the legal capacity to
enter into this Agreement and to consummate the transactions contemplated
by this Agreement. This Agreement has been duly executed and delivered by
the Stockholder and constitutes a valid and binding agreement of the
Stockholder enforceable against the Stockholder in accordance with its
terms except as such enforceability may be limited by applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and general principles of equity (whether considered in a
proceeding in equity or at law). The execution, delivery and performance by
the Stockholder of this Agreement will not (i) conflict with, require a
consent, waiver or approval under, or result in a breach or default under,
any of the terms of any contract, commitment or other obligation to which
the Stockholder is a party or by which the Stockholder is bound, (ii)
violate any order, writ, injunction, decree or statute, or any law, rule or
regulation applicable to the Stockholder or the Subject Shares; or (iii)
result in the creation of, or impose any obligation on the Stockholder to
create, any Lien upon the Subject Shares that would prevent the Stockholder
from voting the
D-2
<PAGE>
Subject Shares. In this Agreement, "Lien" shall mean any lien, pledge,
security interest, claim, third party right or other encumbrance.
(b) Subject Shares. The Stockholder has the power to vote or direct the
voting of the Subject Shares. The Subject Shares are the only shares of any
class of capital stock of the Company which the Stockholder has the right,
power or authority (sole or shared) to sell or vote, and, the Stockholder
does not have any right to acquire, nor is it the beneficial owner of, any
other shares of any class of capital stock of the Company or any securities
convertible into or exchangeable or exercisable for any shares of any class
of capital stock of the Company. The Stockholder is not a party to any
contracts (including proxies, voting trusts or voting agreements) that
would prevent the Stockholder from voting the Subject Shares or conflict
with the provisions of this Agreement.
(c) Title to Shares. Except as set forth on Schedule B, the Stockholder
is the sole record and beneficial owner of the Subject Shares, free and
clear of any pledge, Lien, security interest, mortgage, charge, claim,
equity, option, proxy, voting restriction, voting trust or agreement,
understanding, arrangement, right of first refusal, limitation on
disposition, adverse claim of ownership or use or encumbrance of any kind,
other than restrictions imposed by the securities laws or pursuant to this
Agreement or the Merger Agreement.
(d) No Finder's Fees. Except as disclosed in the Merger Agreement, no
broker, investment banker, financial advisor, or other person is entitled
to any broker's, finder's, financial advisor's, or other similar fee or
commission in connection with the transactions contemplated hereby based
upon arrangements made by or on behalf of the Stockholder the payment of
which could become the obligation of the Company, Operating Company or
Recap. The Stockholder, on behalf of itself and its affiliates, hereby
acknowledges that it is not entitled to receive any broker's, finder's,
financial advisor's, or other similar fee or commission in connection with
the transactions contemplated hereby or by the Merger Agreement.
7. Expenses. Recap shall pay its own expenses incurred in connection with
this Agreement.
8. Specific Performance. The Stockholder acknowledges and agrees that if
Stockholder fails to perform any of Stockholder's obligations under this
Agreement, immediate and irreparable harm or injury would be caused to Recap
for which money damages would not be an adequate remedy. Accordingly, the
Stockholder agrees that Recap shall have the right, in addition to any other
rights it may have, to specific performance of this Agreement. If Recap should
institute an action or proceeding seeking specific enforcement of the
provisions of this Agreement, the Stockholder hereby waives the claim or
defense that Recap has an adequate remedy at law and hereby agrees not to
assert in that action or proceeding the claim or defense that a remedy at law
exists. The Stockholder further agrees to waive any requirements for the
securing or posting of any bond in connection with obtaining any equitable
relief.
9. Notices. All notices and other communications given or made pursuant to
this Agreement shall be in writing and shall be deemed to have been duly given
or made as of the date of receipt and shall be delivered personally or mailed
by registered or certified mail (postage prepaid, return receipt requested),
sent by overnight courier or sent by telecopy, to the applicable party at the
following addresses or telecopy numbers (or at any other address or telecopy
number for a party as shall be specified by like notice):
If to Recap, to:
Vicar Recap, Inc.
c/o Leonard Green & Partners, L.P.
11111 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025
Attention: John Baumer
Telephone: (310) 954-0444
Facsimile: (310) 954-0404
D-3
<PAGE>
With a copy to:
Irell & Manella LLP
333 South Hope Street, Suite 3300
Los Angeles, California 90071-3042
Attention: Ed Kaufman, Esq.
Telephone: (213) 229-0500
Facsimile: (213) 229-0515
If to the Stockholder:
at the address and telephone number
set forth on the signature page
With a copy to:
Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East, 24th Floor
Los Angeles, California 90067
Attention: C.N. Franklin Reddick III, Esq.
Telephone: (310) 728-3204
Facsimile: (310) 728-2204
10. Parties in Interest. This Agreement shall inure to the benefit of and
be binding upon the parties and their respective successors and permitted
assigns; provided, however, that any successor in interest or assignee shall
agree to be bound by the provisions of this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any person other
than Recap, the Stockholder or their successors or assigns, any rights or
remedies under, or by reason, of this Agreement.
11. Entire Agreement; Amendments. Other than the Merger Agreement, the
Exchange Agreements and the transactions contemplated therein, this Agreement
contains the entire agreement between the Stockholder and Recap with respect
to the subject matter of this Agreement and supersedes all prior and
contemporaneous agreements and understandings, oral or written, with respect
to these transactions. This Agreement may not be changed, amended or modified
orally, but may be changed only by an agreement in writing signed by the party
against whom any waiver, change, amendment, modification or discharge may be
sought.
12. Assignment. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the
other party to this Agreement, except that (a) Recap may assign its rights and
obligations under this Agreement to Parent (as defined in the Merger
Agreement) or any of Parent's or Recap's direct or indirect wholly owned
subsidiaries or affiliates, and (b) the Stockholder may transfer the Subject
Shares to the extent permitted by Section 4 of this Agreement.
13. Headings. The section headings in this Agreement are for convenience
only and shall not affect the construction of this Agreement.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to any
choice or conflict of law provision or rule (whether of the State of Delaware
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
16. Termination. This Agreement shall terminate automatically and without
further action on behalf of any party at the earlier of (i) the Effective Time
(as defined in the Merger Agreement) and (ii) the date the Merger Agreement is
terminated pursuant to and in accordance with its terms.
[Signature page follows]
D-4
<PAGE>
IN WITNESS WHEREOF, Recap and the Stockholder have caused this Agreement to
be duly executed and delivered on the day and year first above written.
VICAR RECAP, INC.
a Delaware corporation
By /s/ John Danhakl
___________________________________
Name: John Danhakl
Title: President
STOCKHOLDER
/s/ Robert L. Antin
_____________________________________
Robert L. Antin
Address:
c/o Veterinary Centers of America,
Inc.
12401 West Olympic Boulevard
Los Angeles, California 90064
Telephone Number:
(310) 584-6500
Facsimile Number:
(310) 584-6701
D-5
<PAGE>
SCHEDULE A
SHARES OWNED
919,259 shares of Common Stock of the Company
D-6
<PAGE>
SCHEDULE B
TITLE TO SHARES
Exchange and Subscription Agreement, dated as of March 30, 2000, by and between
Stockholder and Recap.
D-7
<PAGE>
ANNEX E
Section 262 of the General Corporation Law of the State of Delaware
(S) 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S) 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
E-2
<PAGE>
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after the effective
date of the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholder's written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that such
stockholder is not entitled to appraisal rights under this section.
E-3
<PAGE>
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of such stockholder's demand for an appraisal and an acceptance of the merger
or consolidation, either within 60 days after the effective date of the merger
or consolidation as provided in subsection (e) of this section or thereafter
with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
E-4
<PAGE>
VETERINARY CENTERS OF AMERICA, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
The undersigned, a stockholder of VETERINARY CENTERS OF AMERICA, INC., a
Delaware corporation (the "Company"), hereby appoints ROBERT L. ANTIN and TOMAS
W. FULLER, and each of them, the proxies of the undersigned, each with full
power of substitution, to attend, vote and act for the undersigned at the
special meeting of stockholders of the Company, to be held on September 19,
2000, and any postponements or adjournments thereof (the "Meeting"), and in
connection herewith, to vote and represent all of the shares of the Company
which the undersigned would be entitled to vote, as follows:
The Board of Directors recommends a FOR vote on the following proposals:
PROPOSAL 1. To approve and adopt the Amended and Restated Merger Agreement:
[_] FOR [_] AGAINST [_] ABSTAIN
PROPOSAL 2. To approve and adopt the Asset Drop Down:
[_] FOR [_] AGAINST [_] ABSTAIN
The consummation of the Merger requires the approval and adoption of both the
Amended and Restated Merger Agreement and the Asset Drop Down. In addition, the
consummation of the Merger is a condition to the consummation of the Asset Drop
Down. Accordingly, the consummation of the Asset Drop Down and the transactions
contemplated by the Merger Agreement are dependent upon the approval and
adoption of each other.
The undersigned hereby revokes any other proxy to vote at such Meeting, and
hereby ratifies and confirms all that said attorneys and proxies, and each of
them, may lawfully do by virtue hereof. With respect to matters not known at
the time of the solicitation hereof, said proxies are authorized to vote in
accordance with their best judgment.
This Proxy will be voted in accordance with the instructions set forth above.
This Proxy will be treated as a GRANT OF AUTHORITY TO VOTE FOR the proposals to
approve and adopt the Amended and Restated Merger Agreement and the Asset Drop
Down, and as said proxy shall deem advisable on such other business as may come
before the Meeting, unless otherwise directed.
<PAGE>
The undersigned acknowledges receipt of a copy of the Notice of Special
Meeting and accompanying proxy statement dated August 14, 2000 relating to the
Meeting.
Date: ____________________ , 2000
__________________________________
Signature(s) of Stockholder(s)
(See Instructions Below)
The signature(s) hereon should
correspond exactly with the
name(s) of the stockholder(s)
appearing on the Stock
Certificate. If stock is jointly
held, all joint owners should
sign. When signing as attorney,
executor, administrator, trustee
or guardian, please give full
title as such. If signer is a
corporation, please sign the full
corporation name, and give title
of signing officer.
THIS PROXY IS SOLICITED BY
THE BOARD OF DIRECTORS OF VETERINARY CENTERS OF AMERICA, INC.
